U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended September 30, 2009
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to _______
COMMISSION FILE NO. 000-52139
MORGAN CREEK ENERGY CORP.
______________________________________________
(Name of small business issuer in its charter)
NEVADA 201777817
_________________________________ ___________________
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5050 QUORUM DRIVE, SUITE 700, DALLAS, TEXAS 75254
_________________________________________________
(Address of principal executive offices)
(214) 722-6490 (Issuer's telephone number)
Securities registered pursuant to Section Name of each exchange on which
12(b) of the Act: registered:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001
(Title of Class)
Indicate by checkmark whether the issuer: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 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[ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section
229.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files.
Yes [X ] No[ ]
Indicate by check mark whether the registrant is a large accelerated filed, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Applicable Only to Issuer Involved in Bankruptcy Proceedings During the
Preceding Five Years.
N/A
Indicate by checkmark whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act
of 1934 after the distribution of securities under a plan confirmed by a court.
Yes[ ] No[ ]
Applicable Only to Corporate Registrants
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the most practicable date:
Class Outstanding as of November 12, 2009
Common Stock, $0.001 34,032,392*
*Increased from 17,016,196 shares of common stock to 34,032,392 shares of common
stock as a result of the August 3, 2009 Forward Stock Split.
-2-
MORGAN CREEK ENERGY CORP.
Form 10-Q
Part 1. FINANCIAL INFORMATION 4
Item 1. FINANCIAL STATEMENTS 4
Balance Sheets 5
Statements of Operations 6
Statements of Cash Flows 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
Item 4. Controls and Procedures 28
Part II. OTHER INFORMATION 29
Item 1. Legal Proceedings 29
Item 1A. Risk Factors 30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 30
Item 3. Defaults Upon Senior Securities 30
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 5. Other Information 30
Item 6. Exhibits 33
-3-
PART I
ITEM 1. FINANCIAL STATEMENTS
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)
-4-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
BALANCE SHEETS
September 30, December 31,
2009 2008
________________________________________________________________________________
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 2,098 $ 14,883
Prepaid expenses and other 152,049 25,804
Deposit on properties (Note 3) 50,000 -
________________________________________________________________________________
TOTAL CURRENT ASSETS 204,147 40,687
OIL AND GAS PROPERTIES, unproven (Note 3) 2,221,090 1,802,943
________________________________________________________________________________
TOTAL ASSETS $ 2,425,237 $ 1,843,630
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 288,245 $ 303,959
Due to related parties (Note 6) 241,297 331,162
________________________________________________________________________________
TOTAL CURRENT LIABILITIES 529,542 635,121
________________________________________________________________________________
TOTAL LIABILITIES 529,542 635,121
________________________________________________________________________________
GOING CONCERN (Note 1)
STOCKHOLDERS' EQUITY (Note 4)
Common stock, 66,666,666 shares authorized
with $0.001 par value
Issued and outstanding
34,032,392 common shares (December 31,
2008 - 30,432,392) 34,032 30,432
Additional paid-in-capital 8,942,355 8,162,785
Private placement subscriptions 675,000 -
Deficit accumulated during exploration
stage (7,755,692) (6,984,708)
________________________________________________________________________________
TOTAL STOCKHOLDERS' EQUITY 1,895,695 1,208,509
________________________________________________________________________________
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 2,425,237 $ 1,843,630
================================================================================
The accompanying notes are an integral part of these financial statements.
-5-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
Inception
(October 19,
Three Months Ended Nine Months Ended 2004) to
September 30 September 30 September 30,
2009 2008 2009 2008 2009
_______________________________________________________________________________________________________________________________
GENERAL AND ADMINISTRATIVE EXPENSES
Investor relations $ 177,750 $ - $ 192,750 $ 33,644 $ 514,768
Consulting fees 4,612 35,219 4,612 213,001 861,572
Management fees - related party 25,000 70,500 135,600 222,000 1,023,683
Management fees - stock based compensation 336,670 - 336,670 436,955 2,300,795
Impairment of oil and gas properties - - - - 1,273,410
Office and general 27,569 76,837 93,901 208,026 615,877
Professional fees 29,728 67,229 88,312 187,478 724,064
_______________________________________________________________________________________________________________________________
NET OPERATING LOSS: (601,329) (249,785) (851,845) (1,301,104) (7,314,169)
_______________________________________________________________________________________________________________________________
OTHER INCOME/(EXPENSE)
Gain on expired option 100,000 - 100,000 - 100,000
Financing costs - - - (424,660) (424,660)
Interest expense (4,535) (3,591) (19,138) (22,359) (116,863)
_______________________________________________________________________________________________________________________________
TOTAL OTHER INCOME/(EXPENSE) 95,465 (3,591) 80,862 (447,019) (441,523)
_______________________________________________________________________________________________________________________________
NET LOSS $ (505,864) $ (253,376) $ (770,983) $(1,748,123) $ (7,755,692)
===============================================================================================================================
BASIC LOSS PER COMMON SHARE $ (0.02) $ (0.01) $ (0.03) $ (0.07)
==============================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
-BASIC 33,132,392 28,752,500 31,342,282 26,800,118
==============================================================================================================
The accompanying notes are an integral part of these financial statements.
-6-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Inception
Nine Months Ended (October 19,
September 30 2004) to
2009 2008 September 30, 2009
____________________________________________________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (770,983) $(1,748,123) $ (7,755,692)
Adjustments to reconcile net loss to net cash used in operating
activities:
- Stock based compensation 336,670 436,955 2,300,795
- Impairment of oil and gas properties - - 1,273,410
- Financing costs - 424,660 424,660
- Interest accrued 19,138 10,972 116,864
CHANGES IN OPERATING ASSETS AND LIABILITIES
- Prepaid expenses and other (126,245) (5,413) (177,049)
- Due to related parties 14,996 52,360 205,859
- Accounts payable and accrued liabilities (10,714) (243,075) 253,569
____________________________________________________________________________________________________________________________________
NET CASH USED IN OPERATING ACTIVITIES (537,138) (1,071,664) (3,357,584)
____________________________________________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Oil and gas property expenditures (418,147) (82,228) (3,179,413)
Deposit on property (50,000) - (50,000)
____________________________________________________________________________________________________________________________________
NET CASH FLOWS USED IN INVESTING ACTIVITIES (468,147) (82,228) (3,229,413)
____________________________________________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on subscriptions of common stock 916,500 897,088 3,938,595
Drilling Advances - - 759,000
Advances from related parties-net 76,000 295,000 1,891,500
____________________________________________________________________________________________________________________________________
NET CASH PROVIDED BY FINANCING ACTIVITIES 992,500 1,192,088 6,589,095
____________________________________________________________________________________________________________________________________
INCREASE IN CASH (12,785) 38,196 2,098
CASH, BEGINNING OF PERIOD 14,883 16,098 -
____________________________________________________________________________________________________________________________________
CASH, END OF PERIOD $ 2,098 $ 54,294 $ 2,098
====================================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION AND
NONCASH INVESTING AND FINANCING ACTIVITIES:
Cash paid for interest $ - $ - $ -
Cash paid for income taxes $ - $ - $ -
Common stock issued for acquisition of oil and gas property $ - $ - $ 950,000
Transfer of bond against settlement of debt $ - $ - $ 25,000
Non-cash sale of oil and gas property $ - $ - $ 65,000
Common stock issued for settlement of debts (Note 4) $ 205,000 $ 2,856,997 $ 3,061,992
The accompanying notes are an integral part of these financial statements.
-7-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)
________________________________________________________________________________
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
________________________________________________________________________________
Morgan Creek Energy Corp. (the "Company") is an exploration stage company that
was organized to enter into the oil and gas industry. The Company intends to
locate, explore, acquire and develop oil and gas properties in the United States
and within North America. The primary activity and focus of the Company is its
leases in New Mexico ("New Mexico Prospect"). The leases are unproven. To date
we have leased approximately 7,576 net acres within the State of New Mexico. The
company has also acquired approximately an additional 5,763 net acres in New
Mexico. (Refer to Note 3). The Company has entered into an Option Agreement to
participate in approximately 8,000 net acres in Oklahoma. (Refer to Note 3) In
addition, we acquired leases in Texas (the "Quachita Prospect"). To date the
Company has acquired approximately 1,971 net acres. During the production
testing and evaluation period on the first well on the property, the Boggs #1,
four of the five tested zones produced significant volumes of natural gas.
Analysis of the gas indicates a "sweet" condensate rich gas with BTU values of
1,000. This quality will yield a premium price over the current U.S. average
natural gas price. As formation water was also produced with the natural gas in
the tested zones, the Boggs #1 is currently under evaluation.
GOING CONCERN
The Company commenced operations on October 19, 2004 and has not realized any
revenues since inception. As of September 30, 2009, the Company has an
accumulated deficit of $7,755,692 and a working capital deficit of $325,395. The
ability of the Company to continue as a going concern is dependent on raising
capital to fund ongoing operations and carry out its business plan and
ultimately to attain profitable operations. Accordingly, these factors raise
substantial doubt as to the Company's ability to continue as a going concern.
The financials statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts of and
classification of liabilities that might be necessary in the event the company
cannot continue in existence. To date the Company has funded its initial
operations by way of private placements of common stock and advances from
related parties.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for financial information and with
the instructions to Form 10-Q of Regulation S-X. They do not include all
information and footnotes required by United States generally accepted
accounting principles for complete financial statements. However, except as
disclosed herein, there has been no material changes in the information
disclosed in the notes to the financial statements for the year ended December
31, 2008 included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The unaudited financial statements should be
read in conjunction with those financial statements included in the Form 10-K.
In the opinion of management, all adjustments considered necessary for a fair
presentation, consisting solely of normal recurring adjustments, have been made.
Operating results for the nine months ended September 30, 2009 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2009.
The Company has evaluated subsequent events through November 12, 2009, the date
which the financial statement were available to be issued. See note 7.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
________________________________________________________________________________
ORGANIZATION
The Company was incorporated on October 19, 2004 in the State of Nevada. The
Company's fiscal year end is December 31.
BASIS OF PRESENTATION
These financial statements are presented in United States dollars and have been
prepared in accordance with United States generally accepted accounting
principles.
OIL AND GAS PROPERTIES
The Company follows the full cost method of accounting for its oil and gas
operations whereby all costs related to the acquisition of methane, petroleum,
and natural gas interests are capitalized. Under this method, all productive and
non-productive costs incurred in connection with the exploration for and
development of oil and gas reserves are capitalized. Such costs include land and
-8-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)
________________________________________________________________________________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________
OIL AND GAS PROPERTIES (CONTINUED)
lease acquisition costs, annual carrying charges of non-producing properties,
geological and geophysical costs, costs of drilling and equipping productive and
non-productive wells, and direct exploration salaries and related benefits.
Proceeds from the disposal of oil and gas properties are recorded as a reduction
of the related capitalized costs without recognition of a gain or loss unless
the disposal would result in a change of 20 percent or more in the depletion
rate. The Company currently operates solely in the U.S.
Depreciation and depletion of proved oil and gas properties is computed on the
units-of-production method based upon estimates of proved reserves, as
determined by independent consultants, with oil and gas being converted to a
common unit of measure based on their relative energy content.
The costs of acquisition and exploration of unproved oil and gas properties,
including any related capitalized interest expense, are not subject to
depletion, but are assessed for impairment either individually or on an
aggregated basis. The costs of certain unevaluated leasehold acreage are also
not subject to depletion. Costs not subject to depletion are periodically
assessed for possible impairment or reductions in recoverable value. If a
reduction in recoverable value has occurred, costs subject to depletion are
increased or a charge is made against earnings for those operations where a
reserve base is not yet established.
Estimated future removal and site restoration costs are provided over the life
of proven reserves on a units-of-production basis. Costs, which include
production equipment removal and environmental remediation, are estimated each
period by management based on current regulations, actual expenses incurred, and
technology and industry standards. The charge is included in the provision for
depletion and depreciation and the actual restoration expenditures are charged
to the accumulated provision amounts as incurred.
The Company applies a ceiling test to capitalized costs which limits such costs
to the aggregate of the estimated present value, using a ten percent discount
rate of the estimated future net revenues from production of proven reserves at
year end at market prices less future production, administrative, financing,
site restoration, and income tax costs plus the lower of cost or estimated
market value of unproved properties. If capitalized costs are determined to
exceed estimated future net revenues, a write-down of carrying value is charged
to depletion in the period.
ASSET RETIREMENT OBLIGATIONS
The Company has adopted the provisions of SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires the fair value of a liability for
an asset retirement obligation to be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
related oil and gas properties.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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 period. Actual results
could differ from those estimates. Significant areas requiring management's
estimates and assumptions are the determination of the fair value of
transactions involving common stock and financial instruments. Other areas
requiring estimates include deferred tax balances and asset impairment tests.
CASH AND CASH EQUIVALENTS
For the statements of cash flows, all highly liquid investments with maturity of
three months or less are considered to be cash equivalents. There were no cash
equivalents as of September 30, 2009 and December 31, 2008 that exceeded
federally insured limits.
FINANCIAL INSTRUMENTS
The fair value of the Company's financial assets and financial liabilities
approximate their carrying values due to the immediate or short-term maturity of
these financial instruments.
-9-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)
________________________________________________________________________________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Dilutive earnings (loss) per share reflects
the potential dilution of securities that could share in the earnings of the
Company. Dilutive earnings (loss) per share is equal to that of basic earnings
(loss) per share as the effects of stock options and warrants have been excluded
as they are anti-dilutive.
INCOME TAXES
The Company follows the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
balances. Deferred tax assets and liabilities are measured using enacted or
substantially enacted tax rates expected to apply to the taxable income in the
years in which those differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the date of enactment or
substantive enactment. As at September 30, 2009, the Company had net operating
loss carryforwards, however, due to the uncertainty of realization, the Company
has provided a full valuation allowance for the deferred tax assets resulting
from these loss carryforwards.
STOCK-BASED COMPENSATION
On January 1, 2006, the Company adopted the fair value recognition provisions of
Financial Accounting Standards Board ("FASB") Statement No. 123(R), SHARE-BASED
PAYMENT, ("SFAS 123R"). The Company adopted SFAS 123R using the
modified-prospective-transition method. Under this method, compensation cost
recognized for the year ended December 31, 2006 includes: a) compensation cost
for all share-based payments granted prior to, but not yet vested as of December
31, 2005, based on the grant-date fair value estimated in accordance with the
original provisions of SFAS 123, and b) compensation cost for all share-based
payments granted subsequent to December 31, 2005, based on the grant-date fair
value estimated in accordance with the provisions of SFAS 123R. In addition,
deferred stock compensation related to non-vested options is required to be
eliminated against additional paid-in capital upon adoption of SFAS 123R. The
results for the prior periods were not restated.
The Company accounts for equity instruments issued in exchange for the receipt
of goods or services from other than employees in accordance with SFAS No. 123
and the conclusions reached by the Emerging Issues Task Force ("EITF") in Issue
No. 96-18. Costs are measured at the estimated fair market value of the
consideration received or the estimated fair value of the equity instruments
issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the
earliest of a performance commitment or completion of performance by the
provider of goods or services as defined by EITF 96-18.
RECENT ACCOUNTING PRONOUNCEMENT
In May 2009, the FASB issued SFAS No. 165, SUBSEQUENT EVENTS ("SFAS 165"). SFAS
165 provides authoritative accounting literature related to evaluating
subsequent events that was previously addressed only in the auditing literature,
and is largely similar to the current guidance in the auditing literature with
some exceptions that are not intended to result in significant changes in
practice. SFAS 165 defines subsequent events and also requires the disclosure of
the date through which an entity has evaluated subsequent events and the basis
for that date. SFAS 165 is effective on a prospective basis for interim or
annual financial periods ending after June 15, 2009. The adoption of this
standard during the period did not have any impact on the Company's financial
position, cash flows or results of operations.
In June 2009, the FASB issued Statement of Financial Accounting Standards No.
166, "Accounting for Transfers of Financial Assets, an amendment to SFAS No.
140," ("SFAS 166"). SFAS 166 eliminates the concept of a "qualifying
special-purpose entity," changes the requirements for derecognizing financial
assets, and requires additional disclosures in order to enhance information
reported to users of financial statements by providing greater transparency
about transfers of financial assets, including securitization transactions, and
an entity's continuing involvement in and exposure to the risks related to
transferred financial assets. SFAS 166 is effective for fiscal years beginning
after November 15, 2009. The Company will adopt SFAS 166 in fiscal 2010. The
Company does not expect that the adoption of SFAS 166 will have a material
impact on the financial statements.
-10-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)
________________________________________________________________________________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________
RECENT ACCOUNTING PRONOUNCEMENT (CONTINUED)
In June 2009, the FASB issued Statement of Financial Accounting Standards No.
167, "Amendments to FASB Interpretation No. 46(R)," ("SFAS 167"). The amendments
include: (1) the elimination of the exemption for qualifying special purpose
entities, (2) a new approach for determining who should consolidate a
variable-interest entity, and (3) changes to when it is necessary to reassess
who should consolidate a variable-interest entity. SFAS 167 is effective for the
first annual reporting period beginning after November 15, 2009 and for interim
periods within that first annual reporting period. The Company will adopt SFAS
167 in fiscal 2010. The Company does not expect that the adoption of SFAS 167
will have a material impact on the financial statements.
In June 2009, the FASB issued Statement of Financial Accounting Standards No.
168, "The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles," ("SFAS 168"). SFAS 168 replaces FASB Statement
No. 162, "The Hierarchy of Generally Accepted Accounting Principles", and
establishes the FASB Accounting Standards Codification ("Codification") as the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with generally accepted accounting principles ("GAAP"). SFAS 168
is effective for interim and annual periods ending after September 15, 2009. The
Company will begin to use the new Codification when referring to GAAP in its
annual report on Form 10-K for the fiscal year ending December 31, 2009. This
will not have an impact on the results of the Company.
NOTE 3 - OIL AND GAS PROPERTIES
________________________________________________________________________________
(A) QUACHITA PROSPECT
The Company has leased various properties totalling approximately 1,971 net
acres within the Quachita Trend within the state of Texas for a three year term,
all expiring during the year ended 2009, in consideration for $338,353. The
Company has a 100% Working Interest and a 77% N.R.I. in the leases.
BOGGS #1
On June 7, 2007, the Company began drilling its first well on the Quachita
Prospect (Boggs #1). During 2007 the Company began production testing and
evaluation of the well. Of the five tested zones, four produced significant
volumes of natural gas. As formation water was also produced with the natural
gas in the tested zones, the Boggs # 1 is currently under evaluation. To date,
$1,357,208 has been incurred on drilling and completion expenditures on the
Boggs #1. The Boggs #1 was initially privately funded with the funding investors
receiving a 75% Working Interest and a 54% Net Revenue Interest in exchange for
providing 100% of all drilling and completion costs. To December 31, 2007, the
Company had incurred $1,335,781 of costs on Boggs #1 and had received $759,000
in funding from the private investors. On March 24, 2008, the Company negotiated
with the funding investors to acquire their interest in the well for an amount
equal to the total amount of their initial investment being $759,000 and
forgiveness of any additional amounts owing. Effective March 24, 2008, the
Company completed this acquisition and settlement through the issuance of
1,265,000 shares of common stock at $0.63 per share (refer to Note 4).
(B) NEW MEXICO PROSPECT
The Company to date has leased various properties totalling approximately 7,576
net acres within the state of New Mexico for a five year term in consideration
for $112,883. The Company has a 100% Working Interest and an 84.5% N.R.I. in the
leases. On October 31, 2008, the Company entered into an agreement to acquire
from Westrock Land Corp. approximately 5,763 additional net acres of property
within the State of New Mexico for a five year term in consideration for
$388,150. The Company acquired a 100% working interest in approximately 5,763
net acres; and an 81.5% N.R.I. in the leases in approximately 5,763 net acres.
On July 9, 2009, the Company entered into a Letter Agreement with FormCap Corp.
("FormCap"), for joint drilling on the Company's New Mexico prospect whereby
FormCap is required to drill and complete two mutually defined targets on the
Company's leases in return for an earned 50% Working Interest in the entire New
Mexico Prospect. During the period FormCap advanced a non-refundable $100,000
deposit under the terms of the Option to secure the project in connection with
which the Company paid a finders' fee of $20,000. On September 24, 2009, the
Company announced that FormCap could not meet the requirements of the Option
Agreement and thus forfeited its rights to the project. The Company retained the
$100,000 non-refundable deposit and recorded it as a gain on expired option.
-11-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)
________________________________________________________________________________
NOTE 3 - OIL AND GAS PROPERTIES (CONTINUED)
________________________________________________________________________________
(C) OKLAHOMA PROSPECT
On May 28, 2009, the Company entered into a Letter Agreement with Bonanza
Resources Corporation ("Bonanza") for an option to earn a 60% interest of
Bonanza's 85% interest in the North Fork 3-D prospect in Beaver County,
Oklahoma. The parties intended to enter into a definitive agreement regarding
the option and purchase of the 60% interest within 60 days. A non-refundable
payment of $150,000 will be paid to Bonanza, whereby Bonanza will grant the
Company an exercise period of one year. As per a verbal agreement, the 60 day
period was extended to August 17, 2009 and subsequently extended to October 28,
2009. The Company paid $50,000 during August 2009 and subsequently on October
23, 2009 paid an additional $65,000. The balance of $35,000 is due by December
31, 2009.
In order to exercise the option, the Company will be required to incur
$2,400,000 in exploration and drilling expenditures during the Option Period
which will be one year. In the event that the Company does not do so the option
will terminate, the Company will cease to have any interest in the prospect and
Bonanza will retain the benefit of any drilling or exploration expenditures made
by the Company during the Option Period.
NOTE 4 - STOCKHOLDERS' EQUITY (DEFICIT)
________________________________________________________________________________
(A) SHARE CAPITAL
The Company's capitalization is 66,666,666 common shares with a par value of
$0.001 per share.
On April 22, 2008, the directors of the Company approved a special resolution to
undertake a reverse split of the common stock of the Company on a basis of 1 new
share for 3 old shares. On July 26, 2006, the directors of the Company approved
a special resolution to undertake a further forward split of the common stock of
the Company on a basis of 2 new shares for 1 old share. On May 10, 2006, the
directors of the Company approved a special resolution to undertake a forward
split of the common stock of the Company on a basis of 2 new shares for 1 old
share. On July 14, 2009, the directors of the Company approved a special
resolution to undertake a forward split of the common stock of the Company on a
basis of 2 new shares for 1 old share.
All references in these financial statements to number of common shares, price
per share and weighted average number of common shares outstanding prior to the
2:1 forward stock split on May 10, 2006, the 2:1 forward split on August 8,
2006, the 3:1 reverse stock split on April 22, 2008 and the 2:1 forward split on
August 3, 2009, have been adjusted to reflect these stock splits on a
retroactive basis, unless otherwise noted.
On December 19, 2006, a founding shareholder of the Company returned 8,000,000
restricted shares of common stock to treasury and the shares were subsequently
cancelled by the Company. The shares were returned to treasury for no
consideration to the shareholder.
(B) PRIVATE PLACEMENTS
On November 26, 2004, the Company issued 4,133,332 shares of common stock at
$0.0375 per share for proceeds of $155,000.
On December 15, 2004, the Company issued 5,033,334 shares of common stock at
$0.0375 per share for proceeds of $188,750 and 1,760,534 shares of common stock
at $0.1875 per share for proceeds of $330,100.
On March 9, 2005, the Company issued 186,666 shares of common stock at a price
of $0.1875 per share for proceeds of $35,000.
On October 16, 2006, the Company completed a private placement consisting of
629,404 units at $2.25 per unit for proceeds of $1,416,158. Each unit consists
of one common share and one non-transferable share purchase warrant exercisable
at $4.50 per share for the period commencing on October 16, 2006 and ending on
October 16, 2008, being the day which is the earlier of 24 months from the date
of issuance of the units or 18 months from the effective date of a planned
registration statement. Of this private placement, 375,556 of the units issued
were in exchange for $845,000 previously advanced to the Company by a
shareholder. The estimated fair value of the warrants at the date of grant of
$592,210, which has been included in additional paid in capital, was determined
using the Black-Scholes option pricing model with an expected life of 2 years,
risk free interest rate of 4.49%, a dividend yield of 0% and an expected
volatility of 153%.
-12-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)
________________________________________________________________________________
NOTE 4 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
________________________________________________________________________________
(B) PRIVATE PLACEMENTS (CONTINUED)
During 2008, the Company completed a private placement consisting of 2,448,000
units at $0.375 per unit for total gross proceeds of $918,000. Each unit
consists of one common share and one non-transferable share purchase warrant
exercisable at $0.75 per share for a period of 12 months from the date of share
issuance. A finders fee of 3.5% ($20,913) was paid on $597,500 of the private
placement proceeds received.
During the period ended September 30, 2009, the Company completed a private
placement consisting of 1,960,000 units at $0.125 per unit for total proceeds of
$245,000. Each unit consists of one common share and one non-transferable share
purchase warrant exercisable at $0.25 per share for a period of 12 months from
the date of issuance. A finder's fee of 7% ($3,500) was paid on $50,000 of the
private placement proceeds received.
(C) OTHER ISSUANCES
On February 13, 2008, the Company issued 5,050,712 shares of common stock at a
price of $0.375 per share on settlement of related party advances and accrued
interest totaling $1,515,214. The difference between the estimated fair value of
the common shares issued at issuance and the amount of debt settled totaling
$378,803 was recorded as a finance cost during the period (refer to Note 6).
On March 24, 2008, the Company issued 3,057,076 shares of common stock at a
price of $0.315 per share on settlement of related party advances and the
acquisition of the interest in the Boggs #1 well totalling $962,980. The
difference between the estimated fair value of the common shares at issuance and
the amount of debt settled totaling $45,857 was recorded as a finance cost
during the period (refer to Notes 3 and 6).
On July 20, 2009, the Company issued 1,640,000 units at $0.125 per unit on
settlement of related party advances of $200,000 and accounts payable of $5,000.
Each unit consists of one common share and one non-transferable share purchase
warrant exercisable at $0.25 per share for a period of 12 months from the date
of issuance.
During the period ended September 30, 2009, the Company received $675,000
towards a planned private placement of Units to be offered at $0.50 per unit
with each unit consisting of one common share and one-half warrant to acquire an
additional common share, exercisable at $1.00 for twelve months.
Subsequent to the period on October 23, 2009, the Company received $70,000
towards a planned private placement of Units to be offered at $0.50 per unit
with each unit consisting of one common share and one-half warrant to acquire an
additional common share, exercisable at $1.00 for twelve months.
(D) SHARE PURCHASE WARRANTS
Details of the Company's share purchase warrants issued and outstanding as of
September 30, 2009 are as follows:
Number of warrants
Exercise price to purchase shares Expiry Date
__________________________________________________________
$0.75 1,654,000 October 23, 2009
$0.25 3,600,000 July 20, 2010
-13-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)
________________________________________________________________________________
NOTE 4 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
________________________________________________________________________________
(D) SHARE PURCHASE WARRANTS (CONTINUED)
The Company's share purchase warrants activity for the period ended September
30, 2009 is summarized as follows:
Weighted average
Weighted remaining
Number of average exercise In contractual
Warrants Price per share life (in years)
________________________________________________________________________________
Balance, December 31, 2007 629,404 $ 4.50 0.80
Issued 2,448,000 0.75 -
Expired (629,404) 4.50 -
Exercised - - -
________________________________________________________________________________
Balance, December 31, 2008 2,448,000 0.75 0.71
Issued 3,600,000 0.25 -
Expired (794,000) 0.75 -
Exercised - - -
________________________________________________________________________________
Balance, September 30, 2009 5,254,000 $ 0.41 0.57
================================================================================
All warrants are exercisable as at September 30, 2009.
Subsequent to the period on October 23, 2009, 1,654,000 warrants expired
unexercised.
NOTE 5 - STOCK OPTION PLAN
________________________________________________________________________________
On April 3, 2006, the Board of Directors of the Company ratified, approved and
adopted a Stock Option Plan for the Company in the amount of 3,333,334 shares
with an exercisable period up to 10 years. In the event an optionee ceases to be
employed by or to provide services to the Company for reasons other than cause,
any Stock Option that is vested and held by such optionee may be exercisable
within up to ninety calendar days after the effective date that his position
ceases. No Stock Option granted under the Stock Option Plan is transferable. Any
Stock Option held by an optionee at the time of his death may be exercised by
his estate within one year of his death or such longer period as the Board of
Directors may determine. On April 28, 2008, the Board of Directors deemed it
necessary to approve an amendment to the Stock Option Plan to an aggregate of
5,000,000 shares.
As approved by the Board of Directors, on December 12, 2006, the Company granted
1,233,336 stock options to certain officers, directors and management of the
Company at $1.65 per share. The term of these options are five years. The total
fair value of these options at the date of grant was estimated to be $1,527,170
and was recorded as a stock based compensation expense during 2006. The fair
value of these options was estimated using the Black-Scholes option pricing
model with the following assumptions: expected life of 3 years; risk free
interest rate of 4.49%; dividend yield of 0% and expected volatility of 187%.
As approved by the Board of Directors on April 30, 2008, the Company granted
2,500,000 stock options to certain officers, directors and management of the
Company at $0.50 per share. The term of these options are ten years. The total
fair value of these options at the date of grant was estimated to be $436,955
and was recorded as a stock based compensation expense during the period. The
fair value of these options was estimated using the Black-Scholes option pricing
model with the following assumptions: expected life of 10 years; risk free
interest rate of 3.77%; dividend yield of 0% and expected volatility of 210%.
On July 14, 2009, the Company cancelled 3,566,670 stock options to certain
officers, directors and management of the Company and authorized the issuance of
3,000,000 new stock options to certain officers, directors and management of the
Company at $0.25 per share. The term of the new options is ten years.
-14-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)
________________________________________________________________________________
NOTE 5 - STOCK OPTION PLAN (CONTINUED)
________________________________________________________________________________
As approved by the Board of Directors on July 14, 2009, the Company granted
3,000,000 stock options to certain officers, directors and management of the
Company at $0.25 per share of which 1,300,000 options were cancelled and
re-issued to certain individuals and 1,700,000 were new options issued. The term
of these options are ten years. The total fair value of these options at the
date of grant was estimated to be $236,810 and was recorded as a stock based
compensation expense during the period. The fair value of these options was
estimated using the Black-Scholes option pricing model with the following
assumptions: expected life of 10 years; risk free interest rate of 3.50%;
dividend yield of 0% and expected volatility of 180%.
As approved by the Board of Directors on September 1, 2009, the Company granted
200,000 stock options to a director of the Company at $0.39 per share. The term
of these options are ten years. The total fair value of these options at the
date of grant was estimated to be $99,860 and was recorded as a stock based
compensation expense during the period. The fair value of these options was
estimated using the Black-Scholes option pricing model with the following
assumptions: expected life of 10 years; risk free interest rate of 3.38%;
dividend yield of 0% and expected volatility of 198%.
The Company's stock option activity for the period ended September 30, 2009 is
summarized as follows:
Weighted average
Weighted remaining
Number of average exercise In contractual
Options Price per share life (in years)
________________________________________________________________________________
Balance, December 31, 2007 1,233,336 $ 1.65 3.95
Granted 2,500,000 0.50 -
Expired - - -
Exercised - - -
________________________________________________________________________________
Balance, December 31, 2008 3,733,336 0.88 7.22
Granted 3,200,000 0.26 -
Expired - cancelled (3,566,670) 0.84 -
Exercised - - -
________________________________________________________________________________
Balance, September 30, 2009 3,366,666 $ 0.33 9.42
================================================================================
All options are exercisable as at September 30, 2009.
NOTE 6 - RELATED PARTY TRANSACTIONS
________________________________________________________________________________
As of December 31, 2007, $1,365,500 was owed to a shareholder for advances made
to the Company. During 2008, this shareholder made further advances to the
Company of $885,000 and $500,000 was repaid to the shareholder. On February 13,
2008, the Company issued 5,050,712 shares of common stock at a price of $0.375
per share on settlement of related party advance and related accrued interest
totaling $1,894,017 (Refer to Note 4). During the period, this shareholder made
further advances of $100,000 and was repaid $24,000. On July 20, 2009 the
Company issued 1,600,000 units at $0.125 per unit on settlement of shareholder
advances of $200,000. Each unit consists of one common share and one
non-transferable share purchase warrant exercisable at $0.25 per share for a
period of 12 months from the date of issuance. As a result, as of September 30,
2009, $186,000 (December 31, 2008 - $310,000) was owed which bears interest at
8% per annum and has no specific repayment terms. As of September 30, 2009,
total accrued interest was $38,302 (December 31, 2008 - $19,164).
MANAGEMENT FEES
During the nine month period ended September 30, 2009, the Company incurred
$135,600 (2008 -$222,000) for management fees to officers and directors. As of
September 30, 2009, total amount owing in accrued and unpaid management fees and
expenses was $16,995 (December 31, 2008 - $1,998).
-15-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)
________________________________________________________________________________
NOTE 7 - SUBSEQUENT EVENTS
________________________________________________________________________________
Subsequent to the period on October 23, 2009, the Company received $70,000
towards a planned private placement of Units to be offered at $0.50 per unit
with each unit consisting of one common share and one-half warrant to acquire an
additional common share, exercisable at $1.00 for twelve months.
Subsequent to the period on October 23, 2009, 1,654,000 warrants with an
exercise price of $0.75 expired unexercised.
NOTE 8 -CONTINGENCIES
________________________________________________________________________________
During August 2009, the Company was included in a third party lawsuit by a
former director/officer of the Company. The former Director has made certain
false allegations against the Company, as specifically described in the body of
the Company's September 30, 2009 filing on Form 10-Q. Although the Company
refutes these allegations and believes it should not be included in this action
and that the claims contained within the lawsuit are without merit, it is
possible that the Company may be exposed to a loss contingency. However, the
amount of such loss, if any, cannot be reasonably estimated at this time and
accordingly, no amount has been recorded to date.
-16-
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-Q that are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the
Securities Exchange Act of 1934. These statements often can be identified by the
use of terms such as "may," "will," "expect," "believe," "anticipate,"
"estimate," "approximate" or "continue," or the negative thereof. We intend that
such forward-looking statements be subject to the safe harbors for such
statements. We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent management's best judgment as to what may
occur in the future. However, forward-looking statements are subject to risks,
uncertainties and important factors beyond our control that could cause actual
results and events to differ materially from historical results of operations
and events and those presently anticipated or projected. We disclaim any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Morgan Creek Energy Corp. is a corporation organized under the laws of the State
of Nevada. After the effective date of our registration statement filed with the
Securities and Exchange Commission (February 14, 2006), we commenced trading on
the Over-the-Counter Bulletin Board under the symbol "MCRE:OB" (currently under
the symbol"MCKE:OB"). We are engaged in the business of exploration of oil and
gas bearing properties in the United States. Our shares are also traded on the
Frankfurt Stock Exchange in Germany under the symbol "M6C".
Please note that throughout this Quarterly Report, and unless otherwise noted,
the words "we," "our," "us," the "Company," or "Morgan Creek," refers to Morgan
Creek Energy Corp.
RECENT DEVELOPMENTS
AUGUST 3, 2009 FORWARD STOCK SPLIT
On July 14, 2009, our Board of Directors pursuant to a Board of Directors
meeting authorized and approved a forward stock split of two for one of our
total issued and outstanding shares of common stock (the "Forward Stock Split").
The Forward Stock Split was effectuated based on market conditions and upon a
determination by our Board of Directors that the Forward Stock Split was in our
best interests and of the shareholders. Certain factors were discussed among the
members of the Board of Directors concerning the need for the Forward Stock
Split, including the increased potential for financing. The intent of the
Forward Stock Split is to increase the marketability of our common stock.
-17-
The Forward Stock Split was effectuated on August 3, 2009 upon filing the
appropriate documentation with NASDAQ. The Forward Stock Split increased our
total issued and outstanding shares of common stock from 17,016,196 to
approximately 34,032,392 shares of common stock. The common stock will continue
to be $0.001 par value.
Amendment to Articles of Incorporation
Commensurate with the Forward Stock Split, the authorized share capital was
increased from 33,333,333 shares of common stock to 66,666,666 shares of common
stock with a par value of $0.001 per share. An amendment to our Articles of
Incorporation was filed with the Nevada Secretary of State on July 31, 2009
affecting the increase in our authorized capital.
CURRENT BUSINESS OPERATIONS
Morgan Creek Energy Corp. (the "Company") is an exploration stage company that
was organized to enter into the oil and gas industry. The Company intends to
locate, explore, acquire and develop oil and gas properties in the United States
and within North America. The primary activity and focus of the Company is its
leases in New Mexico ("New Mexico Prospect"). The leases are unproven. To date
we have leased approximately 7,576 net acres within the State of New Mexico. The
company has also acquired approximately an additional 5,763 net acres in New
Mexico. (Refer to Note 3). The Company has entered into an Option Agreement to
participate in approximately 8,000 net acres in Oklahoma. In addition, we
acquired leases in Texas (the "Quachita Prospect"). To date the Company has
acquired approximately 1,971 net acres. During the production testing and
evaluation period on the first well on the property, the Boggs #1, four of the
five tested zones produced significant volumes of natural gas. Analysis of the
gas indicates a "sweet" condensate rich gas with BTU values of 1,000. This
quality will yield a premium price over the current U.S. average natural gas
price. As formation water was also produced with the natural gas in the tested
zones, the Boggs #1 is currently under evaluation.
OIL AND GAS PROPERTIES
The acreage and location of our oil and gas properties is summarized as follows:
NET ACRES(*)
Texas 1,971
New Mexico 13,339
______
Total: 15,310
(*) Certain of our interests in our oil and gas properties may be less than
100%. Accordingly, we have presented the acreage of our oil and gas
properties on a net acre basis.
-18-
QUACHITA PROSPECT
As of the date of this Quarterly Report, we lease approximately 1,971 net acres
within the Quachita Trend in the State of Texas for a three-year term in
consideration of approximately $338,000. We have a 100% working interest and a
77% net revenue interest in the Quachita Prospect leases.
BOGGS #1 WELL. We completed the drilling portion of the Boggs #1 well on July
13, 2007. Subsequently, we began production testing and evaluation of the well.
Of the five tested zones, four produced significant volumes of natural gas. As
formation water was also produced with the natural gas in the tested zones, the
Boggs #1 is currently under evaluation. We intend to secure all immediate rights
relating to oil and gas in the areas providing control over any potential major
structural play that develops as a result of this in-depth exploration.
The Boggs #1 had been privately funded with the funding investors receiving a
75% working interest and a 54% net revenue interest in exchange for providing
100% of all drilling and completion costs. Therefore, we initially retained a
25% working interest and a 23% net revenue interest in the Boggs #1 well. As of
June 30, 2009, we incurred $1,357,208 in drilling and completion costs. As of
June 30, 2009, we had received a total of $759,000 in funding from private
investors. On March 24, 2008, we negotiated with the funding investors to
acquire their interest in the Boggs #1 for $759,000 (which amount is equal to
the total amount of the funding investors' initial investment) and forgiveness
of any additional amounts owing. Effective on March 24, 2008, we completed the
acquisition and settlement through the issuance of 2,530,000 shares of our
restricted common stock at $0.315 per share. The difference between the
estimated fair value of the common shares at issuance and the amount of the debt
settled totaling $37,950 was recorded as a finance cost.
NEW MEXICO PROSPECT
As of the date of this Quarterly Report, we have leased various properties in
the New Mexico Prospect totaling approximately 7,576 net acres within the State
of New Mexico for a five year term in consideration for $112,883. We have a 100%
working interest and an 84.5% net revenue interest in the leases comprising the
New Mexico Prospect.
WESTROCK LAND CORP. OPTION AGREEMENT.
Effective on October 31, 2008, our Board of Directors authorized the execution
of an option agreement (the "Option Agreement") with Westrock Land Corp, a
private Texas corporation ("Westrock"). In accordance with the terms and
provisions of the Option Agreement: (i) Westrock owns all right, title and
interest in and to approximately 7,763 net acres of property within the State of
New Mexico with a net revenue interest of 81.5% pertaining to 5,746 of the net
acres (the "New Mexico Leases"); (b) Westrock ; (iii) we desire to acquire a
100% working interest in the New Mexico Leases for a total purchase price of
approximately $388,150; and (iv) we have until April 16, 2009 to complete our
due diligence (the "Option Period").
The Option Agreement was subsequently extended on March 31, 2009 and June 1,
2009 whereby the option period has been extended to September 15, 2009. The
Company has exercised its option with Westrock and acquired the approximate
5,746 net acres in New Mexico.
-19-
BONANZA RESOURCES CORPORATION OPTION AGREEMENT.
Effective on June 2, 2009, our Board of Directors, pursuant to unanimous vote at
a special meeting of the Board, authorized the execution of a letter agreement
dated May 28, 2009 (the "Option Agreement") with Bonanza Resources (Texas) Inc.,
the wholly owned subsidiary of Bonanza Resources Corporation ("Bonanza
Resources"), to purchase a certain percentage of Bonanza Resources' eighty-five
percent (85%) leasehold interest in and to certain leases located in Beaver
County, State of Oklahoma (the "Bonanza Resources Interest"). In accordance with
the terms and provisions of the Option Agreement: (i) we have agreed to make a
non-refundable payment to Bonanza Resources of $150,000 within sixty (60) days
(which was subsequently extended) from the date of this Option Agreement; and
(ii) Bonanza Resources has agreed to grant to us an option having an exercise
period of one year (the "Option Period") to purchase a sixty percent (60%)
partial interest (the "Partial Interest") in the Bonanza Resources Interest. In
the event we do not pay the $150,000 to Bonanza Resources within sixty days from
the date of the Option Agreement, the Option Agreement will terminate.
The Bonanza Resources Interest is held by Bonanza Resources pursuant to that
certain letter agreement between Bonanza Resources, Ryan Petroleum LLC and
Radian Energy L.C. dated February 25, 2009 (the "Original Agreement").
Therefore, in the event we pay the $150,000 to Bonanza Resources within the
sixty day period from the date of the Option Agreement, and in accordance with
the further terms and provisions of the Option Agreement: (i) we shall assume
that amount of Bonanza Resources' right, title and interest and obligations
under the Original Agreement as is proportionate to the Partial Interest; and
(ii) we must incur $2,400,000 in exploration and drilling expenditures (the
"Exploration Expenditures") during the Option Period. In the event that we do
not exercise the Option Agreement, Bonanza shall retain the $150,000 as
liquidated damages for our failure to incur the Exploration Expenditures. To
date the Company has paid to Bonanza $115,000. The balance of $35,000 is due by
December 31, 2009.
In the event we incur the Exploration Expenditures and exercise the Option
Agreement, a definitive agreement shall be executed by both parties with respect
to the Partial Interest.
On October 5, 2009, we announced that management had decided to prioritize the
exploration drilling program on the North Fork 3D prospect in Beaver County. As
of the date of this Quarterly Report, we have completed a multi-component
interpretive 3-D survey on approximately 8,500 acres to image the Morrow A and B
sands. Management believes that this 3-D interpretive survey has identified
forty drill ready target locations.
FORMCAP CORPORATION OPTION AGREEMENT
Effective on July 14, 2009, our Board of Directors, pursuant to unanimous vote
at a special meeting of the Board, authorized the execution of a letter
agreement dated July 9, 2009 (the "Option Agreement") with Formcap Corporation
("Formcap"), to purchase a 50% working interest (40.75% net revenue interest) of
our 81.5% leasehold interest in and to certain leases located in Curry County,
State of New Mexico (the "Frio Draw Prospect Interest").
-20-
In accordance with the terms and provisions of the Option Agreement: (i) Formcap
has agreed to pay us a $100,000 initial payment (the "Initial Payment") within
five business days from the completion of its due diligence; (ii) the balance of
funds for the initial well will be advanced by FormCap to us within five
business days from receipt of a mutually agreed upon approval for expenditure,
which balance of such funds for the initial well are to be received by us no
later than September 8, 2009; and (iii) the Initial Payment will be applied
towards the total consideration to be paid by FormCap to us, which will include
the cost of drilling and completing two wells at a total estimated cost of
approximately $1,300,000.
In accordance with the further terms and provisions of the Option Agreement: (i)
FormCap will provide to us the dry hole and completion costs estimated at
$650,000 in advance of drilling the first well; (ii) upon drilling and
completion of the first well, we will assign to FormCap a 25% working interest
(20.375% net revenue interest) in the Frio Draw Prospect Interest; and (iii)
upon receipt by us of the funds from Formcap in advance of drilling the second
well, we will assign to FormCap the additional 25% working interest (20.375% net
revenue interest). Costs associated with the drilling of all subsequent wells
will be shares on an equal basis between us and FormCap.
We have granted to FormCap the time period between the date of execution of the
Option Agreement and August 15, 2009 to complete its due diligence (the "Option
Period").
During the period FormCap advanced a non-refundable $100,000 deposit under the
terms of the Option to secure the project in connection with which the Company
paid a finders' fee of $20,000. On September 24, 2009, the Company announced
that FormCap could not meet the requirements of the Option Agreement and thus
forfeited its rights to the project.
-21-
RESULTS OF OPERATION
FOR THE PERIOD FROM
NINE MONTH PERIOD INCEPTION
ENDED SEPTEMBER (OCTOBER 19, 2004) TO
30, 2009 AND 2008 SEPTEMBER 30, 2009
___________________________ ____________________
STATEMENT OF OPERATIONS
DATA
GENERAL AND
ADMINISTRATIVE
EXPENSES
Investor relations $192,750 $ 33,644 $ 514,768
expenses
Consulting expenses 4,612 213,001 861,572
Management fees - 135,600 222,000 1,023,683
related party
Management fees - 336,670 436,955 2,300,795
stock based
compensation
Impairment of oil and -0- -0- 1,273,410
gas properties
Office and general 93,901 208,026 615,877
Professional Fees 88,312 187,478 724,064
NET OPERATING LOSS ($851,845) ($1,301,104) ($7,314,169)
OTHER INCOME/(EXPENSE)
Gain on expired option 100,000 - 100,000
Financing Costs -0- (424,660) (424,660)
Interest expense (19,138) (22,359) (116,863)
___________________________________________________
NET LOSS ($770,983) ($1,748,123) ($7,755,692)
-22-
We have incurred recurring losses to date. Our financial statements have been
prepared assuming that we will continue as a going concern and, accordingly, do
not include adjustments relating to the recoverability and realization of assets
and classification of liabilities that might be necessary should we be unable to
continue in operation.
We expect we will require additional capital to meet our long term operating
requirements. We expect to raise additional capital through, among other things,
the sale of equity or debt securities.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2009 COMPARED TO NINE MONTH PERIOD ENDED
SEPTEMBER 30, 2008
Our net loss for the nine-month period ended September 30, 2009 was ($770,983)
compared to a net loss of ($1,748,123) during the nine-month period ended
September 30, 2008 (a decrease of $977,140). During the nine-month periods ended
September 30, 2009 and 2008, we did not generate any revenue.
During the nine-month period ended September 30, 2009, we incurred general and
administrative expenses of approximately $851,845 compared to $1,301,104
incurred during the nine-month period ended September 30, 2008 (a decrease of
$449,259). These general and administrative expenses incurred during the
nine-month period ended September 30, 2009 consisted of: (i) investor relations
of $192,750 (2008: $33,644); (ii) consulting fees of $4,612 (2008: $213,001);
(iii) office and general of $93,901 (2008: $208,026); (iv) professional fees of
$88,312 (2008: $187,478); (v) management fees - related party of $135,600 (2008:
$222,000); and (vi) management fees - stock based compensation of $336,670
(2008: $436,955).
During the nine-month periods ended September 30, 2009 and 2008, we did not
record any impairment of oil and gas properties. Thus, general and
administrative expenses incurred during the nine-month period ended September
30, 2009 compared to the nine-month period ended September 30, 2008 increased
primarily due to the granting of management fees - stock based compensation
relating to the valuation of stock options granted to our officers and
directors. General and administrative expenses were increased further due to the
increase in investor relations. Reductions in expenses were realized in
consulting fees, office and general expenses and professional fees relating to
the decrease scope of business operations during the period. General and
administrative expenses generally include corporate overhead, financial and
administrative contracted services, marketing, and consulting costs.
-23-
Of the $851,845 incurred as general and administrative expenses during the
nine-month period ended September 30, 2009, we incurred consulting fees of
$4,612 and management fees of $135,600 and Management fees - stock based
compensation of $336,670 payable to our officers, managers and directors.
A gain of $100,000 was reported during the nine-month period ended September 30,
2009 (2008: $0). Financing costs incurred during the nine-month period ended
September 30, 2009 were $-0- (2008: $424,660). Interest expense incurred during
the nine-month ended September 30, 2009 was $19,138 (2008: $22,359). Our net
loss during the nine-month period ended September 30, 2009 was ($770,983) or
($0.03) per share compared to a net loss of ($1,748,123) or ($0.07) per share
during the nine-month period ended September 30, 2008. The weighted average
number of shares outstanding was 31,342,282 for the nine-month period ended
September 30, 2009 compared to 26,800,118 for the nine-month period ended
September 30, 2008.
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2009 COMPARED TO THREE MONTH PERIOD ENDED
SEPTEMBER 30, 2008.
Our net loss for the three month period ended September 30, 2009 was ($505,864)
compared to a net loss of ($253,376) during the three month period ended
September 30, 2008 (an increase of $252,488). During the three month periods
ended September 30, 2009 and 2008, we did not generate any revenue.
During the three month period ended September 30, 2009, we incurred general and
administrative expenses of approximately $601,329 compared to $249,785 incurred
during the three month period ended September 30, 2008 (an increase of
$351,544). These general and administrative expenses incurred during the three
month period ended September 30, 2009 consisted of: (i) consulting fees of
$4,612 (2008: $35,219); (ii) office and general of $27,569 (2008: $76,837);
(iii) professional fees of $29,728 (2008: $67,229); (iv) management fees -
related party of $25,000 (2008: $70,500); and (v) investor relations of $177,750
(2008: $-0-) and (vi) management fee-stock based compensation of $336,670
(2008-$-0-)
During the three month periods ended September 30, 2009 and September 30, 2008,
we did not record any impairment of oil and gas properties. Thus, general and
administrative expenses incurred during the three month period ended September
30, 2009 compared to the three month period ended September 30, 2008 increased
primarily due to the increases in expenses associated with investor relations,
and Management fees - stock based compensation. General and administrative
expenses generally include corporate overhead, financial and administrative
contracted services, marketing, and consulting costs.
Of the $601,329 incurred as general and administrative expenses during the three
month period ended September 30, 2009, we incurred consulting expenses of $4,612
(2008- $35,219). We further incurred management fees of $25,000 and Management
fees - stock based compensation of $336,670 payable to our officers, managers
and directors. As of September 30, 2009, the total amount owing in management
fees was $16,995.
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Interest expense during the three month periods ended September 30, 2009 and
September 30, 2008 of $4,535 and $3,591, respectively, was recorded as other
expense. A gain of $100,000 was recorded during the three month period ended
September 30, 2009 (2008: $0). This resulted in a net loss of ($505,864) or
($0.02) per share for the three month period ended September 30, 2009 compared
to a net loss of ($253,376) or ($0.01) per share for the three month period
ended September 30, 2008. The weighted average number of shares outstanding was
33,132,392 for the three month period ended September 30, 2009 compared to
28,752,500 for the three month period ended September 30, 2008.
LIQUIDITY AND CAPITAL RESOURCES
AS AT SEPTEMBER 30, 2009
As at September 30, 2009, our current assets were $204,147 and our current
liabilities were $529,542, which resulted in a working capital deficiency of
($325,395). As at September 30, 2009, current assets were comprised of: (i)
$2,098 in cash; and (ii) $152,049 in other current assets and (iii) $50,000 in
deposit on properties. As at September 30, 2009, current liabilities were
comprised of: (i) $288,245 in accounts payable and accrued liabilities; and (ii)
$241,297 in amounts due to related parties.
As at September 30, 2009, our total assets were $2,425,237 comprised of: (i)
$204,147 in current assets; and (ii) $2,221,090 in unproven oil and gas
properties. The increase of total assets at September 30, 2009 from December 31,
2008 was primarily due to the increase in oil and gas properties.
As at September 30, 2009, our total liabilities were $529,542, comprised
entirely of current liabilities. The decrease in liabilities at September 30,
2009 from December 31, 2008 was primarily due to a decrease in accounts payable
and accrued liabilities and amounts due to related parties. See " - Material
Commitments".
Stockholders' equity increased from $1,208,509 as of December 31, 2008 to
stockholders' equity of $1,895,695 as of September 30, 2009.
CASH FLOWS FROM OPERATING ACTIVITIES
We have not generated positive cash flows from operating activities. For the
nine month period ended September 30, 2009, net cash flows used in operating
activities was ($537,138), consisting primarily of a net loss of ($770,983). Net
cash flows used in operating activities was changed by $336,670 in stock based
compensation, $34,134 relating to an accrual due to related parties, prepaid
expenses for $(126,245) and ($10,714) in accounts payable and accrued
liabilities.
CASH FLOWS FROM INVESTING ACTIVITIES
For the nine month period ended September 30, 2009, net cash flows used in
investing activities was ($468,147) for the acquisition and deposits of oil and
gas properties.
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CASH FLOWS FROM FINANCING ACTIVITIES
We have financed our operations primarily from either advancements or the
issuance of equity and debt instruments. For the nine month period ended
September 30, 2009, net cash flows provided from financing activities was
$992,500 compared to $1,192,088 for the nine month period ended September 30,
2008. Cash flows from financing activities for the nine month period ended
September 30, 2009 consisted of $916,500 in proceeds from subscriptions of
common stock and $76,000 in advances from related parties.
We expect that working capital requirements will continue to be funded through a
combination of our existing funds and further issuances of securities. Our
working capital requirements are expected to increase in line with the growth of
our business.
PLAN OF OPERATION AND FUNDING
Existing working capital, further advances and debt instruments, and anticipated
cash flow are expected to be adequate to fund our operations over the next six
months. We have no lines of credit or other bank financing arrangements.
Generally, we have financed operations to date through the proceeds of the
private placement of equity and debt instruments. In connection with our
business plan, management anticipates additional increases in operating expenses
and capital expenditures relating to: (i) oil and gas operating properties; (ii)
possible drilling initiatives on current properties and future properties; and
(iii) future property acquisitions. We intend to finance these expenses with
further issuances of securities, and debt issuances. Thereafter, we expect we
will need to raise additional capital and generate revenues to meet long-term
operating requirements. Additional issuances of equity or convertible debt
securities will result in dilution to our current shareholders. Further, such
securities might have rights, preferences or privileges senior to our common
stock. Additional financing may not be available upon acceptable terms, or at
all. If adequate funds are not available or are not available on acceptable
terms, we may not be able to take advantage of prospective new business
endeavors or opportunities, which could significantly and materially restrict
our business operations.
During fiscal year ended December 31, 2008, we completed a private placement
consisting of 2,448,000 units at the price of $0.375 per unit for total gross
proceeds of $918,000 excluding finders fees of ($20,913). During fiscal year
ended December 31, 2008, we closed a private placement offering under Regulation
S of the Securities Act pursuant to which we issued an aggregate of 5,050,712
shares and received gross proceeds of $1,515,214, of which all consisted of
settlement of debt relating to amounts previously advanced to us by one of our
shareholders and related accrued interest. Effective March 24, 2008, we also
closed a further private placement offering under Regulation S of the Securities
Act pursuant to which we issued an aggregate of 3,057,076 shares and received
gross proceeds of $962,980, of which all consisted of settlement of debt and
acquisition of the interest in the Boggs #1 well. Effective July 20, 2009, the
Company closed a further private placement under Regulation S of the Securities
Act pursuant to which we issued an aggregate of 3,600,000 units, each unit
consists of one common share and one non-transferable share purchase warrant
exercisable at $0.25 per share for a period of 12 months from the date of
issuance, and received gross proceeds of $450,000 of which $245,000 was in cash
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and $205,000 consisted of settlement of related party advances and accounts
payable. During the period ended September 30, 2009, the Company received
$675,000 towards a planned private placement of Units to be offered at $0.50 per
unit with each unit consisting of one common share and one-half warrant to
acquire an additional common share, exercisable at $1.00 for twelve months.
MATERIAL COMMITMENTS
As a result, as at September 30, 2009, an aggregate $186,000 was due and owing
to this shareholder, which bears interest at 8% per annum and has no specific
repayment terms. As at September 30, 2009, total accrued interest was $38,302.
Effective July 20, 2009, the Company issued 1,600,000 units at $0.125 per unit
on settlement of shareholders advances of $200,000. Each unit consists of one
common share and one non-transferable share purchase warrant exercisable at
$0.25 per share for a period of 12 months from the date of issuance.
PURCHASE OF SIGNIFICANT EQUIPMENT
We do not intend to purchase any significant equipment during the next twelve
months.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Quarterly Report, we do not have any off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
GOING CONCERN
The independent auditors' report accompanying our December 31, 2008 and December
31, 2007 financial statements contains an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. The
financial statements have been prepared "assuming that we will continue as a
going concern," which contemplates that we will realize our assets and satisfy
our liabilities and commitments in the ordinary course of business.
ITEM III. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk represents the risk of loss that may impact our financial position,
results of operations or cash flows due to adverse change in foreign currency
and interest rates.
EXCHANGE RATE
Our reporting currency is United States
Dollars ("USD"). In the event we acquire any properties outside of the United
States, the fluctuation of exchange rates may have positive or negative impacts
on our results of operations. However, since all of our properties are currently
located within the United States, any potential revenue and expenses will be
denominated in U.S. Dollars, and the net income effect of appreciation and
devaluation of the currency against the U.S. Dollar would be limited to our
costs of acquisition of property.
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INTEREST RATE
Interest rates in the United States are generally controlled. Any potential
future loans will relate mainly to acquisition of properties and will be mainly
short-term. However our debt may be likely to rise in connection with expansion
and if interest rates were to rise at the same time, this could become a
significant impact on our operating and financing activities. We have not
entered into derivative contracts either to hedge existing risks for speculative
purposes.
ITEM IV. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We have performed an evaluation under the supervision and with the participation
of our management, including our Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), of the effectiveness of our disclosure controls and
procedures, (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act). Based on that evaluation, our management, including our CEO and CFO,
concluded that our disclosure controls and procedures were effective as of
September 30, 2009 to provide reasonable assurance that information required to
be disclosed by us in the reports filed or submitted by us under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Under the supervision and with the participation of our
management, including our CEO and CFO, we evaluated the effectiveness of our
internal control over financial reporting as of September 30, 2009. In making
this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO") in Internal
Control-Integrated Framework.
This Quarterly Report does not include an attestation report of our registered
public accounting firm De Joya Griffith & Company, LLC regarding internal
control over financial reporting. Management's report was not subject to
attestation by our registered public accounting firm pursuant to temporary rules
of the SEC that permit us to provide only management's report in this Quarterly
Report on Form 10-Q.
INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
We believe that a controls system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the controls system are
met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been
detected. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives, and our CEO and our CFO have
concluded that these controls and procedures are effective at the "reasonable
assurance" level.
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CHANGES IN INTERNAL CONTROLS
Our management had remediated the material weaknesses that were reported from
our 10-K/A for the fiscal year end December 31, 2007 which were filed on October
2, 2008. (A) Management implemented an audit committee that oversees and
monitors our financials (See Paragraph on Audit committee report below). (B)
Adequate segregation of duties were put in place to reduce the likelihood that
errors (intentional or unintentional) will remain undetected by providing for
separate processing by different individuals at various stages of a transaction
and for independent reviews of the work performed. No further significant
changes were implemented in our internal controls over financial reporting
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
AUDIT COMMITTEE REPORT
The Board of Directors has established an audit committee. The members of the
audit committee are Mr. Marcus Johnson, Mr. Angelo Viard and Mr. D. Bruce
Horton. All of the members of the audit committee are "independent" within the
meaning of Rule 10A-3 under the Exchange Act. The current audit committee was
organized on December 18, 2008 and operates under a written charter adopted by
our Board of Directors.
The audit committee has received and reviewed the written disclosures and the
letter from De Joya Griffith & Company, LLC required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees, as
amended.
Based on the reviews and discussions referred to above, the audit committee has
recommended to the Board of Directors that the financial statements referred to
above be included in our Quarterly Report on Form 10-Q for the nine month period
ended September 30, 2009 filed with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During August 2009, we were included in a third party lawsuit filed by Abigail
Investments LLC against David Urquhart in the United States District Court for
the State of Nevada, Case No. 09-CV-1174. The lawsuit includes a counter-claim
by David Urquhart against us and others. Our management is of the position that
the former director has made certain false allegations against us including, but
not limited to, issuance of shares of our common stock and grant of stock
options.
Although we refute these allegations and believe that we should not be included
in this action and that the claims contained within the complaint are without
merit, it is possible that we may be exposed to a loss contingency. However, the
amount of such loss, if any, cannot be reasonably estimated at this time and
accordingly, no amount has been recorded to date.
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As of the date of this Quarterly Report, the former director has filed an answer
to the complaint with counter-claims.
ITEM 1A. RISK FACTORS
No report required.
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
JULY 2009 PRIVATE PLACEMENT OFFERING
Effective July 2009, we completed a private placement offering (the "2009
Private Placement") with certain non-United States residents (collectively, the
"Investors"). In accordance with the terms and provisions of the 2009 Private
Placement, we issued to the Investors an aggregate of 1,960,000 units at a per
unit price of $0.125 (the "Unit") in our capital for aggregate proceeds of
$245,000, of which as at the date of this Quarterly Report an aggregate of
$65,000 has been received. Each Unit was comprised of one share of restricted
common stock and one non-transferable warrant (the "Warrant"). Each Warrant is
exercisable at $0.25 per share for a period of one year from the date of
issuance (the "Exercise Period").
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No report required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No report required.
ITEM 5. OTHER INFORMATION
DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT
OF PRINCIPAL OFFICERS
Effective on September 1, 2009, our Board of Directors accepted the consent of
Peter R. Carpenter as a member of the Board of Directors. Therefore, our Board
of Directors is comprised of Peter Wilson, Marcus Johnson, D. Bruce Horton, Erik
Essiger, Angelo Viard and Peter Carpenter. Mr. Carpenter's biography is as
follows:
PETER CARPENTER, P. ENG., CFA. Mr. Carpenter has been involved in the oil and
gas industry for the past forty years. From 2004 to current date, Mr. Carpenter
is the president and chief executive officer of Claridge House Partners, Inc.,
which provides corporate restructuring and financial advisory services to the
Canadian oil and gas industry. From approximately 1998 through 2002, Mr.
Carpenter was the chief financial officer for Cybernetic Capital Management Inc;
from approximately 1996 through 1998, Mr. Carpenter was a consulting oil and gas
analyst for First Associates Securities; and from approximately 1885 through
1996, Mr. Carpenter was the vice president of investment bank with Moss, Lawson
& Co., Limited.
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Mr. Carpenter also was employed as the senior oil and gas analyst from
approximately 1981 through 1993 with Deutsche Morgan Grenfell Canada, where he
was responsible for the preparation of oil company equity analysis. He was
employed at Texaco Canada from 1976 through 1981 as a chief economist where he
supervised economic planning at Texaco and maintained liaison with the worldwide
economics group in Harrison, New York. From approximately 1971 through 1976, Mr.
Carpenter was the manager of special projects at PanCanadian Petroleum where his
responsibilities included overseeing the economic and business analysis of major
capital expenditure opportunities involving oil and gas production facilities,
chemical, heavy oil and coal projects. From approximately 1965 through 1971, Mr.
Carpenter was an engineer at Exxon where he was responsible for the refinery and
petrochemicals plant in Sarnia, Ontario, pipeline optimization studies with
Interprovincial Pipeline in Toronto, logistics analyst in Esso International's
supply and transportation group located in New York City, and logistics
coordinator in Esso International's light hydrocarbon sales group. From
approximately 1962 through 1963, Mr. Carpenter was employed as a process
engineer at DuPont's Maitland works near Brockville, Ontario.
Mr. Carpenter earned a B.SC in Chemical Engineering from the University of
Alberta, an MBA from the University of Western Ontario and a Doctoral Programme
in Economics from New York University. Mr. Carpenter also became a chartered
financial analyst with the Institute of Chartered Financial Analysis.
SEPTEMBER 2009 PRIVATE PLACEMENT OFFERING
During the period ended September 30, 2009, the Company received $675,000
towards a planned private placement of Units to be offered at $0.50 per unit
with each unit consisting of one common share and one-half warrant to acquire an
additional common share, exercisable at $1.00 for twelve months.
Subsequent to the period on October 23, 2009, the Company received $70,000
towards a planned private placement of Units to be offered at $0.50 per unit
with each unit consisting of one common share and one-half warrant to acquire an
additional common share, exercisable at $1.00 for twelve months.
The Units under the 2009 Private Placement were sold to non-United States
Investors in reliance on Regulation S promulgated under the United States
Securities Act of 1933, as amended (the "Securities Act"). The 2009 Private
Placement has not been registered under the Securities Act or under any state
securities laws and may not be offered or sold without registration with the
United States Securities and Exchange Commission or an applicable exemption from
the registration requirements. The per share price of the Units was arbitrarily
determined by our Board of Directors based upon analysis of certain factors
including, but not limited to, stage of development and exploration of
properties, industry status, investment climate, perceived investment risks, our
assets and net estimated worth. The Investors executed subscription agreements
and acknowledged that the securities to be issued have not been registered under
the Securities Act, that they understood the economic risk of an investment in
the securities, and that they had the opportunity to ask questions of and
receive answers from our management concerning any and all matters related to
acquisition of the securities.
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DEBT SETTLEMENT
Effective during July 2009, we issued 1,640,000 Units at a per share price of
$0.125 in accordance with the terms and provisions of a settlement agreement. We
settled an aggregate of $200,000 in related party advances and $5,000 in
accounts payable. Each Unit was comprised of one share of restricted common
stock and one non-transferable Warrant. Each Warrant is exercisable at $0.25 per
share for a period of one year from the date of issuance (the "Exercise
Period"). The shares of common stock were issued in reliance on Regulation S
promulgated under the Securities Act. The per share price of the Units was
arbitrarily determined by our Board of Directors based upon analysis of certain
factors including, but not limited to, stage of development and exploration of
properties, industry status, investment climate, perceived investment risks, our
assets and net estimated worth.
We had adopted a stock option plan (the "2006 Stock Option Plan"), pursuant to
which there was an aggregate of 5,000,000 shares available for issuance under
the 2008 Stock Option Plan, reduced to 3,333,334 shares in accordance with a
reverse stock split effective April 22, 2008, and subsequently increased to
5,000,000 shares by Board of Director approval and resolution on April 28, 2008.
Our Board of Directors had authorized the grant of an aggregate 3,733,336 stock
options under the 2006 Stock Option Plan, of which 1,066,670 stock options were
granted exercisable at $1.65 per share expiring on December 12, 2016, taking
into effect the reverse stock split (collectively, the "2006 Stock Options") and
2,500,000 stock options were granted exercisable at $0.50 per share expiring on
April 30, 2018 (collectively, the "2008 Stock Options").
On July 14, 2009, our Board of Directors approved the cancellation of certain of
the 2006 Stock Options and the 2008 Stock Options, which aggregated 3,566,670
options. Our Board of Directors further approved the re-issuance of 3,000,000
stock options of which 1,300,000 where the replacement of existing stock options
and 1,700,000 were new issuance (the "2009 Stock Options") to certain of our
officers, directors and consultants at an exercise price of $0.25 for a period
of ten years. Effective July 31, 2009, our Board of Directors authorized the
specific number of 2009 Stock Options to be granted to each of our officers,
directors and consultants.
On September 1, 2009, our Board of Directors approved the issuance of 200,000
stock options to a Director of the Company at an exercise price of $0.39 for a
period of ten years.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
10.1 Letter Agreement dated May 28, 2009 between Morgan Creek Energy
Corp. and Bonanza Resources (Texas) Inc. (1)
10.2 Letter Agreement dated July 9, 2009 between Morgan Creek Energy
Corp. and FormCap Corporation. (2)
31.1 Certification of Chief Executive Officer pursuant to Securities
Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).
31.2 Certification of Chief Financial Officer pursuant to Securities
Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).
32.1 Certifications pursuant to Securities Exchange Act of 1934 Rule
13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
(1) Incorporated by reference from Form 8-K filed with the Commission
on June 9, 2009 and August 28, 2009.
(2) Incorporated by reference from Form 8-K filed with the Commission
on July 16, 2009 and August 28, 2009.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MORGAN CREEK ENERGY CORP.
Dated: November 12, 2009 By: /s/ PETER WILSON
______________________________
Peter Wilson President and
Chief Executive Officer
Dated: November 12, 2009 By: /s/ WILLIAM D. THOMAS
______________________________
William D. Thomas,
Chief Financial Officer
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