U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2008
[ ] 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
5050 QUORUM DRIVE, SUITE 700, DALLAS, TEXAS 75254
_________________________________________________
(Address of principal executive offices)
(214) 321-0603
___________________________
(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)
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [ ] Check whether the issuer (i) 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 (ii) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State issuers revenues for its most recent fiscal year $ -0-. State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. March 25, 2009: $2,282,429
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS
N/A
Check 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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding as of March 25, 2009
Common Stock, $0.001 15,216,196
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated: (i) any annual report to security holders; (ii)
any proxy or information statement; and (iii) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 (the "Securities Act"). The
listed documents should be clearly described for identification purposes (e.g.
annual reports to security holders for fiscal year ended December 24, 1990).
N/A
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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MORGAN CREEK ENERGY CORP.
FORM 10-K
INDEX
Item 1. Business 4
Item 1A. Risk Factors 12
Item 1B. Unresolved Staff Comments 24
Item 2. Properties 24
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 24
Item 6. Selected Financial Data 30
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation 31
Item 8. Financial Statements and Supplemental Data 37
Item 9A. Controls and Procedures 52
Item 9B. Other Information 53
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 53
Item 10. Directors, Executive Officers and Corporate Governance 54
Item 11. Executive Compensation 61
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 66
Item 13. Certain Relationships and Related Transactions and Director
Independence 68
Item 14. Principal Accountant Fees and Services 69
Item 15. Exhibits and Financial Statement Schedules 70
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Statements made in this Form 10-K 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.
AVAILABLE INFORMATION
Morgan Creek Energy Corp. files annual, quarterly, current reports, proxy
statements, and other information with the Securities and Exchange Commission
(the "Commission"). You may read and copy documents referred to in this Annual
Report on Form 10-K that have been filed with the Commission at the Commission's
Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. You may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. You can also obtain copies of our Commission
filings by going to the Commission's website at http://www.sec.gov
PART I
ITEM 1. BUSINESS
BUSINESS DEVELOPMENT
Morgan Creek Energy Corp. was incorporated under the laws of the State of Nevada
on October 19, 2004 and has been engaged in the business of exploration of oil
and gas bearing properties in the United States since its inception. 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 "MCKE:OB". Our shares are also
traded on the Frankfurt Stock Exchange in Germany under the symbol "M6C".
Please note that throughout this Annual Report, and unless otherwise noted, the
words "we," "our," "us," the "Company," or "Morgan Creek," refers to Morgan
Creek Energy Corp.
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RECENT DEVELOPMENTS
APRIL 22, 2008 REVERSE STOCK SPLIT
On April 1, 2008, our Board of Directors pursuant to a Board of Directors
meeting authorized and approved a reverse stock split of one for three of our
total issued and outstanding shares of common stock (the "Reverse Stock Split").
The Reverse Stock Split was effectuated based on market conditions and upon a
determination by our Board of Directors that the Reverse 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 Reverse Stock
Split, including the increased potential for financing. The intent of the
Reverse Stock Split is to increase the marketability of our common stock.
The Reverse Stock Split was effectuated on April 22, 2008 upon filing the
appropriate documentation with NASDAQ. The Reverse Stock Split decreased our
total issued and outstanding shares of common stock from 41,976,591 to
approximately 13,992,197 shares of common stock. The common stock will continue
to be $0.001 par value.
TRANSFER AGENT
Our transfer agent is Transfer Online, Inc., 317 S.W. Alder Street, 2nd Floor
Portland, Oregon 97204.
CURRENT BUSINESS OPERATIONS
We are a natural resource exploration and production company currently engaged
in the exploration, acquisition and development of oil and gas properties in the
United States and within North America. Our primary activity and focus is our
leases in New Mexico (the "New Mexico Prospect"). The leases are unproven and
were acquired for approximately $338,000. We have leased various properties
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. In addition we have acquired
leases in Texas (the "Quachita Prospect"). To date, we have acquired
approximately 1,971 net acres within the Quachita Prospect for a three-year
term. We acquired a 100% working interest and a 77% net revenue interest in
natural gas targeted Quachita Prospect leases. The leases are unproven and were
acquired for approximately $338,000.
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 7,576
_____
Total: 9,547
(*) 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.
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QUACHITA PROSPECT
As of the date of this Annual 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
December 31, 2008, we incurred $1,357,208 in drilling and completion costs. As
of December 31, 2008, 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 1,265,000 shares
(Post-Reverse Stock Split) of our restricted common stock at $0.63 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. See "Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
NEW MEXICO PROSPECT
As of the date of this Annual 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 87.5% 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 and a 78.5% net revenue interest
pertaining to 2,017 net acres (the "New Mexico Leases"); (b) Westrock has an
option until June 23, 2009 to exercise a five year lease at $100 per net acre
for acquisition of the 2,017 net acres; (iii) we desire to acquire a 100%
working interest in the New Mexico Leases at $50.00 per net acre 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").
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It is anticipated that in the event the due diligence is completed satisfactory
to us, the effective date of conveyance of the working interest in the New
Mexico Leases to us will occur on approximately April 16, 2009.
PROPOSED FUTURE BUSINESS OPERATIONS
Our strategy is to complete the further acquisition of additional oil and gas
opportunities that fall within the criteria of providing a geological basis for
development of drilling initiatives that can provide near term revenue potential
and fast drilling capital repatriation from production cash flows to create
expanding reserves. We anticipate that our ongoing efforts, subject to adequate
funding being available, will continue to be focused on successfully concluding
negotiations for additional tracts of prime acreage in the coal bed methane and
other gas producing domains, and to implement the drilling of new wells to
develop reserves and to provide revenues. We plan to build a strategic base of
proven reserves and production.
Our ability to continue to complete planned exploration activities and expand
land acquisitions and explore drilling opportunities is dependent on adequate
capital resources being available and further sources of debt and equity being
obtained. The two following alternatives provide the basis for business
development options:
DEVELOPMENT OF CURRENT LEASES
The requirement to raise further funding for oil and gas exploration beyond that
obtained for the next six month period continues to depend on the outcome of
geological and engineering testing occurring over this interval. Based upon the
completion of current property evaluations on the Quachita Prospect, and if
results provide the basis to continue development and geological studies
indicate high probabilities of sufficient production quantities, we will attempt
to raise capital to further our drilling program to establish up to six wells on
leases in hand, build production infrastructure and pipeline, and raise
additional capital for drilling on the New Mexico Prospect and further land
acquisitions. This has included the following activity:
o Site preparation for entry into current wellbores including roadway
upgrade and operations site, design, review, and finalize testing
procedures, book zone fracture and testing consultants, arrange
equipment required.
o Pull old well tubing, run test tools in wellbore, cut well casing,
test target gas zones with acid and water.
o If gas content conducive to production, complete well by inserting
downhole pump and rods, set pumping unit, wellhead, and gas line.
o Complete pipeline.
o Create well development model and investment documents to develop
wells on subject leases including funding plan.
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o Create investor communications materials, corporate identity.
o Raise funding for well development.
o Drill, complete, and produce from well drilling program and selective
re-entry programs.
o Target further leases for exploration potential and obtain further
funding to acquire new development targets.
NEW LEASE ACQUISITION AND DEVELOPMENT
If gas quality and quantities are not deemed sufficient from work to be
conducted on our current leases during the first six months of operation,
additional land acquisitions will be assessed and obtained subject to adequate
capital resources being available and further sources of debt and equity being
obtained. The following outlines anticipated activities pursuant to this
business option.
o Site preparation for entry into current wellbores including roadway
upgrade and operations site, design, review, and finalize testing
procedures, book zone fracture and testing consultants, arrange
equipment required.
o Pull old well tubing, run test tools in wellbore, cut well casing,
test target gas zones with acid and water,
o If gas content not deemed conducive to production, target further
leases for exploration potential and obtain further funding to acquire
new development targets.
We will require additional funding to implement our proposed future business
activities. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation."
We do not expect to purchase any significant equipment or increase significantly
the number of our employees during the next twelve months. Our current business
strategy is to obtain resources under contract where possible because management
believes that this strategy, at its current level of development, provides the
best services available in the circumstances, leads to lower overall costs, and
provides the best flexibility for our business operations.
COMPETITION
We operate in a highly competitive industry, competing with major oil and gas
companies, independent producers and institutional and individual investors,
which are actively seeking oil and gas properties throughout the world together
with the equipment, labor and materials required to operate properties. Most of
our competitors have financial resources, staffs and facilities substantially
greater than ours. The principal area of competition is encountered in the
financial ability to acquire good acreage positions and drill wells to explore
for oil and gas, then, if warranted, drill production wells and install
production equipment. Competition for the acquisition of oil and gas wells is
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intense with many oil and gas properties and/or leases or concessions available
in a competitive bidding process in which we may lack technological information
or expertise available to other bidders. Therefore, we may not be successful in
acquiring and developing profitable properties in the face of this competition.
No assurance can be given that a sufficient number of suitable oil and gas wells
will be available for acquisition and development.
GOVERNMENT REGULATION
The production and sale of oil and gas are subject to various federal, state and
local governmental regulations, which may be changed from time to time in
response to economic or political conditions and can have a significant impact
upon overall operations. Matters subject to regulation include discharge permits
for drilling operations, drilling bonds, reports concerning operations, the
spacing of wells, unitization and pooling of properties, taxation, abandonment
and restoration and environmental protection. These laws and regulations are
under constant review for amendment or expansion. From time to time, regulatory
agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and gas wells below actual production
capacity in order to conserve supplies of oil and gas. Changes in these
regulations could require us to expend significant resources to comply with new
laws or regulations or changes to current requirements and could have a material
adverse effect on our business operations.
REGULATION OF OIL AND NATURAL GAS PRODUCTION
Our oil and natural gas exploration, production and related operations are
subject to extensive rules and regulations promulgated by federal, state and
local authorities and agencies. Failure to comply with such rules and
regulations can result in substantial penalties. The regulatory burden on the
oil and natural gas industry increases our cost of doing business and affects
our profitability. Although we believe we are in substantial compliance with all
applicable laws and regulations, because such rules and regulations are
frequently amended or reinterpreted, we are unable to predict the future cost or
impact of complying with such laws.
Many states require permits for drilling operations, drilling bonds and reports
concerning operations and impose other requirements relating to the exploration
and production of oil and natural gas. Such states also have statutes or
regulations addressing conservation matters, including provisions for the
unitization or pooling of oil and natural gas properties, the establishment of
maximum rates of production from wells, and the regulation of spacing, plugging
and abandonment of such wells.
FEDERAL REGULATION OF NATURAL GAS
The Federal Energy Regulatory Commission ("FERC") regulates interstate natural
gas transportation rates and service conditions, which affect the marketing of
natural gas produced by us, as well as the revenues received by us for sales of
such production. Since the mid-1980's, FERC has issued a series of orders that
have significantly altered the marketing and transportation of natural gas.
These orders mandate a fundamental restructuring of interstate pipeline sales
and transportation service, including the unbundling by interstate pipelines of
the sale, transportation, storage and other components of the city-gate sales
services such pipelines previously performed. One of FERC's purposes in issuing
the orders was to increase competition within all phases of the natural gas
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industry. Certain aspects of these orders may be modified as a result of various
appeals and related proceedings and it is difficult to predict the ultimate
impact of the orders on us and others. Generally, the orders eliminate or
substantially reduce the interstate pipelines' traditional role as wholesalers
of natural gas in favor of providing only storage and transportation service,
and have substantially increased competition and volatility in natural gas
markets.
The price, which we may receive for the sale of oil and natural gas liquids,
would be affected by the cost of transporting products to markets. FERC has
implemented regulations establishing an indexing system for transportation rates
for oil pipelines, which, generally, would index such rates to inflation,
subject to certain conditions and limitations. We are not able to predict with
certainty the effect, if any, of these regulations on any future operations.
However, the regulations may increase transportation costs or reduce wellhead
prices for oil and natural gas liquids.
ENVIRONMENTAL MATTERS
Our operations and properties will be subject to extensive and changing federal,
state and local laws and regulations relating to environmental protection,
including the generation, storage, handling, emission, transportation and
discharge of materials into the environment, and relating to safety and health.
The recent trend in environmental legislation and regulation generally is toward
stricter standards, and this trend will likely continue. These laws and
regulations may (i) require the acquisition of a permit or other authorization
before construction or drilling commences and for certain other activities; (ii)
limit or prohibit construction, drilling and other activities on certain lands
lying within wilderness and other protected areas; and (iii) impose substantial
liabilities for pollution resulting from our operations. The permits required
for several of our operations are subject to revocation, modification and
renewal by issuing authorities. Governmental authorities have the power to
enforce their regulations, and violations are subject to fines or injunctions,
or both. In the opinion of management, we are in substantial compliance with
current applicable environmental law and regulations, and we have no material
commitments for capital expenditures to comply with existing environmental
requirements. Nevertheless, changes in existing environmental laws and
regulations or in interpretations thereof could have a significant impact on our
business operations, as well as the oil and natural gas industry in general.
The Comprehensive Environmental, Response, Compensation, and Liability Act
("CERCL ") and comparable state statutes impose strict, joint and several
liabilities on owners and operators of sites and on persons who disposed of or
arranged for the disposal of "hazardous substances" found at such sites. It is
not uncommon for the neighboring landowners and other third parties to file
claims for personal injury and property damage allegedly caused by the hazardous
substances released into the environment. The Federal Resource Conservation and
Recovery Act ("RCRA") and comparable state statutes govern the disposal of
"solid waste" and "hazardous waste" and authorize the imposition of substantial
fines and penalties for noncompliance. Although CERCLA currently excludes
petroleum from its definition of "hazardous substance," state laws affecting our
operations impose clean-up liability relating to petroleum and petroleum related
products. In addition, although RCRA classifies certain oil field wastes as
"non-hazardous," such exploration and production wastes could be reclassified as
a hazardous wastes, thereby making such wastes subject to more stringent
handling and disposal requirements.
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We intend to acquire leasehold interests in properties that for many years have
produced oil and natural gas. Although the previous owners of these interests
may have used operating and disposal practices that were standard in the
industry at the time, hydrocarbons or other wastes may have been disposed of or
released on or under the properties. In addition, some of our properties may be
operated in the future by third parties over which we have no control.
Notwithstanding our lack of control over properties operated by others, the
failure of the operator to comply with applicable environmental regulations may,
in certain circumstances, adversely impact our business operations.
The National Environmental Policy Act ("NEPA") is applicable to many of our
planned activities and operations. NEPA is a broad procedural statute intended
to ensure that federal agencies consider the environmental impact of their
actions by requiring such agencies to prepare environmental impact statements
("EIS") in connection with all federal activities that significantly affect the
environment. Although NEPA is a procedural statute only applicable to the
federal government, a portion of our properties may be acreage located on
federal land. The Bureau of Land Management's issuance of drilling permits and
the Secretary of the Interior's approval of plans of operation and lease
agreements all constitute federal action within the scope of NEPA. Consequently,
unless the responsible agency determines that our drilling activities will not
materially impact the environment, the responsible agency will be required to
prepare an EIS in conjunction with the issuance of any permit or approval.
The Endangered Species Act ("ESA") seeks to ensure that activities do not
jeopardize endangered or threatened animals, fish and plant species, nor destroy
or modify the critical habitat of such species. Under ESA, exploration and
production operation, as well as actions by federal agencies, may not
significantly impair or jeopardize the species or their habitat. ESA provides
for criminal penalties for willful violations of the Act. Other statutes that
provide protection to animal and plant species and that may apply to our
operations include, but are not necessarily limited to, the Fish and Wildlife
Coordination Act, the Fishery Conservation and Management Act, the Migratory
Bird Treaty Act and the National Historic Preservation Act. Although we believe
that our operations are in substantial compliance with such statutes, any change
in these statutes or any reclassification of a species as endangered could
subject us to significant expense to modify our operations or could force to
discontinue certain operations altogether.
Management believes that we are in substantial compliance with current
applicable environmental laws and regulations.
RESEARCH AND DEVELOPMENT ACTIVITIES
No research and development expenditures have been incurred, either on our
account or sponsored by customers, to the date of our inception.
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EMPLOYEES
We do not employ any persons on a full-time or on a part-time basis. Peter
Wilson is our President/Chief Executive Officer and William Thomas is our Chief
Financial Officer/Treasurer. These individuals are primarily responsible for all
of our day-to-day operations. Other services are provided by outsourcing and
consultant and special purpose contracts.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a number of very significant risks.
You should carefully consider the following risks and uncertainties in addition
to other information in evaluating our company and its business before
purchasing shares of our common stock. Our business, operating results and
financial condition could be seriously harmed due to any of the following risks.
The risks described below are all of the material risks that we are currently
aware of that are facing our company. Additional risks not presently known to us
may also impair our business operations. You could lose all or part of your
investment due to any of these risks.
RISKS RELATED TO OUR BUSINESS
WE WILL NEED TO RAISE ADDITIONAL FINANCING TO COMPLETE FURTHER EXPLORATION.
We will require significant additional financing in order to continue our
exploration activities and our assessment of the commercial viability of our oil
and gas properties. Furthermore, if the costs of our planned exploration
programs are greater than anticipated, we may have to seek additional funds
through public or private share offerings or arrangements with corporate
partners. There can be no assurance that we will be successful in our efforts to
raise these required funds, or on terms satisfactory to us. The continued
exploration of our oil and gas properties and the development of our business
will depend upon our ability to establish the commercial viability of our oil
and gas properties and to ultimately develop cash flow from operations and reach
profitable operations. We currently are in the exploration stage and we have no
revenue from operations and we are experiencing significant negative cash flow.
Accordingly, the only other sources of funds presently available to us are
through the sale of equity. We presently believe that debt financing will not be
an alternative to us as all of our properties are in the exploration stage.
Alternatively, we may finance our business by offering an interest in our oil
and gas properties to be earned by another party or parties carrying out further
exploration and development thereof or to obtain project or operating financing
from financial institutions, neither of which is presently intended. If we are
unable to obtain this additional financing, we will not be able to continue our
exploration activities and our assessment of the commercial viability of our oil
and properties. Further, if we are able to establish that development of our oil
and gas properties is commercially viable, our inability to raise additional
financing at this stage would result in our inability to place our oil and gas
properties into production and recover our investment.
As our oil and gas properties do not contain any reserves, we may not discover
commercially exploitable quantities of oil or gas on our properties that would
enable us to enter into commercial production, achieve revenues and recover the
money we spend on exploration.
Our properties do not contain reserves in accordance with the definitions
adopted by the SEC and there is no assurance that any exploration programs that
we carry out will establish reserves. All of our oil and gas properties are in
the exploration stage as opposed to the development stage and have no known body
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of reserves. The known reserves at these projects have not yet been determined
to be economic, and may never be determined to be economic. We plan to conduct
further exploration activities on our oil and gas properties, which future
exploration may include the completion of feasibility studies necessary to
evaluate whether commercial reserves exist on any of our mineral properties.
There is a substantial risk that these exploration activities will not result in
discoveries of commercially recoverable reserves of oil or gas. Any
determination that our properties contain commercially recoverable quantities of
oil or gas may not be reached until such time that final comprehensive
feasibility studies have been concluded that establish that a potential reserve
is likely to be economic. There is a substantial risk that any preliminary or
final feasibility studies carried out by us will not result in a positive
determination that our oil and gas properties can be commercially developed.
OUR EXPLORATION ACTIVITIES ON OUR OIL AND GAS PROPERTIES MAY NOT BE COMMERCIALLY
SUCCESSFUL, WHICH COULD LEAD US TO ABANDON OUR PLANS TO DEVELOP THE PROPERTY AND
OUR INVESTMENTS IN EXPLORATION.
Our long-term success depends on our ability to establish commercially
recoverable quantities of oil and natural gas on our properties that can then be
developed into commercially viable operations. Oil and gas exploration is highly
speculative in nature, involves many risks and is frequently non-productive.
These risks include unusual or unexpected geologic formations, and the inability
to obtain suitable or adequate machinery, equipment or labor. The success of oil
and gas exploration is determined in part by the following factors:
o identification of potential oil and natural gas reserves based on
superficial analysis;
o availability of government-granted exploration permits;
o the quality of management and geological and technical expertise; and
o the capital available for exploration.
Substantial expenditures are required to establish proven and probable reserves
through drilling and analysis, to develop processes to extract oil and gas, and
to develop the drilling and processing facilities and infrastructure at any
chosen site. Whether an oil and gas reserve will be commercially viable depends
on a number of factors, which include, without limitation, the particular
attributes of the reserve; oil and natural gas prices, which fluctuate widely;
and government regulations, including, without limitation, regulations relating
to prices, taxes, royalties, land tenure, land use, importing and exporting of
oil and gas and environmental protection. We may invest significant capital and
resources in exploration activities and abandon such investments if we are
unable to identify commercially exploitable reserves. The decision to abandon a
project may reduce the trading price of our common stock and impair our ability
to raise future financing. We cannot provide any assurance to investors that we
will discover or acquire any oil or gas reserves in sufficient quantities on any
of our properties to justify commercial operations. Further, we will not be able
to recover the funds that we spend on exploration if we are not able to
establish commercially recoverable reserves of oil or natural gas on our
properties.
13
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY.
In considering whether to invest in our common stock, you should consider that
there is only limited historical financial and operating information available
on which to base your evaluation of our performance. Our inception was October
19, 2004 and, as a result, we have a limited operating history.
WE HAVE A HISTORY OF OPERATING LOSSES AND THERE CAN BE NO ASSURANCE WE WILL BE
PROFITABLE IN THE FUTURE.
We have a history of operating losses, expect to continue to incur losses, and
may never be profitable, and we must be considered to be in the exploration
stage. Further, we have been dependent on sales of our equity securities and
debt financing to meet our cash requirements. We have incurred losses totaling
approximately $6,984,708 from October 19, 2004 (inception) to December 31, 2008
and had incurred losses of approximately $2,021,930 during fiscal year ended
December 31, 2008. Further, we do not expect positive cash flow from operations
in the near term. There is no assurance that actual cash requirements will not
exceed our estimates. In particular, additional capital may be required in the
event that: (i) the costs to acquire additional leases are more than we
currently anticipate; (ii) drilling and completion costs for additional wells
increase beyond our expectations; or (iii) we encounter greater costs associated
with general and administrative expenses or offering costs.
Our development of and participation in what could evolve into an increasing
number of oil and gas prospects may require substantial capital expenditures.
The uncertainty and factors described throughout this section may impede our
ability to economically find, develop, produce, and acquire natural gas and oil
reserves. As a result, we may not be able to achieve or sustain profitability or
positive cash flows from operating activities in the future.
WE HAVE RECEIVED A GOING CONCERN OPINION FROM OUR INDEPENDENT AUDITORS' REPORT
ACCOMPANYING OUR DECEMBER 31, 2008 AND DECEMBER 31, 2007 FINANCIAL STATEMENTS.
The independent auditor's report accompanying our December 31, 2008 and 2007
audited 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 the Company will continue
as a going concern." Our ability to continue as a going concern is dependent on
raising additional capital to fund our operations and ultimately on generating
future profitable operations. There can be no assurance that we will be able to
raise sufficient additional capital or eventually have positive cash flow from
operations to address all of our cash flow needs. If we are not able to find
alternative sources of cash or generate positive cash flow from operations, our
business and shareholders will be materially and adversely affected.
WE WILL REQUIRE ADDITIONAL FUNDING IN THE FUTURE.
Based upon our historical losses from operations, we will require additional
funding in the future. If we cannot obtain capital through financings or
otherwise, our ability to execute our development plans and achieve production
levels will be greatly limited. Our current development plans require us to make
14
capital expenditures for the exploration and development of our oil and natural
gas properties. Historically, we have funded our operations through the issuance
of equity. We may not be able to obtain additional financing on favorable terms,
if at all. Our future cash flows and the availability of financing will be
subject to a number of variables, including potential production and the market
prices of oil and natural gas. Further, debt financing, if utilized, could lead
to a diversion of cash flow to satisfy debt-servicing obligations and create
restrictions on business operations. If we are unable to raise additional funds,
it would have a material adverse effect upon our operations.
AS PART OF OUR GROWTH STRATEGY, WE INTEND TO ACQUIRE ADDITIONAL OIL AND GAS
PROPERTIES.
As part of our growth strategy, we intend to acquire additional oil and gas
production properties. Current and subsequent acquisitions may pose substantial
risks to our business, financial condition, and results of operations. In
pursuing acquisitions, we will compete with other companies, many of which have
greater financial and other resources to acquire attractive properties. Even if
we are successful in acquiring additional properties, some of the properties may
not produce revenues at anticipated levels or failure to conduct drilling on
prospects within specified time periods may cause the forfeiture of the lease in
that prospect. There can be no assurance that we will be able to successfully
integrate acquired properties, which could result in substantial costs and
delays or other operational, technical, or financial problems. Further,
acquisitions could disrupt ongoing business operations. If any of these events
occur, it would have a material adverse effect upon our operations and results
from operations.
WE ARE A NEW ENTRANT INTO THE OIL AND GAS EXPLORATION AND DEVELOPMENT INDUSTRY
WITHOUT PROFITABLE OPERATING HISTORY.
Since inception, our activities have been limited to organizational efforts,
obtaining working capital and acquiring and developing a very limited number of
properties. As a result, there is limited information regarding property related
production potential or revenue generation potential. Further, our Leases have
no probable, proved or developed producing reserves. As a result, our future
revenues may be limited or non-existent.
The business of oil and gas exploration and development is subject to many risks
and if oil and natural gas is found in economic production quantities, the
potential profitability of future possible oil and gas ventures depends upon
factors beyond our control. The potential profitability of oil and natural gas
properties if economic quantities are found is dependent upon many factors and
risks beyond our control, including, but not limited to: (i) unanticipated
ground conditions; (ii) geological problems; (iii) drilling and other processing
problems; (iv) the occurrence of unusual weather or operating conditions and
other force majeure events; (v) lower than expected reserve quantities; (vi)
accidents; (vii) delays in the receipt of or failure to receive necessary
government permits; (viii) delays in transportation; (ix) labor disputes; (x)
government permit restrictions and regulation restrictions; (xi) unavailability
of materials and equipment; and (xii) the failure of equipment or drilling to
operate in accordance with specifications or expectations.
15
OUR DRILLING OPERATIONS MAY NOT BE SUCCESSFUL.
We intend to test certain zones in wellbores already drilled on certain of the
properties and if results are positive and capital is available, drill
additional wells and begin production operations from existing and new wells.
There can be no assurance that our current well re-completion activities or
future drilling activities will be successful, and we cannot be sure that our
overall drilling success rate or our production operations within a particular
area will ever come to fruition, and if it does, will not decline over time. We
may not recover all or any portion of our capital investment in the wells or the
underlying leaseholds. Unsuccessful drilling activities would have a material
adverse effect upon our results of operations and financial condition. The cost
of drilling, completing, and operating wells is often uncertain, and a number of
factors can delay or prevent drilling operations including: (i) unexpected
drilling conditions; (ii) pressure or irregularities in geological formations;
(iii) equipment failures or accidents; (iv) adverse weather conditions; and (iv)
shortages or delays in availability of drilling rigs and delivery of equipment.
OUR PRODUCTION INITIATIVES MAY NOT PROVE SUCCESSFUL.
The coal beds from which we intend to produce natural gas frequently contain
water, which may hamper our ability to produce gas in commercial quantities. The
amount of natural gas that can be commercially produced depends upon the coal
quality, the original gas content of the coal seam, the thickness of the seam,
the reservoir pressure, the rate at which gas is released from the coal, and the
existence of any natural fractures through which the gas can flow to the well
bore. However, coal beds frequently contain water that must be removed in order
for the gas to detach from the coal and flow to the well bore. The average life
of a coal bed well is only five to six years. Our ability to remove and dispose
of sufficient quantities of water from the coal seam will determine whether or
not we can produce coal bed methane in commercial quantities.
There is no guarantee that the potential drilling locations we have or acquire
in the future will ever produce natural gas or oil, which could have a material
adverse effect upon our results of operations.
PROSPECTS THAT WE DECIDE TO DRILL MAY NOT YIELD NATURAL GAS OR OIL IN
COMMERCIALLY VIABLE QUANTITIES.
We describe some of our current prospects in this Annual Report. Our prospects
are in various stages of preliminary evaluation and assessment and we have not
reached the point where we will decide to drill at all on the subject prospects.
However, the use of seismic data, historical drilling logs, offsetting well
information, and other technologies and the study of producing fields in the
same area will not enable us to know conclusively prior to drilling and testing
whether natural gas or oil will be present or, if present, whether natural gas
or oil will be present in sufficient quantities or quality to recover drilling
or completion costs or to be economically viable. In sum, the cost of drilling,
completing and operating any wells is often uncertain and new wells may not be
productive.
16
WE MAY BE UNABLE TO IDENTIFY LIABILITIES ASSOCIATED WITH THE PROPERTIES OR
OBTAIN PROTECTION FROM SELLERS AGAINST THEM.
One of our growth strategies is to capitalize on opportunistic acquisitions of
oil and natural gas reserves. However, our reviews of acquired properties are
inherently incomplete because it generally is not feasible to review in depth
every individual property involved in each acquisition. A detailed review of
records and properties may not necessarily reveal existing or potential
problems, nor will it permit a buyer to become sufficiently familiar with the
properties to assess fully their deficiencies and potential. Further,
environmental problems, such as ground water contamination, are not necessarily
observable even when an inspection is undertaken. We may not be able to obtain
indemnification or other protections from the sellers against such potential
liabilities, which would have a material adverse effect upon our results of
operations.
THE POTENTIAL PROFITABILITY OF OIL AND GAS VENTURES DEPENDS UPON GLOBAL
POLITICAL AND MARKET RELATED FACTORS BEYOND OUR CONTROL.
World prices and markets for oil and gas are unpredictable, highly volatile,
potentially subject to governmental fixing, pegging, controls, or any
combination of these and other factors, and respond to changes in domestic,
international, political, social, and economic environments. Additionally, due
to worldwide economic uncertainty, the availability and cost of funds for
production and other expenses have become increasingly difficult, if not
impossible, to project. These and other changes and events may materially affect
our financial performance. The potential profitability of oil and gas properties
is dependent on these and other factors beyond our control.
PRODUCTION OR OIL AND GAS RESOURCES IF FOUND ARE DEPENDENT ON NUMEROUS
OPERATIONAL UNCERTAINTIES SPECIFIC TO THE AREA OF THE RESOURCE THAT AFFECTS ITS
PROFITABILITY.
Production area specifics affect profitability. Adverse weather conditions can
hinder drilling operations and ongoing production work. A productive well may
become uneconomic in the event water or other deleterious substances are
encountered which impair or prevent the production of oil and/or gas from the
well. Production and treatments on other wells in the area can have either a
positive or negative effect on our production and wells. In addition, production
from any well may be unmarketable if it is impregnated with water or other
deleterious substances. The content of hydrocarbons is subject to change over
the life of producing wells. The marketability of oil and gas from any specific
reserve which may be acquired or discovered will be affected by numerous factors
beyond our control. These factors include, but are not limited to, the proximity
and capacity of oil and gas pipelines, availability of room in the pipelines to
accommodate additional production, processing and production equipment operating
costs and equipment efficiency, market fluctuations of prices and oil and gas
marketing relationships, local and state taxes, mineral owner and other
royalties, land tenure, lease bonus costs and lease damage costs, allowable
production, and environmental protection. These factors cannot be accurately
predicted and the combination of these factors may result in us not receiving an
adequate return on our invested capital.
17
IF PRODUCTION RESULTS FROM OPERATIONS, WE ARE DEPENDENT UPON TRANSPORTATION AND
STORAGE SERVICES PROVIDED BY THIRD PARTIES.
We will be dependent on the transportation and storage services offered by
various interstate and intrastate pipeline companies for the delivery and sale
of our gas supplies. Both the performance of transportation and storage services
by interstate pipelines and the rates charged for such services are subject to
the jurisdiction of the Federal Energy Regulatory Commission or state regulatory
agencies. An inability to obtain transportation and/or storage services at
competitive rates could hinder our processing and marketing operations and/or
affect our sales margins.
OUR RESULTS OF OPERATIONS ARE DEPENDENT UPON MARKET PRICES FOR OIL AND GAS,
WHICH FLUCTUATE WIDELY AND ARE BEYOND OUR CONTROL.
If and when production from oil and gas properties is reached, our revenue,
profitability, and cash flow depend upon the prices and demand for oil and
natural gas. The markets for these commodities are very volatile and even
relatively modest drops in prices can significantly affect our financial results
and impede our growth. Prices received also will affect the amount of future
cash flow available for capital expenditures and may affect our ability to raise
additional capital. Lower prices may also affect the amount of natural gas and
oil that can be economically produced from reserves either discovered or
acquired. Factors that can cause price fluctuations include: (i) the level of
consumer product demand; (ii) domestic and foreign governmental regulations;
(iii) the price and availability of alternative fuels; (iv) technical advances
affecting energy consumption; (v) proximity and capacity of oil and gas
pipelines and other transportation facilities; (vi) political conditions in
natural gas and oil producing regions; (vii) the domestic and foreign supply of
natural gas and oil; (viii) the ability of members of Organization of Petroleum
Exporting Countries to agree to and maintain oil price and production controls;
(ix) the price of foreign imports; and (x) overall domestic and global economic
conditions.
The availability of a ready market for our oil and gas depends upon numerous
factors beyond our control, including the extent of domestic production and
importation of oil and gas, the relative status of the domestic and
international economies, the proximity of our properties to gas gathering
systems, the capacity of those systems, the marketing of other competitive
fuels, fluctuations in seasonal demand and governmental regulation of
production, refining, transportation and pricing of oil, natural gas and other
fuels.
THE OIL AND GAS INDUSTRY IN WHICH WE OPERATE INVOLVES MANY INDUSTRY RELATED
OPERATING AND IMPLEMENTATION RISKS THAT CAN CAUSE SUBSTANTIAL LOSSES INCLUDING,
BUT NOT LIMITED TO, UNPRODUCTIVE WELLS, NATURAL DISASTERS, FACILITY AND
EQUIPMENT PROBLEMS AND ENVIRONMENTAL HAZARDS.
Our drilling activities are subject to many risks, including the risk that we
will not discover commercially productive reservoirs. Drilling for oil and
natural gas can be unprofitable, not only from dry holes, but from productive
wells that do not produce sufficient revenues to return a profit. In addition,
our drilling and producing operations may be curtailed, delayed or canceled as a
result of other drilling and production, weather and natural disaster, equipment
and service failure, environmental and regulatory, and site specific related
factors, including but not limited to: (i) fires; (ii) explosions; (iii)
blow-outs and surface cratering; (iv) uncontrollable flows of underground
natural gas, oil, or formation water; (v) natural disasters; (vi) facility and
equipment failures; (vii) title problems; (viii) shortages or delivery delays of
18
equipment and services; (ix) abnormal pressure formations; and (x) environmental
hazards such as natural gas leaks, oil spills, pipeline ruptures and discharges
of toxic gases.
If any of these events occur, we could incur substantial losses as a result of:
(i) injury or loss of life; (ii) severe damage to and destruction of property,
natural resources or equipment; (iii) pollution and other environmental damage;
(iv) clean-up responsibilities; (v) regulatory investigation and penalties; (vi)
suspension of our operations; or (vii) repairs necessary to resume operations.
If we were to experience any of these problems, it could affect well bores,
gathering systems and processing facilities, any one of which could adversely
affect our ability to conduct operations. We may be affected by any of these
events more than larger companies, since we have limited working capital.
THE OIL AND GAS INDUSTRY IS HIGHLY COMPETITIVE AND THERE IS NO ASSURANCE THAT WE
WILL BE SUCCESSFUL IN ACQUIRING LEASES.
The oil and natural gas industry is intensely competitive, and we compete with
other companies that have greater resources. Many of these companies not only
explore for and produce oil and natural gas, but also carry on refining
operations and market petroleum and other products on a regional, national or
worldwide basis. These companies may be able to pay more for productive oil and
natural gas properties and exploratory prospects or define, evaluate, bid for
and purchase a greater number of properties and prospects than our financial or
human resources permit. In addition, these companies may have a greater ability
to continue exploration activities during periods of low oil and natural gas
market prices. Our larger competitors may be able to absorb the burden of
present and future federal, state, local and other laws and regulations more
easily than we can, which would adversely affect our competitive position. Our
ability to acquire additional properties and to discover reserves in the future
will be dependent upon our ability to evaluate and select suitable properties
and to consummate transactions in a highly competitive environment. In addition,
because we have fewer financial and human resources than many companies in our
industry, we may be at a disadvantage in bidding for exploratory prospects and
producing oil and natural gas properties.
THE MARKETABILITY OF NATURAL RESOURCES WILL BE AFFECTED BY NUMEROUS FACTORS
BEYOND OUR CONTROL, WHICH MAY RESULT IN US NOT RECEIVING AN ADEQUATE RETURN ON
INVESTED CAPITAL TO BE PROFITABLE OR VIABLE.
The marketability of natural resources which may be acquired or discovered by us
will be affected by numerous factors beyond our control. These factors include
market fluctuations in oil and gas pricing and demand, the proximity and
capacity of natural resource markets and processing equipment, governmental
regulations, land tenure, land use, regulation concerning the importing and
exporting of oil and gas and environmental protection regulations. The exact
effect of these factors cannot be accurately predicted, but the combination of
these factors may result in us not receiving an adequate return on invested
capital to be profitable or viable.
19
OIL AND GAS OPERATIONS ARE SUBJECT TO COMPREHENSIVE REGULATION WHICH MAY CAUSE
SUBSTANTIAL DELAYS OR REQUIRE CAPITAL OUTLAYS IN EXCESS OF THOSE ANTICIPATED
CAUSING AN ADVERSE EFFECT ON OUR BUSINESS OPERATIONS.
Oil and gas operations are subject to federal, state, and local laws relating to
the protection of the environment, including laws regulating removal of natural
resources from the ground and the discharge of materials into the environment.
Oil and gas operations are also subject to federal, state, and local laws and
regulations which seek to maintain health and safety standards by regulating the
design and use of drilling methods and equipment. Various permits from
government bodies are required for drilling operations to be conducted; no
assurance can be given that such permits will be received. Environmental
standards imposed by federal, provincial, or local authorities may be changed
and any such changes may have material adverse effects on our activities.
Moreover, compliance with such laws may cause substantial delays or require
capital outlays in excess of those anticipated, thus causing an adverse effect
on us. Additionally, we may be subject to liability for pollution or other
environmental damages which we may elect not to insure against due to
prohibitive premium costs and other reasons. To date we have not been required
to spend material amounts on compliance with environmental regulations. However,
we may be required to do so in the future and this may affect our ability to
expand or maintain our operations.
In general, our exploration and production activities are subject to certain
federal, state and local laws and regulations relating to environmental quality
and pollution control. Such laws and regulations increase the costs of these
activities and may prevent or delay the commencement or continuance of a given
operation. Compliance with these laws and regulations has not had a material
effect on our operations or financial condition to date. Specifically, we are
subject to legislation regarding emissions into the environment, water
discharges and storage and disposition of hazardous wastes. In addition,
legislation has been enacted which requires well and facility sites to be
abandoned and reclaimed to the satisfaction of state authorities. However, such
laws and regulations are frequently changed and we are unable to predict the
ultimate cost of compliance. Generally, environmental requirements do not appear
to affect us any differently or to any greater or lesser extent than other
companies in the industry.
We believe that our operations comply, in all material respects, with all
applicable environmental regulations. We need insurance to protect our self
against risks associated with the leases obtained. The leases allow for entry
onto the properties for the purposes of oil and gas exploration. The insurance
we require relates solely to developments on the properties for the purposes of
oil and gas exploration.
When and if we are convinced that our current leases or those subsequently
acquired are capable of hydrocarbon production and sales, and we plan to drill
more than one well, we intend to maintain a $2,000,000 per year limit policy on
bodily injury and general liability with regard to risks incurred for the
drilling of up to 25 wells. This will allow for our growth to contain non
contract labor that would require us to carry such additional insurance for
risks pertaining to oil and gas exploration conducted directly by us. Such a
policy would include coverage for numerous locations for pollution,
environmental damage, chemical spills and commercial general liability, fire,
and personal injury. Such a policy will not be required until such time and date
as we believe that we will begin a sustained drilling and operating program, and
that at least one well has been drilled and is producing to justify and warrant
further drilling and a sustained drilling and operating program.
20
ANY CHANGE TO GOVERNMENT REGULATION/ADMINISTRATIVE PRACTICES MAY HAVE A NEGATIVE
IMPACT ON OUR ABILITY TO OPERATE AND OUR PROFITABILITY.
The laws, regulations, policies or current administrative practices of any
government body, organization or regulatory agency in the United States or any
other jurisdiction, may be changed, applied or interpreted in a manner which
will fundamentally alter our ability to carry on business. The actions, policies
or regulations, or changes thereto, of any government body or regulatory agency,
or other special interest groups, may have a detrimental effect on us. Any or
all of these situations may have a negative impact on our ability to operate
and/or our profitability.
WE MAY BE UNABLE TO RETAIN KEY EMPLOYEES OR CONSULTANTS OR RECRUIT ADDITIONAL
QUALIFIED PERSONNEL.
Our extremely limited personnel means that we would be required to spend
significant sums of money to locate and train new employees in the event any of
our employees resign or terminate their employment with us for any reason. Due
to our limited operating history and financial resources, we are entirely
dependent on the continued service of Peter Wilson, our Chief Executive Officer,
and William Thomas, our Chief Financial Officer. Further, we do not have key man
life insurance on either of these individuals. We may not have the financial
resources to hire a replacement if one or both of our officers were to die. The
loss of service of either of these employees could therefore significantly and
adversely affect our operations.
OUR OFFICERS AND DIRECTORS MAY BE SUBJECT TO CONFLICTS OF INTEREST.
Our officers and directors serve only part time and are subject to conflicts of
interest. Each devotes part of his working time to other business endeavors,
including consulting relationships with other entities, and has responsibilities
to these other entities. Such conflicts include deciding how much time to devote
to our affairs, as well as what business opportunities should be presented to
us. Because of these relationships, our officers and directors will be subject
to conflicts of interest. Currently, we have no policy in place to address such
conflicts of interest.
NEVADA LAW AND OUR ARTICLES OF INCORPORATION MAY PROTECT OUR DIRECTORS FROM
CERTAIN TYPES OF LAWSUITS.
Nevada law provides that our officers and directors will not be liable to us or
our stockholders for monetary damages for all but certain types of conduct as
officers and directors. Our Bylaws permit us broad indemnification powers to all
persons against all damages incurred in connection with our business to the
fullest extent provided or allowed by law. The exculpation provisions may have
the effect of preventing stockholders from recovering damages against our
officers and directors caused by their negligence, poor judgment or other
circumstances. The indemnification provisions may require us to use our limited
assets to defend our officers and directors against claims, including claims
arising out of their negligence, poor judgment, or other circumstances.
21
RISKS RELATED TO OUR COMMON STOCK
SALES OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK INTO THE PUBLIC
MARKET BY CERTAIN STOCKHOLDERS MAY RESULT IN SIGNIFICANT DOWNWARD PRESSURE ON
THE PRICE OF OUR COMMON STOCK AND COULD AFFECT YOUR ABILITY TO REALIZE THE
CURRENT TRADING PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock in the public market
by certain stockholders could cause a reduction in the market price of our
common stock. As of the date of this Annual Report, we have 15,216,196 shares of
common stock issued and outstanding (Post-Reverse Stock Split). Of the total
number of issued and outstanding shares of common stock, certain stockholders
are able to resell up to 1,389,233 (Post-Reverse Stock Split) shares of our
common stock pursuant to the Registration Statement declared effective on
February 14, 2006. As a result of the Registration Statement, 1,389,233
Post-Reverse Stock Split shares of our common stock were issued and are
available for immediate resale which could have an adverse effect on the price
of our common stock.
As of the date of this Annual Report, there are 6,969,255 outstanding shares of
our common stock that are restricted securities as that term is defined in Rule
144 under the Securities Act of 1933, as amended (the "Securities Act").
Although the Securities Act and Rule 144 place certain prohibitions on the sale
of restricted securities, restricted securities may be sold into the public
market under certain conditions. Further, as of the date of this Annual Report,
there are an aggregate of 1,866,668 Stock Options outstanding and an aggregate
of 1,224,000 Warrants outstanding. See "Item 5. Market for Registrant's Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."
Any significant downward pressure on the price of our common stock as the
selling stockholders sell their shares of our common stock could encourage short
sales by the selling stockholders or others. Any such short sales could place
further downward pressure on the price of our common stock.
THE TRADING PRICE OF OUR COMMON STOCK ON THE OTC BULLETIN BOARD WILL FLUCTUATE
SIGNIFICANTLY AND STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR SHARES.
As of the date of this Annual Report, our common stock trades on the
Over-the-Counter Bulletin Board. There is a volatility associated with Bulletin
Board securities in general and the value of your investment could decline due
to the impact of any of the following factors upon the market price of our
common stock: (i) disappointing results from our discovery or development
efforts; (ii) failure to meet our revenue or profit goals or operating budget;
(iii) decline in demand for our common stock; (iv) downward revisions in
securities analysts' estimates or changes in general market conditions; (v)
technological innovations by competitors or in competing technologies; (vi) lack
of funding generated for operations; (vii) investor perception of our industry
or our prospects; and (viii) general economic trends.
In addition, stock markets have experienced price and volume fluctuations and
the market prices of securities have been highly volatile. These fluctuations
are often unrelated to operating performance and may adversely affect the market
22
price of our common stock. As a result, investors may be unable to sell their
shares at a fair price and you may lose all or part of your investment.
ADDITIONAL ISSUANCE OF EQUITY SECURITIES MAY RESULT IN DILUTION TO OUR EXISTING
STOCKHOLDERS.
Our Articles of Incorporation authorize the issuance of 33,333,333 shares of
common stock, which authorized capital was reduced simultaneously in accordance
with the Reverse Stock Split. Common stock is our only authorized class of
stock. The board of directors has the authority to issue additional shares of
our capital stock to provide additional financing in the future and the issuance
of any such shares may result in a reduction of the book value or market price
of the outstanding shares of our common stock. If we do issue any such
additional shares, such issuance also will cause a reduction in the
proportionate ownership and voting power of all other stockholders. As a result
of such dilution, your proportionate ownership interest and voting power will be
decreased accordingly. Further, any such issuance could result in a change of
control.
OUR COMMON STOCK IS CLASSIFIED AS A "PENNY STOCK" UNDER SEC RULES WHICH LIMITS
THE MARKET FOR OUR COMMON STOCK.
The SEC has adopted rules that regulate broker-dealer practices in connection
with transactions in "penny stocks." Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the NASDAQ system, provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system). Penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
those rules, to deliver a standardized risk disclosure document prepared by the
SEC, which specifies information about penny stocks and the nature and
significance of risks of the penny stock market. A broker-dealer must also
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer, and sales person in the transaction, and
monthly account statements indicating the market value of each penny stock held
in the customer's account. In addition, the penny stock rules require that,
prior to a transaction in a penny stock not otherwise exempt from those rules,
the broker-dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the trading activity in the secondary market for stock that becomes
subject to those penny stock rules. If a trading market for our common stock
develops, our common stock will probably become subject to the penny stock
rules, and shareholders may have difficulty in selling their shares.
A MAJORITY OF OUR DIRECTORS AND OFFICERS ARE OUTSIDE THE UNITED STATES WITH THE
RESULT THAT IT MAY BE DIFFICULT FOR INVESTORS TO ENFORCE WITHIN THE UNITED
STATES ANY JUDGMENTS OBTAINED AGAINST US OR ANY OF OUR DIRECTORS OR OFFICERS.
A majority of our directors and officers are nationals and/or residents of
countries other than the United States, and all or a substantial portion of such
persons' assets are located outside the United States. As a result, it may be
difficult for investors to effect service of process on our directors or
officers, or enforce within the United States or Canada any judgments obtained
23
against us or our officers or directors, including judgments predicated upon the
civil liability provisions of the securities laws of the United States or any
state thereof. Consequently, you may be effectively prevented from pursuing
remedies under U.S. federal securities laws against them. In addition, investors
may not be able to commence an action in a Canadian court predicated upon the
civil liability provisions of the securities laws of the United States.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As of the date of this Annual Report, there are no unresolved comments pending
from the Securities and Exchange Commission.
ITEM 2. PROPERTIES
We lease our principal office space located at 5050 Quorum Drive, Suite 700,
Dallas, Texas 75254. The office costs us approximately $3,140 monthly. The
office and services related thereto are on an annual basis with the office lease
coming due in June 2009.
ITEM 3. LEGAL PROCEEDINGS
Management is not aware of any legal proceedings contemplated by any
governmental authority or any other party involving us or our properties. As of
the date of this Annual Report, no director, officer or affiliate is (i) a party
adverse to us in any legal proceeding, or (ii) has an adverse interest to us in
any legal proceedings. Management is not aware of any other legal proceedings
pending or that have been threatened against us or our properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During fiscal year ended December 31, 2008, no matters were submitted to our
stockholders for approval.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR COMMON EQUITY
Shares of our common stock commenced trading on the OTC Bulletin Board under the
symbol "MCKE:OB" on approximately May 24, 2006. The market for our common stock
is limited, and can be volatile. The following table sets forth the high and low
bid prices relating to our common stock on a quarterly basis for the periods
indicated as quoted by the NASDAQ stock market. These quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commissions, and may
not reflect actual transactions.
24
QUARTER ENDED HIGH BID LOW BID
December 31, 2008 $1.05 $0.21
September 30, 2008 $2.41 $0.81
June 30, 2008 $3.00* $0.79
March 31, 2008 $0.35 $0.20
December 31, 2007 $0.76 $0.30
September 30, 2007 $0.85 $0.45
June 30, 2008 $1.20 $0.36
March 31,2008 $0.98 $0.45
*Reflects Reverse Stock Split.
As of March 1, 2009, we had 38 shareholders of record, which does not include
shareholders whose shares are held in street or nominee names.
DIVIDEND POLICY
No dividends have ever been declared by the Board of Directors on our common
stock. Our losses do not currently indicate the ability to pay any cash
dividends, and we do not indicate the intention of paying cash dividends either
on our common stock in the foreseeable future.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS
We have one equity compensation plan, the Morgan Creek Energy Corp. 2006 Stock
Option Plan (the "2006 Plan"). The table set forth below presents information
relating to our equity compensation plans as of the date of this Annual Report:
NUMBER OF SECURITIES TO BE NUMBER OF SECURITIES
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE REMAINING AVAILABLE FOR
OUTSTANDING OPTIONS, PRICE OF OUTSTANDING FUTURE ISSUANCE UNDER
WARRANTS AND RIGHTS OPTIONS, WARRANTS AND RIGHTS EQUITY COMPENSATION PLANS
PLAN CATEGORY (A) (B) (EXCLUDING COLUMN (A))
____________________________ __________________________ ____________________________ _________________________
Equity Compensation Plans 616,668 $3.30
Approved by Security Holders
(2006 Stock Option Plan) 1,250,000 1.00 3,133,332
Equity Compensation Plans Not
Approved by Security Holders
Warrants 1,224,000 $1.50 -0-
Total 3,090,668
25
2006 STOCK OPTION PLAN
On April 3, 2006, our Board of Directors authorized and approved the adoption of
the 2006 Plan effective April 3, 2006, under which an aggregate of 5,000,000 of
our shares may be issued. On April 22, 2008, we effected the Reverse Stock
Split, which decreased the number of shares issuable under the Stock Option Plan
from 5,000,000 shares to 1,666,666 shares. On April 28, 2008, our Board of
Directors approved an amendment to the Stock Option Plan to increase the number
of shares issuable under the Stock Option Plan to an aggregate of 5,000,000
shares.
The purpose of the 2006 Plan is to enhance our long-term stockholder value by
offering opportunities to our directors, officers, employees and eligible
consultants to acquire and maintain stock ownership in order to give these
persons the opportunity to participate in our growth and success, and to
encourage them to remain in our service.
The 2006 Plan is to be administered by our Board of Directors or a committee
appointed by and consisting of one or more members of the Board of Directors,
which shall determine (i) the persons to be granted Stock Options under the 2006
Plan; (ii) the number of shares subject to each option, the exercise price of
each Stock Option; and (iii) whether the Stock Option shall be exercisable at
any time during the option period up to ten (10) years or whether the Stock
Option shall be exercisable in installments or by vesting only. The 2006 Plan
provides authorization to the Board of Directors to grant Stock Options to
purchase a total number of shares of Common Stock of the Company, not to exceed
5,000,000 shares as at the date of adoption by the Board of Directors of the
2006 Plan. At the time a Stock Option is granted under the 2006 Plan, the Board
of Directors shall fix and determine the exercise price at which shares of our
common stock may be acquired.
In the event an optionee ceases to be employed by or to provide services to us
for reasons other than cause, retirement, disability or death, any Stock Option
that is vested and held by such optionee generally may be exercisable within up
to ninety (90) calendar days after the effective date that his position ceases,
and after such 90-day period any unexercised Stock Option shall expire. In the
event an optionee ceases to be employed by or to provide services to us for
reasons of retirement, disability or death, any Stock Option that is vested and
held by such optionee generally may be exercisable within up to one-year after
the effective date that his position ceases, and after such one-year period any
unexercised Stock Option shall expire.
26
No Stock Options granted under the Stock Option Plan will be transferable by the
optionee, and each Stock Option will be exercisable during the lifetime of the
optionee subject to the option period up to ten (10) years or limitations
described above. Any Stock Option held by an optionee at the time of his death
may be exercised by his estate within one (1) year of his death or such longer
period as the Board of Directors may determine.
The exercise price of a Stock Option granted pursuant to the 2006 Plan shall be
paid in full to us by delivery of consideration equal to the product of the
Stock Option in accordance with the requirements of the Nevada Revised Statutes.
Any Stock Option settlement, including payment deferrals or payments deemed made
by way of settlement of pre-existing indebtedness may be subject to such
conditions, restrictions and contingencies as may be determined.
GRANT OF STOCK OPTIONS DURING FISCAL YEAR ENDED DECEMBER 31, 2008
On April 30, 2008, we authorized the grant of an aggregate 1,250,000 stock
options to certain of our officers, directors and management. The options are
exercisable at $1.00 per share for a period of ten years. See "Item 11.
Executive Compensation" and "Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters."
INCENTIVE STOCK OPTIONS
The 2006 Plan further provides that, subject to the provisions of the Stock
Option Plan and prior shareholder approval, the Board of Directors may grant to
any key individuals who are our employees eligible to receive options one or
more incentive stock options to purchase the number of shares of common stock
allotted by the Board of Directors (the "Incentive Stock Options"). The option
price per share of common stock deliverable upon the exercise of an Incentive
Stock Option shall be at least 100% of the fair market value of the common
shares of the Company, and in the case of an Incentive Stock Option granted to
an optionee who owns more than 10% of the total combined voting power of all
classes of our stock, shall not be less than 100% of the fair market value of
our common shares. The option term of each Incentive Stock Option shall be
determined by the Board of Directors, which shall not commence sooner than from
the date of grant and shall terminate no later than ten (10) years from the date
of grant of the Incentive Stock Option, subject to possible early termination as
described above.
COMMON STOCK PURCHASE WARRANTS
As of the date of this Annual Report, there are an aggregate of 1,224,000 common
stock purchase warrants issued and outstanding (the "Warrants"). During fiscal
year ended December 31, 2008, we issued 1,224,000 Warrants and an aggregate of
314,702 Warrants expired. The 1,224,000 Warrants to purchase shares of common
stock and the shares of common stock underlying the Warrants were issued in a
private placement by us during fiscal year 2008 at an exercise price of $1.50
per share exercisable for a period of twelve months from the date of share
issuance.
As of the date of this Annual Report, none of the Warrants have been exercised.
27
RECENT SALES OF UNREGISTERED SECURITIES
As of the date of this Annual Report and during fiscal year ended December 31,
2008, to provide capital, we sold stock in private placement offerings, issued
stock in exchange for our debts or pursuant to contractual agreements as set
forth below.
PRIVATE PLACEMENT OFFERINGS
SEPTEMBER 2008 PRIVATE PLACEMENT
During fiscal year ended December 31, 2008, we completed a private placement
offering (the "September 2008 Private Placement Offering"), whereby we issued an
aggregate of 1,224,000 units at $0.75 per unit for gross proceeds of $918,000
excluding finders fees of ($20,913). Each unit consists of one share of our
restricted common stock and one non-transferable share purchase warrant
exercisable at $1.50 per share for a period of twelve months from the date of
share issuance. The September 2008 Private Placement Offering was completed in
reliance on Regulation S of the Securities Act. Sales were made to only non-U.S.
residents. The September 2008 Private Placement Offering was not registered
under the Securities Act or under any state securities laws and may not be
offered or sold without registration with the Securities and Exchange Commission
or an applicable exemption from the registration requirements. The per share
price of the September 2008 Private Placement Offering was arbitrarily
determined by our Board of Directors based upon analysis of certain factors
including, but not limited to, stage of development, industry status, investment
climate, perceived investment risks, our assets and net estimated worth.
FEBRUARY 2008 PRIVATE PLACEMENT - OTHER ISSUANCES
On February 13, 2008, we closed a private placement offering (the "February 2008
Private Placement Offering"), whereby we issued an aggregate of 7,576,068 shares
Pre-Reverse Stock Split (2,525,356 shares Post-Reverse Stock Split) of common
stock for settlement of related party advances and accrued interest at a deemed
issuance price of $0.75 per share in settlement of an aggregate $1,515,214 in
debt due and owing by us to certain non-U.S. residents.(The difference between
the estimated fair value of the common shares at issuance and the amount of debt
settled totaling $378,803 was recorded as a finance cost). The February 2008
Private Placement Offering was completed in reliance on Regulation S of the
Securities Act. Sales were made to only non-U.S. residents. The February 2008
Private Placement Offering was not registered under the Securities Act or under
any state securities laws and may not be offered or sold without registration
with the Securities and Exchange Commission or an applicable exemption from the
registration requirements. The per share price of the February 2008 Private
Placement Offering was arbitrarily determined by our Board of Directors based
upon analysis of certain factors including, but not limited to, stage of
development, industry status, investment climate, perceived investment risks,
our assets and net estimated worth.
28
DEBT SETTLEMENT
Our Board of Directors, pursuant to a Board of Directors' meeting held on April
1, 2008, approved and authorized the settlement of an aggregate of $917,123 in
current indebtedness (the "Debt Settlement") by the issuance of an aggregate
4,585,616 shares Pre-Reverse Stock Split (1,528,538 Post-Reverse Stock Split) of
our restricted common stock at $0.63 ($0.21 Pre Reverse Stock Split) per share
effective as of March 24, 2008. (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). The aggregate 4,585,616 shares (1,528,538
shares Post-Reverse Stock Split) of common stock were issued to seven creditors
(each a "Creditor") pursuant to the terms and conditions of those certain $0.21
Share for Debt Private Placement Subscription Agreements (collectively, the
"Subscription Agreements") as entered into between us and each such Creditor.
The shares issued to the funding investors relating to the acquisition of their
interest in the Boggs#1 is included in this issuance.
The Debt Settlement was made to five non-United States Creditors in reliance on
Rule 903 of Regulation S promulgated under the Securities Act and to two United
States accredited Creditors in reliance on Section 4(2) of the Securities Act.
The securities issued in the Debt Settlement have 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.
There were no finders' fees or commission payable by us upon the successful
completion of the Debt Settlement and Related Party Debt Settlement.
Our Board of Directors approved and authorized the settlement of an aggregate of
$1,515,214 in related party advances and accrued interest (the "Related Party
Debt Settlement") by the issuance of an aggregate 7,576,068 shares Pre-Reverse
Stock Split (2,525,356 shares Post-Reverse Stock Split) of our restricted common
stock at $0.25 ($0.75 Post Reverse Stock Split) per share effective as of
February 13, 2008. (The difference between the estimated fair value of the
common shares at issuance and the amount of debt settled totaling $378,803 was
recorded as a finance cost). The aggregate 7,576,068 shares (2,525,356 shares
Post-Reverse Stock Split) of common stock were issued to related parties (each a
"Related Party").
The Related Party Debt Settlement was made to 4 non-United States Creditors in
reliance on Rule 903 of Regulation S promulgated under the Securities Act and to
two United States accredited Creditors in reliance on Section 4(2) of the
Securities Act. The securities issued in the Related Party Debt Settlement have
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.
There were no finders' fees or commission payable by us upon the successful
completion of the Related Party Debt Settlement.
29
REVERSE STOCK SPLIT
On April 1, 2008, our Board of Directors pursuant to a Board of Directors
meeting authorized and approved the Reverse Stock Split. The Reverse Stock Split
was effectuated based on market conditions and upon a determination by our Board
of Directors that the Reverse 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 Reverse Stock Split, including the
increased potential for financing. The intent of the Reverse Stock Split is to
increase the marketability of our common stock. The Reverse Stock Split was
effectuated on April 22, 2008 upon filing the appropriate documentation with
NASDAQ. The Reverse Stock Split decreased our total issued and outstanding
shares of common stock from 41,976,589 to approximately 13,992,196 shares of
common stock. The common stock will continue to be $0.001 par value.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information is qualified by reference to, and
should be read in conjunction with our financial statements and the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operation" contained elsewhere herein. The selected income statement
data for fiscal years ended December 31, 2008 and 2007 and the selected balance
sheet data as of December 31, 2008 and 2007 are derived from our audited
consolidated financial statements which are included elsewhere herein.
30
FOR THE PERIOD FROM
FISCAL YEARS ENDED DECEMBER 31 OCTOBER 19, 2004
______________________________ (INCEPTION) TO
2008 AND 2007 DECEMBER 31, 2008
______________________________ ___________________
STATEMENT OF OPERATIONS DATA
GENERAL AND ADMINISTRATIVE EXPENSES
Investor relations expenses $ 159,944 $ 9,120 $ 322,018
Consulting expenses 228,502 189,991 856,960
Management fees - related party 263,386 312,990 888,083
Management fees - stock based 436,955 -0- 1,964,125
compensation
Impairment of oil and gas -0- -0- 1,273,410
properties
Office and general 262,956 156,639 619,700
Professional Fees 245,527 148,281 635,752
NET LOSS BEFORE FOLLOWING ($1,597,270) ($817,021) ($6,560,048)
OTHER EXPENSE
Financing Costs (424,660) -0- (424,660)
NET LOSS ($2,021,930) ($817,021) ($6,984,708)
BALANCE SHEET DATA
TOTAL ASSETS $1,843,630 $1,758,091
TOTAL LIABILITIES 635,121 2,718,691
STOCKHOLDERS EQUITY $1,208,509 ($ 960,600)
(DEFICIT)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The summarized financial data set forth in the table below is derived from and
should be read in conjunction with our audited financial statements for the
period from inception (October 19, 2004) to fiscal year ended December 31, 2008,
including the notes to those financial statements which are included in this
Annual Report. The following discussion should be read in conjunction with our
audited financial statements and the related notes that appear elsewhere in this
Annual Report. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward looking statements. Factors that
could cause or contribute to such differences include, but are not limited to
those discussed below and elsewhere in this Annual Report, particularly in the
section entitled "Risk Factors". Our audited financial statements are stated in
United States Dollars and are prepared in accordance with United States
Generally Accepted Accounting Principles.
We are an exploration stage company and have not generated any revenue to date.
The above table sets forth selected financial information for the periods
indicated. 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.
RESULTS OF OPERATION
FISCAL YEAR ENDED DECEMBER 31, 2008 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2007.
Our net loss for fiscal year ended December 31, 2008 was ($2,021,930) compared
to a net loss of ($817,021) during fiscal year ended December 31, 2007 (an
increase of $1,204,909). During fiscal years ended December 31, 2008 and 2007,
we did not generate any revenue.
During fiscal year ended December 31, 2008, we incurred general and
administrative expenses of approximately $1,597,270 compared to $817,021
incurred during fiscal year ended December 31, 2007 (an increase of $780,249).
These general and administrative expenses incurred during fiscal year ended
December 31, 2008 consisted of: (i) investor relations of $159,944 (2007:
$9,120); (ii) consulting fees of $228,502 (2007: $189,991); (iii) management
fees - related party of $263,386 (2007: $312,990); (iv) management fees - stock
based compensation of $436,955 (2007: $-0-); (v) office and general of $262,956
(2007: $156,639); and (vi) professional fees of $245,527 (2007: $148,281).
31
During fiscal years ended December 31, 2008 and 2007, we did not record any
impairment of oil and gas properties. Thus, general and administrative expenses
incurred during fiscal year ended December 31, 2008 compared to fiscal year
ended December 31, 2007 increased primarily due to the incurrence of management
fees - stock based compensation relating to the valuation of stock options
granted to our officers and directors. General and administrative expenses
increased further due to the increase in investor relations, consulting fees,
office and general expenses and professional fees relating to the increased
scope of business operations. General and administrative expenses generally
include corporate overhead, financial and administrative contracted services,
marketing, and consulting costs.
Of the $1,597,270 incurred as general and administrative expenses during fiscal
year ended December 31, 2008, we incurred consulting expenses of $30,000 (2007-
$120,000) payable to International Market Trend, Inc. ("IMT"). In addition, on
March 24, 2008, we settled an aggregate amount of $86,873 in consulting fees and
advances due and owing to IMT through the issuance of 434,366 shares Pre-Reverse
Stock Split (144,788 shares Post Reverse Stock Split) of our restricted common
stock. An officer and director of IMT is also one of our shareholders. See "Item
5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities."
Of the $1,597,270 incurred as general and administrative expenses during fiscal
year ended December 31, 2008, we incurred management fees of $263,386 payable to
our officers and directors. Moreover, as part of their compensation
arrangements, our Chief Geologist and Operations Manager each received and is
assigned up to a 1.5% overriding royalty interest in any oil and gas properties
which are directly introduced by the respective officer to us. During fiscal
year ended December 31, 2008, we recorded related additional compensation to the
respective officers of $4,486, which reflects the estimated cost of royalty
interests earned during the fiscal year. In addition, during fiscal year ended
December 31, 2008, we settled an aggregate $71,250 for management fees due and
owing to our former President, Marcus Johnson, through the issuance of 356,250
shares Pre Reverse Stock Split (118,750 shares Post Reverse Stock Split) of our
restricted common stock. See "Item 5. Market for Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities" and "Item 11.
Executive Compensation."
Financing costs incurred during fiscal year ended December 31, 2008 of $424,660
(2008: $-0-) were recorded as other expense resulting in a net loss of
($2,021,930). Our net loss during fiscal year ended December 31, 2008 was
($2,021,930) or ($0.15) per share compared to a net loss of ($817,021) or
($0.08) per share during fiscal year ended December 31, 2007. The weighted
average number of shares outstanding was 13,833,323 for fiscal year ended
December 31, 2008 compared to 9,938,302 for fiscal year ended December 31, 2007.
32
LIQUIDITY AND CAPITAL RESOURCES
FISCAL YEAR ENDED DECEMBER 31, 2008
As at fiscal year ended December 31, 2008, our current assets were $40,687 and
our current liabilities were $635,121, which resulted in a working capital
deficiency of ($594,434). As at fiscal year ended December 31, 2008, current
assets were comprised of: (i) $14,883 in cash; and (ii) $25,804 in other current
assets. As at fiscal year ended December 31, 2008, current liabilities were
comprised of: (i) $303,959 in accounts payable and accrued liabilities; and (ii)
$331,162 in Notes Payable - related parties.
As at December 31, 2008, our total assets were $1,843,630 comprised of: (i)
$40,687 in current assets; and (ii) $1,802,943 in unproven oil and gas
properties. The slight increase in total assets during fiscal year ended
December 31, 2008 from fiscal year ended December 31, 2007 was primarily due to
the increase in valuation of the unproved oil and gas properties.
As at December 31, 2008, our total liabilities were $635,121 comprised entirely
of current liabilities. The decrease in liabilities during fiscal year ended
December 31, 2008 from fiscal year ended December 31, 2007 was primarily due to
the settlement of: (i) an aggregate $1,515,214 in related party advances and
accrued interest in current indebtedness (the "Related Party Debt Settlement")
by the issuance of an aggregate 7,576,068 shares Pre Reverse Stock Split
(2,525,356 shares Post Reverse Stock Split) of our restricted common stock at
$0.25 ($0.75 Post Reverse Stock Split) per share; and (ii) an aggregate $917,123
in related party advances and the acquisition of the interest in the Boggs #1
well (the "Debt Settlement") by the issuance of an aggregate of 4,585,616 shares
Pre Reverse Stock Split (1,528,538 shares Post Reverse Stock Split). The
difference between the estimated fair value of the common shares at issuance and
the amount of the debt settled in the Related Party Debt Settlement and the Debt
Settlement totaled $378,803 and $45,857, respectively, was included on the
recorded finance costs. See "Item 5. Market for Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities."
Stockholders' Deficit increased from ($960,600) for fiscal year ended December
31, 2007 to Stockholders' Equity of $1,208,509 for fiscal year ended December
31, 2008.
CASH FLOWS FROM OPERATING ACTIVITIES
We have not generated positive cash flows from operating activities. For fiscal
year ended December 31, 2008, net cash flows used in operating activities was
($1,194,461), consisting primarily of a net loss of ($2,021,930). Net cash flows
used in operating activities was adjusted by $436,955 in stock based
compensation and $424,660 in financing costs. Net cash flows used in operating
activities was further changed by $59,420 relating to an accrual due to related
parties, ($85,653) in accounts payable and accrued liabilities, and a decrease
of ($7,913) related to other current assets. For fiscal year ended December 31,
2007, net cash flows used in operating activities was ($385,194), consisting
primarily of a net loss of ($817,021), and changed by $269,877 in accounts
payable and accrued liabilities, $191,086 due to related parties and a decrease
of ($29,136) in other current assets.
33
CASH FLOWS FROM INVESTING ACTIVITIES
For fiscal year ended December 31, 2008, net cash flows used in investing
activities was ($78,841) for acquisition of oil and gas properties. For fiscal
year ended December 31, 2007, net cash flows used in investing activities was
($1,479,032) for the acquisition of oil and gas properties.
CASH FLOWS FROM FINANCING ACTIVITIES
We have financed our operations primarily from either advancements or the
issuance of equity and debt instruments. For fiscal year ended December 31,
2008, net cash flows provided from financing activities was $1,272,087 compared
to $1,874,500 for fiscal year ended December 31, 2007. Cash flows from financing
activities for fiscal year ended December 31, 2008 consisted of $897,087 in
proceeds on sale and subscriptions of common stock and a net total of $375,000
in advances from related parties. Cash flows from financing activities for
fiscal year ended December 31, 2007 consisted of $759,000 in drilling advances
and $1,115,500 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 1,224,000 units at the price of $0.75 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 7,576,068
shares Pre Reverse Stock Split (2,525,356 shares Post Reverse Stock Split) 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
34
private placement offering under Regulation S of the Securities Act pursuant to
which we issued an aggregate of 4,585,616 shares Pre Reverse Stock Split
(1,528,538 shares Post Reverse Stock Split 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.
MATERIAL COMMITMENTS
During fiscal year ended December 31, 2007, an aggregate of $1,365,500 was due
and owing to one of our shareholders relating to advances. Subsequently, during
fiscal year ended December 31, 2008, additional advances were made by this same
shareholder to us of $885,000 for an aggregate amount of $2,250,500 due and
owing. During fiscal year ended December 31, 2008, we repaid $500,000 to this
shareholder. Further, the shareholder assigned the amount of $1,515,214 to
various assignees and settled the $1,515,214 pursuant to the issuance of
7,576,068 shares Pre Reverse Stock Split (2,525,356 shares Post Reverse Stock
Split) of our restricted common stock at $0.25 ($0.75 Post Reverse Stock Split)
per share. The difference between the estimated fair value of the common shares
at issuance and the amount of debt settled totaling $378,803 was recorded as a
finance cost. As a result, as at December 31, 2008, an aggregate $310,000 was
due and owing to this shareholder, which bears interest at 8% per annum and has
no specific repayment terms. As at December 31, 2008, total accrued interest was
$19,164.
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 Annual 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2008, the FASB issued SFAS No. 163, ACCOUNTING FOR FINANCIAL GUARANTEE
INSURANCE CONTRACTS ("SFAS 163"). SFAS 163 clarifies how SFAS 60, ACCOUNTING AND
REPORTING BY INSURANCE ENTERPRISES applies to financial guarantee insurance
contracts issued by insurance enterprises, including the recognition and
measurement of premium revenue and claim liabilities. It also requires expanded
disclosures about financial guarantee insurance contracts. SFAS 163 is effective
35
for our interim period commencing January 1, 2009, except for disclosures about
an insurance enterprise's risk-management activities, which are effective for
our interim period commencing July 1, 2008. We do not expect the adoption of
SFAS 163 to have a material impact on our financial position, cash flows and
results of operations.
In March 2008, the FASB issued SFAS No. 161, DISCLOSURES ABOUT DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 161"). SFAS 161 is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity's financial position, financial performance, and cash
flows. SFAS 161 achieves these improvements by requiring disclosure of the fair
values of derivative instruments and their gains and losses in a tabular format.
It also provides more information about an entity's liquidity by requiring
disclosure of derivative features that are credit risk-related. Finally, it
requires cross-referencing within footnotes to enable financial statement users
to locate important information about derivative instruments. SFAS 161 will be
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008 and will be adopted by the Company beginning
in the first quarter of 2009. The Company does not expect there to be any
significant impact of adopting SFAS 161 on its financial position, cash flows
and results of operations.
In February 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 159, THE FAIR VALUE OPTION FOR FINANCIAL
ASSETS AND FINANCIAL LIABILITIES - INCLUDING AN AMENDMENT OF FASB STATEMENT NO.
115 ("SFAS No. 159"). This statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This Statement is expected to expand the use of fair value
measurement, which is consistent with the Board's long-term measurement
objectives for accounting for financial instruments. This statement is effective
as of the beginning of our first fiscal year that begins after November 15,
2007, although earlier adoption is permitted. Effective January 1, 2008, the
Company adopted this statement. To date, the Company has not applied this
standard to the measurement of any reported amounts. Accordingly, the adoption
of this standard did not have any impact on the Company's financial position,
cash flows or results of operations.
In December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTEREST IN
CONSOLIDATED FINANCIAL STATEMENTS, AN AMENDMENT OF ARB NO. 51 ("SFAS No. 160"),
which will change the accounting and reporting for minority interests, which
will be recharacterized as noncontrolling interests and classified as a
component of equity within the consolidated balance sheets. SFAS No. 160 is
effective as of the beginning of an entity's first fiscal year beginning on or
after December 15, 2008. Earlier adoption is prohibited. Management has not
determined the effect that adopting this statement would have on our financial
position or results of operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), BUSINESS
COMBINATIONS ("SFAS No. 141R"). SFAS No. 141R will change the accounting for
business combinations. Under SFAS No. 141R, an acquiring entity will be required
to recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS No. 141R will
36
change the accounting treatment and disclosure for certain specific items in a
business combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
entity's first annual reporting period beginning on or after December 15, 2008.
Accordingly, any business combinations completed by us prior to January 1, 2009
will be recorded and disclosed following existing GAAP. Management has not
determined the effect that adopting this statement would have on our financial
position or results of operations.
In September 2006, FASB issued SFAS No. 157, FAIR VALUE MEASURE ("SFAS No.
157"). This Statement defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), expands
disclosures about fair value measurements, and applies under other accounting
pronouncements that require or permit fair value measurements. SFAS No. 157 does
not require any new fair value measurements. However, the FASB anticipates that
for some entities, the application of SFAS No. 157 will change current practice.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, which for the Company is the fiscal year
beginning January 1, 2008. The adoption of this standard did not have any impact
on the Company's financial position, cash flows or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
FINANCIAL STATEMENTS
DECEMBER 31, 2008
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BALANCE SHEETS
STATEMENTS OF OPERATIONS
STATEMENT OF STOCKHOLDER'S EQUITY
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
37
DEJOYA GRIFFITH & COMPANY, LLC
__________________________________________
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders
Morgan Creek Energy, Corp.
Las Vegas, Nevada
We have audited the accompanying balance sheets of Morgan Creek Energy, Corp.
(An Exploration Stage Company) as of December 31, 2008 and 2007, and the related
statements of operations, stockholder's deficit, and cash flows for the years
then ended and from inception (October 19, 2004) to December 31, 2008. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Morgan Creek Energy, Corp. as
of December 31, 2008 and 2007, and the results of their operations and cash
flows for the years then ended and from inception (October 19, 2004) to December
31, 2008 in conformity with accounting principles generally accepted in the
United States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations, which
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
De Joya Griffith & Company, LLC
/s/ DE JOYA GRIFFITH & COMPANY, LLC
___________________________________
Henderson, NV
April 6, 2009
________________________________________________________________________________
2580 Anthem Village Drive, Henderson, NV 89052
Telephone (702) 563-1600 * Facsimile (702) 920-8049
38
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
BALANCE SHEETS
December 31, December 31,
2008 2007
(Audited) (Audited)
______________________________________________________________________________________________________
ASSETS
CURRENT ASSETS
Cash $ 14,883 $ 16,098
Other current assets 25,804 17,891
______________________________________________________________________________________________________
TOTAL CURRENT ASSETS 40,687 33,989
OIL AND GAS PROPERTIES, unproven (Note 3) 1,802,943 1,724,102
______________________________________________________________________________________________________
TOTAL ASSETS $ 1,843,630 $ 1,758,091
======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 303,959 $ 389,612
Due to related parties (Note 6) 331,162 1,570,079
Drilling advances payable - 759,000
______________________________________________________________________________________________________
TOTAL CURRENT LIABILITIES 635,121 2,718,691
______________________________________________________________________________________________________
GOING CONCERN (Note 1)
STOCKHOLDERS' EQUITY(DEFICIT) (Note 4)
Common stock, 33,333,333 shares authorized with $0.001 par value
Issued and outstanding
15,216,196 common shares (December 31, 2007 - 9,938,302) 15,216 9,938
Additional paid-in-capital 8,178,001 3,992,240
Deficit accumulated during exploration stage (6,984,708) (4,962,778)
______________________________________________________________________________________________________
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 1,208,509 (960,600)
______________________________________________________________________________________________________
TOTAL LIABILITIES & STOCK HOLDERS' EQUITY (DEFICIT) $ 1,843,630 $ 1,758,091
======================================================================================================
The accompanying notes are an integral part of these financial statements.
39
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
Year ended Year ended October 19, 2004
December 31, December 31, (inception) to
2008 2007 December 31, 2008
______________________________________________________________________________________________________________
(Audited) (Audited) (Audited)
GENERAL AND ADMINISTRATIVE EXPENSES
Investor relations $ 159,944 $ 9,120 $ 322,018
Consulting fees 228,502 189,991 856,960
Management fees - related party 263,386 312,990 888,083
Management fees - stock based compensation 436,955 - 1,964,125
Impairment of oil and gas properties (Note 3) - - 1,273,410
Office and general 262,956 156,639 619,700
Professional fees 245,527 148,281 635,752
______________________________________________________________________________________________________________
NET OPERATING LOSS (1,597,270) (817,021) (6,560,048)
OTHER EXPENSE
Financing Costs (424,660) - (424,660)
______________________________________________________________________________________________________________
TOTAL OTHER EXPENSE (424,660) - (424,660)
______________________________________________________________________________________________________________
NET LOSS $ (2,021,930) $ (817,021) $ (6,984,708)
==============================================================================================================
BASIC LOSS PER COMMON SHARE $ (0.15) $ (0.08)
======================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING-BASIC 13,833,323 9,938,302
======================================================================================
The accompanying notes are an integral part of these financial statements.
40
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM OCTOBER 19, 2004 (INCEPTION) TO DECEMBER 31, 2008
Deficit
Common Stock accumulated Total
____________________ Additional during Stockholders'
Number of Paid in exploration Equity
Shares Amount Capital stage (Deficit)
_________________________________________________________________________________________________________________________
Balance, October 19, 2004 - $ - $ - $ - $ -
Common stock issued for oil and gas property
at $0.075 per share - November 19, 2004 8,000,000 8,000 592,000 - 600,000
Capital distribution to founding share holder
on acquisition of oil and gas property (Note 3) - - (600,000) - (600,000)
Common stock issued for cash at $0.075 per share
- November 26, 2004 and December 15, 2004 4,583,333 4,583 339,167 - 343,750
Common stock issued for cash at $0.375 per share
- December 15, 2004 880,267 880 329,220 - 330,100
Net loss for the period - - - (23,729) (23,729)
_________________________________________________________________________________________________________________________
Balance, December 31, 2004 13,463,600 13,463 660,387 (23,729) 650,121
Common stock issued for cash at $0.375 per share
- March 9, 2005 93,333 93 34,907 - 35,000
Net loss for the year - - - (204,026) (204,026)
_________________________________________________________________________________________________________________________
Balance, December 31, 2005 13,556,933 13,556 695,294 (227,755) 481,095
Common stock issued for cash at $4.50 per share
- October 16, 2006 314,702 315 1,414,843 - 1,416,158
Common stock issued for oil and gas property
at $5.25 per share - October 17, 2006 (Note 3) 66,667 67 349,933 - 350,000
Stock-based compensation - - 1,527,170 - 1,527,170
Restricted common shares cancelled
- December 19, 2006 (4,000,000) (4,000) 4,000 - -
Net loss for the year - - - (3,918,002) (3,918,002)
_________________________________________________________________________________________________________________________
Balance, December 31, 2006 9,938,302 9,938 3,992,240 (4,145,757) (143,579)
Net loss for the year - - - (817,021) (817,021)
_________________________________________________________________________________________________________________________
Balance, December 31, 2007 9,938,302 9,938 3,992,240 (4,962,778) (960,600)
Shares for debt at $0.75 per share - February 13, 2008 2,525,356 2,525 1,891,492 - 1,894,017
Shares for debt at $0.63 per share - March 24, 2008 1,528,538 1,529 961,451 - 962,980
Common stock issued for cash at $0.75 per share
- July 3, 2008 and October 23, 2008 1,224,000 1,224 895,863 - 897,087
Stock based compensation - options - - 436,955 - 436,955
Net loss for the year - - - (2,021,930) (2,021,930)
_________________________________________________________________________________________________________________________
Balance, December 31, 2008 (audited) 15,216,196 $ 15,216 $8,178,001 $(6,984,708) $ (1,208,509)
=========================================================================================================================
The accompanying notes are an integral part of these financial statements.
41
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
October 19, 2004
Year Ended (inception) to
December 31, 2008 December 31,
2008 2007 2008
______________________________________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (2,021,930) $ (817,021) $ (6,984,708)
Adjustments to reconcile net loss
to net cash used in operating activities:
- Stock based compensation 436,955 - 1,964,125
- Impairment of oil and gas properties - - 1,273,410
- Financing costs 424,660 - 424,660
CHANGES IN OPERATING ASSETS AND LIABILITIES
- Other current assets (7,913) (29,136) (50,804)
- Due to related parties accrued 59,420 191,086 288,589
- Accounts payable and accrued liabilities (85,653) 269,877 264,282
______________________________________________________________________________________________________________________
NET CASH USED IN OPERATING ACTIVITIES (1,194,461) (385,194) (2,820,446)
______________________________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Oil and gas property expenditures (78,841) (1,479,032) (2,761,266)
______________________________________________________________________________________________________________________
NET CASH FLOWS USED IN INVESTING ACTIVITIES (78,841) (1,479,032) (2,761,266)
______________________________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on sale and subscriptions of common stock 897,087 - 3,022,095
Drilling Advances - 759,000 759,000
Advances from related parties-net 375,000 1,115,500 1,815,500
______________________________________________________________________________________________________________________
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,272,087 1,874,500 5,596,595
______________________________________________________________________________________________________________________
INCREASE (DECREASE) IN CASH (1,215) 10,274 14,883
CASH, BEGINNING OF PERIOD 16,098 5,824 -
______________________________________________________________________________________________________________________
CASH, END OF PERIOD $ 14,883 $ 16,098 $ 14,883
======================================================================================================================
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 $ 25,000
Non-cash sale of oil and gas property $ - $ 65,000 $ 65,000
Common stock issued for settlement of debts (Note 4) $ 2,856,997 $ - $ 2,856,997
The accompanying notes are an integral part of these financial statements.
42
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
(AUDITED)
________________________________________________________________________________
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 Texas ("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.
During the period the Company has begun leasing acreage in New Mexico. To date
the Company has acquired approximately 7,576 net acres. Subsequent to the period
ending December 31, 2008, the Company entered into an option to acquire
approximately 7,763 additional net acres in New Mexico. (Refer to Note 8)
GOING CONCERN
The Company commenced operations on October 19, 2004 and has not realized any
revenues since inception. As of December 31, 2008, the Company has an
accumulated deficit of $6,984,708 and a working capital deficit of $594,434. 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. To
date the Company has funded its initial operations by way of private placements
of common stock and advances from related parties.
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
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.
43
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
(AUDITED)
________________________________________________________________________________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________
OIL AND GAS PROPERTIES (CONTINUED)
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 December 31, 2008 and 2007 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.
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 December 31, 2008, 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.
44
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
(AUDITED)
________________________________________________________________________________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________
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 2008, the FASB issued SFAS No. 163, ACCOUNTING FOR FINANCIAL GUARANTEE
INSURANCE CONTRACTS ("SFAS 163"). SFAS 163 clarifies how SFAS 60, ACCOUNTING AND
REPORTING BY INSURANCE ENTERPRISES applies to financial guarantee insurance
contracts issued by insurance enterprises, including the recognition and
measurement of premium revenue and claim liabilities. It also requires expanded
disclosures about financial guarantee insurance contracts. SFAS 163 is effective
for the Company's interim period commencing January 1, 2009, except for
disclosures about an insurance enterprise's risk-management activities, which
are effective for the Company's interim period commencing July 1, 2008. The
Company does not expect the adoption of SFAS 163 to have a material impact on
the Company's financial position, cash flows and results of operations.
In March 2008, the FASB issued SFAS No. 161, DISCLOSURES ABOUT DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 161"). SFAS 161 is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity's financial position, financial performance, and cash
flows. SFAS 161 achieves these improvements by requiring disclosure of the fair
values of derivative instruments and their gains and losses in a tabular format.
It also provides more information about an entity's liquidity by requiring
disclosure of derivative features that are credit risk-related. Finally, it
requires cross-referencing within footnotes to enable financial statement users
to locate important information about derivative instruments. SFAS 161 will be
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, will be adopted by the Company beginning in
the first quarter of 2009. The Company does not expect the adoption of SFAS 161
to have a material impact on the Company's financial position, cash flows and
results of operations.
In February 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 159, THE FAIR VALUE OPTION FOR FINANCIAL
ASSETS AND FINANCIAL LIABILITIES - INCLUDING AN AMENDMENT OF FASB STATEMENT NO.
115 ("SFAS No. 159"). This statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This Statement is expected to expand the use of fair value
measurement, which is consistent with the Board's long-term measurement
objectives for accounting for financial instruments. This statement is effective
as of the beginning of the Company's first fiscal year that begins after
November 15, 2007, although earlier adoption is permitted. Effective January 1,
2008, the Company adopted this statement. To date, the Company has not applied
this standard to the measurement of any reported amounts. Accordingly, the
adoption of this standard did not have any impact on the Company's financial
position, cash flows or results of operations.
In December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTEREST IN
CONSOLIDATED FINANCIAL STATEMENTS, AN AMENDMENT OF ARB NO. 51 ("SFAS No. 160"),
which will change the accounting and reporting for minority interests, which
will be recharacterized as noncontrolling interests and classified as a
component of equity within the consolidated balance sheets.
45
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
(AUDITED)
________________________________________________________________________________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________
RECENT ACCOUNTING PRONOUNCEMENT (CONTINUED)
SFAS No. 160 is effective as of the beginning of an entity's first fiscal year
beginning on or after December 15, 2008. Earlier adoption is prohibited. The
Company has not yet determined the effect, if any, that adopting this statement
would have on the Company's financial position, cash flows or results of
operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), BUSINESS
COMBINATIONS ("SFAS No. 141R"). SFAS No. 141R will change the accounting for
business combinations. Under SFAS No. 141R, an acquiring entity will be required
to recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS No. 141R will
change the accounting treatment and disclosure for certain specific items in a
business combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
entity's first annual reporting period beginning on or after December 15, 2008.
Accordingly, any business combinations completed by the Company prior to January
1, 2009 will be recorded and disclosed following existing GAAP. The Company has
not yet determined the effect, if any, that adopting this statement would have
on the Company's financial position, cash flows or results of operations.
In September 2006, FASB issued SFAS No. 157, FAIR VALUE MEASURE ("SFAS No.
157"). This Statement defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), expands
disclosures about fair value measurements, and applies under other accounting
pronouncements that require or permit fair value measurements. SFAS No. 157 does
not require any new fair value measurements. However, the FASB anticipates that
for some entities, the application of SFAS No. 157 will change current practice.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, which for the Company is the fiscal year
beginning January 1, 2008. The adoption of this standard did not have any impact
on the Company's financial position, cash flows or results of operations.
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
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 and additional 7,763 net acres of
property within the State of New Mexico for a five year term in consideration
for $388,150. The Company optioned to acquire a 100% working interest in
approximately 7,763 net acres; consisting of a 78.5% N.R.I. in the leases in
approximately 2,017 net acres and an 81.5% N.R.I. in the leases in approximately
5,746 net acres. Under the terms of the agreement the Company has until April
16, 2009 to complete the transactions.
46
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
(AUDITED)
________________________________________________________________________________
NOTE 4 - STOCKHOLDERS' EQUITY (DEFICIT)
________________________________________________________________________________
(a) SHARE CAPITAL
The Company's capitalization is 33,333,333 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.
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
and the 3:1 reverse stock split on April 22, 2008 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 4,000,000
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 2,066,666 shares of common stock at
$0.075 per share for proceeds of $155,000.
On December 15, 2004, the Company issued 2,516,667 shares of common stock at
$0.075 per share for proceeds of $188,750 and 880,267 shares of common stock at
$0.375 per share for proceeds of $330,100.
On March 9, 2005, the Company issued 93,333 shares of common stock at a price of
$0.375 per share for proceeds of $35,000.
On October 16, 2006, the Company completed a private placement consisting of
314,702 units at $4.50 per unit for proceeds of $1,416,158. Each unit consists
of one common share and one non-transferable share purchase warrant exercisable
at $9.00 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, 187,778 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%.
During 2008, the Company completed a private placement consisting of 1,224,000
units at $0.75 per unit for total gross proceeds of $918,000 and finders fees of
(20,913). Each unit consists of one common share and one non-transferable share
purchase warrant exercisable at $1.50 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.
(c) OTHER ISSUANCES
On February 13, 2008, the Company issued 2,525,356 shares of common stock at a
price of $0.75 per share on settlement of related party advance 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 1,528,538 shares of common stock at a
price of $0.63 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).
47
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
(AUDITED)
________________________________________________________________________________
NOTE 4 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
________________________________________________________________________________
(d) SHARE PURCHASE WARRANTS
Details of the Company's share purchase warrants issued and outstanding as of
December 31, 2008 are as follows:
Exercise price Number of warrants to purchase shares Expiry Date
_____________________________________________________________________________
$1.50 397,000 June 27, 2009
$1.50 827,000 October 23, 2009
The Company's share purchase warrants activity for the period ended December 31,
2008 is summarized as follows:
Weighted average
Weighted average remaining In
Number of exercise Price contractual life
Warrants per share (in years)
________________________________________________________________________________
Balance, December 31, 2006 314,702 $ 9.00 1.80
Issued - - -
Expired - - -
Exercised - - -
________________________________________________________________________________
Balance, December 31, 2007 314,702 9.00 0.80
Issued 1,224,000 1.50 0.71
Expired (314,702) 9.00 -
Exercised - - -
________________________________________________________________________________
Balance, December 31, 2008 1,224,000 $ 1.50 0.71
================================================================================
All warrants are exercisable as at December 31, 2008.
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 1,666,667 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
616,668 stock options to certain officers, directors and management of the
Company at $3.30 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
1,250,000 stock options to certain officers, directors and management of the
Company at $1.00 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%.
48
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
(AUDITED)
________________________________________________________________________________
NOTE 5 - STOCK OPTION PLAN (CONTINUED)
________________________________________________________________________________
The Company's stock option warrants activity for the period ended December 31,
2008 is summarized as follows:
Weighted average
Weighted average remaining In
Number of exercise Price contractual life
Options per share (in years)
________________________________________________________________________________
Balance, December 31, 2006 616,668 $ 3.30 4.95
Granted - -
Expired - - -
Exercised - - -
________________________________________________________________________________
Balance, December 31, 2007 616,668 3.30 3.95
Granted 1,250,000 1.00
Expired - - -
Exercised - - -
________________________________________________________________________________
Balance, December 31, 2008 1,866,668 $ 1.76 7.22
================================================================================
All options are exercisable as at December 31, 2008.
NOTE 6 - RELATED PARTY TRANSACTIONS
________________________________________________________________________________
INTERNATIONAL MARKET TREND, INC. ("IMT")
An officer and director of IMT, a private company, is a shareholder of the
Company. During 2008, the Company incurred consulting fees of $30,000 to IMT
(2007 - $120,000). On March 24, 2008, the Company converted $86,873 in
consulting fees and advances through the issuance of 144,788 commons shares of
the Company at $0.63 per share. (Refer to Note 4).
On June 13, 2008, the Company repaid a shareholder of the Company that had
advanced $10,000 to the Company. The amount was unsecured, non-interest bearing
and without specific repayment terms.
As of December 31, 2007, $1,365,500 was owed to a separate 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 2,525,356 shares of common stock at a
price of $0.75 per share on settlement of related party advance and related
accrued interest totaling $1,894,017 (Refer to Note 4). As a result, as of
December 31, 2008, $310,000 was owed which bears interest at 8% per annum and
has no specific repayment terms. As of December 31, 2008, total accrued interest
was $19,164 (December 31, 2007 - $66,456).
MANAGEMENT FEES
During 2008, the Company paid officers and directors $263,386 for management
fees (2007 -$311,250). As of December 31, 2008 total amount owing in management
fees was $7,070.
During 2008, the Company converted $71,250 of management fees owing to the
President of the Company through the issuance of 118,750 common shares of the
Company at $0.63 per share (Refer to Note 4).
As part of their compensation agreements the Company's chief Geologist and
Operations Manager (hereafter referred to as "Executives") each received and is
assigned up to 1.5% overriding royalty interest in any oil and gas properties
which are directly introduced by the Executives to the Company. During 2008, the
Company recorded related additional compensation to the Executives of $3,386
(2007 - $1,739), being the estimated cost of royalty interests earned during the
year.
49
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
(AUDITED)
________________________________________________________________________________
NOTE 7 - INCOME TAXES
________________________________________________________________________________
The Company has adopted the FASB No. 109 for reporting purposes. As of December
31, 2008, and 2007 the Company had net operating loss carry forwards of
approximately $4,596,000 and $3,436,000 respectively that may be available to
reduce future years' taxable income through 2028. Future tax benefits which may
arise as a result of these losses have not been recognized in these financial
statements, as their realization is determined not likely to occur and
accordingly, the Company has recorded a valuation allowance for the deferred tax
asset relating to these tax loss carryforwards.
At December 31, 2008 and 2007, the Company had a federal operating loss carry
forward of $4,595,923 and $3,435,608, respectively.
The provision for income taxes consisted of the following components for the
years ended December 31:
2008 2007
___________ ___________
Current:
Federal -- --
State -- --
Deferred: -- --
___________ ___________
-- --
=========== ===========
Components of net deferred tax assets, including a valuation allowance, are as
follows at December 31:
2008 2007
___________ ___________
Deferred tax assets:
Net operating loss carryforward $ 4,595,923 $ 3,435,608
___________ ___________
Total deferred tax assets 1,608,573 1,202,463
Less: Valuation Allowance (1,608,573) (1,202,463)
___________ ___________
Net Deferred Tax Assets $ -- $ --
=========== ===========
The valuation allowance for deferred tax assets as of December 31, 2008 and 2007
was $1,608,573 and $1,202,463, respectively. In assessing the recovery of the
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income in the periods in which those temporary differences become
deductible. Management considers the scheduled reversals of future deferred tax
assets, projected future taxable income, and tax planning strategies in making
this assessment. As a result, management determined it was more likely than not
the deferred tax assets would be realized as of December 31, 2008 and 2007.
Reconciliation between the statutory rate and the effective tax rate is as
follows at December 31:
2008 2007
___________ ___________
Federal statutory tax rate (35.0)% (35.0)%
___________ ___________
Change in valuation allowance 35.0 % 35.0 %
___________ ___________
Effective tax rate 0 % 0 %
=========== ===========
50
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
(AUDITED)
________________________________________________________________________________
NOTE 8 - SUBSEQUENT EVENTS
________________________________________________________________________________
Effective on January 8, 2009, the Board of Directors (the "Board") of Morgan
Creek Energy Corp., a Nevada corporation (the "Company") accepted the
resignation of D. Bruce Horton dated January 8, 2009 as the Chief Financial
Officer/Secretary/Treasurer of the Company. Mr. Horton remains as a member of
the Board of Directors of the Company. Therefore, the Board of Directors remains
comprised of Marcus Johnson, D. Bruce Horton, Erik Essiger, Peter Wilson and
Angelo Viard.
Effective as of January 8, 2009, the Board of Directors accepted the consent of
William Thomas dated January 8, 2009 as the Chief Financial
Officer/Secretary/Treasurer of the Company. M Thomas' biography is as follows:
51
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE 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
December 31, 2008 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
The Company's 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 the
Company's management, including the chief executive officer and principal
financial officer, we evaluated the effectiveness of our internal control over
financial reporting as of December 31, 2008. 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 Annual 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 Annual
Report on Form 10-K.
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.
CHANGES IN INTERNAL CONTROLS
The Company's management had remediated the material weaknesses that were
reported from its 10-K/A for the fiscal year end December 31, 2007 which were
filed on 10/2/2008. A) Management implemented an audit committee that oversees
and monitors the Company's 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.
52
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 Annual Report on Form 10-K for fiscal year ended
December 31, 2008 filed with the Securities and Exchange Commission.
ITEM 9B. OTHER INFORMATION
Not applicable.
NOTES TO FINANCIAL STATEMENTS.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective July 31, 2007, our Board of Directors appointed De Joya Griffith &
Company, LLC (De Joya Griffith) as our principal independent registered public
accounting firm.
The reports of De Joya Griffith on our financial statements for each of the
fiscal years ended December 31, 2008 and 2007 did not contain an adverse opinion
or disclaimer of opinion, nor were they modified as to uncertainty, audit scope
or accounting principles, other than to state that there is substantial doubt as
to our ability to continue as a going concern. During our fiscal years ended
December 31, 2008 and 2007, there were no disagreements between us and De Joya
Griffith, whether or not resolved, on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the satisfaction of De Joya Griffith, would have
caused De Joya Griffith to make reference thereto in their reports on our
audited financial statements.
53
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
All of our directors hold office until the next annual general meeting of the
shareholders or until their successors are elected and qualified. Our officers
are appointed by our board of directors and hold office until their earlier
death, retirement, resignation or removal.
Our directors and executive officers, their ages and positions held are as
follows:
NAME AGE POSITION WITH THE COMPANY
Peter Wilson 41 President, Chief Executive Officer/Principal
Executive Officer and a Director
William D. Thomas 57 Secretary/Treasurer, Chief Financial Officer,
and Principal Accounting Officer
Marcus Johnson 60 Director, Compensation Committee member and
Audit Committee member
D. Bruce Horton 64 Director, Compensation Committee member and
Audit Committee member
Erik Essiger 43 Director
Angelo Viard 36 Director, Compensation Committee member and
Audit Committee member
Thomas Markham III 58 Chief Geologist
BUSINESS EXPERIENCE
The following is a brief account of the education and business experience of
each director, executive officer and key employee during at least the past five
years, indicating each person's principal occupation during the period, and the
name and principal business of the organization by which he or she was employed,
and including other directorships held in reporting companies.
PETER WILSON. Mr. Wilson has been our President/Chief Executive Officer and a
member of our Board of Directors since September 29, 2008. During the past
fifteen years, Mr. Wilson has been involved in the senior level management of
public companies. His experience spans a wide range of project development and
contract negotiations within the mining, energy and real estate industries. Mr.
54
Wilson has focused on the creation and implementation of market strategies,
contract negotiations and financing options for maximum return on investments.
His business experience includes diverse international assignments in the United
Kingdom, Canada, the United States, Switzerland and Norway. Mr. Wilson has
worked extensively with overseas investor groups and within the E&P market in
Louisiana and Texas.
From approximately 2007 through the current date, Mr. Wilson is the president of
Hana Mining Ltd., a publicly listed exploration company seeking to develop a
copper-silver project in Botswana, Africa. During approximately 2005 to 2006,
Mr. Wilson served as the president and chief executive officer of Sun Oil and
Gas Corp. During approximately 1997 to 2005, Mr. Wilson was a director and the
vice president of International Operations for Petroreal Oil Corp., a small oil
producer engaged in energy asset purchases aggregating more than $130,000,000.
During approximately 1993 to 1999, Mr. Wilson was the vice president of Samoth
Equity Corporation (now Sterling Center Corp.), where he began his involvement
with capital markets and finance. Samoth Equity Corporation gained prominence
through the 1990s and grew to a $150,000,000 TSX-listed real estate merchant
banking organization involved in lending throughout the southwestern United
States and Canada.
Mr. Wilson continues to serve as an advisor to several public and private
Houston-based E&P companies, and serves as a director of Offset Energy
Corporation operating in the GOM and Houston, Texas.
WILLIAM THOMAS. Mr. Thomas has been our Chief Financial
Officer/Secretary/Treasurer since January 8, 2009. Mr. Thomas has thirty years
of experience in the finance and accounting areas for the natural resource
sector. Currently, Mr. Thomas is also the chief financial officer of Mainland
Resources, Inc., a Nevada corporation that trades on the OTC Bulletin Board, and
the chief financial officer and a director of Uranium International Corp., a
Nevada corporation that trades on the OTC Bulletin Board and chief financial
officer and director of Mira Resources, an Canadian public resources company.
Mr. Thomas has held various successive management positions with Kerr McGee
Corporation's China operations based in Beijing, China, ending in 2004 with his
final position as director of business services. For a brief period after
leaving Kerr McGee, Mr. Thomas acted as a self-practitioner in the accounting
and finance field. In July 2007, he took on the role of chief financial officer
for two public resource companies; Hana Mining Inc. and NWT Uranium Corp.
Recently, Mr. Thomas resigned from NWT Uranium Corp. but continues to serve as
CFO for Hana Mining. Mr. Thomas was previously general manager (1999-2002), and
finance and administration manager (1996-1999) of Kerr McGee's China operations.
While in China, Mr. Thomas was responsible for finance including Sarbanes Oxley
reporting, budgeting, treasury, procurement, taxation, marketing, insurance and
business development, including commercial negotiations with the Chinese
partner, China National Offshore Oil Co (CNOOC) and other Chinese and joint
venture partners. Mr. Thomas focused heavily on supporting exploration and
development operations for three operated blocks in Bohai Bay, as well as
evaluation and negotiation of new venture blocks in East China Sea and the South
China Sea. He was also responsible for the liaison with CNOOC and other Chinese
oil companies, Kerr McGee US management and joint venture partners, where his
main focus was to ensure cost effective and timely achievement of various
approved work programs and budgets. He was also Chief Representative for Kerr
McGee on the Joint Management Committee (JMC). Mr. Thomas previously worked as
55
manager of fixed asset accounting for Kerr McGee Corporation's US operations
(1996), as finance director of Kerr McGee's UK operations based in
London/Aberdeen (1992-1996), and Kerr McGee's Canadian operations in Calgary,
Alberta, Canada (1984-1992), including the predecessor company, Maxus Canada
Ltd, which was acquired by Kerr McGee Ltd. Over the course of his career, he has
been involved in all aspects of managing accounting, budgeting, human resources,
administration, insurance, taxation and other business support aspects
surrounding gas properties for Kerr McGee. Mr. Thomas was responsible to ensure
compliance with COPAS, SEC, FASB and international accounting regulations. He
participated on a team that developed the Oracle accounting system application
to the Kerr McGee's worldwide operations. He was most notably involved in the
company's initial entry into both China and the UK North Sea - start ups of
local and expatriate personnel that eventually developed into core areas (over
$1 Billion) for Kerr McGee, including the company's first operated offshore oil
fields in China (CFD 1-1) and the UK (Gryphon). In his early career, Mr. Thomas
also held senior management positions in the finance divisions of Norcen Energy
Ltd of Calgary, Alberta (1981-1984), Denison Mines Ltd of Ontario Canada
(1978-1981) and Algoma Steel Corporation of Sault Ste Marie, Ontario, Canada
(1977). He was also a Senior Auditor for the accounting firm, Coopers & Lybrand
in Toronto, Canada (1975-1977). Mr. Thomas attained his Chartered Accountant
(CA) designation from the Canadian Institute of Chartered Accountants in 1977.
He holds an Honors Bachelor of Commerce and Finance from the University of
Toronto, Ontario, Canada.
MARCUS JOHNSON: Mr. Johnson was our President and Chief Executive
Officer/Principal Executive Officer until April 30, 2008, and remains a member
of our Board of Directors, a member of the Compensation Committee and a member
of the Audit Committee. He has been a member of our Board of Directors since
October 25, 2006. Mr. Johnson, AIA, has previously been active in management in
both the private and public sectors as a consultant to management with an
emphasis on investor relations and awareness. Mr. Johnson has performed
consulting services for Intergold Corporation, now known as Lexington Resources,
Inc., and Vega-Atlantic Corporation, now known as Transax International Limited.
Mr. Johnson is a professional architect and a member of the American Institute
of Architects. Mr. Johnson has been the professional architectural consultant of
record on various commercial projects and is a consultant to Exterior Research &
Design, LLC, where he is currently retained as an expert for determining
architectural management standards. Mr. Johnson is also the chief executive
officer and director to Geneva Resources, Inc. since October 2006.
D. BRUCE HORTON. Mr. Horton was our Chief Financial Officer/Secretary/Treasurer
until his resignation in January 8, 2009, and remains a member of our Board of
Directors, a member of the Compensation Committee and a member of the Audit
Committee. He has been one of our directors since August 21, 2006. During the
past five years, Mr. Horton has been active in the financial arena in both the
private and public sectors as an accountant and financial management consultant
with an emphasis on corporate financial reporting, financing and tax planning.
Mr. Horton has specialized in corporate management, re-organization, merger and
acquisition, international tax structuring, and public and private financing for
over thirty years. From 1972 through 1986, Mr. Horton was a partner in a public
accounting firm. In 1986, Mr. Horton co-founded the Clearly Canadian Beverage
Corporation, of which he was a director and chief financial officer from June
1986 to May 1997. He is a principal consultant in Calneva Financial Services
Ltd. that provides accounting and financial management consulting services as
well as investment banking services focusing on venture capital opportunities in
Asia. Mr. Horton is also an officer and director of Geneva Resources, Inc. since
May 2006, which is a publicly traded company.
56
ERIK ESSIGER. Mr. Essiger has been one of our directors since August 21, 2006.
Mr. Essiger has more than fifteen years of experience in corporate finance and
lead advisory services relating to strategic and commercial development projects
across a wide variety of sectors and including, in particular, within the
industrial, automotive, business services, retail and consumer goods sectors. In
this respect, Mr. Essiger has performed various commercial and strategy services
as both an external consultant and as a board member and managing director of a
number of companies, including a venture capital company. During the past five
years, Mr. Essiger has been: (i) the Managing Director and the founder of
Precisetech GmbH, a corporate finance advisory company focused on international
M&A transactions (from October 2004 to present); (ii) a member of the
Supervisory Board of Corix Capital AG (from December 2003 to present); (iii) the
Senior Manager, Transaction Services Strategy Group, with PricewaterhouseCoopers
AG, heading up the commercial and due diligence practice of that group in
Germany which provided services mainly to private equity clients of the firm
(from April 2003 to September 2004); and (iv) a member of the Executive Board
(Vorstand) of MultiMedia Technologies AG, a producer of set-top-boxes and a
company operating in the fields of interactive digital television and the
streaming media market (from July 2000 to July 2002) Mr. Essiger also has
extensive international experience in corporate restructuring; especially in
Germany, Russia, Hong Kong and Switzerland; and he was a member of the
German-Russian co-operation council. Mr. Essiger is also a director of Uranium
Energy Corp., a publicly traded company.
ANGELO VIARD. Mr. Viard has been one of our directors since September 29, 2008.
Mr. Viard is also a member of the Compensation Committee and a member of the
Audit Committee. During the past ten years, Mr. Viard has been involved in
providing companies with advisory services including, but not limited to,
managerial, investment strategy, finance, information technology, compliance,
accounting, business development, mergers and acquisitions, and capital fund
raising in a wide range of industry sectors across the United States, South
America and Europe. From approximately June 2007 through current date, Mr. Viard
has been the president/chief executive officer of VCS Group, Inc. formerly known
as "Viard Consulting Services". His role as director of advisory services
requires development of an advisory services sector. Mr. Viard's functions
include full budgeting responsibilities, management of budgets and planning,
creation of policies and administrative procedures to restructure business
processes, authoring multi-company employee manuals, design work order tracking
and billing interface systems for accounting, and updating business plans,
accounting structures and organizational changes to maximize business growth.
From approximately August 2006 through June 2007, Mr. Viard was the IT
operations manager for Bare Escentuals where he was responsible for developing
and coordinating multiple related projects in alignment with strategic and
tactical company goals, served as a primary customer advocate, planned and
coordinated long term systems strategy, and managed the day to day operations of
the IT department, including LAN/WAN architecture, telecommunications and
hardware/software support and development. From approximately August 2005
through August 2006, Mr. Viard was a senior IT audit consultant for
PricewaterhouseCoopers LLP where he was responsible for determining the audit
documentation, strategy and plan. From approximately December 2004 through
August 2005, Mr. Viard was the chief executive officer and founder of Technology
Mondial Inc., which was a start-up company specializing in broadband wireless
57
technology in Costa Rica and management and development of wireless connection
planning for Latin America. Mr. Viard was also previously employed with OpenTV
Inc, where he was manager of information system and technology, Thomas Weisel
Partners LLC where he was an information technology brokerage services manager,
BancBoston Robertson Stephens & Co. where he was a senior system engineer, and
Environmental Chemical Corporation where he was a technical analyst.
Mr. Viard holds a master in computer science, a BS in business management and
administration, and an A/A in computer business administration and network.
THOMAS ALDEN MARKHAM II: Mr. Markham has been our Chief Geologist and one of our
directors since August 21, 2006. Mr. Markham resigned from our board of
directors on April 30, 2008 and remains our Chief Geologist. Mr. Markham is a
professional geologist specializing in evaluations and management of oil and gas
plays in the mid-continental U.S. Since receiving his Masters of Geology, Mr.
Markham has focused on oil and gas plays. He began his career working with
BEPCO, ARCO and then TENNECO, acting as geologist on a wide range of projects
spanning over 12 years of development on leading plays including the Pinon,
Allen Hill, Brunson Ranch, J.D. Shale, Brown Bassett Extension and NYY projects.
During this period, he directed 15 Ph D-level geologists and managed exploration
budgets up to $21 million. Mr. Markham has recently acted as Chief Geologist in
charge of the supervision and generation of a 21,000 acre Pennsylvanian gas play
in the Permian Basin. Mr. Markham was instrumental in the play's development and
finalized negotiations with the Osage Tribe of Oklahoma for drilling rights on
57-quarter sections (9,120 acres). He has been an independent oil and gas
geologist managing project generation and evaluation for various industry and
non-industry groups primarily in the Mid Continent. Mr. Markham has successfully
drilled and completed proprietary prospects (while providing the supervision of
seismic, leasing, drilling, completion, and production activities) of 88 oil and
gas wells (to 10,500') in Texas, New Mexico, and Oklahoma. He was the generating
geologist of a 5 TCFG overthrust play in Central Texas, he finalized a New
Mexico San Andres stratigraphic play (50 to 100 MMBO at 4,000') and a Permian
Basin Devonian structural play and managed the screening and evaluation of
Springer - Atoka sub-basin prospects of the Anadarko Basin (3-D). Mr. Markham's
work has been published in the American Gas Journal and he has been invited on a
technical tour of the former Soviet Union to review oil and gas assets. He was
also guest speaker at the American Association of Petroleum Landman's (AAPL)
"Buying Oil and Gas Properties" seminar. He continues to carry out Reserve
Evaluation for non-industry groups including the FDIC (Federal Deposit Insurance
Corp. - Wichita and Dallas Branches) and the IRS (Internal Revenue Service). Mr.
Markham is not a director or officer of any other U.S. reporting company.
FAMILY RELATIONSHIPS
There are no family relationships among our directors or officers.
58
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past five years, none of our directors, executive officers or persons
that may be deemed promoters is or have been involved in any legal proceeding
concerning: (i) any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either at the time
of the bankruptcy or within two years prior to that time; (ii) any conviction in
a criminal proceeding or being subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses); (iii) being subject to
any order, judgment or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction permanently or temporarily enjoining,
barring, suspending or otherwise limiting involvement in any type of business,
securities or banking activity; or (iv) being found by a court, the Securities
and Exchange Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law (and the judgment has
not been reversed, suspended or vacated).
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE
As of the date of this Annual Report, Messrs. Johnson, Viard and Horton have
been appointed as members to our Audit Committee. All of the three members are
"independent" within the meaning of Rule 10A-3 under the Exchange Act and are in
addition financial experts. The Audit Committee operates under a written charter
adopted by the Board of Directors on November 20, 2004. The Board of Directors
pursuant to a special meeting held on December 18, 2008 adopted an amended audit
committee charter and responsibilities.
The Audit Committee's primary function is to provide advice with respect to our
financial matters and to assist the Board of Directors in fulfilling its
oversight responsibilities regarding finance, accounting, and legal compliance.
The Audit Committee's primary duties and responsibilities will be to: (i) serve
as an independent and objective party to monitor our financial reporting process
and internal control system; (ii) review and appraise the audit efforts of our
independent accountants; (iii) evaluate our quarterly financial performance as
well as our compliance with laws and regulations; (iv) oversee management's
establishment and enforcement of financial policies and business practices; and
(v) provide an open avenue of communication among the independent accountants,
management and the Board of Directors.
COMPENSATION COMMITTEE
As of the date of this Annual Report, Messrs. Johnson, Viard and Horton have
been appointed as members to our Compensation Committee. The Compensation
Committee operates under a written charter adopted by the Board of Directors
pursuant to a special meeting held on December 18, 2008.
OVERVIEW OF COMPENSATION PROCESS
The Compensation Committee of our Board of Directors is responsible for setting
the compensation of our executive officers, overseeing the Board's evaluation of
the performance of our executive officers and administering our equity-based
incentive plans, 401(k) plan and deferred compensation plan, among other things.
59
The Compensation Committee undertakes these responsibilities pursuant to a
written charter adopted by the Compensation Committee and the Board of
Directors, which will be reviewed at least annually by the Compensation
Committee. The charter may be viewed in full on our website,
www.morgancreekcorp.com under the "Corporate Governance" tab on the Investor
Relations page.
The Compensation Committee is composed solely of "non-employee directors" as
defined in Rule 16b-3 of the rules promulgated under the Exchange Act, "outside
directors" for purposes of regulations promulgated pursuant to Section 162(m) of
the Internal Revenue Code ("IRC"), and "independent directors" as defined in
Section 303A of the New York Stock Exchange ("NYSE") corporate governance
listing standards, in each case as determined by the Board of Directors. Our
Board of Directors recommends Compensation Committee membership based on such
knowledge, experience and skills that it deems appropriate in order to
adequately perform the responsibilities of the Compensation Committee. Messrs.
Johnson, Horton and Viard serve as members of the Compensation Committee.
The Compensation Committee annually reviews executive compensation and our
compensation policies to ensure that the Chief Executive Officer and the other
executive officers are rewarded appropriately for their contributions to us and
that the overall compensation strategy supports the objectives and values of our
organization, as well as stockholder interests. The Compensation Committee will
conduct this review and compensation determination through a comprehensive
process involving a series of meetings typically occurring in the first quarter
of each year.
COMPENSATION PHILOSOPHY
The fundamental objective of our executive compensation policies is to attract,
retain and motivate executive leadership for us that will execute our business
strategy, uphold our values and deliver results and long-term value to our
stockholders. Accordingly, the Compensation Committee seeks to develop
compensation strategies and programs that will attract, retain and motivate
highly qualified and high-performing executives through compensation that is:
(i) PERFORMANCE BASED: a significant component of compensation should
be determined based on whether or not we meet certain performance criteria that
in the view of our Board of Directors are indicative of our success;
(ii) STOCKHOLDER BASED: equity incentives should be used to align the
interests of our executive officers with those of our stockholders;
(iii) FAIR: compensation should take into account compensation among
similarly situated companies, our success relative to peer companies and our
overall pay scale.
It is the Compensation Committee's goal to have a substantial portion of each
executive officer's compensation contingent upon our performance, as well as
upon his or her individual performance. The Compensation Committee's
compensation philosophy for an executive officer emphasizes an overall analysis
of the executive's performance for the year, projected role and
responsibilities, required impact on execution of our strategy, external pay
practices, total cash and total direct compensation positioning, and other
factors the Compensation Committee deems appropriate. The Compensation
Committee's philosophy also considers employee retention, vulnerability to
recruitment by other companies and the difficulty and costs associated with
60
replacing executive talent. Based on these objectives, compensation programs for
similarly situated companies and the philosophies of the Compensation Committee,
the Compensation Committee has determined that we should provide our executive
officers compensation packages composed of the following elements: (i) base
salary, which reflects individual performance and is designed primarily to be
competitive with salary levels at comparably sized companies; and (ii) long-term
stock-based incentive awards which strengthen the mutuality of interests between
executive officers and our stockholders.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires our directors and officers, and the
persons who beneficially own more than ten percent of our common stock, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Copies of all filed reports are required to be furnished to us
pursuant to Rule 16a-3 promulgated under the Exchange Act. Based solely on the
reports received by us and on the representations of the reporting persons, we
believe that these persons have complied with all applicable filing requirements
during the fiscal year ended December 31, 2008.
ADDITIONAL CORPORATE GOVERNANCE POLICIES
Our Board of Directors considered additional corporate governance issues,
structure, policies and principles. Therefore, pursuant to a Board of Directors
meeting held on December 18, 2008, our Board of Directors adopted the following
documents as additional governing corporate governance documents (collectively,
the Corporate Governance Documents"): (i) Morgan Creek Energy Corp. Corporate
Governance Principles; (ii) Morgan Creek Energy Corp. Nominating and Governance
Committee Charter and Responsibilities; (iii) Morgan Creek Energy Corp. Board
Committees Policy; (iv) Morgan Creek Energy Corp. Code of Business Conduct and
Ethics; (v) Morgan Creek Energy Corp. Code of Conduct for the Board of
Directors; (vi) Morgan Creek Energy Corp. Corporate Governance Guideline; (vii)
Morgan Creek Energy Corp. Corporate Governance Policy' (viii) Morgan Creek
Energy Corp. Conflict of Interest Policy; (ix) Morgan Creek Energy Corp.
Whistleblower Policy; (x) Morgan Creek Energy Corp. Board Roles and
Responsibilities.
The Corporate Governance Documents may be viewed in full on our website,
www.morgancreekcorp.com under the "Corporate Governance" tab on the Investor
Relations page.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to our Chief Executive
Officer and those executive officers that earned in excess of $100,000 during
fiscal years ended December 31, 2008 and 2007 and 2006 (collectively, the "Named
Executive Officers"):
61
SUMMARY COMPENSATION TABLE
_______________________________________________________________________________________________________________________________
NON-EQUITY NON-QUALIFIED ALL OTHER
INCENTIVE PLAN DEFERRED COMPENSATION
COMPENSATION COMPENSATION
NAME AND STOCK OPTION EARNINGS
PRINCIPAL SALARY BONUS AWARDS AWARDS TOTAL
POSITION YEAR ($) (1) ($) ($) ($)(2) ($) ($) ($) ($)(2)(3)
_______________________________________________________________________________________________________________________________
Marcus 2006 -0- -0- -0- $412,748 --- --- --- $412,748
Johnson, prior
President and 2007 $71,250 -0- -0- -0- --- --- --- 71,250
CEO 2008 -0- -0- -0- $87,500 --- --- $71,250 158,750
_______________________________________________________________________________________________________________________________
David
Urquhart,
prior
President and
CEO 2008 $42,000 -0- -0- $175,000 --- --- --- $217,000
_______________________________________________________________________________________________________________________________
Thomas 2007 $120,869 -0- -0- -0- --- --- ---- $120,869
Markham, Chief
Geologist 2008 $111,693 -0- -0- $87,500 --- --- ---- 199,193
_______________________________________________________________________________________________________________________________
(1) This amount represents fees accrued and/or paid by us to the Named
Executive Officers during the past year pursuant to consulting services
provided in connection with their respective position as Chief Executive
Officer and Chief Geologist. During fiscal year ended December 31, 2008, we
paid: (i) $158,750 to Marcus Johnson, our prior President/Chief Executive
Officer represented by the valuation of the grant of 250,000 Stock Options
valued at $87,500 and settlement of the salary accrued and owing from
fiscal year ended December 31, 2007 of $71,250 by the issuance of 356,250
shares of common stock; and (ii) $199,193 to Thomas Markham, our Chief
Geologist, represented by the valuation of the grant of 250,000 Stock
Options valued at $87,500 and salary of $111,693. During fiscal year ended
December 31, 2007, we accrued: (i) $71,250 to Marcus Johnson, our then
President/Chief Executive Officer; and paid: (ii) $120,000 and an
additional $869 in accordance with the 1.5% royalty interest to Thomas
Markham, our then Chief Geologist. During fiscal year ended December 31,
2006, we also paid certain executive officers the following amounts, which
did not exceed $100,000 and, therefore, not required to be disclosed in the
Summary Compensation Table: (i) $60,000 and an additional $4,795 in
accordance with the 1.5% royalty interest to Thomas Markham, our Chief
Geologist; and (ii) $35,000 to Grant Atkins, our previous Chief Financial
Officer.
62
(2) This amount represents the fair value of these Stock Options at the date of
grant which was estimated using the Black-Scholes option pricing model.
(3) The amount paid to Marcus Johnson during fiscal year ended December 31,
2008 includes the aggregate amount of $71,250 in debt due and owing to Mr.
Johnson by the issuance of 356,250 Pre Reverse Stock Split shares (118,750
post reverse stock split) of our restricted common stock at $0.20 per
share.
STOCK OPTIONS/SAW GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2008
The following table sets forth information as at December 31, 2008 relating to
Stock Options that have been granted to the Named Executive Officers:
___________________________________________________________________________________________________________________________________
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
___________________________________________________________________________________________________________________________________
OPTION AWARDS STOCK AWARDS
Equity
Incentive
Equity Plan
Incentive Awards:
Plan Market or
Awards: Payout
Equity Market Number of Value of
Incentive Plan Value of Unearned Unearned
Number of Number of Awards: Number Number of Shares Shares, Shares,
Securities Securities of Securities Shares or or Units Units or Units or
Underlying Underlying Underlying Units of of Stock Other Other
Unexercised Unexercised Unexercised Option Stock That That Rights That Rights That
Options Options Unearned Exercise Option Have Not Have Not Have Not Have Not
Exercisable Unexercisable Options Price Expiration Vested Vested Vested Vested
Name (#) (#) (#) ($) Date (#) ($) (#) (#)
___________________________________________________________________________________________________________________________________
Marcus Johnson, 250,000 -0- -0- -0- -0- -0- -0-
prior President/
CEO
Thomas Markham, 250,000 -0- -0- -0- -0- -0- -0-
Chief Geologist
63
The following table sets forth information relating to compensation paid to our
directors during fiscal year ended December 31, 2008, 2007 and 2006:
DIRECTOR COMPENSATION TABLE
_____________________________________________________________________________________________________________________________
Change in
Pension
Value and
Fees Non-Equity Nonqualified
Earned or Incentive Deferred All
Paid in Stock Option Plan Compensation Other
Cash Awards Awards Compensation Earnings Compensation Total
Name ($) ($) ($) ($) ($) ($) ($)
_____________________________________________________________________________________________________________________________
Marcus Johnson,
Chairman
2006 (3)
2007 -0- -0- $412,748 -0- -0- -0- $412,748
2008 -0- -0- -0- -0- -0- -0- -0-
-0- (1) -0- $87,500 -0- -0- -0- $ 87,500
Thomas Markham
2006 $64,794 -0- (3) -0- -0- -0- $477,542
2007 -0- -0- $412,748 -0- -0- -0- -0-
2008 -0- (2) -0- -0- -0- -0- -0- $ 87,500
$ 87,500
Erik Essinger (3)
2006 $97,118 -0- $206,374 -0- -0- -0- $303,492
2007 -0- -0- -0- -0- -0- -0- -0-
2008 -0- (4) -0- -0- -0- -0- -0- -0-
Steve Jewett
2006 -0- -0- (3) -0- -0- -0- $ 41,275
2007 -0- -0- $41,275 -0- -0- -0- -0-
2008 (5) -0- -0- -0- -0- -0- -0- -0-
-0-
D. Bruce Horton (3)
2006 -0- -0- $41,275 -0- -0- -0- $ 41,275
2007 -0- -0- -0- -0- -0- -0- -0-
2008 -0- -0- -0- -0- -0- -0- -0-
David Urquhart (3)
2008 -0- (6) -0- $175,000 -0- -0- -0- $175,000
Peter Wilson (3)
2008 -0- (7) -0- -0- -0- -0- -0- -0-
Angelo Viard -0- -0- -0- -0- -0- -0- -0-
64
(1) Marcus Johnson received $87,500 during fiscal year ended December 31, 2008
in accordance with settlement of amounts due and owing relating to his
salary as executive compensation by way of issuance of 356,250 shares of
common stock.
(2) Thomas Markham received the $111,693 during fiscal year ended December 31,
2008 and $64,794 during fiscal year ended December 31, 2006 as executive
compensation in connection with his role as our Chief Geologist. Thomas
Markham resigned from the Board of Directors effective as of April 30,
2008.
(3) This amount represents the fair value of these options at the date of grant
which was estimated using the Black-Scholes option pricing model.
(4) Erik Essiger received $97,118 during fiscal year ended December 31, 2006 as
compensation for services rendered to us in connection with business
related consulting and promotional services performed in Europe on our
behalf.
(5) Stephen Jewett resigned from the Board of Directors effective as of
December 18, 2008.
(6) David Urquhart received $42,000 during fiscal year ended December 31, 2008
as compensation in connection with his role as our prior President/Chief
Executive Officer. Mr. Urquhart resigned from the Board of Directors
effective as of August 8, 2008.
(7) Peter Wilson received $3,000 during fiscal year ended December 31, 2008 as
executive compensation in connection with his role as our President/Chief
Executive Officer commencing September 29, 2008. Mr. Wilson also became a
member of our Board of Directors effective as of September 29, 2008.
EMPLOYMENT AND CONSULTING AGREEMENTS
MARKHAM CONSULTING SERVICES AGREEMENT
On approximately August 1, 2006, we entered into a month-to-month consulting
services agreement with Thomas Markham, our Chief Geologist (the "Markham
Consulting Services Agreement"). In accordance with the verbal terms and
provisions of the Markham Consulting Services Agreement: (i) Mr. Markham shall
provide to us all necessary services and perform all duties associated with his
executive position as Chief Geologist; (ii) we shall pay to Mr. Markham a
monthly fee of $10,000; and (iii) Mr. Markham shall receive a 1.5% royalty
interest in all properties Mr. Markham introduces to us which are subsequently
acquired by us.
65
During fiscal years ended December 31, 2008 and December 31, 2007, respectively,
we paid an aggregate of $120,000 and $120,000, respectively, to Mr. Markham in
accordance with the monthly fee and an additional $1,693 and $870, respectively,
in accordance with the amounts earned under the royalty interest.
During fiscal year ended December 31, 2006, we paid an aggregate of $60,000 to
Mr. Markham in accordance with the monthly fee and an additional $4,795 in
accordance with the amounts earned under the royalty interest
URQUHART EXECUTIVE SERVICE AGREEMENT
On April 30, 2008, we entered into an executive service agreement with
Westhampton Ltd., an Alberta corporation ("Westhampton") and David Urquhart (the
"Executive Agreement"). In accordance with the terms and provisions of the
Executive Agreement, Mr. Urquhart through Westhampton provided to us such
services as required relating to his executive position as our President and
Chief Executive Officer. In accordance with the further terms and provisions of
the Executive Agreement, we paid to Westhampton a monthly fee of $10,000 and
granted to Mr. Urquhart 500,000 Stock Options exercisable at $1.00 per share for
a ten year period. The Executive Agreement may be terminated by either party
upon thirty days notice.
Effective on August 8, 2008, our Board of Directors accepted the resignation of
David Urquhart as our President/Chief Executive Officer and a director. We
received notice of Mr. Urquhart's resignation approximately September 19, 2008.
The resignation of Mr. Urquhart is not a result of any disagreement between us
or Mr. Urquhart pertaining to matters relating to our operations, policies or
practices. Therefore, the Executive Agreement was terminated effective August 8,
2008.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
As of the date of this Annual Report, the following table sets forth certain
information with respect to the beneficial ownership of our common stock by each
stockholder known by us to be the beneficial owner of more than 5% of our common
stock and by each of our current directors and executive officers. Each person
has sole voting and investment power with respect to the shares of common stock,
except as otherwise indicated. Beneficial ownership consists of a direct
interest in the shares of common stock, except as otherwise indicated. As of the
date of this Annual Report, there are 15,216,196 shares of common stock issued
and outstanding.
66
AMOUNT AND
NATURE OF PERCENTAGE OF
NAME AND ADDRESS BENEFICIAL BENEFICIAL
OF BENEFICIAL OWNER(1) OWNERSHIP(1) OWNERSHIP
DIRECTORS AND OFFICERS:
Marcus Johnson 1,658,966 (2) 10.90%
2020 Prospect Way
Bellingham, Washington 98229
D. Bruce Horton 16,166 (3) Nil
2443 Alder Street
Vancouver, British Columbia
Canada, V6H 4A4
Thomas Markham 1,125,000 (4) 7.40%
8801 Christian Court
Plano, Texas 75025
Peter Wilson -0- -0-
69 Glenmore Drive
West Vancouver, British Columbia
Canada V7S 1A5
Erik Essiger 166,666 (5) 1.09%
P.O. Box 37491 Dubai
United Arab Emeriates
William D. Thomas 53,332 (6) nil %
17314 State Highway Suite 306
Houston, Texas 77064
Angelo Viard 1,650 Nil
190 Cleaveland Road #3
Pleasant Hill, California 94523
All executive officers and directors 2,563,745 (7) 16.85%
as a group (7 persons)
* Less than one percent.
(1) Under Rule 13d-3, a beneficial owner of a security includes any person who,
directly or indirectly, through any contract, arrangement, understanding,
relationship, or otherwise has or shares: (i) voting power, which includes
the power to vote, or to direct the voting of shares; and (ii) investment
power, which includes the power to dispose or direct the disposition of
shares. Certain shares may be deemed to be beneficially owned by more than
one person (if, for example, persons share the power to vote or the power
to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the
shares (for example, upon exercise of an option) within 60 days of the date
as of which the information is provided. In computing the
67
percentage ownership of any person, the amount of shares outstanding is
deemed to include the amount of shares beneficially owned by such person
(and only such person) by reason of these acquisition rights. As a result,
the percentage of outstanding shares of any person as shown in this table
does not necessarily reflect the person's actual ownership or voting power
with respect to the number of shares of common stock actually outstanding
as of the date of this Annual Report. As of the date of this Annual
Report, there are 41,976,589 shares issued and outstanding. Beneficial
ownership amounts reflect the Reverse Stock Split.
(2) This figure includes: (i) 1,118,750 shares of common stock; (ii) 166,666
Stock Options to purchase 166,666 shares of our common stock at an exercise
price of $3.30 per share expiring on December 15, 2011; and (iii) 250,000
Stock Options to purchase 250,000 shares of our common stock at exercise
price of $1.00 per share expiring on April 30, 2018.
(3) This figure includes 16,666 Stock Options to purchase 16,666 shares of our
common stock at an exercise price of $3.30 per share expiring on December
15, 2011.
(4) This figure includes: (i) 208,333 shares of common stock; (ii) 166,666
Stock Options to purchase 500,000 shares of our common stock at an exercise
price of $1.10 per share expiring on December 15, 2011; and (iii) 250,000
Stock Options to purchase 250,000 shares of our common stock at an exercise
price of $1.00 per share expiring on April 30, 2018.
(5) This figure includes: (i) 83,333 shares of common stock; and (ii) 83,333
Stock Options to purchase 83,333 shares of our common stock at an exercise
price of $1.10 per share expiring on December 15, 2011.
(6) This figure includes: (i) 26,666 shares of common stock; and (ii) 26,666
warrants to purchase 26,666 shares of our common stock at an exercise price
of $1.50 per share expiring on June 27, 2009.
(7) This figure includes: (i) 1,437,082 shares of common stock; (ii) 599,997
Stock Options to purchase 599,997 shares of our common stock at $3.30 per
share expiring on December 15, 2011; (iii) 500,000 Stock Options to
purchase 500,000 shares of our restricted common stock at an exercise price
of $1.00 per share expiring on April 30, 2018; and (iv) 26,666 warrants to
purchase 26,666 shares of our common stock at an exercise price of $1.50
per share expiring on June 27, 2009.
CHANGES IN CONTROL
We are unaware of any contract, or other arrangement or provision, the operation
of which may at a subsequent date result in a change of control of our company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Except for the transactions described below, none of our directors, officers or
principal stockholders, nor any associate or affiliate of the foregoing, have
any interest, direct or indirect, in any transaction or in any proposed
transactions, which has materially affected or will materially affect us during
fiscal year ended December 31, 2008.
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EMPLOYMENT AND CONSULTING AGREEMENTS
MARKHAM CONSULTING SERVICES AGREEMENT
On approximately August 1, 2006, we entered into a month-to-month consulting
services agreement with Thomas Markham, our Chief Geologist (the "Markham
Consulting Services Agreement"). In accordance with the verbal terms and
provisions of the Markham Consulting Services Agreement: (i) Mr. Markham shall
provide to us all necessary services and perform all duties associated with his
executive position as Chief Geologist; (ii) we shall pay to Mr. Markham a
monthly fee of $10,000; and (iii) Mr. Markham shall receive a 1.5% royalty
interest in all properties Mr. Markham introduces to us which are subsequently
acquired by us.
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
During fiscal year ended December 31, 2008, we incurred approximately $43,000 in
fees to our principal independent accountant for professional services rendered
in connection with the audit of our financial statements for fiscal year ended
December 31, 2008 and for the review of our financial statements for the
quarters ended March 31, 2008, June 30, 2008 and September 30, 2008.
During fiscal year ended December 31, 2007, we incurred approximately $42,142 in
fees to our principal independent accountants ($33,142 to Dale Matheson
Carr-Hilton Labonte LLP and $9,000 to De Joya Griffth) for professional services
rendered in connection with the audit of our financial statements for fiscal
year ended December 31, 2007 and for the review of our financial statements for
the quarters ended March 31, 2007, June 30, 2007 and September 30, 2007.
During fiscal year ended December 31, 2008, we did not incur any other fees for
professional services rendered by our principal independent accountant for all
other non-audit services which may include, but is not limited to, tax-related
services, actuarial services or valuation services.
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ITEM 15. EXHIBITS AND FINANCIAL SCHEDULES
The following exhibits are filed as part of this Annual Report.
EXHIBIT
NO. DOCUMENT
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Chapman Oil and Gas Lease (2)
4.2 Hurley Oil and Gas Lease (2)
4.3 Lease Assignment between Geneva Energy Corp. And Morgan Energy Corp.
dated December 17, 2004 (2)
4.4 Fletcher Lewis Letter (3)
4.5 Fletcher Lewis Consent dated December 31, 2004 (3)
4.6 American News Publishing Letter dated January 13, 2006 (3)
10.1 Asset Purchase Agreement between Morgan Creek Energy Corp. and
Geneva Energy Corp. Dated December 15, 2004 (1)
10.1 Charter of Audit Committee (1)
10.2 Executive Services Agreement between Morgan Creek Energy Corp,
Westhampton Ltd., and David Urquhart dated April 30, 2008. (5)
10.3 Option Agreement between Morgan Creek Energy Corp. nd Westrock Land
Corp dated October 31, 2008. (6)
14 Code of Business Conduct (1)
16 Letter of Dale Matheson Carr-Hilton LaBonte LLP Chartered
Accountants (4)
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
or 15d-14(a) of The Securities Exchange Act.
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
or 15d-14(a) of The Securities Exchange Act.
32.1 Certification of Chief Executive Officer and Chief Financial Officer
under Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act.
(1) Incorporated by reference from Form SB-2 filed with the Commission on April
11, 2005.
(2) Incorporated by reference from Form SB-2/A filed with the Commission on
June 14, 2005.
(3) Incorporated by reference from Form SB-2/A filed with the Commission on
January 13, 2006.
(4) Incorporated by reference from Form Current Report on 8-K filed with the
Commission on August 3, 2008.
(5) Incorporated by reference from Form Current Report on 8-K filed with the
Commission on April 5, 2008.
(6) Incorporated by reference from Form Current Report on 8-K filed with the
Commission on November 5, 2008.
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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: April 13, 2009
By: /s/ PETER WILSON
_________________________________________
Peter Wilson
President/Chief Executive Officer
Dated: April 13, 2009
By: /s/ WILLIAM D. THOMAS
_________________________________________
William D. Thomas
Treasurer/Chief Financial Officer
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