U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANEG ACT OF 1934
For the period ended June 30, 2007
[ ] 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. 0-25455
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.)
10120 S. Eastern Avenue, Suite 200, Henderson, Nevada 89052
___________________________________________________________
(Address of principal executive offices)
(702) 566-1307
___________________________
(Issuer's telephone number)
Securities registered pursuant to Section Name of each exchange on which
12(b) of the Act: registered:
_________________________________________ ______________________________
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001
___________________________________________________________
(Title of Class)
Indicate by checkmark whether the issuer: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X ] No[ ]
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Applicable Only to Issuer Involved in Bankruptcy Proceedings During the
Preceding Five Years.
N/A
Indicate by checkmark whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act
of 1934 after the distribution of securities under a plan confirmed by a court.
Yes[ ] No[ ]
Applicable Only to Corporate Registrants
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the most practicable date:
Class Outstanding as of August 17, 2007
Common Stock, $0.001 29,814,905
Documents Incorporated By Reference
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
-2-
MORGAN CREEK ENERGY CORP.
FORM 10-QSB
Part 1 FINANCIAL INFORMATION 4
Item 1 FINANCIAL STATEMENTS
Interim Balance Sheets 5
Interim Statements of Operations 6
Interim Statements of Cash Flows 7
Notes to Interim Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial Condition
or Plan of Operation 14
Item 3 Controls and Procedures 20
Part II OTHER INFORMATION 21
Item 1 Legal Proceedings 21
Item 2 Unregistered Sales of Securities and Use of Proceeds 22
Item 3 Defaults Upon Senior Securities 22
Item 4 Submission of Matters to a Vote of Security Holders 22
Item 5 Other Information 22
Item 6 Exhibits and Reports on Form 8-K 23
Signatures 23
-3-
PART I
ITEM 1. FINANCIAL STATEMENTS
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
INTERIM FINANCIAL STATEMENTS
JUNE 30, 2007
(UNAUDITED)
BALANCE SHEETS
INTERIM STATEMENTS OF OPERATIONS
INTERIM STATEMENTS OF CASH FLOWS
NOTES TO INTERIM FINANCIAL STATEMENTS
-4-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
BALANCE SHEETS
June 30, December 31,
2007 2006
______________________________________________________________________________________________________
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 94,668 $ 5,824
Prepaid 13,755 13,755
______________________________________________________________________________________________________
Total current assets 108,423 19,579
RESTRICTED CASH (Note 7) 25,000 -
______________________________________________________________________________________________________
OIL AND GAS PROPERTIES, unproven (Note 3) 310,859 310,070
______________________________________________________________________________________________________
Total assets $ 444,282 $ 329,649
======================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 266,683 $ 119,735
Drilling Advances - Boggs #1 25,381 -
Due to related parties (Note 6) 667,145 353,493
______________________________________________________________________________________________________
Total current liabilities 959,209 473,228
______________________________________________________________________________________________________
STOCKHOLDERS' DEFICIT (Note 4)
Common stock, 100,000,000 shares authorized at $0.001 par value,
29,814,905 shares issued and outstanding at June 30, 2007 and
December 31, 2006 29,815 29,815
Additional paid-in-capital 3,972,363 3,972,363
Deficit accumulated during exploration stage (4,517,105) (4,145,757)
______________________________________________________________________________________________________
Total stockholders' deficit (514,927) (143,579)
______________________________________________________________________________________________________
Total liabilities and stockholders' deficit $ 444,282 $ 329,649
======================================================================================================
The accompanying notes are an integral part of these interim financial statements.
-5-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
INTERIM STATEMENTS OF OPERATIONS
(UNAUDITED)
October 19,
Three Months Ended Six Months Ended 2004
June 30 June 30 (inception) to
2007 2006 2007 2006 June 30, 2007
__________________________________________________________________________________________________________________________
GENERAL AND ADMINISTRATIVE EXPENSES
Investor relations $ - $ 430 $ - $ 82,930 $ 152,954
Consulting fees 30,370 30,000 74,748 107,500 513,215
Management fees 60,000 10,000 121,739 25,000 433,446
Management fees - stock based compensation - - - - 1,527,170
Impairment of oil and gas properties - - - - 1,273,410
Office and general 58,854 1,827 85,799 7,781 285,904
Professional fees 34,460 32,890 89,062 43,970 331,006
__________________________________________________________________________________________________________________________
NET LOSS $ (183,684) $ (75,147) $ (371,348) $ (267,181) $ (4,517,105)
==========================================================================================================================
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.01) $ (0.00) $ (0.01) $ (0.01)
==============================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING-BASIC AND DILUTED 29,814,905 40,670,800 29,814,905 40,670,800
==============================================================================================================
The accompanying notes are an integral part of these interim financial statements.
-6-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended October 19, 2004
June 30 (inception) to
2007 2006 June 30, 2007
_______________________________________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (371,348) $(267,181) $ (4,517,105)
Adjustments to reconcile net loss to net cash used in operating
activities:
Stock based compensation - - 1,527,170
Impairment of oil and gas properties - - 1,273,410
Changes in operating assets and liabilities:
Prepaid expenses - - (13,755)
Accrued interest 24,852 - 24,852
Due from related parties - 200,000 -
Due to related parties 5,300 10,817 43,383
Accounts payable and accrued liabilities 146,948 3,461 227,006
_______________________________________________________________________________________________________________________
NET CASH USED IN OPERATING ACTIVITIES (194,248) (52,903) (1,435,039)
_______________________________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Oil and gas property expenditures (599,408) - (1,802,801)
Restricted cash deposits (25,000) - (25,000)
_______________________________________________________________________________________________________________________
NET CASH FLOWS USED IN INVESTING ACTIVITIES (624,408) - (1,827,801)
_______________________________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on sale of common stock - - 2,125,008
Drilling Advances 559,000 - 559,000
Advances from related parties 348,500 50,000 673,500
_______________________________________________________________________________________________________________________
NET CASH PROVIDED BY FINANCING ACTIVITIES 907,500 50,000 3,357,508
_______________________________________________________________________________________________________________________
INCREASE (DECREASE) IN CASH 88,844 (2,903) 94,668
CASH, BEGINNING OF PERIOD 5,824 7,110 -
_______________________________________________________________________________________________________________________
CASH, END OF PERIOD $ 94,668 $ 4,207 $ 94,668
=======================================================================================================================
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
=======================================================================================================================
The accompanying notes are an integral part of these interim financial statements.
-7-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 2007
(unaudited)
================================================================================
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
________________________________________________________________________________
ORGANIZATION
The Company was incorporated on October 19, 2004 in the State of Nevada. The
Company's fiscal year end is December 31. The Company's financial statements are
presented in US dollars.
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 2,281 gross acres and during the period commenced initial drilling
on the first well on the property, the Boggs 1 which was completed in July 2007.
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.
GOING CONCERN
The Company commenced operations on October 19, 2004 and has not realized any
revenues since inception. As of June 30, 2007 the Company has an accumulated
deficit of $4,517,105 and a working capital deficiency of $850,786. 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.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principals for interim
financial information and with the instructions to Form 10-QSB of Regulation
S-B. They do not include all information and footnotes required by United States
generally accepted accounting principles for complete financial statements.
However, except as disclosed herein, there has been no material changes in the
information disclosed in the notes to the financial statements for the year
ended December 31, 2006 included in the Company's Annual Report on Form 10-KSB
filed with the Securities and Exchange Commission. The interim unaudited
financial statements should be read in conjunction with those financial
statements included in the Form 10-KSB. In the opinion of Management, all
adjustments considered necessary for a fair presentation, consisting solely of
normal recurring adjustments, have been made. Operating results for the six
months ended June 30, 2007 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2007.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
________________________________________________________________________________
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.A.
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.
-8-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 2007
(unaudited)
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________
OIL AND GAS PROPERTIES (CONTINUED)
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 value. If a reduction in value
has occurred, costs subject to depletion are increased or a charge is made
against earnings for those operations where a reserve base is not yet
established.
Estimated future removal and site restoration costs are provided over the life
of proven reserves on a units-of-production basis. Costs, which include
production equipment removal and environmental remediation, are estimated each
period by management based on current regulations, actual expenses incurred, and
technology and industry standards. The charge is included in the provision for
depletion and depreciation and the actual restoration expenditures are charged
to the accumulated provision amounts as incurred.
The Company applies a ceiling test to capitalized costs which limits such costs
to the aggregate of the estimated present value, using a ten percent discount
rate of the estimated future net revenues from production of proven reserves at
year end at market prices less future production, administrative, financing,
site restoration, and income tax costs plus the lower of cost or estimated
market value of unproved properties. If capitalized costs are determined to
exceed estimated future net revenues, a write-down of carrying value is charged
to depletion in the period.
ASSET RETIREMENT OBLIGATIONS
The Company has adopted the provisions of SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires the fair value of a liability for
an asset retirement obligation to be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
related oil and gas properties
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates. Significant areas requiring management's
estimates and assumptions are the determination of the fair value of
transactions involving common stock and financial instruments. Other areas
requiring estimates include deferred tax balances and asset impairment tests.
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.
LOSS PER COMMON SHARE
Basic earnings 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 per share reflect the potential
dilution of securities that could share in the earnings of the Company. Because
the Company does not have any potentially dilutive securities, diluted loss per
share is equal to basic loss per share.
-9-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 2007
(unaudited)
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________
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 of June 30, 2007, the Company had net operating loss
carryforwards, however, due to the uncertainty of realization, the Company has
provided a full valuation allowance for the deferred tax assets resulting from
these loss carryforwards.
STOCK-BASED COMPENSATION
On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) (SFAS No.
123R), SHARE-BASED PAYMENT, which addresses the accounting for stock-based
payment transactions in which an enterprise receives employee services in
exchange for (a) equity instruments of the enterprise or (b) liabilities that
are based on the fair value of the enterprise's equity instruments or that may
be settled by the issuance of such equity instruments. In January 2005, the
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB)
No. 107, which provides supplemental implementation guidance for SFAS No. 123R.
SFAS No. 123R eliminates the ability to account for stock-based compensation
transactions using the intrinsic value method under Accounting Principles Board
(APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and instead
generally requires that such transactions be accounted for using a
fair-value-based method. The Company uses the Black-Scholes-Merton ("BSM")
option-pricing model to determine the fair-value of stock-based awards under
SFAS No. 123R, consistent with that used for pro forma disclosures under SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. The Company has elected the
modified prospective transition method as permitted by SFAS No. 123R and
accordingly prior periods have not been restated to reflect the impact of SFAS
No. 123R. The modified prospective transition method requires that stock-based
compensation expense be recorded for all new and unvested stock options,
restricted stock, restricted stock units, and employee stock purchase plan
shares that are ultimately expected to vest as the requisite service is rendered
beginning on January 1, 2006 the first day of the Company's fiscal year 2006.
Stock-based compensation expense for awards granted prior to January 1, 2006 is
based on the grant date fair-value as determined under the pro forma provisions
of SFAS No. 123.
Prior to the adoption of SFAS No. 123R, the Company measured compensation
expense for its employee stock-based compensation plans using the intrinsic
value method prescribed by APB Opinion No. 25. The Company applied the
disclosure provisions of SFAS No. 123 as amended by SFAS No. 148, ACCOUNTING FOR
STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE, as if the fair-value-based
method had been applied in measuring compensation expense. Under APB Opinion No.
25, when the exercise price of the Company's employee stock options was equal to
the market price of the underlying stock on the date of the grant, no
compensation expense was recognized.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2006, the FASB issued FSP EITF 00-19-02, ACCOUNTING FOR REGISTRATION
PAYMENT ARRANGEMENTS ("FSP 00-19-2") which addresses accounting for registration
payment arrangements. FSP 00-19-2 specifies that the contingent obligation to
make future payments or otherwise transfer consideration under a registration
payment arrangement, whether issued as a separate agreement or included as a
provision of a financial instrument or other agreement, should be separately
recognized and measured in accordance with FASB Statement No. 5, ACCOUNTING FOR
CONTINGENCIES. FSP 00-19-2 further clarifies that a financial instrument subject
to a registration payment arrangement should be accounted for in accordance with
other applicable generally accepted accounting principles without regard to the
contingent obligation to transfer consideration pursuant to the registration
payment arrangement. For registration payment arrangements and financial
instruments subject to those arrangements that were entered into prior to the
issuance of EITF 00-19-2, this guidance is effective for financial statements
issued for fiscal years beginning after December 15, 2006 and interim periods
within those fiscal years. The Company has determined the adoption of FSP
00-19-2 will not have a significant impact upon its financial position, results
of operations or cash flows.
-10-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 2007
(unaudited)
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". This Statement permits entities to
choose to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. The Company is currently assessing the impact
of SFAS No. 159 on its financial position and results of operations.
NOTE 3 - OIL AND GAS PROPERTIES
________________________________________________________________________________
(a) QUACHITA PROSPECT
The Company leased various properties totalling approximately 2,281 gross acres
within the Quachita Trend within the state of Texas for a three year term in
consideration for $312,963. 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). The drilling portion of the well was completed on July 13,
2007. The completion stage and initial production is expected to be completed by
mid August 2007. During the period $533,619 was incurred on drilling
expenditures on the Boggs #1. The Boggs #1 was privately funded with the funding
investors receiving a 75% Working Interest and a 57.75% Net Revenue Interest in
exchange for providing 100% of all drilling and completion costs To June 30,
2007 the Company had received $559,000 in funding from the private investors of
which $25,381 remained unexpended as of June 30, 2007. The Company retains a 25%
Working Interest and a 19.25% Net Revenue Interest in the Boggs #1 after
completion.
(b) PETERS RANCH LEASE
On January 30, 2007 the Company acquired a 100% working interest, 77% net
revenue interest, in two fully equipped South Texas oil leases; the Mata lease
in Webb County and the Peters Ranch located in Duval County for $55,000. On
April 23, 2007 the Company reached an agreement to sell the property for
$65,000. By agreement between the purchaser and a shareholder of the Company,
the amounts owing under this agreement were offset against amounts owing by the
Company to this shareholder (refer to Note 6).
NOTE 4 - STOCKHOLDERS' EQUITY
________________________________________________________________________________
(a) SHARE CAPITAL
The Company's capitalization is 100,000,000 common shares with a par value of
$0.001 per 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 2 new shares
for 1 old share basis whereby 10,167,700 common shares were issued pro-rata to
shareholders of the Company as of the record date on May 10, 2006.
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 2 new
shares for 1 old share basis whereby 20,335,400 common shares were issued
pro-rata to shareholders of the Company as of the record date on August 8, 2006.
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 and the 2:1 forward split on August 8,
2006 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 12,000,000
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.
-11-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 2007
(unaudited)
================================================================================
NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED)
________________________________________________________________________________
(b) PRIVATE PLACEMENTS
On November 26, 2004 the Company issued 1,550,000 shares of common stock at
$0.10 per share for proceeds of $155,000.
On December 15, 2004 the Company issued 1,887,500 shares of common stock at
$0.10 per share for proceeds of $188,750 and 660,200 shares of common stock at
$0.50 per share for proceeds of $330,100. On March 9, 2005 the Company issued
70,000 shares of common stock at a price of $0.50 per share for proceeds of
$35,000.
On October 16, 2006 the Company completed a private placement consisting of
944,105 units with each unit comprised of one common share at $1.50 per share
for proceeds of $1,416,158. The units consist of one common share and one
non-transferable share purchase warrant exercisable at $3.00 per share for the
period commencing on October 16, 2006 and ending on the day which is 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, 563,333 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 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%.
(c) SHARE PURCHASE WARRANTS
There were share purchase warrants issued and outstanding as of June 30, 2007
and December 31, 2006 as follows::
________________________________________________________________________________
Exercise Weighted Number of warrants
price average price to purchase shares Expiry Date
________________________________________________________________________________
$3.00 $3.00 944,105 October 16, 2008
________________________________________________________________________________
A summary of the Company's stock purchase warrants as of June 30, 2007 and
changes during the period is presented below:
________________________________________________________________________________
Weighted
Weighted average remaining
Number of average exercise In contractual
Warrants Price per share life (in years)
________________________________________________________________________________
Outstanding at
December, 2006 944,105 $ 3.00 1.80
Issued - - -
Expired - - -
Exercised - - -
BALANCE JUNE 30, 2007 944,105 $ 3.00 1.30
________________________________________________________________________________
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 5,000,000 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 maybe 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 December 12, 2006 the Board of Directors of the
Company ratified and approved under the Company's existing Stock Option Plan the
issuance of 1,850,000 shares for five years at $1.10 per share.
On December 12, 2006, the Company granted 1,850,000 stock options to certain
officers, directors and management of the Company at $1.10 per share. The term
of these options are five years. The total fair value of these options at the
date of grant was $1,527,170 and was estimated using the Black-Scholes option
pricing model with an expected life of 3 years, a risk free interest rate of
4.49%, a dividend yield of 0% and expected volatility of 187% and was recorded
as a stock based compensation expense during 2006.
-12-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 2007
(unaudited)
================================================================================
NOTE 5 - STOCK OPTION PLAN (CONTINUED)
________________________________________________________________________________
A summary of the Company's stock options as of June 30, 2007 and December 31,
2006 is as follows:d below: There were 1,850,000 stock options granted in fiscal
2006.
________________________________________________________________________________
Weighted
Weighted average remaining
Number of average exercise Contractual
Options Price per share life (in years)
________________________________________________________________________________
Outstanding at
December 31, 2006 1,850,000 $1.10 4.95
Granted - - -
Exercised - - -
OUTSTANDING AT JUNE 30, 2007 1,850,000 $1.10 4.45
________________________________________________________________________________
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 the period ended March 31, 2007 the Company paid IMT consulting
expenses of $60,000 (2005 - $20,000). In addition during the period IMT advanced
the Company $6,000. As of June 30, 2007 the Company owed IMT $22,582 which is
unsecured and non-interest bearing, and has no specific repayment terms.
During the period ended June 30, 2007 a shareholder of the Company advanced
$10,000 to the Company. The amount is unsecured and non-interest bearing and has
no specific repayment terms.
As at December 31, 2006, $325,000 was owing to a separate shareholder for
advances made to the Company. During the period this shareholder made further
advances to the Company of $348,500. In addition, the $65,000 proceeds on
disposal of the Peters Ranch Lease (as described in Note 3) were offset against
these amounts owing by agreement between this shareholder and the purchaser. As
a result, as of June 30, 2007 $608,500 was owing which bears interest at 8% per
annum and has no specific repayment terms. As of June 30, 2007 total accrued
interest was $26,063 (December 31, 2006 - $1,211).
MANAGEMENT FEES
During the six month period ended June 30, 2007, the Company paid an officer and
director $60,000 for management fees (2006 -$25,000).
As part of their compensation agreements the Company's chief Geologist and
Operations Manager (hereafter referred to as "Executives") each receives and is
assigned at the time of acquisition up to a 1.5% overriding royalty interest in
any oil and gas properties which are directly introduced by the Executives to
the Company. During the period ended June 30, 2007 the Company recorded related
additional compensation to the Executives of $1,739 (2006 - $nil), being the
estimated cost of royalty interests earned during the peiord..
NOTE 7 - RESTRICTED CASH
________________________________________________________________________________
Restricted cash consists of a $25,000 operating bond for the Company held by the
Railroad Commission of Texas.
NOTE 8 - INCOME TAXES
________________________________________________________________________________
The Company has adopted the FASB No. 109 for reporting purposes. As of June 30,
2007 and December 31, 2006, the Company had net operating loss carry forwards
that may be available to reduce future years' taxable income through 2027.
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.
-13-
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-QSB that are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the
Securities Exchange Act of 1934. These statements often can be identified by the
use of terms such as "may," "will," "expect," "believe," "anticipate,"
"estimate," "approximate" or "continue," or the negative thereof. We intend that
such forward-looking statements be subject to the safe harbors for such
statements. We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent management's best judgment as to what may
occur in the future. However, forward-looking statements are subject to risks,
uncertainties and important factors beyond our control that could cause actual
results and events to differ materially from historical results of operations
and events and those presently anticipated or projected. We disclaim any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
GENERAL
Morgan Creek Energy Corp. is a corporation organized under the laws of the State
of Nevada. After the effective date of our registration statement filed with the
Securities and Exchange Commission (February 14, 2006), we commenced trading on
the Over-the-Counter Bulletin Board under the symbol "MCRE:OB". We are engaged
in the business of exploration of oil and gas bearing properties in the United
States. Our shares are also traded on the Frankfurt Stock Exchange in Germany
under the symbol "M6C".
Please note that throughout this Quarterly Report, and unless otherwise noted,
the words "we," "our," "us," the "Company," or "Morgan Creek," refers to Morgan
Creek Energy Corp.
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 Texas (the "Quachita Prospect"). To date, we have acquired
approximately 2,281 gross 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 $310,859.
-14-
OIL AND GAS PROPERTIES
QUACHITA PROSPECT
As of the date of this Quarterly Report, we lease approximately 2,281 acres
within the Quachita Trend in the State of Texas for a three-year term in
consideration of approximately $312,963, which was paid during 2006 (the
"Quachita Lease"). We have a 100% working interest and a 77% net revenue
interest in the Quachita Lease.
As of the date of this Quarterly Report, we received a permit for drilling of
the twin well on the Quachita Prospect and commenced drilling of our first well
(the "Boggs #1). We completed the drilling portion of the Boggs #1 well on July
13, 2007. We anticipate that the completion stage and initial production to be
completed by mid-August 2007.
The Boggs #1 has been privately funded with the funding investors receiving a
75% working interest and a 57.75% net revenue interest in exchange for providing
100% of all drilling and completion costs. Therefore, we retain a 25% working
interest and a 19.25% net revenue interest in the Boggs #1 well. As of June 30,
2007, we have received $559,000 in funding from the private investors. As of the
date of this Quarterly Report, we have expended all but $25,381 of the $559,000.
We have identified seven separate potential areas of exploration interest in the
Quachita Lease and have carried out wide scale leasing on the first of these
targets. 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.
SOUTH TEXAS PROSPECT
On approximately January 30, 2007, we acquired a 100% working interest and a 77%
net revenue interest in two fully equipped oil leases located in the State of
Texas for aggregate consideration of $55,000. The Mata lease is located in Webb
County and the Peters Ranch lease is located in Duval County (collectively, the
"South Texas Lease"). On approximately April 23, 2007, we entered into an
agreement to sell the South Texas Lease for $65,000 (the "South Texas
Agreement"). In accordance with the terms and provisions of an agreement between
the purchaser and one of our shareholders, the amounts due and owing under the
South Texas Agreement were offset against amounts we owed to our shareholder.
CHAPMAN LEASE/HURLEY LEASE
The Chapman Lease encompasses approximately 240 acres in Okfuskee County, State
of Oklahoma. We have acquired a 75% working interest and a 56.25% net revenue
interest. The term of the Chapman Lease was originally for three years, and is
currently held indefinitely by production. The Chapman lease is currently
producing minor quantities of oil from existing wells. So long as the Chapman
Lease produces any oil or gas as demonstrated by any marketed quantities of oil
or gas, the Chapman Lease will be deemed to be valid and thus, "held by
production" and no further costs will be incurred by us as lessee. As of the
date of this Quarterly Report, the Chapman Lease is in good standing.
-15-
The Hurley Lease encompasses approximately 320 acres in Okfuskee County, State
of Oklahoma. We have acquired a 75% working interest and a 56.25% net revenue
interest. The term of the Hurley Lease was originally for one year, and is
currently held indefinitely by production. The Hurley Lease is currently
producing minor quantities of oil from existing wells. As long as the lease
produces any oil or gas as demonstrated by marketed quantities of oil or gas,
the Hurley Lease will be deemed to be valid and thus "held by production" and no
further costs will be incurred by us. The Hurley Lease includes all potential
oil or gas producing zones extending from the surface to and including the
Senora Sand zones. As of the date of this Quarterly Report, the Hurley Lease is
in good standing.
After an internal review of the property, we have decided not to proceed with
the development of the Hurley and Chapman leases. As of the date of this
Quarterly Report, we intend to attempt to sell our interest in the property.
RESULTS OF OPERATION
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.
SIX MONTH PERIOD ENDED JUNE 30, 2007 COMPARED TO SIX MONTH PERIOD ENDED JUNE 30,
2006
Our net loss for the six-month period ended June 30, 2007 was approximately
$371,348 compared to a net loss of $267,181 during the six-month period ended
June 30, 2006 which was an increase of $104,168. During the six-month periods
ended June 30, 2007 and March 31, 2006, we did not generate any revenue.
During the six months ended June 30, 2007, we incurred general and
administrative expenses of approximately $371,348 compared to $267,181 incurred
during the six-month period ended June 30, 2006 which was an increase of
$104,168. These general and administrative expenses incurred during the
six-month period ended June 30, 2007 consisted of: (i) consulting fees of
$74,748 (2006: $107,500); (ii) management fees of $121,739 (2006: $25,000);
(iii) office and general of $85,799 (2006: $7,781); and (iv) professional fees
of $89,062 (2006: $43,970). During the six-month period ended June 30, 2007, we
did not incur any expenses associated with investor relations as compared to
$82,930 incurred during the six-month period ended June 30, 2006. During 2006,
investor relation expenses were incurred relating to corporate marketing and
pertaining to investor awareness
General and administrative expenses incurred during the six-month period ended
June 30, 2007 compared to the six-month period ended June 30, 2006 increased
primarily due to the increase in management fees and professional fees relating
to the increase in scope and scale of business operations primarily on the
Quichita Lease and the emphasis on reliance of managerial services provided by
-16-
our officers. General and administrative expenses generally include corporate
overhead, financial and administrative contracted services, marketing, and
consulting costs.
Consulting fees decreased during the six-month period ended June 30, 2007 due to
decrease in use of contractual services. Of the $371,348 incurred as general and
administrative expenses during the six-month period ended June 30, 2007, we
incurred consulting expenses of $60,000 payable to International Market Trend,
Inc. ("IMT"). In addition, IMT advanced us $6,000 during the six-month period
ended June 30, 2007. As of June 30, 2007, we owed IMT $22,582, which is
unsecured and non-interest bearing and has no definite repayment terms. An
officer and director of IMT is also one of our shareholders.
Of the 371,348 incurred as general and administrative expenses during the
six-month period ended June 30, 2007, an aggregate of $60,000 was incurred
payable to a certain officer and director in management and consulting fees. We
also incurred additional compensation to our Chief Geologist and Operations
Manager in accordance with certain contractual arrangements that in the event we
acquire an oil and gas property which was directly introduced to us by either
our Chief Geologist or Operations Manager, we will assign up to a 1.5%
overriding royalty interest. Therefore, during the six-month period ended June
30, 2007, we recorded additional compensation of $1,739.
Our net loss during the six-month period ended June 30, 2007 was ($371,348) or
($0.01) per share compared to a net loss of ($267,180) or ($0.01) per share
during the six-month period ended June 30, 2006. The weighted average number of
shares outstanding was 29,814,905 for the six-month period ended June 30, 2007
compared to 40,670,800 for the six-month period ended June 30, 2006.
THREE MONTHS ENDED JUNE 30, 2007 COMPARED TO THREE MONTHS ENDED JUNE 30, 2006
Our net loss for the three months ended June 30, 2007 was approximately $183,684
compared to a net loss of $75,147 during the three months ended June 30, 2006
which was an increase of $108,537. During the three months ended June 30, 2007
and June 30, 2006, we did not generate any revenue.
During the three months ended June 30, 2007, we incurred general and
administrative expenses of approximately $183,684 compared to $75,147 incurred
during the three-month period ended June 30, 2006 which was an increase of
$108,537. These general and administrative expenses incurred during the
three-month period ended June 30, 2007 consisted of: (i) consulting fees of
$30,370 (2006: $30,000); (ii) management fees of $60,000 (2006: $10,000); (iii)
office and general of $58,854 (2006: $1,827); and (iv) professional fees of
$34,460 (2006: $32,890). During the three-month period ended June 30, 2007, we
did not incur any expenses associated with investor relations as compared to
$430 incurred during the three-month period ended June 30, 2006.
General and administrative expenses incurred during the three months ended June
30, 2007 compared to the three months ended June 30, 2006 increased primarily
due to the increase in management fees and professional fees relating to the
increase in scope and scale of business operations primarily on the Quachita
Lease and the emphasis on reliance of managerial services provided by our
officers.
-17-
Our net loss during the three months ended June 30, 2007 was $183,684 or ($0.01)
per share compared to a net loss of $75,147 or ($0.01) per share during the
three months ended June 30, 2006. The weighted average number of shares
outstanding was 29,814,905 for the three-month period ended June 30, 2007
compared to 40,670,800 for the three-month period ended June 30,
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED JUNE 30, 2007
At the six months ended June 30, 2007, our current assets were $108,423 and our
current liabilities were $959,209, which resulted in a working capital
deficiency of $850,786. As at the six months ended June 30, 2007, current assets
were comprised of: (i) $94,668 in cash; and (ii) $13,755 in prepaid. As at the
six-month period ended June 30, 2007, current liabilities were comprised of: (i)
$266,683 in accounts payable and accrued liabilities; (ii) $667,145 due to
related parties; and (iii) $25,381 in drilling advances received from the
funding investors pertaining to the Boggs #1 well.
At the six months ended June 30, 2007, our total assets were $444,282 comprised
of: (i) $108,423 in current assets; (ii) $25,000 in restricted cash; and (iii)
$310,859 in unproven oil and gas properties. The increase in total assets during
the six-month period ended June 30, 2007 from fiscal year ended December 31,
2006 was primarily due to the increase in cash and restricted cash consisting of
the $25,000 operating bond held by the Railroad Commission of Texas.
At the six months ended June 30, 2007, our total liabilities were $959,209
comprised entirely of current liabilities. The increase in liabilities during
the six months ended June 30, 2007 from fiscal year ended December 31, 2006 was
primarily due to the increase in amounts due to related parties and in amounts
payable and accrued liabilities. See " - Material Commitments."
Stockholders' deficit increased from $143,579 for fiscal year ended December 31,
2006 to $514,927 for the six-month period ended June 30, 2007.
CASH FLOWS FROM OPERATING ACTIVITIES
We have not generated positive cash flows from operating activities. For the six
months ended June 30, 2007, net cash flows used in operating activities was
$194,248, consisting primarily of a net loss of $371,348. Net cash flows used in
operating activities was adjusted by $146,948 to reconcile accounts payable and
accrued liabilities, $5,300 to reconcile costs due to related parties, and
$24,852 to reconcile accrued interest.
For the six months ended June 30, 2006, net cash flow used in operating
activities was ($52,903), consisting primarily of a net loss of $267,181. The
change in net cash flows used in operating activities during the six-month
period ended June 30, 2007 from the six months ended June 30, 2006 related
primarily to the adjustment by $200,000 to reconcile amounts due from related
parties.
-18-
CASH FLOWS FROM INVESTING ACTIVITIES
For the six months ended June 30, 2007, net cash flows used in investing
activities was $624,408 consisting of $599,408 for acquisition of the oil and
gas properties and $25,000 for the restricted cash deposit relating to the bond
held by the Railroad Commission of Texas. There were no cash flows from
investing activities in the six months ended June 30, 2006.
CASH FLOWS FROM FINANCING ACTIVITIES
We have financed our operations primarily from either advancements or the
issuance of equity and debt instruments. For the six months ended June 30, 2007,
net cash flows from financing activities was $907,500 compared to $50,000 for
the six months ended June 30, 2006. Cash flows from financing activities for the
six months ended June 30, 2007 consisted primarily of $559,000 in drilling
advances and $348,500 in advances from related parties compared to $50,000 in
advances from related parties for the six months ended June 30, 2006.
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, 2006, we engaged in private placement
offerings under Regulation D and Regulation S of the Securities Act pursuant to
which we received gross proceeds of $1,416,157, of which $845,000 consisted of
settlement of debt relating to amounts previously advanced to us by one of our
shareholders.
-19-
MATERIAL COMMITMENTS
During the six months ended June 30, 2007, one of our shareholders advanced an
aggregate of $348,500 to us. As at December 31, 2006, an aggregate of $325,500
was already owing to this shareholder, which is subject to interest at the rate
of 8% per annum and has no definite repayment terms. During the six-month period
ended June 30, 2007, an aggregate of $65,000 resulting from proceeds received on
disposal of the Peters Ranch Lease was utilized to offset the aggregate amount
due and owing to the shareholder. Thus, as of June 30, 2007, an aggregate of
$608,500 was due and owing and accrued interest totaled $26,063.
PURCHASE OF SIGNIFICANT EQUIPMENT
We do not intend to purchase any significant equipment during the next twelve
months.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Quarterly Report, we do not have any off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
GOING CONCERN
The independent auditors' report accompanying our December 31, 2006 and December
31, 2005 financial statements contains an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. The
financial statements as of June 30, 2007 have been prepared "assuming that we
will continue as a going concern," which contemplates that we will realize our
assets and satisfy our liabilities and commitments in the ordinary course of
business.
ITEM III. CONTROLS AND PROCEDURES
Our management is responsible for establishing and maintaining a system of
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) that is designed to ensure that information required to
be disclosed by us in the reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer's management, including its principal executive officer or
officers and principal financial officer or officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
An evaluation was conducted under the supervision and with the participation of
our management, including Marcus Johnson, our Chief Executive Officer ("CEO")
and D. Bruce Horton, our Chief Financial Officer ("CFO"), of the effectiveness
of the design and operation of our disclosure controls and procedures as of June
30, 2007. Based on that evaluation, Messrs. Johnson and Horton concluded that
-20-
our disclosure controls and procedures were effective as of such date to ensure
that information required to be disclosed in the reports that we file or submit
under the Exchange Act, is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms. Such officers also confirm
that there was no change in our internal control over financial reporting during
the six-month period ended June 30, 2007 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
AUDIT COMMITTEE REPORT
The Board of Directors has established an audit committee. The members of the
audit committee are Mr. Marcus Johnson, Mr. Steve Jewett and Mr. D. Bruce Horton
and. One of the three members of the audit committee is "independent" within the
meaning of Rule 10A-3 under the Exchange Act. The audit committee was organized
in November 20, 2004 and operates under a written charter adopted by our Board
of Directors.
The audit committee has reviewed and discussed with management our financial
statements as of and for the six-month period ended June 30, 2007. The audit
committee has also discussed with De Joya Griffith & Company, LLC the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants. 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, and has discussed
with De Joya Griffith & Company, LLC their independence.
Based on the reviews and discussions referred to above, the audit committee has
recommended to the Board of Directors that the financial statements referred to
above be included in our Quarterly Report on Form 10-QSB for the six-month
period ended June 30, 2007 filed with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently in dispute in connection with the services provided by
Warwick Advisors Corp. under a consulting Agreement dated September 6, 2006. The
parties are currently in binding arbitration as allowed for within the
Agreement. The Company estimates any award will not exceed the $15,750 that has
already been accrued as an expense in the financial statements.
Excepted as noted above 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 Quarterly 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.
-21-
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
No report required.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No report required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No report required.
ITEM 5. OTHER INFORMATION
CHANGES IN CERTIFYING ACCOUNTANT
Effective July 31, 2007, our Board of Directors accepted the resignation of Dale
Matheson Carr-Hilton LaBonte LLP, Chartered Accountants ("DMCL"), as our
principal independent registered public accounting firm. On the same date, our
Board of Directors appointed De Joya Griffith & Company, LLC as our principal
independent registered public accounting firm.
The reports of DMCL on our consolidated financial statements for each of the
fiscal years ended December 31, 2005 and 2006 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, 2005 and 2006, and during the subsequent period through to the date
of DMCL's resignation, there were no disagreements between us and DMCL, 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 DMCL, would have caused DMCL to make reference thereto in
their reports on our audited consolidated financial statements.
We provided DMCL with a copy of the Current Report on Form 8-K and requested
that DMCL furnish us with a letter addressed to the Securities and Exchange
Commission stating whether or not DMCL agrees with the statements made in this
Current Report on Form 8-K with respect to DMCL and, if not, stating the aspects
with which they do not agree. We received the requested letter from DMCL wherein
they have confirmed their agreement with our disclosures in the Current Report
on Form 8-K with respect to DMCL. A copy of DMCL's letter was filed as an
exhibit to the Current Report.
In connection with our appointment of De Joya Griffith & Company, LLC as our
principal registered accounting firm at this time, we had not consulted De Joya
Griffith & Company, LLC on any matter relating to the application of accounting
principles to a specific transaction, either completed or contemplated, or the
type of audit opinion that might be rendered on our financial statements.
-22-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
31.1 Certification of Chief Executive Officer pursuant to
Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).
31.2 Certification of Chief Financial Officer pursuant to
Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).
32.1 Certification of Chief Executive Officer pursuant to Securities
Exchange Act of 1934 Rule 13a-14(b) or 15d- 14(b) and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Securities
Exchange Act of 1934 Rule 13a-14(b) or 15d- 14(b) and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002.
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: August 17, 2007 By: /s/ MARCUS M. JOHNSON
__________________________________
Marcus M Johnson
President and
Chief Executive Officer
Dated: August 17, 2007 By: /s/ D. BRUCE HORTON
__________________________________
D. Bruce Horton
Chief Financial Officer
-23-