U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended March 31, 2009
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to _______
COMMISSION FILE NO. 000-52139
MORGAN CREEK ENERGY CORP.
______________________________________________
(Name of small business issuer in its charter)
NEVADA 201777817
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5050 QUORUM DRIVE, SUITE 700, DALLAS, TEXAS 75254
_________________________________________________
(Address of principal executive offices)
(214) 722-6490
___________________________
(Issuer's telephone number)
Securities registered pursuant to Name of each exchange
Section 12(b) of the Act: on which registered:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001
____________________
(Title of Class)
Indicate by checkmark whether the issuer: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No[ ]
Indicate by check mark whether the registrant is a large accelerated filed, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Applicable Only to Issuer Involved in Bankruptcy Proceedings During the
Preceding Five Years.
N/A
Indicate by checkmark whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act
of 1934 after the distribution of securities under a plan confirmed by a court.
Yes[ ] No[ ]
Applicable Only to Corporate Registrants
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the most practicable date:
Class Outstanding as of May 4, 2009
Common Stock, $0.001 15,216,196
-2-
MORGAN CREEK ENERGY CORP.
Form 10-Q
Part 1. FINANCIAL INFORMATION 4
Item 1. FINANCIAL STATEMENTS
Balance Sheets 5
Statements of Operations 6
Statements of Cash Flows 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Controls and Procedures 12
Part II. OTHER INFORMATION 25
Item 1. Legal Proceedings 25
Item 1A. Risk Factors 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits 26
-3-
PART I
ITEM 1. FINANCIAL STATEMENTS
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
FINANCIAL STATEMENTS
MARCH 31, 2009
(unaudited)
-4-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
BALANCE SHEETS
March 31, December 31,
2009 2008
_____________________________________________________________________________________________________
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 584 $ 14,883
Other current assets 25,804 25,804
_____________________________________________________________________________________________________
TOTAL CURRENT ASSETS 26,388 40,687
OIL AND GAS PROPERTIES, unproven (Note 3) 1,802,943 1,802,943
_____________________________________________________________________________________________________
TOTAL ASSETS $ 1,829,331 $ 1,843,630
=====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 337,979 $ 303,959
Due to related parties (Note 6) 397,828 331,162
_____________________________________________________________________________________________________
TOTAL CURRENT LIABILITIES 735,807 635,121
_____________________________________________________________________________________________________
GOING CONCERN (Note 1)
STOCKHOLDERS' EQUITY (Note 4)
Common stock, 33,333,333 shares authorized with $0.001 par value
Issued and outstanding
15,216,196 common shares (December 31, 2008 -15,216,196) 15,216 15,216
Additional paid-in-capital 8,178,001 8,178,001
Deficit accumulated during exploration stage (7,099,693) (6,984,708)
_____________________________________________________________________________________________________
TOTAL STOCKHOLDERS' EQUITY 1,093,524 1,208,509
_____________________________________________________________________________________________________
TOTAL LIABILITIES & STOCK HOLDERS' EQUITY $ 1,829,331 $ 1,843,630
=====================================================================================================
The accompanying notes are an integral part of these financial statements.
-5-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended October 19, 2004
March 31 (inception) to
2009 2008 March 31, 2009
________________________________________________________________________________________________________
GENERAL AND ADMINISTRATIVE EXPENSES
Investor relations $ - $ 112,845 $ 322,018
Consulting fees 15,000 60,000 871,960
Management fees - related party 45,600 - 933,683
Management fees - stock based compensation - - 1,964,125
Impairment of oil and gas properties - - 1,273,410
Office and general 19,889 31,119 541,864
Professional fees 27,904 51,562 663,656
________________________________________________________________________________________________________
NET OPERATING LOSS (108,393) (255,526) (6,570,716)
________________________________________________________________________________________________________
OTHER EXPENSE
Financing costs - (424,660) (424,660)
Interest expense (6,592) (9,343) (104,317)
________________________________________________________________________________________________________
TOTAL OTHER EXPENSE (6,592) (434,003) (528,977)
________________________________________________________________________________________________________
NET LOSS $ (114,985) $ (689,529) $ (7,099,693)
======================================================================================================
BASIC LOSS PER COMMON SHARE $ (0.01) $ (0.06)
=================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING-BASIC 15,216,196 11,776,454
=================================================================================
The accompanying notes are an integral part of these financial statements.
-6-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended October 19, 2004
March 31 (inception) to
2009 2008 March 31, 2009
_________________________________________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $(114,985) $ (689,529) $(7,099,693)
Adjustments to reconcile net loss to net cash used in
operating activities:
- Stock based compensation - - 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 - (2,275) (50,804)
- Due to related parties accrued 16,666 39,344 305,255
- Accounts payable and accrued liabilities 34,020 (53,525) 298,302
_________________________________________________________________________________________________________________________
NET CASH USED IN OPERATING ACTIVITIES (64,299) (281,325) (2,884,745)
_________________________________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Oil and gas property expenditures - (55,598) (2,761,266)
_________________________________________________________________________________________________________________________
NET CASH FLOWS USED IN INVESTING ACTIVITIES - (55,598) (2,761,266)
_________________________________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on sale and subscriptions of common stock - - 3,022,095
Drilling Advances - - 759,000
Advances from related parties-net 50,000 335,000 1,865,500
_________________________________________________________________________________________________________________________
NET CASH PROVIDED BY FINANCING ACTIVITIES 50,000 335,000 5,646,595
_________________________________________________________________________________________________________________________
INCREASE (DECREASE) IN CASH (14,299) (1,923) 584
CASH, BEGINNING OF PERIOD 14,883 16,098 -
_________________________________________________________________________________________________________________________
CASH, END OF PERIOD $ 584 $ 14,175 $ 584
=========================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION AND
NONCASH INVESTING AND FINANCING ACTIVITIES:
Cash paid for interest $ - $ - $ -
Cash paid for income taxes $ - $ - $ -
Common stock issued for acquisition of oil and gas property $ - $ - $ 950,000
Transfer of bond against settlement of debt $ - $ - $ 25,000
Non-cash sale of oil and gas property $ - $ - $ 65,000
Common stock issued for settlement of debts (Note 4) $ - $ 2,856,997 $ 2,856,997
The accompanying notes are an integral part of these financial statements.
-7-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2009
(unaudited)
________________________________________________________________________________
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
________________________________________________________________________________
Morgan Creek Energy Corp. (the "Company") is an exploration stage company that
was organized to enter into the oil and gas industry. The Company intends to
locate, explore, acquire and develop oil and gas properties in the United States
and within North America. The primary activity and focus of the Company is its
leases in New Mexico ("New Mexico Prospect"). The leases are unproven. To date
we have leased approximately 7,576 net acres within the State of New Mexico. The
company has also entered into an option to acquire an additional 7,763 net acres
in New Mexico. (Refer to Note 3) In addition, we acquired leases in Texas (the
"Quachita Prospect"). To date the Company has acquired approximately 1,971 net
acres. During the production testing and evaluation period on the first well on
the property, the Boggs #1, four of the five tested zones produced significant
volumes of natural gas. Analysis of the gas indicates a "sweet" condensate rich
gas with BTU values of 1,000. This quality will yield a premium price over the
current U.S. average natural gas price. As formation water was also produced
with the natural gas in the tested zones, the Boggs #1 is currently under
evaluation.
GOING CONCERN
The Company commenced operations on October 19, 2004 and has not realized any
revenues since inception. As of March 31, 2009, the Company has an accumulated
deficit of $7,099,693 and a working capital deficit of $709,419. The ability of
the Company to continue as a going concern is dependent on raising capital to
fund ongoing operations and carry out its business plan and ultimately to attain
profitable operations. Accordingly, these factors raise substantial doubt as to
the Company's ability to continue as a going concern. The financials statements
do not include any adjustments relating to the recoverability and classification
of recorded assets, or the amounts of and classification of liabilities that
might be necessary in the event the company cannot continue in existence. To
date the Company has funded its initial operations by way of private placements
of common stock and advances from related parties.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for financial information and with
the instructions to Form 10-Q of Regulation S-X. They do not include all
information and footnotes required by United States generally accepted
accounting principles for complete financial statements. However, except as
disclosed herein, there has been no material changes in the information
disclosed in the notes to the financial statements for the year ended December
31, 2008 included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The unaudited financial statements should be
read in conjunction with those financial statements included in the Form 10-K.
In the opinion of management, all adjustments considered necessary for a fair
presentation, consisting solely of normal recurring adjustments, have been made.
Operating results for the three months ended March 31, 2009 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2009.
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.
-8-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2009
(unaudited)
________________________________________________________________________________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
________________________________________________________________________________
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.
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.
-9-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2009
(unaudited)
________________________________________________________________________________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
________________________________________________________________________________
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 March 31, 2009 and December 31, 2008 that exceeded federally
insured limits.
FINANCIAL INSTRUMENTS
The fair value of the Company's financial assets and financial liabilities
approximate their carrying values due to the immediate or short-term maturity of
these financial instruments.
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 March 31, 2009, the Company had net operating loss
carryforwards, however, due to the uncertainty of realization, the Company has
provided a full valuation allowance for the deferred tax assets resulting from
these loss carryforwards.
STOCK-BASED COMPENSATION
On January 1, 2006, the Company adopted the fair value recognition provisions of
Financial Accounting Standards Board ("FASB") Statement No. 123(R), Share-Based
Payment, ("SFAS 123R"). The Company adopted SFAS 123R using the
modified-prospective-transition method. Under this method, compensation cost
recognized for the year ended December 31, 2006 includes: a) compensation cost
for all share-based payments granted prior to, but not yet vested as of December
31, 2005, based on the grant-date fair value estimated in accordance with the
original provisions of SFAS 123, and b) compensation cost for all share-based
payments granted subsequent to December 31, 2005, based on the grant-date fair
value estimated in accordance with the provisions of SFAS 123R. In addition,
deferred stock compensation related to non-vested options is required to be
eliminated against additional paid-in capital upon adoption of SFAS 123R. The
results for the prior periods were not restated.
The Company accounts for equity instruments issued in exchange for the receipt
of goods or services from other than employees in accordance with SFAS No. 123
and the conclusions reached by the Emerging Issues Task Force ("EITF") in Issue
No. 96-18. Costs are measured at the estimated fair market value of the
consideration received or the estimated fair value of the equity instruments
issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the
earliest of a performance commitment or completion of performance by the
provider of goods or services as defined by EITF 96-18.
-10-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2009
(unaudited)
________________________________________________________________________________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
________________________________________________________________________________
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
were effective for the Company's interim period commencing July 1, 2008. The
adoption of this standard during the period did not have any impact on the
Company's financial position, cash flows or results of operations.
In 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 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, and was adopted by the Company beginning in
the first quarter of 2009. The adoption of this standard during the period did
not have any impact on the Company's financial position, cash flows or results
of operations.
In 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. The adoption of this
standard during the period did not have any impact on the Company's financial
position, cash flows or results of operations.
In 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 adoption of
this standard during the period 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,
all expiring during the year ended 2009, in consideration for $338,353. The
Company has a 100% Working Interest and a 77% N.R.I. in the leases.
-11-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2009
(unaudited)
________________________________________________________________________________
NOTE 3 - OIL AND GAS PROPERTIES (continued)
________________________________________________________________________________
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 7,763 additional 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. (Refer to note 8).
(Subsequent to March 31, 2009, the term for completion of the transactions was
extended to June 1, 2009).
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.
-12-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2009
(unaudited)
________________________________________________________________________________
NOTE 4 - STOCKHOLDERS' EQUITY (DEFICIT) (continued)
________________________________________________________________________________
(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. 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 advances and accrued
interest totaling $1,515,214. The difference between the estimated fair value of
the common shares issued at issuance and the amount of debt settled totaling
$378,803 was recorded as a finance cost during the period (refer to Note 6).
On March 24, 2008, the Company issued 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).
(d) SHARE PURCHASE WARRANTS
Details of the Company's share purchase warrants issued and outstanding as of
March 31, 2009 are as follows:
Number of warrants
Exercise price to purchase shares Expiry Date
______________ __________________ ________________
$1.50 397,000 June 27, 2009
$1.50 827,000 October 23, 2009
-13-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2009
(unaudited)
________________________________________________________________________________
NOTE 4 - STOCKHOLDERS' EQUITY (DEFICIT) (continued)
________________________________________________________________________________
The Company's share purchase warrants activity for the period ended March 31,
2009 is summarized as follows:
Weighted average
Weighted average remaining In
exercise Price contractual life
Number of Warrants per share (in years)
___________________________________________________________________________________________
Balance, December 31, 2007 314,702 $ 9.00 0.80
Issued 1,224,000 1.50 -
Expired (314,702) 9.00 -
Exercised - - -
___________________________________________________________________________________________
Balance, December 31, 2008 1,224,000 1.50 0.71
Issued - - -
Expired - - -
Exercised - - -
___________________________________________________________________________________________
Balance, March 31, 2009 1,224,000 $ 1.50 0.46
===========================================================================================
All warrants are exercisable as at March 31, 2009.
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%.
-14-
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2009
(unaudited)
________________________________________________________________________________
NOTE 5 - STOCK OPTION PLAN (continued)
________________________________________________________________________________
The Company's stock option activity for the period ended March 31, 2009 is
summarized as follows:
Weighted average
Weighted average remaining In
exercise Price contractual life
Number of Options per share (in years)
___________________________________________________________________________________________
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
Granted - - -
Expired - - -
Exercised - - -
___________________________________________________________________________________________
Balance, March 31, 2009 1,866,668 $ 1.76 6.97
===========================================================================================
All options are exercisable as at March 31, 2009.
NOTE 6 - RELATED PARTY TRANSACTIONS
________________________________________________________________________________
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). During the period, this
shareholder made further advances of $50,000. As a result, as of March 31, 2009,
$360,000 (December 31, 2008 - $310,000) was owed which bears interest at 8% per
annum and has no specific repayment terms. As of March 31, 2009, total accrued
interest was $25,755 (December 31, 2008 - $19,164).
MANAGEMENT FEES
During the three month period ended March 31, 2009, the Company incurred $45,600
(2008 -$60,000) for management fees to officers and directors. As of March 31,
2009, total amount owing in management fees was $12,073 (December 31, 2008 -
$1,998).
NOTE 7 - INCOME TAXES
________________________________________________________________________________
The Company has adopted the FASB No. 109 for reporting purposes. As of March 31,
2009, the Company had net operating loss carry forwards of approximately
$4,711,000 that may be available to reduce future years' taxable income through
2029. 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.
NOTE 8 - SUBSEQUENT EVENTS
________________________________________________________________________________
Subsequent to the period on March 31, 2009, the Company extended its option
agreement on approximately 7,763 net acres on its New Mexico Prospect to June 1,
2009. (Refer to note 3)
-15-
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-Q that are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the
Securities Exchange Act of 1934. These statements often can be identified by the
use of terms such as "may," "will," "expect," "believe," "anticipate,"
"estimate," "approximate" or "continue," or the negative thereof. We intend that
such forward-looking statements be subject to the safe harbors for such
statements. We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent management's best judgment as to what may
occur in the future. However, forward-looking statements are subject to risks,
uncertainties and important factors beyond our control that could cause actual
results and events to differ materially from historical results of operations
and events and those presently anticipated or projected. We disclaim any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Morgan Creek Energy Corp. is a corporation organized under the laws of the State
of Nevada. After the effective date of our registration statement filed with the
Securities and Exchange Commission (February 14, 2006), we commenced trading on
the Over-the-Counter Bulletin Board under the symbol "MCRE:OB" (currently under
the symbol"MCKE:OB"). We are engaged in the business of exploration of oil and
gas bearing properties in the United States. Our shares are also traded on the
Frankfurt Stock Exchange in Germany under the symbol "M6C".
Please note that throughout this Quarterly Report, and unless otherwise noted,
the words "we," "our," "us," the "Company," or "Morgan Creek," refers to Morgan
Creek Energy Corp.
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 in the State of Texas
for a three-year term all expiring during the year ended 2009. We acquired a
100% working interest and a 77% net revenue interest in natural gas targeted
Quachita Prospect leases.
-16-
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.
QUACHITA PROSPECT
As of the date of this Quarterly Report, we lease approximately 1,971 net acres
within the Quachita Trend in the State of Texas for a three-year term in
consideration of approximately $338,000. We have a 100% working interest and a
77% net revenue interest in the Quachita Prospect leases.
BOGGS #1 WELL. We completed the drilling portion of the Boggs #1 well on July
13, 2007. Subsequently, we began production testing and evaluation of the well.
Of the five tested zones, four produced significant volumes of natural gas. As
formation water was also produced with the natural gas in the tested zones, the
Boggs #1 is currently under evaluation. We intend to secure all immediate rights
relating to oil and gas in the areas providing control over any potential major
structural play that develops as a result of this in-depth exploration.
The Boggs #1 had been privately funded with the funding investors receiving a
75% working interest and a 54% net revenue interest in exchange for providing
100% of all drilling and completion costs. Therefore, we initially retained a
25% working interest and a 23% net revenue interest in the Boggs #1 well. As of
March 31, 2009, we incurred $1,357,208 in drilling and completion costs. As of
March 31, 2009, we had received a total of $759,000 in funding from private
investors. On March 24, 2008, we negotiated with the funding investors to
acquire their interest in the Boggs #1 for $759,000 (which amount is equal to
the total amount of the funding investors' initial investment) and forgiveness
of any additional amounts owing. Effective on March 24, 2008, we completed the
acquisition and settlement through the issuance of 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.
NEW MEXICO PROSPECT
As of the date of this Quarterly Report, we have leased various properties in
the New Mexico Prospect totaling approximately 7,576 net acres within the State
of New Mexico for a five year term in consideration for $112,883. We have a 100%
working interest and an 84.5% net revenue interest in the leases comprising the
New Mexico Prospect.
-17-
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").
Subsequently, Westrock granted to us an extension to June 1, 2009 within which
to complete our due diligence. 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
June 1, 2009.
-18-
RESULTS OF OPERATION
FOR THE PERIOD FROM
OCTOBER 19, 2004
THREE MONTH PERIOD ENDED (INCEPTION) TO
MARCH 31, 2009 AND 2008 MARCH 31, 2009
________________________ ___________________
STATEMENT OF OPERATIONS DATA
GENERAL AND ADMINISTRATIVE EXPENSES
Investor relations expenses $ -0- $112,845 $ 322,018
Consulting expenses 15,000 -0- 871,960
Management fees-related party 45,600 60,000 933,683
Management fees-stock based
compensation -0- -0- 1,964,125
Impairment of oil and gas
properties -0- -0- 1,273,410
Office and general 19,889 31,119 541,864
Professional Fees 27,904 51,562 663,656
NET OPERATING LOSS ($108,393) ($255,526) ($6,570,716)
OTHER EXPENSE
Financing Costs -0- (424,660) (424,660)
Interest expense (6,592) (9,343) (104,317)
NET LOSS ($114,985) ($689,529) ($7,099,693)
-19-
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.
THREE MONTH PERIOD ENDED MARCH 31, 2009 COMPARED TO THREE MONTH PERIOD ENDED
MARCH 31, 2008.
Our net loss for the three month period ended March 31, 2009 was ($114,985)
compared to a net loss of ($689,529) during the three month period ended March
31, 2008 (a decrease of $574,544). During the three month periods ended March
31, 2009 and 2008, we did not generate any revenue.
During the three month period ended March 31, 2009, we incurred general and
administrative expenses of approximately $108,393 compared to $255,526 incurred
during the three month period ended March 31, 2008 (a decrease of $147,133).
These general and administrative expenses incurred during the three month period
ended March 31, 2009 consisted of: (i) consulting fees of $15,000 (2008:
$60,000); (ii) office and general of $19,889 (2008: $31,119); (iii) professional
fees of $27,904 (2008: $51,562); (iv) management fees - related party of $45,600
(2008: $0); and (v) investor relations of $-0- (2008: $112,845).
During the three month periods ended March 31, 2009 and March 31, 2008, we did
not record any impairment of oil and gas properties. Thus, general and
administrative expenses incurred during the three month period ended March 31,
2009 compared to the three month period ended March 31, 2008 decreased primarily
due to the decrease in expenses associated with investor relations, consulting
fees, office and general and professional fees. General and administrative
expenses generally include corporate overhead, financial and administrative
contracted services, marketing, and consulting costs.
Of the $108,393 incurred as general and administrative expenses during the three
month period ended March 31, 2009, we incurred consulting expenses of $15,000
(2008- $60,000). We further incurred management fees of $45,600 payable to our
officers and directors. As of March 31, 2009, the total amount owing in
management fees was $12,073.
Financing costs incurred during the three month periods ended March 31, 2009 and
March 31, 2008 of $-0- and $424,660, respectively, were recorded as other
expense. In addition, interest expense during the three month periods ended
March 31, 2009 and March 31, 2008 of $6,592 and $9,343, respectively, was
recorded as other expense. This resulted in a net loss of ($114,985) or ($0.01)
per share for the three month period ended March 31, 2009 compared to a net loss
of ($689,529) or ($0.06) per share for the three month period ended March 31,
2008. The weighted average number of shares outstanding was 15,216,196 for the
three month period ended March 31, 2009 compared to 11,776,454 for the three
month period ended March 31, 2008.
-20-
LIQUIDITY AND CAPITAL RESOURCES
AS AT MARCH 31, 2009
As at the three month period ended March 31, 2009, our current assets were
$26,388 and our current liabilities were $735,807, which resulted in a working
capital deficiency of ($709,419). As at the three month period ended March 31,
2009, current assets were comprised of: (i) $584 in cash; and (ii) $25,804 in
other current assets. As at the three month period ended March 31, 2009, current
liabilities were comprised of: (i) $337,979 in accounts payable and accrued
liabilities; and (ii) $397,828 in amounts due to related parties.
As at the three month period ended March 31, 2009, our total assets were
$1,829,331 comprised of: (i) $26,388 in current assets; and (ii) $1,802,943 in
unproven oil and gas properties. The slight decrease in total assets during the
three month period ended March 31, 2009 from fiscal year ended December 31, 2008
was primarily due to the decrease in cash.
As at the three month period ended March 31, 2009, our total liabilities were
$735,807 comprised entirely of current liabilities. The increase in liabilities
during the three month period ended March 31, 2009 from fiscal year ended
December 31, 2008 was primarily due to an increase in accounts payable and
accrued liabilities and amounts due to related parties. See " - Material
Commitments".
Stockholders' equity decreased from $1,208,509 as of December 31, 2008 to
stockholders' equity of $1,093,524 as of March 31, 2009.
CASH FLOWS FROM OPERATING ACTIVITIES
We have not generated positive cash flows from operating activities. For the
three month period ended March 31, 2009, net cash flows used in operating
activities was ($64,299), consisting primarily of a net loss of ($114,985). Net
cash flows used in operating activities was changed by $16,666 relating to an
accrual due to related parties and $34,020 in accounts payable and accrued
liabilities. For the three month period ended March 31, 2008, net cash flows
used in operating activities was ($281,325), consisting primarily of a net loss
of ($689,529), adjusted by $424,660 in financing costs and further changed by
$39,344 relating to an accrual due to related parties, ($2,275) in other current
assets and ($53,525) in accounts payable and accrued liabilities.
CASH FLOWS FROM INVESTING ACTIVITIES
For the three month period ended March 31, 2009, net cash flows used in
investing activities was $-0-. For the three month period ended March 31, 2008,
net cash flows used in investing activities was ($55,598) 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 the three month period ended March
31, 2009, net cash flows provided from financing activities was $50,000 compared
to $335,000 for the three month period ended March 31, 2008. Cash flows from
-21-
financing activities for the three month period ended March 31, 2009 consisted
of $50,000 in advances from related parties. Cash flows from financing
activities for the three month period ended March 31, 2008 consisted of $335,000
in advances from related parties.
We expect that working capital requirements will continue to be funded through a
combination of our existing funds and further issuances of securities. Our
working capital requirements are expected to increase in line with the growth of
our business.
PLAN OF OPERATION AND FUNDING
Existing working capital, further advances and debt instruments, and anticipated
cash flow are expected to be adequate to fund our operations over the next six
months. We have no lines of credit or other bank financing arrangements.
Generally, we have financed operations to date through the proceeds of the
private placement of equity and debt instruments. In connection with our
business plan, management anticipates additional increases in operating expenses
and capital expenditures relating to: (i) oil and gas operating properties; (ii)
possible drilling initiatives on current properties and future properties; and
(iii) future property acquisitions. We intend to finance these expenses with
further issuances of securities, and debt issuances. Thereafter, we expect we
will need to raise additional capital and generate revenues to meet long-term
operating requirements. Additional issuances of equity or convertible debt
securities will result in dilution to our current shareholders. Further, such
securities might have rights, preferences or privileges senior to our common
stock. Additional financing may not be available upon acceptable terms, or at
all. If adequate funds are not available or are not available on acceptable
terms, we may not be able to take advantage of prospective new business
endeavors or opportunities, which could significantly and materially restrict
our business operations.
During fiscal year ended December 31, 2008, we completed a private placement
consisting of 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
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
-22-
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 March 31, 2009, an aggregate $360,000 was due
and owing to this shareholder, which bears interest at 8% per annum and has no
specific repayment terms. As at March 31, 2009, total accrued interest was
$25,755.
PURCHASE OF SIGNIFICANT EQUIPMENT
We do not intend to purchase any significant equipment during the next twelve
months.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Quarterly Report, we do not have any off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
GOING CONCERN
The independent auditors' report accompanying our December 31, 2008 and December
31, 2007 financial statements contains an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. The
financial statements have been prepared "assuming that we will continue as a
going concern," which contemplates that we will realize our assets and satisfy
our liabilities and commitments in the ordinary course of business.
ITEM III. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk represents the risk of loss that may impact our financial position,
results of operations or cash flows due to adverse change in foreign currency
and interest rates.
EXCHANGE RATE
Our reporting currency is United States Dollars ("USD"). In the event we acquire
any properties outside of the United States, the fluctuation of exchange rates
may have positive or negative impacts on our results of operations. However,
since all of our properties are currently located within the United States, any
potential revenue and expenses will be denominated in U.S. Dollars, and the net
income effect of appreciation and devaluation of the currency against the U.S.
Dollar would be limited to our costs of acquisition of property.
-23-
INTEREST RATE
Interest rates in the United States are generally controlled. Any potential
future loans will relate mainly to acquisition of properties and will be mainly
short-term. However our debt may be likely to rise in connection with expansion
and if interest rates were to rise at the same time, this could become a
significant impact on our operating and financing activities. We have not
entered into derivative contracts either to hedge existing risks for speculative
purposes.
ITEM IV. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We have performed an evaluation under the supervision and with the participation
of our management, including our Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), of the effectiveness of our disclosure controls and
procedures, (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act). Based on that evaluation, our management, including our CEO and CFO,
concluded that our disclosure controls and procedures were effective as of March
31, 2009 to provide reasonable assurance that information required to be
disclosed by us in the reports filed or submitted by us under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Under the supervision and with the participation of our
management, including our CEO and CFO, we evaluated the effectiveness of our
internal control over financial reporting as of March 31, 2009. In making this
assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO") in Internal
Control-Integrated Framework.
This Quarterly Report does not include an attestation report of our registered
public accounting firm De Joya Griffith & Company, LLC regarding internal
control over financial reporting. Management's report was not subject to
attestation by our registered public accounting firm pursuant to temporary rules
of the SEC that permit us to provide only management's report in this Quarterly
Report on Form 10-Q.
INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
We believe that a controls system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the controls system are
met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been
detected. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives, and our CEO and our CFO have
concluded that these controls and procedures are effective at the "reasonable
assurance" level.
-24-
CHANGES IN INTERNAL CONTROLS
Our management had remediated the material weaknesses that were reported from
our 10-K/A for the fiscal year end December 31, 2007 which were filed on October
2, 2008. (A) Management implemented an audit committee that oversees and
monitors our financials (See Paragraph on Audit committee report below). (B)
Adequate segregation of duties were put in place to reduce the likelihood that
errors (intentional or unintentional) will remain undetected by providing for
separate processing by different individuals at various stages of a transaction
and for independent reviews of the work performed. No further significant
changes were implemented in our internal controls over financial reporting
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
AUDIT COMMITTEE REPORT
The Board of Directors has established an audit committee. The members of the
audit committee are Mr. Marcus Johnson, Mr. Angelo Viard and Mr. D. Bruce
Horton. All of the members of the audit committee are "independent" within the
meaning of Rule 10A-3 under the Exchange Act. The current audit committee was
organized on December 18, 2008 and operates under a written charter adopted by
our Board of Directors.
The audit committee has received and reviewed the written disclosures and the
letter from De Joya Griffith & Company, LLC required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees, as
amended.
Based on the reviews and discussions referred to above, the audit committee has
recommended to the Board of Directors that the financial statements referred to
above be included in our Quarterly Report on Form 10-Q for the three month
period ended March 31, 2009 filed with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
ITEM 1. 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 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.
ITEM 1A. RISK FACTORS
No report required.
-25-
ITEM 2. UNREGISTERED SALES OF 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
No report required.
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 Certifications pursuant to Securities Exchange Act of 1934
Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes- Oxley
Act of 2002.
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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: May 4, 2009
By: /s/ PETER WILSON
_________________________________________
Peter Wilson
President and Chief Executive Officer
Dated: May 4, 2009
By: /s/ WILLIAM D. THOMAS
_________________________________________
William D. Thomas
Chief Financial Officer
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