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MORGAN CREEK ENERGY CORP
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<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Morgan
Creek Energy Corp. (the “Company”) is an exploration stage company that was organized to enter into the oil and gas
industry. The Company intends to locate, explore, acquire and develop oil and gas properties in the United States and within North
America. The primary activity and focus of the Company is its leases in New Mexico (“New Mexico Prospect”). The leases
are unproven. To date we have leased approximately 7,576 net acres within the State of New Mexico. The Company has also acquired
approximately an additional 5,763 net acres in New Mexico. (Refer to Note 3). The Company has entered into an Option Agreement
to participate in approximately 5,600 net acres in Oklahoma (Refer to Note 3). In addition, we acquired leases in Texas (the “Quachita
Prospect”). To date the Company has acquired approximately 1,971 net acres.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>Going
concern</b></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company commenced operations on October 19, 2004 and has not realized any revenues since inception. As of March 31, 2012, the
Company has an accumulated deficit of $14,721,144. 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 financial 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, advances from related parties, and loans.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt/115% Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><b>Unaudited Interim Financial
Statements</b></p>
<p style="font: 10pt/115% Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><b></b>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, 2011 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, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Organization</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company was incorporated on October 19, 2004 in the State
of Nevada. The Company’s fiscal year end is December 31.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Basis of presentation</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">These financial statements are presented in United States
dollars and have been prepared in accordance with United States generally accepted accounting principles.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Oil and gas properties</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Oil and gas properties (continued)</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Asset retirement obligations</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has adopted the provisions of FASB ASC 410-20
“Asset Retirement and Environmental Obligations," which 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. As of March 31, 2012,
there has been no asset retirement obligations recorded.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Use of estimates</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Cash and cash equivalents</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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, 2012
and December 31, 2011 that exceeded federally insured limits.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Financial instruments</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Earnings (loss) per common share</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Income taxes</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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, 2012, 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Stock-based compensation</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On June 1, 2006, the Company adopted FASB ASC 718-10, “Compensation-Stock
Compensation”, under this method, compensation cost recognized for the year ended May 31, 2007 includes: a) compensation
cost for all share-based payments granted prior to, but not yet vested as of May 31, 2006, 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 May 31, 2006, based on the grant-date fair value estimated in accordance with the provisions of FASB ASC 718-10. In addition,
deferred stock compensation related to non-vested options is required to be eliminated against additional paid-in capital upon
adoption of FASB ASC 718-10. The results for the prior periods were not restated.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for equity instruments issued in exchange
for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by
the FASB ASC 505-50. 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 FASB ASC 505-50.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>(a) Quachita Prospect</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company had 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. During 2009 the balances
of the leases within the Quachita trend were allowed to lapse without renewal by the Company. Accordingly, during 2009 the Company
wrote off the original cost of these leases totaling $338,353. As allowed for under the lease which included the Boggs #1 well,
the Company had paid a nominal fee to maintain its rights and access to the Boggs #1 well.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Boggs #1</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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, $1,336,679 had 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 $1,335,780 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 2,530,000 shares of common stock at $0.315 per share.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">As formation water was also produced with the natural gas
in the tested zones, the Boggs #1 was fully impaired as of December 31, 2011. While there is potential to exploit lower zones or
to recomplete the well under an improved gas pricing environment, an impairment charge of $891,119 was recorded against the well
in 2010 and a further impairment charge of $445,560 was recorded against the well in fiscal 2011.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>(b) New Mexico Prospect</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company to date had leased various properties totalling
approximately 7,576 net acres within the state of New Mexico for a five year term in consideration for $112,883. The Company has
a 100% Working Interest and an 84.5% N.R.I. in the leases. On October 31, 2008, the Company entered into an agreement to acquire
from Westrock Land Corp. approximately 5,763 additional net acres of property within the State of New Mexico for a five year term
in consideration for $388,150. The Company acquired a 100% working interest in approximately 5,763 net acres; and an 81.5% N.R.I.
in the leases in approximately 5,763 net acres.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On July 9, 2009, the Company entered into a Letter Agreement
with FormCap Corp. (“FormCap”), for joint drilling on the Company’s New Mexico prospect whereby FormCap was required
to drill and complete two mutually defined targets on the Company’s leases in return for an earned 50% Working Interest in
the entire New Mexico Prospect. During the period FormCap advanced a non-refundable $100,000 deposit under the terms of the Option
to secure the project in connection with which the Company paid a finders’ fee of $20,000. On September 24, 2009, the Company
announced that FormCap could not meet the requirements of the Option Agreement and thus forfeited its rights to the project. The
Company retained the $100,000 non-refundable deposit and recorded it as a gain on expired oil and gas lease option during 2009.
Due to current market conditions, the Company decided to fully impair these properties in fiscal 2011. An impairment charge of
$541,646 was recorded against these properties in fiscal 2011.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>(c) Oklahoma Prospect</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On May 28, 2009, the Company entered into a Letter Agreement
with Bonanza Resources Corporation (“Bonanza”) for an option to earn a 60% interest of Bonanza’s 85% interest
in the North Fork 3-D prospect in Beaver County, Oklahoma in approximately 5,600 net acres. The parties intended to enter into
a definitive agreement regarding the option and purchase of the 60% interest within 60 days. A non-refundable payment of $150,000
was paid to Bonanza, whereby Bonanza would grant the Company an exercise period of one year. As per a verbal agreement, the 60
day period was extended to August 17, 2009 and subsequently extended to October 28, 2009. On November 30, 2009 an amendment to
the original agreement was made whereby the Company increased its option to acquire from 60% to 70% interest of Bonanza’s
85% interest. The Company paid $50,000 during August 2009 and on October 23, 2009 paid an additional $65,000. The balance of $35,000
was due by December 31, 2009. Subsequently on January 12, 2010 the cumulative non-refundable payment was amended from $150,000
to $125,000. On January 15, 2010 the Company made the final payment of $10,000.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In order to exercise the option, the Company would be required
to incur $2,400,000 in exploration and drilling expenditures during the Option Period which will be one year. In the event that
the Company does not do so the option would terminate, the Company would cease to have any interest in the prospect and Bonanza
would retain the benefit of any drilling or exploration expenditures made by the Company during the Option Period. On November
30, 2009 the Agreement between Bonanza and the Company was amended whereby the Company agreed to incur the full cost of drilling
one well to completion on the prospect and would have exercised its option to earn its interest in the well and the balance of
the Prospect. In the event that the first well is a dry hole, the Company would have the exclusive right and option to participate
in any and all further drilling programs on the Prospect and to incur the full cost of drilling a second well to acquire a 75%
interest of Bonanza’s 85% interest (59.50% working interest) in both that well and the balance of the Prospect.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On January 15, 2010, the Company entered into a Participation
Agreement to finance drilling and completion costs with two partners who would pay 67% of the costs of the first well in the Prospect.
The Company would pay 33% of the drilling and completion costs. To December 31, 2009, the Company accrued the entire estimated
cost of the first well of $475,065 of which $316,690 was paid to the Company during the period by the new participants. Also during
the period, the Company received a reduction in the well cost from the operator totalling $189,413 which resulted in amounts payable
by the new participants being reduced to $190,530. Of the excess paid during the period by the new participants, $63,022 remains
payable as of December 30, 2011 and has been included in accounts payable and accrued liabilities.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 1, 2010, the Company was informed by its operator
that it had drilled the Nowlin #1-19 well to a depth of 8,836 feet. After review of the drilling logs, the Company had determined
that oil is not producible in the targeted Morrow A and B sand formations. The well had been plugged and the Company wrote off
the net cost of the well of $230,524 during 2010.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>(d) Mississippi Prospect</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Effective on August 26, 2010, the Board of Directors of the
Company authorized the execution of an option agreement dated August 26, 2010 (the “Option Agreement”) with Westrock
Land Corp. (“Westrock”), to purchase approximately 21,000 net acres of mineral oil and gas leases on lands located
in Lamar, Jones and Forrest counties in the State of Mississippi (the “Acquired Properties”). The Company entered into
the Option Agreement with Westrock, as the mineral leaseholder, and received representations that Westrock owned all right, title
and interest to all depths, including the Haynesville Shale Formation pursuant to the oil and gas leases with a minimum 75% net
revenue interest.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In accordance with the terms and provisions of the Option
Agreement: (i) the Company agreed to issue to Westrock an aggregate of 15,000,000 restricted shares of its common stock by November
30, 2010; (ii) Westrock granted to the Company a period to conduct due diligence to October 31, 2010; and (iii) at closing, Westrock
conveyed to the Company the Acquired Properties by assignment and bill of sale and other associated documentation. The Company
and Westrock anticipated that the closing would occur no later than November 1, 2010.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company completed due diligence on the Acquired Properties
and issued 15,000,000 restricted common shares, with an estimated fair value of $3,000,000, to Westrock on October 21, 2010.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Due to current market conditions, the Company decided to
fully impair these properties in fiscal 2011. An impairment charge of $3,000,000 was recorded against these properties in fiscal
2011.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During 2010, a shareholder made advances of $94,167 which
was due and owing as of December 31, 2010, which bears interest at 8% per annum and has no specific repayment terms. During 2011,
this shareholder made further advances of $80,000 and was repaid $159,167 and $5,220 in principal and interest respectively. During
the three month period ending March 31, 2012, this shareholder made further advances of $25,000. Total accrued interest was $666
leaving a total of $40,666 owing to this shareholder (December 31, 2011 - $15,302).</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the period ended December 31, 2011, the Company received
an advance of $6,000 from Sono Resources., a company with certain directors in common with the Company. These advances are non-interest
bearing, unsecured and without specific terms or repayment.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company owes $63,633 to an officer and director of the
Company to provide office space and office services for the period ended March 31, 2012 (December 31, 2011 – $44,593).</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Management Fees</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the three month period ended March 31, 2012, the Company
incurred $26,520 (March 31, 2011 -$26,520) for management fees to officers and directors. As of March 31, 2012, total amount owing
to related parties in accrued and unpaid management fees and expenses was $235,046 (December 31, 2011- $206,742)<b>.</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During 2011, the Company received loan proceeds of $175,000
from an unrelated third party pursuant to an unsecured promissory note agreement effective May 15, 2011 and maturing November 15,
2011. The promissory note bears interest at a rate of 10% per annum of which a total of $14,460 has been accrued for interest as
of March 31, 2012. This note is now due on demand.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the quarter ended March 31, 2012, the Company received
loan proceeds of $25,000 from an unrelated third party pursuant to an unsecured promissory note. The promissory note is due on
demand and bears interest at a rate of 10% per annum of which a total of $27 has been accrued for interest as of March 31, 2012.</p>
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