UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2011March 31, 2012

oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

Commission File Number:  333-138806

MOGUL ENERGY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

Delaware98-0461623
State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
  
 
2500 Wilcrest Drive, Suite 405, Houston, Texas77042
(Address of principal executive offices)(Zip Code)
  
  
Registrant’s telephone number, including area code:(713) 784-2446

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.YesAct.   Yes o   No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x  No o

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§Sec.229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x   No o


 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting Company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £
Accelerated filer o
Non-accelerated filer £
Smaller reporting company x
(Do not check if a smaller reporting Company) 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £   No S

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.As of October 30, 2011,May 11, 2012, there were 57,505,98711,513,203 common shares outstanding.
 


 
Page 2 of 39

 

PART IFORM 10-K
Graphic
Mogul Energy International, Inc.
 

Financial Statement Index
DECEMBER 31, 2011
 

 
 
 
F-1Page 3 of 39

GLOSSARY OF SELECTED OIL AND GAS TERMS
All defined terms under Rule 4-10(a) of Regulation S-X shall have their statutorily prescribed meanings when used in this report. As used in this document:

 Logo3-D seismic. An advanced technology method of detecting accumulations of hydrocarbons identified by the collection and measurement of the intensity and timing of sound waves transmitted into the earth as they reflect back to the surface.

After payout – With respect to an oil or natural gas interest in a property, refers to the time period after which the costs to drill and equip a well have been recovered.

BOE. Means a barrel of oil equivalent and is a standard convention used to express oil and gas volumes on a comparable oil equivalent basis. Gas equivalents are determined under the relative energy content method by using the ratio of 6.0 Mcf of gas to 1.0 Bbl of oil or natural gas liquid.

Bbl. One barrel, or 42 U.S. gallons of liquid volume.

Before payout – With respect to an oil and natural gas interest in a property, refers to the time period before which the costs to drill and equip a well have been recovered.

Completion. The installation of permanent equipment for the production of oil or gas.

Development well. A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive.

Dry hole. A well found to be incapable of producing hydrocarbons in sufficient quantities to justify completion as an oil or gas well.

Exploratory well. A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir.

Gross acres or wells. Refers to the total acres or wells in which the Company has a working interest.

Horizontal drilling. A drilling technique that permits the operator to contact and intersect a larger portion of the producing horizon than conventional vertical drilling techniques and may, depending on the horizon, result in increased production rates and greater ultimate recoveries of hydrocarbons.

MBbls. One thousand barrels.

MBOE. One thousand BOEs.

Mcf. One thousand cubic feet.

MMcf. One million cubic feet.

NGLs. Natural gas liquids.

Net acres or wells. Refers to gross the sum of fractional ownership working interest in gross acres or wells.
Oil. Crude oil or condensate.

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Operator. The individual or company responsible for the exploration, development and production of an oil or gas well or lease.

Present value of proved reserves (“PV-10”). The present value of estimated future revenues, discounted at 10% annually, to be generated from the production of proved reserves determined in accordance with Securities and Exchange Commission guidelines, net of estimated production and future development costs, using prices and costs as of the date of estimation without future escalation, without giving effect to (i) estimated future abandonment costs, net of the estimated salvage value of related equipment, (ii) non-property related expenses such as general and administrative expenses, debt service and future income tax expense, or (iii) depreciation, depletion and amortization.

Blowout: An uncontrolled flow of formation fluids at the surface. This will occur when the formation pressures exceed the pressure exerted by the column of drilling fluid and a failure of the safety systems in the borehole and at the surface.

Surface Cratering: The physical result of a blowout in and around the borehole, either by the explosive effect of the hydrocarbons or the liquefaction of the near surface sediments causing the sediments and/or rig to sink into the ground.

Embedded Oilfield Drilling and Service Tools: The result of subsurface oilfield tools (drillpipe, casing, logging sondes, etc.) becoming lodged or stuck in the borehole and unable to be moved or removed from the borehole.

Carried Interest: A fractional interest in an oil and gas property conveyed or assigned to another party by the other working interest owners. It is exempt from all costs of development and operation of the property, generally up to a specific point in the well (e.g. “to casing point”, “to well completion” or to payout of the well costs).

Cased Hole (CH) Logs: Wireline-run sondes run in the borehole after casing has been set and cemented. These tools are used as post-drilling evaluation of wellbore integrity, monitoring of formation fluid contacts and to assist in reservoir management.

Open Hole (OH) Logs: Wireline-run sodes run in the borehole before casing is set and cemented. These tools are used to evaluate the subsurface formations for hydrocarbon–bearing intervals, and to provide formation parameters (porosity, fluid saturations, etc.) to assist in production activities.

Productive Zones: Intervals in the subsurface that contain hydrocarbons which can be produced at a rate which is deemed commercial.

Successful Completion: The initiation of production activities following the; 1) evaluation of the formation of interest, 2) preparation of the borehole for production, 3) running of the required production equipment into the borehole, and 4) installation of the surface production facilities.

Proportionate Cost: That percentage of the total cost of a well, generally up to a specific point in the well (e.g. “to casing point”, “to well completion”), which one interest owner is not responsible for, based on the contractual agreement of all the interest owners.

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Prospective: Subsurface formations have unique parameters (porosity, thickness, hydrocarbon saturation, areal extent, etc.) which delineate it from other subsurface formations. Such formations would be under consideration for possible hydrocarbon production.

Oil and Gas Shows: Surface and/or subsurface indications of potential hydrocarbon-bearing intervals.

Page 6 of 39

PART I
Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  These statements relate to future events and/or our future financial performance.  Generally, you can identify forward-looking statements by terminology such as “intends,” "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", or "potential" or the negative of these terms or other comparable terminology.  To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties.  These statements reflect only our current expectations and involve known and unknown risks, uncertainties and other factors, many of which are unforeseen, including the risks in Item 1A entitled "Risk Factors," that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  You should not place undue reliance on these forward-looking statements.  These forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbors created thereby.  Except as required by applicable law, including, but not limited to, the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

In this Annual Report, unless otherwise specified, all references to "common shares" refer to common shares in the capital of Mogul Energy International, Inc., and the terms “Company,” Registrant,” "we" "us" and "our" mean Mogul Energy International, Inc.
(expressed in U.S. dollars)
ITEM 1.
  
September 30,
2011
(Unaudited)
  
December 31,
2010
 
 
Assets:      
Current      
Cash $69,333  $65,085 
Investments held for sale  11,765   102,052 
Prepaid and deposits  74,666   100,477 
Other receivables  192,009   72,611 
Restricted funds  430,929   - 
Total current assets  778,703   340,225 
Non-current        
Oil and gas properties  93,533   36,342 
Other property and equipment – net  15,477   - 
Total Assets $887,713  $376,567 
         
Current Liabilities:        
Accounts payable $150,613  $31,537 
Accrued expenses and other payables  45,870   38,106 
Drilling advances  457,321   - 
Due to related parties  818,281   - 
Total current liabilities  1,472,085   69,643 
Contingencies and commitments  115,280   300,000 
Total Liabilities  1,587,365   369,643 
         
Shareholders’ Equity:        
Accumulated deficit $(8,411,640) $(7,656,718)
Common stock (Authorized: 100,000,000 shares, $0.0001 par value. Outstanding: 57,505,987 shares at 09/30/11 and 57,445,987 at 12/31/10)
  5,804   5,744 
Additional paid-in capital  7,639,981   7,638,241 
Warrants & Options:  114,000   144,000 
Preferred: 10,000,000 shares authorized, none issued  -   - 
Foreign exchange adjustment  (39,242)  (151,187)
Other comprehensive income (loss)  (8,552)  56,844 
Total Shareholders’ Equity  (699,652)  6,924 
Total Shareholders’ Equity and Liabilities  887,713  $376,567 
The Notes are an integral part of the Financial Statements
Mogul Energy International, Inc.
For the Nine Months Ended September 30, 2011 and 2010
(expressed in U.S. dollars)
Unaudited
  
Three Months
Ended
September 30,
2011
  
Three Months
Ended
September 30,
 2010
  
Nine Months
Ended
September 30,
2011
  
Nine Months
 Ended
September 30,
2010
 
Revenue:            
Oil and gas sales  3,220   -   10,918   - 
Management fees  3,668   -   8,885   - 
Total revenue  6,887       19,802   - 
Expenses:                
Lease operating expense  150   -   194   - 
Production tax  148   -   503   - 
Depreciation, depletion  and amortization  4,089   -   8,405   - 
General and administrative  127,389   574,920   334,782   816,745 
Salaries and wages  129,901   29,296   366,002   222,544 
Stock based compensation  1,800   -   1,800   - 
Taxes, other  -   -   83,357   - 
Total expenses  (263,477)  (599,216)  (795,043)  (1,039,299)
Other income and expenses                
Gain on sale of oil and gas properties  -   -   -   575,000 
Gain on sale of investment held for sale  -   -   20,319   310,931 
Net income (loss) for the periods $(256,590) $(599,216) $(754,922) $(153,368)
                 
Other comprehensive income:                
Net unrealized gain (loss) on investments held for sale for periods $(7,585) $349,238  $(65,400) $85,026 
Foreign exchange adjustment  43,537   15,771   111,945   (16,749)
Total other comprehensive gain (loss) for the periods $35,952  $365,009  $46,545  $68,277 
                 
Total comprehensive net gain (loss) for the periods $(220,638) $158,667  $(708,377) $(85,091)
                 
Basic earnings (loss) per share $(0.00) $0.00  $(0.01) $(0.00)
                 
Weighted average common shares outstanding  57,460,987   57,445,987   57,460,987   57,445,987 
The Notes are an integral part of the Financial Statements
Mogul Energy International, Inc.
For the Nine Months Ended September 30, 2011 and 2010
(Expressed in U.S. dollars)
Unaudited
  
Nine Months 
Ended
September 30,
2011
  
Nine Months
 Ended
September 30,
 2010
 
Operating Activities      
Net income (loss) for periods $(754,922) $(153,368)
Adjustments to reconcile net loss to net cash provided by operating activities:        
Depreciation, depletion, amortization  8,405   - 
Gain on disposition of exploration Property  -   (575,000)
Gain on investment held for sale  (20,319)  (310,931)
Stock based compensation  1,800     
Changes in non-cash working capital        
Accounts payables (decrease) increase  119,076   (179,767)
Accrued expenses and other payables  7,764   - 
Drilling advances  457321   - 
Other receivables (decrease) increase  (119,398)  (4,150)
Prepaid and deposits  25,811   (37,054)
Restricted cash  (430,929)  - 
Contingency decrease  (184,720)  303,457 
Cash used in operating activities $(890,112) $(955,677)
Investing Activities        
Purchases of other property and equipment  (23,881)  - 
Proceeds - sale of investments held for sale  45,206   448,804 
Proceeds from the disposition of exploration property  -   1,000,000 
Oil and gas properties  (57,191)  5,389 
Cash used for investing activities $(35,866) $(1,454,191)
Financing Activities        
Due to related parties  818,281   (145,320)
Bank indebtedness  -   (43,143)
Cash from financing activities $818,281  $(188,463)
Foreign exchange adjustment  111,945   (16,740)
Increase (decrease) in cash during periods  4,248   310,052 
Cash beginning of periods  65,085   7,481 
Cash at end of periods $69,333  $299,648 
Interest paid during period  -   32,972 
Taxes paid during period  -   - 
Schedule of Non-cash Transactions        
Expiration of shareholder warrants  -   132,738 
 
The NotesCompany

We are a Delaware corporation formed on July 25, 2005.  Our principal place of business is located at 2500 Wilcrest Drive, Suite 405, Houston, Texas.  We also maintain offices in Vancouver, British Columbia and Toronto, Ontario, Canada.

We are an integralindependent oil and gas exploration Company established to take advantage of low cost acquisition opportunities near other producing and proven oil fields. Since our formation, we have engaged in activities related to financing of our operations, the acquisition of our property rights and the drilling of both development and exploratory wells.  The address of our website is www.mogulenergy.com. Information on our website is not part of the Financial Statements
Mogul Energy International, Inc.

Mogul Energy International, Inc. (the “Company”), was formedOur current focus is to acquiring leases and operating joint venture projects in the United States, specifically in the state of Delaware on July 25, 2005 and is focused on oil and gas acquisition, exploration, development and production activity primarily in the StateTexas.

Description of Texas.  The Company’sBusiness

Our business strategy is focused on building a portfolio of prospectiveto acquire interest in, and/or to operate oil and gas properties that are close in proximity to areas containing knownhave existing or the high potential of oil and or natural gas reserves.  Existing well bores with proven oil and gas reserves.  By securing industry partnersreserves can usually be purchased for a fraction of the original cost to drill and complete a new well. Property purchased with proven reserves reduce the risk of not finding hydrocarbons and are economically viable to develop due to the elimination of the associated cost of finding the hydrocarbons. After the property has been purchased, the primary cost for establishing new production is the re-completion cost.
Page 7 of 39

We currently use third-party providers to engage in most if not all of any oil and gas producing activities in which we may engage if our properties reveal the potential for such activity in the future.
Core Properties

Texas, United States

Stafford Prospect, Jackson County, Texas

On November 26, 2010, we entered into a Joint Operating Agreement and a Participation Agreement with C. H. Squyres Family, LLC, Fossil Oil Company LLC and certain other individuals who are signatories thereto to develop an extension to the La Ward NE Field in Jackson County (Stafford Prospect).  The agreement provided for the shared costs in the acquisition of oil and gas leases in the Stafford Prospect.  As operator, we participated in the drilling of the initial well with an 8.89% working interest and acquired a 6.11% promoted interest resulting in our having a 15.00% net working interest upon the successful completion of the initial well drilled on the property.  Each participant would also pay the same percentage costs for the next well as was paid on the first well.

North Pasture Prospect – San Patricio County, Texas

On December 8, 2010 we entered into a Joint Operating Agreement and a Participation Agreement with Global Oil and Gas Resources Inc., Dolimiti Partners LLC, Indian Lane Assoc., LLC, Plastiform Packaging, Inc. and certain other individuals who are signatories thereto for the first prospect known as the North Pasture Prospect in San Patricio County, Texas.  Subject to the continued acquisition of the mineral leases in the area, we, as operator, would pay no proportionate cost for the drilling of the well and would earn a 25% net working interest upon the successful completion of the initial well.

Mud Flats – Aransas County, Texas

On December 22, 2011 we commenced drilling operations of our third well, Werland Heirs #1 in the Mud Flats Field, Aransas County Texas in which we have a 25% carried interest.
See also “ITEM 8B. OTHER INFORMATION” below.

We presently continue to seek out property acquisitions in the United States and to dispose of property interests in which we no longer have any exploratory or development interest.

Employees

As of March 31, 2012, we had 4 full time employees.  We hire part-time employees and/or independent consultants as required.  We will continue to rely on independent contractors as needed.  If we are successful in any future drilling programs, we may retain additional employees or consultants or convert existing consultants into full time employees as may be required.
You should carefully consider the risks described below, and the other information contained in this Annual Report, before purchasing shares of our common stock. Some of the risks and uncertainties we face are described below; however, the risks and uncertainties described below are not the only risks and uncertainties we face, and risks and uncertainties not listed herein may materially adversely affect our business.  If any of the following risks actually occur, our business, financial condition, or results or operations could be materially adversely affected, the price of our common stock could decline, and you may lose all or part of your investment therein.  You should acquire shares of our common stock only if you can afford to lose your entire investment.
Page 8 of 39

Risks Associated With Our Business

We have incurred losses in recent periods for start-up efforts and may incur losses in the future.

We were organized on July 25, 2005; since inception we have a history of operating losses, and a $8,952,616 accumulated deficit through March 31, 2012.  We expect to incur substantial operating losses for the foreseeable future, as well.

We may not be able to continue without additional capital to fund our operations.

Our consolidated financial statements have been prepared on a promotedgoing concern basis, where practical,which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have a history of operating losses that are likely to continue in the future.

If we are unable to become profitable and cannot generate cash flow from our operating activities, we may be required to raise additional capital or debt to fund our operations. Such financing may be unavailable when needed or may not be available on acceptable terms. If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our current stockholders will be reduced, and these securities may have rights superior to those of our common stock.

We have a limited operating history which makes your evaluation of our business difficult.

We are in the exploration and development stage of our business. We have engaged in preliminary exploratory activities, review of data pertaining to our properties, the establishment of initial exploration plans, and the drilling of five (5) wells. Our preliminary exploratory activities have, to date, resulted in one “dry-hole” drilled on the Fairlight Prospect, and two dry holes in our Freehold properties and one non-commercial hole drilled on the EWA Concession, Egypt. We have discontinued our efforts in Saskatchewan, Canada and Egypt.  Our current focus has been on the Upper Gulf Coast of Texas and initial activities have met with the successful drilling and preliminary testing of the first three of our four wells drilled in the program and we anticipate we will continue to be successful.  We have a very limited operating history upon which you can evaluate our business and prospects.  Accordingly, you should consider and evaluate our business prospects by considering the risks associated with our early stage status and lack of operational experience.

We will require additional financing to sustain our operations and without it we will not be able to continue operations.  Our ability to obtain such additional funding will determine our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

There is substantial doubt about our ability to continue as a going concern due to the losses incurred since inception, our accumulated deficit, and lack of revenues. Our Company has a limited operating history and is considered in the development stage. The success of our company is significantly dependent on a successful drilling, completion and production program. Our Company’s operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. No assurance can be given that we may be able to operate on a profitable basis. We are in the development stage and potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. There can be no assurance that our business plan will prove successful, and no assurance that we may be able to operate profitably, if at all.

There is no assurance that actual cash requirements will not exceed our estimates, in which case we will require additional financing to further explore and if warranted bring our properties into commercial operation, finance working capital, and pay for operating expenses and capital requirements until we achieve a positive cash flow.  There can be no assurance that, if required, any such financing will be available upon terms and conditions acceptable to us, if at all. If we are unable to obtain additional financing in a sufficient amount when needed, and upon terms and conditions acceptable to us our operations and activities will be materially adversely affected. We will need funds sufficient to meet our immediate needs and will require further funds to finance the development of our company. There can be no assurance that such funds will be available or available on terms satisfactory to us. If additional funds are raised by issuing equity securities, further dilution to existing or future shareholders is likely to result. If adequate funds are not available on acceptable terms when needed, we may be required to delay, scale back or eliminate the development of our Company.  All or a portion of our interest in our properties may be lost if we are unable to obtain significant additional financing, as we are required to make significant expenditures on the exploration and development of our properties.  Inadequate funding could also impair our ability to compete in the marketplace, which may result in the dissolution of our company.

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The oil and gas exploration business involves many operating risks that can cause substantial losses.

Numerous risks affect our drilling activities, including the risk of drilling non-productive wells or dry holes.  The cost of drilling, completing and operating wells, and of installing production facilities and pipelines is often uncertain.  Also, our drilling operations could diminish or cease due to a number of factors, including any of the following:
title problems;
weather conditions;
fires;
explosions;
blow-outs and surface cratering;
uncontrollable flows of underground natural gas, oil and formation water;
natural disasters;
pipe or cement failures;
casing collapses;
embedded oilfield drilling and service tools;
abnormally pressured formations;
environmental hazards such as natural gas leaks, oil spills, pipeline ruptures and discharges of toxic gases;

noncompliance with governmental requirements; and/or new unanticipated governmental requirements

shortages or delays in the delivery or availability of material, equipment or fabrication yards.
As a result, we could incur substantial liabilities that could reduce or eliminate the funds available for exploration, development or leasehold acquisitions, or result in loss of equipment and properties.  Given our limited financial resources, the occurrence of any one or more of the foregoing events would have a material adverse affect on our operations and the market price of our common stock.

We may not be able to obtain sufficient drilling equipment and experienced personnel to conduct our operations.

In periods of increased drilling activity resulting from high commodity prices, demand exceeds availability for drilling rigs, and personnel experienced in the oil and gas industry in general.  This may lead to difficulty and delays, especially in light of our limited resources and operations, in consistently obtaining services and equipment from vendors, obtaining drilling rigs and other equipment at favorable rates, and scheduling equipment fabrication at factories and fabrication yards. This, in turn, may lead to projects being delayed or experiencing increased costs.
Page 10 of 39

Third party operators of the properties in which we have an interest may act in ways that are not in our best interests.

Other companies may operate all or a portion of the oil and natural gas properties in which we have an interest. As a result, we have limited influence over operations on some of those properties or their associated costs. Our limited influence on non-operated properties could result in the following:
the operator may initiate exploration or development projects on a different schedule than we prefer;
the operator may propose to drill more wells or build more facilities on a project than we have funds for, which may mean that we cannot participate in those projects or share in a substantial share of the revenues from those projects; and
if the operator refuses to initiate an exploration or development project, we may not be able to pursue the project.
Any of these events could significantly affect our anticipated exploration and development activities and the economic value of those properties to us as well as the market price, if any, of our common stock.

The success of our business depends upon our ability to find, develop and acquire oil and gas reserves.

To date we have not established reserves on any of our properties. While our strategy is to acquire interests and operate oil and gas properties that have existing reserves in the Upper Gulf coast region of Texas, we have drilled four wells in which three have proven economical.  However, there is no guarantee that such activities will lead to the identification of additional drill sites or, if identified and wells are drilled, that we will find reserves that we can economically produce. Future drilling activities will subject us to many risks, including the risk that we will not find commercially productive reservoirs. Drilling for oil and natural gas can be unprofitable, not only as a result of dry holes, which we have experienced, but also from productive wells that do not produce sufficient oil to return a profit. Also, title problems, weather conditions, governmental requirements and shortages or delays in the delivery of equipment and services can delay our drilling operations or result in their cancellation. The cost of drilling, completing and operating wells is often uncertain, and not all wells produce oil and gas. As a result, we may not recover all or any portion of our investment.

If we do not establish reserves and or obtain additional financing, we may not be able to satisfy our substantial capital requirements and may be required to cease or curtail our operations.

If we identify additional drilling targets, we will require substantial capital to continue our exploration efforts and to acquire oil and gas interests; we currently need to fund our 2012 capital and exploration budget;
If we cannot generate sufficient cash flow from operations or raise funds externally in the amounts and at the times needed, we may not be able to discover reserves or meet our financial obligations.  If we are unable to obtain such financing when needed, on commercially reasonable terms, we may be required to cease or curtail our operations, which could have a materially adverse impact on the market price of our stock.

The potential profitability of oil and gas ventures depends upon factors beyond the control of our Company.  A decline in oil and gas prices will adversely affect our ability to obtain additional financing we will require in order to undertake our future drilling activities.

To date we have funded our capital requirements primarily from the offer and sale of our equity securities through the offer and sale of our common stock.  We will need to raise additional capital to fund any future drilling activities.  Our ability to do so may be adversely affected by any decrease of prices of, and demand for, natural gas and oil. Historically, the markets for natural gas and oil have been volatile and this volatility is likely to continue in the future. The potential profitability of oil and gas properties is dependent upon many factors beyond our control.  Prices for natural gas and oil may fluctuate widely in response to relatively minor changes in the supply of and demand for natural gas and oil, market uncertainty and a variety of additional factors that are beyond our control, such as:
Page 11 of 39

the price of foreign imports;
overall domestic and global economic conditions;
political and economic conditions or hostilities in oil producing regions
the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;
weather conditions;
domestic and foreign governmental regulations;
development of alternate technologies; and
the price and availability of alternative fuels.
If we are unable to obtain such financing when needed, on commercially reasonable terms, we may be required to cease or curtail our operations, which could have a materially adverse impact on the market price of our stock.   Additionally, due to world-wide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our financial performance.  Moreover, the marketability of oil and gas which may be acquired or discovered will be affected by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. The extent of these factors cannot be accurately predicted but the combination of these factors may result in our company not receiving an adequate return on invested capital.

We will continue to pursue acquisitions and dispositions which if consummated could adversely affect our cash flow and liquidity.

We will continue to seek opportunities to generate value through the purchase and sale of properties. We examine potential transactions on a regular basis, depending on market conditions, available opportunities and other factors. Dispositions of portions of our existing business or properties would be intended to result in the realization of immediate value but would consequently result in lower cash flows over the longer term unless the proceeds are reinvested in more productive assets.

We face competition from a large number of companies many of which have resources far in excess of ours.

The oil and gas industry is highly competitive. We compete with major and independent oil and natural gas companies as well as smaller companies who are better financed than we are, for property acquisitions. We also compete for equipment and labor required for us to develop and exploit our properties. Many of our competitors have substantially greater financial and other resources than we do. As a result, those competitors may be better able to withstand sustained periods of unsuccessful drilling. In addition, larger competitors may be able to absorb the burden of any changes in applicable laws and regulations more easily than we can, which would adversely affect our competitive position. These competitors may be able to pay more for exploratory prospects and productive oil and natural gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than we can. Our ability to explore for oil and natural gas prospects and to acquire additional properties in the future will depend on our ability to conduct operations and to evaluate and select suitable properties and transactions in this highly competitive environment. Moreover, the oil and natural gas industry itself competes with other industries in supplying the energy and fuel needs of industrial, commercial and other consumers. Increased competition causing oversupply or depressed prices could greatly affect our operational revenues.
Page 12 of 39

Oil and gas operations, including our contemplated drilling activities, are subject to comprehensive regulation, which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our Company.

Our oil and gas operations in United States are subject to local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to local laws and regulations, which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages which we may elect not to insure against due to prohibitive premium costs and other reasons. To date we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.

If we do not adequately manage the risks associated with conducting business in foreign countries our business operations will suffer.

A smaller part of our business strategy is to seek to acquire and develop leases and operations in foreign countries if such opportunities provide a significant return on investment. If we are able to implement such strategy, we may experience difficulty in managing international operations as a result of technical problems, distance, language and cultural differences. There are significant risks inherent in doing business on an international level, such as, political and economic instability, civil unrest, crime, unexpected changes in regulatory requirements, trade barriers, difficulties in staffing and managing foreign operations, fluctuations in foreign currency exchange rates, longer payment cycles, problems in collecting amounts due, difficulty in enforcing contracts, seasonal fluctuation in business activity and potential adverse tax consequences. If any of such risks materialize we may have little or no ability to manage them or avert any consequences there from and our business may suffer as a result.

We have not established any reserves on any of our properties.  As our properties are in the exploration stage there can be no assurance that we will establish commercial discoveries on our properties.

Although we have drilled three successful wells in which we have interests, we have not yet established official reserve estimates.  Exploration for economic reserves of oil and gas is subject to a number of risk factors. Few of the properties that are explored are ultimately developed into producing oil and/or gas wells.

Although we currently maintain insurance against potential losses and unexpected liabilities, the amount of such insurance coverage may not be sufficient to cover all such losses and liabilities.

Our operations are subject to inherent casualty risks such as blowouts, fires and explosions.. If any such event occurred, we could be subject to substantial financial losses due to personal injury, property damage, environmental discharge, or suspension of operations. The impact on us of one of these events could be significant. Although we currently maintain insurance against potential losses and unexpected liabilities, there is no assurance that the amount of such coverage will be adequate to protect us against all operational risks.

For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, it could adversely affect our operations and financial condition.

We are dependent on retaining our senior management and key personnel and the loss of any of our key management personnel would have an adverse impact on future development and could impair our ability to succeed.

To a large extent, we depend on the services of the founders of the Company, is alsoand other senior management, advisors, joint partners and personnel. These individuals have critical and unique knowledge of our operations that facilitate the evaluation and acquisitions of existing and potential properties in Canada and the United States.  We face competition for qualified personnel from numerous industry sources, and there can be no assurance that we will be able to minimizeattract and retain qualified personnel on acceptable terms.  We do not have key man insurance on any of our employees.  The loss of these experienced personnel could have a material adverse impact on our financial condition or operations.
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We will be required to rely upon services provided to us by third parties.

We expect to be totally dependent upon third-party providers to enable us to engage in all of our business activities. Such parties may include, but may not be limited to, consultants engaged to provide reserve calculations, seismic interpretation and, to the extent required, third party drilling contractors. Accordingly, we will be required to establish and maintain strategic relationships with a wide array of third party providers in order to engage in any meaningful business activity. If we are unable to establish and maintain relationships with such third party providers our business prospects will be impaired.

Our write-downs of the carrying values of oil and natural gas properties may adversely affect our earnings.

We have adopted the “full cost method” of accounting for acquisition, exploration risk contained within itsand assessment of exploration properties. Early exploration and the costs including rights to explore, geological and geophysical studies, exploratory drilling and activities in relation to evaluating the technical and feasibility and commercial viability of extracting the oil and gas from the target properties are reasonably viewed necessary to evaluate and determine probable and proven reserves on the properties.

           We currently have one full-cost pool in the United States. Depletion and amortization of the full-cost pools will be computed using the units of production method based on proven reserves, if any, as determined by the aforementioned activities.

In accordance with the full cost method of accounting, all costs associated with oil and gas property portfolio.development and investment are capitalized on a project-by-project basis pending determination of the feasibility of the project. Costs incurred include appropriate technical and administrative expenses but not general overheads. Investments in unproven properties and major development projects are not amortized until proven reserves associated with the projects can be determined. If an oil and gas property development project is successful, the related expenditures will be transferred to tangible assets and amortized over the estimated life of the reserves on a unit of production method. Where a project is abandoned or considered to be of no further commercial value to the Company, the related costs will be written off.

Unevaluated oil and gas costs are assessed at each period end and where there are indications of impairment the related costs will be written off. The recoverability of unevaluated oil and gas costs is dependent upon the discovery of economically recoverable reserves, our ability to obtain necessary financing to complete the development of reserves and future profitable production or proceeds from the disposition of recoverable reserves.

Terrorist attacks and threats or actual war may negatively affect our business, financial condition and results of operations.

Our business is affected by general economic conditions and fluctuations in consumer confidence and spending, which can decline as a result of numerous factors outside of our control, such as terrorist attacks and acts of war. Recent terrorist attacks in the United States of America, as well as events occurring in response to or in connection with them, including future terrorist attacks against United States targets, rumors or threats of war, actual conflicts involving the United States of America or its allies, or military or trade disruptions impacting our suppliers or our customers, may adversely impact our operations. Strategic targets such as energy-related assets may be at greater risk of future terrorist attacks than other targets in the United States of America. These occurrences could have an adverse impact on energy prices, including prices for our natural gas and crude oil production. In addition, disruption or significant increases in energy prices could result in government-imposed price controls. It is possible that any or a combination of these occurrences could have a material adverse effect on our business, financial condition and results of operations.
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Because of the early stage of development and the nature of our business, our securities are considered highly speculative.

Our securities must be considered highly speculative, generally because of the nature of our business and the early stage of our development. We are engaged in the business of exploring and, if warranted, developing commercial reserves of oil and gas. Our properties are in the exploration stage only and are without known reserves of oil and gas, and there can be no assurance that we will establish commercial discoveries on our properties.  We have not generated any revenues nor have we realized a profit from our operations to date and there is little likelihood that we will generate any revenues or realize any profits in the short term. Any profitability in the future from our business will be dependent upon locating and developing economic reserves of oil and gas, which itself is subject to numerous risk factors as set forth herein. Since we have not generated any revenues, we will have to raise additional monies through the sale of our equity securities or debt in order to continue our business operations.

Our management team does not have extensive experience in public company matters, which could impair our ability to comply with legal and regulatory requirements.

Our management team (consisting of our officers and directors) has had limited U.S. public Company management experience or responsibilities, which could impair our ability to comply with legal and regulatory requirements, such as the Sarbanes-Oxley Act of 2002 and applicable federal securities laws including filing on a timely basis required reports and other required information. Our management may not be able to implement and affect programs and policies in an effective and timely manner that adequately respond to increased legal or regulatory compliance and reporting requirements imposed by such laws and regulations. Our failure to comply with such laws and regulations could lead to the imposition of fines and penalties and further result in the deterioration of our business.

Our compliance with changing laws and rules regarding corporate governance and public disclosure may result in additional expenses to us, which, in turn, may adversely affect our ability to continue our operations.

Keeping abreast of, and in compliance with, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and, in the event we are ever approved for listing on either NASDAQ or a registered exchange, NASDAQ and stock exchange rules, will require an increased amount of management attention and external resources. We intend to continue to invest all reasonably necessary resources to comply with evolving standards, which may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. This could have an adverse impact on our ongoing operations.

Our proposed business raises potential conflicts of interests between certain of our officers and directors and us.

Certain of our directors are or may become directors of other oil and gas companies and, to the extent that such other companies may participate in ventures in which we may participate, our directors may have a conflict of interest in negotiating and concluding terms regarding the extent of such participation by us and such other companies. In addition, directors may present potential prospects to such other companies rather than presenting the opportunities to us. We have not established any mechanisms regarding the resolution of any such conflict if it were to arise; accordingly, there is no assurance that any such conflict will be resolved in a manner that would not be adverse to our interest.

Moreover, since our inception, we have acquired our property interests from entities controlled by or in which certain of our shareholders and directors have or may have an interest. We did not seek to obtain an independent evaluation of the fairness of the terms and conditions related to our acquisition of these properties. Such terms and conditions may prove to be financially more onerous than if we had acquired such properties from unrelated third parties; and, ultimately may result in the loss of our interests in such properties.
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We have agreements in respect of our properties, but our properties may be subject to prior unregistered agreements, or transfers which have not been recorded or detected through title searches, and are subject to a governmental right of participation, resulting in a possible claim against any future revenues generated by such properties.
We have agreements with respect to our oil and gas properties and we believe our interests are valid and enforceable, although we have not obtained an opinion of counsel or any similar form of title opinion to that effect.  These agreements do not guarantee title against all possible claims. The properties may be subject to prior unregistered agreements, or transfers that have not been recorded or detected through title research.  If the interests in our properties are challenged, we may have to expend funds defending any such claims and may ultimately lose some or all of any revenues generated from the properties if we lose our interest in such properties.

One of our directors is located outside the United States, with the result that it may be difficult for investors to enforce within the United States any judgments obtained against us or any of our directors or officers.

A minority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against us or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, you may be effectively prevented from pursuing remedies under United States federal securities laws against our directors or officers.

Risks Related to our Common Stock

Our stock price historically has been volatile and may continue to be volatile.

The market price of our common stock has been and is expected to continue to be highly volatile. Factors, many of which are beyond our control, include, in addition to other risk factors described in this section, the announcements of technological innovations by us or other companies, regulatory matters, new or existing products or procedures, concerns about our financial position, operating results, litigation, government regulation, developments or disputes relating to agreements, patents or proprietary rights, and general economic, industry and market conditions may have a significant impact on the market price of our stock. In addition, the Company strivesfuture sales of shares of our common stock by our shareholders, the holders of our outstanding warrants and options, could have an adverse dilutive effect on our outstanding shares and the market price of such shares.

The trading price of our common stock has, from time to time, fluctuated widely and in the future may be subject to similar fluctuations. The trading price may be affected by a number of factors including the risk factors set forth herein, as well as our operating results, financial condition, general economic conditions, market demand for our common stock, and various other events or factors both in and out of our control. In recent years, broad stock market indices, in general, and smaller capitalization companies, in particular, have experienced substantial price fluctuations. In a volatile market, we may experience wide fluctuations in the market price of our common stock. These fluctuations may have a negative effect on the market price of our common stock. To the extent our stock price fluctuates and/or remains low, it could cause you to lose some or all of your investment and impair our ability to raise capital through the offering of additional equity securities.

We do not intend to pay dividends for the foreseeable future.

We currently intend to retain future earnings, if any, to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize their investment. Investors seeking cash dividends should not purchase the Company’s shares.

We may conduct further offerings in the future in which case your shareholdings will be diluted.

Our certificate of incorporation authorizes the issuance of 100,000,000 shares of common stock, each with a par value of $0.01. Since our inception, we have relied on such equity sales of our common stock to fund our operations. We may conduct further equity offerings in the future to finance our current projects or to finance subsequent projects that we decide to undertake. If common stock is issued in return for additional funds, the price per share could be lower than that paid by our current stockholders. We anticipate continuing to rely on equity sales of our common stock in order to fund our business operations. If we issue additional stock, your percentage interest in us will be diluted. The result of this could reduce the value of your stock.
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We may issue preferred stock, which may have greater rights than our common stock.

Our certificate of incorporation authorizes us to issue up to 10,000,000 shares of preferred stock. Currently no preferred shares are issued and outstanding; however, we can issue shares of our preferred stock in one or more series and can set the terms of the preferred stock without seeking any further approval from our common shareholders. Any preferred stock that we issue may rank ahead of our common stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our common stock. In addition, such preferred stock may contain provisions allowing them to be converted into shares of common stock, which could dilute the operator, sovalue of common stock to current shareholders and could adversely affect the market price, if any, of our common stock.

Our common stock is a "penny stock," and because "penny stock” rules will apply, you may find it can controldifficult to sell the shares of our common stock you acquired in this offering.

Our common stock is a “penny stock,” as that term is defined under Rule 3a51-1 of the Securities Exchange Act of 1934. Generally, a "penny stock" is a common stock that is not listed on a securities exchange and trades on the OTCBB for less than $5.00 a share. Prices in our stock often are not available to buyers and sellers and the market may be very limited. Penny stocks in start-up companies are among the riskiest equity investments. Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared by the U.S. Securities & Exchange Commission. The document provides information about penny stocks and the nature and level of risks involved in investing in the penny stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser, and obtain the purchaser's written agreement to the purchase. Many brokers choose not to participate in penny stock transactions. Because of the penny stock rules, there is less trading activity in penny stocks and you are likely to have difficulty selling your shares.

Our Common Stock is quoted on the Over-The-Counter Bulletin Board and, accordingly, it may be difficult for you to sell your shares or you may not be able to sell your shares for an optimum trading price.

Our common stock is quoted on the Financial Industry Regulatory Authority’s Over-The-Counter Bulletin Board (the “OTCBB”) under the symbol “<MGUY.PK>.” The OTCBB is a regulated quotation service that displays real-time quotes, last sale prices and trade volumes in over-the-counter securities. Because trades and quotations on the OTCBB involve a manual process, the market information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available. The manual execution process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute or the execution of a market order at a significantly different price. Execution of trades, execution reporting and the delivery of legal trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of our Common Stock at the optimum trading prices.

When fewer shares of a security are being traded on the OTCBB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Lower trading volumes in a security may result in a lower likelihood of an individual’s orders being executed, and current prices may differ significantly from the price quoted by the OTCBB at the time of the order entry.

Orders for OTCBB securities may not be canceled or edited like orders for other securities. All requests to change or cancel an order must be submitted to, received and processed by the OTCBB. Due to the manual order processing involved in handling OTCBB trades, order processing and reporting may be delayed, and an individual may not be able to cancel or edit his order. Consequently, one may not be able to sell shares of common stock at the optimum trading prices.

The dealer’s spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of securities on the OTCBB if the common stock must be sold immediately. Further, purchasers of securities on the OTCBB may not have an ask price for securities sold through the OTCBB. Due to the foregoing, demand for securities that are traded through the OTCBB may be decreased or eliminated.

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Sales practice requirements of the Financial Industry Regulatory Authority (“FINRA”) may also limit a shareholder’s ability to buy and sell our stock.

In addition to the penny stock rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
None.
Our Offices

Our principal office is located at 2500 Wilcrest Drive, Suite 405, Houston, Texas, 77042.  This is an 18 month sub lease agreement, at a cost of $1,497.08 per month, until June 30, 2012.

We also have administrative offices located at 207 West Hastings Street, Suite 1111, Vancouver, British Columbia, Canada V6B 1H7.  We sublet office space from a related party for $1,313 per month, renewable annually.

Additionally, we have an office at Suite 201, 47 Colborne St., Toronto, Ontario, Canada M5E 1P8.  This is a five year lease at a monthly cost of $9,500.

Our premises are adequate for our current operations, timing, scope and financial obligationswe do not anticipate that we will acquire or lease additional premises in the foreseeable future. See Note 11 to Financial Statements.

Our Oil and Gas Properties

Texas, United States

Stafford Prospect, Jackson County, Texas

On November 26, 2010, we entered into a Joint Operating Agreement and a Participation Agreement with respectC. H. Squyres Family, LLC, Fossil Oil Company LLC and certain other individuals who are signatories thereto to itsdevelop an extension to the La Ward NE Field in Jackson County (Stafford Prospect).  The agreement provided for the shared costs in the acquisition of oil and gas exploration,leases in the Stafford Prospect.  As operator, we participated in the drilling of the initial well with an 8.89% working interest and acquired a 6.11% promoted interest resulting in our having a 15.00% net working interest upon the successful completion of the initial well drilled on the property.  Each participant would also pay the same percentage costs for the next well as was paid on the first well.

On March 6th, 2011, we completed the drilling of the Stafford Well #1 at the La Ward NE Field area in Jackson County, Texas.  The well was drilled to a total depth of 7,400 feet.  Initial open-hole logging indicates multiple productive zones from the Frio formation with both oil and gas shows.  The deepest prospective oil zone shows a structural sand 10 feet higher to an offsetting productive well with a sand thickness of 5 ½ feet with a 33% porosity and 20% water saturation.

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On November 28, 2011 we completed the Stafford #2 an offset well 600 feet west of Stafford #1,  The well initially flowed at a rate of 50 to 70 barrels of oil per day and 40,000 to 60,000 cubic feet of gas on a 8/64” at approximately 650 psi.  The well subsequently lost pressure and artificial lift equipment was installed in February of 2012 and production flow levels are being optimized at the present time.

North Pasture Prospect – San Patricio County, Texas

On December 8, 2010 we entered into a Joint Operating Agreement and a Participation Agreement with Global Oil and Gas Resources Inc., Dolimiti Partners LLC, Indian Lane Assoc., LLC, Plastiform Packaging, Inc. and certain other individuals who are signatories thereto for the first prospect known as the North Pasture Prospect in San Patricio County, Texas.  Subject to the continued acquisition of the mineral leases in the area, we, as operator, would pay no proportionate cost for the drilling of the well and would earn a 25% net working interest upon the successful completion of the initial well.

Drilling of the Kunitz #1 Well on our North Pasture property was commenced on January 31, 2012.  Drilling was successfully completed on February 17, 2012.  The open-hole log indicated potentially productive zones.  Casing has been run and we are currently analyzing all prospective zones as additional cased hole logs are run and surface completion efforts are coordinated.

Mud Flats – Aransas County, Texas
On December 22, 2011 we commenced drilling operations of our third well, Werland Heirs #1 in the Mud Flats Field, Aransas County Texas in which we had a 25% carried interest.  While the well proved structurally accurate, hydrocarbon volumes in the prospective zones were calculated too low, thus making the well uneconomical to complete.  The adjoining acreage within the Mud Flats Prospect is still considered prospective and is currently being studied by us for alternative drilling locations based on the information gained from the Werland Heirs #1well.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
None during the period of this report.

PART II
Market Information

On February 27, 2012, pursuant to approval granted by a majority of the shares voted at a special meeting held on February 15, 2012, we filed a Restated Certificate of Incorporation with the Secretary of the State of Delaware to effect a one-for-five reverse stock split, with the fractional shares being rounded up to the nearest whole share.  The effect reduced the number of shares from 57,565,987 common shares outstanding to 11,513,198 common shares outstanding.

Our common stock currently trades on the Over-the-Counter Bulletin Board (OTCBB) under the symbol “MGUY,” and on the Frankfort Stock Exchange under the symbol BKX.  As of March 24, 2012, there were 11,513,203 common shares issued and outstanding.
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Our stock began trading on the OTCBB on July 11, 2007.  The following table sets forth the range of high and low bid information for our Common Stock for the periods indicated below. The price information available reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions

OTC Bulletin Board Sales Prices for MGUY 
Quarter Ended High  Low 
June 30, 2010  0.04   0.02 
September 30, 2010  0.04   0.02 
December 30, 2010  0.05   0.02 
March 31, 2011  0.08   0.02 
June 30, 2011  0.05   0.02 
September 30, 2011  0.04   0.03 
December 30, 2011  0.05   0.01 
March 31, 2012  0.15   0.02 

The closing price of our stock on March 24, 2012was $0.10.

Holders

December 31, 2011 
  
  Options  
Weighted Average
 Exercise Price
  
Weighted Average
Remaining Life (years)
 
Options outstanding at beginning of period  570,000  $0.250   3.56 
Options issued during the period  -   -   - 
Exercised  -   -   - 
Forfeited  -   -   - 
Expired  -   -   - 
Outstanding at the end of period  570,000   0.25   3.56 

As of March 31, 2012, there were at least 36 shareholders of record of the Company’s common stock.  The number of shareholders of record was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.  The transfer agent and registrar for our common stock is Holladay Stock Transfer, Inc., located at 2939 North 67th Place, Scottsdale, Arizona 85251 [Tel: (480) 481-3940, Fax: (480) 481-3941].

Dividends

To date the Company has not declared or paid cash dividends on our capital stock and does not anticipate paying any cash dividends in the foreseeable future, but intends to retain its capital resources for reinvestment in its business. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and other factors as the Board of Directors deems relevant. Our Board of Directors has the right to authorize the issuance of preferred stock, without further stockholder approval, the holders of which may have preferences over the holders of the common stock as to payment of dividends.

Securities Authorized for Issuance Under Equity Compensation Plans

The Company’s Board of Directors approved a 2007 Stock Incentive Plan on or about August 8, 2007, which authorized the issuance to management and employees of up to 4,000,000 shares of the Company’s common stock.  To date, the Board has approved the issuance of options to purchase 2,250,000 of the Company’s common stock at a price of $0.30 per share, expiring August 7, 2012.  The options vest sequentially over a one-year period that commenced on August 8, 2007.
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 On October 22, 2010, the 2,250,000 previously granted options were cancelled, and 2,850,000 fully vested stock options were granted to directors, officers, employees and contractors of the Company.  These options will expire on October 22, 2015.  The fair value of the options is $0.04 calculated using the Black-Scholes method:  risk free rate 1.1%, share price $0.04, strike price $0.05, volatility 215%, and dividend yield 0.00.

On February 27, 2012 in accordance with the one-for-five reverse stock split the number of options outstanding was reduced to 570,000 and the exercise price increased to $0.25.

Recent Sales of Unregistered Securities

There have been no recent sales of unregistered securities since the Company’s last report of such sales in the Current Report on Form 8-K filed on June 16, 2008.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of common stock or other securities during the three months ended March 31, 2012
The Company is a “smaller reporting Company,” as defined by Rule 229.10(f)(1) (Regulation S-K), and is not required to provide information under this item.

Overview

Our strategy is to acquire interest in, and/or to operate oil and gas properties that have existing or the high potential of oil and or natural gas reserves.  Existing well bores with proven oil and gas reserves can usually be purchased for a fraction of the original cost to drill and complete a new well. Property purchased with proven reserves reduce the risk of not finding hydrocarbons and are economically viable to develop due to the elimination of the associated cost of finding the hydrocarbons. After the property has been purchased, the primary cost for establishing new production is the re-completion cost.

Cash Requirements

Further cash requirements may be necessary should we wish to participate in further development of our prospects in Texas.  These funds may be raised through equity financing, debt financing, the sale of assets, or other sources, which may result in further dilution in the equity ownership of our shares. There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on their investment in our common stock. Further, we may continue to be unprofitable.

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Selected Quaterly Financial Information

  
Three months ended March
31, 2012
  
Three months ended March
31, 2011
 
Cash  15,852   27,987 
Securities available for sale  -   32,472 
Working capital  (1,353,052)  (18,803)
Total assets  732,795   523,713 
Shareholders' equity  (1,293,212)  (237,731)
Share capital  7,647,675   7,643,985 
Weighted average common shares outstanding  11,501,203   11,489,197 
Accumulated deficit  (8,952,616)  (7,865,563)
Cash flow from operations  (626,361)  (200,747)
Net loss  (272,364)  (208,845)
Loss per share  (0.02)  (0.02)

As at March 31, 2012 our total assets increased to $732,795 compared to $523,713 in the comparable period in 2011.  A large portion of this increase is attributable to an almost 200% increase in our capitalized oil and productiongas properties account which has increased to $185,424 at March 31, 2012 compared to $59,358 at March 31, 2011.  Over the past twelve months our 15% working interest in the two wells drilled on our Stafford field accounts for this increase.
As of the three months ended March 31, 2021, we had current liabilities of $1,889,314 and relative to current liabilities of $478,729 at March 31, 2011.  We have promissory notes outstanding repayable on demand in cash or in common stock of the Company amounting to $1,257,059.  It is more likely than not that this amount will be repaid in common stock of the Company and have a dilutive effect.

Loss per share has remained the same at $0.02 per share for March 31, 2012 and 2011.

The Statement of Cash Flows shows that cash outflows from operations for the three months ended March 31, 2012 were $626.37 compared to $191,254 in the prior year.  During the current period we had an increase in receivables from our joint interest partners of $448,211 related to property acquisitions, drilling and operating costs incurred

Investing activities on the Statement of Cash Flow for the three months ended March 31, 2012 amounted to a cash outflow of $15,087 compared to an inflow for the comparable period in 2011 ($17,397).  This difference was attributable to the proceeds of the sale of our held for sale investment.  The Company sold its remaining shares of Sea Dragon Energy for a loss during the period of $8,735 for total proceeds of $11,585.  During the corresponding period in 2011 Sea Dragon shares were sold for gross proceeds of $45,134

Financing activities in the three months ended March 31, 2012 inflowed $618,399 as loans from a related party have increase by $397,845 since the 2011 year end.

Page 22 of 39

  Three months ended
March 31, 2012
  Three months ended
 March 31, 2011
 
Revenue      
Oil and gas sales $16,581   - 
Management fees  5,219   - 
Total revenue $21,800   - 
-Expenses        
General & Administration:        
Depreciation, depletion & amortization $10,440   6,451 
Communications  4,815   3,847 
Insurance  12,023   - 
Production tax  764   - 
Professional fees  37,586   64,677 
Rent  22,304   11,651 
Travel & Promotion  10,081   17,392 
Realized foreign exchange loss  1,366   75 
Wages  164,028   109,520 
Other  22,022   15,551 
Total general and administrative expense $(284,429)  - 
Loss on securities sold  (8,735)  - 
Gain on sale of securities available for sale  -   20,319 
Net loss $(272,364)  (208,845)
The Company generated revenue for the three months ended March 31, 2012 $16,581 in oil sales and $5,219 in management fees as operator.  There were no revenues for the comparable period in 2011.

Wages have increased 56% to $164,028 for the three months ended March 31, 2012 to $109,520 in the comparable period.  The increase is attributable to the addition of technical staff to assist in our operations.

In management’s opinion allProfessional fees have decreased over the period to $37,586 for the three months ended March 31, 2012 compared to $64,677 for the comparable three month period.  Consulting and legal costs have decreased over the current period versus the comparable period.

Insurance costs for the three months ended March 31, 2012 amounted to $12,023 for an umbrella policy ( 2011 – nil).

We sold our remaining 135,000 shares of Sea Dragon Energy, a Canadian company during the adjustments necessarythree months ended March 31, 2012.  The securities were sold for a fair statementloss of $8.735.
Material Asset Purchases and Sales

See Item I, under Core Properties.
Page 23 of 39

Purchase of Significant Equipment

We do not intend to purchase any significant equipment (excluding oil and gas activities) over the results of the interim period ended September 30, 2011 have been made, such adjustments are of a normal recurring nature.  These financial statements for the ninenext twelve months ended September 30, 2011 should be read in conjunction with our audited financial statements for the year endedending December 31, 2010.2012.

NOTE 2 – Basis of PresentationLiquidity and Use of EstimatesCapital Resources

We have no current arrangements with any party to supplement our operations or provide us with financing.  In the future, we may be required to seek additional capital by selling debt or equity securities, selling assets, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. We provide no assurance that financing will be available in amounts or on terms acceptable to us, or at all.
Going ConcernCash Requirements

The Company has a historyFurther cash requirements may be necessary should we wish to participate in further development of operating losses, including an accumulated deficit of $8,411,640our prospects in Texas.  These funds may be raised through September 30, 2011.  This and other factors raise substantial doubt about the ability of the Company to continue as a going concern.  Management plans to address these matters throughequity financing, debt financing, the sale of additional sharesassets, or other sources, which may result in further dilution in the equity ownership of its common stock, additional borrowings, the sale in whole or partial property interests, or a combination thereof to finance the Company’s future operations.

Although thereour shares. There is no assurance that the Company will be successful in these actions, management believes that itwe will be able to secure the necessary financingmaintain operations at a level sufficient for an investor to continue operations for the foreseeable future.  Accordingly, these financial statements do not reflect adjustments to the carrying value of assets and liabilities, the reported expenses and balance sheet classifications used that would be necessary if the going concern assumption were not appropriate.  Such adjustments would be material and would have an adverse effectobtain a return on the ability of the Company totheir investment in our common stock. Further, we may continue as a going concern.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires use of estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because of various factors affecting future costs and operations, actual results could differ from estimates. Critical accounting policies and estimates used in the preparation of the financial statements relate to the accounting for impairments and carrying amounts of exploration properties including the realizable value of capitalized resource properties for exploration and evaluation costs. Future operations will be affected to the extent there are material differences between the estimated and actual amounts.

NOTE 3 - Securities available for sale

At September 30, 2011 the Company held 135,000 common shares of Sea Dragon Energy Inc., a Canadian company trading on the TSX Venture exchange under the symbol SDX. This investment is accounted for as held for sale.  The fair market value of these shares was estimated to be $11,765 at September 30, 2011.  The Company sold 165,000 common shares for net proceeds of $45,134 during the preceding nine months.unprofitable.

 
F-5Page 21 of 39


Mogul Energy International, Inc.
Notes to the September 30, 2011 and 2010Selected Quaterly Financial Statements
NOTE 4- Other ReceivablesInformation

At September 30, 2011, Other Receivables of $192,009 included $154,809 of receivables due from partners for property acquisition, drilling and operating costs and $21,041 covering
  
Three months ended March
31, 2012
  
Three months ended March
31, 2011
 
Cash  15,852   27,987 
Securities available for sale  -   32,472 
Working capital  (1,353,052)  (18,803)
Total assets  732,795   523,713 
Shareholders' equity  (1,293,212)  (237,731)
Share capital  7,647,675   7,643,985 
Weighted average common shares outstanding  11,501,203   11,489,197 
Accumulated deficit  (8,952,616)  (7,865,563)
Cash flow from operations  (626,361)  (200,747)
Net loss  (272,364)  (208,845)
Loss per share  (0.02)  (0.02)

As at March 31, 2012 our total assets increased to $732,795 compared to $523,713 in the Company’s Harmonized Sales Tax (“HST”) Receivable.  At September 30, 2010, Other Receivables were $72,611 and  included HST Receivable of $22,361.  The HST Receivable relates to the Goods and Services Tax (Canada). The Company anticipates the full amount the HST Receivable to be refunded within 12 months of the balance sheet date. Due to the naturecomparable period in 2011.  A large portion of this receivable, management does not considerincrease is attributable to an allowance for doubtful accounts to be necessary.

Other receivables at September 30, 2011 included accrued revenue, maintenance fees and rent receivable from sublet office space.

NOTE 5 – Property, Plant and Equipment

Oil and Gas Properties

The Company’salmost 200% increase in our capitalized oil and gas properties are located solelyaccount which has increased to $185,424 at March 31, 2012 compared to $59,358 at March 31, 2011.  Over the past twelve months our 15% working interest in the United States. A summarytwo wells drilled on our Stafford field accounts for this increase.
As of capitalized oilthe three months ended March 31, 2021, we had current liabilities of $1,889,314 and gas property costs follows:relative to current liabilities of $478,729 at March 31, 2011.  We have promissory notes outstanding repayable on demand in cash or in common stock of the Company amounting to $1,257,059.  It is more likely than not that this amount will be repaid in common stock of the Company and have a dilutive effect.

Net book value at December 31, 2009 $425,000 
Reduction: repayment by Vesta to acquire interest in Excelaron  (425,000)
Additions: related to California leases  1,396 
Additions: acquisition costs related to leases for oil and gas rights in Texas  33,613 
Additions: Acquisition of 15% working interest for Stafford lease  1,333 
Net book value at December 31, 2010 $36,342 
Reduction: Billed to joint interest partners  (33,789)
Additions: Lease acquisition costs  15,668 
Additions: Geological and geophysical  1,441 
Additions: Intangible drilling costs  42,288 
Additions: Intangible completion costs  14,185 
Additions: Lease and well equipment  17,398 
Net book value at September 30, 2011 $93,533 
Loss per share has remained the same at $0.02 per share for March 31, 2012 and 2011.

The Statement of Cash Flows shows that cash outflows from operations for the three months ended March 31, 2012 were $626.37 compared to $191,254 in the prior year.  During the current period we had an increase in receivables from our joint interest partners of $448,211 related to property acquisitions, drilling and operating costs incurred

Investing activities on the Statement of Cash Flow for the three months ended March 31, 2012 amounted to a cash outflow of $15,087 compared to an inflow for the comparable period in 2011 ($17,397).  This difference was attributable to the proceeds of the sale of our held for sale investment.  The Company sold its remaining shares of Sea Dragon Energy for a loss during the period of $8,735 for total proceeds of $11,585.  During the corresponding period in 2011 Sea Dragon shares were sold for gross proceeds of $45,134

Financing activities in the three months ended March 31, 2012 inflowed $618,399 as loans from a related party have increase by $397,845 since the 2011 year end.

 
F-6Page 22 of 39


Mogul Energy International, Inc.
Notes to the September 30, 2011 and 2010 Financial Statements
Other Property and Equipment

Other property and equipment is recorded at original cost and depreciated using the declining balance method.  A summaryTable of the property and equipment for the quarter ended September 30, 2011 is as follows:

  
September
30, 2011
 
Furniture and fixtures $11,669 
Computer equipment  1,933 
Pump equipment  2,250 
Software  14,239 
Total other property and equipment  30,091 
Less: accumulated depreciation  (14,616)
Other property and equipment – net $15,477 

The Company did not have any capitalized other property and equipment at September 30, 2010.

NOTE 6 - Foreign Exchange Rate

The impact of the cumulative effect of the unrealized foreign currency exchange gain or loss is accounted for in the equity section of the balance sheet. This adjustment included an unrealized foreign exchange loss of $39,242 for the nine months ended September 30, 2001, as compared to an unrealized foreign exchange loss of $165,207 during the same period in 2010.  A realized foreign exchange loss of $17,444 was recognized in nine months ended September 30, 2011 and was accounted for as an increase of general and administrative expenses.  The realized foreign exchange loss for the same period in 2010 was $23,404.

NOTE 7 – Restricted Cash

As of September 30, 2011 the Company held $430,929 in escrow received from our joint venture partners.  The Company had no restricted cash at December 31, 2010.

NOTE 8 – Drilling Advances

During 2011 the Company received drilling advances from Joint venture partners with a remaining balance of $457,321 at September 30, 2011.  These advances will be applied towards the payment of drilling costs incurred in 2011.

NOTE 9 - Capital Stock

Common Stock

At September 30 2011, 57,505,987 shares of the Company`s common stock was outstanding.  During the nine months the Company issued 60,000 shares to an officer and director of the Company for compensation.

Mogul Energy International, Inc.
Notes to the September 30, 2011 and 2010 Financial Statements

Employee Stock Option Plan

The following table summarizes the continuity of the Company’s stock options:

September 30, 2011 
  Options  
Weighted
Average
Exercise Price
  
Weighted Average
 Remaining Life
(years)
 
Options outstanding at beginning of period  2,850,000  $0.05   4.06 
Options issued during the period  -   -   - 
Exercised  -   -   - 
Forfeited  -   -   - 
Expired  -   -   - 
Outstanding at the end of period  2,850,000  $0.05   4.06 

On October 22, 2010 the Company granted 2,850,000 fully vested stock options to directors, officers, employees and contractors.  These options will expire on October 22, 2015.  The fair value of the options is $0.04 calculated using the Black-Scholes method:  risk free rate 1.1%, share price $0.04, strike price $0.05, volatility 215%, and dividend yield 0.00.

Preferred Stock

The Company’s Articles of Incorporation authorize its Board of Directors, without approval from the common shareholders, to issue 10,000,000 shares of preferred stock in any series, rights and preferences as determined by the Board. Preferred shares may be issued that have greater voting rights than the common stock, which may dilute the value of any outstanding shares of common stock.  There was no preferred stock issued or outstanding at September 30, 2011 or 2010.

NOTE 10 – Related Party Transactions

At September 30, 2011 the Company had a zero interest loan of $818,713 from a private company owned by a Director of the Company.

On January 26, 2011, the Company entered into a Stafford Area Participation Agreement with Aura Oil Holdings Ltd. (“Aura”), a privately owned corporation organized under the laws of Bermuda. Pursuant to the terms of the Stafford Area Participation Agreement, Aura purchased an 8.3333% interest in the Company’s oil and gas leases, leasehold rights, and rights to participate in the development of oil, gas and other related substances in the Stafford Prospect for $75,521.  The Company’s Chairman is the sole shareholder of Aura.

The Company sub leases office space in its Toronto location to a related party with directors in common.

NOTE 11 – Contingencies and Commitments

Office Leases

Our principal office is located at 2500 Wilcrest Drive, Suite 405, Houston, Texas, 77042, USA.  This is a sub-lease agreement that expires on June 30, 2012 at a monthly rate of $1,497.08 per month.

Mogul Energy International, Inc.
Notes to the September 30, 2011 and 2010 Financial Statements

We also have administrative offices located at 207 West Hastings Street, Suite 1111, Vancouver, British Columbia, Canada V6B 1H7. The Company sublets office space from a related party for $1,313 per month, renewable annually.

Additionally, the Company has an office at Suite 201, 47 Colborne St., Toronto, Ontario, Canada M5E 1P8.  This is a lease at a monthly cost of $8,417.  This space is also subleased to related parties at a rate of $8,000 per month.

Environmental Uncertainties

The Company may be exposed to financial risks in the oil and gas exploration business for pollution or hazards against which it cannot adequately insure or which it may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.

Flow-through Financing

The Company raised a total of CAD$950,000 in 2008 on a flow-through basis.  The gross proceeds of the financing were renounced to investors at December 31, 2008 and were to be used by the Company to incur qualified Canadian exploration expenses by June 30, 2010.  The company spent CAD$154,850 on qualified capital exploration expenditures leaving a commitment of approximately CAD$795,150 that was not spent on qualified capital exploration expenditures by July of 2010.  The Company has paid $55,000 in taxes and penalties assessed by the Canadian Customs and Revenue Agency.  An additional $83,357 tax was assessed as of June 30, 2011 that is as yet unpaid.  This tax is stated under the caption “Tax, other” on the Company’s Income Statement.  The Company has paid out $171,894 to shareholders as an indemnity for tax losses they incurred.  The Company estimates that a possible $115,280, still remains to be paid to investors.
NOTE 12 - Loss Per Share

Loss per share is calculated using the weighted average number of shares issued during the relevant period. The weighted average number of common shares was 57,460,987 for the period ended September 30, 2011.

 
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  Three months ended
March 31, 2012
  Three months ended
 March 31, 2011
 
Revenue      
Oil and gas sales $16,581   - 
Management fees  5,219   - 
Total revenue $21,800   - 
-Expenses        
General & Administration:        
Depreciation, depletion & amortization $10,440   6,451 
Communications  4,815   3,847 
Insurance  12,023   - 
Production tax  764   - 
Professional fees  37,586   64,677 
Rent  22,304   11,651 
Travel & Promotion  10,081   17,392 
Realized foreign exchange loss  1,366   75 
Wages  164,028   109,520 
Other  22,022   15,551 
Total general and administrative expense $(284,429)  - 
Loss on securities sold  (8,735)  - 
Gain on sale of securities available for sale  -   20,319 
Net loss $(272,364)  (208,845)
 
Forward-Looking StatementsThe Company generated revenue for the three months ended March 31, 2012 $16,581 in oil sales and $5,219 in management fees as operator.  There were no revenues for the comparable period in 2011.

This Quarterly Report on Form 10-Q contains forward-looking statements as that term is definedWages have increased 56% to $164,028 for the three months ended March 31, 2012 to $109,520 in the Private Securities Litigation Reform Actcomparable period.  The increase is attributable to the addition of 1995.  These statements relatestechnical staff to future events and/orassist in our future financial performance.  Generally, you can identify forward-looking statements by terminology such as “intends,” "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", or "potential" or the negative of these terms or other comparable terminology.  To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties.  These statements reflect only our current expectations and involve known and unknown risks, uncertainties and other factors, many of which are unforeseen, including the risks in Item 1A entitled "Risk Factors," that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.operations.

Although we believe thatProfessional fees have decreased over the expectations reflected inperiod to $37,586 for the forward-looking statements are reasonable, we cannot guarantee future results, levelsthree months ended March 31, 2012 compared to $64,677 for the comparable three month period.  Consulting and legal costs have decreased over the current period versus the comparable period.

Insurance costs for the three months ended March 31, 2012 amounted to $12,023 for an umbrella policy ( 2011 – nil).

We sold our remaining 135,000 shares of activity, performance or achievements.  You should not place undue reliance on these forward-looking statements.  These forward-looking statements are withinSea Dragon Energy, a Canadian company during the meaningthree months ended March 31, 2012.  The securities were sold for a loss of Section 27A$8.735.
Material Asset Purchases and Sales

See Item I, under Core Properties.
Page 23 of the Securities Act39

Purchase of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbours created thereby.  Except as required by applicable law, including the securities laws of the United States, weSignificant Equipment

We do not intend to updatepurchase any of the forward-looking statements to conform these statements to actual results.

Our unaudited interim financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our unaudited interim financial statements and the related notes that appear elsewhere in this Quarterly Report.

In this Quarterly Report, unless otherwise specified, all references to "common shares" refer to common shares in the capital of Mogul Energy International, Inc., and the terms "we" "us" and "our" mean Mogul Energy International, Inc. (the “Company” and “Registrant”).

Overview

Mogul Energy International, Inc. (the “Company”), was formed in the state of Delaware on July 25, 2005 and is focused onsignificant equipment (excluding oil and gas acquisition, exploration, development and production activity primarily inactivities) over the State of Texas.  The Company’s business strategy is focused on building a portfolio of prospective oil and gas properties that are close in proximity to areas containing known oil and gas reserves.  By securing industry partners on a promoted basis where practical, the Company is also able to minimize the exploration risk contained within its oil and gas property portfolio.  In addition, the Company strives to be the operator, so it can control the operations, timing, scope and financial obligations with respect to its oil and gas exploration, development and production operations.next twelve months ending December 31, 2012.

Liquidity and Capital Resources

We have no current arrangements with any party to supplement our operations or provide us with financing.  In the future, we may be required to seek additional capital by selling debt or equity securities, selling assets, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. We provide no assurance that financing will be available in amounts or on terms acceptable to us, or at all.
Cash Requirements

Further cash requirements may be necessary should we wish to participate in further development of our prospects prospect and working capital.in Texas.  These funds may be raised through equity financing, debt financing, the sale of assets, or other sources, which may result in further dilution in the equity ownership of our shares. There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on their investment in our common stock. Further, we may continue to be unprofitable.

 
Page 21 of 39


Selected AnnualQuaterly Financial Information

 
September 30,
2011
  
September 30,
2010
  
Three months ended March
31, 2012
  
Three months ended March
31, 2011
 
Cash  69,333   299,648   15,852   27,987 
Securities available for sale  11,765   84,607   -   32,472 
Working capital  (782,270)  453,516   (1,353,052)  (18,803)
Total assets  887,713   984,030   732,795   523,713 
Total liability  1,587,365   342,262 
Shareholders' equity  (699,652)  641,768   (1,293,212)  (237,731)
Share capital  7,645,785   7,351,485   7,647,675   7,643,985 
Weighted average common shares outstanding  57,460,987   57,445,987   11,501,203   11,489,197 
Accumulated deficit  (8,411,640)  (6,875,273)  (8,952,616)  (7,865,563)
Cash flow from operations  (890,112)  (956,814)  (626,361)  (200,747)
Net loss  (54,922)  (153,368)  (272,364)  (208,845)
Loss per share  (0.01)  (0.00)  (0.02)  (0.02)

At September 30, 2011 we hadAs at March 31, 2012 our total assets of $887,713, asincreased to $732,795 compared to $984,030 at September 30, 2010.   Working capital at September 30, 2011 was negative $782,270 and excludes restricted cash and drilling advances of $430,929 and $457,321, respectively.  The accumulated deficit balance has grown to $8,411,640 from $6,875,273$523,713 in the comparable period in 2011.  A large portion of this increase is attributable to an almost 200% increase in our capitalized oil and gas properties account which has increased to $185,424 at March 31, 2012 compared to $59,358 at March 31, 2011.  Over the past twelve months our 15% working interest in the two wells drilled on our Stafford field accounts for this increase.
As of the three months ended March 31, 2021, we had current liabilities of $1,889,314 and relative to current liabilities of $478,729 at March 31, 2011.  We have promissory notes outstanding repayable on demand in cash or in common stock of the Company amounting to $1,257,059.  It is more likely than not that this amount will be repaid in common stock of the Company and have a dilutive effect.

Loss per share has remained the same at $0.02 per share for March 31, 2012 and 2011.

The Statement of Cash Flows shows that cash outflows from operations for the three months ended March 31, 2012 were $626.37 compared to $191,254 in the prior year.  During the current period duewe had an increase in receivables from our joint interest partners of $448,211 related to continued net losses.property acquisitions, drilling and operating costs incurred

Investing activities on the Statement of Cash Flow for the three months ended March 31, 2012 amounted to a cash outflow of $15,087 compared to an inflow for the comparable period in 2011 ($17,397).  This difference was attributable to the proceeds of the sale of our held for sale investment.  The Company received $818,281sold its remaining shares of Sea Dragon Energy for a loss during the period of $8,735 for total proceeds of $11,585.  During the corresponding period in 2011 Sea Dragon shares were sold for gross proceeds of $45,134

Financing activities in the three months ended March 31, 2012 inflowed $618,399 as loans from a related party which largely accounts forhave increase by $397,845 since the increase in liabilities and the working capital deficit at September 30, 2011 as compared to the working capital deficit of $342,262 at September 30, 2010.  These related party loans have no interest due and are convertible into the Company’s common stock at the Company’s option.
At September 30, 2011, we had  total current liabilities of $1,587,365, including $457,321 for drilling advances and $818,281 for zero interest loans received from a related party.  Our total liabilities included an accrual of $115,289 for the potential claims remaining as a contingency due to reassessments denying personal tax deductions to investors in connection with funds raised in 2008 via a flow-though financing (see Financial Statements Note 11).   Current liabilities in the corresponding period of 2010 were $342,262.
Capitalized oil and gas assets increased to $93,533 at September 30, 2011 as compared to $36,342 at September 30, 2010.  The Increase was principally associated with our 15% working interest for the two wells drilled on the Stafford property.
Cash used for operations during the nine months ended September 30, 2011 was $890,112, as compared to $956,814 during the same period of 2010.  The Company continues to focus on developing its property interests in Texas.  The Company’s projects in Saskatchewan, Canada have been terminated pending completion of reclamation operations.

  
Nine months ended
September 30, 2011
  
Nine months ended
September 30, 2010
 
Revenues      
Oil and gas sales  10,918   - 
Management fees  8,885   - 
Total revenues  19,802   - 
         
Expenses        
       General & Administrative:        
Depreciation, depletion & amortization  8,405     
Interest expense  -   32,972 
Internet and telephone  14,106   9,659 
Insurance  29,009   - 
Production tax  503   - 
Professional fees  125,945   190,998 
Lease operating expenses  194     
Lease reclamation expenses  4,499   59,737 
Rent  44,566   61,079 
Travel and Promotion  37,562   85,558 
Tax on flow-through funds  83,357   18,722 
Realized foreign exchange loss  (17,444)  23,404 
Wages  367,802   234,794 
Stock based compensation  1,800     
Other  94,739   55,626 
Total expenses  795,043   (772,549)
Deferred indemnity charge      (266,750)
Gain on disposition of exploration property      575,000 
Gain on sale of securities available for sale  20,319   310,931 
Service revenue        
Net loss  (754,922)  (153,368)
Revenues from oil and gas production for the nine month period ended September 30. 2011were $10,918 and management fees as operator were $8,885. There were no revenues in the comparable period in 2010.

For the nine month period ended September 30, 2011 total general and administrative costs were $795,043, relatively flat, as compared to $772,549 in the corresponding period of 2010.  

Internet and telephone charges increased 46% period-on-period due to increased communication costs between our new head office in Texas and our Canadian offices.  Insurance costs were $29,009 for the nine months ended September 30, 2011 as compared to nil for the same period of 2010. Professional fees decreased period-on-period, as the company used fewer consultants during the first nine months of 2011, as compared to the same period of 2010. Lease reclamation costs were $4,499 for the nine months ended September 30, 2011, a significant decrease over $59,737 for the same period of 2010, as the Company wound down its Canadian oil and gas operations. Rent expense decreased period-on-period, as the Company began subletting a portion of its office space at its Toronto location during 2011. Travel and Promotions costs have decreased period-on-period from $85,558 to $37,562, as the company narrowed its business focus to its properties in Texas. Travel and promotion costs may increase during future periods as management continues its efforts to grow the Company’s business. Wages increased to $367,802 during the nine months ended September 30, 2001, as compared to $234,794 in the same period of 2010 due to the hiring of additional individuals with expertise in oil and gas development in Texas during the first nine months of 2011.

During the nine months ended September 30, 2011 the Company sold 165,000 common shares of Sea Dragon Energy Inc. (TSXV: SDX) for net proceeds of $45,206 leaving the Company with 135,000 common shares of Sea Dragon Energy Inc. This investment is accounted for as held for sale.  The remaining shares Sea Dragon Energy Inc. had an estimated fair market value of $11,765 at September 30, 2011.

Milestones - During the nine months ended September 30, 2011

Stafford Prospect, Jackson County, Texas

On November 26, 2010, we entered into a Joint Operating Agreement and a Participation Agreement with C. H. Squyres Family, LLC, Fossil Oil Company LLC and certain other individuals who are signatories thereto to develop an extension to the La Ward NE Field in Jackson County (Stafford Prospect).  This agreement provides for the shared costs in the acquisition of oil and gas leases in the Stafford Prospect.  As operator, we  participate in the drilling of the initial well with an 8.89% working interest and will acquire a 6.11% promoted interest resulting in our having a 15.00% working  interest upon the successful completion of the initial well drilled on the property.  Each participant would also pay the same percentage costs for the next well as was paid on the first well.

On March 6th, 2011, we completed the drilling of the Stafford Well #1 at the La Ward NE Field area in Jackson County, Texas.  The well was drilled to a total depth of 7,400 feet.  Initial open-hole logging indicates multiple productive zones from the Frio formation with both oil and gas shows.  The deepest prospective oil zone shows a structural sand 10 feet higher to an offsetting productive well with a sand thickness of 5 ½ feet with a 33% porosity and 20% water saturation.  Additional tests and analysis of the several other productive zones will continue while the casing is installed, cemented and surface equipment are put into place.  We have had some intermittent production as we evaluate production from various zones.

Stafford Well #1 has produced a gross amount 1,048 barrels of oil through September 30, 2011.   The Company continues to test and analyze the production of multiple productive zones in this well.  The Company has a 15% working interest in the Stafford Well #1.

We completed drilling of the Stafford #2 well at the end of the quarter.  The well is located approximately 600 feet west of the Stafford #1 well.  Open-hole logging indicated the potential of eight productive zones from the Frio formation with a cumulative thickness of 49 feet of pay of both oil and gas shows and further indicating several zones structurally higher than the Stafford #1 well.  Unanimous consent was secured form all partners to complete the well as a viable producing well on September 23rd.

North Pasture Prospect – San Patricio County, Texas

On December 8, 2010, we entered into a Joint Operating Agreement and a Participation Agreement with Global Oil and Gas Resources Inc., Dolimiti Partners LLC, Indian Lane Asso., LLC, Plastiform Packaging, Inc. and certain other individuals who are signatories thereto for the first prospect known as the North Pasture Prospect in San Patricio County, Texas.  Subject to the continued acquisition of the mineral leases in the area, we, as operator, would pay no proportionate cost for the drilling of the well and would earn a 25% net working interest upon the successful completion of the initial well.  We have acquired leasehold rights to an additional 245 acres increasing our total acreage of the prospect to 260 acres. We are currently in negotiations with drilling companies to spud the well in the fourth quarter
Saskatchewan Exploration Program

We do not plan on any further exploration in Saskatchewan due to the expiration of our mineral leases.  Our Ryerson 16-17-009-31W1M well, previously suspended after encountering a heavily oil stained, marginal reservoir within the Bakken interval, was determined by management to be uneconomical and it has been plugged and abandoned.  On December 31, 2010 an impairment charge $523,558 has been made against previously capitalized costs.year end.

 
Page 22 of 39

  Three months ended
March 31, 2012
  Three months ended
 March 31, 2011
 
Revenue      
Oil and gas sales $16,581   - 
Management fees  5,219   - 
Total revenue $21,800   - 
-Expenses        
General & Administration:        
Depreciation, depletion & amortization $10,440   6,451 
Communications  4,815   3,847 
Insurance  12,023   - 
Production tax  764   - 
Professional fees  37,586   64,677 
Rent  22,304   11,651 
Travel & Promotion  10,081   17,392 
Realized foreign exchange loss  1,366   75 
Wages  164,028   109,520 
Other  22,022   15,551 
Total general and administrative expense $(284,429)  - 
Loss on securities sold  (8,735)  - 
Gain on sale of securities available for sale  -   20,319 
Net loss $(272,364)  (208,845)
The Company generated revenue for the three months ended March 31, 2012 $16,581 in oil sales and $5,219 in management fees as operator.  There were no revenues for the comparable period in 2011.

Wages have increased 56% to $164,028 for the three months ended March 31, 2012 to $109,520 in the comparable period.  The increase is attributable to the addition of technical staff to assist in our operations.

Professional fees have decreased over the period to $37,586 for the three months ended March 31, 2012 compared to $64,677 for the comparable three month period.  Consulting and legal costs have decreased over the current period versus the comparable period.

Insurance costs for the three months ended March 31, 2012 amounted to $12,023 for an umbrella policy ( 2011 – nil).

We sold our remaining 135,000 shares of Sea Dragon Energy, a Canadian company during the three months ended March 31, 2012.  The securities were sold for a loss of $8.735.
Material Asset Purchases and Sales

Excelaron InterestSee Item I, under Core Properties.

On February 12, 2009, we had acquired a 40% interest (the “Excelaron Interest”) in Excelaron LLP, a privately held company based in California (“Excelaron”). The acquisition was contingent upon our making a capital contribution
Page 23 of $2,300,000 in installments over a specified period.  After making payments39


On March 26, 2010, an Amended Qualifying Transaction Agreement was executed  pursuant to which we agreed to accept, an aggregate of $1,000,000 Canadian Dollars (less $150,000 in debt financing repaid and $87,900 in legal and consulting fees) and the reimbursement of approximately, $425,000 of advances made by us to Excelaron, in exchange for the Excelaron Interest.  The agreement was consummated on April 30 of 2010.

Sea Dragon Energy Inc.

At September 30, 2011 the Company held 135,000 common shares of Sea Dragon Energy Inc., a Canadian company trading on the TSX Venture exchange under the symbol SDX. This investment is accounted for as held for sale.  The fair market value of these shares was estimated to be $11,765 at September 30, 2011.  The Company sold 165,000 common shares for net proceeds of $45,134 during the preceding nine months.

Purchase of Significant Equipment

We do not intend to purchase any significant equipment (excluding oil and gas activities) over the next twelve months ending December 31, 2011.2012.

Liquidity and Capital Resources

We have no current arrangements with any party to supplement our operations or provide us with financing in the future.financing.  In the future, we may be required to seek additional capital by selling debt or equity securities, selling assets, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. We provide no assurance that financing will be available in amounts or on terms acceptable to us, or at all.
 
Going Concern

We have suffered recurring losses from operations. The continuation of our Company as a going concern is dependent upon our Company attaining and maintaining profitable operations and raising additional capital. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our Company discontinue operations.

Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above, in thereporttheir report on the annual financial statements for the period ended December 31, 2010,2011, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements for the period ended December 31, 2010,2011 contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercialcommercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.


There are no assurances that we will be able to obtain further funds required for our continued operations. As noted herein, we are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.

Oil and Gas Properties

We follow the full cost method of accounting for our oil and gas operations. Under this method, all cost incurred in the acquisition, exploration and development of oil and gas properties are capitalized in one cost center, including certain internal costs directly associated with such activities. Proceeds from sales of oil and gas properties are credited to the cost center with no gain or loss recognized unless such adjustments would significantly alter the relationship between capitalized costs and proved oil and gas reverses.

If capitalized costs, less related accumulated amortization and deferred income taxes, exceed the “full cost ceiling”, the excess is expensed in the period such excess occurs. The “full cost ceiling” is determined based on the present value of estimated future net revenues attributable to proved reserves, using current product prices and operating costs at the balance sheet date plus the lower of cost and fair value of unproved properties within the cost center.

Costs of oil and gas properties are amortized using the unit-of-production method based upon estimated proven oil and gas reserves upon the commencement of production. The significant unproven properties are excluded from the costs subject to depletion.
Page 24 of 39

As at March 31, 2012, we have not calculated any proved reserves.

Page 25 of 39

ITEM 8.
Financial Statement Index
Index
Balance SheetsF- 1
Statements of OperationsF- 2
Statement of Cash FlowsF-3
Notes to the Financial StatementsF- 4 to F-9
Page 26 of 39


Mogul Energy International, Inc.
Balance Sheet
For the Three Ended March 31, 2012 and 2011
(Expressed in U.S. dollars)
Unaudited
  
March 31,
2012
(Unaudited)
  
December 31,
2011
(audited)
 
Assets:      
Current      
Cash $15,852  $31,005 
Investments held for sale  -   12,576 
Prepaid and deposits  26,474   50,888 
Other receivables  478,628   52,870 
Restricted funds  15,308   711,731 
Total current assets  536,262   859,070 
Non-current        
Oil and gas properties  185,424   161,703 
Other property and equipment – net  11,109   18,598 
Total Assets $732,795  $1,039,371 
         
Current Liabilities:        
Accounts payable $151,257  $153,032 
Accrued expenses and other payables  96,972   83,851 
Drilling advances  228,267   704,225 
Due to related parties  1,412,818   1,014,973 
Total current liabilities  1,889,314   1,956,081 
Asset retirement obligation  5,569   3,381 
Contingencies and commitments  131,705   116,744 
Total Liabilities  2,026,588   2,076,206 
         
Shareholders’ Equity:        
Accumulated deficit $(8,952,212) $(8,680,252)
Common stock (Authorized: 100,000,000 shares, $0.0001 par value. Issued and outstanding: 11,513,203 shares at 03/31/12 and 11,489,198 at 03/31/11)
  5,894   5,864 
Additional paid-in capital  7,641,781   7,641,721 
Warrants & Options:  114,000   114,000 
Preferred: 10,000,000 shares authorized, none issued  -   - 
Foreign exchange adjustment  (102,852)  (110,424)
Other comprehensive income (loss)  -   (7,744)
Total Shareholders’ Equity (Deficit)  (1,293,793)  (1,036,835)
Total Shareholders’ Equity  (Deficit) and Liabilities  732,795  $1,039,371 

Mogul Energy International, Inc.
Statement of Operations
For the three \months Ended March 31, 2012 and 2011
(expressed in U.S. dollars)
Unaudited
  
Three Month Ended March 
31, 2012
  Three Months Ended March 31, 2011 
Revenue:      
Oil and gas sales  16,581   - 
Management fees  5,219   - 
Total revenue  21,800   - 
Expenses:        
Lease operating expense  (233)  - 
Production tax  764   - 
Depreciation, depletion and amortization  10,440   291 
General and administrative  110,430   119,353 
Impairment of oil and gas property  -   - 
Salaries and wages  164,028   109,520 
Total expenses  (285,429)  (229,164)
Other income and expenses        
         
Gain (loss) on sale of investment held for sale  (8,735)  20,319 
         
Net income (loss) for the periods $(272,364) $(208,845)
         
Other comprehensive income:        
Net unrealized gain (loss) on investments held for sale for periods $-  $57,706 
Foreign exchange adjustment  23,837   (27,052)
Total other comprehensive gain (loss) for the periods $23,837  $30,654 
         
Total comprehensive net gain (loss) for the periods $(248,527) $(178,191)
         
Basic earnings (loss) per share $(0.02) $(0.02)
         
Weighted average common shares outstanding  11,501,203   11,489,197 

F-2

Mogul Energy International, Inc.
Statements of Cash Flows
For the Three Months Ended March 31, 2012 and 2011
(Expressed in U.S. dollars)

  
Three Months
Ended March 31,
2012
  
Three Months
 Ended March 31,
2011
 
Operating Activities      
Net income (loss) for periods $(272,364) $(208,845)
Adjustments to reconcile net loss to net cash provided by operating activities:        
Depreciation, depletion, amortization  10,440   291 
(Gain) loss on investment held for sale  8,735   (20,319)
Changes in non-cash working capital        
Accounts payables (decrease) increase  (1,774)  (27,952)
Accrued expenses and other payables (decrease) increase  13,121     
Other receivables (decrease) increase  (425,758)  28,017 
Prepaid and deposits (decrease) increase  24,414   18,839 
Contingency increase (decrease)  14,961   18,715 
Asset retirement obligation increase  2,188   - 
Cash used in operating activities $(626,037) $(191,254)
Investing Activities        
Purchases of other property and equipment  (2,951)  (4,721)
Proceeds - sale of investments held for sale  11,585   45,134 
Oil and gas properties acquisitions  (23,722)  (23,016)
Cash used for investing activities $(15,088) $17,397 
Financing Activities        
Due to related parties  397,845   173,297 
Drilling advances increase (decrease)  (475,958)  263,742 
Restricted cash (increase) decrease  696,423   (273,235)
Shares issued  90   - 
Cash from financing activities $618,400  $163,804 
Foreign exchange adjustment  7,572   (27,045)
Increase (decrease) in cash during periods  (15,153)  (37,998)
Cash beginning of periods  31,005   65,085 
Cash at end of periods $15,852  $27,987 
Interest paid during period  -   - 
F-3


Mogul Energy International, Inc.
Notes to the Three Months Ended 2012 and 2011 Financial Statements

NOTE 1 - Organization and Nature of Business

Mogul Energy International, Inc. (Company) was formed in the state of Delaware on July 25, 2005 and is focused on acquiring, developing and operating oil and gas properties in proven producing regions.  The Company’s current business strategy is to conduct exploration, exploitation and development operations on our currently leased inventory of oil and gas prospects while expanding our business through development of select prospects with joint interest partners.  The Company has been building a portfolio of prospective oil and gas properties in close proximity to areas containing known oil and gas production and or known reserves.  By securing industry partners on a promoted basis where practical, the Company is also able to minimize the exploration risk contained within its oil and gas prospect portfolio.  The Company has opted to be the operator of record for all of these properties at the present time so it can control the operations, timing, scope and financial obligations with respect to its oil and gas exploration, development and production operations.

Financial Statement Presentation and Going Concern

The accompanying unaudited financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The interim unaudited financial statements should be read in conjunction with the consolidated financial statements included in the Form 10-K for the year ended December 31, 2011.  In the opinion of management, all adjustments considered necessary for the 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 ended December 31, 2012.

The Company has a history of operating losses, including an accumulated deficit of $8,952,035 through March 31, 2012.  This and other factors raise substantial doubt about the ability of the Company to continue as a going concern.  Management plans to address these matters through the sale of additional shares of its common stock, additional borrowings, the sale in whole or partial property interests, or a combination thereof to finance the Company’s future operations.

Although there is no assurance that the Company will be successful in these actions, management believes that it will be able to secure the necessary financing to continue operations for the foreseeable future.  Accordingly, these financial statements do not reflect adjustments to the carrying value of assets and liabilities, the reported expenses and balance sheet classifications used that would be necessary if the going concern assumption were not appropriate.  Such adjustments would be material and would have an adverse effect on the ability of the Company to continue as a going concern.

NOTE 2 - Securities available for sale

At March 31, 2012 the Company had sold its remaining 135,000 common shares of Sea Dragon Energy Inc., a Canadian company trading on the TSX Venture exchange under the symbol SDX.  Proceeds from the sale were $11,509 resulting in a loss of $8,735.  The loss was reflected in the Company’s loss from operations.

F-4


Mogul Energy International, Inc.
Notes to the Three Months Ended 2012 and 2011 Financial Statements
NOTE 3- Other Receivables

Other receivables consist of $448,211 of receivables due from partners for property acquisition, drilling and operating costs.

Other receivables include proceeds of $10,108 for March oil sales.  The Company had no oil revenue in the comparable period in 2011.

The Company’s Harmonized Sales Tax receivable was $20,307 at March 31, 2012 compared to $19,631 during the same period in 2011.  This receivable relates to the Goods and Services Tax (Canada). The Company anticipates the full amount to be refunded within 12 months of the balance sheet date. Due to the nature of this receivable management does not consider an allowance for doubtful accounts to be necessary.

NOTE 4 – Property, Plant and Equipment

Oil and Gas Properties

Capitalized costs relating to the oil and gas acquisitions and exploration activity – United States

Net book value at December 31, 2010 $36,342 
Reduction: Billed to joint interest partners  (33,799)
Additions: Lease acquisition costs  14,758 
Additions: Geological and geophysical  2,862 
Additions: Intangible drilling costs  80,516 
Additions: Intangible completion costs  31,808 
Additions: Well equipment  29,215 
Net book value at December 31, 2011 $161,702 
Reduction: Lease acquisitions  1,779 
Additions: Intangible drilling cost  2,131 
Additions: Intangible completions costs  5,141 
Additions: Well equipment  9,555 
Additions: Asset retirement obligations  5,116 
Net book value at March 31, 2012 $185,424 
F-5

Mogul Energy International, Inc.
Notes to the Three Months Ended 2012 and 2011 Financial Statements

Other Property and Equipment

Other property and equipment is recorded at original cost and depreciated using the straight line method.  A summary of the property and equipment for the quarter ended March 31, 2012 is as follows:

  March31, 2012  March 31, 2011 
Furniture and fixtures $12,947   9,830 
Computer equipment  1,933   1,101 
Pump equipment  4,875   - 
Software  14,239   - 
Total other property and equipment  33,994   10,931 
Less: accumulated depreciation  (22,885)  6,501 
Other property and equipment – net $11,109   4,430 

NOTE 5 – Asset Retirement Obligation

No wells were abandoned during the three months ended March 31, 2012 or 2011.

March 31,
 2012
Asset retirement obligations, beginning of year3,381-
Liabilities recorded during the period1,735
Accretion expense453
Asset retirement obligations, end of period5,569

No asset retirement obligations were recorded and capitalized at March 31, 2011.

NOTE 6 - Foreign Exchange Rate

The impact of the cumulative effect of the unrealized monetary adjustment is accounted for in the equity section of the balance sheet. This adjustment for the three months ended March 31, 2012 was a gain of $23,837.09 compared to no gain or loss recorded at March 31, 2011.  A realized foreign exchange loss of $918 was recorded for the three months ended at March 31, 2012 compared to a realized loss of  $1,395 for the comparable period in 2011.  These amounts were accounted for as an increase of general and administrative expenses.

NOTE 7 – Restricted Cash

As of March 31, 2012 the Company held $15,308 in restricted cash which was received from our joint venture partners.  This cash is restricted solely for the use by the Company as the operator for the various joint venture partner wells under management.

F-6

Mogul Energy International, Inc.
Notes to the Three Months Ended 2012 and 2011 Financial Statements

NOTE 8 – Drilling Advances

At March 31, 2012 the Company held $228,267 in drilling advances from Joint venture partners.  These advances will be applied towards the payment of drilling costs incurred in 2012.

NOTE 9 - Capital Stock

Common Stock

On February 27, 2012 in accordance with the one-for-five reverse stock split the number of shares outstanding was reduced from 57,565,987 to 11,513,198.  The share and per share information in the financial statements have been retroactively adjusted to reflect this change as if it had occurred at the beginning of the periods, including the number of options outstanding, which has been adjusted to 570,000 with an exercise price of $0.25 to reflect the effect of the reverse split.

At March 31, 2012, 11,513,203 shares of the Company`s common stock was outstanding

Employee Stock Option Plan

The following table summarizes the continuity of the Company’s stock options:

December 31, 2011
  Options  Weighted Average Exercise Price  
Weighted Average
 Remaining Life
 (years)
 
Options outstanding at beginning of period  570,000  $0.25   3.56 
Options issued during the period  -   -   - 
Exercised  -   -   - 
Forfeited  -   -   - 
Expired  -   -   - 
Outstanding at the end of period  570,000  $0.25   3.56 

On October 22, 2010 the Company granted 2,850,000 fully vested stock options to directors, officers, employees and contractors.  These options will expire on October 22, 2015.  The fair value of the options is $0.04 calculated using the Black-Scholes method:  risk free rate 1.1%, share price $0.04, strike price $0.05, volatility 215%, and dividend yield 0.00.

F-7

Mogul Energy International, Inc.
Notes to the Three Months Ended 2012 and 2011 Financial Statements

Preferred Stock

The Company’s Articles of Incorporation authorize its Board of Directors, without approval from the common shareholders, to issue 10,000,000 shares of preferred stock in any series, rights and preferences as determined by the Board. Preferred shares may be issued that: have greater voting rights than the common stock, diluting the value of any outstanding shares of common stock.

NOTE 10– Related Party Transactions

At March 31, 2012 the Company had received an additional $370,312 from Aura Oil Holdings (Aura) increasing the amount owed from $886,747 at December 31, 2011 to $1,257,059 represented non-interest bearing promissory note payable on demand from a Aura, a corporation organized under the laws of Bermuda. Mr. Naeem Tyab is the Company’s Chairman of the Board and the sole shareholder of Aura.  In addition, Mr. Tyab has incurred $35,008 of out of pocket travel expenses on behalf of the Company, which has been converted to a non-interest bearing promissory note payable on demand or convertible into common shares of the Company.  The combined amount of these notes could be converted into a number of shares based on the average price of the Company’s shares, calculated over the 30 day period prior to conversion. At March 31, 2012, the number of shares that could be converted under the terms of the notes was 62,853,000

On January 26, 2011, the Company entered into a Stafford Area Participation Agreement with Aura. Pursuant to the terms of the Agreement, Aura purchased an 8.3333% interest in the Company’s oil and gas leases, leasehold rights, and rights to participate in the development of oil, gas and other related substances in the Stafford Prospect for $75,521 and its proportionate monthly operating costs.

The Company sub leases office space in its Toronto location to a related party with directors in common for $9,500 per month.

During the quarter ended March 31, 2012 the company issued 3,000 shares of the Company’s common stock to an officer and director of the Company for compensation.

NOTE 11 – Contingencies and Commitments

Office Leases

Our principal office is located at 2500 Wilcrest Drive, Suite 405, Houston, Texas, 77042, USA.  This is a sub-lease agreement that expires on June 30, 2012 at a revised cost of $1,497 per month.  The Company recently increased the sub-leased space with a similar expiration date.

We also have administrative offices located at 615 – 700 West Pender Street, Vancouver, British Columbia, Canada V6C1G8.  The Company sublets office space for $950 per month, on a month to month basis.

F-8

Mogul Energy International, Inc.
Notes to the Three Months Ended 2012 and 2011 Financial Statements

The Company sublets office space at Suite 201, 47 Colborne St., Toronto, Ontario, Canada M5E 1P8, on a monthly basis under an unwritten rental agreement.  The monthly rent under this agreement is approximately $9,500.

Environmental Uncertainties

The Company may be exposed to financial risks in the oil and gas exploration business for pollution or hazards against which it cannot adequately insure or which it may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.

Flow-through Financing

The Company raised a total of CAD$950,000 in 2008 on a flow-through basis.  The gross proceeds of the financing were renounced to investors at December 31, 2008 and were to be used by the Company to incur qualified Canadian exploration expenses by June 30, 2010.  The company spent CAD$154,850 on qualified capital exploration expenditures leaving a commitment of approximately CAD$795,150 that was not spent on qualified capital exploration expenditures by July of 2010.  The Company has paid $55,000 in taxes and penalties assessed by the Canadian Customs and Revenue Agency (“CRA”.  An additional $83,357 tax was assessed as of June 30, 2011 that is as yet unpaid, at the date of writing the CRA has yet to demand payment ,  This tax is stated under the caption “Tax, other” on the Company’s Income Statement.  The Company has paid out $171,894 to shareholders as an indemnity for tax losses they incurred.  The Company estimates that a possible $131,705, still remains to be paid to investors.  Management has not yet determined when this contingency will be extinguished.

Governmental Regulations and Licensing

In order to drill for, recover, transport or sell any gas or oil from the properties subject to the Company’s drilling rights, the Company will generally be required to obtain additional licenses and permits and enter into agreements with various landowners and/or government authorities. The issuance of these permits and licenses generally will be contingent upon the consent of the governmental authority having jurisdiction over the property, which entities have broad discretion in determining whether or not to grant such authority. These licenses, permits, and agreements will generally contain numerous restrictions and require payment of development and exploration fees and royalties typically based on the recoverable reserves or expenditures. The amount of any such fee and royalties and other terms will determine in part, the commercial viability of any extraction prospect.

NOTE 13 - Loss Per Share

Loss per share is calculated using the weighted average number of shares issued during the relevant period. The weighted average number of common shares was 11,501,203 and the loss per share was $0.02 for the period ended March 31, 2012 was $0.02.  Debt convertible into common shares are not included in the calculation of loss per share because doing so would be anti-dilutive.

F-9


Item 3. 
ITEM 9A.
Quantitative and Qualitative Disclosures About Market Risk
 
No information is provided under this Item because the Company is a smaller reporting company.Management’s evaluation of disclosure controls and procedures
Item 4T.Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures

As required under the Exchange Act, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as of the end of the period covered by this report, being September 30,December 31, 2011. We are responsible for establishing and maintaining adequate internal controls and procedures for the financial reporting of our company.Company. Disclosure control and procedures are the controls and other procedures that are designed to ensure that we record, process, summarize and report in a timely manner the information that we must disclose in reports that we file with or submit to the SEC.  Our management has concluded, based on their evaluation, that as of September 30, 2011,March 31, 2012, as the result of the material weaknesses described below, our disclosure controls and procedures were ineffective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.  For more information, see Item 9A –

Management’s report on internal control over financial reporting

Company management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP.  Management has concluded that there are material weaknesses in both the design and operation of the Company’s internal controls and procedures for financial reporting as a result of lack of additional support staff.  A material weakness, as defined by SEC rules, is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.  The material weaknesses in internal control over financial reporting that were identified include:
i.
Lack of adequate segregation of duties in our accounting and financial reporting functions;
ii.
Lack of entity-wide controls, including no audit committee, and a failure to maintain formalized accounting policies and procedures;
As a result of the existence of these material weaknesses as of December 31, 2011, management has concluded that we did not maintain effective internal control with the limited staffing on hand over our financial reporting as of March 31, 2012,.

While we believe our financial statements included in this Annual Report present fairly, in all material respects, our financial condition, results of operations and cash flows for the periods presented, as a result of the material weaknesses in our internal control over financial reporting, there is a reasonable possibility that material misstatements of the financial statements including disclosures will not be prevented or detected on a timely basis.

This Quarterly Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Remediation

We will engage an independent accounting firm to advise us in respect of our internal controls over financial reporting, and to provide accounting counsel on various matters relating thereto.  We will continue to implement further improvements to our internal controls as they are identified.  We will use the criteria and framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the publication Internal Control-Integrated Framework, an integrated framework for the evaluation of internal controls, for the evaluation of our internal controls in the future. Senior management will continue to consult with external experts to assist with the accounting for complex and non-routine accounting transactions.

Page 36 of 39

Changes to Internal Controls and Procedures – in Part II of our Annual Report on Form 10-K for the year ended December 31, 2010.
Changes in Internal Control overOver Financial Reporting

There have been no changes in the Company’sour internal control over financial reporting during the period covered by this reportour fiscal year that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.reporting, except as discussed herein.
 
PART II
OTHER INFORMATION
Item 1.Legal Proceedings

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

IV
 
Item 1A.Risk Factors
ITEM 15.
There have been no material changes to the risk factors previously disclosed in Item 1A – Risk Factors – in Part I of our Annual Report on Form 10-K for the year ended December 31, 2010.
Item 2.
Unregistered EXHIBITS, FINANCIAL STATEMENT SCHEDULES.Sales of Equity Securities and Use of Proceeds
 
Between September 30, 2011 and December 31, 2010, the Company did not sell any equity securities of the Company which were not registered under the Securities Act.
Item 3.
(a)
Defaults Upon Senior Securities
Financial Statements and Schedules
 
    NoneThe financial statements are set forth under Item 8 of this Annual Report on Form 10-K.  Financial statement schedules have been omitted because they are either not required, not applicable, or the information is otherwise included.

Item 4.
(b)
Submission of Matters to a Vote of Securities Holders

None
Item 5.
Other Information

There have been no material changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors.
Item 6.
Exhibits
 
Exhibit 
NumberDescription
  
(3)(i) Articles of Incorporation; and (ii) Bylaws
3.1Certificate of Incorporation (1)*
3.2By-laws (1)*
3.3Form of Subscription Agreement ($0.15) dated for reference December 12, 2007 (incorporated by reference from our Form 8-K filed on February 15, 2008)*
3.4Form of Flow Through Subscription Agreement ($0.18) dated for reference December 12, 2007 (incorporated by reference from our Form 8-K filed on February 15, 2008)*
  
(4)Instruments Defining the Rights of Security Holders
4.12007 Stock Incentive Plan (incorporated by reference from our Form 8-K filed on August 10, 2007)*
  
(10)Material Contracts
10.1Letter of Intent dated July 30, 2007 (incorporated by reference from our Form 8-K filed on August 7, 2007)*
10.2Form of Stock Option Agreement (incorporated by reference from our Form 8-K filed on August 10, 2007)*
 10.3Stafford Area Participation Agreement – Aura Oil Holdings Ltd. (incorporated by reference from our Current Report on Form 8-K filed on March 21, 2011)
10.4North Pasture Joint Operating Agreement
10.5Stafford Joint Operating Agreement
10.6Form of the Stafford Participation Agreement between C.H. Squires Family, LLC, Fossil Oil Company LLC and certain individuals who are signatories thereto.
10.7Form of the North Pasture Participation Agreement between Global Oil and Gas Resources Inc., Dolimiti Partners LLC, Indian Lane Asso., LLC, Plastiform Packaging, Inc. and certain other individuals who are signatories thereto.
(14)Code of Ethics
14.1Code of Ethics
(23)Consents of Experts and Counsel
23.1Consent of Jorgensen & Co.
Page 37 of 39

 
(31)Certifications
Certification of Principal Executive Officer pursuant to Section 302
Certification of Principal Financial and Accounting Officer pursuant to Section 302
Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 1350
(101)
101.INSInstance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.LAB101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
 
 
Page 38 of 39

 
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MOGUL ENERGY INTERNATIONAL, INC.
/s/ Timothy J. Turner

By: Timothy J. Turner, President
(Chief Executive Officer)

Dated:  November 14, 2011
MOGUL ENERGY INTERNATIONAL, INC.
/s/ Timothy J. Turner
By: Timothy J. Turner, President
(Chief Executive Officer)
Dated:  May 17, 2012
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Timothy J. Turner

By: Timothy J. Turner, Director and President
(Chief Executive Officer)

/s/ Naeem Tyab

By: Naeem Tyab, Chairman of the Board

/s/ Henry Kloepper

By: Henry Kloepper, Director

/s/ Gary Countryman

/s/ Timothy J. Turner
By: Timothy J. Turner, Director and President
(Chief Executive Officer)
/s/ Naeem Tyab
By: Naeem Tyab, Chairman of the Board
/s/ Gary Countryman
By: Gary Countryman, Director
Dated:  May 17, 2012
 
Dated:  August 14, 2011
 Page 39 of 39