Mogul Energy International (MGUY) 10-Q 2008 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

T QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended  September 30, 2008

333-138806

(Commission File Number)

MOGUL ENERGY INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

98-0461623

(I.R.S. Employer Identification Number)

520 Pike Street, Suite 2210

Seattle, WA 98101

(Address of principal executive offices)

(206) 357-4220

(Registrant's telephone number)

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 £

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £	Accelerated filer  £
Non-accelerated filer   £   (Do not check if a smaller reporting company)	Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £   No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:    57,445,987 common shares issued and outstanding as of October4, 2008

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION
Item 1.	Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4T.	Controls and Procedures
PART II
OTHER INFORMATION
Item 1.	Legal Proceedings
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits
SIGNATURES

Mogul Energy International, Inc.

(an exploration stage company)

Financial Statement Index

(Unaudited)

	Index
Balance Sheets	F-2
Statements of Operations	F-3
Statement of Shareholders’ Equity	F-4
Statements of Cash Flows	F-5
Notes to the Financial Statements	F-6

Mogul Energy International, Inc.

(an exploration stage enterprise)

Balance Sheets

(expressed in U.S. dollars)

	September 30,			December 31,
	2008			2007
Assets:
Current
Cash	$	1,438,433		$	227,226
Receivable		22,268			35,744
Subscriptions receivable		-			454,824
Investment		92,506
Prepaid		74,044			286
Total current assets		1,627,251			718,080
Non-current
Equipment – net		-			1,055
Exploration and evaluation		1,296,989			1,278,243
Total non-current assets		1,296,989			1,279,298
Total Assets	$	2,924,240		$	1,997,378
Current Liabilities:
Accounts payable	$	47,207		$	465,942
Cash call payable – exploration		-			680,033
Due to officers and directors		2,827			178,125
Loans from shareholders		-			99,990
Total current liabilities	$	50,034		$	1,424,090
Contingencies and commitments		-			-
Shareholders’ Equity:
Deficit accumulation during exploration stage	$	(4,694,565	)	$	(4,354,221	)
Common stock $0.0001 par value, 100,000,000 shares authorized, 57,445,987 shares outstanding.		5,744			4,236
Additional paid-in capital		7,066,790			4,498,832
Warrants & Options:		513,204			462,624
Preferred: 10,000,000 shares authorized, none issued		-			-
Other comprehensive income (loss)		(16,967	)		(38,183	)
Total Shareholders’ Equity		2,874,206			573,288
Total Shareholders’ Equity and Liabilities	$	2,924,240		$	1,997,378

Notes are an Integral part of the Financial Statements

Prepared by Management

F-2

Mogul Energy International, Inc.

(an exploration stage enterprise)

 STATEMENTS OF OPERATIONS (UNAUDITED)

(expressed in U.S. dollars)

	Three Months Ended September 30, 2008			Three Months Ended September 30, 2007			Nine Months Ended September 30, 2008			Nine Months Ended September 30, 2007			Cumulative from July 25, 2005 (inception) to September 30, 2008
Revenue	$	-		$	-		$	-		$	-		$	-
Expenses:
General and administrative		(404,123	)		(241,242	)		(1,010,910	)		(509,488	)		(2,484,699	)
Impairment		-			-			(51,749	)		-			(2,118,645	)
Other income and expenses
Gain on disposition exploration property		-			-			715,209			-			715,209
Interest Revenue		4,815			-			7,106			-			13,569
Settlement of lawsuit					-						-			(820,000	)
Net gain (loss) for the periods	$	(399,308	)	$	(241,242	)	$	(340,344	)	$	(509,488	)	$	(4,694,565	)
Basic earnings (loss) per share	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)
Weighted average common shares outstanding		57,392,074			37,025,147			51,287,555			37,025,147

Notes are an Integral part of the Financial Statements

Prepared by Management

F-3

Mogul Energy International, Inc.

(an exploration stage enterprise)

 STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(expressed in U.S. dollars)

	Number of Common shares			Par Value			Additional Paid in Capital			Warrants & Options			Other Comp. Income			Deficit Accumulated During Exploration Stage			Totals
Shares issued at $0.001		29,264,310		$	2,926		$	26,338		$	-		$	-		$	-		$	29,264
Shares issued at $0.15		590,000			59			88,441			-			-			-			88,500
Shares issued at $0.40		717,500			72			286,928			-			-			-			287,000
Net (loss) for period		-			-			-						-			(136,919	)		(136,919	)
12/31/2005 balances		30,571,810			3,057			401,707			-			-			(136,919	)		267,845
Shares issued at $0.40		2,665,000			267			1,065,734			-			-			-			1,066,001
Units (Shares & wnts) at $0.40		1,250,000			125			437,375			62,500			-			-			500,000
Net (loss) for the year		-			-			-			-			-			(2,176,540	)		(2,176,540	)
12/31/2006 balances		34,486,810			3,449			1,904,816			62,500			-			(2,313,459	)		(342,694	)
Shares for lawsuit @$0.40		2,000,000			200			799,800			-			-			-			800,000
Shares for cash		2,045,334			204			280,879			-			-			-			281,083
Subscribed shares @$0.18		-			-			462,324						-			-			462,324
Shares and opt for debt for cash		3,366,667			337			1,168,663			267,500			-			-			1,436,500
Shares and opt for services		468,786			46			116,350			132,624			-			-			249,020
Deferred Compensation		-			-			(234,000	)		-			-			-			(234,000	)
Translation adjustment		-			-			-			-			(38,183	)		-			(38,183	)
Net (loss) for the year		-			-			-			-			-			(2,040,762	)		(2,040,762	)
12/31/2007 balances		42,367,597			4,236			4,498,832			462,624			(38,183	)		(4,354,221	)		573,288
Warrant expiration								62,500			(62,500	)		-			-			-
Shares cancelled		(178,077	)		(18	)					-			-			-			(18	)
Subscribed shares @ 0.18								(462,324	)		-			-			-			(462,324	)
Shares issued @ 0.18		2,526,800			253			454,572			-			-			-			454,825
Shares issued at $0.15		2,383,000			238			357,212			-			-			-			357,450
Shares issued for services		66,667			7			9,993			-			-			-			10,000
Broker warrants @ 0.15		-			-			-			12,212			-			-			12,212
Shares issued at $0.20		6,300,000			630			1,259,370			-			-			-			1,260,000
Shares issued at $0.25		3,800,000			380			949,620			-			-			-			950,000
broker warrants @ 0.20		-			-			-			108,990			-			-			108,990
Broker warrants @ .25		-			-			-			50,378			-			-			50,378
Deferred Compensation		-			-			117,000			-			-			-			117,000
Share issuance costs		-			-			(341,567	)		-			-			-			(341,567	)
Translation adjustment		-			-			-			-			(5,809	)		-			(5,809	)
Net gain for the period		-			-			-			-			-			58,964			58,964
6/30/2008 balances (unaudited)		57,265,987			5,726			6,905,208			571,704			(43,992	)		(4,295,257	)		3,143,389
Shares issues @ 0.15		100,000			10			14,990			-			-			-			15,000
Shares issues @0.37		80,000			8			29,592			-			-			-			29,600
Deferred Compensation		-			-			117,000			(58500	)		-			-			58,500
Translation adjustment		-			-			-			-			(5,274	)		-			(5,274	)
Unrealized gain on marketable equity securities		-			-			-			-			32,299			-			32,299
Net gain for the period		-			-			-			-			-			(399,308	)		(399,308	)
9/30/2008 balances (unaudited)		57,445,987		$	5,744		$	7,066,790		$	513,204		$	(16,967	)	$	(4,694,565	)	$	2,874,206

Notes are an Integral part of the Financial Statements

Prepared by Management

F-4

Mogul Energy International, Inc.

(an exploration stage enterprise)

STATEMENT OF CASH FLOWS (UNAUDITED)

(Expressed in U.S. dollars)

	Three Months Ended September 30, 2008			Three Months Ended September 30, 2007			Nine Months Ended September 30, 2008			Nine Months Ended September 30, 2007			Cumulative from July 25, 2005 (inception) to September 30, 2008
Operating Activities
Net (loss) for periods	$	(399,308	)	$	(241,424	)	$	(340,344	)	$	(509,488	)	$	(4,694,565	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense (office)		-			519			1,055			1,552			6,209
Impairment		-			-			51,749			-			2,118,646
Shares and options for services		103,100			-			153,320			-			479,120
Gain on disposition of exploration property		-			-			(715,209	)		-			(715,209	)
Changes in non-cash working capital
Accounts payables ( decrease) increase		(203,541	)		775,400			(418,735	)		771,099			47,207
GST receivable increase		(8,718	)		392			13,476			(3,410	)		(22,268	)
Prepaid		(37,043	)		-			(73,758	)		-			(74,044	)
Other payables		-			-			-			(20,000	)		-
Shares for litigation payable		-			-			-			(800,000	)
Cash used in operations	$	(545,510	)	$	534,887		$	(1,328,446	)	$	(560,247	)	$	(2,854,905	)
Investing Activities
Cash held in escrow/trust		-			176,550			-			604,479			-
Purchase equipment		-			-			-			-			(6,209	)
Investments		-			-			-			-			-
Exploration and evaluation		(46,253	)		(953,362	)		(18,746	)		(2,181,792	)		(2,760,634	)
Cash used for investing activities	$	(46,253	)	$	(776,812	)	$	(18,746	)	$	(1,577,313	)	$	(2,766,843	)
Financing Activities
Due to officers and directors		-			123,800			(175,298	)		42,276			2,827
Loans from shareholders		-			(400,010	)		(99,990	)		(80,000	)		-
Proceeds from subscription s received		-			-			454,824			-			454,824
Loans		-			-			-			-			-
Sale of equity securities		-			502,729			2,389,946			2,156,729			6,651,794
Cash from financing activities	$	-		$	226,519		$	2,569,482		$	2,119,005		$	7,109,445
Foreign exchange adjustment		(5,274	)		17,748			(11,083	)		(6,980	)		(49,266	)
Increase (Decrease) in cash during		(591,763	)		2,342			1,222,290			(25,534	)		1,487,697
Cash beginning of periods		2,035,470			1,800			227,226			29,756			-
Cash at end of periods	$	1,438,433		$	4,222		$	1,438,433		$	4,222		$	1,438,433
Interest and taxes paid during period	None			None			None			None			None

Supplemental Schedule of Investing and Financing Activities Not Affecting Cash Flow For the 9-month period ended September 30, 2008
Investing Activities
Acquisition of 4,000,000 shares of Sea Dragon Ltd.	$60,207
Financing Activities
Exchange of cash call payable for shares of Sea Dragon Ltd.	$759,306

Notes are an Integral part of the Financial Statements

Prepared by Management

F-5

Mogul Energy International, Inc.

(an exploration stage company)

Notes to September 30, 2008 Interim Financial Statements

(Unaudited)

NOTE 1 - Organization and Nature of Business

Mogul Energy International, Inc. (Company) was formed as a Delaware corporation on July 25, 2005 to engage in the business of oil and gas exploration.  The Company’s business activities included financing and acquiring drilling prospects and exploration for oil and gas.

The Company acquires low entry cost exploration prospects, as measured on a dollar per barrel for proven and potential reserves in proximity to producing oil fields, and exploring for oil and gas reserves.

NOTE 2 – Interim Reporting

The information presented in the accompanying interim nine month financials includes all adjustments which are, in the opinion of management, necessary to present fairly the financial, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America.  These interim financial statements follow the same accounting policies and methods of their application as Mogul Energy International, Inc.’s December 31, 2007 annual financial statements.  All adjustments are of a normal recurring nature.

NOTE 3 - Capital Stock

Common Stock

On December 31, 2007 the company issued 1,945,334 shares of its common stock at $0.18 per share on a Flow-through basis pursuant to the income tax laws of Canada (Income Tax Act, Canada).  Total proceeds of the offering were $349,866.  An additional 2,526,800 common shares had been subscribed for as of December 31, 2007 and cash of $454,824 had been received for the flow-through shares.  These shares were subsequently issued during the period and the issue has been closed.  Share issuance costs for this offering were $83,977.  In connection with this issue the company issued 241,106 finders’ fee warrants.  Of these 106,055 have terms that allow the holder to purchase one common share of the company for $0.20  and one warrant per common share for a period of two years.  The fair value of the warrants was estimated at $8,124 calculated using the Black Scholes method: risk free rate 3.05%, share price $0.18, strike price $0.20, volatility 83% and dividend yield 0.00. Also, on December 31, 2007 the company issued 100,000 shares for $0.15 per common share for total proceeds of $15,000.

During the quarter ended March 31, 2008 the Company issued 2,383,000 shares of its common stock at $0.15 per share, related costs totalled $16,795.   The Company issued 135,051 finders’ fee warrants which allow the holder to purchase a common share of the company for one Class B warrant and $0.15per common share.  The warrants had a fair market value of $12,212 calculated using the Black Scholes model: risk free rate 3.05%, share price $0.18, strike price $0.15, volatility 83% and dividend yield 0.00.

During the period ended June 30, 2008 the Company issued a total of 10,100,000 shares through a series of closings. Pursuant to the income tax laws of Canada (Income Tax Act, Canada) the Company issued the following share on a flow-through basis: 2,800,000, 400,000, and 600,000 closed on  June2, June 5 and June 11, 2008 respectively for a total of 3,800,000 at $0.25 per common share for total proceeds of $950,000. In addition, the company also issued 2,300,000 common shares on June 2 and 4,000,000 common shares on  June 11, 2008 on a non-flow-through basis for a total of 6,300,000 shares of its common stock at $0.20 per share for total proceeds of $1,260,000.  Share issuance costs associated with the two classes of financings that closed in June amounted to $102,444 in cash and finder’s fee warrants as follows:

· 52,500 warrants each of which allows the holder to purchase one common share of the Company for $0.20 per share expiring on December 20, 2009.  The fair market value of the warrants was $11,807 calculated using the Black Scholes method: risk free rate 2.71%, share price $0.225, strike price $0.20, volatility 520% and dividend yield $0.00.

· 224,000 warrants each of which allows the holder to purchase one common share of the Company for $0.20 per share expiring on June 11, 2010.  The fair market value of the warrants was $57,378 calculated using the Black

F-6

· Scholes method: risk free rate 2.71%, share price $0.225, strike price $0.20, volatility 520% and dividend yield $0.00.

· 432,500 warrants each of which allows the holder to purchase one common share of the Company for $0.20 per share expiring on December 20, 2009.  The fair market value of the warrants was $97,183 calculated using the Black Scholes method: risk free rate 2.71%, share price $0.225, strike price $0.20, volatility 520% and dividend yield $0.00.

Warrant and Options

The following are details related to warrants issued by the company to shareholders:

	September 30, 2008					December 31, 2007
	Shares			Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding warrannts at beginning of the period		1,991,667			.43		625,000	$	0.50
Warrants Granted							1,366,667	$	0.40
Exercised
Forfeited
Expired		(625,000	)		.50
Outstanding at the end of period		1,366,667		$	0.40		1,991,667	$	0.43

Fair Value Assumptions – The fair value of warrants and options granted is estimated on the date granted using the Black-Scholes option pricing model with following weighted average assumptions used for the grants:

1. For the period ended September 30, 2007, risk free interest rates ranging from 3.73% to 4%, expected dividend yields of zero, expected life ranging from two years, and expected volatility ranging from 2% to 51%.

2. For the year ended December 31, 2006 the valuation of the warrants was estimated on a reasonability test as the stock was not publicly traded at that time.

The following are details related to warrants issued by the company as finders’ fees:

	September 30, 2008
	Shares		Weighted Average Exercise Price
Outstanding warrants at beginning of period		950,106	$	0.24
Warrants granted
Exercised
Forfeited
Expired
Outstanding at the end of period		950,106	$	0.24

1. For the period ended June 30, 2008, risk free rate was 2.71%, expected dividend yield was zero, expected life ranged from 18 months to 2 years, and expected volatility of 520%.

2. For the period ended December 31, 2007, risk free rate was 3.05%, expected dividend yield of zero, expected life of 2 years, and expected volatility of 82%.

F-7

A summary of the status of the warrants under various agreements follows to September 30, 2008:

Warrants Outstanding						Warrants Exercisable
Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Contractual Life (years)
$	0.15 to $0.40		2,316,773		1.04	$	0.32		2,316,773		1.04

.For year ended December 31, 2007

Warrants Outstanding						Warrants Exercisable
Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Contractual Life (years)
$	0.15 to $0.40		1,472,722		1.27	$	0.37		1,474,473		1.27

Employee Stock Option Plan

On August 7th, 2007 the Company granted 2,250,000options to Directors and employees of the Company.  These options vest at a rate of 20% per quarter.  These options were fully vested as of August 7th, 2008.

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

	September 30, 2008
	Options		Weighted Average Exercise Price
Options outstanding		2,250,000	$	0.30
Exercised		-		-
Forfeited		-		-
Expired		-		-
Outstanding at the end of period		2,250,000,	$	0.30

The fair value of the options was calculated using the Black Scholes method: risk free rate 3.73%, share price $0.28, strike price $0.30, volatility 51% and dividend yield 0.00.

Compensation charges associated with the employee stock option plan in the amount of $175,500 are included in the statement of operations for the nine month period ended September 30, 2008.

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.

F-8

NOTE 4 - Oil and Gas Properties

Disposition of EWA Concession Agreement 20% Working

On March 21, 2008, the Company entered into an Agreement of Purchase and Sale with Egypt Oil Holdings Ltd. (Egypt Oil), Sea Dragon Energy Inc. (Sea Dragon) and Dover Investments Ltd.  The Agreement, with an effective date of March 21, 2008, was part of a larger transaction (the “Transaction”) that closed on April 24, 2008.  The Transaction resulted in the sale of the Company’s 20% working interest in the EWA Concession Agreement (Concession) to Sea Dragon in exchange for satisfaction of the Company’s outstanding “Cash calls payable”  ($759,306) related to the Company’s drilling program on the Concession, a cash payment of $100,000 CDN plus 4,000,000 shares of Sea Dragon’s common stock, valued at an estimated $0.15 per share based on a recent share offering of Sea Dragon, a publicly traded Company.  Ninety percent of Sea Dragon’s shares received by the Company for this transaction have been placed in escrow.  The terms of the escrow call for the  release of these shares on the earlier of: (i) the Company announcing the drilling results of the second exploratory well drilled on the Concession (note 5); or (ii) July 31, 2009.  The gain on the disposition of the EWA Concession (about $540,000) related to the 3,600,000 shares held in escrow has been deferred pending meeting the above provisions of the escrow.

NOTE 5 - Commitments

Office Lease

The Company rents office space in Seattle, Washington on a month-to-month basis for $400 per month, and $450 per month for office space in Vancouver, British Columbia, Canada. In November, 2008, the Company entered into a 13 months lease for office space in Toronto, Ontario Canada at a net monthly cost of $3,954 Canadian Funds.  The lease expires November, 2009.

NOTE 6 - Contingencies

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.

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 7 - 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 57,392,074 for the period ended September 30, 2008.

F-9

NOTE 8 - Net Operating Loss Carryforward

At September 30, 2008, the Company had an estimated net operating loss (NOL) carryforward of approximately $4,600,000. The future value, if any, of this NOL related to US federal tax purposes is expected to be reduced to the extent the Company has issued “Flow-through” common shares under provisions of the Canadian tax law.  For the current period, the NOL carryforward begins to expire in 2025. Because management is unable to determine that it is more likely than not that the Company will realize the tax benefit related to the NOL carryforward, by having taxable income, a valuation allowance has been established at the balance sheet date to reduce the tax benefit asset value to zero.

NOTE 9 - Capitalized costs relating to the oil and gas acquisitions and exploration activity 

Schedule “A”Canada
Costs at June 30, 2008	$	1,250,736	$	-
Additions:
Exploration	$	27,507
Lease property acquisition costs		-
Less accumulated depreciation, depletion, amortization and impairment		-
At September 30, 2008				-
Provided during the period				-
Net book value September 30, 2008			$	1,296,989

NOTE 10 – Restatement

Based on a review of the impairment test under full cost accounting, the December 31, 2006 financial statements have been restated to reflect a correction of an error in applying the ceiling test specified by Regulation S-X, Rule 4-10(c) to the exploration and evaluation asset as of December 31, 2006 for financial statements submitted with an earlier pre-effective Form SB-2 registration statement filed with the SEC.

As a result of implementing the correct application of impairment test under Regulation S-X, Rule 4-10(c), the restated December 31, 2006 financial statements reflect an increased impairment charge and net loss from operations in the amount of $764,719, resulting in an increase of net loss per share from $(0.03) to $(0.07) for the year ended December 31, 2006, as restated. In addition, exploration and evaluation assets and net assets decreased by $764,719; and the December 31, 2006 retained deficit was increased by $764,719. Cash flow from operating activities was not affected for the year ended December 31, 2006, however, a line item in the amount of $764,719 has been included to reconcile net loss from operation to cash flow from operations for the year ended December 31, 2006. Respective corrections were made for the restated cumulative amounts for the period from inception to December 31, 2006. The correct application of the impairment test did not affect any period other than the year ended December 31, 2006.

F-10

Mogul Energy International, Inc.

(an exploration stage enterprise)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This quarterly report on Form 10-Q 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 of our latest Annual Report on Form 10-KSB, 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 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.

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 our company and the terms "we", "us," and "our" mean Mogul Energy International, Inc. (the “Company”).

Business Development

We are a Delaware corporation formed on July 25, 2005, with our principal place of business in the State of Washington.  We are an independent oil and gas exploration company established to take advantage of the low cost acquisition opportunities near other producing and proven oil fields. Since our formation, we have engaged in only limited activities related to the acquisition of our property rights and financing activities. To date, we have not generated any operating revenues.  The address of our website is www.mogulenergy.com. Information on our website is not part of this report.

Our strategy is to expand through an aggressive plan of development of our current properties and, if warranted, the acquisition and development of properties that have:

§ Low entry cost as measured on a dollar per barrel for proven and potential reserves;

§ Ready access to infrastructure allowing for production within a short time period without significant capital commitments; and

§ Ready access to local and export markets without the need for immediate investment in pipeline construction projects.

Initially, we intend to use of third-party providers to engage in most if not all of our oil and gas producing activities.

Business of the Issuer

The Company is in the oil and gas exploration business.  Our business plan is focused on a strategy for maximizing the long-term exploration and development of our petroleum prospecting leases in Saskatchewan, Canada.  To date, execution of our business plan has largely focused on the acquisition of petroleum leases in Canada on the Fairlight Prospect in Saskatchewan.  We have not engaged in any substantive business operations to date. We have engaged only in preliminary, exploratory activities, review of data pertaining to our properties, and the establishment of initial exploration plans.

We have sold our 20% working interest in the EWA Concession for 4,000,000 shares in Sea Dragon Energy Inc and the cancellation of all payables related to the prior drilling and related expenses on the EWA Concession.

Employees

In addition to our directors and officers we also have three full-time employees, and we hire independent contractor consultants as required. We will continue to outsource any additional contracts as needed.  If we are successful in our initial and any subsequent drilling programs we may retain additional employees or contractors.

Cash Requirements

For the next 12 months we plan to initiate a drilling program and explore for petroleum and natural gas on the Freehold Properties in Saskatchewan.

We will require additional funds to implement our growth strategy in our oil and gas exploration operations. These funds may be raised through equity financing, debt financing, 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 his investment in our common stock. Further, we may continue to be unprofitable.

Over the next twelve months we intend to use all available funds to conduct a drilling program on the Freehold Properties.  We estimate that the following funding will be required over the next twelve months to conduct the drilling program on the oil and gas leases that form the Freehold Properties:

Estimated Funding Required During the Next Twelve Months

Drilling & Development	$	1,500,000	to	$	1,750,000
Offering Costs & Expenses	$	100,000	to	$	150,000
General Corporate Expenses	$	400,000	to	$	500,000
Working Capital	$	300,000	to	$	400,000
Total	$	2,300,000	to	$	2,800,000

 The minimum expenditures noted above will allow us to drill three non-contingent oil and gas prospects and pay for general and administrative expenses.  We plan to focus substantially on the Freehold Properties.  Because our minimum estimated funding for the next twelve months is estimated to be between $2,300,000 to $2,800,000 and our total current assets as at September 30, 2008 were $1,627,251.  We will be required to raise additional funds at the present time. In the event that we are able to raise further funds, we will primarily expend such funds as described above

As at September 30, 2008, we had total assets of $2,924,240 as compared to $1,997,378 at December 31, 2007.  Working capital at September 30, 2008 was $1,577,217 (working capital at December 31, 2007 ­– (706,010))

For the three month ended September 30, 2008, we had current liabilities of $50,034 in current liabilities relative to current liabilities of $1,424,090 at December 31, 2007.  Our total liabilities decreased by approximately $1,374,056.  The disposition of our 20% working interest in the EWA Concession reduced accounts payable by $759,000.  We also repaid all loans to shareholders and related parties resulting in a further decrease of approximately $270,000 to the payment of accrued salaries to and repayment of loans to officers and directors.  The remaining decrease was due to the payment of outstanding legal expenses, lease acquisition costs and other general and administrative expenses.

For the three months ended September 30, 2008 General and Administrative costs were $404,123 compared to $241,242 for the three month period ended September 30, 2007.   The increase in these expenses was primarily due to increased costs for Travel and Promotions and Professional fees.  Travel and Promotions costs increased to $77,322 in the most recent three month period from $17,630 in the comparable period.  Travel and promotions costs increased as management looked to acquire international projects in Africa.  Professional fees also increase from $10,677 in the prior period to $98,121 in three month period ended September 30, 2008.  Professional fees relate to consulting for geological and geophysical fees for work towards the drilling program in Saskatchewan and professional fees for legal related to the possible redomiciling of the Company from Delaware.  The company also pays consulting fees for marketing and to certain officers and directors of the company for their services.

For the nine months ended September 30, 2008 general and administrative costs have increased from $1,010,910 compared to $509,488 for the comparable period in 2007.  Travel and Promotion costs have doubled for the most recent nine month period to $238,939 from $114,812.  This is primarily due to increased travel between offices located in Vancouver and Toronto, as well as increased efforts to acquire an international asset in either Africa or South America.  Professional fees for consulting, legal and accounting have also increased from $81,197 in the prior nine month period to $222,062 in the most recent nine month period.  The following components of professional fees include Consulting, Legal and Accounting: Consulting fees have increased 726% for geological work and geophysical work on the leased land in Saskatchewan, the company also pays consulting fees for marketing and to certain officers and directors of the company for their services.  Legal fees increased 81% due to cost incurred for possible redomiciling the Company from Delaware ,and other legal costs.  Accounting costs have increased 101% due to increased fees for audit and review engagements.

For the nine months ended September 30, 2008, the company recorded a gain of $715,209 for the disposition of the company’s 20% working interest in the EWA Concession.  Recognition of the gain related to this transaction involved transfer of $759,306 of cash calls payable related to the Company’s drilling project, $100,000 in cash and 400,000 shares (of a total of 4,000,000 shares described below) of Sea dragon Energy Inc., valued at $0.15 per share.  There was no similar gain in the prior comparable nine month period.

The disposition of its interest in the EWA Concession, involves a transfer to the Company of 400,000 shares of Sea Dragon Energy Inc. plus an additional 3,600,000 shares that were placed in escrow, 4,000,000 shares total. The Company has deferred any gain recognition on the 3,600,000 shares held in escrow until the time the escrow provisions are met.  Management believes that the terms of the escrow for these shares will be met on July 31 2009. Management anticipates that the release of these shares from escrow will improve its liquid assets significantly.

The cash outflow for the three month period ended September 30, 2008 was $545,510 relative to a cash inflow of $534,887 for the comparative period in 2007.  During the current three month period the company took steps to reduce it outstanding accounts payable from a previous drilling program that had gone unpaid due to lack of financing.  Cash out flows from operation over the nine months ended September 30, 2008 was $1,329,446 as compared to an outflow of $560,247 in the comparable period in 2007.    Accounts payable for costs incurred in former drilling programs as well as outstanding legal fees were paid.

Cash used in investing activities has decreased from $953,363 in the three month period ended September 2007 to $46,253 in the most recent three month period primarily due to exploration and evaluation activates related to the divestiture of the EWA Concession.   Cash used in investing decreased from $1,577,313 in the nine months ended in 2007 to $18,746 in the nine months ended in 2008.  This was due to the write down of $1,203,240 for the dry hole drilled on the EWA concession and the subsequent divestiture of the 20% working interest in the Concession.

Cash received from financing activities for the three month period ended September 30, 2007 was $226,519 due to an increase of funds owed to directors increased by $123,800,  the company paid shareholders loans in full reducing cash by $400,010 and raised $502,729 through the sale of equity securities.  Cash increased in the nine months ended September 30, 2008 to $1,438,443 primarily due to the issuance of 10,100,000 shares of its common stock, of which 6,300,000 shares were issued at $0.20 per share and 3,800,000 shares were issued on a flow-through basis under the Canadian Tax Act at $0.25 per share. Proceeds to the Company was $2,389,946, net of $341,567 for related costs.   The increase over the comparable nine-month period for fiscal 2007 was $2,119,729 and was primarily due to the issuance of common shares over the course of 2007.

We have suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital. In this regard we have raised and will need to continue to raise additional capital as discussed above.

The continuation of our business is dependent upon obtaining further financing, a successful program of acquisition and exploration, and, finally, achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

Recently Issued Accounting Standards

In July 2006, the FASB issued FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statements No. 109” . FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing a two-step method of first evaluating whether a tax position has met a more likely than not recognition threshold and second, measuring that tax position to determine the amount of benefit to be recognized in the financial statements. FIN 48 provides guidance on the presentation of such positions within a classified statement of financial position as well as on derecognition, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of this statement in fiscal 2007 did not have a material effect on our company's financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The objective of SFAS 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in Generally Accepted Accounting Principles (GAAP), and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. We are currently evaluating the impact of adopting SFAS No. 157 but do not expect that it will have a material effect on our financial statements.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)”. This statement requires employers to recognize the over funded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The provisions of SFAS 158 are effective for employers with publicly traded equity securities as of the end of the fiscal year ending after December 15, 2006. The adoption of this statement did not have a material effect on our company's future reported financial position or results of operations.

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 ”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 “ Accounting for Certain Investments in Debt and Equity Securities ” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, “ Fair Value Measurements”.

We do not expect that any of these recently issued accounting standards have a material effect on our company’s financial statements.

Application of Critical Accounting Policies

Our audited financial statements and accompanying notes are prepared in accordance with Generally Accepted Accounting Principles (GAAP) used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.

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.

As at September 30, 2008, we do not have any proven or probable reserves.

Stock Based Compensation

We implemented the following new critical accounting policy related to our stock-based compensation.  Beginning August 8, 2007, we began accounting for Stock options under the provisions of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (FAS 123(R)), which requires the recognition of the fair value of stock-based compensation. Under the fair value recognition provisions for FAS 123(R), stock-based compensation cost is estimated at the grant date based on the fair value of the awards expected to vest and recognized as expense ratably over the requisite service period of the award. We were already using the fair value method under SFAS 123 and the main difference is the estimation of forfeitures in order to estimate the awards not expected to vest. We have used the Black-Scholes valuation model to estimate fair value of our stock-based awards which requires various judgmental assumptions including estimating stock price volatility and expected life. Our computation of expected volatility is based upon historical volatility. In addition, we consider many factors when estimating expected life, including types of awards and historical experience.

Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Pursuant to 17 C.F.R. § 229.305(e), no information is provided under this Item because the Company is a smaller reporting company, as defined by 17 C.F.R. § 229.10(f)(1).

Item 4T. Controls and Procedures

As required under the Exchange Act, as of the end of the period covered by this report, being September 30, 2008, we evaluated the effectiveness of the design and operation of our disclosure control and procedures. We are responsible for establishing and maintaining adequate internal controls and procedures for the financial reporting of our company.  Disclosure control and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner, the information we must disclose in reports that we file with or submit to the SEC.

Management and officers have implemented measures to revise and improve our internal controls and procedures to increase our effectiveness.  As part of this program we have engaged an independent accounting firm experienced in GAAP to review and to advise in respect to the preparation of our financial statements, and to provide accounting advice on various matters relating thereto on an ongoing basis.  Further, we have also engaged independent advice from an accountant with experience in matters relating to taxation on a multi-jurisdictional level, to advise and ensure the adequacy and accuracy of our tax reporting and disclosure and that we are in compliance in this regard.

There have been no changes in our internal control over financial reporting during the last quarterly period that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in Item 1A to Part I of our Annual Report on Form 10-KSB for the year ended December 31, 2007.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On or about August 13, 2008, the Company’s CFO, Mr. William Smith, purchased 5,000 common shares of the Company at $0.18 per share.  For more information, see the Form 4 filed by Mr. Smith with the Securities and Exchange Commission, on or about September 10, 2008.

No shares of the Company have been purchased on behalf of the Company or affiliated purchasers as part of any publicly announced plans or programs, and there are currently no plans or programs in place to purchase any shares in the future.

Item 3. Defaults Upon Senior Securities

None

Item 4. 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 Number
(3)	(i) Articles of Incorporation; and (ii) Bylaws
3.1	Certificate of Incorporation (1)*
3.2	By-laws (1)*
3.3	Form of Registration Rights Agreement with the Selling Shareholders (1)*
3.4	Form of Subscription Agreement ($0.001) (2)*
3.5	Form of Subscription Agreement ($0.15) (2)*
3.6	Form of Subscription Agreement ($0.40) dated for reference July 28, 2005 (2)*
3.7	Form of Subscription Agreement($0.40) dated for reference October 31, 2005 (2)*
3.8	Form of Subscription Agreement ($0.40) dated for reference January 19, 2006 (2)*
3.9	Form of Flow Through Subscription Agreement ($0.40) dated for reference February 8, 2006 (2)*
3.10	Form of Subscription Agreement for Unit Offering dated for reference April 11, 2006 (2)*
3.11	Form of Subscription Agreement ($0.15) dated for reference December 12, 2007 (incorporated by reference from our Current Report on Form 8-K filed on February 15, 2008)*
3.12	Form of Flow Through Subscription Agreement ($0.18) dated for reference December 12, 2007 (incorporated by reference from our Current Report on Form 8-K filed on February 15, 2008)*
(4)	Instruments Defining the Rights of Security Holders
4.1	2007 Stock Incentive Plan (incorporated by reference from our Current Report on Form 8-K filed on August 10, 2007)*
5.1	Opinion of Sierchio Greco & Greco, LLP (3)*
10	Material Contracts
10.1	A Binding Farm-Out Agreement East Wadi Araba Concession dated August 6, 2005 (1)*
10.2	A Binding Joint Venture Agreement - Egypt dated August 7, 2005 (1)*
10.3	Farm-Out Agreement dated September 29, 2005 (1)*
10.4	Farm-out Agreement dated November 8, 2005 (1)*
10.5	Assignment Agreement-East Wadi Araba Concession dated December 9, 2005 (1)*
10.6	Assignment Agreement dated December 9, 2005 (1)*
10.7	Amendment to Binding Farm-Out Agreement East Wadi Araba Concession-Egypt dated March 30, 2006 (1)*
10.8	Assignment Agreement dated April 4, 2006 (1)*
10.9	Concession Agreement for Petroleum Exploration and Exploitation (the "Concession Agreement") between Dover, the Arab Republic of Egypt and the Egyptian General Petroleum Corporation (“EGPC”) dated July 18, 2002 (1)*
10.10	East Wadi Araba Concession - Gulf of Suez, Egypt Amending Agreement dated April 13, 2006 (1)*

10.11	Deed of Assignment submitted May 30, 2006 (1)*
10.12	A Binding Agreement dated April 14, 2005 (1)*
10.13	Agreement dated October 2, 2006 with Ernie Pratt (2,3)*
10.14	Office Lease Agreement as amended (2)*
10.15	Promissory note dated April 1, 2006 in the aggregate amount of $113,791.35 (2)*
10.16	Assignment Agreement dated January 24, 2007 (2)*
10.17	Letter of Intent dated July 30, 2007 (incorporated by reference from our Current Report on Form 8-K filed on August 7, 2007)*
10.18	Form of Stock Option Agreement (incorporated by reference from our Current Report on Form 8-K filed on August 10, 2007)*
10.19	Purchase and Sale Agreement dated March 21, 2008 (incorporated by reference from our Current Report on Form 8-K filed on April 30, 2008)*
23.1	Consent of Sierchio Greco & Greco, LLP (included in Exhibit 5.1) (3)*
23.2	Consent of Jorgensen & Co. (incorporated by reference from our Registration Statement on Form SB-2/A filed on May 8, 2007) (1,2,3,4)*
23.3	Consent of Chapman Petroleum Engineering Ltd. (1,2,3,4)*
31.1	Certification of Principal Executive Officer pursuant to Section 302
31.2	Certification of Principal Financial and Accounting Officer pursuant to Section 302
32.1	Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 1350
99.1	List of Freehold Properties Leases (1)*
99.2	Evaluation of Resource Potential East Wadi Araba Concession, Offshore Gulf of Suez, Egypt (1)*
99.3	Settlement Agreement dated January 24, 2007 (2)*

* Previously filed.

1 Filed with our Registration Statement on Form SB-2 filed on November 17, 2006.

2 Filed with our Registration Statement on Form SB-2/A filed on February 6, 2007.

3 Filed with our Registration Statement on Form SB-2/A filed on March 29, 2007.

4 Filed with our Registration Statement on Form SB-2/A filed on April 25, 2007.

SIGNATURES

Pursuant to the requirements 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/ Naeem Tyab

By: Naeem Tyab, President

(Principal Executive Officer)

(Principal Financial Officer)

Dated:  November 14, 2008