As Filed with the Securities and Exchange Commission on June 14, 2005
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Registration No. 333-123989
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST AMENDMENT
MORGAN CREEK ENERGY CORP.
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Nevada 3663 201777817
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
10120 S. Eastern Avenue, Suite 200
Henderson, NV 89052
(702) 566-1307
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
GRANT ATKINS, CHIEF FINANCIAL OFFICER
10120 S. Eastern Avenue, Suite 200
Henderson, NV 89052
(702) 566-1307
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(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
THE O'NEAL LAW FIRM, P.C.
Attention: William D. O'Neal, Esq.
17100 East Shea Boulevard
Suite 400-D
Fountain Hills, Arizona 85268
(602) 369-2656 (tel)
(480) 816-9241(fax)
Approximate date of proposed sale to the public: From time to time after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of Securities to be Amount to be Proposed maximum offering Proposed maximum aggregate Amount of
Registered (1) registered price per share (3) offering registration
price (US $) Fee (2)
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Common stock to be Offered
for resale by selling
stockholders 4,167,700 $0.50 $2,083,850 $264.02
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Total Registration Fee $264.02
(1) In the event of a stock split, stock dividend, or similar transaction
involving our common stock, the number of shares registered shall automatically
be increased to cover the additional shares of common stock issuable pursuant to
Rule 416 under the Securities Act of 1933, as amended.
(2) Fee calculated in accordance with Rule 457(c) of the Securities Act.
Estimated for the sole purpose of calculating the registration fee.
(3) Fixed offering price was set by the selling shareholders until securities
are quoted on the OTC Bulletin Board or other national exchange, and thereafter
at prevailing market prices or privately negotiated prices. There can be no
assurance that our shares will be approved for listing on the OTC Bulletin
Board.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON THE
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SHAREHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SEC IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
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SUBJECT TO COMPLETION, DATED JUNE 9, 2005
MORGAN CREEK ENERGY CORP.
A NEVADA CORPORATION
RELATING TO THE RESALE OF UP TO 4,167,700 SHARES OF
MORGAN CREEK ENERGY CORP. COMMON STOCK
The prospectus and the registration statement, of which it is a part, are being
filed with the SEC to satisfy our obligations to the recipients of certain
shares of common stock (the "Selling Shareholders") of Morgan Creek Energy Corp.
Accordingly, the prospectus and the registration statement cover the resale by
certain Selling Shareholders of 4,167,700 shares of our common stock which were
issued from November, 2004 through March, 2005 in connection with private
placements;
There is currently no public market for our shares.
The sales price to the public was set by the selling shareholders at $0.50 per
share for a total of $2,083,850. The price of $0.50 per share is a fixed price
until the shares are listed on the OTC Bulletin Board or other national
exchange, and thereafter at prevailing market prices or privately negotiated
prices. There can be no assurance that our shares will be approved for listing
on the OTC Bulletin Board.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is June 9, 2005.
Dealer Prospectus Delivery Obligation
Until 90 days from the effective date of this Registration Statement, all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealer's obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
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TABLE OF CONTENTS
PAGE NUMBER
PROSPECTUS SUMMARY ...................................................... 5
RISK FACTORS ............................................................ 8
RISKS RELATED TO THIS OFFERING AND OUR COMMON STOCK ..................... 8
RISKS RELATING TO OUR BUSINESS .......................................... 8
FORWARD-LOOKING STATEMENTS ............................................. 18
USE OF PROCEEDS ........................................................ 18
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ............... 18
DIVIDEND POLICY ........................................................ 19
MANAGEMENT'S DISCUSSION AND ANALYSIS ................................... 19
DESCRIPTION OF BUSINESS ................................................ 26
LEGAL PROCEEDINGS ...................................................... 32
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS ........... 32
EXECUTIVE COMPENSATION ................................................. 34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......................... 35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ......... 35
DESCRIPTION OF COMMON STOCK ............................................ 36
PLAN OF DISTRIBUTION ................................................... 37
SELLING SHAREHOLDERS ................................................... 39
LEGAL MATTERS .......................................................... 40
TRANSFER AGENT ......................................................... 40
EXPERTS ................................................................ 40
INTEREST OF NAMED EXPERTS .............................................. 41
DISCLOSURE OF SEC POSITION OF INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES ...................................................... 41
WHERE YOU CAN FIND MORE INFORMATION .................................... 41
FINANCIAL STATEMENTS ................................................... 43
INDEMNIFICATION OF DIRECTORS AND OFFICERS .............................. 65
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION ............................ 66
RECENT SALES OF UNREGISTERED SECURITIES ................................ 66
EXHIBITS ............................................................... 67
UNDERTAKINGS ........................................................... 67
SIGNATURES ............................................................. 68
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ABOUT THIS PROSPECTUS
This prospectus is part of a resale registration statement. The selling
shareholders ("Selling Shareholders") may sell some or all of their shares in
transactions from time to time.
You should rely only on the information contained or incorporated by reference
in this prospectus. We have not authorized anyone else to provide you with
different information. If anyone provides you with different information, you
should not rely upon it. You should assume that the information appearing in
this prospectus, as well as the information we file with the Securities and
Exchange Commission ("SEC") and incorporate by reference in this prospectus is
accurate only as of the date of the documents containing the information. As
used in this prospectus, the terms "we", "us", "our", the "Company", and "Morgan
Creek Energy Corp." All dollar amounts refer to United States dollars unless
otherwise indicated.
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "Risk
Factors" section, the financial statements and the notes to the financial
statements.
GENERAL
Morgan Creek Energy Corp. was incorporated under the laws of the State of Nevada
on October 19, 2004 and has been engaged in the business of exploration of oil
and gas bearing properties in the United States since its inception.
Our executive offices are located at 10120 S. Eastern Avenue, Suite 200,
Henderson, NV 89052, and our telephone number is (702) 566-1307.
OUR BUSINESS
We are a natural resource exploration and production company currently engaged
in the exploration, acquisition and development of oil and gas properties in the
United States. During fiscal 2004, we consummated the acquisition of prospects
in the Arkoma Basin in the State of Oklahoma, including a 75% working interest
and a 56.25% net revenue interest in approximately 560 gross acres of two (2)
petroleum and natural gas leases (the "Hurley Lease" and the "Chapman Lease"
collectively referred to as the "Leases"). We plan to enter certain wellbores on
the subject leases to test certain target zones thought to contain coal bed
methane ("CBM") gas, and if testing provides evidence of gas quality and
sufficient production quantities, the Company plans to raise capital to
undertake a drilling program to establish up to six wells, and production
infrastructure and pipeline.
THE OFFERING
The prospectus and the registration statement, of which it is a part, are being
filed with the SEC to satisfy our obligations to the recipients of certain
shares of common stock (the "Selling Shareholders") of Morgan Creek Energy Corp.
Accordingly, the prospectus and the registration statement cover the resale by
certain Selling Shareholders of 4,167,700 shares of our common stock which were
issued from November, 2004 through March, 2005 in connection with private
placements solely to foreign investors;
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PROSPECTUS SUMMARY - continued
The sales price to the public was set by the selling shareholders at $0.50 per
share for a total of $2,083,850. The price of $0.50 per share is a fixed price
until the shares are listed on the OTC Bulletin Board or other national
exchange, and thereafter at prevailing market prices or privately negotiated
prices. There can be no assurance that our shares will be approved for listing
on the OTC Bulletin Board.
See "Plan of Distribution" on page 31 for a further description of how the
Selling Shareholders may dispose of the shares covered by this prospectus.
NUMBER OF SHARES OUTSTANDING
There were 10,167,700 shares of our common stock issued and outstanding as at
March 31, 2005.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of our
common stock being offered for sale by the Selling Shareholders. We will incur
all costs associated with this prospectus and related registration statement.
SUMMARY OF FINANCIAL DATA
The summarized consolidated financial data set forth in the table below is
derived from and should be read in conjunction with our audited consolidated
financial statements for the period from inception to the year ended December
31, 2004, and our interim consolidated financial statements for the period
ending March 31, 2005, including the notes to those financial statements which
are included elsewhere in this prospectus.
FOR THE PERIOD FROM INCEPTION
OCTOBER 19, 2004 (INCEPTION) TO
DECEMBER 31, 2004
INCOME STATEMENT
Revenues $ 0
Oil and Gas Revenue $ 0
Depletion $ 0
Operating costs and taxes $ 0
Operating Income $ 0
General and Administrative $ 23,729
Interest Expense $ 0
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Net Loss for the Period $ 23,729
BALANCE SHEET
Working Capital $ 350,121
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Total Assets $ 670,499
Total Number of Shares of Common Stock
Outstanding 10,097,700
Deficit $ 623,729
Total Stockholders Equity $ 650,121
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FOR THE PERIOD FROM JANUARY 1, 2005 TO
MARCH 31, 2005
INCOME STATEMENT
Revenues $ 0
Oil and Gas Revenue $ 0
Depletion 0
Operating costs and taxes $ 0
Operating Income $ 0
General and Administrative $ 274,442
Interest Expense $ 0
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Net Loss for the Period $ 274,442
BALANCE SHEET
Working Capital $ 410,679
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Total Assets $ 425,923
Total Number of Shares of Common Stock
Outstanding 10,167,000
Deficit $ 898,171
Total Stockholders Equity $ 425,923
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RISK FACTORS
An investment in our common stock involves a number of very significant risks.
You should carefully consider the following risks and uncertainties in addition
to other information in this prospectus in evaluating our company and its
business before purchasing shares of our common stock. Our business, operating
results and financial condition could be seriously harmed due to any of the
following risks. The risks described below are all of the material risks that we
are currently aware of that are facing our company. You could lose all or part
of your investment due to any of these risks.
RISKS RELATED TO THIS OFFERING AND OUR COMMON STOCK
SALES OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK INTO THE PUBLIC
MARKET BY THE SELLING STOCKHOLDERS MAY RESULT IN SIGNIFICANT DOWNWARD PRESSURE
ON THE PRICE OF OUR COMMON STOCK AND COULD AFFECT THE ABILITY OF OUR
STOCKHOLDERS TO REALIZE THE CURRENT TRADING PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock in the public market
could cause a reduction in the market price of our common stock. We had
10,167,700 shares of common stock issued and outstanding as of March 31, 2005.
When this registration statement is declared effective, the Selling Stockholders
will be able to resell up to 4,167,700 shares of our common stock. As a result,
a substantial number of our shares of common stock may be issued and may be
available for immediate resale, which could have an adverse effect on the price
of our common stock. As a result of any such decreases in price of our common
stock, purchasers who acquire shares from the Selling Stockholders may lose some
or all of their investment.
As of March 31, 2005, there are 10,167,700 outstanding shares of our common
stock that are restricted securities as that term is defined in Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"). Although the
Securities Act and Rule 144 place certain prohibitions on the sale of restricted
securities, restricted securities may be sold into the public market under
certain conditions. Currently there are no shares of our common stock eligible
for resale pursuant to Rule 144.
Any significant downward pressure on the price of our common stock as the
selling stockholders sell their shares of our common stock could encourage short
sales by the selling stockholders or others. Any such short sales could place
further downward pressure on the price of our common stock.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY.
In considering whether to invest in our common stock, you should consider that
there is only limited historical financial and operating information available
on which to base your evaluation of our performance. Our inception was October
19, 2004 and, as a result, we have a limited operating history.
WE HAVE A HISTORY OF OPERATING LOSSES AND THERE CAN BE NO ASSURANCES WE WILL BE
PROFITABLE IN THE FUTURE.
We have a history of operating losses, expect to continue to incur losses, and
may never be profitable, and we must be considered to be in the exploration
stage. Further, we have been dependent on sales of our equity securities and
debt financing to meet our cash requirements. We have incurred losses totaling
approximately $298,171 from October 19, 2004 (inception) to March 31, 2005.
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RISKS RELATED TO OUR BUSINESS - continued
As of March 31, 2005, we had an accumulated deficit of $898,171. Further, we do
not expect positive cash flow from operations in the near term. There is no
assurance that actual cash requirements will not exceed our estimates. In
particular, additional capital may be required in the event that:
- - the costs to acquire additional leases are more than we currently anticipate;
- - drilling and completion costs for additional wells increase beyond our
expectations; or
- - we encounter greater costs associated with general and administrative expenses
or offering costs.
Our development of and participation in what could evolve into an increasing
number of oil and gas prospects may require substantial capital expenditures.
The uncertainty and factors described throughout this section may impede our
ability to economically find, develop, produce, and acquire natural gas and oil
reserves. As a result, we may not be able to achieve or sustain profitability or
positive cash flows from operating activities in the future.
WE HAVE RECEIVED A GOING CONCERN OPINION FROM OUR INDEPENDENT AUDITORS REPORT
ACCOMPANYING OUR March 31, 2005 CONSOLIDATED FINANCIAL STATEMENTS.
The independent auditor's report accompanying our March 31, 2005 consolidated
financial statements contains an explanatory paragraph expressing substantial
doubt about our ability to continue as a going concern. The consolidated
financial statements have been prepared "assuming that the Company will continue
as a going concern." Our ability to continue as a going concern is dependent on
raising additional capital to fund our operations and ultimately on generating
future profitable operations. There can be no assurance that we will be able to
raise sufficient additional capital or eventually have positive cash flow from
operations to address all of our cash flow needs. If we are not able to find
alternative sources of cash or generate positive cash flow from operations, our
business and shareholders will be materially and adversely affected.
WE WILL REQUIRE ADDITIONAL FUNDING IN THE FUTURE.
Based upon our historical losses from operations, we will require additional
funding in the future. If we cannot obtain capital through financings or
otherwise, our ability to execute our development plans and achieve production
levels will be greatly limited. Our current development plans require us to make
capital expenditures for the exploration and development of our oil and natural
gas properties. Historically, we have funded our operations through the issuance
of equity. We may not be able to obtain additional financing on favorable terms,
if at all. Our future cash flows and the availability of financing will be
subject to a number of variables, including potential production and the market
prices of oil and natural gas. Further, debt financing, if utilized, could lead
to a diversion of cash flow to satisfy debt-servicing obligations and create
restrictions on business operations. If we are unable to raise additional funds,
it would have a material adverse effect upon our operations.
OUR ACQUISITIONS MAY NOT BE SUCCESSFUL.
As part of our growth strategy, we intend to acquire additional oil and gas
production properties. Current and subsequent acquisitions may pose substantial
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RISKS RELATED TO OUR BUSINESS - continued
risks to our business, financial condition, and results of operations. In
pursuing acquisitions, we will compete with other companies, many of which have
greater financial and other resources to acquire attractive properties. Even if
we are successful in acquiring additional properties, some of the properties may
not produce revenues at anticipated levels or failure to conduct drilling on
prospects within specified time periods may cause the forfeiture of the lease in
that prospect. There can be no assurance that we will be able to successfully
integrate acquired properties, which could result in substantial costs and
delays or other operational, technical, or financial problems. Further,
acquisitions could disrupt ongoing business operations. If any of these events
occur, it would have a material adverse effect upon our operations and results
from operations.
OUR DRILLING OPERATIONS MAY NOT BE SUCCESSFUL.
We intend to test certain zones in wellbores already drilled on certain of the
properties and if results are positive and capital is available, drill
additional wells and begin production operations from existing and new wells.
There can be no assurance that our current well re-completion activities or
future drilling activities will be successful, and we cannot be sure that our
overall drilling success rate or our production operations within a particular
area will ever come to fruition, and if it does, will not decline over time. We
may not recover all or any portion of our capital investment in the wells or the
underlying leaseholds. Unsuccessful drilling activities would have a material
adverse effect upon our results of operations and financial condition. The cost
of drilling, completing, and operating wells is often uncertain, and a number of
factors can delay or prevent drilling operations including: (i) unexpected
drilling conditions; (ii) pressure or irregularities in geological formations;
(iii) equipment failures or accidents; (iv) adverse weather conditions; and (iv)
shortages or delays in availability of drilling rigs and delivery of equipment.
OUR PRODUCTION INITIATIVES MAY NOT PROVE SUCCESSFUL.
The coal beds in the Arkoma Basin in the State of Oklahoma from which we intend
to produce methane gas frequently contain water, which may hamper our ability to
produce gas in commercial quantities. The amount of coal bed methane that can be
commercially produced depends upon the coal quality, the original gas content of
the coal seam, the thickness of the seam, the reservoir pressure, the rate at
which gas is released from the coal, and the existence of any natural fractures
through which the gas can flow to the well bore. However, coal beds frequently
contain water that must be removed in order for the gas to detach from the coal
and flow to the well bore. The average life of a coal bed well is only five to
six years. Our ability to remove and dispose of sufficient quantities of water
from the coal seam will determine whether or not we can produce coal bed methane
in commercial quantities.
There is no guarantee that the potential drilling locations that we have or
acquire in the future will ever produce natural gas or oil, which could have a
material adverse effect upon our results of operations.
WE ARE A NEW ENTRANT INTO THE OIL AND GAS INDUSTRY WITHOUT PROFITABLE OPERATING
HISTORY AND NO PROVED DEVELOPED PRODUCING RESERVES.
Since October 19, 2004 (inception), our activities have been limited to
organizational efforts, obtaining working capital and acquiring a very limited
number of properties. As a result, there is limited information regarding
property related production potential or revenue generation. Further, a Reserve
and Economic Evaluation letter dated December 21, 2004 prepared by Fletcher
10
RISKS RELATED TO OUR BUSINESS - continued
Lewis Engineering, Inc. provides information relating to work to be conducted on
the Company's Chapman lease and the fact that the lease has had no proved
developed producing reserves. As a result, our future revenues may be limited or
non-existent. Below is a summary of the key points addressed in the
above-referenced letter from Fletcher Lewis Engineering, Inc.:
o Henryetta Coal located throughout the leases at approximately 1701 feet
deep and a thickness of approximately 2 to 3 feet
o Henryetta Coal is stratigraphically equivalent to the Croweburg Coal
o Croweburg Coal successfully completed 60 miles northeast of this location
o Croweburg Coal is typically 1.5 to 3 feet thick with initial test rates of
30 to 50 mcf per day
o No tests available to confirm whether the Henryetta Coal will be productive
o Recompletion cost of $50,000 w/o frac makes Chapman 2B ideal to test
productive capability of Henryetta Coal
o Insufficient data exists regarding potential of deeper rights
PROSPECTS THAT WE DECIDE TO DRILL MAY NOT YIELD NATURAL GAS OR OIL IN
COMMERCIALLY VIABLE QUANTITIES.
We describe some of our current prospects in this prospectus. Our prospects are
in various stages of preliminary evaluation and assessment and we have not
reached the point where we will decide to drill at all on the subject prospects.
However, the use of seismic data, historical drilling logs, offsetting well
information, and other technologies and the study of producing fields in the
same area will not enable us to know conclusively prior to drilling and testing
whether natural gas or oil will be present or, if present, whether natural gas
or oil will be present in sufficient quantities or quality to recover drilling
or completion costs or to be economically viable. In sum, the cost of drilling,
completing and operating any wells is often uncertain and new wells may not be
productive.
WE MAY BE UNABLE TO IDENTIFY LIABILITIES ASSOCIATED WITH THE PROPERTIES OR
OBTAIN PROTECTION FROM SELLERS AGAINST THEM.
One of our growth strategies is to capitalize on opportunistic acquisitions of
oil and natural gas reserves. However, our reviews of acquired properties are
inherently incomplete because it generally is not feasible to review in depth
every individual property involved in each acquisition. A detailed review of
records and properties may not necessarily reveal existing or potential
problems, nor will it permit a buyer to become sufficiently familiar with the
properties to assess fully their deficiencies and potential. Further,
environmental problems, such as ground water contamination, are not necessarily
observable even when an inspection is undertaken. We may not be able to obtain
indemnification or other protections from the sellers against such potential
liabilities, which would have a material adverse effect upon our results of
operations.
THE POTENTIAL PROFITABILITY OF OIL AND GAS VENTURES DEPENDS UPON GLOBAL
POLITICAL AND MARKET RELATED FACTORS BEYOND THE CONTROL OF OUR COMPANY
World prices and markets for oil and gas are unpredictable, highly volatile,
potentially subject to governmental fixing, pegging, controls, or any
combination of these and other factors, and respond to changes in domestic,
international, political, social, and economic environments. Additionally, due
to worldwide economic uncertainty, the availability and cost of funds for
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RISKS RELATED TO OUR BUSINESS - continued
production and other expenses have become increasingly difficult, if not
impossible, to project. These and other changes and events may materially affect
our financial performance. The potential profitability of oil and gas properties
is dependent on these and other factors beyond our control.
PRODUCTION OF OIL AND GAS RESOURCES IF FOUND ARE DEPENDENT ON NUMEROUS
OPERATIONAL UNCERTAINTIES SPECIFIC TO THE AREA OF THE RESOURCE THAT AFFECT ITS
PROFITABLITY
Production area specifics affect profitability. Adverse weather conditions can
hinder drilling operations and ongoing production work. A productive well may
become uneconomic in the event water or other deleterious substances are
encountered which impair or prevent the production of oil and/or gas from the
well. Production and treatments on other wells in the area can have either
appositive or negative effect on Company's production and wells. In addition,
production from any well may be unmarketable if it is impregnated with water or
other deleterious substances. The content of hydrocarbons is subject to change
over the life of producing wells. The marketability of oil and gas from any
specific reserve which may be acquired or discovered will be affected by
numerous factors beyond our control. These factors include, but are not limited
to, the proximity and capacity of oil and gas pipelines, availability of room in
the pipelines to accommodate additional production, processing and production
equipment operating costs and equipment efficiency, market fluctuations of
prices and oil and gas marketing relationships, local and state taxes, mineral
owner and other royalties, land tenure, lease bonus costs and lease damage
costs, allowable production, and environmental protection. These factors cannot
be accurately predicted and the combination of these factors may result in us
not receiving an adequate return on our invested capital.
IF PRODUCTION RESULTS FROM OPERATIONS WE ARE DEPENDENT UPON TRANSPORTATION AND
STORAGE SERVICES PROVIDED BY THIRD PARTIES.
We will be dependent on the transportation and storage services offered by
various interstate and intrastate pipeline companies for the delivery and sale
of our gas supplies. Both the performance of transportation and storage services
by interstate pipelines and the rates charged for such services are subject to
the jurisdiction of the Federal Energy Regulatory Commission or state regulatory
agencies. An inability to obtain transportation and/or storage services at
competitive rates could hinder our processing and marketing operations and/or
affect our sales margins.
OUR RESULTS OF OPERATIONS ARE DEPENDENT UPON MARKET PRICES FOR OIL AND NATURAL
GAS, WHICH FLUCTUATE WIDELY AND ARE BEYOND OUR CONTROL.
If and when production from oil and gas properties is reached, our revenue,
profitability, and cash flow depend upon the prices and demand for oil and
natural gas. The markets for these commodities are very volatile and even
relatively modest drops in prices can significantly affect our financial results
and impede our growth. Prices received also will affect the amount of future
cash flow available for capital expenditures and may affect our ability to raise
additional capital. Lower prices may also affect the amount of natural gas and
oil that can be economically produced from reserves either discovered or
acquired.
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RISKS RELATED TO OUR BUSINESS - continued
Factors that can cause price fluctuations include:
o The level of consumer product demand;
o Domestic and foreign governmental regulations;
o The price and availability of alternative fuels;
o Technical advances affecting energy consumption;
o Proximity and capacity of oil and gas pipelines and other transportation
facilities;
o Political conditions in natural gas and oil producing regions;
o The domestic and foreign supply of natural gas and oil;
o The ability of members of Organization of Petroleum Exporting Countries to
agree to and maintain oil price and production controls;
o The price of foreign imports; and
o Overall domestic and global economic conditions.
The availability of a ready market for our oil and gas depends upon numerous
factors beyond our control, including the extent of domestic production and
importation of oil and gas, the relative status of the domestic and
international economies, the proximity of our properties to gas gathering
systems, the capacity of those systems, the marketing of other competitive
fuels, fluctuations in seasonal demand and governmental regulation of
production, refining, transportation and pricing of oil, natural gas and other
fuels.
THE OIL AND GAS INDUSTRY IN WHICH WE OPERATE INVOLVES MANY INDUSTRY RELATED
OPERATING AND IMPLEMETATION RISKS THAT CAN CAUSE SUBSTANTIAL LOSSES.
Our drilling activities are subject to many risks, including the risk that we
will not discover commercially productive reservoirs. Drilling for oil and
natural gas can be unprofitable, not only from dry holes, but from productive
wells that do not produce sufficient revenues to return a profit. In addition,
our drilling and producing operations may be curtailed, delayed or canceled as a
result of other drilling and production, weather and natural disaster, equipment
and service failure, environmental and regulatory, and site specific related
factors, including but not limited to:
o Fires;
o Explosions;
o Blow-outs and surface cratering;
o Uncontrollable flows of underground natural gas, oil, or formation water;
o Natural disasters;
o Facility and equipment failures;
o Title problems;
o Shortages or delivery delays of equipment and services;
o Abnormal pressure formations; and
o Environmental hazards such as natural gas leaks, oil spills, pipeline ruptures
and discharges of toxic gases.
13
RISKS RELATED TO OUR BUSINESS - continued
If any of these events occur, we could incur substantial losses as a result of:
o Injury or loss of life;
o Severe damage to and destruction of property, natural resources or equipment;
o Pollution and other environmental damage;
o Clean-up responsibilities;
o Regulatory investigation and penalties;
o Suspension of our operations; or
o Repairs necessary to resume operations.
If we were to experience any of these problems, it could affect well bores,
gathering systems and processing facilities, any one of which could adversely
affect our ability to conduct operations. We may be affected by any of these
events more than larger companies, since we have limited working capital.
THE OIL AND GAS INDUSTRY IS HIGHLY COMPETITIVE AND THERE IS NO ASSURANCE THAT WE
WILL BE SUCCESSFUL IN ACQUIRING THE LEASES.
The oil and natural gas industry is intensely competitive, and we compete with
other companies that have greater resources. Many of these companies not only
explore for and produce oil and natural gas, but also carry on refining
operations and market petroleum and other products on a regional, national or
worldwide basis. These companies may be able to pay more for productive oil and
natural gas properties and exploratory prospects or define, evaluate, bid for
and purchase a greater number of properties and prospects than our financial or
human resources permit. In addition, these companies may have a greater ability
to continue exploration activities during periods of low oil and natural gas
market prices. Our larger competitors may be able to absorb the burden of
present and future federal, state, local and other laws and regulations more
easily than we can, which would adversely affect our competitive position. Our
ability to acquire additional properties and to discover reserves in the future
will be dependent upon our ability to evaluate and select suitable properties
and to consummate transactions in a highly competitive environment. In addition,
because we have fewer financial and human resources than many companies in our
industry, we may be at a disadvantage in bidding for exploratory prospects and
producing oil and natural gas properties.
THE MARKETABILITY OF NATURAL RESOURCES WILL BE AFFECTED BY NUMEROUS FACTORS
BEYOND OUR CONTROL WHICH MAY RESULT IN US NOT RECEIVING AN ADEQUATE RETURN ON
INVESTED CAPITAL TO BE PROFITABLE OR VIABLE.
The marketability of natural resources which may be acquired or discovered by us
will be affected by numerous factors beyond our control. These factors include
market fluctuations in oil and gas pricing and demand, the proximity and
capacity of natural resource markets and processing equipment, governmental
regulations, land tenure, land use, regulation concerning the importing and
exporting of oil and gas and environmental protection regulations. The exact
effect of these factors cannot be accurately predicted, but the combination of
these factors may result in us not receiving an adequate return on invested
capital to be profitable or viable.
OIL AND GAS OPERATIONS 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.
Oil and gas operations are subject to federal, state, and 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.
14
RISKS RELATED TO OUR BUSINESS - continued
Oil and gas operations are also subject to federal, state, and 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 federal, provincial, or 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 material amounts 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.
In general, our exploration and production activities are subject to certain
federal, state and local laws and regulations relating to environmental quality
and pollution control. Such laws and regulations increase the costs of these
activities and may prevent or delay the commencement or continuance of a given
operation. Compliance with these laws and regulations has not had a material
effect on our operations or financial condition to date. Specifically, we are
subject to legislation regarding emissions into the environment, water
discharges and storage and disposition of hazardous wastes. In addition,
legislation has been enacted which requires well and facility sites to be
abandoned and reclaimed to the satisfaction of state authorities. However, such
laws and regulations are frequently changed and we are unable to predict the
ultimate cost of compliance. Generally, environmental requirements do not appear
to affect us any differently or to any greater or lesser extent than other
companies in the industry.
We believe that our operations comply, in all material respects, with all
applicable environmental regulations. However, the Company carries no insurance
coverage for its business operations or against all possible environmental
risks. The Company does not believe that it requires insurance for its current
for its current business operations. For any work to be conducted on lease
properties of the Company, the Company will utilize contract operators that
carry insurance in amounts standard with industry accepted requirements pursuant
to the scale and scope of operations. Once business operations have advanced to
a point that requires insurance by the Company directly, the Company will seek
insurance coverage in amounts required for standard industry perils in the scale
and scope required in the circumstances
ANY CHANGE TO GOVERNMENT REGULATION/ADMINISTRATIVE PRACTICES MAY HAVE A NEGATIVE
IMPACT ON OUR ABILITY TO OPERATE AND OUR PROFITABILITY.
The laws, regulations, policies or current administrative practices of any
government body, organization or regulatory agency in the United States or any
other jurisdiction, may be changed, applied or interpreted in a manner which
will fundamentally alter our ability to carry on business. The actions, policies
or regulations, or changes thereto, of any government body or regulatory agency,
or other special interest groups, may have a detrimental effect on us. Any or
all of these situations may have a negative impact on our ability to operate
and/or our profitably.
WE MAY BE UNABLE TO RETAIN KEY EMPLOYEES OR CONSULTANTS OR RECRUIT ADDITIONAL
QUALIFIED PERSONNEL.
15
RISKS RELATED TO OUR BUSINESS - continued
Our extremely limited personnel means that we would be required to spend
significant sums of money to locate and train new employees in the event any of
our employees resign or terminate their employment with us for any reason. Due
to our limited operating history and financial resources, we are entirely
dependent on the continued service of Douglas Humphreys, Chief Executive
Officer, and Grant Atkins, Chief Financial Officer. Further, we do not have key
man life insurance on either of these individuals. We may not have the financial
resources to hire a replacement if one or both of our officers were to die. The
loss of service of either of these employees could therefore significantly and
adversely affect our operations.
OUR OFFICERS AND DIRECTORS MAY BE SUBJECT TO CONFLICTS OF INTEREST.
Our officers and directors serve only part time and are subject to conflicts of
interest. Each of our executive officers and directors serves only on a part
time basis. Each devotes part of his working time to other business endeavors,
including consulting relationships with other oil and gas entities, and has
responsibilities to these other entities. Such conflicts include deciding how
much time to devote to our affairs, as well as what business opportunities
should be presented to the company. Because of these relationships, our officers
and directors will be subject to conflicts of interest. Currently, we have no
policy in place to address such conflicts of interest.
ONE OF OUR SHAREHOLDERS MAY EXERCISE VOTING POWER OF MORE THAN 50% OF OUR COMMON
STOCK.
Geneva Energy Corp. ("Geneva) owns 6,000,000 shares of our common stock, or
59.0% of our outstanding common stock as of March 31, 2005. Due to its stock
ownership, Geneva may be in a position to elect the board of directors and,
therefore, to control our business and affairs including certain significant
corporate actions such as acquisitions, the sale or purchase of assets, and the
issuance and sale of our securities. Further, Geneva may be able to prevent or
cause a change in control. We also may be prevented from entering into
transactions that could be beneficial to us without Geneva's consent. The
interest of our largest shareholder may differ from the interests of other
shareholders.
ADDITIONAL ISSUANCES OF EQUITY SECURITIES MAY RESULT IN DILUTION TO OUR EXISTING
STOCKHOLDERS.
Our Articles of Incorporation authorize the issuance of 100,000,000 shares of
common stock. Common stock is our only authorized class of stock. The board of
directors has the authority to issue additional shares of our capital stock to
provide additional financing in the future and the issuance of any such shares
may result in a reduction of the book value or market price of the outstanding
shares of our common stock. If we do issue any such additional shares, such
issuance also will cause a reduction in the proportionate ownership and voting
power of all other stockholders. As a result of such dilution, if you acquire
shares of our common stock from the Selling Shareholders, your proportionate
ownership interest and voting power will be decreased accordingly. Further, any
such issuance could result in a change of control.
OUR COMMON STOCK IS CLASSIFIED AS A "PENNY STOCK" UNDER SEC RULES WHICH LIMITS
THE MARKET FOR OUR COMMON STOCK.
The SEC has adopted rules that regulate broker-dealer practices in connection
with transactions in "penny stocks." Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities registered on
16
RISKS RELATED TO OUR BUSINESS - continued
certain national securities exchanges or quoted on the NASDAQ system, provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system). Penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
those rules, to deliver a standardized risk disclosure document prepared by the
SEC, which specifies information about penny stocks and the nature and
significance of risks of the penny stock market. A broker-dealer must also
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer, and sales person in the transaction, and
monthly account statements indicating the market value of each penny stock held
in the customer's account. In addition, the penny stock rules require that,
prior to a transaction in a penny stock not otherwise exempt from those rules,
the broker-dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the trading activity in the secondary market for stock that becomes
subject to those penny stock rules. If a trading market for our common stock
develops, our common stock will probably become subject to the penny stock
rules, and shareholders may have difficulty in selling their shares.
A MAJORITY OF OUR DIRECTORS AND OFFICERS ARE 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 majority of our directors and officers are nationals and/or residents of
countries other than the United States, and all or a substantial portion of such
persons' assets are located outside the United States. As a result, it may be
difficult for investors to effect service of process on our directors or
officers, or enforce within the United States or Canada 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 U.S. federal securities laws against them. In addition, investors
may not be able to commence an action in a Canadian court predicated upon the
civil liability provisions of the securities laws of the United States. The
foregoing risks also apply to those experts identified in this prospectus that
are not residents of the United States.
NEVADA LAW AND OUR ARTICLES OF INCORPORATION MAY PROTECT OUR DIRECTORS FROM
CERTAIN TYPES OF LAWSUITS.
Nevada law provides that our officers and directors will not be liable to us or
our stockholders for monetary damages for all but certain types of conduct as
officers and directors. Our Bylaws permit us broad indemnification powers to all
persons against all damages incurred in connection with our business to the
fullest extent provided or allowed by law. The exculpation provisions may have
the effect of preventing stockholders from recovering damages against our
officers and directors caused by their negligence, poor judgment or other
circumstances. The indemnification provisions may require us to use our limited
assets to defend our officers and directors against claims, including claims
arising out of their negligence, poor judgment, or other circumstances.
17
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements," as that term is used in
federal securities laws, about our financial condition, results of operations
and business. These statements include, among others:
o statements concerning the benefits that we expect will result from our
business activities and certain transactions that we have completed, such as
increased revenues, decreased expenses and avoided expenses and expenditures;
and
o statements of our expectations, beliefs, future plans and strategies,
anticipated developments and other matters that are not historical facts.
These statements may be made expressly in this document or may be incorporated
by reference to documents that we will file with the SEC. You can find many of
these statements by looking for words such as "believes," "expects,"
"anticipates," "estimates" or similar expressions used in this prospectus. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks in the section 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. We caution you not to put undue reliance on
these statements, which speak only as of the date of this Prospectus. Further,
the information contained in this prospectus or incorporated herein by reference
is a statement of our present intention and is based on present facts and
assumptions, and may change at any time and without notice, based on changes in
such facts or assumptions.
While these forward-looking statements, and any assumptions upon which they are
based, are made in good faith and reflect our current judgment regarding the
direction of our business, actual results will almost always vary, sometimes
materially, from any estimates, predictions, projections, assumptions or other
future performance suggested herein. 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. The safe harbor for forward-looking statements provided in the Private
Securities Litigation Reform Act of 1995 does not apply to the offering made in
this prospectus.
USE OF PROCEEDS
The shares of common stock offered hereby are being registered for the account
of the Selling Shareholders named in this prospectus. As a result, all proceeds
from the sales of the common stock will go to the Selling Shareholders and we
will not receive any proceeds from the resale of the common stock by the selling
stockholders. We will, however, incur all costs associated with this prospectus
and related registration statement.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is not listed on any exchange and there is no public trading
market for the common stock.
As of March 31, 2005, we had 49 shareholders of record. We have no outstanding
warrants or options to purchase our securities.
18
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - continued
Shares Eligible for Future Sale.
Upon completion of the offering, we will have 10,167,700 shares of common stock
outstanding. A current shareholder who is an "affiliate" of Morgan Creek,
defined in Rule 144 as a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
Morgan Creek, will be required to comply with the resale limitations of Rule
144.
Purchasers of shares in the offering, other than affiliates, may resell their
shares immediately. Sales by affiliates will be subject to the volume and other
limitations of Rule 144, including certain restrictions regarding the manner of
sale, notice requirements, and the availability of current public information
about Morgan Creek. The volume limitations generally permit an affiliate to
sell, within any three month period, a number of shares that does not exceed the
greater of one percent of the outstanding shares of common stock or the average
weekly trading volume during the four calendar weeks preceding his sale. A
person who ceases to be an affiliate at least three months before the sale of
restricted securities beneficially owned for at least two years may sell the
restricted securities under Rule 144 without regard to any of the Rule 144
limitations.
DIVIDEND POLICY
No dividends have ever been declared by the Board of Directors on our common
stock. Our losses do not currently indicate the ability to pay any cash
dividends, and we do not indicate the intention of paying cash dividends either
on our common stock in the foreseeable future.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS
We have no equity compensation plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with our consolidated
audited financial statements and the related notes that appear elsewhere in this
registration statement. The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in the forward looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below and elsewhere in this registration statement,
particularly in the section entitled "Risk Factors" beginning on page 7 of this
registration statement. Our consolidated audited financial statements are stated
in United States Dollars and are prepared in accordance with United States
Generally Accepted Accounting Principles.
PLAN OF OPERATION
We are a natural resource exploration and production company engaged in the
exploration, acquisition and development of oil and gas properties in the United
States. We currently have an aggregate of approximately 560 gross undeveloped
acres pursuant to leases held. Our strategy is to complete the further
acquisition of additional coal bed methane prospects that fall within the
criteria of providing a geological basis for development of drilling initiatives
that can provide near term revenue potential and fast drilling capital
repatriation from production cash flows while expanding reserves. We anticipate
that our ongoing efforts, subject to adequate funding being available, will
continue to be focused on successfully concluding negotiations for additional
tracts of prime acreage in the coal bed methane and other gas producing domains,
and to implement the drilling of new wells to develop reserves and to provide
revenues. We plan to continue building and increasing a strategic base of proven
reserves and production base within Oklahoma's Arkoma Basin.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
Currently our six month operating plans are to enter certain well bores on our
subject leases to test certain target zones thought to contain coal bed methane
("CBM") gas, and conduct further geological and engineering studies of our
subject properties to provide evidence of gas quality. The Company currently has
the financial resources to complete the first phase of testing planned for its
prospective gas bearing leases and to cover other estimated costs during the
next six months. In addition, the Company has capital resources in place for
other anticipated administrative and other costs for a total of 12 months.
Our ability to continue to expand land acquisitions and explore drilling
opportunities after the next 6 months of operation is dependent on adequate
capital resources being available and further sources of debt and equity being
obtained with the following two alternatives providing the basis for business
development options: a) Development of Current Lease Alternative - The
requirement to raise further funding for oil and gas exploration beyond that
obtained for the next six month period depends on the outcome of geological and
engineering testing occurring over this interval. Subsequent to the completion
of current property evaluations, and if the results provide the basis to
continue to develop the properties, and geological studies indicate high
probabilities of sufficient production quantities, the Company will attempt to
raise capital to undertake a drilling program to establish up to six wells on
leases in hand, and build production infrastructure and pipeline, and to further
raise additional capital to allow this drilling and further land acquisitions.
b) New Lease Acqusition and Development Alternative - If gas quality and
quantities are not deemed sufficient from work to be conducted on our current
leases during the first six months of operation, additional land acquisitions
will be assessed and obtained subject to adequate capital resources being
available and further sources of debt and equity being obtained. The following
outlines anticipated activities pursuant to both of the above mentioned
alternatives and include estimated time frames and costs.
a) Development of Current Lease Alternative:
20
MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
- --------------------------------------------------------------------------------------------------
Activity Time Frame To Estimated Costs
Complete in Months
- --------------------------------------------------------------------------------------------------
Site preparation for entry into current wellbores including
of roadway upgrade and operations site, design, review, and
finalize testing procedures, book zone fracture and testing
consultants, arrange equipment required 3 10,000
- --------------------------------------------------------------------------------------------------
Pull old well tubing tubing, run test tools in wellbore, cut
well casing, test target gas zones with acid and water 0.5 15,000
- --------------------------------------------------------------------------------------------------
If gas content conducive to production, complete well by
inserting downhole pump and rods, set pumping unit,
wellhead, and gas line 1 20,000
- --------------------------------------------------------------------------------------------------
Complete pipeline 1 5,000
- --------------------------------------------------------------------------------------------------
Create well development model and investment documents to
develop 6 wells on subject leases including funding plan
- --------------------------------------------------------------------------------------------------
Create investor communications materials, corporate
identity 2 prepaid
- --------------------------------------------------------------------------------------------------
Raise funding for well development, 3
- --------------------------------------------------------------------------------------------------
Drill, complete, and produce from 6 well drilling program 7 2,250,000
(Company's 75% working interest)
- --------------------------------------------------------------------------------------------------
Target further leases for exploration potential and 3 Dependent on
obtain further funding to acquire new development targets scale and scope
of acquisition
- --------------------------------------------------------------------------------------------------
b) New Lease Acqusition and Development Alternative
- --------------------------------------------------------------------------------------------------
Site preparation for entry into current wellbores including 3 10,000
of roadway upgrade and operations site, design, review, and
finalize testing procedures, book zone fracture and testing
consultants, arrange equipment required
- --------------------------------------------------------------------------------------------------
Pull old well tubing tubing, run test tools in wellbore, cut 0.5 15,000
well casing, test target gas zones with acid and water,
- --------------------------------------------------------------------------------------------------
Dependent on
If gas content not deemed conducive to production, target 3-9 scale and scope
further leases for exploration potential and obtain of acquisition
further funding to acquire new development targets
- --------------------------------------------------------------------------------------------------
21
MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
We will require additional funding to implement our plan of operations. We
anticipate that these funds primarily will be raised through equity and debt
financing or from other available sources of financing. If we raise additional
funds through the issuance of equity or convertible debt securities, it may
result in the dilution in the equity ownership of investors in our common stock.
Further, such securities might have rights, preferences or privileges senior to
our common stock. There can be no assurance that additional financing will be
available upon acceptable terms, if at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to take advantage of
prospective new opportunities or acquisitions, which could significantly and
materially restrict our operations.
We do not expect to purchase any significant equipment or increase significantly
the number of our employees during the next 12 months. Our current business
strategy is to obtain resources under contract where possible because management
believes that this strategy, at its current level of development, provides the
best services available in the circumstances, leads to lower overall costs, and
provides the best flexibility for our business operations.
RESULTS OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 19, 2004 (INCEPTION) TO DECEMBER 31, 2004
Our net loss for fiscal year ended December 31, 2004 was approximately
($23,729). During fiscal year ended December 31, 2004, we recorded no income.
During the fiscal year ended December 31, 2004, we recorded operating expenses
of $23,729, consisting primarily of (i) $1,951 in general and administrative
expenses; and (ii) $21,778 in professional fees. General and administrative
expenses generally include corporate overhead, financial and administrative
contracted services and consulting costs.
FOR THE PERIOD FROM JANUARY 1, 2005 TO MARCH 31, 2005
Our net loss for three month period ending March 31, 2005 was approximately
($274,422). During the three month period ending March 31, 2005, we recorded no
income.
During the three month period ending March 31, 2005, we recorded operating
expenses of $274,442, consisting primarily of (i) $251,234 in general and
administrative expenses; and (ii) $23,208 in professional fees. General and
administrative expenses generally include corporate overhead, financial and
administrative contracted services and consulting costs.
LIQUIDITY AND CAPITAL RESOURCES
We have not generated positive cash flows from operating activities. For the
period ended March 31, 2005, net cash flows used in operating activities was
$(279,576) compared to the fiscal year ended December 31, 2004, whereby net cash
flow used in operating activities was $(3,351), consisting primarily of a net
loss of $(23,729) which was offset by an increase in accounts payable and
accrued liabilities of $20,378.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
For the period ending March 31, 2005, net cash flows used in investing
activities was $0 compared to the fiscal year ended December 31, 2004, whereby
net cash flows used in investing activities was $(300,000), which was primarily
the result of the acquisition of our oil and gas properties.
For the period ending March 31, 2005, net cash flow from financing activities
was $35,000 compared to the fiscal year ended December 31, 2004, whereby net
cash flow from financing activities was $673,850 pertaining primarily to
$673,850 received from proceeds on the sale of our common stock.
At March 31, 2005, our current assets were $425,9239, current liabilities were
$15,244, resulting in a working capital surplus of $410,679. We expect that
working capital requirements will continue to be funded through a combination of
our existing funds, cash flow from operations and further issuances of
securities. Our working capital requirements are expected to increase in line
with the growth of our business.
Existing working capital and anticipated cash flow are expected to be adequate
to fund our operations over the next six months. We have no lines of credit or
other bank financing arrangements. Generally, we have financed operations to
date through the proceeds of the private placement of equity and debt
securities. In connection with our business plan, management anticipates
additional increases in operating expenses and capital expenditures relating to:
(i) oil and gas operating properties, (ii) possible drilling initiatives on
current properties and future properties, and (iii) future property
acquisitions. We intend to finance these expenses with further issuances of
securities, debt issuances, and possible revenues from operations. Thereafter,
we expect we will need to raise additional capital and increase its revenues to
meet long-term operating requirements.
Additional issuances of equity or convertible debt securities will result in
dilution to our current shareholders. Further, such securities might have
rights, preferences or privileges senior to our common stock. Additional
financing may not be available upon acceptable terms, or at all. If adequate
funds are not available or are not available on acceptable terms, we may not be
able to take advantage of prospective new business endeavors or opportunities,
which could significantly and materially restrict our business operations.
The Company has an ongoing commitment to pay the costs of registration pursuant
to this registration statement, and management believes it has the capital
resources to meet legal and administrative costs relating to this initiative.
In February, 2005, the Company has paid International Market Trend AG $50,000 to
develop a corporate identity package including logo, trade name, website, and
other administrative identity related items. In February and March of 2005, the
Company paid American News Publishing, Inc. an aggregate of $200,000 for the
development of an investor communications package and deposit on shareholder
communications materials. A further estimated $13,300 has been paid for
administrative expenses including legal, engineering, audit, office, and bank
charges.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
The independent auditors' report accompanying our December 31, 2003 consolidated
financial statements contains an explanatory paragraph expressing substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements have been prepared "assuming that the Company
will continue as a going concern," which contemplates that the Company will
realize its assets and satisfy its liabilities and commitments in the ordinary
course of business, and management believes it will be successful in developing
the company into a going concern. However, given the current risks relating to
the project and current resources of the Company, currently, the Company has a
doubtful status as a going concern.
MATERIAL COMMITMENTS
The Company has no material commitments as at the date of this registration
statement.
PURCHASE OF SIGNIFICANT EQUIPMENT
We do not intend to purchase any significant equipment during the next twelve
months.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2004, the FASB issued EITF No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments
("EITF 03-1"). The objective of EITF 03-1 is to provide guidance for identifying
impaired investments. EITD 03-1 also provides new disclosure requirements for
investments that are deemed to be temporarily impaired. In October 2004, the
FASB delayed the recognition and measurement provisions of EITF 03-1 until
implementation guidance is issued. The disclosure requirements are effective for
annual periods ending after June 15, 2004, and remain in effect. Management
believes that the adoption of EITF 03-1 will not have a material impact on the
Company's financial condition or results of operations.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs ("SFAS 151").
SFAS 151 requires issuers to treat idle facility expense, freight, handling
costs, and wasted material (spoilage) as current-period charges regardless of
whether such charges are considered abnormal. In addition, SFAS 151 requires the
allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. SFAS 151 will be effective for
all inventory costs incurred in fiscal years beginning after June 15, 2005.
Management believes the adoption of this standard will not have a material
impact on the Company's financial position or results of operations.
In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based
Payment ("SFAS 123(R)"), which requires the compensation cost related to
share-based payments, such as stock options and employee stock purchase plans,
be recognized in the financial statements based on the grant-date fair value of
the award. SFAS 123(R) is effective for all interim periods beginning after
December 15, 2005. Management is currently evaluating the impact of this
standard on the Company's financial condition and results of operations.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary
Assets, an amendment of APB Opinion No. 29, Accounting for Non-monetary
Transactions ("SFAS 153") SFAS 153 requires that exchanges of non-monetary
assets are to be measured based on fair value and eliminates the exception for
exchanges of non-monetary, similar productive assets, and adds an exemption for
non-monetary exchanges that do not have commercial substance. SFAS 153 will be
effective for fiscal periods beginning after June 15, 2005. Management does not
24
MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
believe that the adoption of this standard will have a material impact on the
Company's financial condition or results of operations.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements.
ACCOUNTING FOR NATURAL GAS AND OIL PRODUCING ACTIVITIES.
We use the full cost method to account for our natural gas and oil producing
activities. Under this accounting method, we capitalize substantially all of the
costs incurred in connection with the acquisition, development, and exploration
of natural gas and oil reserves in full cost pools maintained by geographic
areas, regardless of whether reserves are actually discovered and apply a
quarterly full cost ceiling test. Adverse changes in conditions (primarily gas
price declines) could result in permanent write-downs in the carrying value of
oil and gas properties as well as non-cash charges to operations, but would not
affect cash flows.
We have adopted the provisions of SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires the fair value of a liability for an asset
retirement obligation to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the related oil and gas
properties. As of December 31, 2004 management has determined that there are no
material asset retirement obligations.
PROPERTY, EQUIPMENT AND DEPRECIATION
The Company follows the full cost method of accounting for its oil and gas
operations whereby all costs related to the acquisition of methane, petroleum,
and natural gas interests are capitalized. Under this method, all productive and
nonproductive costs incurred in connection with the exploration for and
development of oil and gas reserves are capitalized. Such costs include land and
lease acquisition costs, annual carrying charges of non-producing properties,
geological and geophysical costs, costs of drilling and equipping productive and
non-productive wells, and direct exploration salaries and related benefits.
Proceeds from the disposal of oil and gas properties are recorded as a reduction
of the related capitalized costs without recognition of a gain or loss unless
the disposal would result in a change of 20 percent or more in the depletion
rate. The Company currently operates solely in the U.S.A.
Depreciation and depletion of proved oil and gas properties is computed on the
units-of-production method based upon estimates of proved reserves, as
determined by independent consultants, with oil and gas being converted to a
common unit of measure based on their relative energy content.
The costs of acquisition and exploration of unproved oil and gas properties,
including any related capitalized interest expense, are not subject to
depletion, but are assessed for impairment either individually or on an
aggregated basis. The costs of certain unevaluated leasehold acreage are also
not subject to depletion. Costs not subject to depletion are periodically
assessed for possible impairment or reductions in value. If a reduction in value
has occurred, costs subject to depletion are increased or a charge is made
against earnings for those operations where a reserve base is not yet
established.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
Estimated future removal and site restoration costs are provided over the life
of proven reserves on a units-of-production basis. Costs, which include
production equipment removal and environmental remediation, are estimated each
period by management based on current regulations, actual expenses incurred, and
technology and industry standards. The charge is included in the provision for
depletion and depreciation and the actual restoration expenditures are charged
to the accumulated provision amounts as incurred.
The Company applies a ceiling test to capitalized costs which limits such costs
to the aggregate of the estimated present value, using a ten percent discount
rate of the estimated future net revenues from production of proven reserves at
year end at market prices less future production, administrative, financing,
site restoration, and income tax costs plus the lower of cost or estimated
market value of unproved properties. If capitalized costs are determined to
exceed estimated future net revenues, a write-down of carrying value is charged
to depletion in the period.
DESCRIPTION OF BUSINESS
CORPORATE HISTORY
Morgan Creek Energy Corp. was incorporated under the laws of the State of Nevada
On October 19, 2004.
Please note that throughout this report, and unless otherwise noted, the words
"we," "our," "us," the "Company," or "Morgan Creek," refers to Morgan Creek
Energy Corp.
CURRENT BUSINESS OPERATIONS
We are a natural resource exploration and production company currently engaged
in the exploration, acquisition and development of oil and gas properties in the
United States. We have previously acquired a 560 gross acre section of farm-out
acreage in Pittsburg County, Oklahoma for the development and production of coal
bed methane gas consisting of two separate leases known as the Hurley and
Chapman Leases (collectively the "Leases"). The lease is unproved and was
acquired for a cash payment of $300,000 and for the issuance of 6,000,000 shares
at valued at $600,000. The lease is held by production. The term, "held by
production" means that the lease to the Company (as "lessee") for its pro-rata
interest in oil and gas on the property by the mineral owners of the property
(as "lessor") does not end as long as there is current production of oil or gas
resources as demonstrated by recent (within the 12 preceding months) sales of
oil or gas. We currently have an aggregate of approximately 560 gross
undeveloped acres pursuant to leases held and plan to test such leases for the
presence of commercial quantities of coal bed methane gas, and further develop
the acreage into up to six producing wells subject to the outcome of testing
procedures.
Expenditures incurred after December 31, 2005 include a payment of $50,000 to
International Market Trend AG develop a corporate identity package including
logo, trade name, website, and other administrative identity related items,
$200,000 to American News Publishing, Inc. for the development of an investor
communications package and deposit on shareholder communications materials, and
a further estimated $13,300 has been paid for administrative expenses including
legal, engineering, audit, office, and bank charges.
26
DESCRIPTION OF BUSINESS - continued
COAL BED METHANE GAS
Natural gas consists primarily of methane, which is produced when organic
material is physically turned into coal under extreme geologic conditions. When
the coal and methane conversion process occurs such that the resultant coal is
saturated with water and methane is trapped within the coal, the result is "coal
bed methane." Water permeates coal beds and the water pressure traps the gas
within the coal. Because coal has a large and complex internal surface area, it
can store volumes of gas six or seven time as much as a conventional nature gas
reservoir of equal rock volume. Coal bed methane is kept in place usually by the
presence of water. Thus the production of coal bed methane in many cases
requires the dewatering of the coal gas to be extracted. Therefore, in a coal
bed gas well, water is produced in large volumes especially in the early stages
of production. As the amount of water in the coal decreases, gas production
increases.
The United States Geological Survey has estimated coal bed gas resources of at
least 700 trillion cubic feet. About 100 trillion cubic feet of that appears to
be economically recoverable with existing technology. Coal bed gas currently
accounts for about 7.5% of total natural gas production in the United States.
SUMMARY OF TERMS OF LEASES
SW/4 & S/2 SE/4 of Section 25-10N-8E
The Home-Stake Royalty Corporation ........ 682/442
The Home-Stake Oil & Gas Company .......... 682/444
Term:....................... 3 years
Royalty:.................... 5/32
Rental:..................... $1/year
Shut-in:.................... $25/acre/year
Unitization:................ 640 acres gas / 80 acres oil
Other:...................... The leases were limited to the surface down to and
including the Senora Sand.
E/2 of Section 36-10N-8E
Lynn McEvers ........................... 682/446
Rick Hurley ............................ 682/448
Robert A. Dolton & Pearl E. Dolton ..... 682/450
Mary Kathryn Hurley .................... 682/452
Term:....................... 1 year
Royalty:.................... 5/32
Rental:..................... Paid-up
Shut-in:.................... $1/acre/year
Unitization:................ 640 acres gas / 80 acres oil
Other:...................... None
COMPETITION
We operate in a highly competitive industry, competing with major oil and gas
companies, independent producers and institutional and individual investors,
which are actively seeking oil and gas properties throughout the world together
with the equipment, labor and materials required to operate properties. Most of
our competitors have financial resources, staffs and facilities substantially
27
DESCRIPTION OF BUSINESS - continued
greater than ours. The principal area of competition is encountered in the
financial ability to acquire good acreage positions and drill wells to explore
for oil and gas, then, if warranted, drill production wells and install
production equipment. Competition for the acquisition of oil and gas wells is
intense with many oil and gas properties and or leases or concessions available
in a competitive bidding process in which we may lack technological information
or expertise available to other bidders. Therefore, we may not be successful in
acquiring and developing profitable properties in the face of this competition.
No assurance can be given that a sufficient number of suitable oil and gas wells
will be available for acquisition and development.
GOVERNMENT REGULATION
GENERAL
The production and sale of oil and gas are subject to various federal, state and
local governmental regulations, which may be changed from time to time in
response to economic or political conditions and can have a significant impact
upon overall operations. Matters subject to regulation include discharge permits
for drilling operations, drilling bonds, reports concerning operations, the
spacing of wells, unitization and pooling of properties, taxation, abandonment
and restoration and environmental protection. These laws and regulations are
under constant review for amendment or expansion. From time to time, regulatory
agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and gas wells below actual production
capacity in order to conserve supplies of oil and gas. Changes in these
regulations could require us to expend significant resources to comply with new
laws or regulations or changes to current requirements and could have a material
adverse effect on the company.
Regulation of Oil and Natural Gas Production.
Our oil and natural gas exploration, production and related operations are
subject to extensive rules and regulations promulgated by federal, state and
local authorities and agencies. Failure to comply with such rules and
regulations can result in substantial penalties. The regulatory burden on the
oil and natural gas industry increases our cost of doing business and affects
our profitability. Although we believe we are in substantial compliance with all
applicable laws and regulations, because such rules and regulations are
frequently amended or reinterpreted, we are unable to predict the future cost or
impact of complying with such laws.
Many states require permits for drilling operations, drilling bonds and reports
concerning operations and impose other requirements relating to the exploration
and production of oil and natural gas. Such states also have statutes or
regulations addressing conservation matters, including provisions for the
unitization or pooling of oil and natural gas properties, the establishment of
maximum rates of production from wells, and the regulation of spacing, plugging
and abandonment of such wells.
Federal Regulation of Natural Gas.
The Federal Energy Regulatory Commission ("FERC") regulates interstate natural
gas transportation rates and service conditions, which affect the marketing of
natural gas produced by the Company, as well as the revenues received by the
Company for sales of such production. Since the mid-1980's FERC has issued a
28
DESCRIPTION OF BUSINESS - continued
series of orders that have significantly altered the marketing and
transportation of natural gas. These orders mandate a fundamental restructuring
of interstate pipeline sales and transportation service, including the
unbundling by interstate pipelines of the sale, transportation, storage and
other components of the city-gate sales services such pipelines previously
performed. One of FERC's purposes in issuing the orders was to increase
competition within all phases of the natural gas industry. Certain aspects of
these orders may be modified as a result of various appeals and related
proceedings and it is difficult to predict the ultimate impact of the orders on
us and others. Generally, the orders eliminate or substantially reduce the
interstate pipelines' traditional role as wholesalers of natural gas in favor of
providing only storage and transportation service, and have substantially
increased competition and volatility in natural gas markets.
The price, which we may receive for the sale of oil and natural gas liquids,
would be affected by the cost of transporting products to markets. FERC has
implemented regulations establishing an indexing system for transportation rates
for oil pipelines, which, generally, would index such rates to inflation,
subject to certain conditions and limitations. The Company is not able to
predict with certainty the effect, if any, of these regulations on any future
operations. However, the regulations may increase transportation costs or reduce
wellhead prices for oil and natural gas liquids.
Environmental Matters.
Our operations and properties will be subject to extensive and changing federal,
state and local laws and regulations relating to environmental protection,
including the generation, storage, handling, emission, transportation and
discharge of materials into the environment, and relating to safety and health.
The recent trend in environmental legislation and regulation generally is toward
stricter standards, and this trend will likely continue. These laws and
regulations may (i) require the acquisition of a permit or other authorization
before construction or drilling commences and for certain other activities; (ii)
limit or prohibit construction, drilling and other activities on certain lands
lying within wilderness and other protected areas; and (iii) impose substantial
liabilities for pollution resulting from our operations. The permits required
for several of our operations are subject to revocation, modification and
renewal by issuing authorities. Governmental authorities have the power to
enforce their regulations, and violations are subject to fines or injunctions,
or both. In the opinion of management, the Company is in substantial compliance
with current applicable environmental law and regulations, and the Company has
no material commitments for capital expenditures o comply with existing
environmental requirements. Nevertheless, changes in existing environmental laws
and regulations or in interpretations thereof could have a sign significant
impact on the Company, as well as the oil and natural gas industry in general.
The Comprehensive Environmental, Response, Compensation, and Liability Act
("CERCL ") and comparable state statutes impose strict, joint and several
liability on owners and operators of sites and on persons who disposed of or
arranged for the disposal of "hazardous substances" found at such sites. It is
not uncommon for the neighboring landowners and other third parties to file
claims for personal injury and property damage allegedly caused by the hazardous
substances released into the environment. The Federal Resource Conservation and
Recovery Act ("RCRA") and comparable state statutes govern the disposal of
"solid waste" and "hazardous waste" and authorize the imposition of substantial
fines and penalties for noncompliance. Although CERCLA currently excludes
petroleum from its definition of "hazardous substance," state laws affecting our
operations impose clean-up liability relating to petroleum and petroleum related
29
DESCRIPTION OF BUSINESS - continued
products. In addition, although RCRA classifies certain oil field wastes as
"non-hazardous," such exploration and production wastes could be reclassified as
A hazardous wastes thereby making such wastes subject to more stringent handling
and disposal requirements.
We intend to acquire leasehold interests in properties that for many years have
produced oil and natural gas. Although the previous owners of these interests
may have used operating and disposal practices that were standard in the
industry at the time, hydrocarbons or other wastes may have been disposed of or
released on or under the properties. In addition, some of our properties may be
operated in the future by third parties over which we have no control.
Notwithstanding the Company's lack of control over properties operated by
others, the failure of the operator to comply with applicable environmental
regulations may, in certain circumstances, adversely impact our company.
The National Environmental Policy Act ("NEPA") is applicable to many of our
planned activities and operations. NEPA is a broad procedural statute intended
to ensure hat federal agencies consider the environmental impact of their
actions by requiring such agencies to prepare environmental impact statements
("EIS") in connection with all federal activities that significantly affect the
environment. Although NEPA is a procedural statute only applicable to the
federal government, a portion of our properties may be acreage located on
federal land. The Bureau of Land Management's issuance of drilling permits and
the Secretary of the Interior's approval of plans of operation and lease
agreements all constitute federal action within the scope of NEPA. Consequently,
unless the responsible agency determines that our drilling activities will not
materially impact the environment, the responsible agency will be required to
prepare an EIS an conjunction with the issuance of any permit or approval.
The Endangered Species Act ("ESA") seeks to ensure that activities do not
jeopardize endangered or threatened animal, fish and plant species, nor destroy
or modify the critical habitat of such species. Under ESA, exploration and
production operation, as well as actions by federal agencies, may not
significantly impair or jeopardize the species or their habitat. ESA provides
for criminal penalties for willful violations of the Act. Other statutes that
provide protection to animal and plant species and that may apply to our
operations include, but are not necessarily limited to, the Fish and Wildlife
Coordination Act, the Fishery Conservation and Management Act, the Migratory
Bird Treaty Act and the National Historic Preservation Act. Although we believe
teat our operations are in substantial compliance with such statutes, any change
in these statutes or any reclassification of a species as endangered could
subject us to significant expense to modify our operations or could force to
discontinue certain operations altogether.
Management believes that we are in substantial compliance with current
applicable environmental laws and regulations.
RESEARCH AND DEVELOPMENT ACTIVITIES
No research and development expenditures have been incurred, either on our
account or sponsored by customers, to the date of our inception.
EMPLOYEES
We do not employ any persons on a full-time or on a part-time basis. Douglas
Humphreys is our President and Chief Executive Officer, and Grant Atkins is our
Chief Financial Officer. These individuals are primarily responsible for all
day-to-day operations of the Company. Other services are provided by outsourcing
and consultant and special purpose contracts.
30
DESCRIPTION OF BUSINESS - continued
OIL AND GAS PROPERTIES
We maintain an aggregate of approximately 560 gross undeveloped acres pursuant
to eases held in the Arkoma Basin in the State of Oklahoma as described below.
HURLEY LEASE
We hold a 75% working interest and a 56.25% net revenue interest in a gas lease
located in Pittsburg County, Oklahoma (the "Hurley Lease"). On November 19,
2004, the gas ease was acquired from Geneva Energy Corp. ("Geneva"), (the
"Hurley Farm-Out Agreement"). As of March 31, 2005, we have not tested existing
well bores, or drilled, completed, or put any wells into production. A "working
interest" defines the ownership of capital and operating expenditures relating
to the development of oil and gas leases, and further defines the interest in
any revenues generated from oil or gas sales from a lease after deducting
overriding royalties to mineral holders, production taxes, pipeline charles, gas
or oil marketing charges, and all other direct well operating costs.
CHAPMAN LEASE
We hold a 75% working interest and a 56.25% net revenue interest in a gas lease
located in Pittsburg County, Oklahoma (the "Chapman Lease"). On November 19,
2004, the gas lease was acquired from Geneva, (the "Chapman Farm-Out
Agreement"). As of March 31, 2005) we have not drilled, completed, or put any
wells into production. o
PRODUCTION INFORMATION
Since inception, we had no oil and gas production.
GAS DELIVERY COMMITMENTS
We have no gas delivery commitments.
DRILLING COMMITMENTS
None
RESERVE INFORMATION
None
We have not filed any estimates of total proved net oil or gas reserves with, or
included such information in reports to, any federal authority or agency.
EXECUTIVE OFFICES
We lease our principal office space located at 10120 S. Eastern Avenue, Suite
200, Henderson, NV 89052. The office space is for corporate identification,
mailing, and courier purposes only and costs the Company approximately $225
monthly. The office and services related thereto may be cancelled at any time
with 30 days notice.
31
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.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
All of our directors hold office until the next annual general meeting of the
shareholders or until their successors are elected and qualified. Our officers
are appointed by our board of directors and hold office until their earlier
death, retirement, resignation or removal.
Our directors and executive officers, their ages, positions held are as follows:
NAME AGE POSITION WITH THE COMPANY
- ----------------------- ---- ------------------------------
Douglas Humphreys 52 President/Chief Executive
Officer and Director
Grant Atkins 44 Treasurer/Chief Financial
Officer/Secretary and Director
Steve Jewett 66 Director
D. Bruce Horton 60 Director
BUSINESS EXPERIENCE
The following is a brief account of the education and business experience of
each director, executive officer and key employee during at least the past five
years, indicating each person's principal occupation during the period, and the
name and principal business of the organization by which he or she was employed.
Douglas Humphreys has been the Chief Executive Officer, President and Director
of the Company since October 2004. Mr. Humphreys is also a manager of Oak Hills
Drilling and Operating, LLC, an oil and gas drilling and operating company based
in Holdenville, Oklahoma that acts as "operator" to Morgan Creek. Most oil and
gas related development initiatives including geological, engineering, drilling,
well completion, well service, and production related activities will be
contracted to the Company's operator who has the necessary operating experience,
personnel, equipment, infrastructure, and administration required to develop oil
and gas exploration and production initiatives on a cost effective basis without
the Company having to develop these resources in house for its current scale of
enterprise.
Mr. Humphreys has been Drilling and Operations Manager of Lexington Oil & Gas
Ltd. Co., and a director and audit committee member of its parent company,
Lexington Resources, Inc. since November 2003 and an oil and gas consultant to
his private oil and gas services firm, Paluca Petroleum, Inc. since 1995. Mr.
Humphreys is an officer, director and sole shareholder of Paluca Petroleum, Inc.
and has been a director of private companies, GHB Farms, Inc. and Oakhills
Energy, Inc. Mr. Humphreys received his Bachelor of Science degree in Business
and Geology from Southwest Oklahoma State University. Mr. Humphreys has been
active in the industry for over 30 years, mostly in his home state of Oklahoma
32
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS - continued
and in the surrounding oil and gas rich regions of the mid continent. His
industry knowledge comes from hands-on experience helping to build several oil
and gas producing companies to prominence, as well as playing a personal role in
the development of hundreds of wells. In addition to oil and gas development
related private entities previously mentioned that include Paluca Petroleum,
Inc., Oakhills Energy, Inc., and Oak Hills Drilling and Operating, LLC., most
notable is Mr. Humphreys past experience with Tide West Oil Company. Mr.
Humphrey's was a principal of the Oklahoma based oil and gas startup, Tide West
Oil Company that went public on the NASDAQ pink sheets in 1986. The Company
weathered industry cyclical downturns and went on to increase its asset base to
approximately $15 million when in 1993, it negotiated a reverse merger with
acquisition oriented private, Draco Holdings that had operating wells in the
state of Oklahoma and cash flow to ensure further growth. Doug Humphreys was
retained to head management in charge of all exploration and production
activities and helped grow the Company to 530 operating oil and gas wells
producing over 65 million cubic feet of gas per day, and approximately 2,000
barrels of oil per day. Merrill Lynch was retained in 1996 to negotiate the sale
of Tide West to the NASDAQ public company HS Resources for $200 million or $14
per share. HS Resources was subsequently sold to Kerr McGee in 2001 for $1.6
billion at a share price in excess of $68 per share.
Grant Atkins has been Chief Financial Officer and a Director since October 2004.
He also acts as a non-independent member of the Company's Audit Committee and
acts as Secretary/Treasurer. Mr. Atkins is also currently President (since
Dec/2001) and Director (since 1998) of coal bed methane and Barnett Shale gas
exploration and development company, Lexington Resources, Inc., formerly
"Intergold Corporation". For the past fifteen years, Mr. Atkins has been
self-employed and has acted as a financial and project coordination consultant
to clients in Government, public, and private industry. He has extensive
multi-industry experience in the fields of finance, administration and business
development. His previous industry experience includes gold, silver, and zinc
mining and exploration in China (Vega-Atlantic Corporation), US domestic gold
and silver exploration, (Intergold Corporation), biotech cancer immunotherapy
(GeneMax Corp.), oil and gas exploration and development (Lexington Resources,
Inc., and Petrogen Corp., formerly Hadro Resource, Inc., and a $200 million (CDN
funds) radio and tri-service dispatch initiative and deployment of Canadian
federal, provincial and municipal shareholders as interim Chief Financial
Officer of Emergency Communications for Southwest British Columbia ("E-Comm").
From 1998 to March 31, 2004, Mr. Atkins provided consulting services through
Investor Communications International, Inc., and acted as a director and officer
to a number of private and public companies including cancer immunotherapy
biotech startup, GeneMax Corp. previously "Eduverse.com" (director Mar/2001 to
June/2004, president/secretary/treasurer Mar/2001 to July/2002, CFO Mar/2003 to
Apr/2004, secretary/treasurer Mar/2003 to June/2004), oil and gas exploration
company, Petrogen Corp. formerly "Hadro Resources, Inc." (director Sept/2000 to
Aug/2003, president Sept/2000 to Feb/2003, secretary/treasurer Mar/2000 to
Feb/2003) and electronic data transaction processing company, Transax
International Limited formerly "Vega-Atlantic Corporation" (director/president
Oct/1998 to Oct/2003).
Mr. Atkins received a Bachelor of Commerce degree from the University of British
Columbia.
Steve Jewett has been a director and member of our Audit Committee since
October, 2004. Since 1978, Mr. Jewett has been the owner of Stephen Jewett -
Chartered Accountants. During his career, Mr. Jewett was auditor of several
public companies, and currently focuses on tax related engagements. Mr. Jewett
received his degree as a Chartered Accountant from the Institute of Chartered
Accountants of British Columbia and is the Company's audit committee's financial
expert. Mr. Jewett is also a director and audit committee member of Lexington
Resources, Inc. since April 30, 2004.
33
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS - continued
D. Bruce Horton has been a director and member of our Audit Committee since
October, 2004. During the past five years, Mr. Horton has been active in the
financial arena in both the private and public sectors as an accountant and
financial management consultant with an emphasis on corporate financial
reporting, financing and tax planning. Mr. Horton has specialized in corporate
management, re-organization, merger and acquisition, international tax
structuring, and public and private financing for over thirty years. From 1972
through 1986, Mr. Horton was a partner in a public accounting firm. In 1986, Mr.
Horton co-founded the Clearly Canadian Beverage Corporation, of which he was a
director and chief financial officer until 1997
Grant Atkins and Douglas Humphreys may be deemed to be organizers of the Company
based upon their activities in founding and organizing the business of the
Company.
FAMILY RELATIONSHIPS
There are no family relationships among our directors or officers.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past five years, none of our directors, executive officers or persons
that may be deemed promoters is or have been involved in any legal proceeding
concerning (i) any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time; (ii) any conviction in a
criminal proceeding or being subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses); (iii) being subject to any order,
judgment or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction permanently or temporarily enjoining, barring,
suspending or otherwise limiting involvement in any type of business, securities
or banking activity; or (iv) being found by a court, the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law (and the judgment has not been
reversed, suspended or vacated).
EXECUTIVE COMPENSATION
During the last fiscal year, none of the directors or officers of the Company
were compensated for their roles as directors or executive officers. Officers
and directors of the Company may be reimbursed for any out-of-pocket expenses
incurred by them on behalf of the Company. The Company presently has no pension,
health, annuity, insurance, profit sharing or similar benefit plans. Executive
compensation is subject to change concurrent with the Company's requirements.
SUMMARY COMPENSATION TABLE
None of our executive officers received an annual salary and bonus that exceeded
$100,000 during the fiscal year ending December 31, 2004. The following table
sets forth the compensation received by Douglas Humphreys and Grant Atkins.
34
EXECUTIVE COMPENSATION - continued
ANNUAL COMPENSATION LONG TERM
COMPENSATION
NAME AND FISCAL SALARY OTHER SECURITIES
PRINCIPAL POSITION YEAR UNDERLYING
OPTIONS
- -------------------- --------- --------------------------------- --------------
Douglas Humphreys 2004 $0 $0 N/A
President and Chief
Executive Officer
Grant Atkins 2004 $0 $0 N/A
Chief Financial
Officer
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENTS
COMPENSATION OF DIRECTORS
Generally, our Directors do not receive salaries or fees for serving as
directors, nor do they receive any compensation for attending meetings of the
Board of Directors. Directors are entitled to reimbursement of expenses incurred
in attending meetings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 19, 2004, we issued 6,000,000 shares of our common stock to Geneva
Energy Corp. in consideration for the Leases based upon a per share price of
$0.10 per share.
On December 2, 2004, we issued 100,000 shares of our common stock to our
director, D. Bruce Horton, for an aggregate purchase price of $10,000 or $0.10
per share.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 2005, certain information with
respect to the beneficial ownership of our common stock by each stockholder
known by us to be the beneficial owner of more than 5% of our common stock and
by each of our current directors and executive officers. Each person has sole
voting and investment power with respect to the shares of common stock, except
as otherwise indicated. Beneficial ownership consists of a direct interest in
the shares of common stock, except as otherwise indicated.
35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - continued
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
- ------------------------- ----------------------- ------------------------
Douglas Humphreys 0 0%
Grant Atkins 0 0%
Steve Jewett 0 0%
D. Bruce Horton 100,000 1.0%
Geneva Energy Corp.1 6,000,000 59.0%
All Officers, Directors 6,100,000 60.0%
And 5% Shareholders
1The sole shareholder of Geneva Energy Corp. is Phoenix Asset Group of FL-9494
Schaan Landstrasse 126A, Postfach 324. Marcus Johnson, Geneva Energy Corp's sole
officer and director, has voting and sole dispositive power over shares of our
stock owned by Geneva Energy Corp.
CHANGES IN CONTROL
We are unaware of any contract or other arrangement the operation of which may
at a subsequent date result in a change in control of our company.
DESCRIPTION OF COMMON STOCK
We are authorized to issue 100,000,000 common shares with a par value of $0.001.
As of March 31, 2005 we had 10,167,700 common shares outstanding. Upon
liquidation, dissolution or winding up of the corporation, the holders of common
stock are entitled to share ratably in all net assets available for distribution
to common stockholders after payment to creditors. The common stock is not
convertible or redeemable and has no preemptive, subscription or conversion
rights. Each outstanding share of common stock is entitled to one vote on all
matters submitted to a vote of stockholders. There are no cumulative voting
rights.
The holders of outstanding shares of common stock are entitled to receive
dividends out of assets legally available therefore at such times and in such
amounts as our board of directors may from time to time determine. Holders of
common stock will share equally on a per share basis in any dividend declared by
the board of directors. We have not paid any dividends on our common stock and
do not anticipate paying any cash dividends on such stock in the foreseeable
future.
In the event of a merger or consolidation, all holders of common stock will be
entitled to receive the same per share consideration.
36
PLAN OF DISTRIBUTION
The Selling Shareholders of the common stock of Morgan Creek Energy Corp., and
any of their pledgees, assignees and successors-in-interest may, from time to
time, sell any or all of their shares of Common Stock on any stock exchange,
market or trading facility on which the shares are traded or in private
transactions. The sales price to the public has been determined by the
shareholders to be $0.50 per share. The price of $0.50 per share is a fixed
price until the securities are listed on the OTC Bulletin Board or other
national exchange, and thereafter at prevailing market prices or privately
negotiated prices. There can be no assurance that our shares will be approved
for listing on the OTC Bulletin Board.
The Selling Shareholders may use any one or more of the following methods when
selling shares:
- - ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
- - block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
- - purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;
- - an exchange distribution in accordance with the rules of the applicable
exchange;
- - privately negotiated transactions;
- - settlement of short sales entered into after the date of this prospectus;
- - broker-dealers may agree with the Selling Shareholders to sell a specified
number of such shares at a stipulated price per share;
- - a combination of any such methods of sale;
- - through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise; or
- - any other method permitted pursuant to applicable law.
The Selling Shareholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.
Broker-dealers engaged by the Selling Shareholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Shareholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. Each Selling Shareholders does not expect these commissions and
discounts relating to its sales of shares to exceed what is customary in the
types of transactions involved.
37
PLAN OF DISTRIBUTION - continued
In connection with the sale of our common stock or interests therein, the
Selling Shareholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The Selling
Shareholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Shareholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The Selling Shareholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Shareholder has informed us
that it does not have any agreement or understanding, directly or indirectly,
with any person to distribute the common stock.
We are required to pay certain fees and expenses incurred by us incident to the
registration of the shares.
Because the Selling Shareholders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus. Currently there
are no shares of our common stock eligible for resale pursuant to Rule 144. Each
Selling Shareholders has advised us that they have not entered into any
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of the resale shares. There is no underwriter or coordinating
broker acting in connection with the proposed sale of the resale shares by the
Selling Shareholders.
The resale shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states, the resale shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to our common stock for a period of two
business days prior to the commencement of the distribution. In addition, the
Selling Shareholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales of shares of our common stock by the
Selling Shareholders or any other person. We will make copies of this prospectus
available to the Selling Shareholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time of
the sale.
38
SELLING SHAREHOLDERS
The Selling Shareholders may offer and sell, from time to time, any or all of
the common stock registered pursuant to this Registration Statement. Because the
Selling Shareholders may offer all or only some portion of the 4,167,700 shares
of common stock to be registered, no estimate can be given as to the amount or
percentage of these shares of common stock that will be held by the selling
stockholders upon termination of the offering.
The following table sets forth certain information regarding the beneficial
ownership of shares of common stock by the Selling Shareholders as of March 31,
2005, and the number of shares of common stock covered by this prospectus. The
number of shares in the table represents an estimate of the number of shares of
common stock to be offered by the selling stockholder. None of the Selling
Shareholders is a broker-dealer, or an affiliate of a broker-dealer to our
knowledge.
SELLING SHAREHOLDERS - continued
Shares of
Shares of Shares of Common
Common Common Stock Stock Percentage of Percentage of
Stock Owned to be Owned Common Stock Common Stock
Prior to Offered for After the Owned Before the Owned After the
SELLING SHAREHOLDERS Offering Sale Offering Offering Offering
Alexander Cox 500,000 500,000 0 4.9% 0.0%
Ariane Coury 75,000 75,000 0 0.7% 0.0%
Bradley Scharfe 100,000 100,000 0 1.0% 0.0%
Bryan Dear 100,000 100,000 0 1.0% 0.0%
D. Bruce Horton 100,000 100,000 0 1.0% 0.0%
Dana Pierce 125,000 125,000 0 1.2% 0.0%
Eastern Capital Corp. 237,500 237,500 0 2.3% 0.0%
Eurotrade Management Group Ltd. 250,000 250,000 0 2.5% 0.0%
Jenirob Company Ltd. 225,000 225,000 0 2.2% 0.0%
Longfellow Industries (B.C.) Ltd. 250,000 250,000 0 2.5% 0.0%
Mathew Cicci 50,000 50,000 0 0.5% 0.0%
Michael Cassady 50,000 50,000 0 0.5% 0.0%
Michael Levy 50,000 50,000 0 0.5% 0.0%
Newport Capital Corp 500,000 500,000 0 4.9% 0.0%
Pacific Rim Financial, Inc. 500,000 500,000 0 4.9% 0.0%
Phil Mast 100,000 100,000 0 1.0% 0.0%
Spartan Asset Group, Inc. 225,000 225,000 0 2.2% 0.0%
Allan Dear 1,500 1,500 0 0.0% 0.0%
Andy Cloutier 1,200 1,200 0 0.0% 0.0%
Brad Kitchen 1,500 1,500 0 0.0% 0.0%
Carolynn A. Paleologos 1,500 1,500 0 0.0% 0.0%
Greg Johnston 500 500 0 0.0% 0.0%
Guy Peckham 1,500 1,500 0 0.0% 0.0%
H. Nixon Scharfe 1,200 1,200 0 0.0% 0.0%
Helmi S. Kidd 1,200 1,200 0 0.0% 0.0%
39
SELLING SHAREHOLDERS - continued
Shares of
Shares of Shares of Common
Common Common Stock Stock Percentage of Percentage of
Stock Owned to be Owned Common Stock Common Stock
Prior to Offered for After the Owned Before the Owned After the
SELLING SHAREHOLDERS Offering Sale Offering Offering Offering
Jacqueline McClure 2,500 2,500 0 0.0% 0.0%
James Dow 500,000 500,000 0 4.9% 0.0%
James Paleologos 1,500 1,500 0 0.0% 0.0%
James Wojcicki 1,200 1,200 0 0.0% 0.0%
Janet Walter 2,000 2,000 0 0.0% 0.0%
Jarek Matysiak 1,000 1,000 0 0.0% 0.0%
Jason Scharfe 2,500 2,500 0 0.0% 0.0%
Ken Carter 1,200 1,200 0 0.0% 0.0%
Kim Foster 2,500 2,500 0 0.0% 0.0%
Lisa Chow 500 500 0 0.0% 0.0%
Leanne Madsen 1,000 1,000 0 0.0% 0.0%
Melissa Sevigny 1,000 1,000 0 0.0% 0.0%
Michelle Cote Dear 5,000 5,000 0 0.0% 0.0%
Monica Jay 1,000 1,000 0 0.0% 0.0%
Myrna Crawford 2,500 2,500 0 0.0% 0.0%
Princeton Estate Company Inc. BVI 20,000 20,000 0 0.2% 0.0%
Rodney Tanabe 2,000 2,000 0 0.0% 0.0%
Tanya Johnston 500 500 0 0.0% 0.0%
T Robert Horton 1,000 1,000 0 0.0% 0.0%
Verona Capital International 100,000 100,000 0 1.0% 0.0%
William Robert Stuart 1,200 1,200 0 0.0% 0.0%
Kingsbridge Capital SA 30,000 30,000 0 0.3% 0.0%
Peter Jessop 40,000 40,000 0 0.4% 0.0%
TOTAL 4,167,700 4,167,700 0 40.6% 0.0%
We will require the Selling Shareholders to suspend the sales of the securities
offered by this prospectus upon the occurrence of any event that makes any
statement in this prospectus or the related registration statement untrue in any
material respect or that requires the changing of statements in these documents
in order to make statements in those documents not misleading.
LEGAL MATERS
The validity of the common stock offered by this prospectus has been passed upon
by The O'Neal Law Firm, P.C., 17100 East Shea Boulevard, Suite 400-D, Fountain
Hills, Arizona 85268.
TRANSFER AGENT
Our transfer agent is Transfer Online, Inc., 317 SW Alder Street, 2nd Floor,
Portland, OR 97204: Phone: 503.227.2950 FAX: 503.227.6874
EXPERTS
The consolidated financial statements of Morgan included in this registration
statement have been audited by Dale Matheson Carr-Hilton LaBonte Chartered
Accountants, to the extent and for the period set forth in their reports
appearing elsewhere in the registration statement, and are included in reliance
upon such reports given upon the authority of said firms as experts in auditing
and accounting.
40
EXPERTS - continued
Information derived from the report of Fletcher Lewis Engineering, Inc. with
respect to Morgan Creek Energy Corp. incorporated in this prospectus have been
so incorporated in reliance on the authority of said firm as experts with
respect to such matters contained in their report.
INTEREST OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having prepared or certified
any part of this prospectus or having given an opinion upon the validity of the
securities being registered or upon other legal matters in connection with the
registration or offering of the common stock was employed on a contingency basis
or had, or is to receive, in connection with the offering, a substantial
interest, directly or indirectly, in the registrant or any of its parents or
subsidiaries. Nor was any such person connected with the registrant or any of
its parents, subsidiaries as a promoter, managing or principal underwriter,
voting trustee, director, officer or employee.
DISCLOSURE OF SEC POSITION OF
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Bylaws provide that directors and officers shall be indemnified by us to the
fullest extent authorized by the Nevada General Corporation Law, against all
expenses and liabilities reasonably incurred in connection with services for us
or on our behalf. The bylaws also authorize the board of directors to indemnify
any other person who we have the power to indemnify under the Nevada General
Corporation Law, and indemnification for such a person may be greater or
different from that provided in the bylaws.
Insofar as indemnification for liabilities arising under the Securities Act
might be permitted to directors, officers or persons controlling our company
under the provisions described above, we have been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any document we file at the Commission's Public Reference Room 450
Fifth Street, N.W., Washington, D.C. You may obtain information on the operation
of the Public Reference Room by calling the Commission at 1-800-SEC-0330. You
can also obtain copies of our Commission filings by going to the Commission's
website at http://www.sec.gov.
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2, under the Securities Act with respect to the securities
offered under this prospectus. This prospectus, which forms a part of that
registration statement, does not contain all information included in the
registration statement. Certain information is omitted and you should refer to
the registration statement and its exhibits. The Internet site of the SEC
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
The Company has obtained the website url, www.morgancreekenergy.com. The site is
under development at the date of filing this registration statement, but readers
should check the above named site periodically for information concerning the
Company in the near future.
41
WHERE YOU CAN FIND MORE INFORMATION - continued
No finder, dealer, sales person or other person has been authorized to give any
information or to make any representation in connection with this offering other
than those contained in this prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized by Morgan
Creek Energy Corp. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby by anyone
in any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date of this prospectus.
42
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
FINANCIAL STATEMENTS
DECEMBER 31, 2004
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ................ 44
BALANCE SHEET .......................................................... 45
STATEMENT OF OPERATIONS ................................................ 46
STATEMENT OF STOCKHOLDER'S EQUITY ...................................... 47
STATEMENT OF CASH FLOWS ................................................ 48
NOTES TO FINANCIAL STATEMENTS .......................................... 49
INTERIM FINANCIAL STATEMENTS MARCH 31, 2005 (unaudited) ................ 55
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Morgan Creek Energy Corp.
We have audited the of Morgan Creek Energy Corp. as at December 31, 2004 and the
statement of operations, stockholders' equity and cash flows for the period from
October 20, 2004 (inception) to December 31, 2004. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2004 and the
results of its operations and its cash flows and the changes in stockholders'
equity for the period from October 20, 2004 (inception) to December 31, 2004.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, to date the Company has not generated any significant
revenues from operations and requires additional funds to meet its obligations
and the costs of its operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in this
regard are described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
"Dale Matheson Carr-Hilton LaBonte"
DALE MATHESON CARR-HILTON LABONTE
CHARTERED ACCOUNTANTS
Vancouver, B.C.
January 31, 2005, except for Note 7 as to which the date is March 9, 2005
44
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
BALANCE SHEET
December 31, 2004
ASSETS
CURRENT ASSETS
Cash $ 370,499
OIL AND GAS PROPERTY, unproved (Note 3) 300,000
-----------------
$ 670,499
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 20,378
GOING CONCERN (Note 1)
STOCKHOLDERS' EQUITY (Note 4)
Common stock, 100,000,000 shares authorized with $0.001 par value
Issued and outstanding
10,097,700 common shares 10,098
Additional paid-in-capital 1,263,752
Deficit accumulated during exploration stage (623,729)
-----------------
650,121
-----------------
$ 670,499
=================
The accompanying notes are an integral part of these financial statements.
45
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
STATEMENT OF OPERATIONS
October 20, 2004
(inception) to
December 31, 2004
GENERAL AND ADMINISTRATIVE EXPENSES
Office and general $ 1,951
Professional fees 21,778
-----------------
NET LOSS FOR THE PERIOD $ (23,729)
=================
BASIC LOSS PER COMMON SHARE $ (0.01)
=================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 4,913,163
=================
The accompanying notes are an integral part of these financial statements.
46
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 20, 2004 (INCEPTION) TO DECEMBER 31, 2004
Deficit
Accumulated
Common Stock Additional During
Number of Paid in Exploration Stockholders'
Shares Amount Capital Stage Equity
----------- ----------- ------------ ------------ --------------
Balance, October 20, 2004 - $ - $ - $ - $ -
Common stock issued for oil and gas property
at $0.10 per share - November 19, 2004 6,000,000 6,000 594,000 - 600,000
Capital distribution to controlling shareholder
on acquisition of oil and gas property (Note 3) - - - (600,000) (600,000)
Common stock issued for cash at $0.10 per share
November 26, 2004 and December 15, 2004 3,437,500 3,438 340,312 - 343,750
Common stock issued for cash at $0.50 per share
December 15, 2004 660,200 660 329,440 - 330,100
Net loss for the period October 20, 2004
(inception) to December 31, 2004 - - - (23,729) (23,729)
- ---------------------------------------------------------- ----------- ------------ ------------ --------------
Balance, December 31, 2004 10,097,700 $ 10,098 $ 1,263,752 $ (617,729) $ 650,121
========================================================== =========== ============ ============ ==============
The accompanying notes are an integral part of these financial statements.
47
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
STATEMENT OF CASH FLOWS
October 20, 2004
(inception) to
December 31, 2004
- ------------------------------------------------------------ ------------------
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the period $ (23,729)
Adjustment to reconcile net loss
to net cash from operating activities:
- accounts payable and accrued liabilities 20,378
------------------
NET CASH USED IN OPERATING ACTIVITIES (3,351)
------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of oil and gas properties (300,000)
------------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (300,000)
------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on sale of common stock 673,850
------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 673,850
------------------
INCREASE IN CASH 370,499
CASH, BEGINNING OF PERIOD -
------------------
CASH, END OF PERIOD $ 370,499
=========================================================== ===================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ -
Cash paid for income taxes $ -
Common stock issued for acquisition of mineral property $ 600,000
The accompanying notes are an integral part of these financial statements.
48
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Morgan Creek Energy Corp. (the "Company") is an exploration stage company that
was organized to enter into the oil and gas industry. The Company intends to
locate, explore, acquire and develop oil and gas properties in the United States
and within North America.
During fiscal 2004, the Company consummated the acquisition of prospects in the
Arkoma Basin in the State of Oklahoma, including a 75% working interest and a
56.25% net revenue interest in approximately 560 gross acres of two (2)
petroleum and natural gas leases (the "Hurley Lease" and the "Chapman Lease"
collectively referred to as the "Leases"). The Company plans to enter certain
well bores on the subject leases to test certain target zones thought to contain
coal bed methane ("CBM") gas. If testing provides evidence of gas quality and
sufficient production quantities, the Company plans to raise capital to
undertake a drilling program to establish up to six wells, and production
infrastructure and pipeline. If testing does not go as planned, and according to
geological analysis, the Company will seek to acquire other prospective lands
thought to bear oil or gas targets.
Going concern
The Company commenced operations October 20, 2004 and has not realized any
revenues since inception. The Company has a deficit accumulated to December 31,
2004 in the amount of $623,729. The ability of the Company to continue as a
going concern is dependent on raising capital to fund its business plan and
ultimately to attain profitable operations. Accordingly, these factors raise
substantial doubt as to the Company's ability to continue as a going concern.
The Company is funding its initial operations by way of two Private Placement
Offering Memorandums. As of December 31, 2004 the Company had completed both
Private Placement Offering Memorandums and had issued 4,097,700 in common stock
of the Company and had received proceeds of $673,850.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated on October 20, 2004 in the State of Nevada. The
Company's fiscal year end is December 31 and the initial period is from October
20, 2004 (inception) to December 31, 2004.
Basis of presentation
These financial statements are presented in United States dollars and have been
prepared in accordance with United States generally accepted accounting
principles.
Oil and Gas Properties The Company follows the full cost method of accounting
for its oil and gas operations whereby all costs related to the acquisition of
methane, petroleum, and natural gas interests are capitalized. Under this
method, all productive and nonproductive costs incurred in connection with the
exploration for and development of oil and gas reserves are capitalized. Such
costs include land and lease acquisition costs, annual carrying charges of
non-producing properties, geological and geophysical costs, costs of drilling
and equipping productive and non-productive wells, and direct exploration
salaries and related benefits. Proceeds from the disposal of oil and gas
49
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
properties are recorded as a reduction of the related capitalized costs without
recognition of a gain or loss unless the disposal would result in a change of 20
percent or more in the depletion rate. The Company currently operates solely in
the U.S.A.
Depreciation and depletion of proved oil and gas properties is computed on the
units-of-production method based upon estimates of proved reserves, as
determined by independent consultants, with oil and gas being converted to a
common unit of measure based on their relative energy content.
The costs of acquisition and exploration of unproved oil and gas properties,
including any related capitalized interest expense, are not subject to
depletion, but are assessed for impairment either individually or on an
aggregated basis. The costs of certain unevaluated leasehold acreage are also
not subject to depletion. Costs not subject to depletion are periodically
assessed for possible impairment or reductions in value. If a reduction in value
has occurred, costs subject to depletion are increased or a charge is made
against earnings for those operations where a reserve base is not yet
established.
Estimated future removal and site restoration costs are provided over the life
of proven reserves on a units-of-production basis. Costs, which include
production equipment removal and environmental remediation, are estimated each
period by management based on current regulations, actual expenses incurred, and
technology and industry standards. The charge is included in the provision for
depletion and depreciation and the actual restoration expenditures are charged
to the accumulated provision amounts as incurred.
The Company applies a ceiling test to capitalized costs which limits such costs
to the aggregate of the estimated present value, using a ten percent discount
rate of the estimated future net revenues from production of proven reserves at
year end at market prices less future production, administrative, financing,
site restoration, and income tax costs plus the lower of cost or estimated
market value of unproved properties. If capitalized costs are determined to
exceed estimated future net revenues, a write-down of carrying value is charged
to depletion in the period.
Asset retirement obligations
The Company has adopted the provisions of SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires the fair value of a liability for
an asset retirement obligation to be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
related oil and gas properties. As of December 31, 2004 management has
determined that there are no material asset retirement obligations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
Financial Instruments
The fair value of the Company's financial assets and financial liabilities
approximate their carrying values due to the immediate or short-term maturity of
these financial instruments.
50
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Loss per Common Share
Basic earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Dilutive earnings per share reflects the potential
dilution of securities that could share in the earnings of the Company. Because
the Company does not have any potentially dilutive securities, the accompanying
presentation is only of basic loss per share.
Income taxes
The Company follows the liability method of accounting for income taxes. Under
this method, future tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
balances. Future tax assets and liabilities are measured using enacted or
substantially enacted tax rates expected to apply to the taxable income in the
years in which those differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the date of enactment or
substantive enactment. As at December 31, 2004 the Company had net operating
loss carryforwards; however, due to the uncertainty of realization, the Company
has provided a full valuation allowance for the future tax assets resulting from
these loss carryforwards.
Stock-based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", as issued by the
Financial Accounting Standards Board ("FASB"), as amended by SFAS No. 148,
"Accounting for Stock-Based Compensation - transition and disclosure",
encourages the use of the fair value based method of accounting for stock-based
employee compensation. SFAS No. 123 allows entities to continue to apply the
intrinsic value method prescribed by Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations and provide pro forma disclosures of net income (loss) and
earnings (loss) per share. Under APB 25, compensation cost is measured based on
the excess, if any, of the quoted market price or fair value of a company's
stock at the grant date (or a later date where the option has variable terms
that depend on events after the date of grant) over the amount an employee must
pay to acquire the stock. Compensation expense is recognized immediately for
past services and pro-rata for future services over the option-vesting period.
SFAS 123 allows--but does not require--that compensation cost resulting from the
granting of stock options be measured and reported currently in the income
statement and allocated over the remaining life of the option.
The Company has elected to follow APB 25 and provide the pro forma disclosures
required under SFAS 123. Specifically, with respect to stock options granted to
employees and consultants, the Company will provide pro-forma information and
expense information, respectively, as required by SFAS No. 123 showing the
results of applying the fair value method using the Black-Scholes option pricing
model.
The Company accounts for equity instruments issued in exchange for the receipt
of goods or services from other than employees in accordance with SFAS No. 123
and the conclusions reached by the Emerging Issues Task Force in Issue No.
96-18. Costs are measured at the estimated fair market value of the
consideration received or the estimated fair value of the equity instruments
issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the
earliest of a performance commitment or completion of performance by the
provider of goods or services as defined by EITF 96-18.
51
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
The Company has also adopted the provisions of the FASB Interpretation No.44,
Accounting for Certain Transactions Involving Stock Compensation - An
Interpretation of APB Opinion No. 25 ("FIN 44"), which provides guidance as to
certain applications of APB 25. FIN 44 is generally effective July 1, 2000 with
the exception of certain events occurring after December 15, 1998.
To December 31, 2004 the Company has not granted any stock options and has not
recorded any stock-based compensation.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2004, the FASB issued EITF No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments
("EITF 03-1"). The objective of EITF 03-1 is to provide guidance for identifying
impaired investments. EITD 03-1 also provides new disclosure requirements for
investments that are deemed to be temporarily impaired. In October 2004, the
FASB delayed the recognition and measurement provisions of EITF 03-1 until
implementation guidance is issued. The disclosure requirements are effective for
annual periods ending after June 15, 2004, and remain in effect. Management
believes that the adoption of EITF 03-1 will not have a material impact on the
Company's financial condition or results of operations.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs ("SFAS 151").
SFAS 151 requires issuers to treat idle facility expense, freight, handling
costs, and wasted material (spoilage) as current-period charges regardless of
whether such charges are considered abnormal. In addition, SFAS 151 requires the
allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. SFAS 151 will be effective for
all inventory costs incurred in fiscal years beginning after June 15, 2005.
Management believes the adoption of this standard will not have a material
impact on the Company's financial position or results of operations.
In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based
Payment ("SFAS 123(R)"), which requires the compensation cost related to
share-based payments, such as stock options and employee stock purchase plans,
be recognized in the financial statements based on the grant-date fair value of
the award. SFAS 123(R) is effective for all interim periods beginning after
December 15, 2005. Management is currently evaluating the impact of this
standard on the Company's financial condition and results of operations.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary
Assets, an amendment of APB Opinion No. 29, Accounting for Non-monetary
Transactions ("SFAS 153") SFAS 153 requires that exchanges of non-monetary
assets are to be measured based on fair value and eliminates the exception for
exchanges of non-monetary, similar productive assets, and adds an exemption for
non-monetary exchanges that do not have commercial substance. SFAS 153 will be
effective for fiscal periods beginning after June 15, 2005. Management does not
believe that the adoption of this standard will have a material impact on the
Company's financial condition or results of operations.
NOTE 3 - OIL AND GAS PROPERTY
Hurley-Chapman Prospect
By agreement dated December 17, 2004, the Company acquired a 75% working
interest, 56.25% net revenue interest from its controlling shareholder, in two
sections (560 acres) production held acreage in Okfuskee County, Oklahoma (the
"Hurley-Chapman Prospect") with the intention to develop coal bed methane gas
52
NOTE 3 - OIL AND GAS PROPERTY - continued
producing wells. The lease is unproved and was acquired for a cash payment of
$300,000 and for the issuance of 6,000,000 shares at valued at $600,000. The
lease is held by production. (Refer to Note 5.)
For accounting purposes the Company has recorded the acquisition of the oil and
gas interests at the related party vendor's cost and the issuance of the
6,000,000 shares has been recorded as a $600,000 capital distribution to the
controlling shareholder.
NOTE 4 - STOCKHOLDERS' EQUITY
The Company's capitalization is 100,000,000 common shares with a par value of
$0.001 per share.
To December 31, 2004 the Company has not granted any stock options and has not
recorded any stock-based compensation.
Private Placement
On November 26, 2004 the Company issued a Private Placement Offering Memorandum
offering 1,550,000 shares of common stock at a price of $0.10 per share for
proceeds of $155,000.
On December 15, 2004 the Company issued a Private Placement Offering Memorandum
offering 2,547,700 shares of common stock at various subscription prices per
share for total proceeds of $518,850.
The filing of a prospectus and the registration statement by the Company with
the Securities and Exchange Commission in the United States covers the resale by
certain selling shareholders in aggregate of 4,167,700 shares of common stock
which were issued from October, 2004 through March, 2005 in connection with
private placements solely to foreign investors. (Refer to Note 7.)
NOTE 5 - RELATED PARTY TRANSACTIONS
During the period the Company purchased an oil and gas property interest from
the controlling shareholder. (Refer to Note 3).
NOTE 6 - INCOME TAXES
The Company has adopted the FASB No. 109 for reporting purposes. As of December
31, 2004, the Company had net operating loss carry forwards of approximately
$24,000 that may be available to reduce future years' taxable income and will
expire in 2024. Availability of loss usage is subject to change of ownership
limitations under Internal Revenue Code 382. Future tax benefits which may arise
as a result of these losses have not been recognized in these financial
statements, as their realization is determined not likely to occur and
accordingly, the Company has recorded a valuation allowance for the future tax
asset relating to these tax loss carryforwards.
The Company evaluates its valuation allowance requirements on an annual basis
based on projected future operations. When circumstances change and this causes
a change in management's judgment about the recoverability of future tax assets,
the impact of the change on the valuation allowance is generally reflected in
current income.
A reconciliation of income tax computed at the federal and state statutory tax
rates and the Company's effective tax rate is as follows:
53
NOTE 6 - INCOME TAXES - continued
Period from
October 20, 2004
(inception) to December
31, 2004
- -------------------------------------------------------------------------
Federal income tax provision at statutory rate (35.0)%
State income tax provision at statutory rate, net of
federal income tax effect (6.0)
- -------------------------------------------------------------------------
Total income tax provision rate (41.0)%
=========================================================================
The tax effects of temporary differences that give rise to the Company's future
tax asset (liability) are as follows:
2004
----------------
Loss carry forwards $ 9,840
Valuation allowance (9,840)
----------------
$ -
================
NOTE 7 - SUBSEQUENT EVENTS
In February 2005 a payment of $50,000 was made to a firm for the design and
development of the Company's corporate identity and website.
In February and March 2005 $200,000 was advances to a firm to begin preparation
of all the materials required for an investor relations direct mail program.
On March 7 and 9, 2005, the Company sold 70,000 shares of common stock at $0.50
per share for total proceeds of $35,000 pursuant to private placement
subscriptions.
54
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
INTERIM FINANCIAL STATEMENTS
MARCH 31, 2005
(unaudited)
BALANCE SHEET .......................................................... 56
INTERIM STATEMENT OF OPERATIONS ........................................ 57
INTERIM STATEMENT OF CASH FLOWS ........................................ 58
INTERIM NOTES TO FINANCIAL STATEMENTS .................................. 59
55
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
BALANCE SHEET
(unaudited)
March 31, December 31,
2005 2004
----------- -----------
CURRENT ASSETS
Cash $ 125,923 $ 370,499
----------- -----------
OIL AND GAS PROPERTY, unproved (Note 3) 300,000 300,000
----------- -----------
$ 425,923 $ 670,499
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 15,244 $ 20,378
----------- -----------
GOING CONCERN (Note 1)
STOCKHOLDERS' EQUITY (Note 4)
Common stock, 100,000,000 shares authorized with $0.001 par value
Issued and outstanding
10,167,700 common shares (December 31, 2004 - 10,097,700) 10,168 10,098
Additional paid-in-capital 1,298,682 1,263,752
Deficit accumulated during exploration stage (898,171) (623,729)
----------- -----------
410,679 650,121
----------- -----------
$ 425,923 $ 670,499
=========== ===========
The accompanying notes are an integral part of these financial statements.
56
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
INTERIM STATEMENT OF OPERATIONS
(unaudited)
Three month period October 20, 2004
ended March (inception) to March
31, 2005 31, 2005
- ------------------------------------------ --------------- ---------------
GENERAL AND ADMINISTRATIVE EXPENSES
Office and general $ 251,234 $ 253,185
Professional fees 23,208 44,986
- ------------------------------------------ --------------- ---------------
NET LOSS FOR THE PERIOD $ (274,442) $ (298,171)
========================================== =============== ===============
BASIC LOSS PER COMMON SHARE $ (0.027)
===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,116,256
===============
The accompanying notes are an integral part of these financial statements.
57
MORGAN CREEK ENERGY CORP.
(An Exploration Stage Company)
INTERIM STATEMENT OF CASH FLOWS
(unaudited)
Three month period October 20, 2004
ended March 31, (inception) to
2005 March 31, 2005
- --------------------------------------------------------------------------------
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the period $ (274,442) $ (298,171)
Adjustment to reconcile net loss
to net cash from operating activities:
- accounts payable and accrued liabilities (5,134) 15,244
- -------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (279,576) (282,927)
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of oil and gas properties - (300,000)
- -------------------------------------------------------------------------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES - (300,000)
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on sale of common stock 35,000 708,850
- -------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 35,000 708,850
- -------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH (244,576) 125,923
CASH, BEGINNING OF PERIOD 370,499 -
- -------------------------------------------------------------------------------
CASH, END OF PERIOD $ 125,923 $ 125,923
===============================================================================
- -------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ - -
- -------------------------------------------------------------------------------
Cash paid for income taxes $ - -
- -------------------------------------------------------------------------------
Common stock issued for acquisition of
mineral property $ - $ 600,000
===============================================================================
The accompanying notes are an integral part of these financial statements.
58
MORGAN CREEK ENERGY CORP.
INTERIM NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
- --------------------------------------------------------------------------------
Morgan Creek Energy Corp. (the "Company") is an exploration stage company that
was organized to enter into the oil and gas industry. The Company intends to
locate, explore, acquire and develop oil and gas properties in the United States
and within North America.
During fiscal 2004, the Company consummated the acquisition of prospects in the
Arkoma Basin in the State of Oklahoma, including a 75% working interest and a
56.25% net revenue interest in approximately 560 gross acres of two (2)
petroleum and natural gas leases (the "Hurley Lease" and the "Chapman Lease"
collectively referred to as the "Leases"). The Company plans to enter certain
well bores on the subject leases to test certain target zones thought to contain
coal bed methane ("CBM") gas. If testing provides evidence of gas quality and
sufficient production quantities, the Company plans to raise capital to
undertake a drilling program to establish up to six wells, and production
infrastructure and pipeline. If testing does not go as planned, and according to
geological analysis, the Company will seek to acquire other prospective lands
thought to bear oil or gas targets.
Going concern
The Company commenced operations October 20, 2004 and has not realized any
revenues since inception. The Company has a deficit accumulated to March 31,
2005 in the amount of $898,171. The ability of the Company to continue as a
going concern is dependent on raising capital to fund its business plan and
ultimately to attain profitable operations. Accordingly, these factors raise
substantial doubt as to the Company's ability to continue as a going concern.
The Company is funding its initial operations by way of Private Placement. As of
March 31, 2005 the Company had issued 10,167,700 shares of common stock in the
capital of the Company and had received proceeds of $708,850.
Unaudited Interim Financial Statements
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB of Regulation
S-B. They do not include all information and footnotes required by generally
accepted accounting principles for complete financial statements. However,
except as disclosed herein, there have been no material changes in the
information disclosed in the notes to the financial statements for the year
ended December 31, 2004 included in the Company's Annual Report on Form 10-KSB
filed with the Securities and Exchange Commission. The interim unaudited
consolidated financial statements should be read in conjunction with those
financial statements included in the Form 10-KSB. In the opinion of Management,
all adjustments considered necessary for a fair presentation, consisting solely
of normal recurring adjustments, have been made. Operating results for the three
months ended March 31, 2005 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2005.
59
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Organization
The Company was incorporated on October 20, 2004 in the State of Nevada. The
Company's fiscal year end is December 31.
Basis of presentation
These financial statements are presented in United States dollars and have been
prepared in accordance with United States generally accepted accounting
principles.
Oil and Gas Properties
The Company follows the full cost method of accounting for its oil and gas
operations whereby all costs related to the acquisition of methane, petroleum,
and natural gas interests are capitalized. Under this method, all productive and
non-productive costs incurred in connection with the exploration for and
development of oil and gas reserves are capitalized. Such costs include land and
lease acquisition costs, annual carrying charges of non-producing properties,
geological and geophysical costs, costs of drilling and equipping productive and
non-productive wells, and direct exploration salaries and related benefits.
Proceeds from the disposal of oil and gas properties are recorded as a reduction
of the related capitalized costs without recognition of a gain or loss unless
the disposal would result in a change of 20 percent or more in the depletion
rate. The Company currently operates solely in the U.S.A.
Depreciation and depletion of proved oil and gas properties is computed on the
units-of-production method based upon estimates of proved reserves, as
determined by independent consultants, with oil and gas being converted to a
common unit of measure based on their relative energy content.
The costs of acquisition and exploration of unproved oil and gas properties,
including any related capitalized interest expense, are not subject to
depletion, but are assessed for impairment either individually or on an
aggregated basis. The costs of certain unevaluated leasehold acreage are also
not subject to depletion. Costs not subject to depletion are periodically
assessed for possible impairment or reductions in value. If a reduction in value
has occurred, costs subject to depletion are increased or a charge is made
against earnings for those operations where a reserve base is not yet
established.
Estimated future removal and site restoration costs are provided over the life
of proven reserves on a units-of-production basis. Costs, which include
production equipment removal and environmental remediation, are estimated each
period by management based on current regulations, actual expenses incurred, and
technology and industry standards. The charge is included in the provision for
depletion and depreciation and the actual restoration expenditures are charged
to the accumulated provision amounts as incurred.
The Company applies a ceiling test to capitalized costs which limits such costs
to the aggregate of the estimated present value, using a ten percent discount
rate of the estimated future net revenues from production of proven reserves at
year end at market prices less future production, administrative, financing,
site restoration, and income tax costs plus the lower of cost or estimated
market value of unproved properties. If capitalized costs are determined to
exceed estimated future net revenues, a write-down of carrying value is charged
to depletion in the period.
60
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Asset retirement obligations
The Company has adopted the provisions of SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires the fair value of a liability for
an asset retirement obligation to be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
related oil and gas properties. As of March 31, 2005 management has determined
that there are no material asset retirement obligations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
Financial Instruments
The fair value of the Company's financial assets and financial liabilities
approximate their carrying values due to the immediate or short-term maturity of
these financial instruments.
Loss per Common Share
Basic earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Dilutive earnings per share reflects the potential
dilution of securities that could share in the earnings of the Company. Because
the Company does not have any potentially dilutive securities, the accompanying
presentation is only of basic loss per share.
Income taxes
The Company follows the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
balances. Deferred tax assets and liabilities are measured using enacted or
substantially enacted tax rates expected to apply to the taxable income in the
years in which those differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the date of enactment or
substantive enactment. As at March 31, 2005 the Company had net operating loss
carryforwards, however, due to the uncertainty of realization, the Company has
provided a full valuation allowance for the deferred tax assets resulting from
these loss carryforwards.
Stock-based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", as issued by the
Financial Accounting Standards Board ("FASB"), as amended by SFAS No. 148,
"Accounting for Stock-Based Compensation - transition and disclosure",
encourages the use of the fair value based method of accounting for stock-based
employee compensation. SFAS No. 123 allows entities to continue to apply the
intrinsic value method prescribed by Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations and provide pro forma disclosures of net income (loss) and
earnings (loss) per share. Under APB 25, compensation cost is measured based on
the excess, if any, of the quoted market price or fair value of a company's
stock at the grant date (or a later date where the option has variable terms
that depend on events after the date of grant) over the amount an employee must
61
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
pay to acquire the stock. Compensation expense is recognized immediately for
past services and pro-rata for future services over the option-vesting period.
SFAS 123 allows--but does not require--that compensation cost resulting from the
granting of stock options be measured and reported currently in the income
statement and allocated over the remaining life of the option.
The Company has elected to follow APB 25 and provide the pro forma disclosures
required under SFAS 123 with respect to stock options granted to employees. The
Company will provide pro-forma information and expense information,
respectively, as required by SFAS No. 123 showing the results of applying the
fair value method using the Black-Scholes option pricing model.
The Company accounts for equity instruments issued in exchange for the receipt
of goods or services from other than employees in accordance with SFAS No. 123
and the conclusions reached by the Emerging Issues Task Force in Issue No.
96-18. Costs are measured at the estimated fair market value of the
consideration received or the estimated fair value of the equity instruments
issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the
earliest of a performance commitment or completion of performance by the
provider of goods or services as defined by EITF 96-18.
The Company has also adopted the provisions of the FASB Interpretation No.44,
Accounting for Certain Transactions Involving Stock Compensation - An
Interpretation of APB Opinion No. 25 ("FIN 44"), which provides guidance as to
certain applications of APB 25. FIN 44 is generally effective July 1, 2000 with
the exception of certain events occurring after December 15, 1998.
To March 31, 2005 the Company has not granted any stock options and has not
recorded any stock-based compensation.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2004, the FASB issued EITF No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments
("EITF 03-1"). The objective of EITF 03-1 is to provide guidance for identifying
impaired investments. EITD 03-1 also provides new disclosure requirements for
investments that are deemed to be temporarily impaired. In October 2004, the
FASB delayed the recognition and measurement provisions of EITF 03-1 until
implementation guidance is issued. The disclosure requirements are effective for
annual periods ending after June 15, 2004, and remain in effect. Management
believes that the adoption of EITF 03-1 will not have a material impact on the
Company's financial condition or results of operations.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs ("SFAS 151").
SFAS 151 requires issuers to treat idle facility expense, freight, handling
costs, and wasted material (spoilage) as current-period charges regardless of
whether such charges are considered abnormal. In addition, SFAS 151 requires the
allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. SFAS 151 will be effective for
all inventory costs incurred in fiscal years beginning after June 15, 2005.
Management believes the adoption of this standard will not have a material
impact on the Company's financial position or results of operations.
In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based
Payment ("SFAS 123(R)"), which requires the compensation cost related to
62
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
share-based payments, such as stock options and employee stock purchase plans,
be recognized in the financial statements based on the grant-date fair value of
the award. SFAS 123(R) is effective for all interim periods beginning after
December 15, 2005. Management is currently evaluating the impact of this
standard on the Company's financial condition and results of operations.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary
Assets, an amendment of APB Opinion No. 29, Accounting for Non-monetary
Transactions ("SFAS 153") SFAS 153 requires that exchanges of non-monetary
assets are to be measured based on fair value and eliminates the exception for
exchanges of non-monetary, similar productive assets, and adds an exemption for
non-monetary exchanges that do not have commercial substance. SFAS 153 will be
effective for fiscal periods beginning after June 15, 2005. Management does not
believe that the adoption of this standard will have a material impact on the
Company's financial condition or results of operations.
NOTE 3 - OIL AND GAS PROPERTY
- --------------------------------------------------------------------------------
Hurley-Chapman Prospect By agreement dated December 17, 2004, the Company
acquired a 75% working interest, 56.25% net revenue interest from its
controlling shareholder, in two sections (560 acres) production held acreage in
Okfuskee County, Oklahoma (the "Hurley-Chapman Prospect") with the intention to
develop coal bed methane gas producing wells. The lease is unproved and was
acquired for a cash payment of $300,000 and for the issuance of 6,000,000 shares
at valued at $600,000. The lease is held by production. (Refer to Note 5.)
For accounting purposes the Company has recorded the acquisition of the oil and
gas interests at the related party vendor's cost and the issuance of the
6,000,000 shares has been recorded as a $600,000 capital distribution to the
controlling shareholder.
NOTE 4 - STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
The Company's capitalization is 100,000,000 common shares with a par value of
$0.001 per share.
To March 31, 2005 the Company has not granted any stock options and has not
recorded any stock-based compensation.
During the period the Company engaged Transfer Online of Oregon as its stock
transfer agent.
Private Placement
On November 26, 2004 the Company issued a Private Placement Offering Memorandum
offering 1,550,000 shares of common stock at a price of $0.10 per share for
proceeds of $155,000.
On December 15, 2004 the Company issued a Private Placement Offering Memorandum
offering 2,547,700 shares of common stock at various subscription prices per
share for total proceeds of $518,850.
On March 9, 2005 the Company issued 70,000 shares of common stock at a price of
$0.50 per share for proceeds of $35,000. The filing of a prospectus and the
registration statement by the Company with the Securities and Exchange
Commission in the United States covers the resale by certain selling
63
NOTE 4 - STOCKHOLDERS' EQUITY - continued
shareholders in aggregate of 4,167,700 shares of common stock which were issued
from October, 2004 through March 31, 2005 in connection with private placements
solely to foreign investors.
NOTE 5 - RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
During December 2004 the Company purchased an oil and gas property interest from
the controlling shareholder. (Refer to Note 3).
NOTE 6 - INCOME TAXES
- --------------------------------------------------------------------------------
The Company has adopted the FASB No. 109 for reporting purposes. As of March 31,
2005, the Company had net operating loss carry forwards of approximately
$298,171 that may be available to reduce future years' taxable income and will
expire in 2024. Availability of loss usage is subject to change of ownership
limitations under Internal Revenue Code 382. Future tax benefits which may arise
as a result of these losses have not been recognized in these financial
statements, as their realization is determined not likely to occur and
accordingly, the Company has recorded a valuation allowance for the future tax
asset relating to these tax loss carryforwards.
64
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nevada Revised Statute Section 78.7502 provides that:
(i) a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful;
(ii) a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper; and
(iii) to the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding, or in defense of any claim, issue or matter therein, the corporation
shall indemnify him against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense.
Nevada Revise Statute Section 78.751 provides that we may make any discretionary
indemnification only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances. The determination must be made:
(a) by our stockholders;
(b) by our board of directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding;
(c) if a majority vote of a quorum consisting of directors who were not parties
to the action, suit or proceeding so orders, by independent legal counsel in a
written opinion;
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INDEMNIFICATION OF DIRECTORS AND OFFICERS - continued
(d) if a quorum consisting of directors who were not parties to the action, suit
or proceeding cannot be obtained, by independent legal counsel in a written
opinion; or
(e) by court order.
Our Certificate of Incorporation and Articles provide that no director or
officer shall be personally liable to our company, any of our stockholders or
any other for damages for breach of fiduciary duty as a director or officer
involving any act or omission of such director or officer unless such acts or
omissions involve intentional misconduct, fraud or a knowing violation of law,
or the payment of dividends in violation of the General Corporate Law of Nevada.
Further, our Bylaws provide that we shall, to the fullest and broadest extent
permitted by law, indemnify all persons whom we may indemnify pursuant thereto.
We may, but shall not be obligated to, maintain insurance, at our expense, to
protect ourselves and any other person against any liability, cost or expense.
We shall not indemnify persons seeking indemnity in connection with any
threatened, pending or completed action, suit or proceeding voluntarily brought
or threatened by such person unless such action, suit or proceeding has been
authorized by a majority of the entire Board of Directors.
Insofar as indemnification for liabilities arising under the Securities Act
might be permitted to directors, officers or persons controlling our company
under the provisions described above, we have been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with this
registration:
SEC Registration Fees $ 264.02
Printing and Engraving Fees (1) $ 500.00
Accounting Fees and Expenses $ 5,000.00
Legal Fees and Expenses $ 20,000.00
Transfer Agent Fees and Expenses (1) $ 500.00
- ------------------------------------------------------------------
TOTAL $ 26,264.02
(1) We have estimated these amounts.
RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, we have sold unregistered securities in private
placement offerings, issued stock in exchange for debts or pursuant to
contractual agreements as set forth below.
On November 19, 2004, we issued 6,000,000 shares of our common stock to Geneva
Energy Corp. in consideration for the Leases based upon a per share price of
$0.10 per share.
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RECENT SALES OF UNREGISTERED SECURITIES - continued
From November 1, 2004, through March 31, 2005 we conducted a private placement
whereby we issued 4,167,700 shares of our common stock to individual and
corporate investors for an aggregate purchase price of $708,850. These shares
were issued at a per share price of $ at $0.10 and $0.50 per share with shares
sold totaling 3,437,500 and 730,200 respectively.
We relied upon Regulation S of the Securities Act of 1933, as amended (the
"Act"). Our officers and directors determined the sophistication of our
investors, as the investors were all foreign accredited investors. Each investor
completed a subscription agreement whereby the investors certified that they
were purchasing the shares for their own accounts, with investment intent. This
offering was not accompanied by general advertisement or general solicitation
and the shares were issued with a Rule 144 restrictive legend. No shares were
sold to investors residing within the United States of America.
EXHIBITS
Exhibit # Description
- --------- --------------------------------------
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
3.3 Audit Committee Charter (1)
3.4 Ethics Charter (1)
4.1 Asset Purchase Agreement (1)
4.2 Chapman Leases
4.3 Hurley Leases
4.4 Lease Assignment
5.1 Opinion and Consent of Counsel
23.1 Consent of Independent Auditor
(1) Incorporated by reference from Form SB-2 filed April 11, 2005.
UNDERTAKINGS
The undersigned registrant hereby undertakes:
1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which is being registered) any
deviation from the high or low end of the estimated maximum range may be
reflected in the form of prospectus filed with the commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
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UNDERTAKINGS - continued
(c) To include any additional or changed material information on the plan of
distribution.
2) For determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered and the
offering of the securities at that time to be the initial bona fide offering.
3) File a post-effective amendment to remove from registration any of the
securities being registered, which remain unsold at the end of the offering.
4) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Morgan
Creek pursuant to provisions of the State of Nevada or otherwise, we have been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in that Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by a director, officer or
controlling person of us in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Securities Act and we will be
governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has authorized this
registration statement to be signed on its behalf by the undersigned in the city
of Vancouver, British Columbia on April10, 2005.
MORGAN CREEK ENERGY CORP.
By: /s/ DOUGLAS HUMPHREYS
--------------------------
Douglas Humphreys, President
In accordance with the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: June 9, 2005 /s/ DOUGLAS HUMPHREYS
-------------------------------
Douglas Humphreys, President,
Chief Executive Officer, and
Chairman of the Board of
Directors
Date: June 9, 2005 /s/ GRANT ATKINS
-------------------------------
Grant Atkins, Chief Financial
Officer/ Principal Accounting
Officer
Date: June 9, 2005 /s/ STEVE JEWETT
------------------------------
Steve Jewett, Director
Date: June 9, 2005 /s/ D. BRUCE HORTON
------------------------------
D. Bruce Horton, Director
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