U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)
[ X ]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

                   For the fiscal year ended December 31, 2006

[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

         For the transition period from _____ to _______

________________________________________________________________________________
                         Commission file number 0-25455

                            MORGAN CREEK ENERGY CORP.
________________________________________________________________________________
        (Exact name of small business issuer as specified in its charter)

         NEVADA                                                 201777817
_______________________________                            ____________________
(State or other jurisdiction of                              (I.R.S. Employer
incorporation of organization)                              Identification No.)

                               10120 S. Eastern Avenue
                                    Suite 200
                             Henderson, Nevada 89052
________________________________________________________________________________
                    (Address of Principal Executive Offices)

                                 (702) 566-1307
                    _____________________________________________
                           (Issuer's telephone number)

          Securities registered pursuant to Section 12(b) of the Exchange Act:

                                      NONE
                                ________________
                                (Title of class)

          Securities registered pursuant to Section 12(g) of the Exchange Act:

                         COMMON STOCK, PAR VALUE $0.001
                         ______________________________
                                (Title of class)

     Indicate  by check  mark  whether  the  issuer  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or for such shorter  period that the issuer
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

                             Yes    X      No
                                 ______     _____

<PAGE>

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be  contained,  to the best of issuer's  knowledge,  in  definitive
proxy of information  statements  incorporated  by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ X ]

     Indicate by checkmark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [   ] No [ X ]

     State  issuer's  revenues for its most recent fiscal year (ending  December
31, 2006): $-0-.

     State the aggregate market value of the voting and non-voting common equity
held by  non-affiliates  computed by  reference to the price at which the common
equity was last sold, or the average bid and asked price of such common  equity,
as  of  a  specified   date  within  the  past  60  days:   February  28,  2007:
$11,050,413.30.

     State the aggregate market value of the voting and non-voting common equity
held by  non-affiliates  computed by  reference to the price at which the common
equity was last sold, or the average bid and asked price of such common  equity,
as of the last business day of the registrant's  most recently  completed fiscal
quarter: December 31, 2005: Not applicable.

          Applicable Only to issuers Involved in Bankruptcy Proceedings
                        During the Preceding Five Years.

                                       N/A

     Indicate  by check mark  whether  the issuer  has filed all  documents  and
reports  required  to be filed by  Section  12, 13 and  15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

                                          Yes          No
                                              _______     ______

                    Applicable Only to Corporate Registrants

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest practicable date:

Class                                  Outstanding as of April 1, 2007

Common Stock, $.001 par value                 29,814,905

                       Documents Incorporated By Reference

         List hereunder the following documents if incorporated by reference and
the Part of the Form  10-KSB  (e.g.,  Part I,  Part II,  etc.)  into  which  the
document is  incorporated:  (1) any annual report to security  holders;  (2) any
proxy or information  statement;  and (3) any prospectus  filed pursuant to Rule
424(b) or (c) under the Securities Act of 1933. The listed  documents  should be
clearly described for identification  purposes (e.g.,  annual report to security
holders for fiscal year ended December 24, 1980).

                                 Not Applicable

         Transitional Small Business Disclosure Format (Check one:)

                      Yes  [   }                No [ X ]

<PAGE>


INDEX                                                                      PAGE

ITEM 1. DESCRIPTION OF BUSINESS                                               2

ITEM 2. DESCRIPTION OF PROPERTY                                              25

ITEM 3. LEGAL PROCEEDINGS                                                    25

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                  25

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
           MATTERS                                                           25

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
           OPERATION                                                         29

ITEM 7. FINANCIAL STATEMENTS                                                 37

        CONSOLIDATED BALANCE SHEET                                           F2

        CONSOLIDATED STATEMENTS OF OPERATIONS                                F3

        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                      F4

        CONSOLIDATED STATEMENTS OF CASH FLOWS                                F5

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                           F6

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
           ACCOUNTING AND FINANCIAL DISCLOSURE                               38

ITEM 8A. CONTROLS AND PROCEDURES                                             38

ITEM 8B. OTHER INFORMATION                                                   38

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS CONTROL
           PERSONS AND CORPRATE GOVERNANCE; COMPLIANCE
           WITH SECIOTN 16(a) OF THE EXCHANGE ACT                            39

ITEM 10. EXECUTIVE COMPENSATION                                              42

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT AND RELATED STOCKHOLDER MATTERS                        44

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
           DIRECTOR COMPENSATION                                             46

ITEM 13. EXHIBITS                                                            47

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                              48

SIGNATURES                                                                   48

<PAGE>



                           FORWARD LOOKING STATEMENTS

Statements made in this Form 10-KSB that are not historical or current facts are
"forward-looking  statements"  made  pursuant to the safe harbor  provisions  of
Section  27A of the  Securities  Act of 1933 (the  "Act") and Section 21E of the
Securities Exchange Act of 1934. These statements often can be identified by the
use  of  terms  such  as  "may,"  "will,"  "expect,"  "believe,"   "anticipate,"
"estimate," "approximate" or "continue," or the negative thereof. We intend that
such  forward-looking  statements  be  subject  to the  safe  harbors  for  such
statements.  We wish to caution  readers not to place undue reliance on any such
forward-looking  statements,   which  speak  only  as  of  the  date  made.  Any
forward-looking  statements represent  management's best judgment as to what may
occur in the future. However,  forward-looking  statements are subject to risks,
uncertainties  and important  factors beyond our control that could cause actual
results and events to differ  materially from  historical  results of operations
and events  and those  presently  anticipated  or  projected.  We  disclaim  any
obligation  subsequently  to revise any  forward-looking  statements  to reflect
events or  circumstances  after the date of such  statement  or to  reflect  the
occurrence of anticipated or unanticipated events.

AVAILABLE INFORMATION

Morgan  Creek Energy Corp.  files  annual,  quarterly,  current  reports,  proxy
statements,  and other  information with the Securities and Exchange  Commission
(the  "Commission").  You may read and copy documents referred to in this Annual
Report  on  Form  10-KSB  that  have  been  filed  with  the  Commission  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

                                       1

<PAGE>


                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS DEVELOPMENT

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.  After the
effective  date of our  registration  statement  filed with the  Securities  and
Exchange   Commission   (February  14,  2006),  we  commenced   trading  on  the
Over-the-Counter  Bulletin Board under the symbol "MCRE:OB". Our shares are also
traded on the Frankfurt Stock Exchange in Germany under the symbol "M6C".

Please note that throughout this Annual Report,  and unless otherwise noted, the
words "we,"  "our," "us," the  "Company,"  or "Morgan  Creek,"  refers to Morgan
Creek Energy Corp.

AUGUST 2006 FORWARD STOCK SPLIT

On July 26, 2006, our Board of Directors  pursuant to minutes of written consent
in lieu of a special  meeting  authorized  and approved a forward stock split of
two for one of our total  issued  and  outstanding  shares of common  stock (the
"August 2006 Forward Stock Split").

The August 2006 Forward Stock Split was effectuated  based on market  conditions
and upon a determination  by our Board of Directors that the August 2006 Forward
Stock Split was in our best interests and of the  shareholders.  In our judgment
the August  2006  Forward  Stock Split will result in an increase in our trading
float of shares of common stock  available for sale resulting in facilitation of
investor  liquidity and trading volume potential.  The intent of the August 2006
Forward Stock Split is to increase the marketability of our common stock.

The August 2006 Forward Stock Split was effectuated with a record date of August
8, 2006 upon filing the appropriate  documentation  with NASDAQ. The August 2006
Forward Stock Split increased our issued and outstanding  shares of common stock
from 20,335,400 to approximately  40,670,800  shares of common stock. The common
stock continued to be $0.001 par value.

MAY 2006 FORWARD STOCK SPLIT

On May 10, 2006, our Board of Directors  pursuant to minutes of written  consent
in lieu of a special  meeting  authorized  and approved a forward stock split of
two for one of our total issued and outstanding shares of common stock (the "May
2006 Forward Stock Split").

The May 2006 Forward Stock Split was effectuated  based on market conditions and
upon a  determination  by our Board of Directors that the May 2006 Forward Stock
Split was in our best interests and of the shareholders. In our judgment the May
2006 Forward Stock Split  resulted in an increase in our trading float of shares
of common  stock  available  for sale  resulting  in  facilitation  of  investor
liquidity and trading volume potential. The intent of the May 2006 Forward Stock
Split was to increase the marketability of our common stock.

                                       2
<PAGE>

The May 2006 Forward Stock Split was  effectuated  with a record date of May 22,
2006 upon filing the appropriate documentation with NASDAQ. The May 2006 Forward
Stock Split  increased  our issued and  outstanding  shares of common stock from
10,167,700 to approximately  22,452,338 shares of common stock before the August
2006 stock split,  as  described  above.  The common  stock will  continue to be
$0.001 par value.

CANCELLATION OF SHARES

On December 19, 2006,  Geneva Energy Corp. agreed to the cancellation and return
to treasury of 12,000,000  shares of our restricted common stock held of record.
Thus,  as of the date of this Annual  Report,  our total issued and  outstanding
shares of common stock is 29,814,905.

The  current  authorized  share  capital  as  provided  for in our  Articles  of
Incorporation  is 100,000,000  shares of common stock with a par value of $0.001
per share.

TRANSFER AGENT

Our transfer agent is Transfer  Online,  Inc., 317 S.W. Alder Street,  Portland,
Oregon 97204.

CURRENT BUSINESS OPERATIONS

We are a natural resource  exploration and production  company currently engaged
in the exploration, acquisition and development of oil and gas properties in the
United States and within North  America.  The primary  activity and focus of the
Company is its leases in Texas  ("Quachita  Prospect").  To date the Company has
acquired  approximately  2,035 gross acres. We acquired a 100% working  interest
and a 77% net revenue interest in natural gas targeted Quachita Prospect leases.
The leases are unproven and were acquired for $310,071.

OIL AND GAS PROPERTIES

The acreage and location of our oil and gas properties is summarized as follows:

                                           GROSS ACRES            NET ACRES(*)
Oklahoma                                       560                    315
Texas                                         2,035                  1,569
Total:                                        2,595                  1,882

(*)  Certain of our interests in our oil and gas  properties are less than 100%.
     Accordingly, we have presented the acreage of our oil and gas properties on
     a net acre basis.

         CHAPMAN LEASE

The Chapman Lease encompasses  approximately 240 acres in Okfuskee County, State
of  Oklahoma.  The  original  owners and  lessors of the  Chapman  Lease are the
Home-Stake   Royalty   Corporation  and  the  Home-Stake  Oil  and  Gas  Company
(collectively,  the "Chapman Lessors").  We have acquired a 75% working interest
and a 56.25% net revenue interest.  The term of the Chapman Lease was originally

                                       3
<PAGE>

for three years, and is currently held  indefinitely by production.  The Chapman
lease is currently  producing  minor  quantities of oil from existing  wells. So
long  as the  Chapman  Lease  produces  any  oil or gas as  demonstrated  by any
marketed  quantities of oil or gas, the Chapman Lease will be deemed to be valid
and thus,  "held by  production"  and no further costs will be incurred by us as
lessee.  The Chapman Lease  includes all  potential  oil or gas producing  zones
extending from the surface to and including the Senora Sand zones.

In the event that  demonstrated  marketed  production  ceases for a twelve-month
consecutive  period,  the  Chapman  Lease  will  lapse as it would no  longer be
classified as held by production.  Under these circumstances,  the Chapman Lease
may be retained by us for an additional  cost of $12,000 per annum ($25 per acre
x 2 Chapman  Lessors x 240 acres).  The two $6,000  payments ($25 per acre x 240
acres = $6,000)  would be made to each of the Chapman  Lessors.  To maintain the
Chapman Lease in good standing in the event of ceased  production  for a twelve-
month  consecutive  period,  it will cost $12,000 per annum.  If  production  as
demonstrated  by the  sales  of any  oil or gas in any  twelve-month  period  is
restored,  the  Chapman  Lease  would  once  again  be  deemed  to be  "held  by
production"  and the $25 per acre  annual  shut in charge to each of the Chapman
Lessors would cease. As of the date of this Annual Report,  the Chapman Lease is
in good standing.

The  unitization  of the  Chapman  Lease is the spacing of wells in any 640 acre
section of land. The  unitization of the Chapman Lease is currently one gas well
for  each 640  acres  and one oil well for  each 80  acres.  The  Chapman  Lease
includes all potential oil or gas producing  zones extending from the surface to
and including the Senora Sand zones.

We obtained a Reserve and Economic  Evaluation  letter  dated  December 21, 2004
prepared  by  Fletcher  Lewis  Engineering,  Inc.  (the  "Reserve  and  Economic
Evaluation"), which provides information relating to work to be conducted on the
Chapman  Lease and the fact that the Chapman  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 Reserve and
Economic Evaluation:

     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 without frac makes Chapman Lease ideal to
          test productive capability of Henryetta Coal; and
     o    Insufficient data exists regarding potential of deeper rights.

         HURLEY LEASE

The Hurley Lease encompasses  approximately 320 acres in Okfuskee County,  State
of  Oklahoma.  The  original  owners and  lessors  of the Hurley  Lease are Lynn
McEvers,  Rick Hurley,  Robert A. Dolton and Pearl E. Dolton, and Mary K. Hurley
(collectively,  the "Hurley  Lessors").  We have acquired a 75% working interest
and a 56.25% net revenue  interest.  The term of the Hurley Lease was originally

                                       4

<PAGE>

for one year, and is currently held indefinitely by production. The Hurley Lease
is currently  producing minor  quantities of oil from existing wells. As long as
the lease produces any oil or gas as demonstrated by marketed  quantities of oil
or gas,  the  Hurley  Lease  will be  deemed  to be  valid  and  thus  "held  by
production"  and no further  costs  will be  incurred  by us.  The Hurley  Lease
includes all potential oil or gas producing  zones extending from the surface to
and including the Senora Sand zones.

In the event that  demonstrated  marketed  production  ceases for a twelve-month
consecutive  period,  the  Hurley  Lease  will  lapse as it would no  longer  be
classified as held by production.  Under these  circumstances,  the Hurley Lease
may be retained by us for an additional  cost of $1,280 per annum ($1 per acre x
4 Hurley Lessors x 320 acres). The four $320 payments ($1 per acre x 320 acres =
$320) would be made to each of the Hurley Lessors.  To maintain the Hurley Lease
in  good  standing  in  the  event  of  ceased  production  for  a  twelve-month
consecutive period, it will cost $1,280 per annum. If production as demonstrated
by the  sales of any oil or gas in any  twelve-month  period  is  restored,  the
Hurley  Lease would once again be deemed to be "held by  production"  and the $1
per acre annual shut in charge to each of the Hurley Lessors would cease.  As of
the date of this Annual Report, the Hurley Lease is in good standing.

The  unitization  of the  Hurley  Lease is the  spacing of wells in any 640 acre
section of land.  The  unitization of the Hurley Lease is currently one gas well
for each 640 acres and one oil well for each 80 acres. The Hurley Lease includes
all  potential  oil or gas  producing  zones  extending  from the surface to and
including the Senora Sand zones.

By  Agreement  dated  December 17,  2006,the  Company  purchased  the Hurley and
Chapman leases from its founding shareholder and was acquired for a cash payment
of $300,000 and the issuance of 6,000,000 common shares (pre May and August 2006
stock  splits)  valued at  $600,000.  For  accounting  purposes  the Company has
recorded  the  acquisition  of the oil and gas  interest  at the  related  party
vendor's  cost of $300,000 and the issuance of the  6,000,000  shares  valued at
$600,000 has been recorded as a capital distribution.

After an internal  review of the  property,  we have decided not to proceed with
the development of the Hurley and Chapman leases. Consequently, we have recorded
a $300,000 charge to earnings.  As of the date of this Annual Report,  we intend
to attempt to sell our interest in the property.

         VAMOOSA LEASE

On  approximately  May 10, 2006,  we entered into an agreement to acquire a 100%
working  interest and a 78% net revenue  interest in an approximate 520 acre oil
and gas prospect  located in Seminole  County,  Oklahoma (the "Vamoosa  Lease").
After further  evaluation  of the property,  we have decided not to proceed with
the purchase of the property.

         BAYOU CHOCTAW LEASE

On approximately  July 10, 2006, we entered into a letter of intent with Texhoma
Energy,  Inc.,  to acquire a 25%  working  interest  and an 18.25%  net  revenue
interest in the Bayou Choctaw oil and gas project located in Iberville Parish in
the State of Louisiana (the "Bayou Choctaw  Lease").  According to the terms and
provisions of the letter of intent, we are to: (i) pay an aggregate of $250,000,
of which  $125,000  was paid on July 19, 2006 and  $125,000 on October 17, 2006;
(ii) issue an aggregate of 200,000 post August Forward Stock Split shares of our
restricted common stock with piggyback registration rights, which 200,000 shares
valued at $350,000  were issued on October 17,  2006;  (iii)  reimburse  initial

                                       5
<PAGE>

costs estimated at $162,500 for our pro-rata  portion,  payable upon signing the
lease participation  documents to be provided by the operator upon drilling; and
(iv)  participate in a 3D-seismic  survey by  August,2006  which is estimated to
cost  approximately  $425,000 for our prorata  portion.  To date the  3D-seismic
survey has not been  initiated.  We have the option to  participate in the first
two wells and carry the promoting parties through the drilling of those wells to
`casing  point' on the basis of  paying  for  33.33% of the cost to earn our 25%
working interest.  Subsequent to the drilling of the first two wells, costs will
be shared in direct  proportion to working  interest  participation  without any
further carried working interest.

As of the date of the Annual Report,  the Company has reviewed this lease option
and has  determined  that until  further  information  previously  requested  is
obtained it will not proceed with any further  development  or  expenditures  on
this  lease.  Under the terms of the letter of intent the  Company was to obtain
certain information regarding the property and was to sign a lease participation
document.  To date the Company has not received the required information and has
not signed the lease participation  document and as a consequence management has
determined that there are no further financial  liabilities to the Company under
this  agreement.  As a result of the  uncertainty of realization the Company has
recorded  the costs  incurred  to date of $600,000  as an  impairment  charge to
operations.

         BROWDER BARNETT SHALE LEASE

On approximately  July 24, 2006, we acquired a 100% working interest and 74% net
revenue  interest in the  Browder  Barnett  shale oil and gas  prospect in Cooke
County  in the  State of Texas  (the  "Browder  Lease").  The  Browder  Lease is
unproven and was acquired for $146,820.  As of the date of this Annual Report we
have ceased activity relating to the site preparation.

We have sold on November 6, 2006 to Pierco Petroleum Inc.  ("Pierco") 50% of our
working interest in the Browder Lease for $73,410 (the "Pierco  Agreement").  In
accordance  with the terms and  provisions of the Pierco  Agreement:  (i) Pierco
will  participate  in the Browder  Lease and  drilling  with up to a 50% working
interest and a 37% net revenue  interest;  and (ii) we will retain a minimum 50%
working interest and a 37% net revenue interest.

As of the date of this Annual Report,  we have determined that after an internal
review by our senior  geologist and a review of wells recently  completed in the
area, we will not proceed with the development of this lease.  Consequently,  we
have recorded a $73,410 charge to earnings

         LITTLE CEDAR CREEK LEASE

On August 11, 2006, we entered into an agreement with U.S. Gas Systems Inc. ("US
Gas  Systems")  to acquire  an  aggregate  of 103 acres of oil and gas  targeted
development  leases for  $1,000,000  in the Cedar Creek field located in Conecuh
County,  Alabama and, on September 18, 2006,  we entered into another  agreement
with US Gas  Systems to  acquire an  additional  385 acres  inconsideration  for
$385,000 plus  approximately  171,000 shares of the Company's  restricted common
stock  in  Conecuh  County,  Alabama  (collectively,   the  "Cedar  Creek  Lease
Agreement"). The five-year leases are located primarily in two 160-acre sections
which we  believed  would  allow us to  benefit  from  near  term cash flow from
non-operated  drilling  initiatives in two separate well bores scheduled to have
begun  December  2006. The additional 385 acres under lease will be subject to a
royalty of 20% and an additional over-riding royalty interest of 2.50%.

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<PAGE>


In accordance with the terms and provisions of the Cedar Creek Lease  Agreement,
we: (i) will pay an aggregate consideration of $1,000,000,  of which $250,000 as
a  non-refundable  deposit was paid on August 11, 2006;  (ii) paid an additional
$50,000 as a  non-refundable  deposit on  September  28, 2006 for the 385 acres;
(iii) pay the  remaining  balance  of funds  due and  owing and issue  shares by
November 30, 2006,  which  payment and issuance was subject to completion of our
due  diligence;  (iv) own a 36.25%  working  interest  and a 27.18% net  revenue
interest  before well  capital  cost payout in the first well,  and a 20.39% net
revenue  interest  after  well  capital  cost  payout;  and (v) a 25.0%  working
interest and an 18.75% net revenue  interest  before well capital cost payout in
the second well to be  drilled,  and a 14.06% net  revenue  interest  after well
capital cost payout.

After  completing due diligence on each of the 103 acres of oil and gas targeted
development  leases in the Cedar Creek Field  located in Conecuh  County and the
further 385 acres of additional  leases, the Company decided not to complete the
acquisition  of any Cedar  Creek  Field  acreage.  As a result,  the  additional
consideration  payable  under the  agreements  was not payable and the aggregate
$300,000 non- refundable  deposit paid has been recorded as an impairment charge
to operations.

         QUACHITA PROSPECT

As of December 31, 2006, we leased approximately 2,035 acres within the Ouachita
Trend in the State of Texas for a three-year term in  consideration of $310,071,
which was paid during 2006 (the "Ouachita Lease"). We had previously  identified
seven separate potential areas of exploration interest and have carried out wide
scale  leasing  on the  first of these  targets.  As of the date of this  Annual
Report,  we intend to secure all immediate rights relating to oil and gas in the
areas providing  control over any potential major  structural play that develops
as a result of this in-depth exploration.

As of the date of this Annual Report,  we have received a permit for drilling of
the twin  well on the  Quachita  Prospect.  The site  has been  cleared  and the
rathhole has been  drilled.  We anticipate  further  drilling will resume by May
2007.

         SOUTH TEXAS PROSPECT

On  approximately  January 30, 2007, we acquired a 100% working  interest in two
fully  equipped  oil  leases  located  in  the  State  of  Texas  for  aggregate
consideration  of  $55,000.  The Mata lease is  located  in Webb  County and the
Peters  Ranch lease is located in Duval County  (collectively,  the "South Texas
Lease").  As of the date of this Annual  Report,  we  anticipate  that the South
Texas Leases will be productive  after  completion of the rework program and the
addition of extra equipment.

PROPOSED FUTURE BUSINESS OPERATIONS

Our  strategy is to complete  the further  acquisition  of  additional  coal bed
methane  prospects  and other oil and gas  opportunities  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 to  create  expanding  reserves.  We

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<PAGE>

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 build a strategic  base of proven
reserves and production.

As of the date of this Annual Report,  our operating  plans are to enter certain
well bores on our Leases to test certain  target  zones  thought to contain coal
bed methane ("CBM") gas, and conduct further geological and engineering  studies
of our properties to provide evidence of gas quality.

Our ability to continue to complete  planned  exploration  activities and expand
land  acquisitions and explore  drilling  opportunities is dependent on adequate
capital  resources  being available and further sources of debt and equity being
obtained.  The  two  following  alternatives  provide  the  basis  for  business
development options:

DEVELOPMENT OF CURRENT LEASES

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,  we 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.

--------------------------------------------------------------------------------
Activity
--------------------------------------------------------------------------------

Site preparation for entry into current wellbores  including 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 well casing,  test
target gas zones with acid and water
--------------------------------------------------------------------------------
If gas content conducive to production, complete well by inserting downhole pump
and rods, set pumping unit, wellhead, and gas line
--------------------------------------------------------------------------------
Complete pipeline
--------------------------------------------------------------------------------
Create well  development  model and  investment  documents  to develop  wells on
subject leases including funding plan
--------------------------------------------------------------------------------
Create investor communications materials, corporate identity
--------------------------------------------------------------------------------
Raise funding for well development,
--------------------------------------------------------------------------------
Drill,  complete,  and produce from well drilling program and selective re-entry
programs
--------------------------------------------------------------------------------
Target further leases for  exploration  potential and obtain further  funding to
acquire new development targets
--------------------------------------------------------------------------------

                                       8
<PAGE>

NEW LEASE ACQUISITION AND DEVELOPMENT

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  this
business option.

--------------------------------------------------------------------------------
Site preparation for entry into current wellbores  including 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 well casing,  test
target gas zones with acid and water,
--------------------------------------------------------------------------------
If gas content not deemed  conducive to  production,  target  further leases for
exploration  potential  and obtain  further  funding to acquire new  development
targets
--------------------------------------------------------------------------------

We will require  additional  funding to implement our proposed  future  business
activities.  See  "Item  6.  Management's  Discussion  and  Analysis  or Plan of
Operation."

We do not expect to purchase any significant equipment or increase significantly
the number of our employees during the next twelve 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.

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 can be produced in large  volumes  especially  in the early
stages  of  production.  As the  amount  of  water in the  coal  decreases,  gas
production increases.

COMPETITION

We operate in a highly  competitive  industry,  competing with major oil and gas
companies,  independent  producers and institutional  and individual  investors,

                                       9
<PAGE>

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
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

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 our business operations.

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 us, as well as the revenues  received by us for sales of
such production.  Since the mid-1980's,  FERC has issued a series of orders that

                                       10
<PAGE>

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.  We are 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,  we are in substantial  compliance  with
current  applicable  environmental law and regulations,  and we have no material
commitments  for  capital  expenditures  to comply with  existing  environmental
requirements.   Nevertheless,   changes  in  existing   environmental  laws  and
regulations or in interpretations thereof could have a significant impact on our
business operations, 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

                                       11
<PAGE>

operations impose clean-up liability relating to petroleum and petroleum related
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  our 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 business operations.

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 that  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 in 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.  Marcus
Johnson is our President and Chief Executive Officer, and D. Bruce Horton is our
Chief  Financial   Officer  and  Treasurer.   These  individuals  are  primarily
responsible for all of our day-to-day operations. Other services are provided by
outsourcing and consultant and special purpose contracts.

                                       12
<PAGE>


MATERIAL AGREEMENTS

MARKHAM CONSULTING SERVICES AGREEMENT

On  approximately  August 1, 2006, we entered into a  month-to-month  consulting
services  agreement  with Thomas  Markham,  our Chief  Geologist  (the  "Markham
Consulting  Services  Agreement").  In  accordance  with the  verbal  terms  and
provisions of the Markham Consulting Services  Agreement:  (i) Mr. Markham shall
provide to us all necessary  services and perform all duties associated with his
executive  position  as Chief  Geologist;  (ii) we shall  pay to Mr.  Markham  a
monthly fee of  $10,000;  and (iii) Mr.  Markham  shall  receive a 1.5%  royalty
interest in all properties Mr. Markham  introduces to us which are  subsequently
acquired by us. During fiscal year ended December 31, 2006, we paid an aggregate
of $60,000 to Mr.  Markham in accordance  with the monthly fee and an additional
$4,794.91 in accordance with the amounts earned under the royalty interest.  See
"Item  10.  Executive  Compensation"  and "Item 12.  Certain  Relationships  and
Related Transactions and Director Compensation."

We anticipate  memoralizing  the terms and provisions of the Markham  Consulting
Services Agreement in a written agreement.

BEGLEY SERVICES AGREEMENT

On  approximately  August 1, 2006,  we entered  into a  month-to-month  services
agreement  with William  Begley,  our Operations  Manager (the "Begley  Services
Agreement").  In accordance with the terms and provisions of the Begley Services
Agreement: (i) Mr. Begley shall provide to us all necessary services and perform
all duties associated with his position as Operations Manager; (ii) we shall pay
to Mr.  Begley a monthly fee of $10,000;  and (iii) Mr.  Begley shall  receive a
1.5% royalty  interest in all properties  Mr. Begley  introduces to us which are
subsequently acquired by us. During fiscal year ended December 31, 2006, we paid
an aggregate of $50,000 to Mr. Begley in accordance  with the monthly fee and an
additional  $4,794.91 in  accordance  with the amounts  earned under the royalty
interest.

We  anticipate  memoralizing  the terms and  provisions  of the Begley  Services
Agreement in a written agreement.

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  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. Additional risks not presently known to us
may also  impair  our  business  operations.  You could lose all or part of your
investment due to any of these risks.

                                       13
<PAGE>


RISKS RELATED TO OUR BUSINESS


         WE  WILL  NEED  TO  RAISE  ADDITIONAL  FINANCING  TO  COMPLETE  FURTHER
         EXPLORATION.

We will  require  significant  additional  financing  in order to  continue  our
exploration activities and our assessment of the commercial viability of our oil
and  gas  properties.  Furthermore,  if the  costs  of our  planned  exploration
programs  are greater than  anticipated,  we may have to seek  additional  funds
through  public or  private  share  offerings  or  arrangements  with  corporate
partners. There can be no assurance that we will be successful in our efforts to
raise  these  require  funds,  or on terms  satisfactory  to us.  The  continued
exploration of our oil and gas  properties  and the  development of our business
will depend upon our ability to establish  the  commercial  viability of our oil
and gas properties and to ultimately develop cash flow from operations and reach
profitable operations.  We currently are in the exploration stage and we have no
revenue from operations and we are experiencing  significant negative cash flow.
Accordingly,  the only other  sources  of funds  presently  available  to us are
through the sale of equity. We presently believe that debt financing will not be
an  alternative to us as all of our  properties  are in the  exploration  stage.
Alternatively,  we may finance  our  business by offering an interest in our oil
and gas properties to be earned by another party or parties carrying out further
exploration and development  thereof or to obtain project or operating financing
from financial  institutions,  neither of which is presently intended. If we are
unable to obtain this additional financing,  we will not be able to continue our
exploration activities and our assessment of the commercial viability of our oil
and properties. Further, if we are able to establish that development of our oil
and gas properties is  commercially  viable,  our inability to raise  additional
financing at this stage would  result in our  inability to place our oil and gas
properties into production and recover our investment.

As our oil and gas  properties do not contain any reserves,  we may not discover
commercially  exploitable  quantities of oil or gas on our properties that would
enable us to enter into commercial production,  achieve revenues and recover the
money we spend on exploration.

Our  properties  do not contain  reserves  in  accordance  with the  definitions
adopted by the SEC and there is no assurance that any exploration  programs that
we carry out will establish  reserves.  All of our oil and gas properties are in
the exploration stage as opposed to the development stage and have no known body
of reserves.  The known reserves at these projects have not yet been  determined
to be economic,  and may never be determined to be economic.  We plan to conduct
further  exploration  activities  on our oil and gas  properties,  which  future
exploration  may include the  completion  of  feasibility  studies  necessary to
evaluate  whether  commercial  reserves exist on any of our mineral  properties.
There is a substantial risk that these exploration activities will not result in
discoveries   of   commercially   recoverable   reserves  of  oil  or  gas.  Any
determination that our properties contain commercially recoverable quantities of
oil or  gas  may  not be  reached  until  such  time  that  final  comprehensive
feasibility  studies have been concluded that establish that a potential reserve
is likely to be economic.  There is a substantial  risk that any  preliminary or
final  feasibility  studies  carried  out by us will not  result  in a  positive
determination that our oil and gas properties can be commercially developed.

                                       14
<PAGE>


         OUR  EXPLORATION  ACTIVITIES ON OUR OIL AND GAS  PROPERTIES  MAY NOT BE
         COMMERCIALLY  SUCCESSFUL,  WHICH  COULD LEAD US TO ABANDON OUR PLANS TO
         DEVELOP THE PROPERTY AND OUR INVESTMENTS IN EXPLORATION.

Our  long-term  success  depends  on  our  ability  to  establish   commercially
recoverable quantities of oil and natural gas on our properties that can then be
developed into commercially viable operations. Oil and gas exploration is highly
speculative  in nature,  involves many risks and is  frequently  non-productive.
These risks include unusual or unexpected geologic formations, and the inability
to obtain suitable or adequate machinery, equipment or labor. The success of oil
and gas exploration is determined in part by the following factors:

     o    identification  of  potential  oil and natural gas  reserves  based on
          superficial analysis;
     o    availability of government-granted exploration permits;
     o    the quality of management and geological and technical expertise; and
     o    the capital available for exploration.

Substantial  expenditures are required to establish proven and probable reserves
through drilling and analysis,  to develop processes to extract oil and gas, and
to develop the drilling and  processing  facilities  and  infrastructure  at any
chosen site. Whether an oil and gas reserve will be commercially  viable depends
on a number of  factors,  which  include,  without  limitation,  the  particular
attributes of the reserve;  oil and natural gas prices,  which fluctuate widely;
and government regulations,  including, without limitation, regulations relating
to prices, taxes,  royalties,  land tenure, land use, importing and exporting of
oil and gas and environmental  protection. We may invest significant capital and
resources  in  exploration  activities  and abandon such  investments  if we are
unable to identify commercially  exploitable reserves. The decision to abandon a
project may reduce the trading  price of our common stock and impair our ability
to raise future financing.  We cannot provide any assurance to investors that we
will discover or acquire any oil or gas reserves in sufficient quantities on any
of our properties to justify commercial operations. Further, we will not be able
to  recover  the  funds  that we  spend  on  exploration  if we are not  able to
establish  commercially  recoverable  reserves  of  oil  or  natural  gas on our
properties.

         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 ASSURANCE 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

                                       15
<PAGE>

debt financing to meet our cash  requirements.  We have incurred losses totaling
approximately $4,145,757 from October 19, 2004 (inception) to December 31, 2006.
As of December 31, 2006, we had an accumulated  deficit of  $4,145,757,  and had
incurred losses of  approximately  $3,918,002  during fiscal year ended December
31, 2006.  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:  (i) the costs to acquire  additional  leases  are more than we  currently
anticipate;  (ii) drilling and completion  costs for  additional  wells increase
beyond our  expectations;  or (iii) 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  DECEMBER  31,  2006 AND  DECEMBER  31,  2005
         FINANCIAL STATEMENTS.

The independent  auditor's  report  accompanying  our December 31, 2006 and 2005
audited  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.

         AS PART OF OUR GROWTH STRATEGY, WE INTEND TO ACQUIRE ADDITIONAL OIL AND
GAS PROPERTIES.

As part of our  growth  strategy,  we intend to acquire  additional  oil and gas
production properties.  Current and subsequent acquisitions may pose substantial

                                       16
<PAGE>

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.

         WE ARE A NEW ENTRANT INTO THE OIL AND GAS  EXPLORATION  AND DEVELOPMENT
         INDUSTRY WITHOUT PROFITABLE OPERATING HISTORY.

Since  inception,  our activities have been limited to  organizational  efforts,
obtaining  working capital and acquiring and developing a very limited number of
properties. As a result, there is limited information regarding property related
production potential or revenue generation  potential.  Further, our Leases have
no probable,  proved or developed  producing  reserves.  As a result, our future
revenues may be limited or non-existent.

The business of oil and gas exploration and development is subject to many risks
and if oil and  natural  gas is found in  economic  production  quantities,  the
potential  profitability  of future  possible oil and gas ventures  depends upon
factors beyond our control.  The potential  profitability of oil and natural gas
properties if economic  quantities  are found is dependent upon many factors and
risks  beyond our  control,  including,  but not limited  to: (i)  unanticipated
ground conditions; (ii) geological problems; (iii) drilling and other processing
problems;  (iv) the  occurrence of unusual  weather or operating  conditions and
other force majeure events;  (v) lower than expected  reserve  quantities;  (vi)
accidents;  (vii)  delays in the  receipt of or  failure  to  receive  necessary
government permits;  (viii) delays in transportation;  (ix) labor disputes;  (x)
government permit restrictions and regulation restrictions;  (xi) unavailability
of materials  and  equipment;  and (xii) the failure of equipment or drilling to
operate in accordance with specifications or expectations.

         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.

                                       17
<PAGE>

         OUR PRODUCTION INITIATIVES MAY NOT PROVE SUCCESSFUL.

The coal beds from which we intend to produce  natural  gas  frequently  contain
water, which may hamper our ability to produce gas in commercial quantities. The
amount of natural gas 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 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.

         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 Annual Report.  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 OUR CONTROL.

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

                                       18
<PAGE>

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  OR OIL AND GAS RESOURCES IF FOUND ARE DEPENDENT ON NUMEROUS
         OPERATIONAL  UNCERTAINTIES  SPECIFIC TO THE AREA OF THE  RESOURCE  THAT
         AFFECTS ITS PROFITABILITY.

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 our  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
         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.  Factors that can cause price fluctuations  include:  (i) the level of
consumer  product demand;  (ii) domestic and foreign  governmental  regulations;
(iii) the price and availability of alternative  fuels; (iv) technical  advances
affecting  energy  consumption;  (v)  proximity  and  capacity  of oil  and  gas
pipelines and other  transportation  facilities;  (vi)  political  conditions in

                                       19
<PAGE>

natural gas and oil producing regions;  (vii) the domestic and foreign supply of
natural gas and oil;  (viii) the ability of members of Organization of Petroleum
Exporting Countries to agree to and maintain oil price and production  controls;
(ix) the price of foreign imports;  and (x) 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  INVOLVED  MANY  INDUSTRY
         RELATED OPERATING AND  IMPLEMENTATION  RISKS THAT CAN CAUSE SUBSTANTIAL
         LOSSES,  INCLUDING,  BUT NOT LIMITED TO,  UNPRODUCTIVE  WELLS,  NATURAL
         DISASTERS, FACILITY AND EQUIPMENT PROBLEMS AND ENVIRONMENTAL HAZARDS.

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: (i)  fires;  (ii)  explosions;  (iii)
blow-outs  and  surface  cratering;  (iv)  uncontrollable  flows of  underground
natural gas, oil, or formation water; (v) natural  disasters;  (vi) facility and
equipment failures; (vii) title problems; (viii) shortages or delivery delays of
equipment and services; (ix) abnormal pressure formations; and (x) environmental
hazards such as natural gas leaks, oil spills,  pipeline ruptures and discharges
of toxic gases.

If any of these events occur, we could incur substantial  losses as a result of:
(i) injury or loss of life;  (ii) severe damage to and  destruction of property,
natural resources or equipment;  (iii) pollution and other environmental damage;
(iv) clean-up responsibilities; (v) regulatory investigation and penalties; (vi)
suspension of our operations; or (vii) 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 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

                                       20
<PAGE>

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 BUSINESS OPERATIONS.

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.
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

                                       21
<PAGE>

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.  We need  insurance  to protect our self
against risks  associated with the leases  obtained.  The leases allow for entry
onto the properties for the purposes of oil and gas  exploration.  The insurance
we require  relates solely to developments on the properties for the purposes of
oil and gas exploration.

When and if we are  convinced  that our  current  leases  or those  subsequently
acquired are capable of hydrocarbon  production and sales,  and we plan to drill
more than one well, we intend to maintain a $2,000,000  per year limit policy on
bodily  injury and  general  liability  with  regard to risks  incurred  for the
drilling  of up to 25 wells.  This  will  allow for our  growth to  contain  non
contract  labor that would  require us to carry such  additional  insurance  for
risks  pertaining to oil and gas  exploration  conducted  directly by us. Such a
policy  would   include   coverage  for  numerous   locations   for   pollution,
environmental  damage,  chemical spills and commercial general liability,  fire,
and personal injury. Such a policy will not be required until such time and date
as we believe that we will begin a sustained drilling and operating program, and
that at least one well has been  drilled and is producing to justify and warrant
further drilling and a sustained drilling and operating program.

         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.

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 Marcus  Johnson,  our Chief  Executive
Officer,  and D. Bruce Horton, our 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 devotes part of his working  time to other  business  endeavors,

                                       22
<PAGE>

including consulting relationships with other entities, and has responsibilities
to these other  entities.  Marcus Johnson is the chief  executive  officer and a
director of Geneva  Resources  Inc.  and D. Bruce  Horton is an  accountant  and
financial management consultant.

Such conflicts include deciding how much time to devote to our affairs,  as well
as what  business  opportunities  should be  presented  to us.  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.


         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.

RISKS RELATED TO OUR COMMON STOCK

         SALES OF A  SUBSTANTIAL  NUMBER OF SHARES OF OUR COMMON  STOCK INTO THE
         PUBLIC  MARKET  BY  CERTAIN  STOCKHOLDERS  MAY  RESULT  IN  SIGNIFICANT
         DOWNWARD  PRESSURE  ON THE PRICE OF OUR COMMON  STOCK AND COULD  AFFECT
         YOUR ABILITY 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
by certain  stockholders  could  cause a  reduction  in the market  price of our
common stock. As of the date of this Annual Report, we have 29,814,905 shares of
common  stock  issued  and  outstanding.  Of the  total  number  of  issued  and
outstanding shares of common stock,  certain  stockholders are able to resell up
to 4,167,700 shares of our common stock pursuant to the  Registration  Statement
declared  effective  on  February  14,  2006.  As a result  of the  Registration
Statement,  4,167,700  shares of our common stock were issued and are  available
for  immediate  resale  which  could have an adverse  effect on the price of our
common stock.

As of the date of this Annual Report, there are 12,944,045 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.  Further, as of the date of this Annual Report,
there are an aggregate of 1,850,000  stock options  outstanding and an aggregate
of 944,105  Warrants  outstanding.  See "Item 5.  Market  for Common  Equity and
Related Stockholder Matters."

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

                                       23
<PAGE>

sales by the selling  stockholders  or others.  Any such short sales could place
further downward pressure on the price of our common stock.

         THE TRADING  PRICE OF OUR COMMON STOCK ON THE OTC  BULLETIN  BOARD WILL
         FLUCTUATE  SIGNIFICANTLY AND STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING
         THEIR SHARES.

As of  the  date  of  this  Annual  Report,  our  common  stock  trades  on  the
Over-the-Counter  Bulletin Board. There is a volatility associated with Bulletin
Board  securities in general and the value of your investment  could decline due
to the  impact of any of the  following  factors  upon the  market  price of our
common  stock:  (i)  disappointing  results from our  discovery  or  development
efforts;  (ii) failure to meet our revenue or profit goals or operating  budget;
(iii)  decline  in demand for our  common  stock;  (iv)  downward  revisions  in
securities  analysts'  estimates or changes in general  market  conditions;  (v)
technological innovations by competitors or in competing technologies; (vi) lack
of funding generated for operations;  (vii) investor  perception of our industry
or our prospects; and (viii) general economic trends.

In addition,  stock markets have experienced  price and volume  fluctuations and
the market prices of securities have been highly  volatile.  These  fluctuations
are often unrelated to operating performance and may adversely affect the market
price of our common  stock.  As a result,  investors may be unable to sell their
shares at a fair price and you may lose all or part of your investment.

         ADDITIONAL  ISSUANCE 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,   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
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,

                                       24
<PAGE>

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.

ITEM 2. DESCRIPTION OF PROPERTIES

We lease our principal  office space located at 10120 S. Eastern  Avenue,  Suite
200, Henderson,  Nevada 89052. The office space is for corporate identification,
mailing,  and courier purposes only and costs us approximately $225 monthly. The
office and services  related  thereto may be cancelled at any time with a thirty
day notice.

ITEM 3. LEGAL PROCEEDINGS

Management  is  not  aware  of  any  legal   proceedings   contemplated  by  any
governmental authority or any other party involving us or our properties.  As of
the date of this Annual Report, no director, officer or affiliate is (i) a party
adverse to us in any legal proceeding,  or (ii) has an adverse interest to us in
any legal  proceedings.  Management is not aware of any other legal  proceedings
pending or that have been threatened against us or our properties.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During  fiscal year ended  December 31, 2006,  no matters were  submitted to our
stockholders for approval.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY,  RELATED STOCKHOLDER MATTERS  AND
ISSUER PURCHASES OF EQUITY SECURITIES

MARKET FOR COMMON EQUITY


Shares of our common stock commenced trading on the OTC Bulletin Board under the
symbol "MCRE:OB" on approximately  May 24, 2006. The market for our common stock
is limited, and can be volatile. The following table sets forth the high and low
bid prices  relating to our common  stock on a  quarterly  basis for the periods

                                       25
<PAGE>

indicated  as  quoted by the  NASDAQ  stock  market.  These  quotations  reflect
inter-dealer prices without retail mark-up,  mark-down, or commissions,  and may
not reflect actual transactions.

              MONTH ENDED                      HIGH BID              LOW BID
           December 31, 2006                     $3.16                $1.30
          September 30, 2006                     $4.93                $2.83
             June 30, 2006                       $2.55*               $2.70*
            March 31, 2006                        n/a                  n/a

*Represents an average based upon months of May and June 2006.

As of March 1, 2007, we had 25  shareholders  of record,  which does not include
shareholders whose shares are held in street or nominee names.

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 one equity  compensation plan, the Uranium Energy 2006 Stock Option Plan
(the "2006 Plan").  The table set forth below presents  information  relating to
our equity compensation plans as of the date of this Annual Report:

<TABLE>
<CAPTION>
                                                                                                   NUMBER OF SECURITIES
                                 NUMBER OF SECURITIES TO BE                                      REMAINING AVAILABLE FOR
                                  ISSUED UPON EXERCISE OF      WEIGHTED-AVERAGE EXERCISE          FUTURE ISSUANCE UNDER
                                    OUTSTANDING OPTIONS,          PRICE OF OUTSTANDING          EQUITY COMPENSATION PLANS
                                    WARRANTS AND RIGHTS       OPTIONS, WARRANTS AND RIGHTS          (EXCLUDING COLUMN
        PLAN CATEGORY                       (A)                           (B)                             (A))
__________________________________________________________________________________________________________________________
<S>                                       <C>                              <C>                        <C>
Equity Compensation Plans
Approved by Security Holders
(2006 Stock Option Plan)                  1,850,000                        $1.10                      3,150,000
Equity Compensation Plans Not
Approved by Security Holders                944,105                        $3.00                             -0-

</TABLE>


2006 STOCK OPTION PLAN

On April 3, 2006, our Board of Directors authorized and approved the adoption of
the 2006 Plan effective April 3, 2006,  under which an aggregate of 5,000,000 of
our shares may be issued.

                                       26
<PAGE>


The purpose of the 2006 Plan is to enhance our  long-term  stockholder  value by
offering  opportunities  to our  directors,  officers,  employees  and  eligible
consultants  to acquire  and  maintain  stock  ownership  in order to give these
persons  the  opportunity  to  participate  in our  growth and  success,  and to
encourage them to remain in our service.

The 2006 Plan is to be  administered  by our Board of  Directors  or a committee
appointed by and  consisting  of one or more members of the Board of  Directors,
which shall determine (i) the persons to be granted Stock Options under the 2006
Plan;  (ii) the number of shares  subject to each option,  the exercise price of
each Stock Option;  and (iii) whether the Stock Option shall be  exercisable  at
any time  during  the option  period up to ten (10)  years or whether  the Stock
Option  shall be  exercisable  in  installments  or by vesting  only.  2006 Plan
provides  authorization  to the Board of  Directors  to grant  Stock  Options to
purchase a total number of shares of Common Stock of the Company,  not to exceed
5,000,000  shares as at the date of  adoption by the Board of  Directors  of the
2006 Plan. At the time a Stock Option is granted under the 2006 Plan,  the Board
of Directors  shall fix and determine the exercise  price at which shares of our
common stock may be acquired.

In the event an optionee  ceases to be employed by or to provide  services to us
for reasons other than cause, retirement,  disability or death, any Stock Option
that is vested and held by such optionee  generally may be exercisable within up
to ninety (90) calendar days after the effective date that his position  ceases,
and after such 90-day period any unexercised  Stock Option shall expire.  In the
event an  optionee  ceases to be  employed  by or to provide  services to us for
reasons of retirement,  disability or death, any Stock Option that is vested and
held by such optionee  generally may be exercisable  within up to one-year after
the effective date that his position ceases,  and after such one-year period any
unexercised Stock Option shall expire.

No Stock Options granted under the Stock Option Plan will be transferable by the
optionee,  and each Stock Option will be exercisable  during the lifetime of the
optionee  subject  to the  option  period  up to ten (10)  years or  limitations
described  above.  Any Stock Option held by an optionee at the time of his death
may be exercised  by his estate  within one (1) year of his death or such longer
period as the Board of Directors may determine.

The exercise price of a Stock Option granted  pursuant to the 2006 Plan shall be
paid in full to us by  delivery  of  consideration  equal to the  product of the
Stock Option in accordance with the requirements of the Nevada Revised Statutes.
Any Stock Option settlement, including payment deferrals or payments deemed made
by way of settlement of pre-existing indebtedness from we may be subject to such
conditions, restrictions and contingencies as may be determined.

INCENTIVE STOCK OPTIONS

The 2006 Plan further  provides  that,  subject to the  provisions  of the Stock
Option Plan and prior shareholder approval,  the Board of Directors may grant to
any key  individuals  who are our employees  eligible to receive  options one or
more  incentive  stock  options to purchase the number of shares of common stock
allotted by the Board of Directors (the "Incentive Stock  Options").  The option
price per share of common  stock  deliverable  upon the exercise of an Incentive
Stock  Option  shall be at least  100% of the fair  market  value of the  common
shares of the Company,  and in the case of an Incentive  Stock Option granted to
an optionee  who owns more than 10% of the total  combined  voting  power of all
classes of our stock,  shall not be less than 100% of the fair  market  value of

                                       27
<PAGE>

our common  shares.  The option term of each  Incentive  Stock  Option  shall be
determined by the Board of Directors,  which shall not commence sooner than from
the date of grant and shall terminate no later than ten (10) years from the date
of grant of the Incentive Stock Option, subject to possible early termination as
described above.

COMMON STOCK PURCHASE WARRANTS

As of the date of this Annual  Report,  there are an aggregate of 944,105 common
stock  purchase  warrants  issued  and  outstanding.  During  fiscal  year ended
December 31, 2006, we issued an aggregate 944,105 common stock purchase warrants
(the "Warrants"). The Warrants to purchase shares of common stock and the shares
of common stock underlying the Warrants were issued in a private placement by us
during  fiscal  year 2006 at an  exercise  price of $3.00 per share  during  the
period  commencing on October 16, 2006 and ending on the day which is earlier of
(a)  twenty-four  months from the date of  issuance of the  Warrants or eighteen
months from the effective date of a proposed  registration  statement.  See " --
Recent Sales of Unregistered Securities."

As of the date of this Annual Report, none of the Warrants have been exercised.

RECENT SALES OF UNREGISTERED SECURITIES

As of the date of this Annual Report and during  fiscal year ended  December 31,
2006, to provide capital, we sold stock in private placement  offerings,  issued
stock in exchange  for our debts or pursuant to  contractual  agreements  as set
forth below.

OCTOBER 2006 PRIVATE PLACEMENT OFFERING

On October 16, 2006, we closed a private  placement  offering (the "October 2006
Private Placement Offering"), whereby we issued an aggregate of 944,105 units at
a subscription price of $1.50 per unit (the "Units").  Each was comprised of one
share  of  common  stock  and  one  non-transferable  warrant  (the  "Warrant"),
representing  the issuance of an aggregate of 944,105  shares of our  restricted
common stock and 944,105  Warrants with  piggyback  registration  rights for all
securities  underlying  the  Units  issued.  We  agreed  to file a  registration
statement with the SEC in accordance with the requirements of the Securities Act
in order to register the resale by the  investors  of the shares  issued and the
share  issuable upon exercise of the Warrants.  Each Warrant is  exercisable  at
$3.00 per share during the period  commencing  on October 16, 2006 and ending on
the day which is earlier of (a) twenty-four  months from the date of issuance of
the  Warrants  or  eighteen  months  from  the  effective  date  of  a  proposed
registration statement.

The  October  2006  Private  Placement  Offering  was  completed  in reliance on
Regulation S and/or Rule 506 of  Regulation D of the  Securities  Act.  Sales to
United  States  investors  pursuant to Rule 506 of  Regulation D were limited to
investors who  qualified as  "accredited  investors"  within the meaning of Rule
501(a)  of  Regulation  D. The per  share  price  of the  October  2006  Private
Placement  Offering was  arbitrarily  determined by our Board of Directors based
upon  analysis  of certain  factors  including,  but not  limited  to,  stage of
development,  industry status,  investment climate,  perceived investment risks,
our assets and net estimated worth.

Of this  October  2006  Private  Placement  Offering,  563,333 of the Units were
issued  in  exchange  for  $845,000  previously  advanced  to us by  one  of our

                                       28
<PAGE>

shareholders. We issued the remaining Units to investors who are either non-U.S.
residents under Regulation S or U.S. residents under Regulation D. The investors
executed  subscription  agreements  and  acknowledged  that the securities to be
issued have not been  registered  under the Securities Act, that they understood
the economic  risk of an  investment  in the  securities,  and that they had the
opportunity  to ask  questions  of  and  receive  answers  from  our  management
concerning any and all matters related to acquisition of the securities

SHARES ELIGIBLE FOR FUTURE SALE

We filed a registration statement on Form SB-2 under the Securities Act with the
Securities  and  Exchange   Commission  (the  "Registration   Statement").   The
Securities and Exchange Commission declared the Registration Statement effective
on February 14, 2006, pursuant to which certain purchasers of shares, other than
affiliates, may resell their shares of common stock aggregating 4,167,700 shares
immediately.  A current shareholder who is an "affiliate" of us, 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,  us, will be
required to comply with the resale  limitations of Rule 144. 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 us. 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.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The  summarized  financial data set forth in the table below is derived from and
should be read in  conjunction  with our audited  financial  statements  for the
period from  inception  (October  19,  2004) to year ended  December  31,  2006,
including  the notes to those  financial  statements  which are included in this
Annual Report.  The following  discussion should be read in conjunction with our
audited financial statements and the related notes that appear elsewhere in this
Annual Report. 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 Annual Report,  particularly in the
section entitled "Risk Factors".  Our audited financial statements are stated in
United  States  Dollars  and are  prepared  in  accordance  with  United  States
Generally Accepted Accounting Principles.

We are an exploration  stage company and have not generated any revenue to date.
The following  table sets forth selected  financial  information for the periods
indicated.

                                       29
<PAGE>


RESULTS OF OPERATION
                                                          FOR THE PERIOD FROM
                                   FISCAL YEAR ENDED        OCTOBER 19, 2004
                                      DECEMBER 31            (INCEPTION) TO
                                     2006 AND 2005        DECEMBER   31, 2006
                              __________________________ ____________________

General and                   $3,918,002      $204,026        $4,145,757
Administrative Expenses
    Investor relations           112,744        50,000           152,954
    expenses
    Consulting expenses          346,992        90,000           438,467
    Management fees              311,707           -0-           311,707
    Impairment property        1,273,410           -0-         1,273,410
    expense
    Management -Stock          1,527,170           -0-         1,527,170
    based compensation
    Office and general           176,883        12,954           200,104
Professional                     169,095        51,072           241,944
Fees
Net Loss                     ($3,918,002)    ($204,026)      ($4,145,757)

We have incurred  recurring  losses to date. Our financial  statements have been
prepared assuming that we will continue as a going concern and, accordingly,  do
not include adjustments relating to the recoverability and realization of assets
and classification of liabilities that might be necessary should we be unable to
continue in operation.

We expect we will  require  additional  capital to meet our long term  operating
requirements. We expect to raise additional capital through, among other things,
the sale of equity or debt securities.

FISCAL YEAR ENDED  DECEMBER 31, 2006 COMPARED TO FISCAL YEAR ENDED  DECEMBER 31,
2005

Our net  loss  for  fiscal  year  ended  December  31,  2006  was  approximately
($3,918,002)  compared  to a net loss of  ($204,026)  during  fiscal  year ended
December  31,  2005 (an  increase  of  $3,713,976).  During  fiscal  years ended
December 31, 2006 and 2005, we did not generate any revenue.

During  fiscal  year  ended   December  31,  2006,   we  incurred   general  and
administrative  expenses  of  approximately   $3,918,002  compared  to  $204,026
incurred during fiscal year ended December 31, 2005 (an increase of $3,713,976).
These  general and  administrative  expenses  incurred  during fiscal year ended
December  31, 2006  consisted  of: (i) investor  relations  expenses of $112,744
(2005:  $50,000);  (ii) consulting expenses of $346,992 (2005:  $90,000);  (iii)
management fees of $311,707 (2005:  $-0-);  (iv) impairment oil and gas property
expense of $1,273,410  (2005:  $-0-);  (v) management  stock based  compensation
relating to the valuation of stock options granted to our officers and directors
of $1,527,170 (2005: $-0-); (vi) office and general of $176,883 (2005: $12,954);
and (vii) professional fees of $169,095 (2005: $51,072).

                                       30
<PAGE>


General and  administrative  expenses incurred during fiscal year ended December
31, 2006 increased  primarily due to the increase in operating costs  associated
with the increased acquisition and development of our oil and gas properties and
related infrastructure and overall corporate activity and our decision to record
the  impairment  of  several of our  properties  totaling  $1,273,410.  Investor
relations expenses incurred during fiscal year ended December 31, 2006 primarily
increased  relating to corporate  marketing  and increased  business  operations
pertaining  to investor  awareness.  Consulting  expenses  and  management  fees
incurred  during  fiscal year ended  December 31, 2006  increased  substantially
pertaining to the increase in  acquisition  and  development  of our oil and gas
properties and related contracted services. Stock based compensation relating to
management fees,  consulting fees and wages and benefits  incurred during fiscal
year ended December 31, 2006 substantially increased due to the recording of the
non-cash  expense of $1,527,170 in connection with the grant of stock options to
our  officers/directors,  employees and consultants.  General and administrative
expenses  generally include  corporate  overhead,  financial and  administrative
contracted services, marketing, and consulting costs.

Of the $3,918,002 incurred as general and administrative  expenses during fiscal
year  ended  December  31,  2006,  we  incurred   certain   amounts  payable  to
International  Market  Trend,  Inc.  ("IMT") as  follows:  (i) an  aggregate  of
$167,500 in  consulting  fees;  (ii)  $42,500 for  assisting  us in  obtaining a
listing on the Frankfurt  Exchange;  (iii) $125,000 for  administration  fees in
accordance with contractual  provisions;  (iv) $75,000 for  implementation of an
investor  awareness  mailing  program in Germany;  (v) $7,500 for  updating  our
website and other identity  related items;  (vi) $8,275 for telephone,  printing
and office  expenses.  As of December  31, 2006,  we owed IMT $16,326,  which is
unsecured  and  non-interest  bearing and has no definite  repayment  terms.  An
officer and director of IMT is also one of our shareholders.

An aggregate of $200,000 was incurred to American News Publishing, Inc. ("ANP"),
for the  development of an investor  communications  package and as a deposit on
shareholder  communications  materials and direct mail distribution  costs. Such
image  advertising  services were to include the creation of 16 page  newsletter
with color  photo  content  about us,  printing,  posting,  and  mailing of such
newsletter to approximately 150,000 intended readers interested in a new company
in the oil and gas industry.  A formal  written  contract was never executed for
these  services,  and such services were to be performed at a date after we were
public based upon a verbal agreement.  We abandoned our initiative regarding the
development  of  the  above  referenced  investor   communications  package  and
shareholder  communications  materials  and  implementation  of the direct  mail
communication program with ANP and have rescinded previously contracted services
with ANP.  On January  20,  2006,  ANP repaid to us the entire  $200,000  fee in
connection with the rescission of the verbal agreement.

Of the  $3,918,002  incurred  as  operating  expenses  during  fiscal year ended
December 31, 2006, an aggregate of $274,207.33  was incurred  payable to certain
officers and directors in management  and consulting  fees. Of the  $274,207.33:
(i) we  incurred  to our prior  Chief  Executive  Officer,  William  Bolles,  an
aggregate of $22,500 in connection with services  rendered to us in his capacity
as Chief Executive Officer; (ii) we incurred to our Chief Geologist an aggregate
of  $60,000  and an  additional  $4,794.91  in  connection  with the  terms  and
provisions of the Markham Consulting  Services  Agreement;  (iii) we incurred to
our  Operations  Manager an aggregate of $50,000 and an additional  $4,794.91 in
connection with the terms and provisions of the Begley Services Agreement;  (iv)
we incurred to one of our directors, Erik Essiger, an aggregate of $97,117.51 in
connection with performance of exploration related services;  (v) we incurred to

                                       31
<PAGE>

our prior Chief  Financial  Officer,  Grant  Atkins,  an aggregate of $35,000 in
connection with performance of administrative and financial  services;  and (vi)
we  incurred  to Robert  MacLean an  aggregate  of $37,500  in  connection  with
services  rendered to us. As at December 31, 2006, there were no amounts due and
owing to our directors and officers.  See "Item 10. Executive  Compensation" and
"Item  12.  Certain   Relationships   and  Related   Transactions  and  Director
Independence."

Our net loss during  fiscal year ended  December  31, 2006 was  ($3,918,002)  or
($0.13)  per share  compared  to a net loss of  ($204,026)  or ($0.00) per share
during  fiscal year ended  December 31, 2005.  The  weighted  average  number of
shares  outstanding  was  28,811,306  for fiscal  year ended  December  31, 2006
compared to 40,620,060 for fiscal year ended December 31, 2005.

LIQUIDITY AND CAPITAL RESOURCES


                                              AS AT                  AS AT
                                        DECEMBER 31, 2006      DECEMBER 31, 2005
Cash                                            $5,824               $7,110
Prepaid                                        $13,755                    -
Working capital (deficiency)                  (453,649)             181,095
Total assets                                   329,649              507,110
Total liabilities                             (473,228)             (26,015)
Stockholders' equity (deficiency)              143,579              481,095

FISCAL YEAR ENDED DECEMBER 31, 2006

As at fiscal year ended  December 31, 2006,  our current assets were $19,579 and
our current  liabilities  were  $473,228,  which  resulted in a working  capital
deficiency of  ($453,649).  As at fiscal year ended  December 31, 2006,  current
assets were comprised of: (i) $5,824 in cash; and (ii) $13,755 in prepaid. As at
fiscal year ended December 31, 2006, current  liabilities were comprised of: (i)
$119,735 in  accounts  payable and accrued  liabilities;  (ii)  $353,493  due to
related parties.

As at fiscal year ended  December  31,  2006,  our total  assets  were  $329,649
comprised of: (i) $19,579 in current  assets;  and (ii) $310,070 in unproved oil
and gas  properties.  The  increase  in total  assets  during  fiscal year ended
December 31, 2006 from fiscal year ended  December 31, 2005 was primarily due to
the  increase  in  valuation  of the  recently  acquired  unproved  oil  and gas
properties.

As at fiscal year ended December 31, 2006, our total  liabilities  were $473,228
comprised entirely of, current  liabilities.  The increase in liabilities during
fiscal year ended December 31, 2006 from fiscal year ended December 31, 2005 was
primarily due to the increase in amounts due to related parties.

Stockholders'  equity decreased from $481,095 for fiscal year ended December 31,
2005 to $143,579 for fiscal year ended December 31, 2006.

                                       32
<PAGE>

CASH FLOWS FROM OPERATING ACTIVITIES

We have not generated positive cash flows from operating activities.  For fiscal
year ended  December 31, 2006,  net cash flows used in operating  activities was
($839,051),  consisting primarily of a net loss of ($3,918,002).  Net cash flows
used in  operating  activities  was  adjusted by  $1,527,170  to  reconcile  the
non-cash  expense  of stock  options  granted  and by  $1,273,410  to  reconcile
impairment  of oil and gas  properties  and  $200,000  to  reconcile  costs from
related  parties and by ($13,755) to reconcile  prepaid  expenses and $28,083 to
reconcile costs to related parties and $64,043 to reconcile accounts payable and
accrued liabilities.

For  fiscal  year  ended  December  31,  2005,  net cash flow used in  operating
activities was $(398,389), consisting primarily of a net loss of $(204,026). The
change in net cash flows used in operating  activities  during fiscal year ended
December 31, 2006 from fiscal year ended December 31, 2005 related  primarily to
the  increase in the non-cash  expense of stock  options  granted of  $1,527,170
(2005:  $-0-)and  impairment  of oil and gas  properties  of  $1,273,410  (2005:
$-0-0).  In fiscal year ended  December 31, 2006,  there was also an increase in
Due to related  parties of $28,083  compared to $10,000 in the fiscal year ended
December  31,  2005 and  accounts  payable and  accrued  liabilities  of $64,043
compared to ($4,363) in fiscal year ended December 31, 2005.

CASH FLOWS FROM INVESTING ACTIVITIES

For fiscal  year  ended  December  31,  2006,  net cash flows used in  investing
activities  was  ($903,393)  consisting  of the  acquisition  of the oil and gas
properties. There were no cash flows used in investing activities in fiscal year
ended December 31, 2005.

CASH FLOWS FROM FINANCING ACTIVITIES

We have financed our  operations  primarily from the issuance of equity and debt
instruments.  For  fiscal  year ended  December  31,  2006,  net cash flows from
financing  activities was  $1,741,158  compared to $35,000 for fiscal year ended
December 31, 2005,  pertaining  primarily to proceeds  received from the sale of
our common stock and advances  received  from  related  parties.  We completed a
private  placement  financing  in October  2006  whereby we sold an aggregate of
944,105  Units at a price of $1.50 per Unit for gross  proceeds  of  $1,416,158.
However,  of this amount,  $845,000  consisted of settlement of debt relating to
amounts previously advanced to us by one of our shareholders.

We expect that working capital requirements will continue to be funded through a
combination  of our  existing  funds and further  issuances of  securities.  Our
working capital requirements are expected to increase in line with the growth of
our business.

PLAN OF OPERATION AND FUNDING

Existing working capital, further advances and debt instruments, and anticipated
cash flow are expected to be adequate to fund our  operations  over the next six
months.  We have no  lines  of  credit  or other  bank  financing  arrangements.
Generally,  we have  financed  operations  to date  through the  proceeds of the
private  placement  of  equity  and debt  instruments.  In  connection  with our
business plan, management anticipates additional increases in operating expenses

                                       33
<PAGE>

and capital expenditures relating to: (i) oil and gas operating properties; (ii)
possible drilling  initiatives on current properties and future properties;  and
(iii) future  property  acquisitions.  We intend to finance these  expenses with
further issuances of securities,  and debt issuances.  Thereafter,  we expect we
will need to raise  additional  capital and generate  revenues to meet long-term
operating  requirements.  Additional  issuances  of equity or  convertible  debt
securities will result in dilution to our current  shareholders.  Further,  such
securities  might have rights,  preferences  or privileges  senior to our common
stock.  Additional  financing may not be available upon acceptable  terms, or at
all. If adequate  funds are not  available or are not  available  on  acceptable
terms,  we may not be  able  to  take  advantage  of  prospective  new  business
endeavors or opportunities,  which could  significantly and materially  restrict
our business operations.

During  fiscal year ended  December  31, 2006,  we engaged in private  placement
offerings under Regulation D and Regulation S of the Securities Act. Pursuant to
the  terms  of the  private  placements,  we  issued  aggregate  amounts  of our
restricted common stock at subscription prices and under terms as follows:

     o    On October 16, 2006, we closed the October Private Placement  Offering
          whereby  we issued an  aggregate  of 944,105  Units at a  subscription
          price of $1.50 per Unit for aggregate gross proceeds gross proceeds of
          $1,416,157.  However, of this amount, $845,000 consisted of settlement
          of debt  relating to amounts  previously  advanced to us by one of our
          shareholders.   The  Warrants  are  exercisable  at  $3.00  per  share
          commencing  from  October  16,  2006 and  ending  on the day  which is
          earlier of: (i) twenty-four months from the date of issuance;  or (ii)
          eighteen  months from the  effective  date of a proposed  registration
          statement. As of the date of this Annual Report, we have not filed any
          registration statement under the Securities Act.

GOING CONCERN

The independent auditors' report accompanying our December 31, 2006 and December
31, 2005  financial  statements  contains an  explanatory  paragraph  expressing
substantial  doubt  about  our  ability  to  continue  as a going  concern.  The
financial  statements  have been prepared  "assuming  that we will continue as a
going concern," which  contemplates  that we will realize our assets and satisfy
our liabilities and commitments in the ordinary course of business.

MATERIAL COMMITMENTS

As of the date of this Annual  Report,  we do not have any material  commitments
for fiscal year ended December 31, 2007.

PURCHASE OF SIGNIFICANT EQUIPMENT

We do not intend to purchase any  significant  equipment  during the next twelve
months.

OFF-BALANCE SHEET ARRANGEMENTS

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

                                       34
<PAGE>


RECENT ACCOUNTING PRONOUNCEMENTS

In February  2006, the FASB issued SFAS No. 155  "Accounting  for Certain Hybrid
Financial  Instruments-an  amendment  of FASB  Statements  No. 133 and 140",  TO
SIMPLIFY  and  make  more  consistent  the  accounting  for  certain   financial
instruments.  SFAS No. 155  amends  SFAS No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities", to permit fair value re-measurement for any
hybrid  financial  instrument  with an embedded  derivative that otherwise would
require  bifurcation,  provided that the whole  instrument is accounted for on a
fair  value  basis.  SFAS No.  155  amends  SFAS No.  140,  "Accounting  for the
Impairment   or  Disposal  of   Long-Lived   Assets",   to  allow  a  qualifying
special-purpose  entity to hold a derivative  financial instrument that pertains
to a beneficial  interest other than another  derivative  financial  instrument.
SFAS No. 155 applies to all financial  instruments  acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15, 2006,
with earlier application allowed. The adoption of this statement is not expected
to have a material effect on our future reported  financial  position or results
of operations.

In March  2006,  the FASB  issued SFAS No. 156,  "Accounting  for  Servicing  of
Financial  Assets,  an  amendment  of FASB  Statement  No. 140,  Accounting  for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
This statement requires all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable, and permits for
subsequent  measurement using either fair value measurement with changes in fair
value reflected in earnings or the amortization  and impairment  requirements of
Statement No. 140. The subsequent measurement of separately recognized servicing
assets and  servicing  liabilities  at fair value  eliminates  the necessity for
entities  that  manage the risks  inherent  in  servicing  assets and  servicing
liabilities  with  derivatives  to qualify for hedge  accounting  treatment  and
eliminates  the  characterization  of declines in fair value as  impairments  or
direct write-downs.  SFAS No. 156 is effective for an entity's first fiscal year
beginning  after  September  15,  2006.  The  adoption of this  statement is not
expected to have a material effect on our future reported  financial position or
results of operations.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements".  The
objective of SFAS 157 is to increase consistency and comparability in fair value
measurements and to expand disclosures about fair value  measurements.  SFAS 157
defines  fair  value,  establishes  a  framework  for  measuring  fair  value in
generally accepted  accounting  principles,  and expands  disclosures about fair
value measurements.  SFAS 157 applies under other accounting pronouncements that
require or permit  fair value  measurements  and does not  require  any new fair
value measurements.  The provisions of SFAS No. 157 are effective for fair value
measurements  made in fiscal  years  beginning  after  November  15,  2007.  The
adoption of this  statement  is not  expected  to have a material  effect on our
future reported financial position or results of operations.

In September  2006,  the FASB issued SFAS No. 158,  "Employers'  Accounting  for
Defined  Benefit Pension and Other  Postretirement  Plans - an amendment of FASB
Statements No. 87, 88, 106, and 132(R)".  This statement  requires  employers to
recognize  the   overfunded  or   underfunded   status  of  a  defined   benefit
postretirement  plan (other than a multiemployer  plan) as an asset or liability
in its statement of financial  position and to recognize  changes in that funded
status in the year in which the changes occur through  comprehensive income of a
business  entity or  changes  in  unrestricted  net  assets of a  not-for-profit
organization.  This  statement  also  requires an employer to measure the funded

                                       35
<PAGE>

status of a plan as of the date of its year-end statement of financial position,
with  limited  exceptions.  The  provisions  of SFAS No. 158 are  effective  for
employers  with publicly  traded  equity  securities as of the end of the fiscal
year ending  after  December 15,  2006.  The  adoption of this  statement is not
expected to have a material effect on our future reported  financial position or
results of operations

In September  2006, the SEC issued Staff  Accounting  Bulletin  ("SAB") No. 108,
"Considering   the  Effects  of  Prior  Year   Misstatements   when  Quantifying
Misstatements  in Current Year Financial  Statements." SAB No. 108 addresses how
the effects of prior year  uncorrected  misstatements  should be considered when
quantifying  misstatements  in current year  financial  statements.  SAB No. 108
requires  companies to quantify  misstatements  using a balance sheet and income
statement   approach  and  to  evaluate   whether  either  approach  results  in
quantifying  an error that is  material in light of  relevant  quantitative  and
qualitative  factors. SAB No. 108 is effective for periods ending after November
15, 2006. We are currently  evaluating the impact of adopting SAB No. 108 but do
not expect that it will have a material  effect on our  financial  position  and
results of operations.

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial Assets and Financial Liabilities".  This Statement permits entities to
choose to measure many financial assets and financial liabilities at fair value.
Unrealized  gains and losses on items for which the fair  value  option has been
elected are  reported in earnings.  SFAS No. 159 is  effective  for fiscal years
beginning after November 15, 2007. We are currently assessing the impact of SFAS
No. 159 on our financial position and results of operations.

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, 2006 management has determined that there are no
material asset retirement obligations.

PROPERTY, EQUIPMENT AND DEPRECIATION

We follow  the full cost  method of  accounting  for our 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

                                       36
<PAGE>

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. We currently operate 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.

We apply 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.

ITEM 7. FINANCIAL STATEMENTS





                            MORGAN CREEK ENERGY CORP.

                         (An Exploration Stage Company)

                              FINANCIAL STATEMENTS

                                DECEMBER 31, 2006






















REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

BALANCE SHEETS

STATEMENTS OF OPERATIONS

STATEMENT OF STOCKHOLDER'S EQUITY

STATEMENTS OF CASH FLOWS

NOTES TO FINANCIAL STATEMENTS


                                       37
<PAGE>

DALE MATHESON
CARR-HILTON LABONTE LLP
DMCL CHARTERED ACCOUNTANTS

PARTNERSHIP OF:

VANCOUVER
Robert J. Burkart, Inc.     James F. Carr-Hilton Ltd.   Kenneth P. Chong Inc.
Alvin F. Dale Ltd.          Barry S. Hartley, Inc.      Reginald J. LaBonte Ltd.
Robert J. Matheson, Inc.    Rakesh I. Patel Inc.

SOUTH SURREY
Michael K. Braun Inc.       Peter J. Donaldson, Inc.

PORT COQUITLAM
Wilfred A. Jacobson Inc.    Fraser G. Ross, Ltd.        Brian A. Shaw Inc.






             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------


To the Stockholders and Board of Directors of Morgan Creek Energy Corp.:

We have audited the balance sheets of Morgan Creek Energy Corp. (an  exploration
stage  company)  as at  December  31,  2006  and  2005  and  the  statements  of
operations, stockholders' equity and cash flows for the years then ended and for
the period  from  inception  on October 19, 2004 to  December  31,  2006.  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 audits.

We conducted our audits in accordance  with the 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.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audits included consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  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
audits provide 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, 2006 and 2005
and the  statements of operations,  stockholders'  equity and cash flows for the
years then ended and for the  period  from  inception  on  October  19,  2004 to
December 31, 2006 in conformity with accounting principles generally accepted in
the United States of America.

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  revenues  since
inception,  has incurred  losses in developing its business,  and further losses
are anticipated.  The Company requires  additional funds to meet its obligations
and finance 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 LLP
                                                           CHARTERED ACCOUNTANTS


March 30, 2007
Vancouver, B.C.



VANCOUVER       SUITE 1500 - 1140 WEST PENDER STREET, VANCOUVER, B.C., CANADA
                V6E 4G1, TEL: 604 687 4747 FAX: 604 689 2778 MAIN RECEPTION

SOUTH SURREY    Suite 301 - 1656 Martin Drive, White Rock, B.C., Canada V4A 6E7,
                Tel: 604 531 1154 Fax: 604 538 2613

PORT COQUITLAM  Suite 700 2755 Lougheed Highway, Port Coquitlam, B.C., Canada
                V3B 5V9, Tel: 604 941 8266 Fax: 604 941 0971



                                       F1
<PAGE>

<TABLE>
<CAPTION>


                            MORGAN CREEK ENERGY CORP.
                         (An Exploration Stage Company)

                                 BALANCE SHEETS

                                                                                               December 31,       December 31,
                                                                                                   2006               2005
_________________________________________________________________________________________________________________________________


 ASSETS


<S>                                                                                                <C>                <C>
CURRENT ASSETS
   Cash                                                                                            $     5,824        $    7,110
     Prepaid                                                                                            13,755                 -
     Due from related party (Note 5)                                                                         -           200,000
_________________________________________________________________________________________________________________________________
                                                                                                        19,579           207,110

OIL AND GAS PROPERTIES, unproven (Note  3)                                                             310,070           300,000
_________________________________________________________________________________________________________________________________

                                                                                                   $   329,649        $  507,110
=================================================================================================================================

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable and accrued liabilities                                                      $   119,735        $   16,015
    Due to related parties  (Note 6)                                                                   353,493            10,000
_________________________________________________________________________________________________________________________________
                                                                                                       473,228            26,015
_________________________________________________________________________________________________________________________________

GOING CONCERN (Note 1)

STOCKHOLDERS' EQUITY (Note 4)
Common stock, 100,000,000 shares authorized with $0.001 par value
 Issued and outstanding
     29,814,905 common shares (December 31, 2005 - 40,670,800)                                          29,815           10,168
     Additional paid-in-capital                                                                      3,972,363          698,682
   Deficit accumulated during exploration stage                                                     (4,145,757)        (227,755)
_________________________________________________________________________________________________________________________________

                                                                                                       143,579           481,095
_________________________________________________________________________________________________________________________________

                                                                                                   $   329,649        $  507,110
=================================================================================================================================


</TABLE>

The accompanying notes are an integral part of these financial statements.


                                       F2
<PAGE>

<TABLE>
<CAPTION>

                            MORGAN CREEK ENERGY CORP.
                         (An Exploration Stage Company)

                            STATEMENTS OF OPERATIONS



                                                                            Year ended        Year ended       October 19, 2004
                                                                           December 31,       December 31,      (inception) to
                                                                                 2006            2005         December 31, 2006
_________________________________________________________________________________________________________________________________


<S>                                                                          <C>                 <C>               <C>
GENERAL AND ADMINISTRATIVE EXPENSES

     Investor relations                                                      $    112,744        $   50,000        $     152,954
     Consulting fees                                                              346,992            90,000              438,467
     Management fees                                                              311,707                 -              311,707
     Management fees - stock based compensation                                 1,527,170                 -            1,527,170
     Impairment of oil and gas properties (Note 3(a), (b), (c) and (d))         1,273,410                 -            1,273,410
   Office and general                                                             176,884            12,954              200,105
   Professional fees                                                              169,095            51,072              241,944
_________________________________________________________________________________________________________________________________


NET LOSS                                                                     $ (3,918,002)       $ (204,026)       $  (4,145,757)
======================================================================== ================= ================== ===================




BASIC AND DILUTED LOSS PER COMMON SHARE                                      $      (0.14)       $    (0.01)
======================================================================== ================= ==================

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING-BASIC AND DILUTED                                           28,811,306        40,620,060
======================================================================== ================= ==================

</TABLE>

The accompanying notes are an integral part of these financial statements.


                                       F3

<PAGE>
<TABLE>
<CAPTION>


                            MORGAN CREEK ENERGY CORP.
                         (An Exploration Stage Company)

                        STATEMENT OF STOCKHOLDERS' EQUITY

      FOR THE PERIOD FROM OCTOBER 19, 2004 (INCEPTION) TO DECEMBER 31, 2006



                                                                  Common Stock                        Deficit
                                                                                                    accumulated
                                                                                      Additional      during
                                                                 Number                 Paid in     exploration   Stockholders'
                                                               of Shares     Amount     Capital        stage          Equity
________________________________________________________________________________________________________________________________

<S>                                                           <C>          <C>         <C>          <C>             <C>
Balance, October 19, 2004                                              -   $      -    $        -   $         -     $         -
Common stock issued for oil and gas property at $0.025
per share - November 19, 2004                                 24,000,000      6,000       594,000             -         600,000
Capital distribution to founding share holder on
acquisition of oil and gas property (Note 3)                           -          -      (600,000)            -        (600,000)
Common stock issued for cash at $0.025 per share
-November 26, 2004 and December 15, 2004                      13,750,000      3,438       340,312             -         343,750
Common stock issued for cash at $0.125 per share
-December 15, 2004                                             2,640,800        660       329,440             -         330,100
Net loss for the period                                                                                 (23,729)        (23,729)
________________________________________________________________________________________________________________________________
Balance, December 31, 2004                                    40,390,800                                                650,121
                                                                             10,098       663,752       (23,729)
Common stock issued for cash at $0.125 per share -
March 9, 2005                                                    280,000         70        34,930             -          35,000
Net loss for the year                                                  -          -             -     (204,026)        (204,026)
________________________________________________________________________________________________________________________________
Balance, December 31, 2005                                    40,670,800     10,168       698,682      (227,755)        481,095
Forward stock split 2:1, May 10, 2006                                  -     10,168       (10,168)            -               -
Forward stock split 2:1, August 8, 2006                                -     20,335       (20,335)            -               -
Common stock issued for cash at $1.50 per share
October 16, 2006                                                 944,105        944     1,415,214             -       1,416,158
Common stock issued for oil and gas property at $1.75
  per share - October 17, 2006 (Note 3)                          200,000        200       349,800             -         350,000
Stock-based compensation                                               -          -     1,527,170             -       1,527,170
Restricted common shares cancelled - December 19, 2006       (12,000,000)   (12,000)       12,000             -               -
Net loss for the year                                                  -          -             -    (3,918,002)     (3,918,002)
________________________________________________________________________________________________________________________________

Balance, December 31, 2006                                    29,814,905   $ 29,815    $3,972,363   $(4,145,757)    $   143,579
================================================================================================================================

</TABLE>

The accompanying notes are an integral part of these financial statements.


                                       F4
<PAGE>
<TABLE>
<CAPTION>


                            MORGAN CREEK ENERGY CORP.
                         (An Exploration Stage Company)

                            STATEMENTS OF CASH FLOWS



                                                                                                             October 19, 2004
                                                                            Year ended        Year ended      (inception) to
                                                                           December 31,      December 31,      December 31,
                                                                               2006              2005               2006
_______________________________________________________________________________________________________________________________

<S>                                                                         <C>                <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss for the year                                                     $ (3,918,002)      $  (204,026)      $ (4,145,757)
  Adjustments to reconcile net loss to net cash used in operating
  activities:
     - Stock based compensation                                                1,527,170                 -          1,527,170
     - Impairment of oil and gas properties (Note 3(e))                        1,273,410                 -          1,273,410
     - Due from related party                                                    200,000                 -                  -
     - Prepaid expenses                                                          (13,755)                -            (13,755)
     - Due to related parties                                                                       10,000             38,083
                                                                                  28,083
     - Accounts payable and accrued liabilities                                   64,043            (4,363)            80,058
_______________________________________________________________________________________________________________________________

NET CASH USED IN OPERATING ACTIVITIES                                           (839,051)         (398,389)        (1,240,791)
_______________________________________________________________________________________________________________________________

CASH FLOWS FROM INVESTING ACTIVITIES
  Acquisition of oil and gas properties, net of recovery                        (903,393)                -         (1,203,393)
_______________________________________________________________________________________________________________________________

NET CASH FLOWS USED IN INVESTING ACTIVITIES                                     (903,393)                -         (1,203,393)
_______________________________________________________________________________________________________________________________

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds on sale of common stock                                           1,416,158            35,000          2,125,008
    Advances from related parties                                                325,000                 -            325,000
_______________________________________________________________________________________________________________________________

NET CASH PROVIDED BY FINANCING ACTIVITIES                                      1,741,158            35,000          2,450,008
_______________________________________________________________________________________________________________________________

INCREASE (DECREASE)  IN CASH                                                      (1,286)         (363,389)             5,824

CASH, BEGINNING OF YEAR                                                            7,110           370,499                  -
_______________________________________________________________________________________________________________________________

CASH, END OF YEAR                                                           $      5,824       $     7,110       $      5,284
===============================================================================================================================


SUPPLEMENTAL CASH FLOW INFORMATION AND
NONCASH INVESTING AND FINANCING ACTIVITIES:
     Cash paid for interest                                                 $          -       $         -       $          -
     Cash paid for income taxes                                             $          -       $         -       $          -
     Common stock issued for acquisition of oil and gas property (Note 3)   $    350,000       $         -       $    950,000

</TABLE>

The accompanying notes are an integral part of these financial statements.

                                       F5

<PAGE>


                            MORGAN CREEK ENERGY CORP.
                         (An Exploration Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2006
________________________________________________________________________________


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  completed 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 petroleum
and natural gas leases (the "Hurley Lease" and the "Chapman  Lease").  Effective
December 31, 2006 the Company decided not to proceed with the development of the
Hurley/Chapman  lease...  During fiscal,  2006 the Company reached agreements to
acquire  additional  oil and gas  prospects  in  Alabama  ("Little  Cedar  Creek
Prospect")  and  in  Louisiana  ("Bayou  Choctaw  Project")  which  the  Company
subsequently has determined not to proceed with further development. The Company
is  preparing  to drill its first well on the  Quachita  Prospect in Texas,  the
Boggs 1 in May, 2007.

Effective May 10, 2006 the Company  completed a common stock share forward split
by the issuance of 2 new shares for each 1  outstanding  share of the  Company's
common stock.  Effective August 8, 2006, the Company  completed a further common
stock share forward split by the issuance of 2 new shares for each 1 outstanding
share  of  the  Company's  common  stock.  All  references  in  these  financial
statements  to number of common  shares,  price per share and  weighted  average
number of common  shares  outstanding  have been adjusted to reflect these stock
splits on a retroactive  basis,  unless  otherwise noted. On December 19, 2006 a
founding  shareholder  returned 12,000,000  restricted common shares back to the
Company's treasury, which were subsequently cancelled.

GOING CONCERN
The Company  commenced  operations  on October 19, 2004 and has not realized any
revenues  since  inception.  As of  December  31,  2006 the  Company has a total
deficit of $4,145,757 and a working capital deficit of $453,649.  The ability of
the Company to continue as a going  concern is dependent  on raising  capital to
fund ongoing  losses and carry out its business  plan and  ultimately  to attain
profitable operations.  Accordingly, these factors raise substantial doubt as to
the Company's  ability to continue as a going  concern.  To date the Company has
funded its initial  operations by way of private  placements of common stock and
advances from related parties.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
________________________________________________________________________________

ORGANIZATION
The Company  was  incorporated  on October 19, 2004 in the State of Nevada.  The
Company's fiscal year end is December 31. The Company's financial statements are
presented in US dollars.

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.

                                       F6
<PAGE>

                            MORGAN CREEK ENERGY CORP.
                         (An Exploration Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2006
________________________________________________________________________________


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________

OIL AND GAS PROPERTIES (CONTINUED)
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

USE OF ESTIMATES
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenues and expenses during the period.  Actual results
could differ from those  estimates.  Significant  areas  requiring  management's
estimates  and  assumptions  are  the   determination   of  the  fair  value  of
transactions  involving  common  stock and  financial  instruments.  Other areas
requiring estimates include deferred tax balances and asset impairment tests.

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,  diluted loss per
share is equal to 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

                                       F7
<PAGE>


                            MORGAN CREEK ENERGY CORP.
                         (An Exploration Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2006
________________________________________________________________________________


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________

INCOME TAXES (CONTINUED)
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, 2006 the Company had
net  operating  loss   carryforwards,   however,   due  to  the  uncertainty  of
realization,  the  Company  has  provided  a full  valuation  allowance  for the
deferred tax assets resulting from these loss carryforwards.

STOCK-BASED COMPENSATION
On January 1, 2006,  the Company  adopted SFAS No. 123 (revised  2004) (SFAS No.
123R),  SHARE-BASED  PAYMENT,  which  addresses the accounting  for  stock-based
payment  transactions  in which an  enterprise  receives  employee  services  in
exchange for (a) equity  instruments of the enterprise or (b)  liabilities  that
are based on the fair value of the enterprise's  equity  instruments or that may
be settled by the  issuance of such equity  instruments.  In January  2005,  the
Securities and Exchange  Commission (SEC) issued Staff Accounting Bulletin (SAB)
No. 107, which provides supplemental  implementation guidance for SFAS No. 123R.
SFAS No. 123R  eliminates  the ability to account for  stock-based  compensation
transactions using the intrinsic value method under Accounting  Principles Board
(APB)  Opinion No. 25,  ACCOUNTING  FOR STOCK ISSUED TO  EMPLOYEES,  and instead
generally   requires   that  such   transactions   be  accounted   for  using  a
fair-value-based  method.  The  Company  uses the  Black-Scholes-Merton  ("BSM")
option-pricing  model to determine the  fair-value of  stock-based  awards under
SFAS No. 123R,  consistent with that used for pro forma  disclosures  under SFAS
No. 123,  ACCOUNTING FOR STOCK-BASED  COMPENSATION.  The Company has elected the
modified  prospective  transition  method  as  permitted  by SFAS  No.  123R and
accordingly  prior  periods have not been restated to reflect the impact of SFAS
No. 123R. The modified  prospective  transition method requires that stock-based
compensation  expense  be  recorded  for  all new and  unvested  stock  options,
restricted  stock,  restricted  stock units,  and employee  stock  purchase plan
shares that are ultimately expected to vest as the requisite service is rendered
beginning  on January 1, 2006 the first day of the  Company's  fiscal year 2006.
Stock-based  compensation expense for awards granted prior to January 1, 2006 is
based on the grant date fair-value as determined  under the pro forma provisions
of SFAS No. 123.

Prior to the  adoption  of SFAS No.  123R,  the  Company  measured  compensation
expense for its  employee  stock-based  compensation  plans using the  intrinsic
value  method  prescribed  by APB  Opinion  No.  25.  The  Company  applied  the
disclosure provisions of SFAS No. 123 as amended by SFAS No. 148, ACCOUNTING FOR
STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE, as if the fair-value-based
method had been applied in measuring compensation expense. Under APB Opinion No.
25, when the exercise price of the Company's employee stock options was equal to
the  market  price  of the  underlying  stock  on the  date  of  the  grant,  no
compensation expense was recognized.


RECENT ACCOUNTING PRONOUNCEMENTS

In February 2006, the FASB issued SFAS No. 155,  "ACCOUNTING  FOR CERTAIN HYBRID
FINANCIAL  INSTRUMENTS-AN  AMENDMENT  OF FASB  STATEMENTS  NO. 133 AND 140",  to
simplify  and  make  more  consistent  the  accounting  for  certain   financial
instruments.  SFAS No. 155  amends  SFAS No.  133,  "ACCOUNTING  FOR  DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES", to permit fair value re-measurement for any
hybrid  financial  instrument  with an embedded  derivative that otherwise would
require  bifurcation,  provided that the whole  instrument is accounted for on a
fair  value  basis.  SFAS No.  155  amends  SFAS No.  140,  "ACCOUNTING  FOR THE
IMPAIRMENT   OR  DISPOSAL  OF   LONG-LIVED   ASSETS",   to  allow  a  qualifying
special-purpose  entity to hold a derivative  financial instrument that pertains
to a beneficial  interest other than another  derivative  financial  instrument.
SFAS No. 155 applies to all financial  instruments  acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15, 2006,
with earlier application allowed. The adoption of this statement is not expected
to have a material effect on the Company's future reported financial position or
results of operations.

In March  2006,  the FASB  issued SFAS No. 156,  "ACCOUNTING  FOR  SERVICING  OF
FINANCIAL  ASSETS,  AN  AMENDMENT  OF FASB  STATEMENT  NO. 140,  ACCOUNTING  FOR
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES".
This statement requires all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable, and permits for
subsequent  measurement using either fair value measurement with changes in fair
value reflected in earnings or the amortization  and impairment  requirements of
Statement No. 140. The subsequent measurement of separately recognized servicing
assets and  servicing  liabilities  at fair value  eliminates  the necessity for
entities  that  manage the risks  inherent  in  servicing  assets and  servicing
liabilities  with  derivatives  to qualify for hedge  accounting  treatment  and
eliminates  the  characterization  of declines in fair value as  impairments  or
direct write-downs. SFAS No. 156 is effective for an entity's first

                                       F8
<PAGE>


                            MORGAN CREEK ENERGY CORP.
                         (An Exploration Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2006
________________________________________________________________________________

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________

fiscal year beginning  after  September 15, 2006. The adoption of this statement
is not  expected  to have a material  effect on the  Company's  future  reported
financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, "FAIR VALUE MEASUREMENTS".  The
objective of SFAS 157 is to increase consistency and comparability in fair value
measurements and to expand disclosures about fair value  measurements.  SFAS 157
defines  fair  value,  establishes  a  framework  for  measuring  fair  value in
generally accepted  accounting  principles,  and expands  disclosures about fair
value measurements.  SFAS 157 applies under other accounting pronouncements that
require or permit  fair value  measurements  and does not  require  any new fair
value measurements.  The provisions of SFAS No. 157 are effective for fair value
measurements  made in fiscal  years  beginning  after  November  15,  2007.  The
adoption of this  statement  is not  expected  to have a material  effect on the
Company's future reported financial position or results of operations.

In September  2006,  the FASB issued SFAS No. 158,  "EMPLOYERS'  ACCOUNTING  FOR
DEFINED  BENEFIT PENSION AND OTHER  POSTRETIREMENT  PLANS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88, 106, AND 132(R)".  This statement  requires  employers to
recognize  the   overfunded  or   underfunded   status  of  a  defined   benefit
postretirement  plan (other than a multiemployer  plan) as an asset or liability
in its statement of financial  position and to recognize  changes in that funded
status in the year in which the changes occur through  comprehensive income of a
business  entity or  changes  in  unrestricted  net  assets of a  not-for-profit
organization.  This  statement  also  requires an employer to measure the funded
status of a plan as of the date of its year-end statement of financial position,
with  limited  exceptions.  The  provisions  of SFAS No. 158 are  effective  for
employers  with publicly  traded  equity  securities as of the end of the fiscal
year ending  after  December 15,  2006.  The  adoption of this  statement is not
expected to have a material effect on the Company's  future  reported  financial
position or results of operations

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial Assets and Financial Liabilities".  This Statement permits entities to
choose to measure many financial assets and financial liabilities at fair value.
Unrealized  gains and losses on items for which the fair  value  option has been
elected are  reported in earnings.  SFAS No. 159 is  effective  for fiscal years
beginning after November 15, 2007. The Company is currently assessing the impact
of SFAS No. 159 on its financial position and results of operations.

In September  2006, the SEC issued Staff  Accounting  Bulletin  ("SAB") No. 108,
"CONSIDERING   THE  EFFECTS  OF  PRIOR  YEAR   MISSTATEMENTS   WHEN  QUANTIFYING
MISSTATEMENTS  IN CURRENT YEAR FINANCIAL  STATEMENTS." SAB No. 108 addresses how
the effects of prior year  uncorrected  misstatements  should be considered when
quantifying  misstatements  in current year  financial  statements.  SAB No. 108
requires  companies to quantify  misstatements  using a balance sheet and income
statement   approach  and  to  evaluate   whether  either  approach  results  in
quantifying  an error that is  material in light of  relevant  quantitative  and
qualitative  factors. SAB No. 108 is effective for periods ending after November
15, 2006. The Company is currently evaluating the impact of adopting SAB No. 108
but does  not  expect  that it will  have a  material  effect  on its  financial
position and results of operations.


NOTE 3 - OIL AND GAS PROPERTIES
________________________________________________________________________________

(A) HURLEY-CHAPMAN PROSPECT
By  agreement  dated  December  17,  2004,  the  Company  acquired a 75% working
interest,  56.25% net revenue  interest  from its founding  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 the issuance of  6,000,000  common  shares (pre May and August 2006
stock splits) valued at $600,000.  For accounting  purposes the Company recorded
the  acquisition of the oil and gas interests at the related party vendor's cost
of $300,000 and the issuance of the  6,000,000  shares  valued at $600,000  were
recorded as a capital distribution. After an internal review of the property the
Company  has  decided  not to  proceed  with  the  development  of  this  lease.
Consequently,   the  Company  has  recorded  a  $300,000  impairment  charge  to
operations in 2006

                                       F9
<PAGE>


                            MORGAN CREEK ENERGY CORP.
                         (An Exploration Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2006
________________________________________________________________________________


NOTE 3 - OIL AND GAS PROPERTIES (CONTINUED)
________________________________________________________________________________

(B) BAYOU CHOCTAW PROJECT - AGREEMENT PAYABLE
On July 10,  2006 the Company  entered  into a letter of intent to acquire a 25%
Working interest, 18.25% Net Revenue Interest, in two wells to be drilled in the
"Bayou  Choctaw"  oil and gas  project  in  Iberville  Parish,  in the  State of
Louisiana for:

     (i)    $250,000  ($125,000  paid  on July 19, 2006  and  $125,000  paid  on
            October 17, 2006) and 200,000  restricted  common  shares which will
            have piggy back registration rights valued at $350,000 (issued); and
            (ii)  reimbursement of initial costs estimated at $162,500,  payable
            upon  signing  lease  participation  documents to be provided by the
            operator upon drilling ; and
     (iii)  participation  in a  3D-seismic  survey  which is  estimated to cost
            approximately  $425,000.  To date the 3D-seismic survey has not been
            initiated.

The Company has reviewed this lease option and has determined that until further
information  previously  requested  is  obtained  it will not  proceed  with any
further  development on this lease.  Under the terms of the letter of intent the
Company was to obtain certain information regarding the property and was to sign
a lease  participation  document.  To date  the  Company  has not  received  the
required information and has not signed the lease participation  document and as
a consequence  management  has  determined  that there are no further  financial
liabilities to the Company under the Agreement.  As a result of the  uncertainty
of realization,  the Company has recorded the costs incurred to date of $600,000
as an impairment charge to operations.

(C) BROWDER BARNETT SHALE LEASE
On July 24, 2006 the Company acquired a 100% Working  Interest,  74% Net Revenue
Interest, in the "Browder" Barnett Shale oil and gas project in Cooke County, in
the State of Texas.  The lease is unproven  and was acquired  for  $146,820.  On
November  6, 2006 the  Company  sold a 50%  working  interest  in this lease for
$73,410 which has been recorded as a recovery of oil and gas property costs.

The Company has determined  after an internal review by its senior geologist and
a review of wells  recently  completed in the area that it will not proceed with
the development of this lease. Consequently,  the Company has recorded a $73,410
impairment charge to operations.

(D) LITTLE CEDAR CREEK PROSPECT
On August 11, 2006 the Company entered into an agreement to acquire an aggregate
of 103 acres of oil and gas development leases in Conecuh County,  Alabama for a
five year term, in consideration for $1,000,000.  On August 11, 2006 the Company
paid a non-refundable  deposit of $250,000.  The balance of $750,000 was subject
to due diligence by the Company however,  pursuant to the terms of the agreement
it was due no later than October 15, 2006.

On  September  18,  2006 the Company  entered  into an  agreement  to acquire an
additional 385 acres of development leases in Conecuh County, Alabama for a five
year term, in consideration  for $385,000 plus  approximately  171,000 shares of
the Company's restricted common stock. The agreement stipulated a non-refundable
cash deposit of $150,000  payable on or before  September 22, 2006. On September
28, 2006 the Company paid a  non-refundable  deposit of $50,000.  The balance of
the funds and  shares  payable  were  subject to due  diligence.  The leases are
subject to a royalty of 20% and an additional  over-riding  royalty  interest of
2.50%.

After  completing due diligence on each of the 103 acres of oil and gas targeted
development  leases in the Cedar Creek Field  located in Conecuh  County and the
further 385 acres of additional  leases, the Company decided not to complete the
acquisition  of any Cedar  Creek  Field  acreage.  As a result,  the  additional
consideration  payable  under the  agreements  was not payable and the aggregate
$300,000 non- refundable  deposit paid has been recorded as an impairment charge
to operations.

 (E ) QUACHITA PROSPECT
During the year ended December 31, 2006 the Company  leased  various  properties
totalling  approximately  2,035 acres within the Quachita Trend within the state
of Texas for a five year term in  consideration  for  $310,071.

                                      F10
<PAGE>


                            MORGAN CREEK ENERGY CORP.
                         (An Exploration Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2006
________________________________________________________________________________


NOTE 4 - STOCKHOLDERS' EQUITY
________________________________________________________________________________

(A)      SHARE CAPITAL
The Company's  capitalization  is 100,000,000  common shares with a par value of
$0.001 per share.

On May 10, 2006, the directors of the Company  approved a special  resolution to
undertake a forward  split of the common  stock of the Company on a 2 new shares
for 1 old share basis whereby  10,167,700  common shares were issued pro-rata to
shareholders of the Company as of the record date on May 10, 2006.

On July 26, 2006, the directors of the Company approved a special  resolution to
undertake a further  forward split of the common stock of the Company on a 2 new
shares for 1 old share  basis  whereby  20,335,400  common  shares  were  issued
pro-rata to shareholders of the Company as of the record date on August 8, 2006.

All references in these financial  statements to number of common shares,  price
per share and weighted average number of common shares  outstanding prior to the
2:1 forward  stock split on May 10, 2006 and the 2:1 forward  split on August 8,
2006 have been adjusted to reflect  these stock splits on a  retroactive  basis,
unless otherwise noted.

On December 19, 2006 a founding  shareholder of the Company returned  12,000,000
restricted  shares of common stock to treasury and the shares were  subsequently
cancelled  by  the  Company.  The  shares  were  returned  to  treasury  for  no
consideration to the shareholder

(B)      PRIVATE PLACEMENTS
On November  26, 2004 the Company  issued  1,550,000  shares of common  stock at
$0.10 per share for proceeds of $155,000.

On December  15, 2004 the Company  issued  1,887,500  shares of common  stock at
$0.10 per share for proceeds of $188,750  and 660,200  shares of common stock at
$0.50 per share for proceeds of $330,100.

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.

On October 16, 2006 the Company  completed  a private  placement  consisting  of
944,105  units with each unit  comprised  of one common share at $1.50 per share
for  proceeds  of  $1,416,158.  The units  consist of one  common  share and one
non-transferable  share purchase warrant  exercisable at $3.00 per share for the
period  commencing on October 16, 2006 and ending on the day which is earlier of
24 months from the date of issuance of the units or 18 months from the effective
date of a planned registration statement. Of this private placement,  563,333 of
the units  issued  were in  exchange  for  $845,000  previously  advanced to the
Company by a  shareholder.  The estimated fair value of the warrants at the date
of grant of $592,210 was determined using the Black-Scholes option pricing model
with an expected life of 2 years,  risk free interest rate of 4.49%,  a dividend
yield of 0% and an expected volatility of 153%.

(C)      SHARE PURCHASE WARRANTS
There were no share  purchase  warrants  issued or  outstanding  in 2005.  Share
purchase warrants outstanding as of December 31, 2006 are:

<TABLE>
<CAPTION>

____________________________________________________________________________________________________________________
                                                                                    Weighted average remaining
Exercise           Weighted average price   Number of warrants to purchase shares   In contractual life (in years)
____________________________________________________________________________________________________________________
<S>  <C>                   <C>                             <C>                                         <C>
     $3.00                 $3.00                           944,105                                     1.80
____________________________________________________________________________________________________________________

</TABLE>

                                      F11
<PAGE>


                            MORGAN CREEK ENERGY CORP.
                         (An Exploration Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2006
________________________________________________________________________________

NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED)
________________________________________________________________________________

(C)      SHARE PURCHASE WARRANTS (CONTINUED)
A summary of the Company's  stock purchase  warrants as of December 31, 2006 and
changes during the year is presented below:

<TABLE>
<CAPTION>

________________________________________________________________________________________________________________________________

                                                               Weighted average exercise       Weighted average remaining
                                       Number of Warrants           Price per share            In contractual life (in years)
________________________________________________________________________________________________________________________________
<S>                                           <C>                          <C>                               <C>
Outstanding at December, 2005                    -                           -                                -
________________________________________________________________________________________________________________________________
Issued                                        944,105                      $ 3.00                            1.80
________________________________________________________________________________________________________________________________
Expired                                          -                           -                                -
________________________________________________________________________________________________________________________________
Exercised                                        -                           -                                -
________________________________________________________________________________________________________________________________
BALANCE  DECEMBER 31, 2006                    944,105                      $ 3.00                            1.80
________________________________________________________________________________________________________________________________

</TABLE>

NOTE 5 - STOCK OPTION PLAN
________________________________________________________________________________

On April 3, 2006 the Board of  Directors of the Company  ratified,  approved and
adopted a Stock  Option Plan for the Company in the amount of  5,000,000  shares
with an exercisable period up to 10 years. In the event an optionee ceases to be
employed by or to provide  servies to the Company for reasons  other than cause,
any Stock  Option  that is vested and held by such  optionee  maybe  exercisable
within up to ninety  calendar  days after the  effective  date that his position
ceases. No Stock Option granted under the Stock Option Plan is transferable. Any
Stock  Option held by an optionee at the time of his death may be  exercised  by
his estate  within one year of his death or such  longer  period as the Board of
Directors  may  determine.  On December  12, 2006 the Board of  Directors of the
Company ratified and approved under the Company's existing Stock Option Plan the
issuance of 1,850,000 shares for five years at $1.10 per share.

On December 12, 2006, the Company  granted  1,350,000  stock options to officers
and directors  and 500,000 to management of the Company at $1.10 per share.  The
term of these  options are five years.  The total fair value of these options at
the date of grant was  $1,527,170 or $1,114,421 and $412,740  respectively,  and
was estimated using the Black-Scholes option pricing model with an expected life
of 3 years,  a risk free  interest  rate of 4.49%,  a  dividend  yield of 0% and
expected  volatility of 187% and has been recorded as a stock based compensation
expense in the year.

A summary of the  Company's  stock  options as of December  31, 2006 and changes
during the year ended is presented below: There were no stock options granted or
exercised in fiscal 2005.

<TABLE>
<CAPTION>

_______________________________________________________________________________________________________________________________
                                          Number of Options    Weighted average exercise       Weighted average remaining
                                                                  Price per share              Contractual life (in years)
 ______________________________________________________________________________________________________________________________
<S>                                           <C>                        <C>                              <C>
Outstanding at December 31, 2005                  -                        -                                -
_______________________________________________________________________________________________________________________________
Granted                                       1,850,000                  $1.10                            4.95
_______________________________________________________________________________________________________________________________
Exercised                                         -                        -                                -
_______________________________________________________________________________________________________________________________
OUTSTANDING AT DECEMBER 31, 2006              1,850,000                  $1.10                            4.95
_______________________________________________________________________________________________________________________________

</TABLE>


NOTE 6 - RELATED PARTY TRANSACTIONS
________________________________________________________________________________

INTERNATIONAL MARKET TREND, INC. ("IMT")
An officer  and  director of IMT, a private  company,  is a  shareholder  of the
Company. During the year ended December 31, 2006 the Company paid IMT consulting
expenses  of  $167,500  (2005 - $20,000),  including  $42,500  (2005 - $nil) for
assisting the Company to obtain a listing on the Frankfurt Exchange and $125,000
for  administration  fees as per  contract.,  The Company  also paid IMT another
$75,000 (2005 - $nil) for implementing an investor  awareness mailing program in
Germany,  $7,500  (2005 - $nil) for updating  the  Company's  web site and other
identity related items as well as approximately $8,275 for related expenses.  As
of December 31, 2006 the Company owed IMT $16,326  which amount is unsecured and
non-interest bearing, and has no definite repayment terms.

                                      F12
<PAGE>


                            MORGAN CREEK ENERGY CORP.
                         (An Exploration Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2006
________________________________________________________________________________

NOTE 6 - RELATED PARTY TRANSACTIONS (CONTINUED)
________________________________________________________________________________

During the year ended December 31, 2006 a shareholder of the Company who is also
an officer and director of IMT advanced  $40,000 to the Company.  These advances
are  non-interest  bearing,  unsecured and have no definite  repayment terms. On
October 18, 2006, the advances were repaid.

During 2006 a shareholder of the Company advanced  $1,170,000 to the Company. On
October 16, 2006,  $845,000 was converted to 563,333 restricted common shares of
the  Company at $1.50 per share plus a two year  warrant  entitling  the warrant
holder to purchase  563,333  additional  common  shares at $3.00 per share.  The
balance of  $325,000  is subject to interest at 8% per annum and has no definite
repayment  terms.  As of December  31, 2006 total  accrued  interest was $1,211.
Subsequent to the year end an additional $279,500 was advanced to the Company by
the same shareholder under the same terms and conditions.

MANAGEMENT FEES
During the year ended  December  31,  2006,  the  Company  paid  officer(s)  and
director(s) $302,117 for management fees (2005-$15,000). As of December 31, 2006
two management personnel of the Company were owed $10,956 for fees and expenses.
On January 4, 2007 the fees and expenses were paid.

As part of their  compensation  agreement  the  Company's  chief  Geologist  and
Operations Manager (hereafter  referred to as "Executives") each receives and is
assigned at time of acquisition up to a 1.5% overriding  royalty interest in any
oil and gas  properties  which are directly  introduced by the Executives to the
Company.  During the year ended December 31, 2006 the Company  recorded  related
additional  compensation to the Executives of the estimated fair value of $9,590
(December 2005 - $nil).

AMERICAN NEWS PUBLISHING INC. ("ANP")
During the year ended December 31, 2005 the Company advanced $200,000 to ANP for
Investor relations  services.  The services were subsequently  cancelled and ANP
agreed to return the $200,000 to the Company. On January 20, 2006 the funds were
repaid to the  Company  in full.  An  officer  and  director  of ANP,  a private
company,  is also an officer  and  director of a  corporate  shareholder  of the
Company.

NOTE 7 - INCOME TAXES
________________________________________________________________________________

The Company has adopted the FASB No. 109 for reporting purposes.  As of December
31, 2006,  the Company had net operating  loss carry  forwards of  approximately
$2,618,600  that may be available to reduce future years' taxable income through
2026.  Future tax benefits  which may arise as a result of these losses have not
been  recognized  in  these  financial  statements,   as  their  realization  is
determined  not likely to occur and  accordingly,  the  Company  has  recorded a
valuation  allowance  for the  deferred  tax  asset  relating  to these tax loss
carryforwards.

The Company  reviews 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:

<TABLE>
<CAPTION>

                                                       Year ended              Year ended
                                                   December 31, 2006       December 31, 2005
________________________________________________________________________________________________
<S>                                                               <C>                     <C>
Federal income tax provision at statutory rate                    35.0%                   35.0%
States income tax provision at statutory rates,
   net of federal income tax effect                                3.0%                    7.0%
________________________________________________________________________________________________
Total income tax provision                                        38.0%                   42.0%
________________________________________________________________________________________________

</TABLE>

                                      F13
<PAGE>


                            MORGAN CREEK ENERGY CORP.
                         (An Exploration Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2006
________________________________________________________________________________

NOTE 7 - INCOME TAXES (CONTINUED)
________________________________________________________________________________

The actual income tax provisions differ from the expected amounts  calculated by
applying  the  combined  federal  and state  corporate  income  tax rates to the
Company's loss before income taxes.  The components of these  differences are as
follows:

<TABLE>
<CAPTION>

                                                          2006              2005
____________________________________________________________________________________
<S>                                                  <C>                <C>
Loss before income taxes                             $(3,918,002)       $ (204,026)
Corporate tax rate                                         38.00%            42.00%
____________________________________________________________________________________

Expected tax expense (recovery)                       (1,488,841)          (85,690)

Increase (decrease) resulting from:
   Non-deductible stock option expenses                  580,325                 -
   Valuation allowance                                   908,516            85,690
____________________________________________________________________________________
Future income tax provision (recovery)               $         -        $        -
____________________________________________________________________________________

The Company's deferred tax asset is as follows:

                                                         2006              2005
____________________________________________________________________________________

Long-term deferred tax asset
   Net operating loss carry forwards                 $   995,063        $   95,657
Valuation allowance                                     (995,063)           95,657
____________________________________________________________________________________
                                                     $         -        $        -
____________________________________________________________________________________

</TABLE>

As the criteria for  recognizing  future income tax assets have not been met due
to the  uncertainty  of  realization,  a  valuation  allowance  of 100% has been
recorded for the current and prior year.


NOTE 8 - SUBSEQUENT EVENTS
________________________________________________________________________________
On January 30,  2007 that  Company  acquired a 100%  working  interest,  77% net
revenue interest,  in two fully equipped South Texas oil leases;  the Mata lease
in Webb County and the Peters Ranch located in Duval County for $55,000. Each 40
acre lease is expected to be productive  after  completion of the rework program
and the addition of extra equipment.
(Refer to Note 6.)


                                      F14


<PAGE>

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

Our  principal  independent  accountant  from  inception to current date is Dale
Matheson Carr-Hilton Labonte LLP, Chartered  Accountants,  1500-1140 West Pender
Street, Vancouver, British Columbia V6E 4G1.

ITEM 8A. CONTROLS AND PROCEDURES

FINANCIAL DISCLOSURE CONTROLS AND PROCEDURES

An evaluation was conducted under the supervision and with the  participation of
our management,  including Marcus Johnson,  our Chief Executive  Officer ("CEO")
and D. Bruce Horton,  our Chief Financial Officer ("CFO"),  of the effectiveness
of the design and  operation of our  disclosure  controls and  procedures  as of
December  31,  2006.  Based  on that  evaluation,  Messrs.  Johnson  and  Horton
concluded that our disclosure  controls and procedures were effective as of such
date to ensure that information  required to be disclosed in the reports that we
file or submit under the Exchange Act, is recorded,  processed,  summarized  and
reported within the time periods specified in SEC rules and forms. Such officers
also  confirm that there was no change in our  internal  control over  financial
reporting during the year ended December 31, 2006 that has materially  affected,
or is  reasonably  likely  to  materially  affect,  our  internal  control  over
financial reporting.

AUDIT COMMITTEE REPORT

The Board of Directors has  established an audit  committee.  The members of the
audit  committee  are Mr.  Marcus  Johnson,  Mr.  Steven Jewett and Mr. D. Bruce
Horton and. One of the three  members of the audit  committee  is  "independent"
within the meaning of Rule 10A-3 under the Exchange Act. The audit committee was
organized in November 20, 2004 and operates under a written  charter  adopted by
our Board of Directors.

The audit  committee  has reviewed and  discussed  with  management  our audited
financial  statements  as of and for fiscal year ended  December 31,  2006.  The
audit  committee has also discussed with Dale Matheson  Carr-Hilton  LaBonte LLP
the matters required to be discussed by Statement on Auditing  Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public  Accountants.  The audit committee
has  received  and  reviewed  the written  disclosures  and the letter from Dale
Matheson  Carr-Hilton  LaBonte LLP  required  by  Independence  Standards  Board
Standard No. 1, Independence Discussions with Audit Committees,  as amended, and
has discussed with Dale Matheson Carr-Hilton LaBonte LLP their independence.

Based on the reviews and discussions  referred to above, the audit committee has
recommended  to the Board of  Directors  that the audited  financial  statements
referred  to above be  included  in our Annual  Report on Form 10-KSB for fiscal
year ended December 31, 2006 filed with the Securities and Exchange Commission.

ITEM 8B. OTHER INFORMATION

Not applicable.

                                       38
<PAGE>

ITEM 9. DIRECTORS,  EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

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

Marcus M. Johnson        58   President,   Chief  Executive   Officer/Principal
                              Executive  Officer and a Director and Chairman of
                              the Board

D. Bruce Horton          62   Secretary/Treasurer,   Chief  Financial  Officer,
                              Principal  Accounting Officer,  Stock Option Plan
                              Administrator and a Director

Thomas A. Markham II     56   Chief Geologist and a Director

Stephen Jewett           68   Director

Erik Essiger             41   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,
and including other directorships held in reporting companies.

MARCUS  JOHNSON:  Mr.  Johnson  has  been  our  President  and  Chief  Executive
Officer/Principal  Executive Officer and a director and Chairman of our Board of
Directors since October 25, 2006. Mr.  Johnson,  AIA, has previously been active
in  management  in both the  private  and  public  sectors  as a  consultant  to
management with an emphasis on investor relations and awareness. Mr. Johnson has
performed consulting services for Intergold Corporation,  now known as Lexington
Resources,   Inc.,  and   Vega-Atlantic   Corporation,   now  known  as  Transax
International  Limited. Mr. Johnson is a professional  architect and a member of
the American  Institute of  Architects.  Mr.  Johnson has been the  professional
architectural  consultant  of record on  various  commercial  projects  and is a
consultant to Exterior Research & Design, LLC, where he is currently retained as
an expert for determining  architectural  management  standards.  Mr. Johnson is
also the chief executive  officer and director to Geneva  Resources,  Inc. since
October 2006.


                                       39
<PAGE>


D. BRUCE HORTON has been one of our  directors and our  Secretary/Treasurer  and
Chief Financial Officer and Principal  Accounting Officer since August 21, 2006.
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  from June 1986 to May 1997.  He is a  principal  consultant  in Calneva
Financial  Services  Ltd.  that provides  accounting  and  financial  management
consulting  services as well as investment  banking services focusing on venture
capital opportunities in Asia.

THOMAS ALDEN MARKHAM II: Mr. Markham has been our Chief Geologist and one of our
directors  since  August  21,  2006.  Mr.  Markham is a  professional  geologist
specializing   evaluations   and   management  of  oil  and  gas  plays  in  the
mid-continental  U.S.  Since  receiving his Masters of Geology,  Mr. Markham has
focused on oil and gas plays.  He began his career working with BEPCO,  ARCO and
then TENNECO,  acting as geologist on a wide range of projects  spanning over 12
years of development on leading plays including the Pinon,  Allen Hill,  Brunson
Ranch, J.D. Shale, Brown Bassett Extension and NYY projects. During this period,
he directed 15 Ph D-level geologists and managed  exploration  budgets up to $21
million.  Mr.  Markham has  recently  acted as Chief  Geologist in charge of the
supervision  and  generation  of a  21,000  acre  Pennsylvanian  gas play in the
Permian  Basin.  Mr.  Markham was  instrumental  in the play's  development  and
finalized  negotiations  with the Osage Tribe of Oklahoma for drilling rights on
57-quarter  sections  (9,120  acres).  He has  been an  independent  oil and gas
geologist  managing  project  generation and evaluation for various industry and
non-industry groups primarily in the Mid Continent. Mr. Markham has successfully
drilled and completed  proprietary prospects (while providing the supervision of
seismic, leasing, drilling, completion, and production activities) of 88 oil and
gas wells (to 10,500') in Texas, New Mexico, and Oklahoma. He was the generating
geologist  of a 5 TCFG  overthrust  play in Central  Texas,  he  Finalized a New
Mexico San Andres  stratigraphic  play (50 to 100 MMBO at 4,000')  and a Permian
Basin  Devonian  structural  play and managed the  screening  and  evaluation of
Springer - Atoka sub-basin  prospects of the Anadarko Basin (3-D). Mr. Markham's
work has been published in the American Gas Journal and he has been invited on a
technical  tour of the former Soviet Union to review oil and gas assets.  He was
also guest speaker at the American  Association  of Petroleum  Landman's  (AAPL)
"Buying  Oil and Gas  Properties"  seminar.  He  continues  to carry out Reserve
Evaluation for non-industry groups including the FDIC (Federal Deposit Insurance
Corp. - Wichita and Dallas Branches) and the IRS (Internal Revenue Service). Mr.
Markham is not a director or officer of any other U.S. reporting company.

STEVE JEWETT has been one of our directors  and a member of our Audit  Committee
since October 2004. From 1978 to the current date, Mr. Jewett has been the owner
and independent  operator of Stephen Jewett - Chartered  Accountant.  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 our Audit  Committee's  financial  expert.  Mr.  Jewett is also
currently a director and audit  committee  member of Lexington  Resources,  Inc.
since April 30, 2004. Mr. Jewett is also a director and audit  committee  member
to Geneva Resources, Inc., since May 2006.

                                       40
<PAGE>

ERIK ESSIGER has been one of our directors  since August 21, 2006.  Mr.  Essiger
has more than fifteen years of experience in corporate finance and lead advisory
services relating to strategic and commercial development projects across a wide
variety  of  sectors  and  including,  in  particular,  within  the  industrial,
automotive,  business  services,  retail and  consumer  goods  sectors.  In this
respect Mr. Essiger has performed  various  commercial and strategy  services as
both an external  consultant  and as a board member and  managing  director of a
number of companies,  including a venture capital company.  During the past five
years Mr.  Essiger  has been:  (i) the  Managing  Director  and the  founder  of
Precisetech  GmbH, a corporate finance advisory company focused on international
M&A  transactions  (from  October  2004  to  present);  (ii)  a  member  of  the
Supervisory Board of Corix Capital AG (from December 2003 to present); (iii) the
Senior Manager, Transaction Services Strategy Group, with PricewaterhouseCoopers
AG,  heading  up the  commercial  and due  diligence  practice  of that group in
Germany which  provided  services  mainly to private  equity clients of the firm
(from April 2003 to September  2004);  and (iv) a member of the Executive  Board
(Vorstand)  of MultiMedia  Technologies  AG, a producer of  set-top-boxes  and a
company  operating  in the  fields of  interactive  digital  television  and the
streaming  media  market  (from  July 2000 to July  2002) Mr.  Essiger  also has
extensive  international  experience in corporate  restructuring;  especially in
Germany,  Russia,  Hong  Kong  and  Switzerland;  and  he  was a  member  of the
German-Russian  co-operation  council. Mr. Essiger is also a director of Uranium
Energy Corp., a publicly traded 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).

COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE

As of the date of this Annual Report, Messrs.  Johnson,  Markham and Jewett have
been appointed as members to our audit  committee.  Two of the three members are
"independent" within the meaning of Rule 10A-3 under the Exchange Act and are in
addition financial experts. The audit committee operates under a written charter
adopted by the Board of Directors on November 20, 2004.

                                       41
<PAGE>

The audit committee's  primary function is to provide advice with respect to our
financial  matters  and to  assist  the Board of  Directors  in  fulfilling  its
oversight responsibilities regarding finance,  accounting, and legal compliance.
The audit committee's primary duties and responsibilities  will be to: (i) serve
as an independent and objective party to monitor our financial reporting process
and internal  control system;  (ii) review and appraise the audit efforts of our
independent  accountants;  (iii) evaluate our quarterly financial performance as
well as our  compliance  with laws and  regulations;  (iv) oversee  management's
establishment and enforcement of financial policies and business practices;  and
(v) provide an open avenue of communication  among the independent  accountants,
management and the Board of Directors.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires our  directors and officers,  and the
persons who  beneficially own more than ten percent of our common stock, to file
reports of ownership and changes in ownership  with the  Securities and Exchange
Commission.  Copies of all filed  reports  are  required to be  furnished  to us
pursuant to Rule 16a-3  promulgated  under the Exchange Act. Based solely on the
reports received by us and on the  representations of the reporting persons,  we
believe that these persons have complied with all applicable filing requirements
during the fiscal year ended December 31, 2006.

ITEM 10. EXECUTIVE COMPENSATION

The  following  table sets forth the  compensation  paid to our Chief  Executive
Officer and those  executive  officers that earned in excess of $100,000  during
fiscal  year  ended  December  31,  2006  (collectively,  the  "Named  Executive
Officers"):

<TABLE>
<CAPTION>

SUMMARY COMPENSATION TABLE

__________________________________________________________________________________________________________________________________
                                                                       NON-EQUITY      NON-QUALIFIED     ALL OTHER
                                                                     INCENTIVE PLAN      DEFERRED       COMPENSATION
                                                                      COMPENSATION     COMPENSATION
NAME AND                                      STOCK                                        EARNINGS
PRINCIPAL                  SALARY    BONUS    AWARDS     OPTION                                                         TOTAL
POSITION          YEAR       ($)      ($)      ($)      AWARDS ($)         ($)              ($)             ($)           ($)
__________________________________________________________________________________________________________________________________
<S>              <C>      <C>        <C>      <C>      <C>                <C>               <C>            <C>         <C>
Douglas
Humphries,
previous
President and
CEO               2006     -0-(1)     -0-      -0-          ---            ---              ---             ---             -0-
__________________________________________________________________________________________________________________________________
William Bolles,
previous
President and
CEO               2006    22,500(1)   -0-      -0-          ---            ---              ---           5,000         $27,500
__________________________________________________________________________________________________________________________________
Marcus Johnson,
current
President and
CEO               2006     -0-(1)     -0-      ---      412,748            ---              ---             ---        $412,748
__________________________________________________________________________________________________________________________________

</TABLE>

     (1)  This amount  represent  fees paid by us to the Named Executive Officer
          during the past year  pursuant  to  consulting  services  provided  in
          connection with their respective  position as Chief Executive Officer.

                                       42
<PAGE>

          During  fiscal year ended  December  31,  2006,  we also paid  certain
          executive  officers  the  following  amounts,  which  did  not  exceed
          $100,000 and,  therefore,  not required to be disclosed in the Summary
          Compensation  Table:  (i) $35,000 to Grant Atkins,  our previous Chief
          Financial  Officer;  and (ii) $60,000 and an  additional  $4,794.91 in
          accordance with the 1.5% royalty interest to Thomas Markham, our Chief
          Geologist.

     (2)  This amount represents the fair value of these  options at the date of
          grant  which was  estimated  using the  Black-Scholes  option  pricing
          model.

STOCK OPTIONS/SAW GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2006

The following  table sets forth  information as at December 31, 2006 relating to
options that have been granted to the Named Executive Officers:

<TABLE>
<CAPTION>

                                                 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

                                   OPTION AWARDS                                                           STOCK AWARDS
__________________________________________________________________________________  _______________________________________________
                                                                                                          Equity
                                                                                                          Incentive    Equity
                                                                                                          Plan         Incentive
                                                                                                          Awards:      Plan Awards:
                                                                                      Number    Market    Number of    Market or
                                            Equity                                    of        Value of  Unearned     Payout Value
                Number of    Number of      Incentive Plan                            Shares    Shares    Shares,      of Unearned
                Securities   Securities     Awards: Number                            or Units  or Units  Units or     Shares,
                Underlying   Underlying     of Securities                             of Stock  of Stock  Other        Units or
                Unexercised  Unexercised    Underlying       Option                   That      That      Rights That  Other Rights
                Options      Options        Unexercised      Exercise  Option         Have Not  Have Not  Have Not     That Have
                Exercisable  Unexercisable  Unearned Options Price     Expiration     Vested    Vested    Vested       Not Vested
Name                (#)          (#)            (#)            ($)     Date             (#)      ($)        (#)          (#)
___________________________________________________________________________________________________________________________________
<S>              <C>             <C>           <C>            <C>      <C>             <C>       <C>        <C>           <C>
Marcus Johnson                                                         December 15,
President/CEO    500,000         -0-           -0-            1.10     2011            -0-       -0-        -0-           -0-
___________________________________________________________________________________________________________________________________

</TABLE>

The following table sets forth information  relating to compensation paid to our
directors in 2006:

<TABLE>
<CAPTION>

DIRECTOR COMPENSATION TABLE

                                                                           Change in
                                                                           Pension
                                                                           Value and
               Fees                                    Non-Equity          Nonqualified
               Earned or                               Incentive           Deferred               All
               Paid in         Stock      Option       Plan                Compensation          Other
               Cash            Awards     Awards       Compensation        Earnings           Compensation        Total
Name             ($)            ($)         ($)              ($)               ($)                 ($)              ($)
___________________________________________________________________________________________________________________________________
<S>            <C>               <C>      <C>              <C>                 <C>                 <C>            <C>
Marcus
Johnson,                                     (3)
Chairman         -0-             -0-      $412,748         -0-                 -0-                 -0-            $412,748
___________________________________________________________________________________________________________________________________

                                       43

<PAGE>


Thomas               (1)         -0-         (3)           -0-                 -0-                 -0-            $477,542.91
Markham        $64,794.91                 $412,748
___________________________________________________________________________________________________________________________________
Erik Essinger         (2)                    (3)           -0-                 -0-                 -0-            $303,491.51
                97,117.51                 $206,374
___________________________________________________________________________________________________________________________________
Steve Jewett     -0-             -0-         (3)           -0-                 -0-                 -0-            $41,275
                                           $41,275
___________________________________________________________________________________________________________________________________
D. Bruce         -0-             -0-         (3)           -0-                 -0-                 -0-            $41,275
Horton                                     $41,275
___________________________________________________________________________________________________________________________________

</TABLE>

     (1)  Thomas  Markham  received  these  fess  as  executive compensation  in
          connection with his role as our Chief Geologist.

     (2)  Erik Essiger received this compensation for services rendered to us in
          connection with business related  consulting and promotional  services
          performed in Europe on our behalf.

     (3)  This amount  represents the fair value of these options at the date of
          grant  which was  estimated  using the  Black-Scholes  option  pricing
          model.

EMPLOYMENT AND CONSULTING AGREEMENTS

MARKHAM CONSULTING SERVICES AGREEMENT

On  approximately  August 1, 2006, we entered into a  month-to-month  consulting
services  agreement  with Thomas  Markham,  our Chief  Geologist  (the  "Markham
Consulting  Services  Agreement").  In  accordance  with the  verbal  terms  and
provisions of the Markham Consulting Services  Agreement:  (i) Mr. Markham shall
provide to us all necessary  services and perform all duties associated with his
executive  position  as Chief  Geologist;  (ii) we shall  pay to Mr.  Markham  a
monthly fee of  $10,000;  and (iii) Mr.  Markham  shall  receive a 1.5%  royalty
interest in all properties Mr. Markham  introduces to us which are  subsequently
acquired  by us. We  anticipate  memoralizing  the terms and  provisions  of the
Markham Consulting Services Agreement in a written agreement.

During  fiscal year ended  December 31, 2006, we paid an aggregate of $60,000 to
Mr.  Markham in accordance  with the monthly fee and an additional  $4,794.91 in
accordance with the amounts earned under the royalty interest

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

As of the date of this Annual  Report,  the  following  table sets forth 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. As of the
date of this Annual Report,  there are 29,814,905  shares of common stock issued
and outstanding.

                                       44
<PAGE>

<TABLE>
<CAPTION>

                                                              AMOUNT AND NATURE OF          PERCENTAGE OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER(1)                      BENEFICIAL OWNERSHIP(1)                OWNERSHIP

DIRECTORS AND OFFICERS:

<S>                                                               <C>                                 <C>
Marcus Johnson                                                    3,518,100 (2)                       11.79%
2020 Prospect Way
Bellingham, Washington 98229
D. Bruce Horton                                                     387,500 (3)                        1.30
2443 Alder Street
Vancouver, British Columbia
Canada, V6H 4A4
Thomas Markham                                                    1,125,000 (4)                        3.77%
8801 Christian Court
Plano, Texas 75025
Erik Essiger                                                        250,000 (5)                        0.83%
P.O. Box 37491
Dubai
United Arab Emeriates

Steve Jewett                                                         50,000 (6)                        0.16%
1201-1633 West 8th Avenue
Vancouver, British Columbia
Canada V6J 5H7

All executive officers and directors as a group (5                5,330,600 (7)                       17.87%
persons)

</TABLE>

*        Less than one percent.
(1)      Under Rule 13d-3, a beneficial owner of a security  includes any person
         who,  directly  or  indirectly,  through  any  contract,   arrangement,
         understanding,  relationship,  or otherwise  has or shares:  (i) voting
         power,  which  includes  the power to vote,  or to direct the voting of
         shares;  and (ii) investment power, which includes the power to dispose
         or direct the disposition of shares. Certain shares may be deemed to be
         beneficially  owned by more than one person (if, for  example,  persons
         share the  power to vote or the power to  dispose  of the  shares).  In
         addition, shares are deemed to be beneficially owned by a person if the
         person has the right to acquire the shares (for example,  upon exercise
         of an option) within 60 days of the date as of which the information is
         provided.  In computing  the  percentage  ownership of any person,  the
         amount of shares  outstanding is deemed to include the amount of shares
         beneficially  owned by such person (and only such  person) by reason of
         these acquisition  rights.  As a result,  the percentage of outstanding
         shares  of any  person  as shown  in this  table  does not  necessarily
         reflect the person's  actual  ownership or voting power with respect to
         the number of shares of common  stock  actually  outstanding  as of the
         date of this Annual Report. As of the date of this Annual Report, there
         are  40,670,800  shares issued and  outstanding.  Beneficial  ownership
         amounts reflect the forward stock splits  effective May 2006 and August
         2006.
                                       45
<PAGE>

(2)      This figure  includes:  (i) 3,018,100  shares of common stock; and (ii)
         500,000 stock options to purchase 500,000 shares of our common stock at
         an exercise price of $1.10 per share expiring on December 15, 2011.
(3)      This figure  includes:  (i) 337,500  shares of common  stock;  and (ii)
         50,000 stock  options to purchase  50,000 shares of our common stock at
         an exercise price of $1.10 per share expiring on December 15, 2011.
(4)      This figure  includes:  (i) 625,000  shares of common  stock;  and (ii)
         500,000 stock options to purchase 500,000 shares of our common stock at
         an exercise price of $1.10 per share expiring on December 15, 2011.
(5)      This figure includes  250,000 stock options to purchase  250,000 shares
         of our common stock at an exercise price of $1.10 per share expiring on
         December 15, 2011.
(6)      This figure  includes 50,000 stock options to purchase 50,000 shares of
         our common  stock at an exercise  price of $1.10 per share  expiring on
         December 15, 2011.
(7)      This figure  includes:  (i) 3,980,600  shares of common stock; and (ii)
         1,350,000  stock  options to  purchase  1,350,000  shares of our common
         stock at $1.10 per share expiring on December 15, 2011.
(8)      This figure includes 2,500,000 shares of common stock.

CHANGES IN CONTROL

We are unaware of any contract, or other arrangement or provision, the operation
of which may at a subsequent date result in a change of control of our company.

ITEM  12.  CERTAIN   RELATIONSHIPS   AND  RELATED   TRANSACTIONS   AND  DIRECTOR
INDEPENDENCE

Except for the transactions described below, none of our directors,  officers or
principal  stockholders,  nor any associate or affiliate of the foregoing,  have
any  interest,  direct  or  indirect,  in any  transaction  or in  any  proposed
transactions,  which has materially affected or will materially affect us during
fiscal years ended December 31, 2006 and 2005.

EMPLOYMENT AND CONSULTING AGREEMENTS


MARKHAM CONSULTING SERVICES AGREEMENT

On  approximately  August 1, 2006, we entered into a  month-to-month  consulting
services  agreement  with Thomas  Markham,  our Chief  Geologist  (the  "Markham
Consulting  Services  Agreement").  In  accordance  with the  verbal  terms  and
provisions of the Markham Consulting Services  Agreement:  (i) Mr. Markham shall
provide to us all necessary  services and perform all duties associated with his
executive  position  as Chief  Geologist;  (ii) we shall  pay to Mr.  Markham  a
monthly fee of  $10,000;  and (iii) Mr.  Markham  shall  receive a 1.5%  royalty
interest in all properties Mr. Markham  introduces to us which are  subsequently
acquired  by us. We  anticipate  memoralizing  the terms and  provisions  of the
Markham Consulting Services Agreement in a written agreement.

                                       46
<PAGE>

ITEM 13. EXHIBITS

The following exhibits are filed as part of this Annual Report.

EXHIBIT NO.                              DOCUMENT

3.1                             Articles of Incorporation (1)

3.2                             Bylaws (1)

4.1                             Chapman Oil and Gas Lease (2)

4.2                             Hurley Oil and Gas Lease (2)

4.3                             Lease Assignment between Geneva Energy Corp.
                                And Morgan Energy Corp. dated December 17,
                                2004 (2)

4.4                             Fletcher Lewis Letter (3)

4.5                             Fletcher Lewis Consent dated December 31,
                                2004 (3)

4.6                             American News Publishing Letter dated
                                January 13, 2006 (3)

10.1                            Asset Purchase Agreement between Morgan
                                Creek Energy Corp. and Geneva Energy Corp.
                                Dated December 15, 2004 (1)

10.1                            Charter of Audit Committee (1)

14                              Code of Business Conduct (1)

31.1                            Certification of Chief Executive Officer
                                Pursuant to Rule 13a-14(a) or 15d-14(a) of
                                the Securities Exchange Act.

31.2                            Certification of Chief Financial Officer
                                Pursuant to Rule 13a-14(a) or 15d-14(a) of
                                the Securities Exchange Act.

32.1                            Certification of Chief Executive Officer and
                                Chief Financial Officer Under Section 1350
                                as Adopted Pursuant to Section 906 of the
                                Sarbanes-Oxley Act.

(1)  Incorporated by reference from Form SB-2 filed with the Commission on April
11, 2005.

(2) Incorporated by reference from Form SB-2/A filed with the Commission on June
14, 2005.

(3)  Incorporated  by referenced  from Form SB-2/A filed with the  Commission on
January 13, 2006.

                                       47
<PAGE>

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

During fiscal year ended December 31, 2006, we incurred approximately $48,400 in
fees to our principal independent  accountant for professional services rendered
in connection  with the audit of our financial  statements for fiscal year ended
December  31,  2006  and for the  review  of our  financial  statements  for the
quarters ended March 31, 2006, June 30, 2006 and September 30, 2006.

During fiscal year ended December 31, 2005, we incurred approximately $17,500 in
fees to our principal independent  accountant for professional services rendered
in connection  with the audit of our financial  statements for fiscal year ended
December  31,  2005  and for the  review  of our  financial  statements  for the
quarters ended March 31, 2005, June 30, 2005 and September 30, 2005.

During fiscal year ended  December 31, 2006, we did not incur any other fees for
professional services rendered by our principal  independent  accountant for all
other non-audit  services which may include,  but is not limited to, tax-related
services, actuarial services or valuation services.

SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                                          MORGAN CREEK ENERGY CORP.


Dated: April 13, 2007                     By: /s/ MARCUS JOHNSON
                                              __________________________________
                                              Marcus Johnson, President/Chief
                                              Executive Officer


Dated: April 13, 2007                     By: /s/ D. BRUCE HORTON
                                              __________________________________
                                              D. Bruce Horton, Treasurer/Chief
                                              Financial Officer



                                       48