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

FORM 10-Q



T
     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended May 31, 2011



£
     TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from _____ to _____

``

Commission File Number:       000-52782



MAINLAND RESOURCES, INC.(Exact name of small business issuer as specified in its charter)





|Nevada                                                                             |  | 90-0335743                          
|---------------------------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization)                     |  | (I.R.S. Employer Identification No.)
|                                                                                   |  |                                     
|21 Waterway Avenue, Suite 300The Woodlands, TX                                     |  | 77380                               
|(Address of principal executive offices)                                           |  | (Zip Code)                          
|                                                                                   |  |                                     
|(281) 469-5990                                                                    
|Registrant's telephone number, including area code                                
|                                                                                  
|N/A                                                                               
|(Former name, former address and former fiscal year, if changed since last report)
|                                                                                   |  |                                     

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes  T
   No  £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   £
   No  £

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

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



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  	
Yes  £
   No  T

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.  80,969,502shares of common stock as of July 15, 2011.

1



---



MAINLAND RESOURCES, INC.



INDEX





|PART I - FINANCIAL INFORMATION | 4       
|------------------------------ | --------
|                               | Item 1. 
|                               | Item 2. 
|                               | Item 3. 
|                               | Item 4. 
|PART II - OTHER INFORMATION    | 34      
|                               | Item 1. 
|                               | Item 1A.
|                               | Item 2. 
|                               | Item 3. 
|                               | Item 4. 
|                               | Item 5. 
|                               | Item 6. 



2



---



FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties.  Forward-looking statements in this quarterly report include, among others, statements regarding our capital needs, business plans and expectations.  Such forward-looking statements include, but are not limited to, statements with respect to the following:



- our plans to drill certain wells on the Cotton Valley/Hosston and Upper Bossier formations of the East Holly Prospect, and the Buena Vista Prospect;
- our need for additional financing;
- the competitive environment in which we operate;
- our dependence on key personnel;
- conflicts of interest of our directors and officers;
- our ability to fully implement our business plan;
- our ability to effectively manage our growth; and
- other regulatory, legislative and judicial developments.

Forward-looking statements are made, without limitation, in relation to operating plans, property exploration and development, availability of funds, environmental reclamation, operating costs and permit acquisition.  Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements.  In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology.  Actual events or results may differ materially.  In evaluating these statements, you should consider various factors, including the risks outlined in our annual report on Form 10-K for the year ended February 28, 2011, this quarterly report on Form 10-Q, and, from time to time, in other reports that we file with the Securities and Exchange Commission (the "SEC").  These factors may cause our actual results to differ materially from any forward-looking statement. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.



3



---



PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements

The following unaudited interim financial statements of Mainland Resources, Inc. (sometimes referred to as "we", "us" or "our Company") are included in this quarterly report on Form 10-Q:



|                                                                                                                                      | Page
|------------------------------------------------------------------------------------------------------------------------------------- | ----
|Balance Sheets as of May 31, 2011 (unaudited) and February 28, 2011 (audited)                                                         | 5   
|Unaudited Statements of Operations for the three months ended May 31, 2011 and 2010 and from inception (May 12, 2006) to May 31, 2011 | 6   
|Unaudited Statements of Cash Flows for the three months ended May 31, 2011 and 2010 and from inception (May 12, 2006) to May 31, 2011 | 7   
|Unaudited Notes to Financial Statements                                                                                               | 9   

It is the opinion of management that the unaudited interim financial statements for the three months ended May 31, 2011 and 2010 include all adjustments necessary in order to ensure that the unaudited interim financial statements are not misleading. These unaudited interim financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. Except where noted, these unaudited interim financial statements follow the same accounting policies and methods of their application as our Company's audited annual financial statements for the year ended February 28, 2011. All adjustments are of a normal recurring nature. These unaudited interim financial statements should be read in conjunction with our Company's audited annual financial statements as of and for the year ended February 28, 2011.

4



---





MAINLAND RESOURCES INC.(An Exploration Stage Company)BALANCE SHEETS



|                                                                    | May 31,
2011       | February 28,
2011
|------------------------------------------------------------------- | ------------------ | -----------------
|                                                                    | (Unaudited)        | (Audited)        
|ASSETS                                                             
|                                                                    |                    |                  
|CURRENT ASSETS                                                      |                    |                  
|Cash                                                                | $            7,204 | $          62,978
|Promissory Note Receivable (Note 4)                                 | 62,979             | 60,000           
|Prepaid expenses                                                    | 19,817             | 38,216           
|Total current assets                                                | 90,000             | 161,194          
|OIL AND GAS PROPERTIES (Note 3)                                     |                    |                  
|Unproved                                                            | 14,773,801         | 14,685,943       
|Total Oil and Gas Properties                                        | 14,773,801         | 14,685,943       
|TOTAL ASSETS                                                        | $   14,863,801     | $   14,847,137   
|LIABILITIES AND STOCKHOLDERS' EQUITY                               
|                                                                    |                    |                  
|CURRENT LIABILITIES                                                 |                    |                  
|Accounts payable and accrued liabilities                            | $     3,411,355    | $      3,254,785 
|Drilling advances (Note 3)                                          | 124,773            | 48,745           
|Promissory note payable -related party (Note 8)                     | 960,000            | 652,500          
|TOTAL CURRENT LIABILITIES                                           | 4,496,128          | 3,956,030        
|CONTINGENCIES (Note 10)                                             |                    |                  
|                                                                    |                    |                  
|STOCKHOLDERS' EQUITY(Note 6)                                        |                    |                  
|Common stock,  600,000,000 shares authorized with $0.0001 par value |                    |                  
|Issued and outstanding - 80,969,502 common shares                   |                    |                  
|(February 28, 2011 - 80,969,502)                                    | 8,097              | 8,097            
|Additional paid-in-capital                                          | 23,488,984         | 23,488,984       
|Deficit accumulated during exploration stage                        | (13,129,408)       | (12,605,974)     
|TOTAL STOCKHOLDERS' EQUITY                                          | 10,367,673         | 10,891,107       
|TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                            | $   14,863,801     | $   14,847,137   
|                                                                    |                    |                  
|                                                                    |                    |                  







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

5



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)STATEMENTS OF OPERATIONS
(Unaudited)

|                                                                              | Three months
 Ended 
May 31, | Three months
 Ended 
May 31, | Inception 
(May 12, 2006) to May 31,
|----------------------------------------------------------------------------- | ---------------------------- | ---------------------------- | ------------------------------------
|                                                                              | 2011                         | 2010                         | 2011                                
|GENERAL AND ADMINISTRATIVE EXPENSES                                           |                              |                              |                                     
|Consulting Fees                                                               | $          126,380           | $            91,418          | $       1,372,646                   
|Management- related party (Note 8)                                            | 161,306                      | 169,959                      | 1,184,890                           
|Marketing expenses                                                            | -                            | 596,492                      | 2,094,124                           
|Office and general                                                            | 62,678                       | 84,494                       | 624,996                             
|Professional fees                                                             | 147,090                      | 318,506                      | 1,769,594                           
|Salary expense (Note 7)                                                       | -                            | 2,592,530                    | 18,270,580                          
|                                                                              | 489,497                      | 3,853,399                    | 25,316,830                          
|NET OPERATING LOSS                                                            | (489,497)                    | (3,853,399)                  | (25,316,830)                        
|                                                                              |                              |                              |                                     
|OTHER ITEMS                                                                   |                              |                              |                                     
|Interest income                                                               | 2,979                        | 4,254                        | 27,517                              
|Interest expense                                                              | (28,959)                     | -                            | (28,959)                            
|Gain on settlement of debt                                                    | -                            | -                            | 33,239                              
|Loss on abandonment on option deposit (Note 3)                                | -                            | -                            | (1,300,000)                         
|NET LOSS BEFORE INCOME TAX                                                    | (523,434)                    | (3,849,145)                  | (26,585,033)                        
|                                                                              |                              |                              |                                     
|Federal income tax benefit from continuing operations                         | -                            | -                            | 2,600,000                           
|LOSS FROM CONTINUING OPERATIONS                                               | (523,434)                    | (3,849,145)                  | (23,985,033)                        
|DISCONTINUED OPERATIONS ( Note 9)                                             |                              |                              |                                     
|Income/(loss) from discontinued operations                                    | -                            | (192,875)                    | 101,899                             
|Gain on disposal of discontinued operations, net of tax expense of $2,600,000 | -                            | 10,753,726                   | 10,753,726                          
|INCOME FROM DISCONTINUED OPERATIONS                                           | -                            | 10,560,851                   | 10,855,625                          
|NET INCOME (LOSS) FOR THE PERIOD                                              | $        (523,434)           | $       6,711,706            | $   (13,129,408)                    
|BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE:                             |                              |                              |                                     
|From continuing operations                                                    | $              (0.01)        | $              (0.05)        |                                     
|From discontinued operations                                                  | 0.00                         | 0.13                         |                                     
|                                                                              | $                0.01        | $                0.08        |                                     
|                                                                              |                              |                              |                                     
|WEIGHTED AVERAGE NUMBER OF 
     COMMON SHARES OUTSTANDING - BASIC            | 80,969,502                   | 80,969,502                   |                                     
|WEIGHTED AVERAGE NUMBER OF 
     COMMON SHARES OUTSTANDING - DILUTED          | 80,969,502                   | 81,248,379                   |                                     
|                                                                              |                              |                              |                                     

6



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)STATEMENTS OF CASH FLOWS
(Unaudited)



|                                                                            | Three months
 Ended 
May 31, | Three months
 Ended 
May 31, | Inception 
(May 12, 2006) to May 31,
|--------------------------------------------------------------------------- | ---------------------------- | ---------------------------- | ------------------------------------
|                                                                            | 2011                         | 2010                         | 2011                                
|                                                                            | (unaudited)                  | (unaudited)                  | (unaudited)                         
|CASH FLOWS FROM OPERATING ACTIVITIES                                        |                              |                              |                                     
|Net loss from continuing operations                                         | $      (523,434)             | $   (3,849,145)              | $ (13,129,408)                      
|Less: (income) loss from discontinued operations                            | -                            | 10,560,851                   | (10,855,625)                        
|Adjustments to reconcile net loss to net cash used in operating activities: |                              |                              |                                     
|- Income tax benefit                                                        | -                            | -                            | (2,600,000)                         
|- Non-cash mineral property losses (recoveries)                             | -                            | -                            | 1,271,201                           
|- Stock-based compensation (Note 7)                                         | -                            | 2,592,530                    | 18,270,580                          
|- Non-cash consulting fees (Note 6)                                         | -                            | -                            | 16,125                              
|- Donated services and expenses                                             | -                            | -                            | 14,420                              
|CHANGES IN OPERATING ASSETS AND LIABILITIES                                 |                              |                              |                                     
|- Accrued interest income                                                   | (2,979)                      | -                            | (2,979)                             
|- Prepaid expenses                                                          | 18,399                       | (26,882)                     | (19,817)                            
|- Accounts payable and accrued liabilities                                  | 156,570                      | (521,605)                    | 535,443                             
|- Drilling advances                                                         | 76,028                       | 859,766                      | 124,773                             
|NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                         | (275,416)                    | 9,615,515                    | (6,375,287)                         
|CASH FLOWS FROM INVESTING ACTIVITIES                                        |                              |                              |                                     
|Investment in oil and gas property                                          | (87,858)                     | (602,632)                    | (11,847,089)                        
|Promissory note receivable advances                                         | -                            | -                            | (60,000 )                           
|Deposit on properties                                                       | -                            | -                            | (1,300,000)                         
|NET CASH FLOWS USED IN INVESTING ACTIVITIES                                 | (87,858)                     | (602,632)                    | (13,207,089)                        
|                                                                            |                              |                              |                                     
|CASH FLOWS FROM FINANCING ACTIVITIES                                        |                              |                              |                                     
|Proceeds on sale of common stock                                            | -                            | -                            | 3,988,516                           
|Proceeds from exercised warrants                                            | -                            | -                            | 1,153,000                           
|Promissory note payable -  related party, net                               | 307,500                      | -                            | 960,000                             
|Advances from related party                                                 | -                            | -                            | 83,239                              
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                   | 307,500                      | -                            | 6,184,755                           
|CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS                          |                              |                              |                                     
|Net cash provided by operating activities                                   | -                            | 11,251,518                   | 22,731,637                          
|Net cash provided by investing activities                                   | -                            | (1,410,227)                  | (9,326,812)                         
|Net cash provided by financing activities                                   | -                            | (10,278,485)                 | -                                   
|NET CASH PROVIDED BY (USED IN) DISCOUNTINUED OPERATIONS                     | -                            | (437,194)                    | 13,404,825                          
|                                                                            |                              |                              |                                     
|INCREASE (DECREASE) IN CASH                                                 | (55,774)                     | 8,575,689                    | 7,204                               
|                                                                            |                              |                              |                                     
|CASH, BEGINNING OF PERIOD                                                   | 62,978                       | 610,124                      | -                                   
|CASH, END OF PERIOD                                                         | $           7,204            | $    9,185,813               | $           7,204                   

7



---





|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 mineral property                           
|Common stock issued for consulting fees                                           
|Common stock issued for satisfaction of liability                                 
|Oil and gas properties acquired through change in A/P                             
|Donated services and rent                                                         

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







8



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION



Mainland Resources Inc. (the "Company") is an exploration stage as defined in FASB ASC 915 "Development Stage Entities". The Company was incorporated May 12, 2006 in the State of Nevada for the purpose of mineral exploration.  During 2008, the Company entered into an option agreement on certain oil and gas leaseholds in the state of Louisiana (refer to Note 3).  The Company now intends to locate, explore, acquire and develop oil and gas properties in the United States.   The Company began drilling its first well in October 2008 which was completed at the end of January 2009 and commenced production from the Haynesville Shale formation. Through April 2010, the Company had five wells at various stages of drilling, completion and production in the Haynesville Shale formation.  Subsequent to the period on April 22, 2010 the Company sold all its Haynesville Shale assets in East Holly Field, DeSoto Parish, Louisiana including the five producing wells (refer to Note 9).



On March 22, 2010, the Company and American Exploration Corporation ("AEC") entered into a definitive Merger Agreement and Plan of Merger (the "Merger Agreement") that contemplates a stock-for-stock merger to be effected under the laws of Nevada.  Under the terms of the Merger Agreement, the AEC stockholders will receive one share of the Company for every four shares of AEC common stock they own.  Currently, there are approximately 60,273,333 shares of AEC common stock outstanding, which would result in the issuance of approximately 15,068,333 shares of the Company's common stock to the former stockholders of AEC which would represent approximately 15.6% of the issued and outstanding common stock of the Company, as the surviving corporation. The merger is subject to various conditions, including approval of the respective stockholders of each of the Company and AEC and completion of due diligence.  The due diligence by both parties was completed on May 5, 2010. The proposed merger is still subject to respective stockholders approval (refer to Note 4).



Going concern

The Company commenced operations on May 12, 2006. Although the Company has realized revenues, as of February 28, 2011, the Company has an accumulated deficit during the exploration stage of $13,129,408.  The ability of the Company to continue as a going concern is dependent on raising capital to fund ongoing operations and carry out its business plan and ultimately to attain profitable operations.  Accordingly, these factors raise substantial doubt as to the Company's ability to continue as a going concern. These financials do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.  To date, the Company has funded its initial operations by way of private placements of common stock, advances from related parties and bridge loan financing.  During fiscal 2009, the Company completed a private placement of $4,000,000 at $0.33 per unit with each unit consisting of one common share and one half warrant at $0.67 per share exercisable for a period of one year from issuance (refer to Note 6). In addition, during fiscal 2010, 1,729,500 warrants were exercised at $0.67 for net proceeds to the company of $1,153,000. In fiscal 2011, the Company raised $650,000 through a promissory note (refer to Note 8).  During the current period, a further $310,000 was raised under the same promissory note.  On August 10, 2009, the Company closed a $3,500,000 bridge loan financing which was replaced effective October 16, 2009 with a secured senior line of credit for $40,000,000 of which $10,278,485 had been advanced as of February 28, 2010. During fiscal 2011, the entire outstanding balance owed on the secured line of credit was repaid from the sale of assets (refer to Note 3 and 5).



Unaudited Interim Financial Statements

The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q.  They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements.  However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended February 28, 2011 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission.  The interim unaudited financial statements should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended May 31, 2011 are not necessarily indicative of the results that may be expected for the year ending February 28, 2012.





9



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The Company was incorporated on May 12, 2006 in the State of Nevada.  The Company's fiscal year end is February 28.

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.



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 recoverable value. If a reduction in recoverable value has occurred, costs subject to depletion are increased or a charge is made against earnings for those operations where a reserve base is not yet established.



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 FASB ASC 410-20 "Asset Retirement and Environmental Obligations,"which requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the related oil and gas properties. As of May 31, 2011, there have been no asset retirement obligations recorded.

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, stock based compensation, financial instruments as well as deferred tax balances and asset impairment tests.  Further, depreciation, depletion and amortization of oil and gas properties

10



---





MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of estimates (continued)

and the impairment of oil and gas properties are determined using estimates of oil and gas reserves. There are numerous uncertainties in estimating the quantity of reserves and in projecting the future rates of production and timing of development expenditures, including future costs to dismantle, dispose, plug, and restore the Company's properties. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way. Proved reserves of oil and natural gas are estimated quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under existing conditions.



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.



Concentrations of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalent accounts in financial institutions. As of May 31, 2011, the Company's cash and cash equivalents do not exceed federally insured limits.



Earnings (loss) per common share

Basic earnings (loss) per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period.  Dilutive earnings (loss) per share reflect the potential dilution of securities that could share in the earnings of the Company.  Where applicable, dilutive loss per share is equal to that of basic loss per share as the effects of stock options and warrants have been excluded as they are anti-dilutive. Using the treasury stock method, there were no diluted shares.



Revenue Recognition

Oil and natural gas revenues are recorded using the sales method, whereby the Company recognizes oil and natural gas revenue based on the amount of oil and gas sold to purchasers, when title passes, the amount is determinable and collection is reasonably assured.  Actual sales of gas are based on sales, net of the associated volume charges for processing fees and for costs associated with delivery, transportation, marketing, and royalties in accordance with industry standards.  Operating costs and taxes are recognized in the same period in which revenue is earned.



Income taxes

The Company follows the liability method of accounting for income taxes.  Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances.  Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.  At May 31, 2011, the Company has a current income tax liability of $Nil. The original balance of $2,600,000 recorded during fiscal 2011 was attributable to the net taxable gain realized from the sale of the Haynesville Shale assets in the East Holly prospect to Exco Operating Company, LP which has been fully offset by deductible exploration costs incurred on the drilling of the Burkley-Phillips #1 well in Mississippi (see Notes 3 and 9).



Stock-based compensation

The Company has adopted FASB ASC 718-10, "Compensation-Stock Compensation", which requires the compensation cost related to share-based payments, such as stock options and employee stock purchase plans, be recognized in the financial statements based on the grant-date fair value of the award.  The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50.  Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable.  The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.

11



---





MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|

NOTE 3 - OIL AND GAS PROPERTIES



East Holly Prospect

On February 27, 2008, the Company entered into an option agreement (the "Option Agreement") with Kingsley Resources, Inc. ("Kingsley"), pursuant to which the Company acquired all the right, title and interest Kingsley had in and to certain leasehold estates in the state of Louisiana ("the Leases") which were the subject of a purchase agreement dated December 11, 2007, and modified February 1, 2008 (collectively, the "Leasehold Purchase Agreement") between Kingsley and Permian Basin Acquisition Fund ("Permian"), pursuant to which Kingsley had the right to acquire the sub-surface rights provided for in the Leases.  In order to complete the acquisition of the Leases the Company was required to pay $100,000 on April 2, 2008 to Kingsley and assume all of Kingsley's obligations under the Leasehold Purchase Agreement.  On March 14, 2008, the Company completed the Option agreement and the Leasehold Purchase Agreement at a total cost of $687,596, which includes the $100,000 that was paid on April 2, 2008, for approximately 2,551 net acres. The property was included in the April 2010 sale to EXCO Operating Company LP.



On December 21, 2009, the Company acquired, under its agreement with Petrohawk, an additional 159.3 net acres for $412,985 and on December 23, 2009 the Company also acquired an additional 51.96 net acres in conjunction with Petrohawk for $94,731 within the Cotton Valley/Haynesville trend in the State of Louisiana. The property was included in the April 2010 sale to EXCO Operating Company LP.



Cotton Valley/ Haynesville

The Company has leased various other properties totalling approximately 144 net acres, consisting of approximately 84 net acres leased as of February 29, 2008 and added 60 net acres leased during the year ended February 28, 2009 for additional consideration of $22,753.  These additional property leases, within the Cotton Valley/Haynesville trend in the state of Louisiana, are for three year terms.  The Company has a 100% Working Interest and a 75% N.R.I. in the leases comprising a total of 2,695 net acres.



Petrohawk Venture Agreement

On July 14, 2008, the Company entered into a binding venture agreement with Petrohawk Energy Corporation ("Petrohawk") for the joint development of the Haynesville Shale on the Company's properties ("the Leases") in De Soto Parish, Louisiana. Effective August 4, 2008, the Company entered into a definitive binding agreement with Petrohawk consummating the transaction on July 14, 2008.



Under the terms of the Agreement, Petrohawk agreed to pay 100% of the costs of development associated with the first well drilled below the Cotton Valley Formation, including drilling, completing and fracture stimulating, as well as costs up to and including pipeline connection.  Petrohawk also agreed to pay 80% of all costs of the second well drilled on the Leases below the base of the Cotton Valley with the Company paying the remaining 20% of the costs.  For the third and all subsequent wells drilled on the Leases below the base of the Cotton Valley Formation, Petrohawk will pay 60% of the drilling and completion costs and the Company will pay 40%.



The Company will transfer 60% of its De Soto Parish leases to Petrohawk at closing, but only as the Leases relate to all depths below the base of the Cotton Valley Formation, and specifically the Haynesville Shale. Petrohawk agrees to gather and market the Company's production from above the base of the Cotton Valley Formation, pursuant to a mutually acceptable agreement.



Griffiths 11- #1

The first well under the Petrohawk Agreement, the Griffiths 11- #1, began drilling in October 2008.  The well commenced production at the end of January 2009. The Company owned a 40% working interest in the well. The property was included in the April 2010 sale to EXCO Operating Company LP.

12



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|



NOTE 3 - OIL AND GAS PROPERTIES (continued)



Stevenson Douglas LLC. 16 - #1

The second well under the Petrohawk Agreement, the Steven Douglas LLC 16 - #1, began drilling in April 2009. The well commenced production in March, 2010. The Company owned a 19.09% working interest in the well. The property was included in the April 2010 sale to EXCO Operating Company LP.



Dehan 15 - #1-H

The third well under the Petrohawk Agreement, the Dehan 15 - #1-H, began drilling in May 2009. The well commenced production in August 2009. The Company owned a 25.73% working interest in the well. The property was included in the April 2010 sale to EXCO Operating Company LP.



International Paper 12H-1

The fourth well under the Petrohawk Agreement, the International Paper 12-#1H commenced production in April 2010. The Company owned a 20.58% working interest in the well. The property was included in the April 2010 sale to EXCO Operating Company LP.



Paul Little 7H-#1

The fifth well under the Petrohawk Agreement, the Paul Little 7H-#1.  Drilling was completed in May 2010 and commenced production in 2010.  The Company owned a 20.54% working interest in the well. The property was included in the April 2010 sale to EXCO Operating Company LP.



Exco Operating Company, LP - Sale

On April 22, 2010, the Company closed the sale of its Haynesville Shale assets in East Holly Field, DeSoto Parish, Louisiana. The assets have been sold to EXCO Operating Company, LP, a wholly owned subsidiary of EXCO Resources, for $28,159,604 effective January 1, 2010.  The Company has sold its 40% working interest in all rights deeper than the base of the Cotton Valley formation (which has been defined to be 100 feet below the stratigraphic equivalent of the Cotton Valley formation and includes all of the Company's producing wells as described above) in the East Holly Field.  The Company continues to own a 100% interest in all rights above this depth and specifically, in the Cotton Valley, Hosston and Upper Bossier sections.



The Company has used the proceeds of the sale to fund the drilling of the initial well (designated as the Burkley-Phillips No. 1 Well) on its Buena Vista prospect in Jefferson County, Mississippi, and to retire its debt to Guggenheim Partners LLC. (Refer to Note 9).



Mississippi Prospect

On September 3, 2008, the Company signed an Option Agreement with Westrock Land Corp ("Westrock") to acquire 5,000 net acres in mineral oil and gas leases located in the State of Mississippi. In accordance with the terms and provisions of the Option Agreement; (i) the Company will acquire a 100% working interest and a 75% net revenue interest in the Leases; (ii) the Company has agreed to pay certain acquisition costs per net mineral acres and also paid a $500,000 deposit on September 3, 2008 to secure the Option Agreement; (iii) the balance of the acquisition costs totalling $2,275,000 will be due and payable upon completion of the  due diligence, to be completed by the Company no later than October 15, 2008. The Option Agreement was subsequently extended on each of October 15, 2008, November 30, 2008, April 16, 2009 and June 1, 2009 whereby the option period has been extended until January 20, 2010.  Additional deposits of $250,000, $100,000, $250,000, $100,000 and $100,000 were paid on October 17, 2008, December 1, 2008, December 29, 2008,  April 27, 2009, May 6, 2009 and June 5, 2009 for a total deposit to date of $1,300,000 (February 28, 2009 - $1,100,000). Effective February 12, 2010, based upon completion of its due diligence, the Board of Directors determined that it was not in the best interests of the Company and its shareholders to proceed with the acquisition and development of the Leases in accordance with the terms and provisions of the Option Agreement and the Company authorized the termination of the Option Agreement.  The company and Westrock agreed that the Option Agreement would be terminated and the Company and Westrock would be released from their respective duties and obligations.  The Company has forfeited its deposit of the $1,300,000 paid to Westrock which was recorded as a loss during fiscal 2010.

13



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|



NOTE 3 - OIL AND GAS PROPERTIES (continued)



Buena Vista -Mississippi Haynesville/Bossier Prospect

On June 23, 2009, the Company signed an Option Agreement with Westrock Land Corp to acquire approximately 8,000 net acres in mineral oil and gas leases located in the State of Mississippi. In accordance with the terms and provisions of the Option Agreement; (i) the Company will acquire a 100% working interest and a minimum 75% net revenue interest in the Leases; (ii) the Company has agreed to pay certain acquisition costs per net mineral acres by August 31, 2009. On August 28, 2009, the Company amended the Option Agreement to expand the acreage to include an additional 225 acres thus aggregating approximately 8,225 net acres subject to the Option Agreement. The Company further agreed to advance a payment of $300,000 towards the total purchase price of the acreage under the Option Agreement on August 31, 2009. On October 13, 2009 the Company paid an additional $900,000 towards the purchase price of the property and paid the final instalment of $2,090,060 on November 3, 2009 for a total purchase price of $3,290,060. During fiscal 2010 the Company acquired approximately an additional 861 net acres for $122,376 and in fiscal 2011 the Company acquired approximately an additional 8,573 net acres at a cost of $556,258. The Company's total acreage as of February 28, 2011 is approximately 17,838 net acres, with net revenue interests ranging from 71.00% to 78.34%. Total cost to date of acquiring leases is $3,967,962.



Burkley-Phillips No.1

On July 21, 2010, the Company spud the first well, the Burkley-Phillips No. 1 well, on the Buena Vista Prospect. Drilling to a total depth of 22,000 ft was concluded on December 24, 2010. The well was logged, a core interval was cut and a thorough technical analysis of results was conducted.  The well is currently planned for a completion in the second half of 2011.  The Company's working interest in the well is 72%. The Company will fund 90% of the well costs to earn its 72% interest in the well. Guggenheim Partners LLC will fund 10% of the well costs in order to earn an 8% working interest in the well.



Effective on September 17, 2009, the Board of Directors of the Company authorized the execution of a letter agreement (the "Letter Agreement") with American Exploration Corporation, a Nevada corporation ("AEC") to jointly develop contiguous acreage known as the Buena Vista Area located in Mississippi (the "Joint Development Project"). In accordance with the terms and provisions of the Letter Agreement: (i) AEC agreed to commit approximately 5,000 net acres and the Company agreed to commit approximately 8,225 net acres to the Joint Development Project; (ii) the Company shall be the operator of the Joint Development Project; (iii) the Company agreed to pay 80% of the initial well drilling and completion costs to earn a 51% working interest in the well and the total Joint Development Project; and (iv)AEC agreed to pay 20% of the initial well drilling and completion costs to earn a 49% working interest in the well and the total Joint Development Project. Also in accordance with the terms and provisions of the Joint Development Project, future costs, including drilling and completions, for oil and gas activities of the net acreage in the Joint Development Project will be split on a 51% / 49% basis between the Company and AEC, respectively. The Company was required to acquire the acreage committed to the Joint Development Project from an unrelated third party on or before October 15, 2009 otherwise the Letter Agreement would terminate and would no longer be in force and effect.  The Company completed the transaction as per above paragraph.



On April 26, 2010, AEC failed to fund its 20% share of the estimated total well costs of the Burkley-Phillips No. 1 well on the company's Buena Vista Prospect ("Prospect") in Jefferson County, Mississippi.  As a result, AEC forfeited its rights to a 29% working interest in the well and in the Prospect in favour of the Company.  AEC will continue to be entitled to receive a 20% working interest in the first well and the Prospect after completion, subject to compliance by AEC with all other terms and conditions of the Letter Agreement and the related Joint Operating Agreement.  On March 22, 2010 the Company and AEC entered into a definitive Merger Agreement and Plan of Merger (refer to Note 4).



14



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|



NOTE 3 - OIL AND GAS PROPERTIES (continued)



Western Mississippi Prospect

On August 3, 2010 the Company acquired a 100% working interest in 1,258 net acres in western Mississippi within the same general geological region as the Buena Vista Project in Jefferson County, Mississippi at a cost of $105,746.



The Company's Oil and Gas properties are made up as follows:



|                                   | May 31,2011      | February 28, 2011
|---------------------------------- | ---------------- | -----------------
|                                   |                  |                  
|Oil and Gas Properties:            |                  |                  
|Proved, subject to depletion       | $           -    | $           -    
|Unproved, not subject to depletion | 14,773,801       | 14,685,943       
|                                   |                  |                  
|                                   | 14,773,801       | 14,685,943       
|Accumulated depletion              | -                | -                
|                                   |                  |                  
|Total Oil and Gas Properties       | $     14,773,801 | $     14,685,943 
|                                   |                  |                  



The following is a summary of the transactions involving the Company's unproven properties not subject to depletion:





|                           | AcquisitionCosts    | DevelopmentCosts | Total              
|-------------------------- | ------------------- | ---------------- | -------------------
|                           |                     |                  |                    
|Balance, February 29, 2010 | $         3,534,436 | $           -    | $         3,534,436
|Incurred during the period | 11,151,507          | -                | 11,151,507         
|                           |                     |                  |                    
|Balance, February 28, 2011 | 14,685,943          | -                | 14,685,943         
|Incurred during the period | 87,858              | -                | 87,858             
|                           |                     |                  |                    
|Balance, May 31, 2011      | $        14,773,801 | $          -     | $        14,773,801
|                           |                     |                  |                    



NOTE 4 - PLAN OF MERGER



Merger Agreement and Plan of Merger

On March 22, 2010 the Company and American Exploration Corporation ("AEC") entered into a definitive Merger Agreement and Plan of Merger (the "Merger Agreement") that contemplates a stock-for-stock merger to be effected under the laws of Nevada.  If the merger is completed, the Company will be the surviving corporation, and will become vested with all of American Exploration's assets and property.



Under the terms of the Merger Agreement, AEC's stockholders will receive one share of the Company for every four shares of AEC common stock they own.  Currently, there are approximately 60,273,333 shares of AEC common stock outstanding, which would result in the issuance of approximately 15,068,333 shares of the Company's common stock to the former stockholders of AEC upon completion of the merger.  The former AEC stockholders would then own approximately 15.6% of the issued and outstanding common stock of the Company, as the surviving corporation. The Merger also contemplates that all outstanding common stock options of AEC and all outstanding share purchase warrants of AEC will be replaced with non-transferable stock options non-transferable common stock purchase warrants of the Company under similar terms and conditions as the original AEC options and share purchase warrants.  The number of replacement options and warrants issuable will be determined with reference to the above four to one share exchange ratio.  The replacement options will be exercisable at a price of $1.50 per share.

15



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|



NOTE 4 - PLAN OF MERGER (continued)



The merger is subject to various conditions, including approval of the respective stockholders of each of AEC and the Company, completion of fairness opinions by both parties and completion by each party to its satisfaction, due diligence investigation of the other party's business and affairs to determine the feasibility, economic or otherwise.  Both parties have obtained their respective fairness opinions. The due diligence by both parties was completed on May 5, 2010. The proposed merger is still subject to respective stockholders approval. The Merger Agreement is subject to termination by either party if certain conditions specified in the Merger Agreement are not satisfied at or before the "Termination Date," which was previously defined to mean May 31, 2011, or such later date as may be mutually agreed by the parties. Mainland and American Exploration have entered into an amending agreement dated May 17, 2011 which extends the Termination Date to August 31, 2011.

On September 27, 2010, the Company approved an unsecured promissory loan of $60,000 to AEC. The note had an original maturity date of December 31, 2010 and an interest rate of 12% per annum. The maturity date of this loan was extended to August 31, 2011.  As of May 31, 2011, a total of $2,979 of interest has been accrued in connection with this loan.

NOTE 5 - PROMISSORY NOTE



Effective July 21, 2009, the Board of Directors of the Company authorized the execution of a $3,500,000 senior secured bridge loan with Guggenheim Corporate Funding LLC ("Guggenheim") (the "Loan Agreement").  The Company closed the Loan Agreement effective August 10, 2009 with a maturity date of December 1, 2009. In connection with the bridge loan, $2,000,000 was advanced to the Company with the remaining $1,500,000 to be advanced after certain conditions were met.  The term financing also proposes non-binding conditions for a $10,000,000 senior secured advancing line of credit to be negotiated between the Company and Guggenheim.  On October 16, 2009, the Board of Directors of the Company authorized the execution of a senior secured advancing line of credit agreement with a maturity date of October 16, 2011 (the "Line of Credit Agreement").  The Line of Credit Agreement represents a $40,000,000 line of credit facility with Guggenheim and certain other lenders.  The advances have been used to retire the $2,000,000 outstanding on the $3,500,000 senior secured bridge loan indicated above and to fund well drilling and completion costs and property acquisition costs.



The original bridge loan and the line of credit bear interest at the lower of 12% or bank prime rate plus 7.00% calculated and paid on a monthly basis, of which $201,159 was paid through February 28, 2010.  The line of credit is secured by way of a first-priority security interest in all of the Company's assets including the Company's interest in the an area of mutual interest (" AMI") (including but not limited to all properties and leasehold within the DeSoto Acreage and the Buena Vista prospect).  In addition, the Company has agreed to assign permanent overriding royalty interests ("ORRI") to Guggenheim ranging from 2.5% (proportionately reduced from the Company's working interest) on any acreage now owned or hereafter acquired within the AMI. If the Company repays the outstanding principal early, and an agreed rate of return has not been realized by Guggenheim, an additional ORRI of 5.5% will be added to the permanent ORRI  until Guggenheim realizes the required rate of return, after which only the permanent ORRI will remain.  Additionally, Guggenheim will participate through an associated company as a 10% working interest partner in the drilling and development of the Company's Buena Vista project in Mississippi.



The Company paid financing fees in connection with the original bridge loan of $415,600 which were being amortized over the life of the loan of which $249,277 was amortized through October 16, 2009.  The then unamortized balance of $166,323 along with $1,093,617 of additional costs incurred in connection with the new line of credit will be amortized over the life of the line of credit to October 16, 2011.  A total of $438,276 of this balance was amortized through February 28, 2010 leaving an unamortized balance of $1,070,941.



On April 22, 2010, the Company closed the sale of its Haynesville Shale assets in East Holly Field, DeSoto Parish, Louisiana. The assets have been sold to EXCO Operating Company, LP, a wholly owned subsidiary of EXCO Resources, for $28,159,604.  The Company used part of the proceeds to retire its debt to Guggenheim and to re-acquire the overriding royalty interests granted to Guggenheim in the DeSoto Acreage.  The assets and liabilities related to this disposal were reclassified as of February 28, 2010 and include the promissory note payable to Guggenheim totalling $10,278,485 being classified as liabilities held for sale and the unamortized deferred financing costs totalling $1,070,941 being classified as assets held for sale (refer to Note 9 ).



16



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|

NOTE 6 - STOCKHOLDERS' EQUITY



(a)        Share Capital

The Company's capitalization is 600,000,000 common shares with a par value of $0.0001 per share.



The directors of the Company have approved various special resolutions to undertake forward splits of the common stock of the Company as follows: 20 new shares for 1 old share which was effective March 11, 2008; 1.5 new shares for 1 old share which was effective May 29, 2008 and 2 new shares for 1 old share which was effective on July 15, 2009.



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 20:1 forward stock split on March 11, 2008, the 1.5:1 forward stock split on May 29, 2008 and the 2:1 forward stock split on July 15, 2009 have been adjusted to reflect these stock splits on a retroactive basis, unless otherwise noted.



On May 26, 2010, the Company corrected an administrative oversight regarding the Company's authorized share capital in relationship to the 1.5 to 1 forward split that was effective May 29, 2008, by filing a Certificate of Change with the Nevada Secretary of State, as of May 26, 2010.  As a result, the Company's authorized capital was increased from 400,000,000 to 600,000,000 shares of common stock, par value $0.0001 per share.  There was no change to the Company's issued and outstanding share capital.



(b)        Private Placements

On June 15, 2006, the Company issued 12,000,000 unregistered shares of common stock at $0.0000143 per share for proceeds of $172.



On October 6, 2006, the Company issued 25,020,000 unregistered shares of common stock at a price of $0.000715 per share for proceeds of $17,892.



On October 15, 2007, the Company issued 24,000,000 unregistered shares of common stock at a price of $0.00085 per share for proceeds of $20,452.



Between May 1, 2008 and July 22, 2008, the Company completed a private placement of 12,000,000 unregistered units at $0.33 per unit for proceeds of $4,000,000. Of this amount, $50,000 was by way of a settlement of debt and the remaining $3,950,000 was received in cash.  Each unit consists of one common share and one-half non-transferable share purchase warrant; one whole non-transferable purchase warrant is exercisable at $0.67 per share for a period of one year from the date of issuance ending on May 1, 2009.



(c)        Other issuances

On July 15, 2006, the Company issued 6,210,000 shares of common stock at a price of $0.00071 per share on settlement of $4,440 for mineral property acquisition.



On March 17, 2009, the Company issued 5,000 shares of common stock at an estimated fair value of $1.78 per share as per the terms of a consulting agreement that became effective March 1, 2009.



On June 15, 2009, the Company issued 5,000 shares of common stock at an estimated fair value of $1.45 per share as per the terms of a consulting agreement that became effective March 1, 2009.



(d)        Share Purchase Warrants

On April 29, 2009, the Company extended the expiration of 6,000,000 warrants from May 1, 2009 to June 1, 2009.



During the year ended February 28, 2010, a total of 1,729,500 warrants were exercised at $0.67 per share with net proceeds of $1,153,000 to the Company and the remaining 4,270,500 warrants expired unexercised.



17



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|



NOTE 7 - STOCK OPTION PLAN



On April 7, 2008, the Board of Directors of the Company ratified, approved and adopted a Stock Option Plan for the Company allowing for the grant of up to 4,400,000 options to acquire common shares with terms of up to 10 years.  Subsequently, the Board of Directors of the Company ratified, approved and amended the Stock Option Plan increasing the allowable grant as follows: to 7,600,000 options effective July 9, 2008, to 12,000,000 options effective September 22, 2009 and to 15,000,000 options effective March 22, 2010. In the event an optionee ceases to be employed by or to provide services to the Company for reasons other than cause, any Stock Option that is vested and held by such optionee may be 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.



As approved by the Board of Directors, on April 7, 2008, the Company granted 4,200,000 fully vested stock options to certain officers, directors and management of the Company at $0.59 per share for terms of ten years.  The total fair value of these options at the date of grant was estimated to be $2,457,000 and was determined using the Black-Scholes option pricing model with an expected life of 5 years, a risk free interest rate of 2.75%, a dividend yield of 0% and expected volatility of 260% and was recorded as a stock based compensation expense in 2009.



As approved by the Board of Directors, between July 9, 2008 and August 19, 2008, the Company granted a total of 2,700,000 fully vested stock options to certain officers and directors of the Company at prices ranging from $2.10 per share to $3.18 per share for terms of ten years.  The total fair value of these options at the date of grant was estimated to be $7,157,685 and was determined using the Black-Scholes option pricing model with the following assumptions; expected lives of 5 years, risk free interest rates ranging from 3.07% - 3.12%, dividend yields of 0% and expected volatility of 260% and was recorded as a stock based compensation expense in 2009.



As approved by the Board of Directors, on November 18, 2008, the Company granted a total of 500,000 fully vested stock options to a director of the Company at $2.50 per share for terms of ten years.  The total fair value of these options at the date of grant was estimated to be $1,182,500 and was determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 2.22%, a dividend yield of 0% and expected volatility of 260% and was recorded as a stock based compensation expense in 2009.



As approved by the Board of Directors, on February 4, 2009, the Company granted a total of 600,000 fully vested stock options to two directors of the Company at $1.50 per share for terms of ten years.  The total fair value of these options at the date of grant was estimated at $1,197,000 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 1.91%, a dividend yield of 0% and expected volatility of 260% and was recorded as a stock based compensation expense in 2009.



Also effective February 4, 2009, the Company cancelled 1,800,000 previously granted and fully vested options to a former director at $0.59 per share and re-priced to $1.50 per share, 3,200,000 previously granted and fully vested options with original exercise prices ranging from $2.10 per share to $3.18 per share with all other terms remaining unchanged from the original issuances.  The estimated incremental fair value resulting from the modification of these options of $8,500 was recorded as a stock based compensation expense in 2009.



As approved by the Board of Directors, on August 14, 2009, the Company granted a total of 800,000 fully vested stock options to two directors of the Company at $1.50 per share for terms of ten years.  The total fair value of these options at the date of grant was estimated at $1,148,000 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 2.51%, a dividend yield of 0% and expected volatility of 260% and was recorded as a stock based compensation expense in 2009.



Effective September 22, 2009, the Board of Directors authorized the execution of a two-year executive service agreement with Mark Witt, the Chief Financial Officer/Treasurer of the Company (the "Executive Service Agreement"). In accordance with the terms and provisions of the Executive Service Agreement: (i) the Company would pay Mr. Witt a monthly salary of $10,000; (ii) the Company would grant an aggregate of 3,000,000 stock options (the "Stock Options") to Mr. Witt under its 2008 Stock Option Plan, as amended (the "Stock Option Plan"), with such terms and provisions of the grant, including exercise price and

18



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|



NOTE 7 - STOCK OPTION PLAN (continued)



duration of exercise period, to be determined at the time of grant as follows: (a) 1,500,000 Stock Options would vest when the Company successfully raised equity funding in the amount of $10,000,000 and (b) 500,000 Stock Options would vest when the Company completed its listing and commences trading of its shares of common stock with a designated trading symbol (the "Trading Date") with the NYSE Amex Equities, formerly known as the American Stock Exchange ("NYSE Amex Equities"); (c) 500,000 Stock Options would vest at the one year anniversary date of the Trading Date, and (d) 500,000 Stock Options would vest at the second year anniversary date of the Trading Date. The exercise price at each vesting date would be the lesser of (a) the thirty-day weighted average price of the Company's shares of common stock prior to each of the respective vesting dates and (b) the issue price of the shares of common stock in the equity financings above. On March 23, 2010 Mr. Witt resigned as the Chief Financial Officer/Treasurer of the Company. Under the terms of his separation and release agreement with the company dated March 26, 2010, Mr. Witt was paid a severance of $77,419, and in lieu of the above mentioned stock options previously awarded being cancelled, he was granted 500,000 common stock options, exercisable for two years at an exercise price of $1.25 per share..



Effective September 22, 2009, the Board of Directors authorized the execution of a two-year executive service agreement with Michael J. Newport, the President/Chief Executive Officer and a director of the Company (the "Executive Service Agreement"). In accordance with the terms and provisions of the Executive Service Agreement: (i) the Company shall continue to pay Mr. Newport a monthly salary of $15,000; (ii) the Company would grant an aggregate of 1,500,000 stock options (the "Stock Options") to Mr. Newport under its 2008 Stock Option Plan, as amended (the "Stock Option Plan"), with such terms and provisions of the grant, including exercise price and duration of exercise period, to be determined at the time of grant as follows: (a) 500,000 Stock Options would vest when the Company has completed its listing and commences trading of its shares of common stock with a designated trading symbol (the "Trading Date") with the NYSE Amex Equities, formerly known as the American Stock Exchange ("NYSE Amex Equities"); (b) 500,000 Stock Options would vest at the one year anniversary date of the Trading Date, and (c) 500,000 Stock Options would vest at the second year anniversary date of the Trading Date. The exercise price at each vesting date shall be the lesser of (a) the thirty-day weighted average price of the Company's shares of common stock prior to each of the respective vesting dates and (b) the issue price of the shares of common stock in the equity financings above. As approved by the Board of Directors on April 8, 2010, the 1,500,000 stock options noted above were cancelled and replaced by a grant of 500,000 fully vested stock options with an exercise price of $1.47 per share for a term of 10 years.



Effective August 23, 2010, the Board of Directors authorized the execution of a two-year executive service agreement with Nicholas W. Atencio, the Chief Executive Officer and a director of the Company (the "Executive Service Agreement"). In accordance with the terms and provisions of the Executive Service Agreement: (i) the Company shall continue to pay Mr. Atencio a monthly salary of $25,000; (ii) the Company would grant an aggregate of 3,500,000 stock options (the "Stock Options") to Mr. Atencio under its 2010 Stock Option Plan, as amended (the "Stock Option Plan"), with such terms and provisions of the grant, including exercise price and duration of exercise period, to be determined at the time of grant as follows: (a) 1,500,000 Stock Options shall vest on the effective date of the executive services agreement at an exercise price of $0.44 per share and (b) a further 750,000 Stock Options would vest upon successful completion by the Company during the term of the executive agreement of an equity or debt financing of at least $5 million and (c) a further 750,000 Stock options would vest upon successful closing by the Company during the term of the executive services agreement of an agreement with any third party investing equity partner which allows for the initiation of drilling on the Cotton Valley/Hosston formations in the East Holly Field located in Louisiana and (d) a further 500,000 Stock Options would vest when the Company has completed its listing and commences trading of its shares of common stock with a designated trading symbol (the "Trading Date") with the NYSE Amex Equities, formerly known as the American Stock Exchange ("NYSE Amex Equities") during the term of the executive services agreement. The exercise price at each vesting date for items (b), (c) and (d) shall be equal to the 15 previous days weighted average closing share price of the Company's common shares from the date of successful completion of the requirements for vesting.



On April 8, 2010, the 1,500,000 stock options noted above were cancelled and replaced by a grant of 500,000 fully vested stock options with an exercise price of $1.47 per share for a term of 10 years to replace the agreement of September 22, 2009. The total fair value of these options at the date of grant was estimated at $581,900 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 2.64%, a dividend yield of 0% and expected volatility of 109.9% and was recorded as a stock based compensation expense in fiscal 2011.

19



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|



NOTE 7 - STOCK OPTION PLAN (continued)



As approved by the Board of Directors, on March 18, 2010, the Company granted a total of 1,000,000 stock options to a consultant of the Company at $1.15 per share for terms of ten years with such terms and provisions of the grant, including exercise price and duration of exercise period, to be determined at the time of grant as follows: (a) 100,000 Stock Options vesting immediately on effective date (b) 200,000 Stock Options vesting 90 days after effective date, (c) 200,000 Stock Options vesting 180 days after effective date and (d) 500,000 Stock Options vesting when the Company has completed its listing and commences trading of its shares of common stock with a designated trading symbol (the "Trading Date") with the NYSE Amex Equities, formerly known as the American Stock Exchange ("NYSE Amex Equities"). The total fair value of the initial 100,000 options as of March 18, 2010 was estimated at $99,660 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 2.44%, a dividend yield of 0% and expected volatility of 111.2% and was recorded as a stock based compensation expense in 2011. The total fair value of the second tranche of 200,000 options as of June 16, 2010 was estimated at $183,200 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 2.06%, a dividend yield of 0% and expected volatility of 98.3% and was recorded as a stock based compensation expense in fiscal 2011. The total fair value of the third tranche of 200,000 options as of September 14, 2010 was estimated at $75,180 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 1.43%, a dividend yield of 0% and expected volatility of 219.0% and was recorded as a stock based compensation expense in fiscal 2011.



As approved by the Board of Directors, on March 26, 2010, the Company granted a total of 500,000 fully vested stock options to a consultant of the Company at $1.25 per share for terms of two years. The total fair value of these options at the date of grant was estimated at $385,950 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 2 years, a risk free interest rate of 1.04%, a dividend yield of 0% and expected volatility of 103.31% and was recorded as a stock based compensation expense in fiscal 2011.



As approved by the Board of Directors, on April 5, 2010, the Company granted a total of 450,000 fully vested stock options to five consultants of the Company at $1.40 per share for terms of ten years. The total fair value of these options at the date of grant was estimated at $509,040 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 2.75%, a dividend yield of 0% and expected volatility of 92.1% and was recorded as a stock based compensation expense in fiscal 2011.



As approved by the Board of Directors, on April 5, 2010, the Company granted a total of 1,500,000 fully vested stock options to a former Director of the Company at $0.44 per share for terms of ten years. The total fair value of these options at the date of grant was estimated at $471,450 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 1.43%, a dividend yield of 0% and expected volatility of 94.3% and was recorded as a stock based compensation expense in fiscal 2011.



As approved by the Board of Directors, on April 8, 2010, the Company granted a total of 1,500,000 fully vested stock options to two officers and directors of the Company at $1.55 per share for terms of ten years. The total fair value of these options at the date of grant was estimated at $1,733,250 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 2.64%, a dividend yield of 0% and expected volatility of 109.9% and was recorded as a stock based compensation expense in fiscal 2011.



On February 2, 2011, the Company granted a total of 1,350,000 stock options to a consultant of the Company at $0.75 per share for a term of 10 years.  The total fair value of these options at the date of grant was estimated at $1,085,265 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 2.10%, a dividend yield of 0% and expected volatility of 107.4% and was recorded as a stock based compensation expense in fiscal 2011.



20



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|



NOTE 7 - STOCK OPTION PLAN (continued)



The Company's stock option activity for the period ended May 31, 2011 is summarized as follows:



|                           | Number of Options | Weighted average exercisePrice per share | Weighted average remainingIn contractual life (in years)
|-------------------------- | ----------------- | ---------------------------------------- | --------------------------------------------------------
|                           |                   |                                          |                                                         
|Balance, February 28, 2010 | 7,000,000         |                                          | $           1.19                                        
|Granted                    | 6,300,000         |                                          | 1.02                                                    
|Exercised                  | -                 |                                          | -                                                       
|Expired / cancelled        | (200,000)         |                                          | 1.40                                                    
|                           |                   |                                          |                                                         
|Balance, February 28, 2011 | 13,100,000        |                                          | 1.10                                                    
|Granted                    | -                 |                                          | -                                                       
|Exercised                  | -                 |                                          | -                                                       
|Expired/cancelled          | -                 |                                          | -                                                       
|                           |                   |                                          |                                                         
|Balance, May 31, 2011      | 13,100,000        |                                          | $           1.10                                        



NOTE 8 - RELATED PARTY TRANSACTIONS



The Company paid a total of $161,306 in management fees to officers and directors of the Company for the three months ended May 31, 2010 (2010 - $169,959).



The Company has paid $20,160 to an officer and director of the Company to provide office space and office services for the period ended May 31, 2011 (2010 - $Nil).



Effective September 22, 2009, the Board of Directors authorized the execution of a two-year executive service agreement with Michael J. Newport, the President/Chief Executive Officer and a director of the Company (the "Executive Service Agreement"). In accordance with the terms and provisions of the Executive Service Agreement: (i) the Company shall continue to pay Mr. Newport a monthly salary of $15,000; (ii) the Company would grant an aggregate of 1,500,000 stock options (the "Stock Options") to Mr. Newport under its 2008 Stock Option Plan, as amended (the "Stock Option Plan"), with such terms and provisions of the grant, including exercise price and duration of exercise period, to be determined at the time of grant as follows: (a) 500,000 Stock Options would vest when the Company has completed its listing and commences trading of its shares of common stock with a designated trading symbol (the "Trading Date") with the NYSE Amex Equities, formerly known as the American Stock Exchange ("NYSE Amex Equities"); (b) 500,000 Stock Options would vest at the one year anniversary date of the Trading Date, and (c) 500,000 Stock Options would vest at the second year anniversary date of the Trading Date. The exercise price at each vesting date shall be the lesser of (a) the thirty-day weighted average price of the Company's shares of common stock prior to each of the respective vesting dates and (b) the issue price of the shares of common stock in the equity financings above. As approved by the Board of Directors on April 8, 2010, the 1,500,000 stock options noted above were cancelled and replaced by a grant of 500,000 fully vested stock options with an exercise price of $1.47 per share for a term of 10 years.



21



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|



NOTE 8 - RELATED PARTY TRANSACTIONS (continued)



Effective September 22, 2009, the Board of Directors authorized the execution of a two-year executive service agreement with Mark Witt, the Chief Financial Officer/Treasurer of the Company (the "Executive Service Agreement"). In accordance with the terms and provisions of the Executive Service Agreement: (i) the Company would pay Mr. Witt a monthly salary of $10,000; (ii) the Company would grant an aggregate of 3,000,000 stock options (the "Stock Options") to Mr. Witt under its 2008 Stock Option Plan, as amended (the "Stock Option Plan"), with such terms and provisions of the grant, including exercise price and duration of exercise period, to be determined at the time of grant as follows: (a) 1,500,000 Stock Options would vest when the Company successfully raised equity funding in the amount of $10,000,000 and (b) 500,000 Stock Options would vest when the Company completed its listing and commences trading of its shares of common stock with a designated trading symbol (the "Trading Date") with the NYSE Amex Equities, formerly known as the American Stock Exchange ("NYSE Amex Equities"); (c) 500,000 Stock Options would vest at the one year anniversary date of the Trading Date, and (d) 500,000 Stock Options would vest at the second year anniversary date of the Trading Date. The exercise price at each vesting date would be the lesser of (a) the thirty-day weighted average price of the Company's shares of common stock prior to each of the respective vesting dates and (b) the issue price of the shares of common stock in the equity financings above. On March 23, 2010 Mr. Witt resigned as the Chief Financial Officer/Treasurer of the Company. Under the terms of his separation and release agreement with the company dated March 26, 2010, Mr. Witt was paid a severance of $77,419, and in lieu of the above mentioned stock options previously awarded being cancelled, he was granted 500,000 common stock options, exercisable for two years at an exercise price of $1.25 per share.



Effective August 23, 2010, the Board of Directors authorized the execution of a two-year executive service agreement with Nicholas W. Atencio, the Chief Executive Officer and a director of the Company (the "Executive Service Agreement"). In accordance with the terms and provisions of the Executive Service Agreement: (i) the Company shall continue to pay Mr. Atencio a monthly salary of $25,000; (ii) the Company would grant an aggregate of 3,500,000 stock options (the "Stock Options") to Mr. Atencio under its 2010 Stock Option Plan, as amended (the "Stock Option Plan"), with such terms and provisions of the grant, including exercise price and duration of exercise period, to be determined at the time of grant as follows: (a) 1,500,000 Stock Options shall vest on the effective date of the executive services agreement at an exercise price of $0.44 per share and (b) a further 750,000 Stock Options would vest upon successful completion by the Company during the term of the executive agreement of an equity or debt financing of at least $5 million and (c) a further 750,000 Stock options would vest upon successful closing by the Company during the term of the executive services agreement of an agreement with any third party investing equity partner which allows for the initiation of drilling on the Cotton Valley/Hosston formations in the East Holly Field located in Louisiana and (d) a further 500,000 Stock Options would vest when the Company has completed its listing and commences trading of its shares of common stock with a designated trading symbol (the "Trading Date") with the NYSE Amex Equities, formerly known as the American Stock Exchange



During fiscal 2011, a shareholder advanced $650,000 to the Company pursuant to a Demand secured Promissory Note which bears interest at 10% per annum.  During the three months ended May 31, 2011, the shareholder advanced a further $310,000 on the same terms.  As at May 31, 2011, accrued interest was $28,959 which has been included in accounts payable and accrued liabilities.  The Demand Secured Promissory Note had a due date of June 30, 2011.  The due date was subsequently extended to July 31, 2011.



22



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|



NOTE 9 - DISCONTINUED OPERATIONS



Exco Operating Company, LP - Sale

On April 22, 2010, the Company closed the sale of its Haynesville Shale assets in East Holly Field, DeSoto Parish, Louisiana. The assets have been sold to EXCO Operating Company, LP, a wholly owned subsidiary of EXCO Resources for $28,159,604 effective January 1, 2010. The Company has sold its 40% working interest in all rights deeper than the base of the Cotton Valley formation (which has been defined to be 100 feet below the stratigraphic equivalent of the Cotton Valley formation and includes all of the Company's producing wells) in the East Holly Field.  The Company continues to own a 100% interest in all rights above this depth and specifically, in the Cotton Valley, Hosston and Upper Bossier sections.



As at February 28, 2010, certain assets and liabilities disposed of or discharged directly or indirectly in connection with this transaction were classified as Assets or Liabilities Held for Sale.  A summary of the items classified as Assets Held for Sale and Liabilities Held for Sale as at February 28, 2010 is as follows:





|                                     | February 28,2010
|------------------------------------ | ----------------
|                                     |                 
|ASSETS HELD FOR SALE                 |                 
|Accounts receivable - production     | $       332,401 
|Deferred finance fees                | 1,070,941       
|Oil and Gas properties               | 6,769,120       
|                                     |                 
|TOTAL ASSETS HELD FOR SALE           | $    8,172,462  
|                                     |                 
|LIABILITIES HELD FOR SALE            |                 
|Accounts payable - development costs | $       108,566 
|Accounts payable - finance costs     | 822,605         
|Promissory note                      | 10,278,485      
|                                     |                 
|TOTAL LIABILITIES HELD FOR SALE      | $  11,209,656   



The gain on disposal of the discontinued operations reported during the period was determined as follows:



|                                                              |               
|------------------------------------------------------------- | --------------
|PROCEEDS FROM DISPOSAL                                        | $   28,159,604
|                                                              |               
|LESS:                                                         |               
|Carrying value of total assets disposed of                    | (9,404,566)   
|Cost to buy out Guggenheim interest in properties disposed of | (5,420,922)   
|Other related costs                                           | (87,138)      
|Provision for income taxes                                    | (2,600,000)   
|ADD:                                                          |               
|Accounts payable assumed by purchaser                         | 106,748       
|                                                              |               
|                                                              | (17,405,878)  
|                                                              |               
|NET GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS               | $   10,753,726



23



---



MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|



NOTE 9 - DISCONTINUED OPERATIONS (continued)



For all periods presented, the results of the Company represent the results related to the disposed of wells, related properties and financing activities as discontinued operations.  A summary of the components of the results of discontinued operations is as follows:





|                                           | Three Months Ended May 31, | Inception 
(May 12, 2006) to May 31,
|------------------------------------------ | -------------------------- | ------------------------------------
|                                           | 2011                       | 2010                                
|                                           |                            |                                     
|REVENUES                                   |                            |                                     
|Oil and gas revenue                        | $         -                | $         -                         
|                                           |                            |                                     
|GENERAL AND ADMINISTRATIVE EXPENSES        |                            |                                     
|Operating costs and taxes                  | -                          | 10,417                              
|Depletion Allowance                        | -                          | -                                   
|Mineral property costs                     | -                          | -                                   
|                                           |                            |                                     
|                                           | -                          | 10,417                              
|                                           |                            |                                     
|NET OPERATING INCOME (LOSS)                | -                          | (10,417)                            
|                                           |                            |                                     
|OTHER ITEMS                                |                            |                                     
|Interest expense                           | -                          | (172,458)                           
|Finance costs                              | -                          | (10,000)                            
|                                           |                            |                                     
|INCOME (LOSS) FROM DISCONTINUED OPERATIONS | $         -                | $   (192,875)                       
|                                           |                            |                                     



NOTE 10 -CONTINGENCIES



A complaint was filed in the second judicial district court in Washoe County, Nevada by Avasha Group, Ltd. ("Avasha") on November 18, 2009 (such complaint as amended November 23, 2009) against the Company and certain other unnamed defendants. Avasha alleges that on or about April 21, 2008, Avasha entered into private placement subscription agreement with the Company to purchase 500,000 units from the Company (with each unit consisting of one share of the Company's common stock and one-half of one stock purchase warrant, together, the "Securities") for a total purchase price of $500,000. Avasha alleges that it paid such purchase price to the Company but the Securities were not delivered to Avasha. Avasha alleges that it is entitled to delivery of such Securities, as adjusted to take into account subsequent stock split(s) by the Company. The Company believes that this claim is without merit and intends to vigorously defend this matter.



NOTE 11 -SUBSEQUENT EVENTS

On August 23, 2010, the Company entered into an Executive Services Agreement with Mr. Atencio.  Pursuant to the terms of the Executive Services Agreement, Mr. Atencio agreed to serve as Chief Executive Officer of the Company for an initial term of two years, renewable automatically unless terminated in accordance with the terms of the Executive Services Agreement. As of February 14, 2011 Mr. Atencio resigned as Chief Executive Officer and as a director of our Company. Subsequent to his resignation, he continued to serve our Company as a technical consultant on terms consistent with his Executive Services Agreement.  On June 3, 2011, the Company determined to terminate the Executive Services Agreement with an effective termination date of July 3, 2011.





24



---

MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
MAY 31, 2011
(Unaudited)



|
|



NOTE 11 -SUBSEQUENT EVENTS (continued)

On June 2, 2011, R& R Rentals and Hotshot, Inc. ("R&R Rentals") filed a complaint against Mainland in the county court of the second judicial district of Jones County, Mississippi.  R&R Rentals, which alleges that it is engaged in the business of furnishing equipment and services for use in oilfield work, alleges that it furnished certain goods, equipment and services to Mainland with a value of $73,500.  R&R Rentals is seeking a judgment for $73,500 plus $24,500 as attorney fees.  Mainland intends to consult with local counsel in Mississippi and defend this matter.











25



---

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

The following discussion of our financial condition, changes in financial condition and results of operations for the three months ended May 31, 2011 and 2010 should be read in conjunction with our unaudited interim financial statements and related notes for the three months ended May 31, 2011 and 2010.  The following discussion contains forward-looking statements that involve risks, uncertainties and assumptions.  Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under the heading "Risk Factors" below.

Overview of our Business

We are a natural resource exploration company engaged in the exploration, acquisition and development of oil and gas properties in North America.  We are currently focused on our interests in oil and gas prospects located in Louisiana and Mississippi.

Until April 22, 2010, acting primarily through our joint venture with Petrohawk, we had been concentrating on exploring and developing certain natural gas leases covering approximately 2,904 net acres in the East Holly Field of De Soto Parish, in the State of Louisiana.  In early 2010, we entered into a purchase and sale agreement for the sale to EXCO Operating Company, LP, a wholly owned subsidiary of Exco Resources (NYSE - XCO), of our interest in the Haynesville Shale portion of the East Holly Field leases for $28,159,604.  This agreement, which closed on April 22, 2010 with an effective date of January 1, 2010, provided for the sale of all of our Company's right, title and interest 100 feet below the base of the Cotton Valley formation in the East Holly Field.  The base of the Cotton Valley formation has been defined to be 100 feet below the stratigraphic equivalent of the Cotton Valley formation.

We have retained all of the rights in all formations above the base of the Cotton Valley formation in the East Holly Field, encompassing 2,255 net acres with an estimated 65 net potential drilling locations.  The five recent wells drilled by the original operator through the Hosston and Cotton Valley zones to the Haynesville Formation calculate as productive.

Based on the available data and economics, we plan to drill wells in the Hosston/Cotton Valley formations, possibly with a joint venture partner, in 2011 (subject to favourable natural gas pricing), and also to evaluate the gas production value of the Upper Bossier formation on the DeSoto Parish leases.  We expect that these formations will provide continual solid pay with little risk and predictable development costs.

Our Buena Vista Prospect is located along the Gulf Coast Salt Basin in the Buena Vista area of Jefferson County, Mississippi.  Based on proprietary information gained from previous drilling, we believe an extension of the Haynesville Shale similar to the discovery region in Louisiana may exist there.

Our Company has entered into a joint area development agreement with American Exploration to jointly develop contiguous acreage comprising the Buena Vista Prospect.  In early April, 2010, we, as operator, issued an Authority for Expenditure (AFE) for the Burkley-Phillips No. 1 Well that has now been drilled on the Prospect for the purpose of evaluating the Haynesville Formation (Shale).  The AFE estimated the drilling cost to be approximately $8,650,000 and completion cost to be approximately $4,900,000 for a total completed well cost of approximately $13,550,000.

American Exploration was unable to fund its 20% share of the estimated total well costs of the Burkley-Phillips No. 1 Well.  As a result, American Exploration has forfeited its right to a 29% working interest in the well and in the Buena Vista Prospect in favor of our Company.  American Exploration will continue to be entitled to receive a 20% working interest in the well and the Prospect after completion (subject to compliance by American Exploration with all other terms and conditions of our letter agreement and related joint operating agreement with American Exploration).  If the merger is approved and proceeds as proposed, American Exploration's 20% working interest in the well and the Prospect after completion will be owned by Mainland Resources, the resultant merged entity.

We were previously required to pay 72% of the total cost to drill and complete the Burkley-Phillips No. 1 Well, for a 45.9% working interest.  Due to American Exploration's inability to make its contribution in response to the cash call, we will now pay 90% of the total cost of the well to earn a 72% working interest, and Guggenheim Energy Opportunities, LLC ("Guggenheim") will pay 10% of the total cost to earn an 8% working interest.

26



---

Drilling of the Burkley-Phillips No. 1 Well commenced on July 21, 2010 and the well reached the projected total depth of 22,000 feet on December 27, 2010.  Production casing was set on the well shortly afterwards, in early January 2011.  We have engaged Stephen Schubarth, President of Schubarth, Inc., to design and supervise the fracture treatment ("frac") of the Burkley Phillips No. 1 Well.

The Burkley Phillips No. 1 Well was logged by Schlumberger.  In addition, a 21-foot core was captured to a depth of 20,415 feet and has since undergone a series of analyses by Corelab that will be used in conjunction with the log results to further evaluate the reservoir and assist in completion design efforts.

Plan of Operations

We have entered into a Merger Agreement and Plan of Merger with American Exploration Corporation ("American Exploration") dated as of March 22, 2010, as amended (the "Merger Agreement"), pursuant to which American Exploration will be merged with and into our Company (the "Merger"), with our Company as the surviving company of the Merger.  The Merger Agreement represents our agreement with American Exploration to combine our businesses and ownership of the Buena Vista Prospect.

If the Merger is completed, each share of American Exploration's common stock at the effective time of the Merger will be exchanged for 0.25 common shares of Mainland.  Based on the estimated number of shares of Mainland issued and outstanding on the record date, Mainland expects to issue approximately 15,068,033 common shares to American Exploration stockholders in the Merger.  We estimate that immediately after the effective time of the Merger, former stockholders of American Exploration will hold common shares of Mainland representing approximately 15.6% of the then-outstanding common shares of Mainland.

In addition: (a) all outstanding common stock options of American Exploration will be disposed of by the holders thereof in consideration for the issue by Mainland of non-transferable stock options; and (b) all of the outstanding common stock purchase warrants of American Exploration will be disposed of by the holders thereof in consideration for the issue by Mainland of non-transferable common stock purchase warrants.  The number of Mainland options and warrants issuable will be determined with reference to the exchange ratio which determines the number of shares of Mainland common stock that are to be issued on completion of the Merger for all of the shares of American Exploration common stock.

As indicated above, subject to sufficient financing, we intend to drill up to three wells in the Hosston/Cotton Valley formations of the East Holly Prospect, and to complete the drilling of the Burkley-Phillips No. 1 well on our Buena Vista Prospect in Mississippi.  (See "Liquidity and Capital Resources" below.)

Results of Operations

The following table sets forth our results of operations from inception on May 12, 2006 to May 31, 2011 as well as for the three month periods ended May 31, 2011 and 2010.





27



---





|                                                                                                                                                                           | Three months ended May 31, | Inception (May 12, 2006) to May 31,
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | -----------------------------------
|                                                                                                                                                                           | 2011                       | 2010                               
|                                                                                                                                                                           |                            |                                    
|GENERAL AND ADMINISTRATIVE EXPENSES                                                                                                                                        |                            |                                    
|Consulting fees (Note 6)                                                                                                                                                   | $       126,380            | $      91,418                      
|Management fees - related party (Note 8)                                                                                                                                   | 161,306                    | 169,959                            
|Marketing expenses                                                                                                                                                         | -                          | 596,492                            
|Office and general                                                                                                                                                         | 62,678                     | 84,494                             
|Professional fees                                                                                                                                                          | 147,090                    | 318,506                            
|Salary expense (Note 7)                                                                                                                                                    | -                          | 2,592,530                          
|                                                                                                                                                                           | 489,497                    | 3,853,399                          
|NET OPERATING LOSS                                                                                                                                                         | (489,497)                  | (3,853,399)                        
|                                                                                                                                                                           |                            |                                    
|OTHER ITEMS                                                                                                                                                                |                            |                                    
|Gain on settlement of debt                                                                                                                                                 | -                          | -                                  
|Interest expense                                                                                                                                                           | (28,959)                   | -                                  
|Interest income                                                                                                                                                            | 2,979                      | 4,254                              
|Loss on abandonment of option deposit  (Note 3)                                                                                                                            | -                          | -                                  
|LOSS BEFORE INCOME TAX                                                                                                                                                     | (523,434)                  | (3,849,145)                        
|Federal income tax benefit from continuing 
     operations                                                                                                                | -                          | -                                  
|INCOME/(LOSS) FROM CONTINUING
 OPERATIONS                                                                                                                                  | (523,434)                  | (3,849,145)                        
|DISCONTINUED OPERATIONS 
(Note 9)     Income (loss) from discontinued operations     Gain on disposal of discontinued  
      operations, net of tax expense of $2,600,000 | -
-                        | (192,875)
10,753,726               
|INCOME FROM DISCONTINUED OPERATIONS                                                                                                                                        | -                          | 10,560,851                         
|NET INCOME (LOSS) FOR THE PERIOD                                                                                                                                           | $  (523,434)               | $  6,711,706                       



|BASIC AND DILUTED LOSS PER COMMON SHARE -CONTINUING OPERATIONS                     | $         (0.01)   | $         (0.05) | 
|---------------------------------------------------------------------------------- | ------------------ | ---------------- | 
|BASIC AND DILUTED INCOME PER COMMON SHARE - DISCONTINUED OPERATIONS                | $       -          | $           0.13 | 
|BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE                               | $           (0.01) | $         0.08   | 
|BASIC AND DILUTED WEIGHTED 
     AVERAGE NUMBER OF COMMON 
     SHARES OUTSTANDING | 80,969,502         | 80,969,502       | 





28



---



Three Months Ended May 31, 2011 Compared to Three Months Ended May 31, 2010

We did not generate any revenue during the three months ended May 31, 2011 or May 31, 2010.

During the three months ended May 31, 2011, we incurred general and administrative expenses of $489,497 compared to $3,853,399 incurred during the three months ended May 31, 2010.  These general and administrative expenses included the following:

- consulting fees of $126,380 during the three months ended May 31, 2011 (2010 - $91,418), which increased in 2011 as we ramped up consulting services while conducting our drilling program;
- management fees of $161,306 during the three months ended May 31, 2011 (2010 - $169,959);
- office and general expenses of $62,678 during the three months ended May 31, 2011 (2010 - $84,494);
- professional fees of $147,090 during the three months ended May 31, 2011 (2010 - $318,506), which increased in 2010 due to our expanded exploration program in Mississippi, and the proposed merger with American Exploration;

Our general and administrative expenses incurred during the three months ended May 31, 2011 compared to the three months ended May 31, 2010 decreased primarily due to lower salary expense and marketing.

As a result of the above, our net operating loss during the three months ended May 31, 2011 was $(489,497) compared to a net operating loss of $(3,853,399) during the three months ended May 31, 2010.

During the three months ended May 31, 2011, we recorded other income in the amount of $2,979, consisting of interest income (2010 - $4,254) and $28,959 of interest expense (2010 - $0).  As a result, our loss from continuing operations for the three months ended May 31, 2011 was $(523,434) (2010 - $(3,849,145)

During the three months ended May 31, 2011, income/loss from discontinued operations was Nil (2010 - $10,560,851 income from discontinued operations).  As a result, our net loss for the three months ended May 31, 2011 was $(523,434) (2010 - net income of $6,711,706.

Liquidity And Capital Resources

As of May 31, 2011, we had total current assets of $90,000 and total current liabilities of $4,496,128 resulting in a working capital deficit of $(4,406,128).  At May 31, 2011, our current assets were comprised of $7,204 in cash, $62,979 in promissory note receivable and $19,817 in prepaid expenses.  At May 31, 2011, current liabilities were comprised of accounts payable and accrued liabilities of $3,411,355, promissory notes payable of $960,000 and drilling advances of $124,773.

Additional funding will be required to complete our 2011 operations program and to complete the merger with American Exploration.  We anticipate that we will receive this funding from a variety of methods, including private placements of equity and/or debt instruments, entering into joint venture transactions with third parties, mezzanine financing, and cash flows from any successful wells.

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 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 may finance these expenses, and any continuing long-term operating expenses, through the methods noted above, namely, private placements of equity and/or debt instruments, entering into joint venture transactions with third parties, mezzanine financing and cash flows from any successful wells.

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.

29



---

Cash and Working Capital

The following table sets forth our cash and working capital as of May 31, 2011 and February 28, 2011:





|                                  | As of
May 31, 2011(Unaudited) | As of February 28, 2011
|--------------------------------- | ----------------------------- | -----------------------
|Cash                              | $                             | 7,204                  
|Working capital surplus (deficit) | $                             | (4,406,128)            

Cash Flows from Operating Activities

For the three months ended May 31, 2011, net cash from operating activities was $(275,416).  For the three months ended May 31, 2010, net cash provided by operating activities was $9,615,515.

Cash Flows From Investing Activities

For the three months ended May 31, 2011, net cash flows used in investing activities was $87,858, consisting solely of investment in oil and gas property.

Cash Flows From Financing Activities

Historically, we have financed our operations primarily from either the issuance of equity or debt instruments.

For the three months ended May 31, 2011, net cash provided by financing activities was $307,500 compared to $Nil for the three months ended May 31, 2010.  Cash flows provided by financing activities in 2011 consisted of proceeds from related party promissory notes issuance.

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

Critical Accounting Policies and Estimates

Our interim financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles applied on a consistent basis.  The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements.  In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances.  Actual results could differ from those estimates made by management.

Basis of Presentation

The accompanying interim financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our Company be unable to continue as a going concern.  Such adjustments could be material.  These financial statements are presented in United States dollars and have been prepared in accordance with generally accepted accounting principles in the United States.

30



---

Oil and Gas Properties

Our 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.  Our Company currently operates solely in the United States.

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 recoverable value. If a reduction in recoverable value has occurred, costs subject to depletion are increased or a charge is made against earnings for those operations where a reserve base is not yet established.

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.

Our 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

In accordance with accounting standards for asset retirement obligations (ASC 410), the Company records the fair value of a liability for an asset retirement obligation (ARO) when there is a legal obligation associated with the retirement of a tangible long-lived asset and the liability can be reasonably estimated.  No AROs associated with legal obligations to retire oil and gas properties have been recognized, as indeterminate settlement dates for the asset retirements prevent estimation of the fair value of the associated ARO.  The Company performs periodic reviews of its oil and gas properties long-lived assets for any changes in facts and circumstances that might require recognition of a retirement obligation.

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, stock based compensation, financial instruments as well as deferred tax balances and asset impairment tests.  Further, depreciation, depletion and amortization of oil and gas properties and the impairment of oil and gas properties are determined using estimates of oil and gas reserves. There are numerous uncertainties in estimating the quantity of reserves and in projecting the future rates of production and timing of development expenditures, including future costs to dismantle, dispose, plug, and restore the Company's properties. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way. Proved reserves of oil and natural gas are estimated quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under existing conditions.

31



---

Financial Instruments

The fair value of our Company's financial assets and financial liabilities approximate their carrying values due to the immediate or short-term maturity of these financial instruments.

Concentrations of Credit Risk

Financial instruments that potentially subject our Company to concentrations of credit risk consist principally of cash and cash equivalent accounts in financial institutions. As of May 31, 2011, our Company's cash and cash equivalents did not exceed federally insured limits.

Earnings (Loss) Per Common Share

Basic earnings (loss) per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period.  Dilutive earnings (loss) per share reflect the potential dilution of securities that could share in the earnings of our Company.  Where applicable, dilutive loss per share is equal to that of basic loss per share as the effects of stock options and warrants have been excluded as they are anti-dilutive. Using the treasury stock method, there were no diluted shares.

Revenue Recognition

Oil and natural gas revenues are recorded using the sales method, whereby the Company recognizes oil and natural gas revenue based on the amount of oil and gas sold to purchasers, when title passes, the amount is determinable and collection is reasonably assured.  Actual sales of gas are based on sales, net of the associated volume charges for processing fees and for costs associated with delivery, transportation, marketing, and royalties in accordance with industry standards.  Operating costs and taxes are recognized in the same period in which revenue is earned.

Income Taxes

The Company follows the liability method of accounting for income taxes.  Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances.  Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.  As at May 31, 2011, the Company has no current income tax liability which is attributable to the net taxable gain realized from the sale of the Haynesville Shale assets in the East Holly prospect to Exco Operating Company, LP offset by deductions for exploration expenditures on the Burkley-Phillips well(see Notes 3 and 9).

Stock-based Compensation

Our Company has adopted FASB ASC 718-10, "Compensation-Stock Compensation", which requires the compensation cost related to share-based payments, such as stock options and employee stock purchase plans, be recognized in the financial statements based on the grant-date fair value of the award.

Our Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with the conclusions reached by the FASB ASC 505-50.  Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable.  The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.

32



---

Off-Balance Sheet Arrangements

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

We are subject to risks related to foreign currency exchange rate fluctuations. However, they have not had a material impact on our results of operations to date.

Our functional currency is the United States dollar. However, a portion of our business is transacted in other currencies (the Canadian dollar). As a result, we are subject to exposure from movements in foreign currency exchange rates. We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure to manage our foreign currency fluctuation risk.

Item 4. 	Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, Michael J. Newport (being our principal executive officer), and our Chief Financial Officer, William Thomas (being our principal financial and accounting officer), to allow for timely decisions regarding required disclosure.Our Chief Executive Officer and our Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for our Company.

Our management has evaluated the effectiveness of our disclosure controls and procedures as of May 31, 2011 (under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer), pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended.  As part of such evaluation, management considered the matters discussed below relating to internal control over financial reporting.  Based on this evaluation, our Company's Chief Executive Officer and Chief Financial Officer have concluded that our Company's disclosure controls and procedures were effective as of May 31, 2011.

Changes in Internal Control over Financial Reporting

The term "internal control over financial reporting" is defined as a process designed by, or under the supervision of, the registrant's principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

- pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;
- provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and
- provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant's assets that could have a material effect on the financial statements.

A material weakness is defined in Public Company Accounting Oversight Board Auditing Standard No. 5 as a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

33



---

There have not been any changes in our internal control over financial reporting that occurred during our fiscal quarter ended May 31, 2011 that have materially affected, or are likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.     Legal Proceedings

Except as disclosed below, 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 quarterly 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.

During August 2009, we were included in a third party lawsuit filed by Abigail Investments LLC against David Urquhart, a former director of our Company, in the United States District Court for the State of Nevada, Case No. 09-CV-1174. The lawsuit included a counter-claim by David Urquhart and his personal holding company, Westhampton, Ltd., (together ""Urquhart") against the Company and others. Urquhart made certain allegations against the Company, including neglect in the issuance of shares of common stock and granting of stock options. Although the Company refuted these allegations and believes the claims contained within the complaint were without merit, the Company agreed to settle this matter in October 2010 through the issuance of 500,000 shares of the Company's common stock.

A complaint was filed in the second judicial district court in Washoe County, Nevada by Avasha Group, Ltd. ("Avasha") on November 18, 2009 (such complaint as amended November 23, 2009) against the Company and certain other unnamed defendants. Avasha alleges that on or about April 21, 2008, Avasha entered into private placement subscription agreement with the Company to purchase 500,000 units from the Company (with each unit consisting of one share of the Company's common stock and one-half of one stock purchase warrant, together, the "Securities") for a total purchase price of $500,000. Avasha alleges that it paid such purchase price to the Company but the Securities were not delivered to Avasha. Avasha alleges that it is entitled to delivery of such Securities, as adjusted to take into account subsequent stock split(s) by the Company. Mainland believes that this claim is without merit and intends to vigorously defend this matter.



Item 1A.     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.

We have a history of operating losses and there can be no assurance we will be profitable in the future.

We are an exploration stage oil and gas company with a history of operating losses.  We expect to continue to incur losses in the foreseeable future, and may never be profitable.  Although our Company has realized revenues in prior operations, as of May 31, 2011, we have an accumulated deficit during the exploration stage of $13,129,408.  Further, we sold our remaining 40% interest in the Haynesville Shale portion of the East Holly Field leases on April 22, 2010, with an effective date of January 1, 2010, and we no longer have interests in any producing oil and gas properties.  Accordingly, we do not expect positive cash flow from operations in the foreseeable future.

Our Company's continuation as a going concern is dependent upon our ability to fund ongoing operations, carry out our business plan, and ultimately to attain profitable operations, all of which is uncertain.

Our Company's continuation as a going concern is dependent upon our ability to fund ongoing operations, carry out our business plan and ultimately to attain profitable operations, all of which is uncertain.  Our audited financial statements for the year ended February 28, 2011 contain additional note disclosures to this effect, and the audited financial statements do not include any adjustments that might result from the outcome of this uncertainty.  In addition, the report of our Company's independent registered public accounting firm accompanying our audited financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.

34



---

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 need to raise additional financing to complete further exploration activities.

We sold our remaining 40% interest in the Haynesville Shale portion of the East Holly Field leases for $28,159,604 on April 22, 2010, with an effective date of January 1, 2010. To date, we have applied the net proceeds to: (a) fund the drilling of the Burkley-Phillips No. 1 Well on the Buena Vista prospect in Mississippi; and (b) to retire our debt to Guggenheim. Additional funding will be required to complete our 2011 operations program. In particular, we currently do not have the funds to commence drilling in the Hosston/Cotton Valley formations of the East Holly Prospect. We anticipate that we will receive this funding from a variety of methods, including private placements, equity funding, entering into joint venture transactions with third parties, mezzanine financing and cash flows from successful wells (if any). We believe that we may be able to commence drilling in the Hosston/Cotton Valley formations of the East Holly Prospect in 2011 if we are able to engage a joint venture partner, but there is no assurance that we will be able to do so.

Furthermore, if the results of our initial exploratory drilling activities on the East Holly Prospect and/or the Buena Vista Prospect justify further work on the properties, we will require significant additional financing in order to continue our exploration activities and, if warranted, to undertake any development activities. Our exploration and development of, and participation in, what could evolve into an increasing number of oil and gas prospects may require substantial capital expenditures.

There can be no assurance that we will be successful in our efforts to raise these required 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, to develop cash flow from operations, and ultimately to achieve profitability, none of which can be assured.

We believe that debt financing will not be available to us, and that we will have to continue to rely on equity financing, the availability of which cannot be assured or, if available, may result in substantial dilution to our existing stockholders. Alternatively, we may be required to finance additional exploration work and, if merited, future development work on our oil and gas properties by offering interests in such properties to one or more third parties, on an earn-in basis.

We presently believe that debt financing (including project financing) will not be available to us as all of our properties are in the early exploration stage. Accordingly, we will have to continue to rely on equity financing, the availability of which cannot be assured or, if available, may result in substantial dilution to our existing stockholders. If equity financing is not available on terms that are satisfactory to us, we may be required to finance additional exploration work and, if merited, future development work on our oil and gas properties by offering interests in such properties to one or more third parties, on an earn-in basis.

If we are unable to obtain additional financing when it is required, we will not be able to continue our exploration activities and our assessment of the commercial viability of our oil and gas 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 that stage would result in our inability to place our oil and gas properties into production and recover our investment.

Exploration expenditures are difficult to predict, and there is no assurance that our actual cash requirements will not exceed our estimates.

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) post-drilling completion costs for the Burkley-Phillips No. 1 Well on the Buena Vista Prospect increase beyond our expectations; or (ii) we encounter greater costs associated with general and administrative expenses or securities offering costs. We currently do not have the funds to commence drilling in the Hosston/Cotton Valley formations of the East Holly Prospect, but may be able to commence drilling in 2011 if we are able to engage a joint venture partner or secure funding from investors (neither of which can be assured).

35



---

As our oil and gas properties do not contain any proved 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 existing properties do not contain any proved reserves in accordance with the definitions adopted by the SEC and there is no assurance that any exploration program that we carry out will establish reserves. There is a substantial risk that our exploration activities will not result in discoveries of commercially recoverable reserves of oil or gas. Any determination that any of 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 establishing 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 any of our oil and gas properties can be commercially developed.

Our exploration and development 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 labour. The success of oil and gas exploration is determined in part by the following factors:

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

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. Our prospects are in the stage of preliminary evaluation and assessment. We have drilled the Burkley-Phillips No. 1 Well on the Buena Vista prospect in Mississippi and expect to complete the well in 2011, and we are planning on drilling wells in the Hosston/Cotton Valley formations of the East Holly Prospect. 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.

Although extensive historic and proprietary data from a previous well drilled on the Buena Vista, combined with petrochemical analysis reviewed by our Company's land and geological teams have provided the basis for drilling the Burkley-Phillips No. 1 Well to the deeper Haynesville Formation, it is the only well drilled in the Buena Vista area testing the Haynesville shale since shale gas has emerged as a major production resource. Similarly, although five recent wells drilled by the original operator through the Hosston and Cotton Valley zones to the Haynesville Formation on the East Holly Prospect calculate as productive, the wells that we are planning to drill in the Hosston and Cotton Valley formations will be exploratory in nature and intended to evaluate the gas production value of these formations. We currently do not have the funds to commence drilling in the Hosston/Cotton Valley formations of the East Holly Prospect, but may be able to commence drilling in 2011 if we are able to engage a joint venture partner or secure funding from investors (neither of which can be assured).

36



---

There can be no assurance that our current or planned drilling activities will be successful, and we may not recover all or any portion of our capital investment in the wells or the underlying leaseholds. Unsuccessful drilling activities would have a material adverse effect upon our results of operations and financial condition. The cost of drilling, completing, and operating wells is often uncertain, and a number of factors can delay or prevent drilling operations including: (i) unexpected drilling conditions; (ii) pressure or irregularities in geological formations; (iii) equipment failures or accidents; (iv) adverse weather conditions; and (iv) shortages or delays in availability of drilling rigs and delivery of equipment.

Our 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 May 12, 2006 and, as a result, we have a limited operating history.

We are a new entrant into the oil and gas exploration and development industry without profitable operating history.

Initially, our activities were limited to organizational efforts, obtaining working capital and acquiring and developing a very limited number of mineral properties. Subsequently, we changed our business strategy from mineral exploration to oil and gas exploration. As a result, there is limited information regarding our oil and gas property related production potential or revenue generation potential.

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.

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 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 may be unable to identify liabilities associated with the property 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 review of our current acquired property is 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, if realized, would have a material adverse effect upon our results of operations.

37



---

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 production and other expenses have become increasingly difficult, if not impossible, to project. The potential profitability of oil and gas properties is dependent on these and other factors beyond our control. These factors may materially affect our financial performance if we are successful in our exploration activities and ultimately place any oil or gas wells into production, and, in the near term, may impact on our ability to raise financing for our exploration activities.

Production of oil and gas resources, if found, are dependent on numerous operational uncertainties specific to the area of the resource that affects its profitability.

If we are successful in our exploration activities and ultimately place any oil or gas wells into production, the production area specifics will 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 a positive 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 will be dependent upon transportation and storage services provided by third parties.

If we are successful in our exploration activities and ultimately place any oil or gas wells into production, 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 will be dependent upon market prices for oil and gas, which fluctuate widely and are beyond our control.

If we are successful in our exploration activities and ultimately place any oil or gas wells into production, the production area specifics will affect profitability, our revenue, profitability, and cash flow will 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 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, if any, will depend 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 oil and 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.

38



---

The oil and gas industry in which we operate involves 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 cancelled 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 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.

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 the future and this may affect our ability to expand or maintain our operations.

In general, our exploration activities are, and any future production activities will be, subject to certain federal, state and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation. Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date. Specifically, we are subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry.

39



---

We believe that our existing operations comply, in all material respects, with all applicable environmental regulations.

We do not insure against all risks, and we may be unable to obtain or maintain insurance to cover the risks associated with our operations at economically feasible premiums. Losses from an uninsured event may cause us to incur significant costs that could have a material adverse effect upon our financial condition.

Our insurance will not cover all the potential risks associated with the operations of an exploration stage oil and gas company. We may also be unable to obtain or maintain insurance to cover these risks at economically feasible premiums. Insurance coverage may not continue to be available or may not be adequate to cover any resulting liability. Moreover, we expect that insurance against risks such as environmental pollution or other hazards as a result of exploration and production may be prohibitively expensive to obtain for a company of our size and financial means. We might also become subject to liability for pollution or other hazards for which insurance may not be available or for which we may elect not to insure against because of premium costs or other reasons. Losses from these events may cause us to incur significant costs that could have a material adverse effect upon our financial condition, results of operations and cash flows.

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 profitability.

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 Michael J. Newport, our President and Chief Executive Officer, and William D. Thomas, our Chief Financial Officer. Further, we do not have key man life insurance on any of these individuals. We may not have the financial resources to hire a replacement if one or all of our officers were to die. The loss of service of any of these officers 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 endeavours, including consulting relationships with other entities, and has responsibilities to these other entities. Such conflicts include deciding how much time to devote to our affairs, as well as what business opportunities should be presented to us. Because of these relationships, our officers and directors will be subject to conflicts of interest. We have adopted a Code of Conduct for our officers and directors that includes provisions designed 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.

40



---

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



None.

``

Item 3.     Defaults Upon Senior Securities

None.



Item 4.     (Removed and Reserved)

Not applicable.



Item 5.     Other Information

None.



Item 6.	Exhibits



|Exhibit No. | Document                                                                                                                                    
|----------- | --------------------------------------------------------------------------------------------------------------------------------------------
|2.1         | Merger Agreement and Plan of Merger between Mainland Resources, Inc. and American Exploration Corporation dated March 22, 2010 (1)          
|2.2         | Letter Agreement dated July 28, 2010 amending Merger Agreement (15)                                                                         
|2.3         | Amending Agreement dated September 7, 2010, further amending Merger Agreement (15)                                                          
|2.4         | Amending Agreement dated December 23, 2010, further amending Merger Agreement(16)                                                           
|2.5         | Amending Agreement between Mainland Resources, Inc. and American Exploration Corp., dated March 14, 2011, amending the Merger Agreement (17)
|2.6         | Amending Agreement between Mainland Resources, Inc. and American Exploration Corp., dated May 17, 2011, amending the Merger Agreement (18)  
|3.1         | Articles of Incorporation (2)                                                                                                               
|3.2         | Certificate of Amendment, filed with Nevada Secretary of State March 11, 2008 (13)                                                          
|3.3         | Certificate of Amendment, filed with Nevada Secretary of State July 7, 2009 (3)                                                             
|3.4         | Certificate of Change filed with Nevada Secretary of State May 26, 2010 (4)                                                                 
|3.4         | Bylaws (2)                                                                                                                                  
|10.1        | Property Agreement between Mainland Resources Inc. and Vijesh Harakh dated July 1, 2006 (2)                                                 
|10.2        | Trust Agreement between Mainland Resources Inc. and Vijesh Harakh dated July 1, 2006 (2)                                                    
|10.3        | Option Agreement between Kingsley Resources Inc. And Mainland Resources Inc. dated February 27, 2008(5)                                     

41



---





|Exhibit No. | Document                                                                                                                                                                                                            
|----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.4        | Letter Agreement dated July 14, 2008 between Mainland Resources Inc. and Petrohawk Energy Corporation (6)                                                                                                           
|10.5        | Assignment, Conveyance and Bill of Sale between Mainland Resources Inc. and Petrohawk Energy Corporation dated August 4, 2008 (7)                                                                                   
|10.6        | Agreement dated August 4, 2008 between Mainland Resources Inc. and Petrohawk Energy Corporation (3)                                                                                                                 
|10.7        | Option Agreement between Mainland Resources Inc. and Westrock Land Corp. dated September 4, 2008 (3)                                                                                                                
|10.8        | Agreement between Mainland Resources Inc. and VCS Group Inc. dated February 11, 2009 (3)                                                                                                                            
|10.9        | Senior  Secured  Bridge Loan by and among Mainland  Resources  Inc., Guggenheim Corporate Funding LLC, and the Lenders  Signatory thereto, dated August 10, 2009 (8)                                                
|10.10       | Executive Service Agreement between Mainland Resource, Inc. and Michael J. Newport, dated September 22, 2009 (9)                                                                                                    
|10.11       | Executive Service Agreement between Mainland Resource, Inc. and Mark N. Witt, dated September 22, 2009 (10)                                                                                                         
|10.12       | Senior Secured Advancing Line of Credit Agreement dated October 16, 2009 by and among Mainland Resources Inc., Guggenheim Corporate Funding LLC, and the financial institutions from time to time party thereto (11)
|10.13       | Promissory Note dated October 16, 2009 between Mainland Resources Inc. and Guggenheim Corporate Funding LLC (11)                                                                                                    
|10.14       | Deed of Trust, Security Agreement,  Financing Statement and Assignment of Production between Mainland Resources Inc. and Guggenheim Corporate Funding LLC dated October 13, 2009 (11)                               
|10.15       | Purchase Agreement by and between Mainland Resources, Inc. and EXCO Operating Company, LP, dated March 12, 2010 (12)                                                                                                
|10.16       | Option Agreement between Mainland Resources, Inc. and Westrock Land Corp., dated June 22, 2009, as amended September 28, 2009(13)                                                                                   
|10.17       | Letter Agreement between Mainland Resources, Inc. and American Exploration Corp., dated October 1, 2009(13)                                                                                                         
|10.18       | Operating Agreement between Mainland Resources, Inc. and American Exploration Corp., dated October 1, 2009(13)                                                                                                      
|10.19       | Executive Services Agreement with Nicholas Atencio dated August 23, 2010, dated August 23, 2010(14)                                                                                                                 
|10.20       | Promissory Note between Mainland Resources, Inc. (as Lender) and American Exploration Corporation (as Borrower), dated September 27, 2010 (15)                                                                      
|10.21       | Amendment to Promissory Note, dated December 23, 2010(16)                                                                                                                                                           
|10.22       | Amendment No. 2 to Promissory Note (19)                                                                                                                                                                             
|10.23       | Amendment No. 3 to Promissory Note (19)                                                                                                                                                                             
|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*                                                                                                                                               



42



---



Notes:
*  Filed herewith.
1.      Incorporated by reference from Form 8-K filed with the SEC on March 23, 2010.
2.     Incorporated by reference from Form SB-2 filed with the SEC on April 11, 2007. 
3.      Incorporated by reference from Form 10-K/A filed with the SEC on March 16, 2010. 
4.     Incorporated by reference from Form 8-K filed with the SEC on May 26, 2010. 
5.     Incorporated by reference from Form 8-K filed with the SEC on March 4, 2008. 
6.      Incorporated by reference from Form 8-K filed with the SEC on July 18, 2008. 
7.      Incorporated by reference from Form 8-K filed with the SEC on August 8, 2008. 
8.     Incorporated by reference from Form 8-K filed with the SEC on August 12, 2009.
9.     Incorporated by reference from Form 8-K filed with the SEC on October 2, 2009.
10.   Incorporated by reference from Form 8-K filed with the SEC on October 5, 2009.
11.   Incorporated by reference from Form 8-K filed with the SEC on October 23, 2009.
12.   Incorporated by reference from Form 8-K filed with the SEC on March 19, 2010.
13.   Incorporated by reference from Form 10-K filed with the SEC on June 1, 2010.
14.   Incorporated by reference from Form 8-K filed with the SEC on August 26, 2010.
15.   Incorporated by reference from Form 10-Q filed with the SEC on October 12, 2010.
16.   Incorporated by reference from Form 10-Q filed with the SEC on January 10, 2011.
17.   Incorporated by reference from Form S-4/A filed with the SEC on March 18, 2011.
18.   Incorporated by reference from Form 8-K filed with the SEC on May 20, 2011.
19.   Incorporated by reference from Form 10-K filed with the SEC on June 1, 2011.







43



---

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                      | MAINLAND RESOURCES INC.                                                                  
|--------------------- | -----------------------------------------------------------------------------------------
|                      |                                                                                          
|Dated:  July 15, 2011 | By:       /s/ Michael J. Newport
             Michael J. Newport, Chief Executive Officer
|                      |                                                                                          
|Dated:  July 15, 2011 | By:       /s/ William D. Thomas             William D. Thomas, Chief Financial Officer