UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K

(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------
|  |                                                                                     
|  | For the fiscal year ended December 31, 2011                                         



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



Commission File Number: 000-32735



COLOMBIA
ENERGY RESOURCES, INC.

(Exact name of registrant as specified in
its charter)



|Delaware                                                       | 87-056703                           
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (IRS employer identification number)
|                                                               |                                     
|One Embarcadero Center, Suite 500, San Francisco, CA           | 94901                               
|(Address of principal executive offices)                       | (Zip Code)                          



Registrant’s telephone number, including
area code: (415) 460-1165



Securities registered pursuant to Section
12(b) of the Act: None



Securities registered pursuant to Section
12(g) of the Act: Common Stock, Par Value $0.001



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



Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes  ̈
No x



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

Yes x
No  ̈



Indicate by check mark whether the registrant
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 an post such files).

Yes  ̈
No x



Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.  ̈



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

| | Large accelerated filer  ̈ |  | Accelerated filer  ̈        
| | ------------------------- |  | ---------------------------
| | Non-accelerated filer  ̈   |  | Smaller reporting company x



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

Yes  ̈ No x



The aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity
as of the last business day of the registrant’s most recently competed second fiscal quarter was $7,666,651

.

The number of shares outstanding of the
registrant’s common stock on March 22, 2012, was 23,807,776.



DOCUMENTS INCORPORATED BY REFERENCE



|Document Description                                                                                                                                                                                                                                                                             |  | 10-K Part
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------
|Portions of the Registrant's proxy or information statement related to its 2012 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A or 14C within 120 days after Registrant's fiscal year end of December 31, 2011 are incorporated by reference into Part III of this Report. |  | III      











Table of Contents





|                                                                                                                         | Page
|------------------------------------------------------------------------------------------------------------------------ | ----
|                                                                                                                         |     
|PART
    I                                                                                                               | 4   
|ITEM 1. 
    Business                                                                                                    | 4   
|ITEM 1A. 
    Risk Factors                                                                                               | 13  
|ITEM 1B.
    Unresolved Staff Comments                                                                                   | 22  
|ITEM 2. PROPERTIES                                                                                                       | 22  
|ITEM 3. LEGAL
    PROCEEDINGS                                                                                            | 29  
|ITEM 4. MINE
    SAFETY DISCLOSURES                                                                                      | 29  
|PART
    II                                                                                                              | 29  
|ITEM 5. MARKET
    FOR Registrant’s COMMON EQUITY, RELATED STOCKHOLDER MATTERS and Issuer Purchases of Equity Securities | 29  
|ITEM 6. SELECTED
    FINANCIAL DATA                                                                                      | 30  
|ITEM 7. MANAGEMENT’S
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        | 31  
|ITEM 7A.
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                  | 32  
|ITEM 8. FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA                                                                  | 33  
|ITEM 9. CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         | 33  
|ITEM 9A.
    CONTROLS AND PROCEDURES                                                                                     | 33  
|ITEM 9B.
    OTHER INFORMATION                                                                                           | 34  
|PART
    III                                                                                                             | 34  
|ITEM 10.
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                      | 34  
|ITEM 11.
    EXECUTIVE COMPENSATION                                                                                      | 34  
|ITEM 12.
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS              | 34  
|ITEM 13.
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                   | 34  
|ITEM 14.
    PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                      | 34  
|PART
    IV                                                                                                              | 34  
|ITEM 15.
    EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES                                                                   | 34  
|SIGNATURES                                                                                                               | 39  







2







Forward
Looking Statements



The statements contained in this report
that are not historical facts, including, but not limited to, statements found in the Item 1A entitled “Risk Factors,”
are forward-looking statements that represent management’s beliefs and assumptions based on currently available information.
Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies,
need for financing, competitive position, potential growth opportunities, potential operating performance improvements, ability
to retain and recruit personnel, the effects of competition and the effects of future legislation or regulations. Forward-looking
statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology
such as the words “believes,” “intends,” “may,” “should,” “anticipates,”
“expects,” “could,” “plans,” or comparable terminology or by discussions of strategy or trends.
Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances
that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly
affect expected results, and actual future results could differ materially from those described in such forward-looking statements.



Among the factors that could cause actual
future results to differ materially are the risks and uncertainties discussed in this report. While it is not possible to identify
all factors, we continue to face many risks and uncertainties including, but not limited to, the cyclicality of the coal industry,
global economic and political conditions, global productive capacity, customer inventory levels, changes in commodity pricing,
changes in product costing, changes in foreign currency exchange rates, competitive technology positions and operating interruptions
(including, but not limited to, labor disputes, leaks, fires, explosions, unscheduled downtime, transportation interruptions, war
and criminal or terrorist activities). Mining operations are subject to a variety of existing laws and regulations relating to
exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air and
water quality standards, pollution and other environmental protection controls, all of which are subject to change and are becoming
more stringent and costly to comply with. Should one or more of these risks materialize (or the consequences of such a development
worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those expected. We disclaim
any intention or obligation to update publicly or revise such statements whether as a result of new information, future events
or otherwise.



The risk factors discussed in Item
1A, “Risk Factors” beginning on page 13  of this report could cause our results to differ materially from those
expressed in forward-looking statements. There may also be other risks and uncertainties that we are unable to predict at
this time or that we do not now expect to have a material adverse impact on our business.



Throughout this report, unless otherwise
designated, the terms “we,” “us,” “our,” “the Company” and “our company”
refer to Colombia Energy Resources, Inc., a Delaware corporation, and its consolidated subsidiaries. All amounts in this report
are in U.S. Dollars, unless otherwise indicated.



3







PART I



ITEM
1. Business



General Overview of our Business



We are a U.S. domiciled, coal exploration
and development company, with operations in the Republic of Colombia, South America. We own coal mining concessions and are building
and operating coal mines focusing on metallurgical coal. During 2010 and 2011 we were focused on acquiring properties and conducting
an exploration program on our concessions. While we will continue to analyze additional properties and other acquisitions, during
2012 and beyond our focus will be on opening mines on our existing properties and steadily increasing production pursuant to our
business plan.



The key elements of our strategy have been
to: (i) selectively acquire high-quality metallurgical coal deposits; (ii) build our leadership team with multinational mining
experts combined with local talent; (iii) apply modern exploration techniques; and (iv) import proven, international mining methods
and best-practices. We anticipate that our primary operations and revenue sources will include the mining of metallurgical coal
for export and domestic sales.



We
currently control ten coal mining concession contracts in four locations, which grant us the right to exploit coal deposits in
10,455 hectares (25,834 acres) in the Boyacà and Santander districts of the Republic of Colombia.1This includes one application with 7.8 hectares (19.2 acres), which will revert to us upon its conversion to a concession contract.
The final transfer of the mining titles associated with Rukú is pending final approval of Ingeominas, the Colombian Institute
of Mining and Geology. We have also entered into an agreement that grants us the option to purchase an additional coal mining
concession (“Boavita”) contract with 1,550 hectares (3,830 acres) in the Boyacà district. This agreement provides
us the right to perform exploration on the property and purchase the concession on agreed upon terms upon satisfactory results
of such exploration. In addition, we signed an agreement with the seller of Boavita to begin mining on the property. Including
the Boavita acquisition, we will control 11 concessions with 12,005 hectares (29,664 acres).



These concessions are concentrated in four
coal deposits that comprise our existing and prospective mining projects:







| | · | The
Rukú Mining Complex (“Rukú). Situated in eastern Boyacà, we purchased 70% of the mining operations,
two concession contracts and the right to an application for additional coal mining rights at Rukù. We implemented a mine
expansion and worker safety program in December 2011 and are conducting exploration work to measure the coal deposit. Rukú
was producing approximately 1,800 tons-per-month of metallurgical coal from two seams before a temporary closure occurred in February
2012 as a result of local vandalism. Coal was produced by basic manual methods using pick and shovel, with a one-ton car equipped
with a basic winch used to lift coal to the surface. These methods will be improved upon with increased mechanization including
shearers, chain conveyors, and roof props. In February 2012, we acquired 100% of a concession adjacent to Rukú.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------












|1 | Includes one application with 7.8 hectares (19.2 acres),
which will revert to us upon its converting to a concession contract. The final transfer of the mining titles associated with
Rukú is pending final approval of Ingeominas, the Colombian Institute of Mining and Geology.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





4









| | · | Otanche. Situated in western Boyacà, we purchased
100% of three concession contracts at Otanche. We have an on-going exploration program to measure our coal deposit and plan to
develop metallurgical coal mining operations at Otanche.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Boavita. Situated in eastern Boyacà, we have the
option to purchase 100% of the concession contract at Boavita. We have commenced an exploration program at Boavita to characterize
the coal deposit and, assuming satisfactory results, we plan to exercise the purchase option and develop coal mining operations
at Boavita. In addition, we signed an agreement with the seller to develop and operate coal mines at Boavita prior to our execution
of the purchase option.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The North Block. Situated in Northwestern Santander,
we purchased 100% of three concession contracts in the area we refer to as the North Block. We are exploring the option of jointly
developing mining operations on the property with one of the sellers.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our current operations include coal production
from Rukù and exploration and development activities, such as acquiring coal mining concessions, drilling and testing core
samples, performing geological and engineering studies, developing mine plans, performing feasibility and facility design studies
and applying for environmental permits and licenses. As defined by SEC Industry Guide 7, Description of Property by Issuers
Engaged or to be Engaged in Significant Mining Operations, there are currently no proven or probable reserves on any of our
mining concessions or applications, but we have an extensive exploration and drilling program underway to measure and characterize
our coal deposits. Preliminary geological review of the areas, including initial borehole drillings, outcrop mapping, outcrop sampling,
review of drillings from previous owners and analysis of petroleum borings and seismic data, has confirmed the presence of multiple
continuous coal seams on our properties.



We were originally incorporated in the
State of Nevada in 1996 and changed our corporate domicile to the State of Delaware in October 2011. We own 99% of Energia Andina
Santander Resources Cooperatieve U.A., a company formed under the laws of the Netherlands. The other 1% is owned by Colombia CPF
LLC, a Delaware limited liability company that is wholly owned by us. Our Dutch subsidiary owns all of the outstanding shares of
Energia Santander Resources Andina S.A.S, a Spanish corporation, which in turn owns 100% of Colombia Clean Power SAS (f/k/a Energia
Andina Santander Resources SAS), a Colombian company that owns our assets and conducts our operations in the Republic of Colombia.



In December 2010, we completed a private
placement of $8,000,000 in aggregate principal amount of 10% Secured Convertible Notes due June 30, 2012 (the “Notes”)
and five-year warrants to purchase in aggregate up to 3,200,000 shares of our common stock at an exercise price of $0.01 per share.



In July 2011, we completed an equity private
placement of Units; each $100,000 Unit consisted of 10,000 shares of our Series A Convertible Preferred Stock, which shares are
convertible into an aggregate of 50,000 shares of our common stock at any time (the “Series A Preferred Stock”), and
a five-year stock purchase warrant entitling each Unit holder thereof to purchase 3,500 shares of Common Stock for $.01 per share,
subject to adjustment. We issued an aggregate of 2,930,500 shares of Series A Preferred Stock and warrants to purchase 1,025,675
shares of Common Stock, in consideration of aggregate cash proceeds to us of $22,000,000 and the conversion of Notes in the aggregate
principal amount of $7,305,000. The remaining $695,000 of the Notes is convertible at $2.00 per share into 347,500 shares of Common
Stock.



We have produced no revenues from our business
operations and have achieved losses since inception. As of February 29, 2012, our cash position was $7,645,610.



As a regular part of our business, we review
opportunities for, and engage in discussions and negotiations concerning, the acquisition of coal mining assets and interests in
coal mining companies, and acquisitions of, or combinations with, coal mining companies. When we believe that these opportunities
are consistent with our growth plans and our acquisition criteria, we will make bids or proposals and/or enter into letters of
intent and other similar agreements. These bids or proposals, which may be binding or nonbinding, are customarily subject to a
variety of conditions and usually permit us to terminate the discussions and any related agreement if, among other things, we are
not satisfied with the results of our due diligence investigation.



5







World Coal Industry



World Coal Markets



Coal
is the most abundant and widely-distributed fossil fuel in the world. Coal reserves are available in almost every country, with
recoverable reserves in approximately 70 countries. At the end of 2010, global proven coal reserves were estimated to be approximately
861 billion metric tons, which will last 118 years, at current production levels. In contrast, proven oil and gas reserves are
expected to last approximately 42 and 60 years, respectively, at current production levels.2



Coal
fuels 42% of the world’s electricity and 70% of world steel production relies on coal. In 2010, 6.9 billion metric tons
of coal were consumed worldwide, including 891 million tons of coking coal.3Since 2000, global consumption of coal has grown faster than that of any other fuel. Moreover, coal consumption is expected to
rise 53% over the next 20 years. According to the U.S. Energy Information Association, coal’s share of total world energy
consumption is expected to remain constant through 2035. Accelerating worldwide energy demand, particularly in rapidly-industrializing
countries, such as China, India and Russia, coupled with shifting import/export markets, economic recoveries in the U.S. and Europe
and new clean coal technologies, are continuing to drive demand for coal. Moreover, capacity closures during the world financial
crisis, stricter environmental legislation, weather problems and infrastructure bottlenecks in Australia have resulted in supply
shortages and rising prices.



Growth
in metallurgical coal demand is expected to exceed supply over the medium term, despite new supply sources, such as Mongolia.
Increased import demand from Asian countries coupled with continued infrastructure bottlenecks and weather problems in Australia
are also expected to keep prices high. According to several sources, international hard coking coal prices have remained above
$200 per metric ton FOB since 2007 and are projected to be $250 to $280 per metric ton FOB over the next two to three years.4



Properties and Uses of
Coal



Coal
is a combustible, sedimentary, organic rock composed mainly of carbon, hydrogen and oxygen. Coal seams are formed from vegetation
that has been consolidated between rock strata and altered by the effects of pressure and heat over millions of years. Coal quality
varies depending on the pressure, heat and length of time in formation. The higher the carbon content in the coal, the more energy
the coal contains. Anthracite is the highest value coal; it contains 86%-97% carbon and has heat value of over 15,000 Btu per
pound. Bituminous coal is the most abundant coal in the world; it contains 45%-86% carbon and has heat values of 11,000–15,000
Btu per pound. Bituminous coal includes thermal coal used to generate electricity and metallurgical coal used by the steel and
iron industries.5



Metallurgical coal, also known as coking
coal, is processed into coke and used in the production of steel and iron ore. Coke is a fuel with few impurities and high carbon
content. The high temperatures produced by the use of coke give steel its strength and flexibility so it can be used in the construction
of bridges, and buildings, and the assembly of automobiles. While metallurgical coal is primarily used by steel companies, it is
also used by a variety of other industrial users to heat and power foundries, cement plants, paper mills, chemical plants and other
manufacturing and processing facilities.



Coal Imports and Exports



Geographic shifts in demand have resulted
in large and growing import and export markets for coal. The following indicates the estimated top export and import markets for
coal in 2010 as reported by the World Coal Association.












| | 2 | Source: BP Statistical Review of World Energy, June 2011; World Coal Association.
| | - | ---------------------------------------------------------------------------------
| | 3 | Source: BP Statistical Review of World Energy, June 2011; World Coal Association.

| | 4 | Sources: J.P. Morgan; AME Group; McCluskey; broker notes.
| | - | ---------------------------------------------------------

| | 5 | Source: World Coal Association.
| | - | -------------------------------



6













Top Coal Exporters in 2010





|MT in millions |  | Steam |     |  | Coking |  |     | Total | 
|-------------- |  | ----- | --- |  | ------ |  | --- | ----- | 
|Australia      |  |       | 143 |  |        |  | 155 |       | 
|Indonesia      |  |       | 160 |  |        |  | 2   |       | 
|Russia         |  |       | 95  |  |        |  | 14  |       | 
|USA            |  |       | 23  |  |        |  | 51  |       | 
|South Africa   |  |       | 68  |  |        |  | 2   |       | 
|Colombia       |  |       | 67  |  |        |  | 1   |       | 
|Canada         |  |       | 4   |  |        |  | 27  |       | 



Top Coal Importers in 2010

|MT in millions |  | Steam |     |  | Coking |  |    | Total | 
|-------------- |  | ----- | --- |  | ------ |  | -- | ----- | 
|Japan          |  |       | 129 |  |        |  | 58 |       | 
|China          |  |       | 129 |  |        |  | 48 |       | 
|South Korea    |  |       | 91  |  |        |  | 28 |       | 
|India          |  |       | 60  |  |        |  | 30 |       | 
|Chinese Taipei |  |       | 58  |  |        |  | 5  |       | 
|Germany        |  |       | 38  |  |        |  | 8  |       | 
|Turkey         |  |       | 20  |  |        |  | 7  |       | 





Growth in coal imports are being driven
primarily by Asian markets. Coal imports into Asian markets were 14.6 quadrillion BTU in 2009 and are expected to increase an
additional 67% to 24.4 quadrillion BTU in 2035. Coking coal imports destined for Asia increased to 73 percent in 2009.6



Colombian Coal Industry



Colombia is a major world supplier of
coal. It has the largest coal reserves in South America and the ninth largest coal reserves in the world. Colombia is also the
world’s tenth largest coal producer, the world’s fourth largest coal exporter and the number 1 exporter of coal to
the U.S.7



Colombia Production and
Exports



The Colombian coal sector is robust and
rapidly-growing. In 2011, Colombia produced 85.8 million metric tons of coal, of which it exported 79.2 million metric tons. Total
coal production was up 15.4% from the 74.4 million metric tons produced in 2010 and almost double production from ten years earlier.
Production of metallurgical coal increased from 1.9 million metric tons in 2001 to 4.4 million metric tons in 2011, of which exports
have grown from approximately 1.0 million metric tons to 1.5 million metric tons over the same period. In fact, from 2010 to 2011,
Colombia moved from the world’s sixth largest exporter of coal to the world’s fourth largest.8



Safety, coupled with an abundant and growing
resource base, increased foreign investment into Colombia and a rising focus on metallurgical coal are driving Colombia’s
prominence in world coal markets. According to Mauricio Cardenas, Colombia’s Mine and Energy Minister, Colombia’s coal
production is expected to increase to 97 million metric tons in 2012 and 144 million metric tons by 2020.



Coal mining is a high priority for Colombia.
It is a substantial source of foreign investment and employment and accounts for almost half of the country’s mining activities.
Coal is Colombia’s second largest export product after oil and is expected to surpass oil by 2015. Colombia has a long history
in the hydrocarbon industry and, as such, offers many advantages to foreign companies setting up operations. Colombia has many
local mining companies, a significant pool of trained labor and many highly-trained engineering and support services firms. Several
multinational companies are mining in Colombia, such as Xstrata, Vale, BHP, Drummond, Anglo American and MPX.



Coal Regions



Coal in Colombia formed in intramontane
basins during the development of the Andes Mountains in late Cretaceous and Tertiary times. The country’s reserves are concentrated
in two regions: the Northern region (red) and the Andean foothills in the interior of the country (yellow).


















| | 6 | Source: EIA, International Energy Statistics.                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| | 7 | Sources: BP Statistical Review of World Energy, June 2011; World Coal Association; Simco, Colombia
Ministry and Information System.

| | 8 | Source: Colombian Ministry of Mines and Energy.
| | - | -----------------------------------------------



7







The Northern region includes the Guajira
peninsula along the Atlantic coast and the coal basins in Cesar and Córdoba. These areas contain Colombia’s large
thermal coal deposits and primary coal mining operations. Approximately 95% of coal produced and exported in Colombia is mined
in these provinces where suitable logistical systems as are available to export the coal. The region contains approximately 6.4
billion metric tons of proven reserves and 11.8 billion metric tons of potential reserves.9 Operations in this region
consist of integrated, open-pit steam coal mines with rail transport and coastal export terminals operated by global mining companies.
The largest coal producer in the country is the Carbones del Cerrejon consortium comprised of Anglo American, BHP Billiton and
Glencore, which operates Cerrejon Zona Norte (“CZN”), the largest coal mine in Latin America and the largest open-cast
coal mine in the world. CZN consists of an integrated mine, railroad and coastal export terminal and produces approximately 30
million metric tons of steam coal per year. Drummond is the second largest operator in the region and MPX recently acquired 66,225
hectares with 1.74 billion tons of resources to build a steam coal mine in the region.



By contrast, the Andean foothills, which
include the districts of Boyacà, Cundinamarca, Santander, and Norte de Santander, contain substantial reserves of very-high-quality
metallurgical coal. Mining operations in this region is dominated by small artisanal miners. Historically, violence, political
turmoil and lack of transportation infrastructure rendered the interior region difficult to mine. However, governmental policies
and programs supporting mining and infrastructure, coupled with substantially increased safety in the region, have made it possible
to exploit this coal. The region contains approximately 700 million metric tons of proven reserves and 5.2 billion metric tons
of potential reserves.10 The total annual production in this region amounts to about 6 million to 7 million tons,
almost all of which is used in Colombia to produce metallurgical coke for export.



Coal Reserves



Colombia
has the largest coal reserves in South American and the ninth largest coal reserves in the world (excluding sub-bituminous and
lignite).11At the current rate of production, Colombia has more than 120 years
of coal production.12





|2010 Reserves (MT in Billions)
|------------------------------
|#1                            
|#2                            
|#3                            
|#4                            
|#5                            
|#6                            
|#7                            
|#8                            
|#9                            
|#10                           





In Colombia, the state owns all hydrocarbon
reserves and private companies operate coal mines under concession contracts with the state. In 2004, the Ministry of Mines and
Energy placed Ingeominas, the national geological institute, in charge of mineral rights and concessions. Ingeominas established
eight mining districts for the stewardship of mineral resources and the advancement of the mining sectors. The table below indicates
the mining districts, as well as the proven and potential reserves by district, as reported by Ingeominas:










| | 9 | Source: Ingeominas.
| | - | -------------------

| | 10 | Source: Ingeominas.
| | -- | -------------------

| | 11 | Source: BP Statistical Review of World Energy, June 2011.
| | -- | ---------------------------------------------------------

| | 12 | Source: Colombian Coal Source of Energy for the World, Ministry of Mines and Energy.
| | -- | ------------------------------------------------------------------------------------



8











|                                                 |  |                            |  |         |  |          |       | Measured |       |  | Potential | 
|------------------------------------------------ |  | -------------------------- |  | ------- |  | -------- | ----- | -------- | ----- |  | --------- | 
|                                                 |  |                            |  | Type of |  |          |       | Reserves |       |  | Reserves  | 
|District                                         |  | Province                   |  | Coal    |  | Avg. Btu |       | (MT)     |       |  | (MT)      | 
|Barrancas                                        |  | La Guajira                 |  | T       |  | 11,586   |       |          | 3,933 |  |           | 
|La Jagua de Ibirico                              |  | Cesar                      |  | T       |  | 11,655   |       |          | 2,035 |  |           | 
|Montelíbano                                      |  | Córdoba-Norte de Antioquia |  | T       |  | 9,280    |       |          | 381   |  |           | 
|Northern Region (Atlantic Coast)                 |  |                            |  |         |  |          | 6,350 |          |       |  | 11,815    | 
|Zulia                                            |  | Norte de Santander         |  | T,M,A   |  | 12,653   |       |          | 120   |  |           | 
|Zulia                                            |  | Santander                  |  | T,M,A   |  | 12,790   |       |          | 56    |  |           | 
|Paz del Río                                      |  | Boyáca                     |  | T,M     |  | 12,781   |       |          | 170   |  |           | 
|Zipaquirá                                        |  | Cundinamarca               |  | T,M     |  | 11,862   |       |          | 236   |  |           | 
|Amagá                                            |  | Antioquia-Antiguo Caldas   |  | T       |  | 10,336   |       |          | 90    |  |           | 
|Jamundí                                          |  | Valle del Cauca – Cauca    |  | T       |  | 11,016   |       |          | 41    |  |           | 
|Central Region (Interior)                        |  |                            |  |         |  |          | 714   |          |       |  | 5,178     | 
|Total Country                                    |  |                            |  |         |  |          | 7,064 |          |       |  | 16,993    | 
|T=thermal(steam); M=me tallurgical; A=anthracite |  |                            |  |         |  |          |      











In 2010, the Colombian government enacted
a new law to expedite the development of coal mining concessions, based on three-year exploration period, three-year construction
period and total of 30-year license life with an option for one 20-year renewal. To be granted a concession, a company must prove
economic capacity, pay a reserve fee, and present a work plan. Each mining concession has three phases: exploration, construction,
and exploitation as described below in the section titled “Government Regulation of our Business.”



Coal Quality



Colombian coal is recognized for its high
caloric value, low ash and low sulfur contents.



Typical Coal
Qualities by Region13





|Region         |  | Moisture % |         |  | Ash % |  |         | Volatile
    Matter % |  |  | Fixed
    Carbon % |  |  | Total Sulfur
    % |           |  | BTU/Lb | 
|-------------- |  | ---------- | ------- |  | ----- |  | ------- | --------------------- |  |  | ------------------ |  |  | ------------------ | --------- |  | ------ | 
|Colombia       |  |            | 11.9    |  |       |  | 6.9     |                       |  |  | 35.9               |  |  |                    | 45.2      |  |        | 
|CAPP           |  |            | 10      |  |       |  | 8       |                       |  |  | > 30               |  |  |                    |           |  |        | 
|Indonesia      |  |            | < 32    |  |       |  | < 16    |                       |  |  | < 45               |  |  |                    | 38-43     |  |        | 
|Australia      |  |            | 8.4     |  |       |  | 17.2    |                       |  |  | 30.8               |  |  |                    |           |  |        | 
|Illinois Basin |  |            | 10      |  |       |  | 8       |                       |  |  | > 30               |  |  |                    | 44.9-78.2 |  |        | 
|South Africa   |  |            | 7.2-8.8 |  |       |  | 19.5-36 |                       |  |  | 20.3-26.5          |  |  |                    |           |  |        | 





While our internal and third-party testing
and analysis of coal qualities on our properties is still in process and not conclusive, preliminary results are indicative of
coal quality consistent with the averages for Colombian metallurgical coal.



Coal Production and Delivery
Costs



The overall cost of coal mining in Colombia
is very competitive in world terms. However, Colombia currently suffers from infrastructure bottlenecks and high transportation
costs. The Colombian government in collaboration with private industry has several infrastructure projects in the works to alleviate
the bottlenecks and transportation costs.










| | 13 | Source: FBR Research, January 2011.
| | -- | -----------------------------------



9









Coal can typically be mined and delivered
ex-mine for $25-$30 per ton for surface mining and $35-$45 per ton for underground mining. However, FOB port costs are double or
triple that amount depending on the region in which the coal is mined and the distance in which it must be transported to a port.
Steam coal mined in northern Colombia is closer to the ports and typically costs $55-$60 per ton FOB, which includes about $15
per ton for transportation by truck and $15 per ton for port loading and storage. However, most of the metallurgical coal deposits
are in the interior of the country and, in the absence of railroad access, can cost $60-$75 per ton to transport bringing the delivered
cost to $110-$135 per ton. 14





Transportation in Colombia is regulated by
the Ministry of Transport. Road travel is the main means of transport in the country. In 2009, 73.3% of cargo tons were transported
by road, as compared with 24.6% by railroad, 2% by internal waterways and less than 1% percent by air.15 The vast majority
of the coal exported from Colombia is transported through the Caribbean Basin Ocean ports. Approximately 1% - 2% is trucked to
the port of Buenaventura on the Pacific Ocean or to Venezuelan port facilities on Lake Maracaibo. While Colombia’s coal
transport and export infrastructure is not as extensive or capable as would be desired presently, it has kept pace with coal industry
growth.



Colombian Infrastructure Development



The Colombia Government has launched an ambitious
program for the improvement of the quality and capacity of its transportation infrastructure. The government’s infrastructure
improvement plan, known as the “Infrastructure Program For Prosperity 2011-2021”, is primarily focused on improving
the country’s business competitiveness, bolstering the expansion of its mining and oil sectors and increasing its agricultural
production. The plan includes US$56.5 billion of infrastructure development expenditures, US$18.1 billion of which will be spent
in the next four years.



Planned Infrastructure Spending
(USD in billions)









Numerous infrastructure development projects
are underway, many in participation with the private sector under a concessions scheme. In addition to the private sector, the
government expects significant investment from the World Bank and regional development banks.



We are in discussions and negotiations
with various existing transportation and logistics providers for the transport of our coal within Colombia to sea ports where customers
typically take possession of coal for export. In addition, we are in discussions with multiple parties developing new transportation,
infrastructure and logistics projects within Colombia. Our goal is to enter into one or more strategic agreements for coal transport
as soon as possible.










| | 14 | Source: FBR Research, January 2011 and company experience.
| | -- | ----------------------------------------------------------

| | 15 | Source: Ministry of Transport
| | -- | -----------------------------



10







Government Regulation of Our Business



In Colombia, the sub-soils are owned by the
state. The state may authorize private parties to explore and develop mineral deposits under concession contracts. Until 2001,
mineral deposits could also be developed under Exploration and Exploitation Contracts executed with specialized agencies of the
state. However, as of 2001, Colombia’s new Mining Code modified by Law 1382 of 2010, only permits concession contracts, which
are awarded by a single governmental entity, the Colombian Institute of Mining and Geology, and are subject to a standard set of
conditions.



A concession contract grants to a concessionaire
the exclusive right to carry out geological studies, to execute the works and to build the installations necessary within the given
area to establish the existence of minerals and to exploit them according to the principles, rules and criteria of the accepted
techniques of geology and mining engineering. It also covers the right to install and build the equipment, services and works necessary
to efficiently exercise the rights set forth in the Colombian Mining Code modified by Law 1382 of 2010. Concession contracts are
generally granted for a term that the proponent requests, up to a maximum of 30 years. Such term starts from the date the contracts
are inscribed at the National Mining Register. Colombian law provides that land owners must grant concessionaires access to the
minerals. In practice mining companies tend to purchase sufficient land to support their surface operations.



The concession contract has three phases:



1.   	Exploration Phase:



| | · | During this phase, through subsoil and other tests, the concessionaire needs to determine the existence,
size, and location of the contracted mineral, the geometry of the deposit within the area of concession, its quantity and quality
and whether it is economically exploitable, the technical feasibility of extracting the mineral as well as any environmental and
the social impacts.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Starts once the contract is inscribed in the Colombian National Mining Register.
| | - | --------------------------------------------------------------------------------



| | · | Valid for three years plus a two-year extension. However, the concessionaire may request additional
two-year extensions for up to 11 years. To do so, the concessionaire must present technical reasons and economic perspectives,
demonstrate the fulfillment of mining and environmental guidelines, describe the works to be executed, specify the duration of
the works, describe the investments to be made and make the corresponding payment of the surface fees during exploration.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Requires the payment of annual surface fee based on the number of hectares in the concession contract.
Such fees are paid annually until the concession contract enters the exploitation phase at which time royalties are paid on production.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Requires an annual Environmental Mining Insurance Policy for 5 % of the value of the planned exploration
expenditure for the year.
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | · | At the end of the Exploration Phase, the concessionaire must present a mine plan (PTO) and an Environmental
Impact Study (EIA).
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | 2. | Construction Phase:
| | -- | -------------------



| | · | This phase consists of the preparation of the mining face and the installation of works, services,
equipment, fixed machinery, necessary to start coal production, coal storage and transportation. This phase also includes constructing
the infrastructure necessary to produce coal.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Valid for three years plus a one year extension.
| | - | ------------------------------------------------



| | · | Requires the payment of annual surface fees as in Exploration Phase based on the number of hectares
in the concession.
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | Requires an annual Environmental Mining Insurance Policy for 5% of the value of the planned investment
as defined in the PTO for the year.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



11







| | · | During this phase, the EIA is reviewed and, upon its approval, an Environmental License is issued,
which is required to enter into production.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Exploitation Phase.
| | -- | -------------------



| | · | This phase includes all manner of mining operations required to produce coal from the concession
area until the mineral reserve is exhausted. This phase also includes mine closing and surface reclamation.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Valid for 30 years minus the time taken in the Exploration Phase and Construction Phase and is
renewable for 20 years.
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | Requires an annual Environmental Mining Insurance Policy for 10 % of the result of multiplying
the volume of annual production estimated of mineral object of the concession, by the price at the mine head of the mentioned mineral
determined annually by the Government.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Requires royalty payments based on regulations at time of granting of the contract; no annual surface
fees are paid.
| | - | --------------------------------------------------------------------------------------------------------------------



The Colombian Mining Law 685 of 2001 modified
by Law 1382 of 2010 requires an Environmental Mining Insurance Policy for each concession contract. We have provided the required
insurance policy for our three owned mining concessions. In addition, this provision states that an Environmental Impact Study
has to be presented at the end of the Exploration Phase if the concession is to proceed to the Construction Phase, and this study
must be approved and an Environmental License issued before the Exploitation Phase can begin.



Our mining properties are subject to Colombian
and local laws and regulations regarding environmental matters, the extraction of water, and the discharge of mining wastes and
materials. Any significant mining operations will have some environmental impact, including land and habitat impact, arising from
the use of land for mining and related activities, and certain impact on water resources near the project sites, resulting from
water use, rock disposal and drainage run-off. We believe our current concessions and those for which we are currently applying
are in material compliance with all environmental rules and regulations. Nevertheless, no assurances can be given that such environmental
issues will not have a material adverse effect on our operations in the future.



Also, during the exploration phase we must
maintain an environmental inventory and record how we disturb the environment during the exploration and drillings, which in turn
forms the basis for compensating the land owner for any disturbance to the environment during this phase. For example, before we
drill in an area, we take photographs and inventory the environment, such as trees, streams, etc. We then get written permission
from the land owner to drill on his land. At present we have permissions from the land owners where we are currently drilling.
After we complete our drilling program and the equipment is removed, we again will take photographs and a second inventory. Any
difference, such as removal of a tree, will require us to compensate the land owner. The amount of the compensation is determined
by a schedule published by the local environmental authority.



Prior to acquiring additional concessions,
we intend to make a thorough assessment to mitigate possible unexpected environmental liabilities. Nevertheless, any mining operations
we acquire in the future may currently or historically have used hazardous materials and, to the extent that such materials are
not recycled, they could become hazardous waste. We may be subject to claims under federal, regional, or local statutes and/or
common law doctrines and their Colombian law equivalents for toxic torts and other damages, as well as for natural resource damages
and the investigation and clean-up of soil, surface water, groundwater, and other media. Such claims may arise, for example, out
of current or former conditions at sites that we acquire, and at contaminated sites that have always been owned or operated by
third parties. Liability may be without regard to fault and may be strict, joint and several, so that we may be held responsible
for more than our share of the contamination or other damages, or even for the entire share.



Coal Sales and Marketing



The Company is entertaining various alternatives
regarding coal sales including selling into the local market which consists of coke and steel manufacturers as well as aggregating
our product with that of others for export. Based on international market conditions, we are confident that a market should exist
for substantially all of our production into the near future.



12







Competition



We compete with other exploration and development
companies, many of which possess greater financial resources and technical abilities than we do. Our main areas of competition
are acquiring exploration rights and engaging qualified personnel. The coal exploration industry is highly fragmented, and we are
a very small participant in this sector. Many of our competitors explore for a variety of coal properties and control many different
properties around the world. Many of them have been in business longer than we have and have probably established more strategic
partnerships and relationships and have greater financial accessibility than we do.



There is significant competition for properties
suitable for coal exploration. As a result, we may be unable to continue to acquire interests in attractive properties on terms
that we consider acceptable.  We will be subject to competition and unforeseen
limited sources of supplies in the industry in the event spot shortages arise for supplies and certain equipment that we will need
to conduct exploration. If we are unsuccessful in securing the products, equipment and services we need we may have to suspend
our exploration plans until we are able to secure them.



Principal
Offices



The address of our principal executive
office is One Embarcadero Center, Suite 500, San Francisco, CA 94111. Our telephone number is (415) 460-1165. Our Internet address
is www.colombiaenergyresources.com. The address of our headquarters in Bogota, Colombia, is Calle 90 No. 19-41, Oficina 901, Bogota,
Colombia.



Employees



We have 133 full-time employees of the
Company and its consolidated subsidiaries. We are not represented by labor unions. We believe that our relationship with our employees
is satisfactory, but there can be no assurances that we will continue to maintain good relations with our employees.



ITEM
1A. Risk Factors



You should consider carefully the following
risks and other information in this Annual Report, including the financial statements. If any of the following risks actually occur,
our business, financial condition and operating results could be adversely affected.



Risks Related to Our Company and
Its Business



Because of our historic losses from
operations since inception, there is substantial doubt about our ability to continue as a going concern.



In their report dated March 30, 2012, our
independent registered public accounting firm stated that our financial statements for the year ended December 31, 2011, were prepared
assuming that we would continue as a going concern. We have incurred recurring loses since the date of inception that have resulted
in an accumulated deficit attributable to common stockholders of approximately $25,700,000 as of December 31, 2011. Although we
had approximately $10,800,000 of available cash at December 31, 2011, that amount is not adequate to meet our capital expenditure
and operating requirements over the next 12 months. These factors raise substantial doubt about the ability of the Company to continue
as a going concern. We are dependent upon obtaining funds from investors to meet our cash flow requirements. If we are unsuccessful
in doing so, we would be required to substantially revise our business plan or our business could fail.



Our company has a limited operating
history and therefore we cannot ensure the long-term successful operation of our business or the execution of our business plan.



We have been engaged in our current business
operations since May 2010. As a result, we have a limited operating history upon which to evaluate our proposed business and prospects.
Our proposed business operations will be subject to numerous risks, uncertainties, expenses and difficulties associated with early
stage enterprises. Such risks include but are not limited to the following:



| | · | the absence of a lengthy operating history;
| | - | -------------------------------------------



13







| | · | insufficient capital to fully realize our operating
plan;
| | - | ---------------------------------------------------------



| | · | our ability to purchase or lease necessary equipment
when required and at reasonable prices;
| | - | --------------------------------------------------------------------------------------------



| | · | our ability to obtain regulatory and environmental approvals
of our proposed mines and facilities;
| | - | --------------------------------------------------------------------------------------------------



| | · | expected continual losses for the foreseeable future;
| | - | -----------------------------------------------------



| | · | operating in multiple currencies;
| | - | ---------------------------------



| | · | social and political unrest;
| | - | ----------------------------



| | · | disruptions to transportation routes;
| | - | -------------------------------------



| | · | our ability to anticipate and adapt to a developing market(s);
| | - | --------------------------------------------------------------



| | · | acceptance of our coal by consumers;
| | - | ------------------------------------



| | · | limited marketing experience;
| | - | -----------------------------



| | · | a competitive environment characterized by well-established
and well-capitalized competitors;
| | - | ---------------------------------------------------------------------------------------------



| | · | the ability to identify, attract and retain qualified
personnel; and
| | - | --------------------------------------------------------------------



| | · | reliance on key personnel.
| | - | --------------------------



Because we are subject to these risks,
evaluating our business may be difficult. We may be unable to successfully overcome these risks which could harm our business.
Our business strategy may be unsuccessful and we may be unable to address the risks we face in a cost-effective manner, if at all.
If we are unable to successfully address these risks our business will be harmed.



We intend to partake in joint ventures
and/or strategic alliances to develop and operate our planned businesses. These partnerships or the failure to establish them could
have a material adverse effect on our ability to develop and manage our business. In addition, such undertakings may not be successful.



Our strategy includes plans to participate
in joint ventures and other strategic alliances to develop and operate our businesses and sell our products. We intend to develop
mining operations in part through joint ventures and strategic alliances with other parties as well as with additional outside
funding. Joint ventures and strategic alliances may expose us to new operational, regulatory and market risks, as well as risks
associated with additional capital requirements. Additionally, we may not be able to identify and secure suitable alliance partners.
Even if we identify suitable partners, we may be unable to consummate alliances on terms commercially acceptable to us. If we fail
to identify appropriate partners, we may not be able to implement our strategies effectively or efficiently.



In addition to joint venture and strategic
alliances, we plan to raise additional debt and/or equity financing to build and operate our proposed mining operations. Such capital
raises could result in significant dilution to the percentage ownership held by existing shareholders or the failure to secure
such capital could impair our ability to execute our business plan.



We anticipate that the cost to build mining
operations on our existing or future mining properties will be significant and we have limited current sources for this funding.
We have received indications of interest in future financings but have no firm commitments for any funds. The net proceeds of future
offerings are expected to be used to begin and continue initial mining operations, acquire additional properties and fund operations
for the next twelve months. Additional offerings using our equity securities or debt instruments convertible into our common stock
could require the issuance of a substantial number of additional shares of common or preferred stock. These potential offerings
and the issuance of additional shares of common or preferred stock would have the effect of diluting the percentage ownership of
existing shareholders. Moreover, there can be no assurance that such financing will be available, or, if available, that such financing
will be at a price that will be acceptable or favorable to us. Failure to generate sufficient revenue or raise additional capital
would have an adverse impact on our ability to achieve our longer-term business objectives, and would adversely affect our ability
to continue operating as a going concern.



14







Currency fluctuations may negatively
affect costs we incur outside of the United States.



Currency fluctuations may affect our costs
as the majority of our expenses are incurred in Colombian Pesos. The exchange rate in 2010 ranged from an average monthly low of
1,804 Colombian pesos per U.S. dollar to a high of 1,986 pesos per dollar and in 2011 the exchange rates ranged from an average
monthly low of 1,748.41 Colombian pesos per U.S. dollar to a high of 1,972.96 pesos per dollar. These fluctuations have meant that
our in-country operational and exploration expenses in U.S. dollar terms have been difficult to predict in any specific reporting
period. In addition, any significant decline in the exchange rate could have a material negative impact on our operating funds.



Future acquisitions are expected to
be a part of our growth strategy, and could expose us to significant business risks.



One of our strategies is to grow our business
through acquisitions of coal mining concessions and other assets. However, we cannot assure you that we will be able to identify
and secure suitable acquisition opportunities. Our ability to consummate and integrate effectively any future acquisitions on terms
that are favorable to us may be limited by the number of attractive acquisition targets, internal demands on our resources and,
to the extent necessary, our ability to obtain financing on satisfactory terms, if at all, for larger acquisitions. Moreover, if
an acquisition target is identified, the third parties with whom we seek to cooperate may not select us as a potential partner
or we may not be able to enter into arrangements on commercially reasonable terms or at all. The negotiation and completion of
potential acquisitions, whether or not ultimately consummated, could also require significant diversion of management’s time
and resources and cause potential disruption of our existing business. Furthermore, we cannot assure you that the expected synergies
from future acquisitions will actually materialize. In addition, future acquisitions could result in the incurrence of additional
indebtedness, costs, and contingent liabilities. Future acquisitions may also expose us to potential risks, including risks associated
with:



| | · | the integration of new operations, services and personnel;
| | - | ----------------------------------------------------------



| | · | unforeseen or hidden liabilities;
| | - | ---------------------------------



| | · | the diversion of financial or other resources from our
existing businesses;
| | - | ---------------------------------------------------------------------------



| | · | our inability to generate sufficient revenue to recover
costs and expenses of the acquisitions; and
| | - | ---------------------------------------------------------------------------------------------------



| | · | potential loss of, or harm to, relationships with employees
or customers.
| | - | -------------------------------------------------------------------------



Any of the above could significantly disrupt
our ability to manage our business and materially and adversely affect our business, financial condition and results of operations.



If we are unable to hire and retain
key personnel, we may not be able to implement our plan of operation and our business may fail.



Our success is largely dependent on our
ability to continue to hire and retain highly-qualified personnel in both management and operations. These individuals may be in
high demand and we may not be able to attract the management staff we need. In addition, we may not be able to afford the high
salaries and fees demanded by qualified personnel, including fees associated with U.S. persons employed by us and residing in Colombia,
or we may fail to retain such employees after they are hired. Our failure to hire and retain key personnel as needed will have
a significant negative effect on our business.



We do not insure against all potential
operating risks. We may incur losses and be subject to liability claims as a result of our operations.



We maintain insurance for some, but not
all, of the potential risks and liabilities associated with our business. For some risks, we may not obtain insurance if we believe
the cost of available insurance is excessive relative to the risks presented. As a result of market conditions, premiums and deductibles
for certain insurance policies can increase substantially, and in some instances, certain insurance may become unavailable or available
only for reduced amounts of coverage. As a result, we may not be able to renew our existing insurance policies or procure other
desirable insurance on commercially reasonable terms, if at all. Although we maintain insurance at levels we believe are appropriate
and consistent with industry practice, we are not fully insured against all risks. In addition, pollution and environmental risks
generally are not fully insurable. Losses and liabilities from uninsured and underinsured events and delay in the payment of insurance
proceeds could have a material adverse effect on our financial condition, results of operations and cash flows.



15







Risks Associated With Our Current
and Proposed Coal Mining Operations



The government of the Republic of Colombia
has placed a moratorium on the granting of new mining concessions which may hinder our ability to acquire additional mining properties.



The federal government of the Republic
of Colombia has ceased granting new mining concessions while the government makes internal structural changes to create a more
efficient administrative process to award mining concessions in compliance with applicable mining laws. The moratorium, which commenced
on February 1, 2011, prohibits any new applications made for concessions after that date until the moratorium is lifted, which
is anticipated to occur in May 2012. We are unable to determine the specific changes in existing mining law that may occur, but
we anticipate that a national mining agency will be created and that more stringent safety rules may be enacted, which could increase
the level of review and monitoring of coal mining activities by the government and could result in increased costs of conducting
mining operations in the country.



There are no proven or probable reserves
on our coal properties. Until we can measure and characterize the coal deposits on properties we own or acquire properties with
commercially exploitable quantities, our ability to earn any revenues from operations over time is questionable and if we do not
do so our business could fail.



Despite preliminary exploration work on
our coal mining properties, we have not as of yet established any proven or probable reserves of coal. A mineral reserve is that
part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination,
which is normally obtainable only upon completion of a final feasibility study. Even if we do eventually establish proven or probable
coal reserves on one or more of our concessions, there can be no assurance that we will be able to develop our properties into
producing mines and extract those resources. Both coal exploration and development involve a high degree of risk and few properties
which are explored are ultimately developed into producing mines. The commercial viability of an established coal deposit will
depend on a number of factors including, by way of example, the size, grade and other attributes of the coal deposit, the proximity
of the coal deposit to infrastructure, such as roads and a point for shipping, government regulation and market prices. Most of
these factors will be beyond our control, and any of them could increase costs and make extraction of any identified coal unprofitable.
Our ability to raise significant funds for current and future operations may also be adversely affected until we are able to generate
reports of measurable quantities of coal resources.



Coal mining operations are subject to
applicable law and government regulation. Even if we discover coal in a commercially exploitable quantity, these laws and regulations
could restrict or prohibit the exploitation of that coal. If we cannot exploit any coal that we might discover on our properties,
our business may fail.



Both coal exploration and extraction in
the Republic of Colombia require permits from various foreign, federal, state, provincial and local governmental authorities and
are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport,
export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine
safety and other matters. There can be no assurance that we will be able to obtain or maintain any of the permits required by the
Colombian Institute of Mining and Geology for the continued exploration of our coal mining properties or for the construction and
operation of a mine on our properties at economically viable costs. If we cannot accomplish these objectives, our business could
fail.



We are currently in compliance with all
material laws and regulations that currently apply to our proposed business activities, but if we are unable to continue to remain
in compliance, our business could fail. Current laws and regulations are being amended and we might not be able to comply with
them. Further, there can be no assurance that we will be able to obtain or maintain all permits necessary for our future operations,
or that we will be able to obtain them on reasonable terms. To the extent such approvals are required and are not obtained, we
may be delayed or prohibited from proceeding with planned exploration or development of our coal mining properties.



16







Our mining production and delivery operations
are subject to conditions and events that are beyond our control, which could result in higher operating costs and decreased production
levels.



Our mining operations are planned to be
conducted primarily in underground mines and possibly in surface mines. The level of our production is subject to operating conditions
or events beyond our control that could disrupt operations, decrease production and affect the cost of mining at particular mines
for varying lengths of time. Adverse operating conditions and events that coal producers have experienced in the past include:



| | · | unfavorable geologic conditions, such as the thickness of the coal deposits and the amount of rock
embedded in or overlying the coal deposit;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| | · | poor mining conditions resulting from geological conditions
or the effects of prior mining;
| | - | -------------------------------------------------------------------------------------------



| | · | inability to acquire or maintain, or unexpected delays or difficulties in obtaining, necessary
permits or mining or surface rights;
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| | · | changes in governmental regulation of the mining industry
or the electric utility industry;
| | - | -------------------------------------------------------------------------------------------



| | · | market
conditions could change and mean the sale of the type of coal being produced from our concessions is no longer saleable at an
economic price;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | · | coal seam quality decreases so we cannot meet market
requirements;
| | - | ------------------------------------------------------------------



| | · | adverse weather conditions and natural disasters;
| | - | -------------------------------------------------



| | · | accidental mine water flooding;
| | - | -------------------------------



| | · | labor-related interruptions;
| | - | ----------------------------



| | · | interruptions due to transportation delays;
| | - | -------------------------------------------



| | · | mining and processing equipment unavailability and failures
and unexpected maintenance problems;
| | - | ------------------------------------------------------------------------------------------------



| | · | accidents, including fire and explosions from methane
and other sources;
| | - | ------------------------------------------------------------------------



| | · | surface subsidence from underground mining, which could result in collapsed roofs at our underground
mines, among other difficulties;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | · | unavailability  of mining equipment and supplies
                                                                                                         and                                                                                                          increases in the
                                                                                                         price of mining equipment and supplies;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | unexpected maintenance problems or key equipment failures;
and
| | - | --------------------------------------------------------------



| | · | increased or unexpected reclamation costs.
| | - | ------------------------------------------



If any of these or similar conditions or
events occur in the future at any of the mines we plan to develop or affect deliveries of our coal to customers, they may increase
our costs of mining and delay or halt production at particular mines or sales to our customers, either permanently or for varying
lengths of time, which could adversely affect our results of operations, cash flows and financial condition. Our current insurance
coverage would cover some but not all of these risks.



Inaccuracies in our estimates of coal
deposits could result in lower than expected revenues and higher than expected costs.



We will base our coal deposit information
on engineering, economic and geological data assembled and analyzed by our in house and contract workers, which will include various
engineers and geologists. The estimates of coal deposits as to both quantity and quality will be continually updated to reflect
the production of coal from the deposits and new drilling or other data received. There are numerous uncertainties inherent in
estimating quantities and qualities of coal deposits and costs to process these deposits, including many factors beyond our control.
Estimates of economically recoverable coal reserves and net cash flows necessarily depend upon a number of variable factors and
assumptions, all of which may vary considerably from actual results, such as:



| | · | geological
and mining conditions and/or effects from prior mining activities that may not be fully identified by available exploration data
or that may differ from experience, in current operations;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the assumed effects of regulation, including the issuance of required permits, and taxes by
                                                                                                         governmental agencies and assumptions concerning coal prices, operating costs, mining technology improvements, severance and
                                                                                                         excise tax, development costs and reclamation costs;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17







| | · | historical production from the area compared with production
from other similar producing areas; and
| | - | ----------------------------------------------------------------------------------------------------

| | · | assumptions concerning future coal prices, operating
costs, capital expenditures, severance taxes and development and reclamation costs.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



For these reasons, estimates of the economically
recoverable quantities and qualities attributable to any particular group of properties, classifications of coal reserves and non-reserve
coal deposits based on risk of recovery and estimates of net cash flows expected from particular reserves prepared by different
engineers or by the same engineers at different times may vary substantially and vary materially from estimates. As a result, these
estimates may not accurately reflect actual coal reserves or non-reserve coal deposits. Any inaccuracy in our estimates related
to our coal deposits could result in lower than expected revenues, higher than expected costs and decreased profitability.



A substantial or extended decline in
coal prices could reduce our revenues and the value of our coal resources.



Our results of future operations will be
dependent upon the prices we receive for our coal and other products as well as our ability to improve productivity and control
costs. Declines in prices could adversely affect our results of operations. The prices charged for coal depend upon factors beyond
our control, including:



| | · | the supply of, and demand for, domestic and foreign coal
and coke;
| | - | ------------------------------------------------------------------



| | · | the price elasticity of supply;
| | - | -------------------------------



| | · | the demand for electricity;
| | - | ---------------------------



| | · | the proximity to and the capacity and cost of transportation
facilities;
| | - | ------------------------------------------------------------------------



| | · | governmental regulations and taxes;
| | - | -----------------------------------



| | · | air emission standards for coal-fired power plants;
| | - | ---------------------------------------------------



| | · | regulatory, administrative and judicial decisions, including legislation to allow retail price
competition in the electric utility industry;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | · | the price and availability of alternative fuels, including
the effects of technological developments; and
| | - | ---------------------------------------------------------------------------------------------------------



| | · | the effect of worldwide energy conservation measures.
| | - | -----------------------------------------------------



Decreased demand for coal could result
in declines in coal prices and require us to increase productivity and lower costs in order to maintain our margins. If we are
not able to maintain our margins, our operating results could be adversely affected. Therefore, price declines may adversely affect
our operating results for future periods and our ability to generate cash flows necessary to improve productivity and invest in
operations.



A decrease in the availability or increase
in costs of labor, key supplies, capital equipment or commodities could decrease our profitability.



We will require access to contract miners
at commercially acceptable rates. We currently have no contracts or arrangements for necessary mining personnel. Our proposed mining
operations will also require a reliable supply of steel-related products (including roof control for our underground mines), replacement
parts, belting products and lubricants, none of which have been secured by definitive agreements or contracts. If the cost of any
of these or other supplies increases significantly, or if a source for such mining equipment or supplies are unavailable to meet
our replacement demands, our profitability could be adversely affected. In addition, industry-wide demand growth has recently exceeded
supply growth for certain underground surface and other capital equipment. As a result, lead times for some items have increased
significantly. Significant delays in obtaining required parts and equipment could cause our profitability to be reduced from our
current expectations.



18







We may acquire operating mines that
initially may not meet our criteria for safety and may subject us to liability for prior or existing operations until we can upgrade
the safety issues.



We are evaluating a number of mining operations
which we may target for acquisition in the future, not all of which may meet the safety standards which we have established for
our own proposed mining operations. The upgrading of the operations to meet our safety criteria may require a significant period
to correct or ameliorate prior less safe operations. During this period of transition we may be subject to the risk of injury to
personnel or destruction of equipment or mine infrastructure as a result of prior operations. In addition, we cannot predict the
nature of mine safety regulations which are currently under consideration by the government of the Republic of Colombia as result
of recent injuries caused by mine cave-ins and explosions. If we are unable to reasonably meet any new standards for existing mining
operations acquired by us, or if the cost of such remediation is excessive, we may decide to abandon the mining operation, in which
event we would lose our entire investment in the project.



Risks Associated with Doing Business
in South America



If we encounter local criminal or political
violence in the region in which we operate, our production or other operations may be interrupted or halted and we may be unable
to attract and retain foreign or local personnel to work at our mining locations.



Criminal violence, kidnappings, vandalism,
and political unrest in many Central and South American countries have caused interruptions in operations and made it more difficult
to engage foreign and local professionals to work in these areas. On February 17, 2012 the surface facilities
at our Rukú Mining Complex were damaged as a result of vandalism and forced us to cease operations temporarily.There
is no assurance that such an incident will not reoccur. Any criminal violence, kidnappings, vandalism, or political unrest in the
region in which our mining concessions are located, could have a material negative impact on our ability to complete our planned
business operations. These conditions may also affect our ability to secure and retain local professionals. We are currently in
the process of developing a policy to protect our foreign and local employees and assets from these potential threats.



Adverse economic and political conditions
in the Republic of Colombia affect our financial condition and results of operations.



Most of our operations and property will
be located in the Republic of Colombia and accordingly our business is subject to a variety of economic, political, market and
credit risks. The quality of our assets, financial condition and results of operations significantly depend on macroeconomic and
political conditions prevailing in Colombia and the other jurisdictions in which we operate. The Republic of Colombia is subject
to political, economic and other uncertainties, including renegotiation, or nullification of existing contracts, currency exchange
restrictions, and international monetary fluctuations. Furthermore, changes in monetary, exchange, and trade policies could affect
the overall business environment in Colombia, which would in turn impact our financial condition and results of operations.



Furthermore, decreases in the growth rate
in the economies where we operate, particularly in the Republic of Colombia, periods of negative growth, or increases in inflation
or interest rates could result in lower demand for our services and products, lower real pricing of our services and products,
or in a shift toward lower margin services and products. Because a large percentage of our costs and expenses are fixed, we may
not be able to reduce costs and expenses upon the occurrence of any of these events, and our profit margins and results of operations
could suffer as a result.



Colombia’s economy remain vulnerable
to external shocks that could be caused by significant economic difficulties experienced by its major regional trading partners
or by more general “contagion” effects, which could have a material adverse effect on its economic growth and its ability
to service their public debt.



Emerging-market investment generally poses
a greater degree of risk than investment in more mature market economies because the economies in the developing world are more
susceptible to destabilization resulting from domestic and international developments.



In the case of the Republic of Colombia,
a significant decline in the economic growth of any of its major trading partners, such as the United States, Venezuela and Ecuador,
could have a material adverse impact on Colombia’s balance of trade, and adversely affect Colombia’s economic growth.
In addition, a “contagion” effect, in which an entire region or class of investment is disfavored by international
investors, could negatively affect Colombia or other economies where we operate.



19











The current global economic downturn, which
began in the U.S financial sector and then spread to different economic sectors and countries around the world, has had, and is
expected to continue to have, adverse effects on the economies of the countries where we operate.



Government policies in the jurisdictions
where we operate could significantly affect the local economy and, as a result, our business and financial condition.



Our business and financial condition could
be adversely affected by changes in policy, or future judicial interpretations of such policies, involving exchange controls and
other matters such as currency depreciation, inflation, interest rates, taxation, laws and regulations and other political or economic
developments in or affecting the Republic of Colombia or the other jurisdictions where we operate.



In particular, the government of the Republic
of Colombia has historically exercised substantial influence over its economy, and its policies are likely to continue to have
an important effect on market conditions and prices and rates of return on securities of local issuers (including our securities).
Future developments in government policies could impair our business or financial condition or the market value of our securities.



Any additional taxes resulting from
changes to tax regulations or the interpretation thereof in the Republic of Colombia or other countries where we operate, could
adversely affect our consolidated results.



Uncertainty relating to tax legislation
poses a constant risk to us. Colombian national authorities have levied new taxes in recent years. Changes in legislation, regulation
and jurisprudence can affect tax burdens by increasing tax rates and fees, creating new taxes, limiting stated expenses and deductions,
and eliminating incentives and non-taxed income.



Additional tax regulations could be implemented
that could require us to make additional tax payments, negatively affecting our financial condition, results of operation, and
cash flow. In addition, either national or local taxing authorities may not interpret tax regulations in the same way that we do.
Differing interpretations could result in future tax litigation and associated costs.



Risks Related to Our Common Stock



We have not paid, and do not intend
to pay, dividends on our common stock and therefore, unless our common stock appreciates in value, our investors may not benefit
from holding our common stock.



We have not paid any cash dividends on
our common stock since inception. We do not anticipate paying any cash dividends our common stock in the foreseeable future. As
a result, investors in our common stock will not be able to benefit from owning our common shares unless the market price of our
common stock becomes greater than the price paid for the stock by these investors.



The public trading market for our common
stock is volatile and may result in higher spreads in stock prices.



Our common stock trades in the over-the-counter
market and is quoted on the OTC QX. The over-the-counter market for securities has historically experienced extreme price and volume
fluctuations during certain periods. These broad market fluctuations and other factors, such as our ability to implement our business
plan pertaining to our coal mining properties in the Republic of Colombia, as well as economic conditions and quarterly variations
in our results of operations, may adversely affect the market price of our common stock. In addition, the spreads on stock traded
through the over-the-counter market are generally unregulated and higher than on stock exchanges, which means that the difference
between the price at which shares could be purchased by investors in the over-the-counter market compared to the price at which
they could be subsequently sold would be greater than on these exchanges. Significant spreads between the bid and asked prices
of the stock could continue during any period in which a sufficient volume of trading is unavailable or if the stock is quoted
by an insignificant number of market makers. Historically our trading volume has been insufficient to significantly reduce this
spread and we have had a limited number of market makers sufficient to affect this spread. These higher spreads could adversely
affect investors who purchase the shares at the higher price at which the shares are sold, but subsequently sell the shares at
the lower bid prices quoted by the brokers. Unless the bid price for the stock exceeds the price paid for the shares by the investor,
plus brokerage commissions or charges, the investor could lose money on the sale. For higher spreads such as those on over-the-counter
stocks, this is likely a much greater percentage of the price of the stock than for exchange listed stocks. There is no assurance
that at the time an investor in our common stock wishes to sell the shares, the bid price will have sufficiently increased to create
a profit on the sale.



20







Our board of directors can, without
stockholder approval, cause preferred stock to be issued on terms that adversely affect common stockholders.



Under our certificate of incorporation,
our board of directors is authorized to issue up to 5,000,000 shares of preferred stock, 2,900,500 of which are issued and outstanding
as of the date of this report. Also, our board of directors, without shareholder approval, may determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares. If the board causes additional shares of preferred stock
to be issued, the rights of the holders of our common stock could be adversely affected. The board’s ability to determine
the terms of preferred stock and to cause its issuance, while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our
outstanding voting stock. Preferred shares issued by the board of directors could include voting rights, or even super voting rights,
which could shift the ability to control the company to the holders of the preferred stock. Preferred shares could also have conversion
rights into shares of common stock at a discount to the market price of the common stock which could negatively affect the market
for our common stock. In addition, preferred shares would have preference in the event of liquidation of the corporation, which
means that the holders of preferred shares would be entitled to receive the net assets of the corporation distributed in liquidation
before the common stock holders receive any distribution of the liquidated assets. We have no current plans to issue any additional
shares of preferred stock.



There are a large number of restricted
shares and shares issuable upon exercise of our outstanding options, warrants, or other convertible instruments that may be available
for future sale, or which may be resold pursuant to Rule 144, the sale of which into our trading market may depress the market
price of our common stock.



As of March 22, 2012, we had 23,807,776
shares of common stock issued and outstanding, of which 21,980,474 were designed by our transfer agent as restricted shares pursuant
to Rule 144 promulgated by the SEC. In addition we had outstanding warrants to purchase up to 2,671,740 shares of common stock,
outstanding options to purchase up to 3,866,934 shares of common stock, outstanding restricted stock units to issue 262,500 shares
of common stock upon the occurrence of certain events, and 347,500 common shares upon the conversion of outstanding promissory
notes. We also had 2,900,500 shares of preferred stock outstanding convertible into 14,502,500 shares of common stock. The sale
of these shares into the open market may adversely affect the market price of our common stock.



Because our shares are designated as
“penny stock”, broker-dealers will be less likely to trade in our stock due to, among other items, the requirements
for broker-dealers to disclose to investors the risks inherent in penny stocks and to make a determination that the investment
is suitable for the purchaser.



Our shares are designated as “penny
stock” as defined in Rule 3a51-1 promulgated under the Exchange Act and thus may be more illiquid than shares not designated
as penny stock. The SEC has adopted rules which regulate broker-dealer practices in connection with transactions in “penny
stocks.” Penny stocks are defined generally as: non-Nasdaq equity securities with a price of less than $5.00 per share; not
traded on a “recognized” national exchange; or in issuers with net tangible assets less than $2,000,000, if the issuer
has been in continuous operation for at least three years, or $10,000,000, if in continuous operation for less than three years,
or with average revenues of less than $6,000,000 for the last three years. The penny stock rules require a broker-dealer to deliver
a standardized risk disclosure document prepared by the SEC, to provide the customer with current bid and offer quotations for
the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing
the market value of each penny stock held in the customer’s account, to make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a stock
that is subject to the penny stock rules. Since our securities are subject to the penny stock rules, investors in the shares may
find it more difficult to sell their shares. Many brokers have decided not to trade in penny stocks because of the requirements
of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited.
The reduction in the number of available market makers and other broker-dealers willing to trade in penny stocks may limit the
ability of purchasers in this offering to sell their stock in any secondary market. These penny stock regulations, and the restrictions
imposed on the resale of penny stocks by these regulations, could adversely affect our stock price.



21







ITEM
1B. Unresolved Staff Comments



As a smaller reporting company, we are
not required to provide the disclosure required by this item.



ITEM
2. PROPERTIES



THE RUKÚ MINING COMPLEX



The Rukú
Mining Complex(“Rukú”) is comprised of four adjacent coal leases located
in the Boyacà district of Colombia, designated in the Colombian National Mining Register as follows: the coal mining concession
contracts 010-91, FI6-142 and 748-T and the application for a coal mining concession contract HD5-081.



On August
22, 2011, we entered into an agreement through our Colombian subsidiary, Colombia Clean Power S.A.S. (“CCP”) with Hawerd
Milton Cubides Botia (“Seller”) toacquire 70% of the Seller’s rights and obligations for the exploration
and exploitation of coal deposits in the aforementioned coal leases. The agreement and its subsequent
amendments provide CCP with the following (See p. 51 for further details):



| | · | 70% of the rights and
obligations of the coal concession contracts (010-91 and FI6-142) owned by Sellerand
70% of the title rights of the solicitation HD5-081, upon its conversion to a concession contract. On January 30, 2012, Ingeominas
approved the transfer to us of 70% of coal concession contract 010-91, which includes an operating mine, allowing us to complete
the acquisition;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                

| | · | Sole operating rights in a 70%/30% joint
venture with Seller;
| | - | -------------------------------------------------------------
| |   |                                                              

| | · | Right to explore the entirety of Rukú;
| | - | --------------------------------------
| |   |                                       

| | · | 70% of the rights Seller has in an agreement
to assume all of the rights and obligationsof the coal concession contract 748-T, which is
owned by Dora Acero. Upon closure, Seller’s 70% ownership will be transferred to us. The contract between Sellerand Ms. Acero is being finalized.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Rukú is located in the Andean municipality
of Socotá, Boyaca Province.







22







Location of the Rukú Mining
Complex



Rukú contains the following four
adjacent coal leases, one of which is not controlled by us:







Leases of Rukú Mining Complex



The table below details
the terms and characteristics of our mineral concessions at Rukú which covers 89.94 hectares (222 acres):



|RUKÚ MINING COMPLEX – MINERAL CONCESSIONS
|-----------------------------------------
|Mining TItle                             
|*FI6-142 Coal Concession Agreement       
|010-91 Coal Concession Agreement         
|** FI7-081 Coal Concession Agreement     

| | * | Registration of the assignment of rights with the Mining Registry is currently in process.
| | - | ------------------------------------------------------------------------------------------

| | ** | CCP entered into an assignment of rights agreement regarding title FI7-081, which is currently
pending approval by the Mining Authority.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------





23







Rukú includes a small mine that
has been operating on Concession 010-91 for approximately 18 years, supplying local markets with coking coal. We assumed control
and began mining operations on October 19, 2011. After a period where the Company improved safety standards at the mine including
heightened ventilation, widened tunnels, and modernized electrical system, limited commercial production began in December 2011.
During the month, 915 tons of coal were produced. Pursuant to the amended acquisition agreement, the Seller is guaranteed a minimum
423 tpm for the first six months beginning October 18, 2011 as part of his ownership interest. This minimum accrues on a monthly
basis to the extent actual monthly production is less than the minimum. Thus, at the end of 2011, the cumulative minimum was 1,037
tons. The Company received no tons for its account in 2011 but will once production ramps up in 2012.

24







THE BOAVITA MINING PROJECT



The Boavita Mining Project is located in
central Colombia in the eastern part of the Andean mountains in the provincial department of Boyacá, near the village of
Gutierrez in the municipality of Boavita.







Location of the Boavita Mining Complex



The Boavita Mining Project is composed
of one concession contract for the exploration and exploitation of coal, designated FFB-081 with the National Mining Register,
which covers 1,550 hectares (3,830 acres).



On October 7, 2011, the Company entered
into a rights assignment option agreement regarding title FFB-081 and on December 27, 2011, it signed an association agreement
to undertake mining operations (See pp. 51 and 52 for futher details).



|BOAVITA MINING COMPLEX – MINERAL CONCESSIONS
|--------------------------------------------
|Mining TItle                                
|FFB-081Coal Concession Agreement            



25







THE OTANCHE MINING PROJECT



The Otanche Mining Project (“Otanche”)
is located in central Colombia in the eastern part of the Andean mountains in western part of the provincial department of Boyacá,
in the municipality of Otanche near the Port of Boyacà on the Magdalena River.







Location of the Otanche Mining Project



On February 2011, the
Company acquired the rights to three Otanche coal concessions (See p. 51 for further details). During the year, the Company spent
$1,095,054 exploring the property to enhance our knowledge of coal quantity and quality present there. We drilled 27 holes totaling
8,347 meters in depth as part of our exploration program.



The table below details
the terms and characteristics of our mineral concessions at Otanche which cover three adjacent coal leases containing 3,964 hectares
(9795 acres):



26







|OTANCHE MINING PROJECT – MINERAL CONCESSIONS
|--------------------------------------------
|Mining
    TItle                            
|*EAU-131Coal Concession Agreement           
|                                            
|*ECB-121 Coal Concession Agreement          
|                                            
|*FCF-142Coal Concession Agreement           

| | * | Registration of the assignment of rights with the Mining Registry is currently in process.
| | - | ------------------------------------------------------------------------------------------



THE NORTH BLOCK MINING PROJECT



The North Block Mining Project is located
in central Colombia in the eastern part of the Andean mountains in the provincial department of Santander, in the municipality
of San Vicente de Chucurí.



27











Location of the North Block



In 2011, the Company
spent $316,542 exploring the North Block to enhance our knowledge of coal quantity and quality present on the property. We drilled
17 holes totaling 1407 meters in depth as part of our exploration program.



The table below details
the terms and characteristics of our mineral concessions at the North Block Mining Project which covers three adjacent leases containing
7,074 hectares (17,480 acres):



28







|NORTH BLOCK MINING PROJECT – MINERAL CONCESSIONS
|------------------------------------------------
|Mining Title                                    
|FLG-092Coal Concession Agreement                
|                                                
|GG7-111Coal Concession Agreement                
|                                                
|GG7-11522XCoal Concession Agreement             
|                                                

*          Indirect wholly-owned
subsidiary of Colombia Energy Resources, Inc.



ITEM
3. LEGAL PROCEEDINGS



We are not a party to any legal proceedings
reportable pursuant to this item.



ITEM
4. MINE SAFETY DISCLOSURES



There are no reportable events required pursuant to this item.



PART II



ITEM
5. MARKET FOR Registrant’s COMMON EQUITY, RELATED STOCKHOLDER MATTERS and Issuer Purchases of Equity Securities



Market Information



Our common stock is quoted on the OTC QX
under the symbol “CERX.” The table below sets forth for the periods indicated the range of the high and low bid information
as reported on the Internet. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and
may not necessarily represent actual transactions.



29







|Colombia Energy Resources, Inc.
|-------------------------------
|                               
|Fiscal Year 2010               
|Quarter                        
|First                          
|Second                         
|Third                          
|Fourth                         





Holders



At March 22, 2012, we had approximately
155 record holders of our common stock. The number of record holders was determined from the records of our transfer agent and
does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and
registered clearing agencies. We have appointed Interwest Transfer Company, Inc., 1981 East 4800 South, Suite 100, Salt Lake City,
UT 84117, to act as the transfer agent of our common and preferred stock.



Dividends



During the two most recent fiscal years
ended December 31, 2011, we did not declare or pay any cash dividends on our common stock. We do not anticipate paying any cash
dividends to common stockholders in the foreseeable future. In addition, any future determination to pay cash dividends will be
at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital
requirements, and such other factors as the Board of Directors deem relevant. After payment of the dividends on our outstanding
Series A Preferred Stock as described below, any additional dividends (whether or not in the form of cash) shall be payable to
the holders of shares of Common Stock and Series A Preferred Stock on a pari passu, pro rata basis (treating each holder
of shares of Series A Preferred Stock as being the holder of the number of shares of Common Stock into which such holder’s
shares of Series A Preferred Stock would be converted if such shares were converted as of the record date for the determination
of holders of Common Stock entitled to receive such dividend).



We pay quarterly dividends to preferred
stockholders pursuant to the Securities Purchase Agreement dated June 1, 2011, between the Company and various purchasers. Dividends
are paid at the rate of 9% per annum; payment is 33.3% cash and 66.7% stock. The first such payment occurred June 15, 2011.
Total dividends for 2011 were:



|Preferred Stock Dividends |     
|------------------------- | ----
|                          |     
|                          |     
|                          | 2011





Recent Sales of Unregistered Securities



We did not sell any unregistered securities
during the year ended December 31, 2011, that were not previously reported in a quarterly report on Form 10-Q or a Current Report
on Form 8-K.



Repurchase of Shares



We did not repurchase any of our shares during the fourth quarter
of the fiscal year covered by this report.



ITEM
6. SELECTED FINANCIAL DATA



As a smaller reporting company, we have
elected not to provide the information required by this item.



30







ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Management’s Discussion and Analysis
of Financial Condition and Results of Operations analyzes the major elements of our balance sheets and statements of income. This
section should be read in conjunction with our annual financial statements and accompanying notes and other detailed information
included in this report.



Description of Business



We currently engage in the business of
acquiring and developing metallurgical coal mines in Colombia, South America. The Company owns and controls mining concessions
in the provinces of Boyaca and Santander regions. The Boyaca and Santander regions were selected because of their large metallurgical
coal resources and their location near the Magdalena River with river access for shipping.



Colombian coal is recognized worldwide
for its high-heat-value, low-ash and low-sulfur contents. As the nation’s second largest export item after oil, investment
and development of sustainable coal mining is an important priority for the Colombian government. In Colombia, the state owns all
hydrocarbon reserves. Private companies operate coal mines under concession contracts with the state. Colombia is the world’s
tenth largest producer and fourth largest exporter of coal, with an estimated 7 billion metric tons (“MT”) of recoverable
reserves and 17 billion MT of potential reserves.



Business Developments



During 2011, the Company had the following
major developments:

| | · | purchased the rights on February 11, 2011 to three mining concessions totaling 9,795 acres near
Otanche, Colombia;
| | - | ------------------------------------------------------------------------------------------------------------------

| | · | issued Series A Preferred Stock and warrants on June 1, 2011 in consideration of aggregate cash
proceeds of $22,000,000 and the conversion of notes in the aggregate principal amount of $7,205,000;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | acquired the rights on August 22, 2011 to the Rukú Mining Complex comprised of two mining
concessions as well as one concession in the permitting process and another in the purchase process. In December 2011, we began
coal production (see Note 1 to the consolidated financial statements);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | optioned 3,830 acres on a single mining concession near Boavita, Colombia and subsequently obtained
operating rights on the property.
| | - | -------------------------------------------------------------------------------------------------------------------------------------



Exploration



Exploration of our properties for purposes
of mine planning and resource evaluation is and will continue to be a high priority of ours. The initial exploration work in each
area has been concentrated along coal seam outcrops and in mine workings at Boavita and Rukú. At Otanche, general exploration
drilling has been underway in part of the area for one year. The Company drilled 44 holes of varying length in 2011 exploring our
North Block and Otanche properties to help determine coal quantity and quality. We spent $1,411,596 in this effort.



Exploration Stage Company



We are considered an exploration stage
company under the SEC criteria since we have not demonstrated the existence of proven or probable reserves at any of our properties.
Accordingly, as required by the SEC guidelines and U.S. GAAP for companies in the exploratory stage, substantially all of our investment
in mining properties to date have been expensed and therefore do not appear as assets on our balance sheet. We therefore also expensed
exploration and development expenditures in 2011 related to our properties. Certain expenditures, such as expenses for mining or
other general purpose equipment, may be capitalized, subject to our evaluation of the possible impairment of the asset.





31









Year Ended December 31, 2011 Compared to Year Ended December
31, 2010





Our revenues since inception total $3,560
and we have a cumulative net loss of $15,398,920 from inception through December 31, 2011. Our revenues for the year ended December
31, 2011 and 2010 were nil. Our net loss for the period was $12,959,993 compared to 2,213,320 for 2010. The increase in our net
loss was due to increased expenses, primarily increased exploration costs, employee expense, outside professional services for
mine engineering, legal, and accounting services related to our recommencing operations during the second quarter of 2010 as well
as interest expense related to our Convertible Note offering completed in December 2010.



Expenses for the year ended December 31,
2011 consisted of $10,016,201 in general and administrative expenses, $2,242,479 in net interest expense, $18,560 in change in
fair value of derivative liability, and $682,753 in inducement expense. Expenses for the year ended December 31, 2010 consisted
of $1,935,450 in general and administrative expenses, $533,870 in net interest expense and $256,000 in change in fair value of
derivative liability-embedded conversion feature.



Loss per share for the year ended December
30, 2011 was ($0.52) compared to a loss per share of of ($0.12) for the year ended December 30, 2010, based on weighted averages
of 25,041,856 and 18,887,765 shares outstanding during the respective periods.



Liquidity and Capital Resources



At December 31, 2011, we had $11,256,236
in cash and $9,862,142 in working capital. At December 31, 2011, we also had total liabilities of $7,113,507. We anticipate funding
our operating expenses and capital expense requirements with additional financings of debt and/or equity securities.



As of December 31, 2011, our total assets
were $23,930,108 consisting mainly of cash, prepaid expenses, mining concessions, equipment, and land. The increase in assets since
December 31, 2010 is principally due to the funding provided by the Series A Preferred Stock Issuance.



Management anticipates that we will be
dependent, for the near future, on additional capital to fund our operating expenses and anticipated growth. Our operating losses
have been funded through the issuance of equity securities and borrowings. We will need additional funding in order to continue
our business operations. We anticipate commencing a non-public equity offering to secure funding of approximately $20,000,000 during
second quarter 2012, with the specific terms of the offering still to be determined. The securities to be sold in this offering
will not be registered under the Securities Act and may not be offered or sold in the United States by investors absent registration
or an applicable exemption from registration requirements.



While we continually look for additional
financing sources, in the current economic environment, the procurement of outside funding is extremely difficult and there can
be no assurance that such financing will be available, or, if available, that such financing will be at a price that will be acceptable
to us. Failure to generate sufficient revenue or raise additional capital would have an adverse impact on our ability to achieve
our longer-term business objectives, and would adversely affect our ability to continue operating as a going concern.



Off Balance-Sheet Arrangements



There are no 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.



Critical Accounting Policies and Estimates



For a discussion of our critical accounting policies, see Note
1 to the consolidated financial statements.



New Accounting Standards



Refer to Note 1 in the notes to consolidated financial statements
for a discussion of new accounting standards.



ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



As a smaller reporting company, we have
elected not to provide the information required by this item.



32







ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA



The financial statements required by this
item are included immediately following the signature page of this report.



ITEM 9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



Disclosure in response to this item is
incorporated herein by reference to Item 4.01 of Form 8-K dated May 28, 2010, and filed with the Commission on June 10, 2010.



ITEM 9A. CONTROLS
AND PROCEDURES



Evaluation of Disclosure Controls and Procedures





As of the end of the year covered by this
Annual Report, management performed, with the participation of our Chief Executive Officer and Chief Financial Officer an evaluation
of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) of the Exchange Act of 1934, as amended
(the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that information required to be
disclosed in the reports we file or submit under the Exchange Act 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 CEO and CFO, to allow timely decisions regarding required disclosures. Based on this evaluation, our CEO and CFO
have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2011.



Management’s Annual Report on Internal Control over
Financial Reporting



Management is responsible for establishing
and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) under the Exchange Act.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United
States of America, or GAAP. A company’s internal control over financial reporting includes those policies and procedures
that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (ii) 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 company are being made only in accordance with authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the company’s assets that could have a material effect on the consolidated financial statements.



Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to
future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.



Our management, with the participation
of our CEO and CFO, assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. Management’s
assessment of internal control over financial reporting was conducted using the criteria in Internal Control—Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Management concluded that
as of December 31, 2011, the Company’s internal control over financial reporting was effective.



Changes in Internal Control over Financial Reporting



There were no changes in our internal control
over financial reporting during the quarter ended December 31, 2011, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.



33







ITEM 9B. OTHER
INFORMATION



During the quarter ended December 31, 2011,
no information was required to be disclosed in a report on Form 8-K that has not been previously reported.



PART III



ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



The information required by Item 10 is
included under the captions “Directors, Executive Officers and Corporate Governance,” “Audit and Compensation
Committees” “Nominating Procedures ” and “Section 16(a) Beneficial Ownership Reporting Compliance”
in our definitive information statement, which will be filed with the Commission within 120 days after the close of the fiscal
year, and is incorporated herein by reference.



ITEM 11. EXECUTIVE
COMPENSATION



The information required by Item 11 is
included under the captions “Executive Compensation Summary,” “Equity Awards,” “Compensation Committee,”
“Compensation Committee Report on Executive Compensation” and “Director Compensation” in our definitive
information statement, which will be filed with the Commission within 120 days after the close of the fiscal year, and is incorporated
herein by reference.



ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The information
required by Item 12 with respect to security ownership of certain beneficial owners and management is included under the captions
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” and “Securities
Authorized for Issuance under Equity Compensation Plans” in our definitive information statement, which will be filed with
the Commission within 120 days after the close of the fiscal year, and is incorporated herein by reference.



ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE



The information required by Item 13 is
included under the captions “Director Independence” and “Related Person Transactions” in our definitive
information statement, which will be filed with the Commission within 120 days after the close of the fiscal year, and is incorporated
herein by reference.



ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES



The information required by Item 14 is
included under the caption “Fees Paid” and “Audit Committee” in our definitive information statement, which
will be filed with the Commission within 120 days after the close of the fiscal year, and is incorporated herein by reference.



PART IV



ITEM 15. EXHIBITS,
FINANCIAL STATEMENTS, SCHEDULES



Financial
Statements



The following
financial statements are files as a part of this report:



Report of Independent Registered Public Accounting
Firm



Consolidated Balance Sheets at December 31, 2011
and 2010



34







Consolidated Statements of Operations and Comprehensive
Income (Loss) for the years ended December 31, 2011 and 2010 and from inception on November 6, 1996 through December 31, 2011



Consolidated Statement of Stockholders’ Equity
from inception on November 6, 1996, through December 31, 2011



Consolidated Statements of Cash Flows for the years
ended December 31, 2011 and 2010 and from inception on November 6, 2006, through December 31, 2011



Notes to Consolidated Financial Statements



Exhibits



The following exhibits are included with this report:





|              |  |                                                                                              |  | Incorporated by Reference |  | Filed     
|------------- |  | -------------------------------------------------------------------------------------------- |  | ------------------------- |  | ----------
|ExhibitNumber |  | Exhibit Description                                                                          |  | Form                      |  | File No.  
|2.1           |  | Agreement and Plan of Merger dated October 7, 201                                            |  |                           |  |           
|3.1           |  | Delaware Certificate of Incorporation                                                        |  | 8-K                       |  | 000-32735 
|3.2           |  | Delaware Certificate of Merger                                                               |  | 8-K                       |  | 000-32735 
|3.3           |  | Current Bylaws                                                                               |  | 8-K                       |  | 000-32735 
|3.4           |  | Certificate of Designations for Series A Convertible Preferred Stock                         |  | 8-K                       |  | 000-32735 
|4.1           |  | Specimen Stock Certificate for Registrant’s Common Stock                                     |  |                           |  |           
|10.1          |  | 2010 Equity Incentive Plan, as amended*                                                      |  | 8-K                       |  | 000-32735 
|10.2          |  | Restricted Stock Unit Agreement Form*                                                        |  | 8-K                       |  | 000-32735 
|10.3          |  | Nonqualified Stock Option Grant Agreement Form*                                              |  |                           |  |           
|10.4          |  | Amended and Restated Employment Agreement dated as of January 1, 2011, with Edward P. Mooney |  | 8-K                       |  | 000-32735 
|10.5          |  | Indemnification Agreement dated December 31, 2010, with Edward P. Mooney                     |  | 8-K                       |  | 000-32735 
|10.6          |  | Consulting Agreement dated September 1, 2011, with Edward P. Mooney*                         |  | 10-Q/A                    |  | 000-327350
|10.7          |  | Amended and Restated Employment Agreement dated January 1, 2011, with Daniel F. Carlson      |  | 8-K                       |  | 000-32735 
|10.8          |  | Indemnification Agreement dated December 31, 2010, with Daniel F. Carlson                    |  | 8-K                       |  | 000-32735 





35









|               |  |                                                                                                                                                                                                                                               |  | Incorporated by Reference |  | Filed     
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ----------
|Exhibit
Number |  | Exhibit Description                                                                                                                                                                                                                           |  | Form                      |  | File No.  
|10.9           |  | Consulting Agreement, dated as of June 1, 2011, with Daniel Carlson*                                                                                                                                                                          |  | 8-K                       |  | 000-32735 
|10.10          |  | Consultancy Agreement dated January 1, 2011, with Badger Resources Limited                                                                                                                                                                    |  | 8-K                       |  | 000-32735 
|10.11          |  | Letter Agreement dated February 24, 2011, with Barry Markowitz*                                                                                                                                                                               |  | 8-K                       |  | 000-32735 
|10.12          |  | Employment Agreement dated August 28, 201, with Ronald G. Stovash                                                                                                                                                                             |  | 10-Q/A                    |  | 000-327350
|10.13          |  | Employment Agreement dated May 1, 2011, with James A. Flores*                                                                                                                                                                                 |  | 8-K                       |  | 000-327350
|10.14          |  | Compensation Agreement dated August 24, 2011, with Peter B. Lilly*                                                                                                                                                                            |  | 10-Q/A                    |  | 000-327350
|10.15          |  | Management and Services Agreement dated July 1, 2010, with LIFE Power & Fuels LLC*                                                                                                                                                            |  | 8-K                       |  | 000-32735 
|10.16          |  | Assignment Agreement dated as of July 19, 2010, for Mining Concession Contract GG7-111 (English translation).                                                                                                                                 |  | 8-K                       |  | 000-32735 
|10.17          |  | Assignment Agreement dated as of July 19, 2010, for Mining Concession Contract  GG7-11522X  (English translation)                                                                                                                             |  | 8-K                       |  | 000-32735 
|10.18          |  | Contract of Total Assignment of Mining Exploration And Exploitation Rights dated as of October 20, 2010, for Mining Concession Contact FLG – 092 (English translation)                                                                        |  | 8-K                       |  | 000-32735 
|10.19          |  | Contract for Agreement on Activities and Promise to Assign a Mining Title dated February 11, 2011, for Mining Concession Contract FCF – 142 (English translation)                                                                             |  | 8-K                       |  | 000-32735 
|10.20          |  | Contract for Agreement on Activities and Promise to Assign a Mining Title dated February 11, 2011, for Mining Concession Contracts ECB-121 and EAU-131 (English translation)                                                                  |  | 8-K                       |  | 000-32735 
|10.21          |  | Partial Assignment and Business Collaboration Contract of Mining Rights for the Development of a Mining Project for Mining Concession Contracts dated August 22, 2011, for Mining Concession Contracts F16-142 and 748T (English translation) |  | 10-Q/A                    |  | 000-32735 





36









|              |  |                                                                                                                                                                                                |  | Incorporated by Reference |  | Filed    
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ---------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                            |  | Form                      |  | File No. 
|10.22         |  | Total Assignment Contract of the Mining Rights Derived from the Mining Concession Contract FI7-081 dated February 2, 2012, (English translation) (confidential information has been redacted)  |  | 8-K                       |  | 000-32735
|10.23         |  | Option Contract for the Acqusition of Rights of a Mining Title dated October 7, 2011 for Mining Concession Contract FFB-081 (English translation) (confidential information has been redacted) |  |                           |  |          
|10.24         |  | Mining Association Contract dated March 15, 2012 with Ameralex for Mining Concession FFB-081 (English translation) (confidential information has been redacted)                                |  |                           |  |          
|10.25         |  | Subscription Agreement, dated May 6, 2010, by and between Freedom Resources Enterprises, Inc. and  LIFE Power and Fuels LLC.                                                                   |  | 8-K                       |  | 000-32735
|10.26         |  | Form of 10% Secured Convertible Note, with schedule                                                                                                                                            |  |                           |  |          
|10.27         |  | Form of Warrant issued with 10% Secured Convertible Note, with schedule                                                                                                                        |  |                           |  |          
|10.28         |  | Form of Subscription Agreement for 10% Secured Convertible Note offering, with schedule                                                                                                        |  |                           |  |          
|10.29         |  | Letter Agreement effective December 10, 2010, amending Subscription Agreement with Steelhead Partners, LLC                                                                                     |  | 8-K                       |  | 000-32735
|10.30         |  | Pledge and Collateral Agency Agreement, dated August 26, 2010, among Colombia Clean Power & Fuels, Inc., Colombia CPF LLC and Law Debenture Trust Company, as collateral agent                 |  | 8-K                       |  | 000-32735
|10.31         |  | Amendment to Pledge and Collateral Agency Agreement                                                                                                                                            |  | 8-K                       |  | 000-32735
|10.32         |  | Deed of Pledge, dated as of August 26, 2010, among Colombia Clean Power & Fuels, Inc., CPF LLC, Energia Andina Santander Resources Cooperatieve U.A and Law Debenture Trust Company            |  | 8-K                       |  | 000-32735





37









|                                                                                                                                                                                                                         |  |                                                                                                                                          |  | Incorporated by Reference |  | Filed    
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ---------
|ExhibitNumber                                                                                                                                                                                                            |  | Exhibit Description                                                                                                                      |  | Form                      |  | File No. 
|10.33                                                                                                                                                                                                                    |  | Form of Warrant issued with Series A Preferred Stock, with schedule                                                                      |  |                           |  |          
|10.34                                                                                                                                                                                                                    |  | Security Purchase Agreement, dated as of June 1, 2011, for Series A Preferred Stock Offering with the investors signatory thereto        |  | 8-K                       |  | 000-32735
|10.35                                                                                                                                                                                                                    |  | Registration Rights Agreement, dated as of June 1, 2011, for the Series A Preferred Stock Offering with the investors signatory thereto. |  | 8-K                       |  | 000-32735
|14.1                                                                                                                                                                                                                     |  | Code of Ethics                                                                                                                           |  | 10-KSB                    |  | 000-32735
|16.1                                                                                                                                                                                                                     |  | Letter from Pritchett, Siler & Hardy, PC to the Securities and Exchange Commission dated June 9, 2010                                    |  | 8-K                       |  | 000-32735
|21.1                                                                                                                                                                                                                     |  | List of Subsidiaries                                                                                                                     |  |                           |  |          
|23.1                                                                                                                                                                                                                     |  | Consent of Burr Pilger Mayer, Inc., independent registered public accounting firm                                                        |  |                           |  |          
|31.1                                                                                                                                                                                                                     |  | Rule 15d-14(a) Certification by Principal Executive Officer                                                                              |  |                           |  |          
|31.2                                                                                                                                                                                                                     |  | Rule 15d-14(a) Certification by Principal Financial Officer                                                                              |  |                           |  |          
|32.1                                                                                                                                                                                                                     |  | Section 1350 Certification of Principal Executive Officer                                                                                |  |                           |  |          
|32.2                                                                                                                                                                                                                     |  | Section 1350 Certification of Principal Financial Officer                                                                                |  |                           |  |          
|101.INS                                                                                                                                                                                                                  |  | XBRL Instance Document (1)                                                                                                               |  |                           |  |          
|101.SCH                                                                                                                                                                                                                  |  | XBRL Taxonomy Extension Schema Document (1)                                                                                              |  |                           |  |          
|101.CAL                                                                                                                                                                                                                  |  | XBRL Taxonomy Extension Calculation Linkbase Document (1)                                                                                |  |                           |  |          
|101.DEF                                                                                                                                                                                                                  |  | XBRL Taxonomy Extension Definition Linkbase Document (1)                                                                                 |  |                           |  |          
|101.LAB                                                                                                                                                                                                                  |  | XBRL Taxonomy Extension Label Linkbase Document (1)                                                                                      |  |                           |  |          
|101.PRE                                                                                                                                                                                                                  |  | XBRL Taxonomy Extension Presentation Linkbase Document (1)                                                                               |  |                           |  |          
|                                                                                                                                                                                                                         |  |                                                                                                                                          |  |                           |  |          
|*Management contract, or compensatory plan or arrangement, required to be filed as an exhibit.                                                                                                                          
|(1) In accordance with the temporary hardship exemption provided by Rule 201  of Regulation S-T, the date
    by     which the interactive data file is required to be submitted has been extended by six business days.





38







SIGNATURES



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



|                     |  | Colombia Energy Resources, Inc.
|-------------------- |  | -------------------------------
|                     |  |                                
|Date: March 30, 2012 |  | By:                            
|                     |  |                                



Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.



|NAME                   |  | TITLE                              |  | DATE          
|---------------------- |  | ---------------------------------- |  | --------------
|                       |  |                                    |  |               
|/s/ Ronald G. Stovash  |  | Director& Chief Executive Officer  |  | March 30, 2012
|Ronald G. Stovash      |  | (Principal Executive Officer)      |  |               
|                       |  |                                    |  |               
|/s/ James A. Flores    |  | Chief Financial Officer (Principal |  | March 30, 2012
|James A. Flores        |  | Financial and Accounting Officer)  |  |               
|                       |  |                                    |  |               
|/s/ Daniel F. Carlson  |  | Director                           |  | March 30, 2012
|Daniel F. Carlson      |  |                                    |  |               
|                       |  |                                    |  |               
|/s/ James J. Wolff     |  | Director                           |  | March 30, 2012
|James J. Wolff         |  |                                    |  |               
|                       |  |                                    |  |               
|/s/ Barry G. Markowitz |  | Chairman                           |  | March 30, 2012
|Barry G. Markowitz     |  |                                    |  |               
|                       |  |                                    |  |               
|/s/ William C. Gibbs   |  | Director                           |  | March 30, 2012
|William C. Gibbs       |  |                                    |  |               
|                       |  |                                    |  |               
|/s/ Edward P. Mooney   |  | Director                           |  | March 30, 2012
|Edward P. Mooney       |  |                                    |  |               
|                       |  |                                    |  |               
|/s/ Peter B. Lilly     |  | Director                           |  | March 30, 2012
|Peter B. Lilly         |  |                                    |  |               



39













REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM -

BURR PILGER MAYER, INC.



To the Board of Directors and

Stockholders of Colombia Energy Resources, Inc. (an exploration
stage company)



We have audited the accompanying consolidated balance sheets
of Colombia Energy Resources, Inc. and its subsidiaries (an exploration stage company) (the “Company”) as of December
31, 2011 and 2010, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and
cash flows for the years then ended and for the period from November 6, 1996 (inception) to December 31, 2011. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.



We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have,
nor have we been engaged to perform, an audit of the Company’s internal control over financial reporting for the year ended
December 31, 2011. An audit includes consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of Colombia Energy Resources, Inc. and its subsidiaries
as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended and from November
6, 1996 (inception) to December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.



The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements,
the Company has incurred recurring net losses that have resulted in an accumulated deficit of $25.7 million as of December 31,
2011. Also, the Company has limited cash and working capital to fund its future operations. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. Management’s plans regarding those matters are also described
in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.



/s/ Burr Pilger Mayer, Inc.

San Francisco, California

March 30, 2012



40







COLOMBIA ENERGY RESOURCES,
INC. AND SUBSIDIARIES

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS





|                                                                                                                                                                             |  | December 31, |             |   | December 31, |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------- | - | ------------ | -
|                                                                                                                                                                             |  | 2011         |             |   | 2010         |  
|ASSETS                                                                                                                                                                       |  |              |             |   |              |  
|Current assets:                                                                                                                                                              |  |              |             |   |              |  
|Cash                                                                                                                                                                         |  | $            | 11,256,236  |   |              | $
|Prepaid expenses and other current assets                                                                                                                                    |  |              | 1,264,647   |   |              |  
|Total current assets                                                                                                                                                         |  |              | 12,520,883  |   |              |  
|Property and equipment, net:                                                                                                                                                 |  |              |             |   |              |  
|Land                                                                                                                                                                         |  |              | 1,091,257   |   |              |  
|Mineral rights and mining concessions                                                                                                                                        |  |              | 8,094,361   |   |              |  
|Equipment                                                                                                                                                                    |  |              | 1,231,114   |   |              |  
|Construction in progress                                                                                                                                                     |  |              | 820,800     |   |              |  
|Total                                                                                                                                                                        |  |              | 11,237,532  |   |              |  
|Less- accumulated depreciation                                                                                                                                               |  |              | (61,991     | ) |              |  
|Property and equipment, net                                                                                                                                                  |  |              | 11,175,541  |   |              |  
|Goodwill                                                                                                                                                                     |  |              | 230,264     |   |              |  
|Other assets                                                                                                                                                                 |  |              | 3,420       |   |              |  
|TOTAL ASSETS                                                                                                                                                                 |  | $            | 23,930,108  |   |              | $
|                                                                                                                                                                             |  |              |             |   |              |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                         |  |              |             |   |              |  
|Current liabilities:                                                                                                                                                         |  |              |             |   |              |  
|Accounts payable and accrued liabilities                                                                                                                                     |  | $            | 1,697,875   |   |              | $
|Convertible notes payable (net of discount)                                                                                                                                  |  |              | 604,351     |   |              |  
|Interest payable                                                                                                                                                             |  |              | 92,515      |   |              |  
|Derivative liability - embedded conversion feature                                                                                                                           |  |              | 264,000     |   |              |  
|Total current liabilities                                                                                                                                                    |  |              | 2,658,741   |   |              |  
|Long-term liabilities:                                                                                                                                                       |  |              |             |   |              |  
|Convertible notes - related party                                                                                                                                            |  |              | -           |   |              |  
|Convertible notes payable (net of discount)                                                                                                                                  |  |              | -           |   |              |  
|Interest payable                                                                                                                                                             |  |              | -           |   |              |  
|Long-term portion of mining concession payable                                                                                                                               |  |              | 1,776,186   |   |              |  
|Derivative liability - embedded conversion feature                                                                                                                           |  |              | -           |   |              |  
|Contingent earn out liability                                                                                                                                                |  |              | 2,678,580   |   |              |  
|Other noncurrent liabilities                                                                                                                                                 |  |              | -           |   |              |  
|Total long-term liabilities                                                                                                                                                  |  |              | 4,454,766   |   |              |  
|Total liabilities                                                                                                                                                            |  |              | 7,113,507   |   |              |  
|Commitment and contingencies (note 9)                                                                                                                                        |  |              |             |   |              |  
|                                                                                                                                                                             |  |              |             |   |              |  
|Colombia Energy Resources, Inc. Stockholders' equity:                                                                                                                        |  |              |             |   |              |  
|Series A convertible preferred stock, $.001 par value, 5,000,000 shares authorized, 2,900,500 shares issued and outstanding; aggregate liquidation preference of $43,507,500 |  |              | 2,901       |   |              |  
|                                                                                                                                                                             |  |              |             |   |              |  
|Common stock, $.001 par value, 100,000,000 shares authorized, 23,537,006 shares and 20,549,637 shares issued and outstanding in 2011 and 2010, respectively                  |  |              | 23,537      |   |              |  
|Additional paid-in capital                                                                                                                                                   |  |              | 41,372,351  |   |              |  
|Accumulated deficit                                                                                                                                                          |  |              | (25,738,555 | ) |              |  
|Accumulated other comprehensive loss                                                                                                                                         |  |              | (205,881    | ) |              |  
|Total Colombia Energy Resources, Inc stockholders' equity                                                                                                                    |  |              | 15,454,353  |   |              |  
|Non-controlling interest                                                                                                                                                     |  |              | 1,362,248   |   |              |  
|Total equity                                                                                                                                                                 |  |              | 16,816,601  |   |              |  
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                   |  | $            | 23,930,108  |   |              | $

See accompanying notes to consolidated financial statements.





41







COLOMBIA ENERGY RESOURCES,
INC. AND SUBSIDIARIES

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS



|                                                                                                   |  |                     |             |   |                      |   |            | From inception on | 
|-------------------------------------------------------------------------------------------------- |  | ------------------- | ----------- | - | -------------------- | - | ---------- | ----------------- | 
|                                                                                                   |  | For the years ended |             |   | November 6, 1996     |  
|                                                                                                   |  | December 31,        |             |   | through December 31, |  
|                                                                                                   |  | 2011                |             |   | 2010                 |   |            | 2011              | 
|                                                                                                   |  |                     |             |   |                      |   |            |                   | 
|Revenue                                                                                            |  | $                   | -           |   |                      | $ | -          |                   | 
|                                                                                                   |  |                     |             |   |                      |   |            |                   | 
|Expenses:                                                                                          |  |                     |             |   |                      |   |            |                   | 
|General and administrative                                                                         |  |                     | 10,016,201  |   |                      |   | 1,935,450  |                   | 
|                                                                                                   |  |                     |             |   |                      |   |            |                   | 
|Loss before other income (expenses)                                                                |  |                     | (10,016,201 | ) |                      |   | (1,935,450 | )                 | 
|                                                                                                   |  |                     |             |   |                      |   |            |                   | 
|Other income (expenses):                                                                           |  |                     |             |   |                      |   |            |                   | 
|Unrealized gain (loss) on change in fair value of derivative liability-embedded conversion feature |  |                     | (18,560     | ) |                      |   | 256,000    |                   | 
|Inducement expense                                                                                 |  |                     | (682,753    | ) |                      |   |            |                   | 
|Interest expense, net                                                                              |  |                     | (2,242,479  | ) |                      |   | (533,870   | )                 | 
|Total other expenses, net                                                                          |  |                     | (2,943,792  | ) |                      |   | (277,870   | )                 | 
|                                                                                                   |  |                     |             |   |                      |   |            |                   | 
|Loss before income tax and non-controlling interest                                                |  |                     | (12,959,993 | ) |                      |   | (2,213,320 | )                 | 
|                                                                                                   |  |                     |             |   |                      |   |            |                   | 
|Provision for income tax                                                                           |  |                     | -           |   |                      |   | -          |                   | 
|Non-controlling interest                                                                           |  |                     | -           |   |                      |   | -          |                   | 
|                                                                                                   |  |                     |             |   |                      |   |            |                   | 
|Net loss                                                                                           |  |                     | (12,959,993 | ) |                      |   | (2,213,320 | )                 | 
|                                                                                                   |  |                     |             |   |                      |   |            |                   | 
|Preferred stock deemed dividend                                                                    |  |                     | (9,134,754  | ) |                      |   | -          |                   | 
|Preferred stock dividend paid in cash and stock                                                    |  |                     | (1,204,881  | ) |                      |   | -          |                   | 
|                                                                                                   |  |                     |             |   |                      |   |            |                   | 
|Net loss attributable to common shareholders                                                       |  |                     | (23,299,628 | ) |                      |   | (2,213,320 | )                 | 
|Other comprehensive loss:                                                                          |  |                     |             |   |                      |   |            |                   | 
|Foreign currency translation adjustment                                                            |  |                     | (124,215    | ) |                      |   | (81,666    | )                 | 
|                                                                                                   |  |                     |             |   |                      |   |            |                   | 
|Total comprehensive loss                                                                           |  | $                   | (23,423,843 | ) |                      | $ | (2,294,986 | )                 | 
|                                                                                                   |  |                     |             |   |                      |   |            |                   | 
|Basic and diluted loss per common share                                                            |  |                     |             |   |                      |   |            |                   | 
|Net Loss                                                                                           |  | $                   | (0.52       | ) |                      | $ | (0.12      | )                 | 
|Net Loss attributable to common shareholders                                                       |  | $                   | (0.93       | ) |                      | $ | (0.12      | )                 | 
|                                                                                                   |  |                     |             |   |                      |   |            |                   | 
|Weighted average common shares                                                                     |  |                     | 25,041,856  |   |                      |   | 18,887,765 |                   | 

See accompanying notes to consolidated financial statements.



42







COLOMBIA ENERGY RESOURCES,
INC. AND SUBSIDIARIES

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF
STOCKHOLDER’S EQUITY



|                                                              |  |                 |   |  |              |   |   |         |  |  |             |  |  |               |        |  |               |   |           | Accumulated    |  |   | Total                         |   |  |          |         |   |        |  
|------------------------------------------------------------- |  | --------------- | - |  | ------------ | - | - | ------- |  |  | ----------- |  |  | ------------- | ------ |  | ------------- | - | --------- | -------------- |  | - | ----------------------------- | - |  | -------- | ------- | - | ------ | -
|                                                              |  |                 |   |  |              |   |   |         |  |  |             |  |  | Additional    |        |  |               |   |           | Other          |  |   | Colombia Energy Resouces, Inc |   |  |          |         |   |        |  
|                                                              |  | Preferred Stock |   |  | Common Stock |   |   | Paid In |  |  | Accumulated |  |  | Comprehensive |        |  | Stockholders' |   |           | Noncontrolling |  |   | Total                         |  
|                                                              |  | Shares          |   |  | Amount       |   |   | Shares  |  |  | Amount      |  |  | Capital       |        |  | Deficit       |   |           | Loss           |  |   | Equity                        |   |  | Interest |         |   | Equity |  
|                                                              |  |                 |   |  |              |   |   |         |  |  |             |  |  |               |        |  |               |   |           |                |  |   |                               |   |  |          |         |   |        |  
|Balance at November 6, 1996                                   |  |                 | - |  |              | $ | - |         |  |  | -           |  |  | $             | -      |  |               | $ | -         |                |  | $ | -                             |   |  | $        | -       |   |        | $
|Issuance of common stock                                      |  |                 | - |  |              |   | - |         |  |  | 200,000     |  |  |               | 200    |  |               |   | 2,300     |                |  |   | -                             |   |  |          | -       |   |        |  
|Net loss for the period ended December 31,
    1996           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (50                           | ) |  |          | -       |   |        |  
|Balance at December 31, 1996                                  |  |                 | - |  |              |   | - |         |  |  | 200,000     |  |  |               | 200    |  |               |   | 2,300     |                |  |   | (50                           | ) |  |          | -       |   |        |  
|Issuance of common stock                                      |  |                 | - |  |              |   | - |         |  |  | 19,000      |  |  |               | 19     |  |               |   | 9,481     |                |  |   | -                             |   |  |          | -       |   |        |  
|Net loss for the period ended December 31,
    1997           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (1,661                        | ) |  |          | -       |   |        |  
|Balance at December 31, 1997                                  |  |                 | - |  |              |   | - |         |  |  | 219,000     |  |  |               | 219    |  |               |   | 11,781    |                |  |   | (1,711                        | ) |  |          | -       |   |        |  
|Issuance of common stock                                      |  |                 | - |  |              |   | - |         |  |  | 81,000      |  |  |               | 81     |  |               |   | 35,419    |                |  |   | -                             |   |  |          | -       |   |        |  
|Net loss for the period ended December 31,
    1998           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (4,942                        | ) |  |          | -       |   |        |  
|Balance at December 31, 1998                                  |  |                 | - |  |              |   | - |         |  |  | 300,000     |  |  |               | 300    |  |               |   | 47,200    |                |  |   | (6,653                        | ) |  |          | -       |   |        |  
|Net loss for the period ended December 31,
    1999           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (2,243                        | ) |  |          | -       |   |        |  
|Balance at December 31, 1999                                  |  |                 | - |  |              |   | - |         |  |  | 300,000     |  |  |               | 300    |  |               |   | 47,200    |                |  |   | (8,896                        | ) |  |          | -       |   |        |  
|Net loss for the period ended December 31,
    2000           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (40,957                       | ) |  |          | -       |   |        |  
|Balance at December 31, 2000                                  |  |                 | - |  |              |   | - |         |  |  | 300,000     |  |  |               | 300    |  |               |   | 47,200    |                |  |   | (49,853                       | ) |  |          | -       |   |        |  
|Net loss for the period ended December 31,
    2001           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (15,669                       | ) |  |          | -       |   |        |  
|Balance at December 31, 2001                                  |  |                 | - |  |              |   | - |         |  |  | 300,000     |  |  |               | 300    |  |               |   | 47,200    |                |  |   | (65,522                       | ) |  |          | -       |   |        |  
|Net loss for the period ended December 31,
    2002           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (13,921                       | ) |  |          | -       |   |        |  
|Balance at December 31, 2002                                  |  |                 | - |  |              |   | - |         |  |  | 300,000     |  |  |               | 300    |  |               |   | 47,200    |                |  |   | (79,443                       | ) |  |          | -       |   |        |  
|Net loss for the period ended December 31,
    2003           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (20,946                       | ) |  |          | -       |   |        |  
|Balance at December 31, 2003                                  |  |                 | - |  |              |   | - |         |  |  | 300,000     |  |  |               | 300    |  |               |   | 47,200    |                |  |   | (100,389                      | ) |  |          | -       |   |        |  
|Conversion of note payable                                    |  |                 | - |  |              |   | - |         |  |  | 80,000      |  |  |               | 80     |  |               |   | 5,088     |                |  |   | -                             |   |  |          | -       |   |        |  
|Net loss for the period ended December 31,
    2004           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (2,129                        | ) |  |          | -       |   |        |  
|Balance at December 31, 2004                                  |  |                 | - |  |              |   | - |         |  |  | 380,000     |  |  |               | 380    |  |               |   | 52,288    |                |  |   | (102,518                      | ) |  |          | -       |   |        |  
|Issuance of common stock                                      |  |                 | - |  |              |   | - |         |  |  | 580,000     |  |  |               | 580    |  |               |   | 6,670     |                |  |   | -                             |   |  |          | -       |   |        |  
|Net loss for the period ended December 31,
    2005           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (19,843                       | ) |  |          | -       |   |        |  
|Balance at December 31, 2005                                  |  |                 | - |  |              |   | - |         |  |  | 960,000     |  |  |               | 960    |  |               |   | 58,958    |                |  |   | (122,361                      | ) |  |          | -       |   |        |  
|Issuance of common stock                                      |  |                 | - |  |              |   | - |         |  |  | 80,000      |  |  |               | 80     |  |               |   | 5,468     |                |  |   | -                             |   |  |          | -       |   |        |  
|Imputed interest on shareholder advances                      |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | 3,409     |                |  |   | -                             |   |  |          | -       |   |        |  
|Net loss for the period ended December 31,
    2006           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (18,353                       | ) |  |          | -       |   |        |  
|Balance at December 31, 2006                                  |  |                 | - |  |              |   | - |         |  |  | 1,040,000   |  |  |               | 1,040  |  |               |   | 67,835    |                |  |   | (140,714                      | ) |  |          | -       |   |        |  
|Issuance of common stock                                      |  |                 | - |  |              |   | - |         |  |  | 80,000      |  |  |               | 80     |  |               |   | 5,722     |                |  |   | -                             |   |  |          | -       |   |        |  
|Imputed interest on shareholder advances                      |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | 5,235     |                |  |   | -                             |   |  |          | -       |   |        |  
|Net loss for the period ended December 31,
    2007           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (20,363                       | ) |  |          | -       |   |        |  
|Balance at December 31, 2007                                  |  |                 | - |  |              |   | - |         |  |  | 1,120,000   |  |  |               | 1,120  |  |               |   | 78,792    |                |  |   | (161,077                      | ) |  |          | -       |   |        |  
|Issuance of common stock                                      |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | 6,876     |                |  |   | -                             |   |  |          | -       |   |        |  
|Net loss for the period ended December 31,
    2008           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (40,425                       | ) |  |          | -       |   |        |  
|Balance at December 31, 2008                                  |  |                 | - |  |              |   | - |         |  |  | 1,120,000   |  |  |               | 1,120  |  |               |   | 85,668    |                |  |   | (201,502                      | ) |  |          | -       |   |        |  
|Issuance of common stock                                      |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | 8,888     |                |  |   | -                             |   |  |          | -       |   |        |  
|Net loss for the period ended December 31,
    2009           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (24,105                       | ) |  |          | -       |   |        |  
|Balance at December 31, 2009                                  |  |                 | - |  |              |   | - |         |  |  | 1,120,000   |  |  |               | 1,120  |  |               |   | 94,556    |                |  |   | (225,607                      | ) |  |          | -       |   |        |  
|Issuance of common stock                                      |  |                 | - |  |              |   | - |         |  |  | 19,080,000  |  |  |               | 19,080 |  |               |   | 80,920    |                |  |   | -                             |   |  |          | -       |   |        |  
|Exercise of warrants                                          |  |                 | - |  |              |   | - |         |  |  | 269,636     |  |  |               | 270    |  |               |   | 1,830     |                |  |   | -                             |   |  |          | -       |   |        |  
|Stock-based compensation                                      |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | 304,977   |                |  |   | -                             |   |  |          | -       |   |        |  
|Forgiveness of debt to a shareholder                          |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | 41,196    |                |  |   | -                             |   |  |          | -       |   |        |  
|Conversion of notes payable                                   |  |                 | - |  |              |   | - |         |  |  | 80,001      |  |  |               | 80     |  |               |   | 6,359     |                |  |   | -                             |   |  |          | -       |   |        |  
|Issuance of stock warrants in connection with
    debt issued |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | 2,733,507 |                |  |   | -                             |   |  |          | -       |   |        |  
|Foreign currency translation adjustment                       |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | -                             |   |  |          | (81,666 | ) |        |  
|Net loss for the period ended December 31,
    2010           |  |                 | - |  |              |   | - |         |  |  | -           |  |  |               | -      |  |               |   | -         |                |  |   | (2,213,320                    | ) |  |          | -       |   |        |  
|Balance at December 31, 2010                                  |  |                 | - |  |              |   | - |         |  |  | 20,549,637  |  |  | $             | 20,550 |  |               | $ | 3,263,345 |                |  | $ | (2,438,927                    | ) |  | $        | (81,666 | ) |        | $



See accompanying notes to consolidated financial statements.





43







COLOMBIA ENERGY RESOURCES,
INC. AND SUBSIDIARIES

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF
STOCKHOLDER’S EQUITY



|                                                                                                         |  |                 |           |   |              |   |       |         |  |  |             |  |  |               |        |  |               |   |            | Accumulated    |  |   | Total                         |   |  |          |          |   |        |  
|-------------------------------------------------------------------------------------------------------- |  | --------------- | --------- | - | ------------ | - | ----- | ------- |  |  | ----------- |  |  | ------------- | ------ |  | ------------- | - | ---------- | -------------- |  | - | ----------------------------- | - |  | -------- | -------- | - | ------ | -
|                                                                                                         |  |                 |           |   |              |   |       |         |  |  |             |  |  | Additional    |        |  |               |   |            | Other          |  |   | Colombia Energy Resouces, Inc |   |  |          |          |   |        |  
|                                                                                                         |  | Preferred Stock |           |   | Common Stock |   |       | Paid In |  |  | Accumulated |  |  | Comprehensive |        |  | Stockholders' |   |            | Noncontrolling |  |   | Total                         |  
|                                                                                                         |  | Shares          |           |   | Amount       |   |       | Shares  |  |  | Amount      |  |  | Capital       |        |  | Deficit       |   |            | Loss           |  |   | Equity                        |   |  | Interest |          |   | Equity |  
|                                                                                                         |  |                 |           |   |              |   |       |         |  |  |             |  |  |               |        |  |               |   |            |                |  |   |                               |   |  |          |          |   |        |  
|Balance at December 31, 2010                                                                             |  |                 | -         |   |              |   | -     |         |  |  | 20,549,637  |  |  | $             | 20,550 |  |               | $ | 3,263,345  |                |  | $ | (2,438,927                    | ) |  | $        | (81,666  | ) |        | $
|                                                                                                         |  |                 |           |   |              |   |       |         |  |  |             |  |  |               |        |  |               |   |            |                |  |   |                               |   |  |          |          |   |        |  
|Issuance of Series A preferred stock (net of
    issuance costs of $1,139,855)                           |  |                 | 2,200,000 |   |              |   | 2,200 |         |  |  | -           |  |  |               | -      |  |               |   | 20,857,945 |                |  |   | -                             |   |  |          | -        |   |        |  
|                                                                                                         |  |                 |           |   |              |   |       |         |  |  |             |  |  |               |        |  |               |   |            |                |  |   |                               |   |  |          |          |   |        |  
|Conversion of notes payable and embedded conversion
    feature (net of related discounts of $2,233,692) |  |                 | 730,500   |   |              |   | 731   |         |  |  | -           |  |  |               | -      |  |               |   | 5,781,681  |                |  |   | -                             |   |  |          | -        |   |        |  
|                                                                                                         |  |                 |           |   |              |   |       |         |  |  |             |  |  |               |        |  |               |   |            |                |  |   |                               |   |  |          |          |   |        |  
|Inducement expense for conversion of notes payable                                                       |  |                 | -         |   |              |   | -     |         |  |  | -           |  |  |               | -      |  |               |   | 682,753    |                |  |   | -                             |   |  |          | -        |   |        |  
|                                                                                                         |  |                 |           |   |              |   |       |         |  |  |             |  |  |               |        |  |               |   |            |                |  |   |                               |   |  |          |          |   |        |  
|Conversion of Series A preferred stock                                                                   |  |                 | (30,000   | ) |              |   | (30   | )       |  |  | 150,000     |  |  |               | 150    |  |               |   | (120       | )              |  |   | -                             |   |  |          | -        |   |        |  
|                                                                                                         |  |                 |           |   |              |   |       |         |  |  |             |  |  |               |        |  |               |   |            |                |  |   |                               |   |  |          |          |   |        |  
|Exercise of warrants                                                                                     |  |                 | -         |   |              |   | -     |         |  |  | 678,000     |  |  |               | 678    |  |               |   | 10,502     |                |  |   | -                             |   |  |          | -        |   |        |  
|Cashless exercise of warrants                                                                            |  |                 | -         |   |              |   | -     |         |  |  | 1,673,506   |  |  |               | 1,673  |  |               |   | (1,673     | )              |  |   | -                             |   |  |          | -        |   |        |  
|                                                                                                         |  |                 |           |   |              |   |       |         |  |  |             |  |  |               |        |  |               |   |            |                |  |   |                               |   |  |          |          |   |        |  
|Cash dividends paid                                                                                      |  |                 | -         |   |              |   | -     |         |  |  | -           |  |  |               | -      |  |               |   | -          |                |  |   | (474,217                      | ) |  |          | -        |   |        |  
|Stock dividends issued -                                                                                 |  |                 | -         |   |              |   | -     |         |  |  | 475,863     |  |  |               | 476    |  |               |   | 730,188    |                |  |   | (730,664                      | ) |  |          | -        |   |        |  
|Preferred deemed dividend issuance                                                                       |  |                 | -         |   |              |   | -     |         |  |  | -           |  |  |               | -      |  |               |   | 9,134,754  |                |  |   | (9,134,754                    | ) |  |          | -        |   |        |  
|                                                                                                         |  |                 |           |   |              |   |       |         |  |  |             |  |  |               |        |  |               |   |            |                |  |   |                               |   |  |          |          |   |        |  
|Stock-based compensation                                                                                 |  |                 | -         |   |              |   | -     |         |  |  | -           |  |  |               | -      |  |               |   | 892,899    |                |  |   | -                             |   |  |          | -        |   |        |  
|Issuance stock for services                                                                              |  |                 | -         |   |              |   | -     |         |  |  | 10,000      |  |  |               | 10     |  |               |   | 20,077     |                |  |   | -                             |   |  |          | -        |   |        |  
|                                                                                                         |  |                 |           |   |              |   |       |         |  |  |             |  |  |               |        |  |               |   |            |                |  |   |                               |   |  |          |          |   |        |  
|Acquisition of Ruku Business                                                                             |  |                 | -         |   |              |   | -     |         |  |  | -           |  |  |               | -      |  |               |   | -          |                |  |   | -                             |   |  |          | -        |   |        |  
|                                                                                                         |  |                 |           |   |              |   |       |         |  |  |             |  |  |               |        |  |               |   |            |                |  |   |                               |   |  |          |          |   |        |  
|Foreign currency translation adjustment                                                                  |  |                 | -         |   |              |   | -     |         |  |  | -           |  |  |               | -      |  |               |   | -          |                |  |   | -                             |   |  |          | (124,215 | ) |        |  
|                                                                                                         |  |                 |           |   |              |   |       |         |  |  |             |  |  |               |        |  |               |   |            |                |  |   |                               |   |  |          |          |   |        |  
|Net loss for the period ended December 31,
    2011                                                      |  |                 | -         |   |              |   | -     |         |  |  | -           |  |  |               | -      |  |               |   | -          |                |  |   | (12,959,993                   | ) |  |          | -        |   |        |  
|Balance at December 31, 2011                                                                             |  |                 | 2,900,500 |   |              | $ | 2,901 |         |  |  | 23,537,006  |  |  | $             | 23,537 |  |               | $ | 41,372,351 |                |  | $ | (25,738,555                   | ) |  | $        | (205,881 | ) |        | $

See accompanying notes to consolidated financial statements.









44







COLOMBIA ENERGY RESOURCES,
INC. AND SUBSIDIARIES

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF
CASH FLOWS



|                                                                                                                          |  |                     |             |   |                      |   |            | From inception on | 
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ----------- | - | -------------------- | - | ---------- | ----------------- | 
|                                                                                                                          |  | For the years ended |             |   | November 6, 1996     |  
|                                                                                                                          |  | December 31,        |             |   | through December 31, |  
|                                                                                                                          |  | 2011                |             |   | 2010                 |   |            | 2011              | 
|Cash flows from operating activities:                                                                                     |  |                     |             |   |                      |   |            |                   | 
|Net loss                                                                                                                  |  | $                   | (12,959,993 | ) |                      | $ | (2,213,320 | )                 | 
|Adjustments to reconcile net loss to net cash used in operating activities:                                               |  |                     |             |   |                      |   |            |                   | 
|Stock-based compensation                                                                                                  |  |                     | 912,986     |   |                      |   | 304,977    |                   | 
|Amortization of discount on notes payable                                                                                 |  |                     | 1,602,080   |   |                      |   | 364,933    |                   | 
|Amortization of debt issuance cost                                                                                        |  |                     | 319,660     |   |                      |   | 58,620     |                   | 
|Inducement expenses for conversion of convertible notes payable                                                           |  |                     | 682,753     |   |                      |   | -          |                   | 
|Unrealized loss(gain) on change in fair value of derivative liability-embedded conversion feature                         |  |                     | 18,560      |   |                      |   | (256,000   | )                 | 
|Depreciation                                                                                                              |  |                     | 65,043      |   |                      |   | -          |                   | 
|Changes in assets and liabilities:                                                                                        |  |                     |             |   |                      |   |            |                   | 
|Prepaid expenses and other current assets                                                                                 |  |                     | (1,078,173  | ) |                      |   | (579,503   | )                 | 
|Accounts payable and accrued expenses                                                                                     |  |                     | 519,845     |   |                      |   | 1,174,715  |                   | 
|Other assets                                                                                                              |  |                     | (74,205     | ) |                      |   | (223,638   | )                 | 
|Accrued interest payable                                                                                                  |  |                     | (18,330     | ) |                      |   | 110,845    |                   | 
|Net cash used in operating activities                                                                                     |  |                     | (10,009,774 | ) |                      |   | (1,258,371 | )                 | 
|                                                                                                                          |  |                     |             |   |                      |   |            |                   | 
|Cash flows from investing activities:                                                                                     |  |                     |             |   |                      |   |            |                   | 
|Acquistion of mineral rights, mining concessions and property and equipment                                               |  |                     | (3,968,276  | ) |                      |   | (1,658,692 | )                 | 
|Net cash used in investing activities                                                                                     |  |                     | (3,968,276  | ) |                      |   | (1,658,692 | )                 | 
|                                                                                                                          |  |                     |             |   |                      |   |            |                   | 
|Cash flows from financing activities:                                                                                     |  |                     |             |   |                      |   |            |                   | 
|Proceeds from issuance of Series A preferred stock                                                                        |  |                     | 22,000,000  |   |                      |   | 8,000,000  |                   | 
|Preferred stock issuance cost                                                                                             |  |                     | (1,139,855  | ) |                      |   | -          |                   | 
|Proceeds from issuance of common stock                                                                                    |  |                     | -           |   |                      |   | 100,000    |                   | 
|Proceeds from exercise of stock warrants                                                                                  |  |                     | 11,180      |   |                      |   | 2,100      |                   | 
|Cash dividends paid                                                                                                       |  |                     | (474,217    | ) |                      |   | -          |                   | 
|Advance to (payment from) officer and shareholder                                                                         |  |                     | -           |   |                      |   | (75,804    | )                 | 
|Net cash provided by financing activities                                                                                 |  |                     | 20,397,108  |   |                      |   | 8,026,296  |                   | 
|                                                                                                                          |  |                     |             |   |                      |   |            |                   | 
|Net increase in cash before effect of currency exchange rates                                                             |  |                     | 6,419,058   |   |                      |   | 5,027,567  |                   | 
|Effect of currency exchange rates on cash                                                                                 |  |                     | (190,478    | ) |                      |   | (81,666    | )                 | 
|                                                                                                                          |  |                     |             |   |                      |   |            |                   | 
|Cash at beginning of period                                                                                               |  |                     | 5,027,656   |   |                      |   | 89         |                   | 
|Cash at end of period                                                                                                     |  | $                   | 11,256,236  |   |                      | $ | 5,027,656  |                   | 
|                                                                                                                          |  |                     |             |   |                      |   |            |                   | 
|Supplemental disclosure of cashflow information:                                                                          |  |                     |             |   |                      |   |            |                   | 
|Interest paid                                                                                                             |  | $                   | 433,486     |   |                      | $ | -          |                   | 
|                                                                                                                          |  |                     |             |   |                      |   |            |                   | 
|Supplemental disclosure of noncash financial information:                                                                 |  |                     |             |   |                      |   |            |                   | 
|Deemed dividend on Series A preferred stock                                                                               |  | $                   | 9,134,754   |   |                      | $ | -          |                   | 
|Conversion of the carrying value of notes payable and embedded derivative (net of discount) into Series A preferred stock |  | $                   | 5,782,412   |   |                      | $ | -          |                   | 
|Stock dividends issued in commons stock                                                                                   |  | $                   | 730,664     |   |                      | $ | -          |                   | 
|Reversal of unamortized debt issuance cost pertaining to notes payable converted to Series A preferred stock              |  | $                   | 667,808     |   |                      | $ | -          |                   | 
|Contingent earn out liability and non-controling interest issued in Ruku acquisition                                      |  | $                   | 4,040,828   |   |                      | $ | -          |                   | 
|Inducement expense                                                                                                        |  | $                   | 682,753     |   |                      |   |            |                   | 
|Initial fair value of of derivative liability-embedded conversion feature                                                 |  | $                   | -           |   |                      | $ | (3,072,000 | )                 | 
|Issuance of stock warrants in connection with debt                                                                        |  | $                   | -           |   |                      | $ | (2,733,508 | )                 | 
|Issuance of common stock in connection with conversion of note payable                                                    |  | $                   | -           |   |                      | $ | (6,439     | )                 | 
|Extinguishment of payable to a related party                                                                              |  | $                   | -           |   |                      | $ | 41,196     |                   | 

See accompanying notes to consolidated financial statements.



45







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 1. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| | -- | -----------------------------------------------------------



Description of Business and Principles
of Consolidation



Colombia Energy Resources, Inc. (the “Company”)
is engaged in the business of acquiring and developing coal mining assets, and mining and selling metallurgical coal in the Republic
of Colombia, South America. The Company owns and controls mining concessions in the provinces of Boyaca and Santander regions.



Although the Company commenced limited
production in December 2011, it is still considered an exploration stage company under the criteria set forth by the Securities
and Exchange Commission (“SEC”) since it has not yet demonstrated the existence of proven or probable reserves, as
defined by the SEC, at its Rukú Mining Complex in Socota, Colombia or at any of its other properties. As a result, and in
accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for exploration
stage companies, all expenditures for exploration and evaluation of the Company’s properties are expensed as incurred and
unless mineralized material is classified as proven or probable reserves, substantially all expenditures for mine and exploration
activities have been and will continue to be expensed as incurred. Certain expenditures, such as for mining equipment or other
general-purpose equipment, may be capitalized, subject to evaluation of the possible impairment of the asset. The Company expects
to remain as an exploration stage company for the foreseeable future, even though it has reached commercial production. The Company
will not exit the exploration stage unless and until it demonstrates the existence of proven or probable reserves that meet the
SEC guidelines.



The definition of proven and probable reserves
is set forth in SEC Industry Guide 7. Proven reserves are reserves for which (a) quantity is computed from dimensions revealed
in outcrops, trenches, workings or drill holes; (b) grade and/or quality are computed from the results of detailed sampling; and
(c) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that
size, shape, depth and mineral content of reserves are well-established. Probable reserves are reserves for which quantity and
grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling,
and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for
proven reserves, is high enough to assume continuity between points of observation. In addition, reserves cannot be considered
proven and probable until they are supported by a feasibility study, indicating that the reserves have had the requisite geologic,
technical and economic work performed and are economically and legally extractable at the time of the reserve determination.



The Company’s current operations
are focused on production, exploration and development activities. The Company has retained leading engineering and geological
services firms in the U.S. and Colombia to conduct exploration work in selected concessions owned by the Company. The Company’s
team of executives, advisors and partners is comprised of experienced entrepreneurs and business professionals in U.S. and Colombia
that have a broad breadth of experience in coal mining and substantial industry relationships.



Through its wholly-owned subsidiaries,
the Company owns 100% of Colombia Clean Power S.A.S. (formerly known as Energia Andina Santander Resources S.A.S.), a Colombian
company established to acquire and develop coal concessions. Colombia Clean Power S.A.S.’ corporate offices are located in
Bogota, Colombia.



The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.



Company History and Basis of Reporting



The Company was incorporated in the State
of Nevada on November 6, 1996 under the name “Freedom Resources Enterprises, Inc.” to engage in the business of self-help
publications and workshops. Between November 1996 and September 2005 the Company generated minimal revenues, and in October 2005,
the Company ceased all business operations. From October 2005 to early May 2010, the Company did not engage in any business activities.
Prior to this period, the Company’s management had been evaluating potential business opportunities that might be available
to the Company to preserve its shareholders’ investment in its common shares.



46







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



On May 6, 2010, the Company entered into
a subscription agreement (the “Subscription Agreement”) with LIFE Power & Fuels, LLC (“LIFE”), pursuant
to which it issued to LIFE 19,080,000 (post-split) shares of its common stock, which shares represented approximately 94.1% of
its issued and outstanding shares of common stock at such time, elected one new director to its board of directors and changed
its management team. Concurrently with the closing of the transactions contemplated by the Subscription Agreement, the Company
ceased to be a shell company, as defined in Rule 12b-2 of the Exchange Act, and adopted a new plan of operations. See Note 5. Subsequently,
LIFE sold approximately 4,800,000 shares of the Company's common stock to certain related parties. Also, in March 2011, LIFE distributed
2,159,996 shares of the Company’s common stock to LIFE’s limited partner investors. As of December 31, 2011, LIFE owned
approximately 26.7% (adjusted for dilution of shares) of the outstanding shares of the Company.



On July 28, 2010, the Company affected
a reverse stock split of two shares for every five shares of common stock outstanding. Accordingly, outstanding shares and share
price of common stock and stock options were adjusted to account for the effects of the reverse stock split.



Effective July 28, 2010, the Company changed
its name from Freedom Resources Enterprises, Inc. to “Colombia Clean Power & Fuels, Inc.”



In 2011 we completed a non-public offering
of units in which each unit consisted of 10,000 shares of Series A Preferred Stock convertible into an aggregate of 50,000 shares
of common stock at any time and a five-year stock purchase warrant entitling the holder thereof to purchase 3,500 shares of Common
Stock for $.001 per share. Certain holders of 10% convertible promissory notes in the aggregate amount of $7,305,000 converted
their notes into 730,500 shares of Series A Preferred Stock and were also granted warrants to purchase 255,675 shares of our common
stock.   In addition, the Company issued an aggregate of 2,200,000 shares of Series A Preferred Stock and warrants to
purchase 1,022,175 shares of Common Stock in consideration of aggregate cash proceeds of $22,000,000. Aggregate cash fees of $1,139,855
were paid to the placement agents.  In addition, the placement agents were issued five-year warrants, substantially similar
to the warrants sold in the offering, to purchase an aggregate of 480,000 shares of common stock for an exercise price of $2.00
per share. The securities sold in this offering have not been registered under the Securities Act and may not be offered or sold
in the United States absent registration or an applicable exemption from registration requirements.



On September 6, 2011, shareholders owning
a majority of the voting control of the Company authorized, by written consent, an amendment to the articles of incorporation to
change the name of the Company from “Colombia Clean Power & Fuels, Inc.” to “Colombia Energy Resources, Inc.”
and authorized the change of domicile of the Company from the State of Nevada to the State of Delaware through the merger of the
Company with and into a Delaware corporation formed solely for the purpose of changing domicile. The effective date of the change
of domicile and name change was November 4, 2011.



On November 7, 2011, the quotation of the
Company’s common stock on the OTC QX was approved.



Going Concern



The accompanying consolidated financial
statements have been prepared in conformity with U.S. GAAP which contemplate continuation of the Company as a going concern. The
Company has incurred recurring loses since the date of inception that resulted in an accumulated deficit attributable to common
stockholders of approximately $25,738,555 as of December 31, 2011. Although the Company had $11,256,236 of available cash at December
31, 2011, that amount is not adequate to meet its capital expenditures and operating requirements over the next 12 months. In addition,
the Company is dependent upon obtaining funds from investors. These factors raise substantial doubt about the ability of the Company
to continue as a going concern. Management plans to raise additional funds through issuance of notes or shares of stock in 2012
in order to meet its capital expenditures and operating requirements. However, there is no assurance that the Company will be successful
in raising the additional funds it needs. The consolidated financial statements do not include any adjustments that might result
from the outcome of these uncertainties.



47







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Use of Estimates



The preparation of the consolidated financial
statements in conformity with U.S. GAAP 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 reporting period. Actual results could differ from those estimates.



Cash and Cash Equivalents



The Company considers all highly-liquid
investments with maturities of three months or less at the date of purchase to be cash equivalents. As of December 31, 2011 and
2010, there were no cash equivalents.



Other Current Assets and Other Assets



Other current assets and other assets include
direct expenses incurred, including the fair value of stock warrants issued to brokers, as a result of the Company’s Note
financing (see Note 4). Placement agent fees and other direct costs incurred in this transaction are being amortized over the life
of the Notes.



Property and Equipment



Property and equipment, which include ten
mining concessions in the states of Santander and Boyaca, Colombia and construction in progress, are stated at cost. At December
31, 2011 and 2010, construction in progress was $820,800 and $30,000 on energy park and coke plant feasibility studies. Mining
concessions will be amortized using the units-of-production method based upon recoverable proven and probable reserves of the mine
and when the Company commences operation. Equipment is depreciated using the straight-line method over the estimated useful life
of the asset of 5 years. Repairs and maintenance are charged to expense as incurred, and costs of significant renewals and improvements
are capitalized.



Depreciation expense for the year ended
December 31, 2011 and 2010 was $65,043 and nil, respectively.



Impairment of Long-Lived Assets



Long-lived assets, such as property and
equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
or asset group may not be recoverable. Events that trigger a test for recoverability include material adverse changes in projected
revenues and expenses, significant underperformance relative to historical or projected future operating results, and significant
negative industry or economic trends. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of
an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount
of the asset exceeds the fair value of the asset. The Company did not recognize any impairment charges during the periods presented.



Mineral Exploration and Development
Costs



The Company accounts for mineral exploration
costs in accordance with Accounting Standards Codification (ASC) No. 932, Extractive Activities. All exploration expenditures
are expensed as incurred. Expenditures to acquire new mines (e.g. purchase of mining concessions), to define further mineralization
in existing ore bodies, and to expand the capacity of operating mines, are capitalized and will be amortized on a units of production
basis over proven and probable reserves.



48







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Derivative Instruments



The Company issued convertible notes payable
that are considered hybrid financial instruments that blend the characteristics of both equity and debt securities. They embody
settlement alternatives available to the holder providing for either redemption of the principal and interest for cash at maturity
(“Forward Component”) or conversion into the Company’s common stock (“Embedded Conversion Feature”
or “ECF”).  The convertible notes payable also embody contingent equity-linked share price protections on
the ECF in the form of down-round, anti-dilution adjustments to the conversion price during the term to maturity. The Company determined
that the convertible notes payable contain an embedded derivative feature that is bifurcated and accounted for as a derivative
instrument in accordance with ASC No. 815-40, Derivatives and Hedging-Contracts in Entity’s Own Equity. The embedded
conversion feature is carried at fair value and marked-to-market at the end of each reporting period. The Company uses the binomial
lattice model to estimate the fair value of the embedded conversion feature. See Note 4.



Foreign Currency Translation



The Company and its wholly-owned Dutch
and Spanish subsidiaries, Energia Andina Santander Resources Coop UA and Energia Andina Resources España, S.L., maintain
accounting records using U.S. dollars. Colombia Clean Power S.A.S., the Company’s principal Colombian subsidiary, maintains
accounting records using the Colombian Peso.



The financial statements of Colombia Clean
Power S.A.S. are translated into U.S. dollars using the closing rate method. The balance sheet items are translated into U.S. dollars
using the exchange rates at the respective balance sheet dates. The capital account is translated at the historical exchange rate
prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the
year. All exchange differences are presented as currency translation adjustment within the “consolidated statements of stockholders
equity”. The foreign currency translation gain or loss resulting from the translation of the financial statements expressed
in Colombian Pesos to U.S. dollars is reported as a currency translation adjustment and as a component of “other comprehensive
income (loss)” in the consolidated financial statements.



Earnings (Loss) Per Share



Earnings (loss) per share are presented
in accordance with the provisions of the ASC No. 260, Earnings Per Share. ASC No. 260 requires presentation of basic and
diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share.



Basic earnings (loss) per share excludes
dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average common shares outstanding
during the period. Diluted earnings (loss) per share takes into account the potential dilution that could occur if securities or
other contracts to issue common stock were exercised and converted into common stock using the treasury method. The basic and diluted
earnings (loss) per share are the same for the years ended December 31, 2011 and 2010 because the Company was in a net loss position.



The Company’s issued and outstanding
common shares as of December 31, 2011 do not include the underlying shares exercisable with respect to the 1,704,600 outstanding
warrants exercisable at $0.01 per share. However, the Company has given effect to the issuance of these warrants in computing basic
loss per share in accordance with ASC No. 260.



As of December 31, 2011, the Company had
outstanding stock warrants and stock options exercisable to purchase, and convertible notes and convertible preferred stock that
were convertible into an aggregate of 21,313,571 shares of common stock that were considered anti-dilutive because of the net
loss.



Segments



The Company operates in one business segment.
The Company and its subsidiaries’ assets are located primarily in the United States of America and in Colombia.



As of December 31, 2011, approximately
$11.7 million and $12.2 million of the Company’s assets are in Colombia and in the United States, respectively. As of December
31, 2010, approximately $2.0 million and $6.2 million of the Company’s assets were in Colombia and in the United States,
respectively.



49







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The net loss in Colombia and in the United
States was approximately $5.4 million and $7.6 million during the year ended December 31, 2011. The net loss in Colombia and in
the United States was approximately $584 thousand and $1.6 million during the year ended December 31, 2010.



Reclassification



Certain balances in the prior period’s
financial statements were reclassified to conform to the current period’s presentation.



Concentration
of Credit Risk



Financial instruments that potentially
subject the Company to a concentration of credit risk consist of cash and cash equivalents. Cash and cash equivalents are deposited
with high credit quality financial institutions to minimize credit risk; however, the Company may periodically exceed federal deposit
insurance limits.



Income
Taxes



Income taxes are accounted for under the
asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
periods in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change
in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded to reduce
the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized.



The Company recognizes liabilities for
uncertain positions based upon the provisions of ASC No. 740, Income Taxes. The Company recognizes the effect of income
tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured
at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in
the period in which the change in judgment occurs. The Company accounts for interest and penalties generated by income tax contingencies
as interest expense in the consolidated statements of operations.



The Company’s subsidiaries are subject
to foreign taxation.



Share-Based
Compensation



The Company accounts for share-based compensation
in accordance with ASC No. 718, Compensation-Stock Compensation, which establishes accounting for stock-based awards exchanged
for employee services. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award,
and is recognized as expense on a straight-line basis over the employee requisite service period, which is generally four years.
The Company’s stock compensation is generally accounted for as an equity instrument.



ASC No. 718 requires forfeitures to be
estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures differ from those estimates.
Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also
impact the amount of compensation expense to be recognized in future periods.



Fair
Value of Financial Instruments



For financial instruments consisting of
cash and cash equivalents, accounts payable and accrued liabilities, the carrying amounts are reasonable estimates of fair value
due to their relative short maturities. Based on borrowing rates available to the Company, the convertible notes payable approximate
their fair value. The fair value of derivative liability was determined using Level 3 inputs described below.



50







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The Company adopted amendments to the accounting
standard addressing the measurement of the fair value of financial assets and financial liabilities. Under this standard, fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”)
in an orderly transaction between market participants at the measurement date.



In determining fair values of all reported
assets and liabilities that represent financial instruments, the Company uses the carrying market values of such amounts. The standard
establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use
of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect assumptions
market participants would use in pricing an asset or liability based on market data obtained from independent sources. Unobservable
inputs reflect a reporting entity’s pricing an asset or liability developed based on the best information available in the
circumstances. The fair value hierarchy consists of the following three levels:



Level 1–instrument
valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets.



Level 2–instrument
valuations are obtained from readily-available pricing sources for comparable instruments.



Level 3–instrument
valuations are obtained without observable market values and require a high-level of judgment to determine the fair value.



At December 31, 2010, the Company’s
only financial liability, embedded conversion feature, was carried at fair value using Level 3 inputs and totaled $2,816,000. The
financial instrument that is measured at fair value on a recurring basis is summarized as follows as of December 31, 2011:



|                                                       |  | Level 1 |   |  | Level 2 |   |   | Level 3 |  |   | Total   | 
|------------------------------------------------------ |  | ------- | - |  | ------- | - | - | ------- |  | - | ------- | 
|Liabilities                                            |  |         |   |  |         |   |   |         |  |   |         | 
|Derivative liability - embedded conversion
    feature |  | $       | - |  |         | $ | - |         |  | $ | 264,000 | 



The following table shows the changes in
Level 3 liability measured at fair value on a recurring basis for the year ended December 31, 2011:





|                                                                                    |  | Derivative  |            |   |         |  
|----------------------------------------------------------------------------------- |  | ----------- | ---------- | - | ------- | -
|                                                                                    |  | Liability - |            |   |         |  
|                                                                                    |  | Embedded    |            |   |         |  
|                                                                                    |  | Conversion  |            |   | Total   |  
|                                                                                    |  | Feature     |            |   | Level 3 |  
|Balance, December 31, 2010                                                          |  | $           | 2,816,000  |   |         | $
|Amount of unamortized discount reversed in connection with notes payable conversion |  |             | (2,570,560 | ) |         |  
|Unrealized loss on change in fair value                                             |  |             | 18,560     |   |         |  
|Balance, December 31, 2011                                                          |  | $           | 264,000    |   |         | $



Recent Accounting Pronouncements



There were no accounting pronouncements
or changes in accounting pronouncements during the year ended December 31, 2011, that are of significance to the Company.



| | 2. | ACQUISITION OF MINING ASSETS
| | -- | ----------------------------



North Block Mining Project



On July 19, 2010 the Company entered into
an agreement to purchase two coal concessions (Ingeominas Titles GG7-111 and GG7-11522X). The concessions have been fully paid
for and are listed under the Company’s name on the official website of the Colombian mining authority, Ingeominas. Under
the terms of the contract, the Company will pay to the sellers a royalty payment of $2.00 per ton of coal extracted under the term
of the concession. This royalty payment applies to all coal mined by our Company from these concessions.



51







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



On October 20, 2010 the Company entered
into an agreement to purchase an additional coal concession (Ingeominas title FLG-092). The Company has paid to the seller $315,000
and owes an additional $1,200,000 payable in six payments of $200,000 every three months beginning August 2011. The first such
payment was made in installments with the last occurring on January 13, 2012. A portion of these amounts will offset against the
per ton royalty described below. In addition, the Company has paid to Ingeominas $114,502 which represents past due governmental
fees owed by the seller. Also, as per the terms of the contract, the Company will pay to the seller a royalty payment of $2.00
per ton of coal extracted under the term of the concession. This royalty payment applies to all coal mined by our Company from
this concession. 50% of this royalty is applied to amortize the $1,200,000 in concession payments.



Otanche Mining Project



On February 11, 2011, the Company made
a deposit of $100,000 to purchase three additional coal concessions in the state of Boyaca, Colombia. The aggregate purchase price
of these concessions was $2.50 million, $666,585 of which has been paid as of December 31, 2011. An amount of $222,277 was due
upon the Colombian Institute of Mining and Geology’s approval of a third mining license; this was paid on January 15, 2012.
An amount of $111,138 is due upon the earlier of the recording and publication of the assignment in the National Mining Register
or 90 days following the prior payment and the balance of $1,500,000 is payable in three payments of approximately $500,000 every
6 months thereafter. There will also be an ongoing royalty payment to the sellers of $2.75 per ton of coal mined.



Rukú Mining Complex



On August 22, 2011, the Company entered
into an agreement to purchase a 70% working interest in two coal mining concessions located near Socota, Colombia from Howerd Milton
Cubides Botia (the “Assignor”). The agreement also included the right to a concession being permitted and another one
in the process of being purchased. These concessions cover approximately 222 acres and included a coal mine that has been operating
for eighteen years producing metallurgical coal for the local market. In October 2011, the agreement was amended with both parties
agreeing that the Assignor would continue to provide capital and operating expenditures on the mining property through October
18, 2011. Thereafter, the Company gained operating control of the mining properties. Operating funds will be provided by each party
in proportion to its interest in the mining concessions, provided that the Company has agreed to fund the project in full and receive
50% of the proceeds allocable to the Assignor until the additional funds provided by us are repaid.



The following abbreviated unaudited pro
forma financial information has been prepared for illustrative purposes only. The unaudited pro forma results have been prepared
based on estimates and assumptions that we believe are reasonable; however, they are not necessarily indicative of the consolidated
results of operations had the Rukú acquisition occurred at the beginning of each of periods presented or of future results
of operations.



|                  |  | RUKU |         |  | COLOMBIA ENERGY RESOURCES, INC |   |             | TOTAL |  |   | RUKU        |   |  | COLOMBIA ENERGY RESOURCES, INC |         |  | TOTAL |  
|----------------- |  | ---- | ------- |  | ------------------------------ | - | ----------- | ----- |  | - | ----------- | - |  | ------------------------------ | ------- |  | ----- | -
|                  |  | 2011 |         |  | 2011                           |   |             | 2011  |  |   | 2010        |   |  | 2010                           |         |  | 2010  |  
|Revenue           |  | $    | 766,443 |  |                                | $ | -           |       |  | $ | 766,443     |   |  | $                              | 648,407 |  |       | $
|                  |  |      |         |  |                                |   |             |       |  |   |             |   |  |                                |         |  |       |  
|Net income (loss) |  | $    | 176,944 |  |                                | $ | (12,959,993 | )     |  | $ | (12,783,049 | ) |  | $                              | 158,675 |  |       | $



52







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The acquisition was considered a purchase
of a business and was accounted for as a purchase business combination effective when the Company obtained control of the mining
assets on October 18, 2011. Accordingly, the results of operations of the acquired business are included in the Company’s
consolidated financial statements beginning on October 18, 2011, the date when the Company obtained control of the mining assets.



The cost of acquiring the 70% interest
is based on a series of contingent payments over the next three years consisting of the number of proven tons of reserves as determined
by an independent engineer’s review of our exploration program multiplied by certain dollar amounts per ton. The Company
initially paid $500,000 to the Assignor upon signing of the agreement in August 2011. The Company determined the fair value at
October 18, 2011 of the mining rights and other assets acquired to be $4,541,502. This was allocated to the assets acquired and
liabilities assumed based on estimated fair values of the assets acquired and liabilities assumed. The purchase price allocation
was as follows:



|Assets Acquired and Liabilities Assumed: |  |   |           |  
|---------------------------------------- |  | - | --------- | -
|Property and equipment                   |  | $ | 827,238   |  
|Concession mining rights                 |  |   | 3,484,000 |  
|Goodwill                                 |  |   | 230,264   |  
|Taxes Payable                            |  |   | (674      | )
|                                         |  | $ | 4,540,828 |  
|Total Purchase Price:                    |  |   |           |  
|Cash Paid                                |  | $ | 500,000   |  
|Contingent Earnout Liabiliites           |  |   | 2,678,580 |  
|Noncontrolling Interest                  |  |   | 1,362,248 |  
|                                         |  |   |           |  
|                                         |  | $ | 4,540,828 |  





Boavita Mining Project



On October 7, 2011, our Colombian subsidiary
entered into an agreement (the “Option Agreement”) with Americana de Minerales de Exploracion S.A.S. (“AMERALEX”)
for the option to purchase all of the rights of AMERALEX in mining concession FFB-081 covering approximately 1,550 hectares (approximately
3,830 acres) located in the jurisdiction of the Municipalities of Boavita and La Uvita, Department of Boyacá, Republic of
Colombia (the “Boavita Mining Concession”). Once INGEOMINAS approves the mining plan, we have up to 24 months to conduct
exploration of the entire concession, evaluate and characterize the coal deposit, and exercise the option. The purchase price will
be determined based upon the determination of proven and probable reserves using standard methodology. We are obligated to pay
an agreed amount upon reaching a firm purchase arrangement and approval of the mining plan. We are obligated to pay an agreed amount
nine months after the first payment. Upon completion of the exploration work, and if we exercise the option to acquire the concession,
we are obligated to make an additional payment. Beginning 30 months after the initial payment under the Agreement, we are obligated
to make annual payments; however, the total aggregate purchase price will be limited to the final calculation of proven and probable
reserves, not to exceed an agreed maximum amount.



On December 27, 2011, we entered into
an operations agreement with AMERALEX which allows for the immediate start of mining operations on the Boavita Mining
Concession once INGEOMINAS, the Colombian state mining authority, approves the mining plan, which occurred on March 13, 2012.
As compensation to AMERALEX for this right, we paid  a cash fee on the date the agreement was entered into and have agreed to
pay an additional amount upon approval of the agreement by our company’s board of directors. We have also agreed to
pay AMERALEX a  royalty on monthly sales of which will be offset by the upfront payments.



53







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| | -- | -------------------------------------



Accounts payable and accrued liabilities
of $1,697,875 and $1,181,295 as of December 31, 2011 and 2010, respectively, are broken down as follows:



|                    |  | 2011 |           |  | 2010 |  
|------------------- |  | ---- | --------- |  | ---- | -
|Accounts payable    |  | $    | 601,128   |  |      | $
|Concession payables |  |      | 1,018,699 |  |      |  
|Accrued payroll     |  |      | 78,048    |  |      |  
|TOTAL               |  | $    | 1,697,875 |  |      | $



| | 4. | CONVERTIBLE NOTES PAYABLE
| | -- | -------------------------



In multiple closings, the most recent taking
place on December 21, 2010, the Company issued $8,000,000 aggregate principal amount of 10% convertible promissory notes (the “Notes”).
The proceeds of the Notes offering were used to fund exploration-stage activities of the Company, including the identification,
analysis and negotiation for coal resources in Colombia that meet the Company’s criteria for mining, processing and export
potential.



The Notes are secured by the Company’s
interest in the business operation of its subsidiary in Colombia. The Notes accrue interest at an annual rate of 10%. Principal
and interest are due on June 30, 2012. The Notes can be converted at any time into common stock at a rate equal to $2.50 of principal
for each share of common stock.



During the first closing of the Series
A Preferred Stock, the aggregate principal amount of $7,305,000 was converted to shares of Series A Preferred Stock. As of December
31, 2011 and 2010, the Company has $604,351 and $2,885,022, respectively, of Notes outstanding.



Notes are hybrid financial instruments
that blend characteristics of both equity and debt securities. They embody settlement alternatives available to the holder providing
for either redemption of the principal and interest for cash at maturity (“Forward Component”) or conversion into the
Company’s common stock (“Embedded Conversion Feature” or “ECF”).  The Notes also embody
contingent equity-linked share price protections on the ECF in the form of down-round, anti-dilution adjustments to the conversion
price during the term to maturity. As a result, the Company determined that the Notes contain certain embedded derivative features.
The Company’s evaluation resulted in the conclusion that the compound derivative financial instrument required bifurcation
and separately account for the embedded conversion option as a derivative liability, carried at fair value and marked-to-market
each period. The aggregate fair value of the embedded conversion feature was estimated at $3,072,000 on the date of issuance of
the Notes.  At December 31, 2011and 2010, the fair value of the embedded conversion feature was estimated at $264,000 and
$2,816,000 respectively. The fair value of the embedded conversion feature liability pertaining to the Notes that was converted
to preferred stock was adjusted as an increase in preferred stock. The initial value of the embedded conversion feature was recorded
as discount in notes payable and is being accreted to interest expense  through the maturity or conversion date of the Notes.
The balance of the unamortized discount related to the ECF was $75,366 and $2,826,103 as of December 31, 2011 and 2010, respectively.



At the closings
of the Notes issuance, the Company also issued to the Notes investors five-year warrants to purchase an aggregate of 3,200,000
shares of common stock for a purchase price of $0.01 per share. The total number of outstanding warrants issued in the Notes offering
was 726,000 and 3,270,640 as of December 31, 2011 and 2010 respectively. The stock warrants were initially recorded as discount
on notes payable and were allocated based upon their relative fair values on the date of the issuance, which aggregated to $2,388,790.
The fair value of the stock warrants were calculated using the Black-Scholes pricing model. The discount in notes payable is being
amortized to interest expense through the maturity or conversion date of the Notes. The portion of unamortized discount pertaining
to the Notes that were converted to preferred stock was adjusted as a reduction to preferred stock. The
balance of the unamortized discount related to the warrants was $15,282 and $2,269,753 as of December 31, 2011 and 2010, respectively.



54







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 5. | STOCKHOLDERS’ EQUITY
| | -- | --------------------



Subscription Agreement with LIFE



On May 6, 2010, the
Company entered into a Subscription Agreement with LIFE. Pursuant to the Subscription Agreement, the Company sold an aggregate
of 19,080,000 (post-split) shares (the “Shares”) of its common stock to LIFE for an aggregate purchase price of $100,000,
which funds were used to eliminate the Company’s then current liabilities. The Shares represented 94.1% of the Company’s
issued and outstanding shares of common stock immediately following the transaction, and the transaction resulted in a change in
control of the Company.



Reverse Stock Split



On July 28, 2010, the Company executed
a reverse stock split of its common stock in which two new shares of common stock were issued for every five shares of common stock
held as of the date of the reverse stock split. This reverse split has been applied retrospectively in the consolidated financial
statements.



Convertible Series A Preferred Stock



On June 1, 2011, the first closing of a
private placement of a minimum of 200 units and a maximum of 300 units for a purchase price of $100,000 per unit was completed.  Each
Unit consists of 10,000 shares of our Series A Preferred Stock, which shares initially are convertible into an aggregate of 50,000 shares
of common stock at any time and a five-year stock purchase warrant entitling the holder thereof to purchase 3,500 shares of Common
Stock for $.001 per share. At the first closing of the offering, certain holders of 10% convertible promissory notes converted
their notes into shares of Series A Preferred Stock and were also granted warrants to purchase shares of common stock at the rate
of 3,500 shares for each $100,000 aggregate principal amount of notes converted.   In the first closing, an aggregate
of 2,920,500 shares of Series A Preferred Stock and warrants to purchase 1,022,175 shares of Common Stock were issued, in consideration
of aggregate cash proceeds of $22,000,000 and the conversion of notes in the aggregate principal amount of $7,203,000. Holders
of the Series A preferred stock are entitled to certain rights and preferences over the common stock as described below. Aggregate
cash fees of $1,139,853 were paid to the placement agents at the first closing.  In addition, the placement agents were
issued five-year warrants, substantially similar to the warrants sold in the offering, to purchase an aggregate of 480,000 shares
of common stock for an exercise price of $2.00 per share.



Dividends are payable on the Series A Preferred
Stock at the rate per share (as a percentage of the Stated Rate, which is originally $10.00) of 9% per annum, payable quarterly,
in arrears, on each March 15, June 15, September 15 and December 15. For dividend payment dates occurring prior to June 1, 2013,
the dividend is payable one-third in cash and two-thirds in common stock. Thereafter, the dividend is payable, at the option of
the Company, either 100% in cash or one-third in cash and two-thirds in stock.



The Series A Preferred Stock votes with
the common stock as a single class and each holder of shares of Series A Preferred Stock shall be entitled to a number of votes
equal to the number of shares of common stock into which such shares of Series A Preferred Stock could be converted. Each share
of Series A Preferred Stock is convertible at any time at the holder's option into a number of shares of our common stock equal
to $10.00 divided by the conversion price (initially $2.00), or initially five shares, subject to adjustment for stock splits,
stock dividends, distributions, subdivisions and combinations.



The Series A Preferred Stock is subject
to mandatory conversion by the company commencing November 30, 2012, if the closing bid price of the company’s common stock
exceeds 2.5 times the then-applicable conversion price for 60 consecutive days. The Series A Preferred Stock is also subject to
mandatory conversion beginning on the date that 60% or more of the shares of Series A Preferred issued on June 1, 2011 have been
converted to common stock in a voluntary conversion.



55







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The Amended Certificate of Designation
provides that in the event of the liquidation, dissolution or winding up of our affairs, whether voluntary or involuntary, the
holders of shares of Series A Preferred Stock then outstanding would be entitled to receive, out of assets available for distribution
to stockholders, before any payment is made or any assets distributed to the holders of our common stock or any other class or
series of preferred stock that is junior to the Series A Preferred Stock, an amount per share of the Series A Preferred Stock equal
to $15.00 as a liquidation preference. A consolidation or merger with another entity or the sale or other disposition of all or
substantially all of the assets under specified circumstances would be deemed to be a liquidation, dissolution or winding up of
our company. However, these events are solely within Company control.



Stock Options



The Company is seeking to recruit and retain
experienced professionals from the global energy, natural resource development and mining industries. The Company will seek to
offer compensation that is commensurate with the qualifications of future employees and advisors, including the ability to offer
equity participation with vesting provisions typical of early-stage public companies. On May 12, 2010, the Board of Directors adopted
the 2010 Equity Incentive Plan (“Incentive Plan”), which gives the Company the ability to grant stock options, stock
appreciation rights (“SARs”), restricted stock and stock bonuses (collectively, “Awards”) to employees
or consultants of the Company or of any subsidiary of the Company and to non-employee members of the Company’s advisory board
or the board of directors of the Company or the Company’s subsidiaries. The Incentive Plan was amended on August 31, 2011.



The Board of Directors has authorized 6,133,334
shares of common stock for issuance under the Incentive Plan. In the event of any change in the number of shares of Company common
stock outstanding by reason of any stock dividend or split, reverse stock split, recapitalization, merger, consolidation, combination
or exchange of shares or similar corporate change, the maximum number of shares of common stock with respect to which the Board
of Directors may grant awards, appropriate adjustments will be made to the shares subject to the Incentive Plan and to any outstanding
Awards. Shares available for Awards under the Incentive Plan may be either newly-issued shares or treasury shares. If an Award
or portion thereof shall expire or terminate for any reason without having been exercised in full, the unexercised shares covered
by such Award shall be available for future grants of Awards under the Incentive Plan.



The aggregate grant date fair value of
stock option awards granted were determined in accordance with ASC Topic 718. The Company uses the Black-Scholes Options Pricing
Model (Black-Scholes) to estimate fair value of its stock-based awards. Black-Scholes requires various judgmental assumptions,
including estimating stock price volatility, expected option life and forfeiture rates. If the Company had made different assumptions,
the amount of its deferred stock-based compensation, stock-based compensation expense, net loss and net loss per share amounts
could have been significantly different. The Company believes that it has used reasonable methodologies, approaches and assumptions
to determine the fair value of its common stock and that deferred stock-based compensation and related amortization were recorded
properly for accounting purposes. If any of the assumptions used change significantly, stock-based compensation expense may differ
materially in the future from that recorded in the current period.



56







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The following table sets forth the number of options granted
and outstanding and the weighted average exercise price stock option activity during the years ended December 31, 2011 and December
31, 2010:



|                                                        |  | Number of Shares Subject to
Option |           |   | Weighted Average Exercise Price |   |      | Weighted Average Remaining Contractual Term | 
|------------------------------------------------------- |  | ---------------------------------- | --------- | - | ------------------------------- | - | ---- | ------------------------------------------- | 
|Outstanding at January 1, 2010                          |  |                                    | -         |   |                                 |   | -    |                                             | 
|Granted during 2010                                     |  |                                    | 2,023,334 |   |                                 | $ | 1.89 |                                             | 
|Exercised                                               |  |                                    | -         |   |                                 | $ | -    |                                             | 
|Cancelled                                               |  |                                    | (100,000  | ) |                                 | $ | 0.01 |                                             | 
|Exercisable at December 31, 2010                        |  |                                    | 430,834   |   |                                 | $ | 2.10 |                                             | 
|Outstanding at December 31, 2010                        |  |                                    | 1,923,334 |   |                                 | $ | 1.98 |                                             | 
|Granted during 2011                                     |  |                                    | 2,415,000 |   |                                 | $ | 3.56 |                                             | 
|Exercised                                               |  |                                    | (110,000  | ) |                                 | $ | 0.05 |                                             | 
|Forfeited/cancelled/expired                             |  |                                    | (490,000  | ) |                                 | $ | 2.27 |                                             | 
|Outstanding December 31, 2011                           |  |                                    | 3,738,334 |   |                                 | $ | 2.86 |                                             | 
|Exercisable at December 31, 2011                        |  |                                    | 1,044,584 |   |                                 | $ | 2.86 |                                             | 
|Shares vested and expected to vest at December 31, 2011 |  |                                    | 3,738,334 |   |                                 | $ | 2.86 |                                             | 



The weighted-average grant-date fair value
of stock options granted during the years ended December 31, 2011 and 2010 was $0.52 per share and $0.43 per share, respectively.
The total intrinsic value of options exercisable during the years ended December 31, 2011 and 2010 was $204,500 and $308,500, respectively.



The aggregate intrinsic value of
outstanding options, and options that were vested and expected to vest, was  insignificant at December 31, 2011 compared with
$1,407,500 for the year ended December 31, 2010 because the options outstanding are out-of-the money. Stock compensation
expense was $912,986 and $304,977 during the years ended December 31, 2011 and 2010, respectively, and $1,201,073 for the
cumulative period from November 6, 1996 (date of inception) through December 31, 2011.



The following table summarizes information
about stock options outstanding and exercisable as of December 31, 2010.



|         |      |  | Stock Options Outstanding |  |           | Stock Options Exercisable | 
|-------- | ---- |  | ------------------------- |  | --------- | ------------------------- | 
|         |      |  |                           |  |           | Weighted-                 | 
|         |      |  |                           |  |           | Average                   | 
|Range of |      |  |                           |  |           | Remaining                 | 
|Exercise |      |  | Number                    |  |           | Contractual               | 
|Price    |      |  | Outstanding               |  |           | Life in Years             | 
|$        | 0.05 |  |                           |  | 640,000   |                           | 
|$        | 1.50 |  |                           |  | 425,000   |                           | 
|$        | 2.50 |  |                           |  | 458,334   |                           | 
|$        | 5.00 |  |                           |  | 400,000   |                           | 
|         |      |  |                           |  | 1,923,334 |                           | 



57









COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The following table
summarizes information about stock options outstanding and exercisable as of December 31, 2011.







|         |      |  | Stock Options Outstanding |  |           |               |  |  |           |  |  | Stock Options Exercisable |      |  |           | 
|-------- | ---- |  | ------------------------- |  | --------- | ------------- |  |  | --------- |  |  | ------------------------- | ---- |  | --------- | 
|         |      |  |                           |  |           | Weighted-     |  |  |           |  |  |                           |      |  |           | 
|         |      |  |                           |  |           | Average       |  |  | Weighted- |  |  |                           |      |  | Weighted- | 
|Range of |      |  | Number                    |  |           | Remaining     |  |  | Average   |  |  | Number                    |      |  | Average   | 
|Exercise |      |  | of Shares                 |  |           | Contractual   |  |  | Exercise  |  |  | of Shares                 |      |  | Exercise  | 
|Price    |      |  | Outstanding               |  |           | Life in Years |  |  | Price     |  |  | Exercisable               |      |  | Price     | 
|$        | 0.05 |  |                           |  | 530,000   |               |  |  | 4.0       |  |  | $                         | 0.05 |  |           | 
|$        | 1.50 |  |                           |  | 175,000   |               |  |  | 4.4       |  |  | $                         | 1.50 |  |           | 
|$        | 2.50 |  |                           |  | 1,858,334 |               |  |  | 4.7       |  |  | $                         | 2.50 |  |           | 
|$        | 3.00 |  |                           |  | 50,000    |               |  |  | 4.6       |  |  | $                         | 3.00 |  |           | 
|$        | 5.00 |  |                           |  | 1,125,000 |               |  |  | 4.6       |  |  | $                         | 5.00 |  |           | 
|         |      |  |                           |  | 3,738,334 |               |  |  |           |  |  |                           |      |  |           | 



Stock Warrants



The Company issued warrants to purchase
an aggregate of 3,200,000 shares of common stock to investors in the Notes offering. Of those warrants, 726,000 shares had not
been exercised as of December 31, 2011. All of the warrants issued to investors in the Notes offering expire on June 30, 2015 and
have an exercise price of $0.01 per share. The value of these warrants at issuance had been accounted for in shareholder’s
equity as an increase in additional paid in capital.



In connection with the Notes financing,
the Company issued stock warrants to purchase an aggregate of 340,640 shares of common stock to the security brokers in the Notes
offering on December 23, 2010.  All of the warrants issued to the security brokers expire on December 20, 2015 and have
an exercise price of $2.50 per share.



As part of the
first closing of the Series A Preferred Stock Financing, the Company issued stock warrants to purchase an aggregate of
1,025,675 shares of common stock to the investors in the Stock Financing on June 1, 2011.  Of those warrants,
978,600 shares had not been exercised as of December 31, 2011. All of the warrants issued to the Series A preferred stock
investors expire on June 1, 2016 and have an exercise price of $0.01 per share. In addition, 580,000 in stock warrants were
issued to security brokers in the stock offering and 100,000 stock warrants were issued to a financial consultant. All of the
warrants issued in connection with the Stock Financing expire on June 1, 2016 and have an exercise price of $2.00 per share.
  Except for the warrants issued to the holders of the converted notes payable, the fair value of the warrants issued to
the holders of Series A preferred stock and to the security brokers was reported as an increase and decrease in additional
paid-in capital. The fair value of the warrants issued to the holders of the Notes that were converted to Series A preferred
stock was estimated at $682,753 using the Black-Scholes pricing model, and was accounted for as an inducement expense and as
an increase in additional paid-in capital.



During the year ended December 31, 2010, certain warrant holders exercised warrants to purchase 210,000 of the Company’s
common stock for an aggregate of $2,100. In addition, certain warrant holders exercised 60,000 warrants to purchase common stock
through the cashless provision exercise. 364 shares of common stock were surrendered in the cashless exercise, resulting in 59,636
shares being issued.



58







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



A summary of the stock warrants activity during the years ended
December 31, 2010 and 2011 is presented below:



|                                 |  | Number of
Shares |            |   | Exercise Price |  
|-------------------------------- |  | ---------------- | ---------- | - | -------------- | -
|Outstanding at January 1, 2010   |  |                  | 0          |   |                |  
|Granted                          |  |                  | 3,540,640  |   |                | $
|Exercised                        |  |                  | (270,000   | ) |                | $
|Cancelled                        |  |                  | 0          |   |                |  
|                                 |  |                  |            |   |                |  
|Outstanding at December 31, 2010 |  |                  | 3,270,640  |   |                | $
|Granted                          |  |                  | 1,705,675  |   |                | $
|Exercised *                      |  |                  | (2,251,075 | ) |                | $
|Cancelled                        |  |                  | 0          |   |                |  
|                                 |  |                  |            |   |                |  
|Outstanding at December 31, 2011 |  |                  | 2,725,240  |   |                | $



* 1,673,506 exercised pursuant to
cashless exercise provisions.



At December 31, 2010, the range of warrant prices for shares
under warrants and the weighted-average remaining contractual life is as follows:





|         |      |  | Stock Warrants Outstanding |  |           | Stock Warrants Exercisable | 
|-------- | ---- |  | -------------------------- |  | --------- | -------------------------- | 
|         |      |  |                            |  |           | Weighted-                  | 
|         |      |  |                            |  |           | Average                    | 
|Range of |      |  | Number                     |  |           | Remaining                  | 
|Exercise |      |  | of Shares                  |  |           | Contractual                | 
|Price    |      |  | Outstanding                |  |           | Life in Years              | 
|$        | 0.01 |  |                            |  | 2,930,000 |                            | 
|$        | 2.50 |  |                            |  | 340,640   |                            | 
|         |      |  |                            |  | 3,270,640 |                            | 







At December 31, 2011, the range of warrant prices for shares
under warrants and the weighted-average remaining contractual life is as follows:



|                            |      |  | Stock Warrants Outstanding       |  |           | Stock Warrants Exercisable                               | 
|--------------------------- | ---- |  | -------------------------------- |  | --------- | -------------------------------------------------------- | 
|Range of
    Exercise Price |      |  | Number of
    Shares Outstanding |  |           | Weighted-Average
    Remaining Contractual Life in Years | 
|$                           | 0.01 |  |                                  |  | 1,704,600 |                                                          | 
|$                           | 1.89 |  |                                  |  | 100,000   |                                                          | 
|$                           | 2.00 |  |                                  |  | 580,000   |                                                          | 
|$                           | 2.50 |  |                                  |  | 340,640   |                                                          | 
|                            |      |  |                                  |  | 2,725,240 |                                                          | 





59







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 6. | EARNINGS (LOSS) PER SHARE
| | -- | -------------------------



The elements for calculation of earnings
(loss) per share for the year ended December 31, 2011 and 2010 were as follows:



|                                                             |  | Year Ended  |            
|------------------------------------------------------------ |  | ----------- | -----------
|                                                             |  | December 31 |            
|                                                             |  | 2011        |            
|Net Loss                                                     |  | $           | (12,959,994
|                                                             |  |             |            
|Weighted average shares used in basic and diluted cmputation |  |             | 25,041,856 
|                                                             |  |             |            
|Earnings (loss) per share basic and diluted                  |  | $           | (0.52      



The Company’s issued and outstanding
common shares as of December 30, 2011 do not include for the underlying shares exercisable with respect to the issuance of the
warrants exercisable at $0.01 per share. However, the Company has given effect to the issuance of these warrants in computing loss
per share in accordance with ASC No. 260.



| | 7. | INCOME TAXES
| | -- | ------------



A reconciliation of the statutory federal income tax rate to
the effective tax rate is as follows:



|Statutory federal income tax rate                  |  |  | 34.00  | %
|-------------------------------------------------- |  |  | ------ | -
|State income tax, net of federal income tax effect |  |  | 5.50   | %
|Valuation allowance                                |  |  | -39.50 | %
|Effective tax rate                                 |  |  | 0.00   | %



The Company is in an exploration stage and is expected to continue
to incur operating losses. Substantially all expenses during the exploration stage are capitalized for income tax purposes and
will be amortized upon commencement of commercial operations. As of December 31, 2011, the deferred tax assets are associated primarily
with the capitalized costs and net operating loss carryover (NOL) totaling approximately $12.8 million for both Federal and State
income tax purposes. A valuation allowance has been established to offset 100% of the deferred tax assets since future realization
is uncertain. The change in valuation allowance was approximately $3.8 million during the year ended December 31, 2011.



Internal Revenue Code section 382 places a limitation (“Sec.
382 Limitation”) on the amount of taxable income that can be offset by NOL carryovers after a change in control (i.e., greater
than 50% change in ownership) of a loss corporation. Generally, after a change in control, a loss corporation cannot deduct an
amount of NOL carryover in any year in excess of the Sec. 382 Limitation as of the end of such year. As described in Note 2, LIFE
subscribed to approximately 94.1% of the Company’s stock in May 2010 which resulted in a change in ownership and control
of the Company. Management has not yet determined the impact of the Sec. 382 Limitation on the utilization of the Company’s
NOL carryovers against taxable income in future periods.



| | 8. | RELATED PARTY TRANSACTIONS
| | -- | --------------------------



At December 31, 2011, LIFE owned approximately
26.7% (adjusted for dilution of shares) of the outstanding shares of the Company.



As described in Note 4, the Company had
a convertible note payable to LIFE totaling $80,000 as of December 31, 2010. The note was converted to preferred shares as part
of the Stock Financing.



On August 3, 2010, the Company entered
into a 3-year management and services agreement with LIFE pursuant to which LIFE agreed to provide certain corporate, financial,
and merger and acquisition advisory services to the Company and assistance with securing equipment leases and other equipment financing
through June 30, 2013. Under the terms of the contract, LIFE is paid a fee equal to the lesser of 1% of gross coal sales or $2
per ton of coal sold with a minimum monthly fee of $25,000 plus expenses. Total management fees and expenses during the twelve
months ended December 31, 2011 were $310,000 and $76,475 respectively and $150,000 and $147,954 respectively for the twelve month
period ending December 31, 2010. The accrued management fee payable as of December 31, 2011 and December 31, 2010 was $1,075 and
$137,954, respectively included in “Accounts Payable & Accrued Liabilities” in the Consolidated Balance Sheets.



60







COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





| | 9. | ÇOMMITMENTS AND CONTINGENCIES
| | -- | -----------------------------



Mining Concessions



On July 19, 2010 the Company entered into
an agreement to purchase two coal concessions (Ingeominas Titles GG7-111 and GG7-11522X). As of December 30, 2011, the concessions
have been fully paid for and are listed under the Company’s name on the official website of the Colombian mining authority,
Ingeominas. Under the terms of the contract, the Company will pay to the sellers a royalty payment of $2.00 per ton of coal extracted
under the term of the concession. This royalty payment applies to all coal mined by our Company from these concessions.



On October 20, 2010 the Company entered
into an agreement to purchase an additional coal concession (Ingeominas title FLG-092) that form the Otanche Mining Project. The
Company has paid to the seller $315,000 and owes an additional $1,200,000 payable in six payments of $200,000 every three months
beginning August 2011. The first such payment was made in installments with the last occurring on January 13, 2012. In addition,
the Company has paid to Ingeominas $114,502 which represents past due governmental fees owed by the seller. Also, as per the terms
of the contract, the Company will pay to the sellers a royalty payment of $2.00 per ton of coal extracted under the term of the
concession. This royalty payment applies to all coal mined by our Company from this concession.



On February 11, 2011, the Company deposited
$100,000 on three additional coal concessions in the state of Boyaca, Colombia. The aggregate purchase price of these concessions
was $2.50 million, $666,585 of which has been paid as of December 31, 2011. An amount of $222,277 was due upon the Colombian Institute
of Mining and Geology’s approval of a third mining license; this was paid on January 15, 2012. An amount of $111,138 is due
upon the earlier of the recording and publication of the assignment in the National Mining Register or 90 days following the prior
payment and the balance of $1,500,000 is payable in three payments of approximately $500,000 every 6 months thereafter. There will
also be an ongoing royalty payment to the sellers of $2.75 per ton of coal mined.



The Company does not owe future concession
payments on Ruku and Boavita.



Except as described immediately above,
all the mining concessions are in the exploration phase. While in the exploration and construction phase, royalties to the government
are owed based on the applicable minimum wage rate times the number of hectares. Once the concessions enter the production phase,
royalties owed to the government are equal to 5% of production. Each concession has a 30 year production phase, less the total
time spent in exploration and construction.



Management and Services Agreement with
LIFE



On August 3, 2010, we entered into a Management
and Services Agreement with LIFE Power & Fuels LLC, a Delaware limited liability company and one of our principal shareholders,
pursuant to which LIFE agreed to provide certain corporate,  financial, and merger and acquisition advisory services
and assistance with securing equipment leases and other equipment financing.  In exchange for its services, LIFE is entitled
to receive a monthly fee equal to the lesser of 1% of our gross coal sales or $2 per ton of coal sold by us; provided, however,
that such monthly fee shall not be less than $25,000.  The term of the Management Agreement is initially 36 months, but
the agreement shall automatically renew for successive 12-month periods unless it is terminated by either party in writing. Upon
termination, and for a period of five years thereafter, LIFE will continue to be entitled to receive an amount equal to the lesser
of 1% of our gross coal sales or $2 per ton of coal sold by us from all mines and coking facilities on concessions acquired or
coke projects initiated during the term of the Management Agreement. During the initial term of this agreement, we have agreed
to pay a minimum of $900,000 to LIFE.



61









COLOMBIA ENERGY RESOURCES, INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Lease Commitments



The Company and its subsidiary in Colombia
lease their current office facilities under non-cancelable operating lease agreements that expire in 2016. On June 13, 2011 the
Company entered into a lease for expansion space in the same building. The lease has a four-month term which is extendible. In
addition, on June 28, 2011 the Company entered into a lease for new office space. The future minimum lease payments under this
operating lease are as follows:



|                         |  | Bogota    |        |  | Bogota    |   |   | Bogota    |  |   | San Anselmo |  |  |            |       
|------------------------ |  | --------- | ------ |  | --------- | - | - | --------- |  | - | ----------- |  |  | ---------- | ------
|                         |  | WTC - 315 |        |  | WTC - 309 |   |   | Quantum   |  |   |             |  |  |            |       
|                         |  | Operating |        |  | Operating |   |   | Operating |  |   | Operating   |  |  | Total      |       
|                         |  | Lease     |        |  | Lease     |   |   | Lease     |  |   | Lease       |  |  | All Leases |       
|Year ending December 31: |  |           |        |  |           |   |   |           |  |   |             |  |  |            |       
|2012                     |  |           | 68,000 |  |           |   | - |           |  |   | 197,377     |  |  |            | 20,520
|2013                     |  |           | -      |  |           |   | - |           |  |   | 197,377     |  |  |            | 5,130 
|2014                     |  |           | -      |  |           |   | - |           |  |   | 197,377     |  |  |            | -     
|2015                     |  |           | -      |  |           |   | - |           |  |   | 197,377     |  |  |            | -     
|2016                     |  |           | -      |  |           |   | - |           |  |   | 115,136     |  |  |            | -     
|Total                    |  | $         | 68,000 |  |           | $ | - |           |  | $ | 904,643     |  |  | $          | 25,650



Asset
Retirement Obligations



The Company is
subject to certain environmental and regulatory obligations which will require the Company to restore the mine properties after
the mining has been completed. Three months prior to the expected date of completion, the Company is required to provide a plan
for restoration and abandonment and estimate its cost. The Company believes that an asset retirement obligation as of and for
the years ended December 31, 2011 and 2010 is not material as the Company is still in the exploration phase. The Company will
continue to monitor and evaluate this obligation.



| | 10. | SUBSEQUENT EVENTS
| | --- | -----------------



The Board of Directors
has authorized a compensation plan for non-employee directors of the Company beginning January 1, 2012. Under the plan directors
would receive cash compensation of $4,000 per month and $6,250 per month for the Chairman. In addition, each non-employee board
member would receive restricted stock in the form of restricted stock units (“RSUs”) for each year of service based
upon the fair market value of the stock on the grant date. The RSUs would be granted on the date of the annual meeting of shareholders.
The vesting period for the restricted stock units would expire at end of the director’s term which would normally be the
next annual meeting of shareholders.



On January 3,
2012, RSU’s of 214,200 were awarded to the non-employee directors of the Company. The RSU’s will vest on the next date
of the annual shareholders meeting which is anticipated to be May 8, 2012. The total expense for the RSU’s was $220,222 which
will be recognized in the first quarter 2012.



On February 2, 2012, our Colombian subsidiary
entered into a contract with Dairo Ruben Herrera Perez and Ariel Salcedo Leal in connection with the assignment of mining concession
contract FI7-081. The concession is adjacent to our Rukú Mining Complex which began production in December 2011 and is now
producing approximately 1,800 tons per month, and will result in more efficient access to Rukú’s coal resources and
ultimately, lower operating costs and improved safety. The concession has 17 hectares (42 acres) and metallurgical coal resources
similar in quality to Rukú’s. Its permit, FI7-081, is currently in the construction or preoperative phase. Compensation
for the property includes payments made at signing of the agreement and additional payments due upon governmental approval of the
concession’s transfer to our Colombian subsidiary which we anticipate during the second quarter of 2012.



62