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

FORM 10-K

T

£

Commission File Number:  000-52782

MAINLAND RESOURCES INC.



|Nevada                                                         |  | 90-0335743                       
|-------------------------------------------------------------- |  | ---------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)
|21 Waterway Avenue, Suite 300The Woodlands, Texas              |  | 77380                            
|(Address of principal executive offices)                       |  | (Zip Code)                       

Registrant's telephone number, including area code:(281) 469-5990

Securities registered under Section 12(b) of the Exchange Act:  None

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

Common Stock, par value $0.0001 per share
(Title of class)

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

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

£
  Yes                     T
 No

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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.  T
  Yes        £
 No

Indicate by check mark if disclosure of delinquent filers in response 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 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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Yes £
 No £

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

|Large accelerated filer £

Non-accelerated filer £
 (do not check if a smaller reporting company) | Accelerated filer £

Smaller reporting company T
|------------------------------------------------------------------------------------------------- | ------------------------------------------------

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



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The aggregate market value of the registrant's common stock held by non-affiliates of the registrant as of August 31, 2010, computed by reference to the price at which such stock was last sold on the OTC Bulletin Board ($0.40 per share) on that date, was approximately $25,247,804.

The registrant had 80,969,502 shares of common stock outstanding as of May 30, 2011.











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MAINLAND RESOURCES INC.



|ITEM 1.  | BUSINESS                                                                                                     | 2 
|-------- | ------------------------------------------------------------------------------------------------------------ | --
|ITEM 1A. | RISK FACTORS                                                                                                 | 22
|ITEM 1B. | UNRESOLVED STAFF COMMENTS                                                                                    | 30
|ITEM 2.  | PROPERTIES                                                                                                   | 30
|ITEM 3.  | LEGAL PROCEEDINGS                                                                                            | 30
|ITEM 4.  | (REMOVED AND RESERVED)                                                                                       | 31
|ITEM 5.  | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 31
|ITEM 6.  | SELECTED FINANCIAL DATA                                                                                      | 35
|ITEM 7.  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        | 36
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   | 41
|ITEM 8.  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  | 41
|ITEM 9.  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         | 68
|ITEM 9A. | CONTROLS AND PROCEDURES                                                                                      | 68
|ITEM 9B. | OTHER INFORMATION                                                                                            | 69
|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                       | 69
|ITEM 11. | EXECUTIVE COMPENSATION                                                                                       | 75
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               | 80
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                    | 82
|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                       | 85
|ITEM 15. | EXHIBITS                                                                                                     | 86





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FORWARD-LOOKING STATEMENTS

The information in this annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business plans and expectations.  Such forward-looking statements involve risks and uncertainties regarding the market price of copper, availability of funds, government regulations, common share prices, operating costs, capital costs, outcomes of ore reserve development and other factors.  Forward-looking statements are made, without limitation, in relation to operating plans, property exploration and development, availability of funds, environmental reclamation, operating costs and permit acquisition.  Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements.  In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology.

Forward-looking statements in this annual report include, but are not limited to, statements with respect to the following:

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

These forward-looking statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including, the risks and uncertainties outlined under the sections titled "Risk Factors", and "Management's Discussion and Analysis of Financial Condition and Results of Operations".  If one or more of these risks or uncertainties materialize, or our underlying assumptions prove incorrect, our actual results may vary materially from those expressed or implied by our forward-looking statements anticipated, believed, estimated or expected.

We caution readers not to place undue reliance on any such forward-looking statements, which speak only to a state of affairs as of the date made.  We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.  We qualify all the forward-looking statements contained in this annual report by the foregoing cautionary statements.



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PART I

ITEM 1.               BUSINESS

Corporate History

Mainland Resources, Inc. was incorporated under the laws of the State of Nevada on May 12, 2006 and has been engaged in the business of acquisition, exploration and development of mineral properties in the United States since its inception.

On March 11, 2008 Mainland completed a forward stock split of twenty for one (20:1) basis. On May 29, 2008 Mainland completed a forward stock split on a 1.5 for one (1.5:1) basis. On August 3, 2009 Mainland completed a forward stock split on a two for 1 (2:1) basis.

Mainland's shares of common stock trade on the OTC Bulletin Board under the symbol "MNLU:OB."

Our principal business offices are located at 21 Waterway Avenue, Suite 300, The Woodlands, Texas  77380, and our telephone number is (281) 362-2861.

Proposed Merger with American Exploration Corporation

We have entered into a Merger Agreement and Plan of Merger with American Exploration Corporation ("American Exploration") dated as of March 22, 2010 (the "Merger Agreement"), pursuant to which American Exploration will be merged with and into our Company (the "Merger"), with our Company as the surviving company of the Merger.  By way of background, we have entered into a joint area development agreement with American Exploration to jointly develop contiguous acreage comprising the Buena Vista Prospect, an oil and gas exploration project located in Jackson County, Mississippi, U.S.A. As operator on the Buena Vista Prospect, we recently issued an Authority for Expenditure (AFE) for the Burkley-Phillips No. 1 Well to be drilled on the Prospect for the purpose of evaluating the Haynesville Shale formation. American Exploration was unable to fund its 20% share of the estimated total well costs of the Burkley-Phillips No. 1 Well. As a result, American Exploration has forfeited its right to a 29% working interest in the well and in the Buena Vista Prospect in favor of our Company. American Exploration will continue to be entitled to receive a 20% working interest in the well and the Prospect after completion (subject to compliance by American Exploration with all other terms and conditions of the Letter Agreement and the related Joint Operating Agreement).

We were previously required to pay 72% of the total cost to drill and complete the Burkley-Phillips No. 1 Well, for a 45.9% working interest. Due to American Exploration's inability to make its contribution in response to the cash call, we will now pay 90% of the total cost of the well to earn a 72% interest, and Guggenheim Energy Opportunities, LLC ("Guggenheim") will pay 10% of the total cost to earn an 8% interest. Accordingly, the respective working interests of the parties after completion are anticipated to be as follows: Mainland - 72%, American Exploration - 20%, and Guggenheim - 8%. This working interest breakdown will apply to the remainder of the leasehold and project area. We currently hold interests in excess of 17,000 acres in the Buena Vista Prospect.

The Merger Agreement represents our agreement with American Exploration to combine our businesses and ownership of the Buena Vista Prospect.

If the Merger is completed, each share of American Exploration's common stock at the effective time of the Merger will be exchanged for 0.25 common shares of Mainland. Based on the estimated number of shares of Mainland issued and outstanding on the record date, Mainland expects to issue approximately 15,068,333 common shares to American Exploration stockholders in the Merger. We estimate that immediately after the effective time of the Merger, former stockholders of American Exploration will hold common shares of Mainland representing approximately 16.3% of the then-outstanding common shares of Mainland.

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

Important Additional Information Will Be Filed With The SEC

In connection with the proposed merger transaction with American Exploration announced on March 23, 2010, Mainland has filed, and intends to file, relevant materials with the United States Securities and Exchange Commission (the "SEC"), including a Registration Statement on Form S-4 filed with the SEC on December 1, 2010, as amended on Form S-4/A (Amendment No. 1) filed with the SEC on March 18, 2011 (the "Registration Statement"), but which has not been declared effective by the SEC. The Registration Statement includes a preliminary prospectus and related materials to register the securities of Mainland to be issued in exchange for securities of American Exploration. The Registration Statement incorporates a joint proxy statement/prospectus (the "Proxy Statement/Prospectus") that Mainland and American Exploration plan to file with the SEC and mail to their respective stockholders in connection with obtaining stockholder approval of the proposed merger. The Registration Statement and the Proxy Statement/Prospectus contain important information about Mainland, American Exploration, the merger and related matters. Investors and security holders are urged to read the Registration Statement and the Proxy Statement/Prospectus carefully when they are available. Investors and security holders will be able to obtain free copies of the Registration Statement and the Proxy Statement/Prospectus when they become available, and other documents filed with the SEC by Mainland and American Exploration, through the web site maintained by the SEC at www.sec.gov. Mainland's security holders will also receive information at an appropriate time on how to obtain these documents free of charge from Mainland. In any event, documents filed by Mainland with the SEC may be obtained free of charge by contacting the Company at: Mainland Resources, Inc.; Attention: Mr. William Thomas, CFO; 21 Waterway Avenue, Suite 300, The Woodlands, Texas 77380; Facsimile: (713) 583-1162.

Overview

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

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

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

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

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

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

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

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

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

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



Oil And Gas Properties

Louisiana

East Holly Field, De Soto Parish

Our East Holly Field leases cover a central area in the fairway of what is now widely recognized as the Haynesville Shale discovery in northwest Louisiana (see Figure 1 - Location Map).  The Haynesville Shale has become one of the most active natural gas plays in the United States.  The Haynesville Formation is located approximately 1,500 feet below the base of the Cotton Valley formation at depths ranging from approximately 10,500 feet to 13,000 feet.  The formation is as much as 300 feet thick and is composed of a rich organic black shale.  It is located across northwest Louisiana (primarily in Caddo, Bossier, Red River, DeSoto, Webster and Bienville Parishes), east Texas (primarily in Harrison, Panola, Shelby and Nacogdoches Counties), and extends into Arkansas.

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Figure 1:  Location Map - De Soto Parish Prospect, Louisiana



On February 27, 2008, we entered into an option agreement with Kingsley Resources, Inc. ("Kingsley"), a Nevada corporation, pursuant to which we acquired all the right, title and interest Kingsley had in and to certain leasehold estates located in East Holly Field of De Soto Parish.  The East Holly Field leases create a contiguous block of acreage on the southeast flank of the East Holly Field, totalling approximately 2,551 net acres.  The leases were the subject of a leasehold purchase agreement dated December 11, 2007, and modified February 1, 2008, between Kingsley and Permian Basin Acquisition Fund, pursuant to which Kingsley acquired the sub-surface rights covered by the East Holly Field leases.

In accordance with the terms and provisions of our option agreement with Kingsley, we were required to pay $100,000 to Kingsley (which represented reimbursement to Kingsley of a deposit paid by it to Permian under their leasehold purchase agreement) and assume all of Kingsley's obligations under its leasehold purchase agreement with Permian.  We completed the acquisition of the East Holly Field leases by way of assignment on March 14, 2008 at a total cost of $687,596, comprised of the $100,000 payment to Kingsley (which was subsequently made on April 2, 2008), and payments to Permian totalling $587,596.  The East Holly Field leases remain subject to a residual royalty payment and other rights reserved under the leasehold purchase agreement with Permian.

In accordance with the area of mutual interest provision contained in our joint operating agreement with Petrohawk, we and Petrohawk leased an additional 353.77 net acres, and the acreage and costs were split as to 60% for Petrohawk, and as to 40% for our Company.  We have a 100% working interest and a 75% net revenue interest in the Cotton Valley/Hosston leases.

Joint Venture with Petrohawk Energy Corporation

Effective July 14, 2008, we entered into a binding letter agreement with Petrohawk relating to the joint development of acreage of our Company's leases in DeSoto Parish, Louisiana, including those in East Holly Field and Cotton Valley/Haynesville.

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Under the letter agreement: (i) Petrohawk agreed to pay 100% of the development costs of the first well drilled below the base of the Cotton Valley formation (which, as noted above, has been defined to be 100 feet below the stratigraphic equivalent of the Cotton Valley formation), including those related to drilling, completion and fracture stimulation, as well as costs up to and including pipeline connection; (ii) Petrohawk agreed to pay 80%, and we agreed to pay 20%, of all costs of the second well drilled below the base of the Cotton Valley formation; (iii) Petrohawk agreed to pay 60%, and we agreed to pay 40%, of all costs of the third well and all additional wells drilled below the base of the Cotton Valley formation; and (iv) we agreed to transfer a 60% working interest in our leases in DeSoto Parish to Petrohawk at closing, but only as such leases related to all depths below the base of the Cotton Valley formation, and specifically the Haynesville Shale.  Petrohawk further agreed to gather and market our production from above the base of the Cotton Valley formation pursuant to a mutually acceptable agreement.  The letter agreement was expressly made subject to completion of due diligence investigation by the parties, and execution and delivery of a definitive agreement by both parties.

We entered into a definitive agreement with Petrohawk effective August 4, 2008, pursuant to which we effectively transferred and conveyed to Petrohawk 60% of our right, title and interest in and to the leases in the DeSoto Parish.  Petrohawk was designated as the operator on all development relating to these leases.

Griffith 11-1 Well

The initial well under our agreement with Petrohawk, the Griffith 11-1 well, was spudded on October 20, 2008, and commenced production at the end of January 2009.  The approximate reading for total gas produced from the Griffith 11-1 well and shipped to market through April 5, 2010 was 2.5 billion cubic feet (Bcf).

Stephenson Douglas LLC 16-1 Well

Drilling began on the second well under our agreement with Petrohawk, the Stevenson Douglas LLC 16-1 well, in April 2009.  The Stephenson Douglas LLC 16-1 well has spudded, and surface casing was cemented at about 1,800 feet.  The Stephenson Douglas LLC 16-1 well has been successfully drilled to a depth of 10,700 feet and 7 5/8 inch intermediate casing was run on the well to this depth.  Petrohawk scheduled a larger rig capable of whip stocking the well and drilling the lateral portion of the wellbore. The well was completed and commenced production in March 2010.

Dehan 15-1 Well

The third well to be drilled, the Dehan 15-1 well, was drilled in May 2009 and commenced production in August 2009.  The well had an initial production rate (IP) of 7.643 MMcfd on a 14/64th choke.  The approximate reading for total gas produced from the Dehan 15-1 well and shipped to market through April 5, 2010 was 1.7 billion cubic feet (Bcf).

Fourth and Fifth Wells

The fourth well, the International Paper 12H-1 has been drilled and commenced production in April 2010.  The fifth well, the Paul Little 7-H #1 has also been drilled and is producing.

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Sale of Remaining 40% Interest in Haynesville Shale, East Holly Prospect, De Soto Parish

On March 12, 2010, we entered into a purchase and sale agreement for the sale to EXCO Operating Company, LP, a wholly owned subsidiary of Exco Resources, of our remaining 40% interest in the Haynesville Shale portion of the East Holly Field leases, for $28,159,604.  This agreement, which closed on April 22, 2010 with an effective date of January 1, 2010, provided for the sale of all of our right, title and interest below the base of the Cotton Valley formation in the East Holly Field.

Under the purchase and sale agreement: (i) our Company sold its remaining 40% working interest in Haynesville Shale, covering 2,903 acres or 1,161 net acres; and (ii) the purchaser paid to our Company $17,500 per net acre, totalling $20,321,525, subject to certain adjustments.  The purchaser also agreed to be responsible for ad valorem, property or similar taxes, and to reimburse our Company for any and all out-of-pocket operating costs and capital expenditures costs incurred by us prior to closing (which totaled $7,838,079).

We have applied the net proceeds to: (a) fund the drilling of the Burkley-Phillips No. 1 Well on the Buena Vista prospect in Mississippi; and (b) to retire our debt to Guggenheim.  Additional funding will be required to complete our 2011 operations program.  We anticipate that we will receive this funding from a variety of sources, including private placements, equity funding, entering into joint venture transactions with third parties, mezzanine financing and cash flows from successful wells.

Cotton Valley, Hosston and Upper Bossier Formations, East Holly Prospect, De Soto Parish

As indicated above, we continue to retain all rights to all formations above the base of the Cotton Valley formation, encompassing the 2,255 net acres (including the Hosston, Cotton Valley and Upper Bossier zones) with an estimated 65 net potential drilling locations.  Detailed analysis of the Cotton Valley/Hosston and Upper Bossier formations on the East Holly Field has been facilitated by review of the drill logs obtained from our previous Haynesville Shale joint venture partner, Petrohawk.

Although five recent wells drilled by Petrohawk through the Hosston and Cotton Valley zones to the Haynesville Formation on the East Holly Prospect calculate as productive, the wells that we are planning to drill in the Hosston and Cotton Valley formations will be exploratory in nature and intended to evaluate the gas production value of these formations.  We currently do not have the funds to commence drilling in the Hosston/Cotton Valley formations of the East Holly Prospect, but may be able to commence drilling in 2011 if we are able to engage a joint venture partner or secure funding from investors (neither of which can be assured).  The total completed well cost of the first well is estimated at between $2 million and $2.25 million dollars.

On November 10, 2010, the Company engaged Ryder Scott Company to quantify its resources in the Hosston and Cotton Valley intervals encountered while drilling five wells to develop the Haynesville formation.  On January 6, 2011, the final results from the Ryder Scott Company analysis of Hosston and Cotton Valley reserves at its East Holly Field in De Soto Parish, Louisiana, based on SEC guidelines and pricing as of December 31, 2010, were Net Possible Undeveloped Reserves of 60 Bcf of gas and 226,000 barrels of condensate.

Mississippi

Buena Vista Prospect

Our Buena Vista leasehold and project is located in the Gulf Coast Salt Basin trend, outside of the core area initially exploited for the Haynesville Shale.  Management believes that over-thickened Haynesville Shale deposits can be isolated which are rich in organic carbon, possess superior rock properties and are gas-charged.  A deep well drilled on the leases in 1981 confirmed the presence of highly pressured natural gas within an over-thickened Haynesville shale section.  The well was drilled to a depth of 22,000 feet, reaching total depth while still within the Haynesville Shale.  A poor understanding of shale gas 28 years ago combined with a casing problem in the wellbore, encouraged the operator to plug and abandon the well.

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We have been able to secure a full suite of data from that well/project area which included all geophysical seismic data, well logs, drill cuttings, drilling reports, and related technical information.  This information was critical in determining the quality of the gas within the reservoir, the propensity of the Haynesville Shale to produce gas on the leases, as well as the gas in place per section.

A geophysical assessment of the property was commissioned.  Seismic lines crossing the property were reprocessed and a detailed interpretation was made by a geophysicist with strong knowledge of the play.  A well-defined turtle structure was mapped and the leased acreage which sits squarely on the crest is ideally positioned for gas accumulation.  A series of maps were produced which image the reservoir surface as well as other potentially prospective horizons on the property. These maps also assist in better evaluating surrounding acreage.

Rock data (cuttings samples) were viewed and sampled and sent to a rock evaluation lab for testing.  Parameters such as mineralogy and geochemistry were measured using x-ray diffraction and rock evaluation pyrolysis.  Thin section (microscope slide) work was also conducted to better evaluate rock type, mineral characteristics and porosity styles.  This data was then provided to a leading petrophysical group who has experience with the Haynesville Shale to complete a petrophysical analysis (log analysis) of the entire prospective section, which included all of the penetrated the Haynesville Formation.

The results of these extensive studies suggested that the leases of interest contain significant hydrocarbons.  Since the Haynesville is so thick in this locale, vertical wells can be used to develop the property, reducing costs and many of the drilling challenges associated with horizontal wellbores.

We entered into a letter agreement with American Exploration effective September 17, 2009, to jointly develop contiguous acreage known as the Buena Vista area located in Jefferson County, Mississippi (see Figure 2 - Location Map).  Under our agreement with American Exploration: (i) we and American Exploration each agreed to commit at least 5,000 net acres to the joint development project; (ii) we will be the operator of project; (iii) we agreed to pay 80% of the initial well drilling and completion costs, to earn a 51% working interest in the well and the total joint development project; and (iv) American Exploration agreed to pay 20% of the initial well drilling and completion costs to earn a 49% working interest in the well and the total joint development project.  The agreement also contemplates that the future costs of the joint development project, including drilling and completions, will be split in accordance with the respective working interests of the parties.

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Figure 2:  Location Map - Buena Vista Prospect Buena Vista Area, Mississippi



Prior to entering into our joint area development agreement with American Exploration, we entered into an option agreement with Westrock Land Corp., a private Texas corporation ("Westrock"), on June 22, 2009, to acquire approximately 8,000 net acres in mineral oil and gas leases located in the Buena Vista area.  Under our option agreement with Westrock, we agreed to acquire a 100% working interest and a minimum 75% net revenue interest in the leases upon payment of certain acquisition costs per net mineral acres by August 31, 2009.  On September 28, 2009, the option agreement was amended to expand the acreage to include an additional 225 acres, thereby increasing coverage under the option agreement to 8,225 net acres, and to extend the time for closing.  At that time, we agreed to advance a payment of $300,000 towards the total purchase price on August 31, 2009.  We paid an additional $900,000 towards the purchase price on October 13, 2009, and the final installment of $2,090,060 on November 3, 2009, for a total purchase price of $3,290,060.

We satisfied our obligation under our joint area development agreement with American Exploration to contribute at least 5,000 net acres to the joint development project using the leases we acquired from Westrock.  We and American Exploration have contributed 8,225.3 net acres and 5,000 net acres, respectively, of contiguous lands (for a total of approximately 13,225.3 net acres).

In early April, 2010, we, as operator, issued an Authority for Expenditure (AFE) for the Burkley-Phillips No. 1 Well that has now been drilled on the Prospect for the purpose of evaluating the Haynesville Formation (Shale).  The AFE estimated the drilling cost to be approximately $8,650,000 and completion cost to be approximately $4,900,000 for a total completed well cost of approximately $13,550,000.

American Exploration was unable to fund its 20% share of the estimated total well costs ($2,710,000) of the Burkley-Phillips No. 1 Well within the 30 day period provided for in the joint development agreement, (the 30 day period expired on April 23, 2010.  As a result, American Exploration forfeited its 29% working interest in the well and the Prospect in favor of our Company.  We currently hold approximately 18,000 acres in the Buena Vista Prospect.  American Exploration will continue to be entitled to receive a 20% working interest in the well and the Prospect after completion (subject to compliance by American Exploration with all other terms and conditions of the Letter Agreement and the related Joint Operating Agreement).  If the merger is approved and proceeds as proposed, American Exploration's 20% working interest in the well and the Prospect after completion will be owned by Mainland Resources, the resultant merged entity.

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Our Company was previously paying 72% of the total cost to drill and complete the Burkley-Phillips No. 1 Well, for a 45.9% working interest. Due to the fact American Exploration did not make its contribution in response to the cash call, Mainland will now pay 90% of the total cost of the well and Guggenheim will pay 10%. Accordingly, the respective working interests of the parties after completion are anticipated to be as follows: Mainland - 72%, American Exploration -20%, and Guggenheim - 8%. This working interest breakdown will apply to the remainder of the leasehold and project area (subject to compliance by American Exploration with all other terms and conditions of the Letter Agreement and the related Joint Operating Agreement).

As discussed below, the earlier Option Agreement with Westrock Land Corp. has been terminated.

Burkley-Phillips No. 1 Well

Extensive historic and proprietary data from a previous well drilled on the Buena Vista, combined with petrochemical analysis reviewed by Mainland's land and geological teams provided the basis for drilling the Burkley-Phillips No. 1 Well to the deeper Haynesville Formation.

As operator on the Buena Vista Prospect, we issued an Authority for Expenditure (AFE) for the Burkley-Phillips No. 1 Well in early April, 2010, and we engaged RAPAD Drilling & Well Service, Inc., of Jackson, Mississippi, as the drilling contractor.  At that time, we deposited an aggregate total of $8.65 million into escrow to be applied to the drilling costs.  The escrow funds were comprised of $7.785 million contributed by our Company and $865,000 contributed by Guggenheim.

Drilling commenced on July 21, 2010 and the well reached the projected total depth of 22,000 feet on December 27, 2010.  Production casing was set on the well shortly afterwards, in early January 2011.  It is the only well drilled in the Buena Vista area testing the Haynesville shale since shale gas has emerged as a major production resource.

As noted above, the AFE estimated the drilling cost to be approximately $8,650,000 and completion cost to be approximately $4,900,000 for a total completed well cost of approximately $13,550,000.  Our actual total drilling cost was approximately $10,200,000, and we anticipate that we will incur approximately $5,000,000 in additional post-drilling completion costs.

We captured a 21-foot full core of the Haynesville Shale from the Burkley-Phillips No. 1 Well (taken from 20,415 feet to 20,436 feet measured depth) in early December, 2010, when the well was at a depth of 20,471 feet.  The core was transported to the Houston, Texas facilities of Core Laboratories NV's Core Lab Petroleum Services Division for comprehensive core analysis, with the view to determining potential volumes of gas in place within the matrix, porosity, permeability, gas quality, mineralogy and total organic content.

In late January 2011, we received the results from the first series of core analyses which we believe supports excellent gas potential within the Burkley-Phillips No. 1 Well.  The reservoir characteristics observed in the cored interval were found to be consistent with other gas producing shales when compared to an existing dataset of gas producing shales.  In addition, an extreme over-pressure was observed in the Burkley-Phillips No. 1 Well, which we expect will lend itself to larger gas recoveries within smaller pore spaces.

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The initial core analysis results also confirmed that mineralogy and total organic carbon percentage measured are within prospective ranges for the shale-dominated reservoir encountered.  Porosity, permeability and water saturation values were also calculated.  These values were plotted against other known gas producing shale reservoirs, and were used to "fingerprint" the reservoir, allowing our Company to draw direct comparisons with regards to shale gas potential.

We believe that the laboratory measurement of gas filled porosity supports the multiple mud log gas shows we saw while drilling the well through the captured core interval.

The information received from first series of core analyses is being incorporated into a broader assessment coordinated by our Company's land, geology and management teams.  We plan to provide continual reports on further interpretation as additional analyses are completed as part of our Company's anticipated updates.

As disclosed in our news release dated February 23, 2011, we have engaged Stephen Schubarth, President of Schubarth, Inc., to design and supervise the fracture treatment ("frac") of the Burkley Phillips No. 1 Well.  Mr. Schubarth has nearly 30 years of experience with companies including Halliburton Energy Services, Chevron U.S.A., Inc., and Arco Oil & Gas. His expertise includes production and reservoir engineering, well completion design and production enhancement.  Notably, Mr. Schubarth consulted directly with Leor Energy on designing the fracture stimulation for its Amoruso Prospect, which was a very successful Bossier Sand play in East Texas.  Leor's Amoruso Prospect, which has since been sold to a subsidiary of Encana, has several similarities to our Buena Vista Prospect.  The gas-bearing reservoir in both areas is within the Late Jurassic period and has a thickness of 2,000 to 3,000 feet.  The succession consists of stacked shales and tight sandstones trapped within a very high pressure, high temperature environment.  Amoruso has also been developed using vertical wells with a fracture design and treatment expected to be similar to that needed at Buena Vista.  Accordingly, we believe that Mr. Schubarth is well-positioned to design and supervise the fracture treatment of our well.

Earlier Option Agreement with Westrock Land Corp. Terminated

We had previously entered into an option agreement with Westrock effective September 3, 2008, to acquire 5,000 net acres in certain other mineral oil and gas leases located in the State of Mississippi.  Under the option agreement: (i) our Company was to acquire a 100% working interest and a minimum 75% net revenue interest in the leases; (ii) we paid a $500,000 deposit on September 3, 2008 to secure the option, and agreed to pay certain acquisition costs per net mineral acres by August 31, 2009; and (iii) the balance of the acquisition costs, totalling $2,275,000, were due and payable upon completion, no later than October 15, 2008, of our due diligence investigation of the underlying properties.  The option period was ultimately extended to January 20, 2010, pursuant to successive amending agreements executed on each of October 15, 2008, November 30, 2008, April 16, 2009 and June 1, 2009.  We paid additional deposits of $250,000, $100,000, $250,000, $100,000 and $100,000, respectively, on October 17, 2008, December 1, 2008, December 29, 2009, April 27, 2009, May 6, 2009 and June 5, 2009, for an aggregate deposit of $1,300,000.

Our Company's Board of Directors determined that, based on the results of our due diligence investigation of the underlying properties, it was not in the best interests of our Company and its stockholders to proceed with the acquisition and development of the leases covered by our option agreement with Westrock dated September 3, 2008.  Therefore, we and Westrock agreed to the termination of the option agreement without any further obligation on the part of either party.  In accordance with the terms of our option agreement with Westrock, we forfeited our deposit of $1,300,000.



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Reserves

New SEC Disclosure Requirements

On January 14, 2009, the SEC published the final rules for "Modernization of Oil and Gas Reporting" in the Federal Register, which apply to oil and gas reserves estimates disclosed in registration statements and annual reports containing financial statements for fiscal years ending on or after December 31, 2009.  The new disclosure requirements supersede SEC Industry Guide 2 and are consolidated in new Subpart 1200 of Regulation S-K, and include certain revisions and additions to the definition section of Rule 4-10 of Regulation S-X.  In addition, the amendments concurrently align the full cost accounting rules with the revised disclosures.

Generally, the new disclosure rules require reporting of oil and gas reserves using a price based on a 12-month unweighted average of the first-day-of-the-month prices rather than year-end prices, and permit the use of new technologies to determine proved reserves if they are demonstrated to result in reliable conclusions about reserve volumes.  The new rules also permit disclosure of probable and possible reserves meeting new SEC definitions in SEC filed documents, as well as additional reserve cases showing pricing and cost sensitivities.  In addition, an oil and gas company is required to report the independence and qualifications of its reserves preparer or auditor, and to file reports when a third party is relied upon to prepare reserves estimates or engaged to conduct a reserves audit.

As noted above, the modernization disclosure requirements apply to oil and gas reserves estimates disclosed in registration statements and annual reports containing financial statements for fiscal years ending on or after December 31, 2009.  This may make comparisons to prior periods difficult.

Internal Controls

Our Company's senior management, under the supervision of our Board of Directors, is responsible for the preparation of our estimates of reserves.  Our reserves are estimated at the property level and compiled for reporting purposes by our external engineers with input from our senior management.  Reserves are reviewed and approved internally by our senior management and audit committee.  As of our fiscal year ended February 28, 2011, Michael J. Newport, our President and Chief Executive Officer, was the person at our Company primarily responsible for overseeing the preparation of our reserves estimates.

Our management works closely with our external engineers to ensure the integrity, accuracy and timeliness of data that is furnished to them for their reserve estimation process.  We provide our external engineers with pertinent data, such as seismic information, geologic maps, well logs, production tests, material balance calculations, well performance data, operating procedures and relevant economic criteria.  We make available all information requested, including our pertinent personnel and consultants, to the external engineers as part of their evaluation of our reserves.  Reserve database security is provided by our external engineers, who maintain these databases for us.

As part of the Company's internal control process, we performed a year-to-year reconciliation.  The Company's senior management determined that there was no need for a look-back analysis due to the Company's decision to sell the Haynesville Shale asset.  At the time the Company negotiated the sale of the asset, we used estimates of remaining reserves to determine fair value.

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Qualifications of responsible technical persons

Michael J. Newport

Michael J. Newport, our Company's President and Chief Executive Officer, has been actively involved in petroleum land management for nearly thirty years, with experience in all phases of oil and gas land management and expertise in acquisitions, operations, divestitures, agreement preparation, negotiations, CAD mapping and broker supervision.

Mr. Newport started his career with Amoco in its New Orleans office in May 1979 where he spent two years.  He was actively involved in supervising brokers and writing all forms of land contracts for North and South Louisiana, Mississippi, Alabama and Florida.

In 1981, Mr. Newport became a district landman for Harkins & Company in its Jackson, Mississippi office where he spent four years assembling drilling prospects and all land activities associated with operations in Mississippi, Alabama, Florida and Louisiana.  From 1985 to 1989, Mr. Newport was posted to Harkins & Company's Oklahoma City office where he had the same responsibilities for Oklahoma and Arkansas as well as Mississippi, Alabama, Florida and Louisiana.

Mr. Newport joined Greenhill Petroleum in 1989 in Houston, Texas, where he was the land manager for six years in the Permian Basin Region. In addition to land management activities, Mr. Newport was responsible for acquisitions and divestitures.

After leaving Greenhill, Mr. Newport has spent the last thirteen years managing brokers for West Texas, South Texas, East Texas, Oklahoma and North Louisiana as well as performing all landman management activities for various operators actively drilling and completing wells in these areas.

Mr. Newport received a Bachelor of Business Administration (Finance) degree in June of 1977, a Masters of Business Administration degree in August of 1978, and also completed the required hours for a Petroleum Land Management degree in May, 1979.

Simeon King Horton

Simeon King Horton, one of our Company's directors, is a Petroleum Geologist with over thirty years' experience, and provides geological consulting services to Mainland from time to time on a per diem basis.  Ms. Horton has an extensive background in exploration and development of major oil and gas projects working as a consultant for oil and gas companies.

Ms. Horton worked for Mr. Dudley Hughes, an independent geologist, in Jackson, Mississippi, from 1977 to 1986. During that time, she gained broad experience in the Mississippi/Alabama Salt Basin, Black Warrior Basin in North Mississippi and Northwest Alabama, and South Florida.  The main targets of exploration were the Smackover/Norphlet Formations (located in the Salt Basin), the Paleozoics (located in the Black Warrior Basin), and the Sunniland Lime (located in South Florida).  Ms. Horton was also exposed to the Perth Basin in Australia.  As District Geologist, she was extensively involved in the exploration and development of a very aggressive drilling program and all facets of the industry.

In 1986, Ms. Horton moved to Shreveport, Louisiana where she was a consultant for various oil and gas investors until 1989.

From 1989 to 1996, Ms. Horton worked with Grigsby Petroleum in Shreveport, Louisiana, a company owned by Mr. Jack Grigsby, an independent geologist. Grigsby Petroleum is very active in North Louisiana and East Texas with numerous properties. Among these are Hosston and Cotton Valley production.  Ms. Horton was responsible for all the producing properties, the development of the properties, and the drilling of new wells for Grigsby Petroleum.

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From 1996 to present, Ms. Horton has been a consulting petroleum geologist. She has been very active in the Hosston/Cotton Valley trends in North Louisiana and East Texas. She has generated drilling prospects in the area, and has successfully been responsible for the drilling of the Hosston/Cotton Valley in an area where there are sixteen to twenty wells per section.

Simeon King Horton received a Bachelor of Science degree with a Major in Geology and a Minor in Mathematics from the University of Southern Mississippi, Hattiesburg, Mississippi in 1977. She graduated with honors and was selected Outstanding Graduating Senior in Geology for the academic year of 1976-1977. She attended geology field camp thru the Rolla School of Mines, University of Missouri, which was conducted in the state of Utah.

Ms. Horton is an active member of the American Association of Petroleum Geologists and the Shreveport Geological Society, Shreveport, Louisiana.

We Have No Proved Oil And Natural Gas Reserves

As indicated above, on March 12, 2010, Mainland entered into a purchase and sale agreement for the sale to EXCO Operating Company, LP, a wholly owned subsidiary of Exco Resources, of its interest in the Haynesville Shale portion of the East Holly Field leases, for approximately $28,159,000.  This agreement, which closed on April 22, 2010 with an effective date of January 1, 2010, provided for the sale of all of Mainland's right, title and interest below the base of the Cotton Valley formation in the East Holly Field, Desoto Parish, Louisiana, and included the interests that Mainland then held in the Griffith 11-1 well and the Dehan et al, both of which are located in the East Holly Field.

As a result of the sale of our interest in the Haynesville Shale portion of the East Holly Field leases, we had no proved oil and natural gas reserves at February 28, 2011, based on the definitions and disclosure guidelines of the SEC contained in Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule, released January 14, 2009 in the Federal Register.

Cautionary Note on Certain Canadian Disclosure

Our Company is an "OTC Reporting Issuer" as defined in BC Instrument 51-509, Issuers Quoted in the U.S. Over-the-Counter Markets, adopted by the British Columbia Securities Commission, and is therefore subject to National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities (NI 51-101), adopted by the Canadian Securities Administrators, which prescribes the standards for the preparation and disclosure of reserves and related information for companies subject to continuous disclosure requirements under Canadian provincial securities legislation.

As required by NI 51-101, we have disclosed historic reserves estimates at February 28, 2011 and 2010 in certain filings we have made with the British Columbia Securities Commission.  Such evaluation of our estimates of proved reserves under NI 51-101 at February 28, 2011 and 2010 was carried out in accordance with the standards set out in the Canadian Oil and Gas Evaluation (COGE) Handbook, prepared jointly by the Society of Petroleum Evaluation Engineers (Calgary Chapter) and the Canadian Institute of Mining, Metallurgy & Petroleum (Petroleum Society).  Those standards require that the evaluator plan and perform an evaluation to obtain reasonable assurance as to whether the reserves are free of material misstatement.  An evaluation must also include an assessment as to whether the reserves data are in accordance with the principles and definitions presented in the COGE Handbook.

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On December 31, 2008, the SEC released its final rules for the modernization of oil and gas reporting.  The material changes include the ability to classify unconventional resources such as oil shales and bitumen as proved reserves, if reasonably certain to be economically producible, the ability to use reliable technology to establish undeveloped reserves, the optional ability to report probable reserves, the requirement to track undeveloped locations, as well as the directive to use 12-month average prices and current costs.  These resulting changes are more in line with NI 51-101.  However, there are material differences to the type of volumes disclosed and the basis from which the volumes are determined.  Among other things, NI 51-101 requires gross reserves and future net revenue under forecast pricing and costs; however, the SEC requires disclosure of net reserves, after royalties, under 12-month average prices and current costs.  Accordingly, certain reports filed by our Company with the British Columbia Securities Commission pursuant to NI 51-101, and publicly available at www.sedar.com, contain data which may be materially different from the data contained in reports we have filed with the SEC.



Drilling Activity

Fiscal Year Ended February 28, 2011

As indicated above, we have sold all of our Company's right, title and interest in the Haynesville Shale portion of the East Holly Field leases effective January 1, 2010.  We retained all of the rights in all formations above the base of the Cotton Valley formation in the East Holly Field, encompassing 2,255 net acres with an estimated 65 net potential drilling locations.

Detailed analysis of the Cotton Valley/Hosston and Upper Bossier formations on the East Holly Field has been facilitated by review of the drill logs obtained from our previous Haynesville Shale joint venture partner, Petrohawk.  Although five recent wells drilled by Petrohawk through the Hosston and Cotton Valley zones to the Haynesville Formation on the East Holly Prospect calculate as productive, the wells that we are planning to drill in the Hosston and Cotton Valley formations will be exploratory in nature and intended to evaluate the gas production value of these formations.

We currently do not have the funds to commence drilling in the Hosston/Cotton Valley formations of the East Holly Prospect, but may be able to commence drilling in 2011 if we are able to engage a joint venture partner or secure funding from investors (neither of which can be assured).  The total completed well cost of the first well is estimated at between $2 million and $2.25 million dollars.

In April 2010, we engaged RAPAD Drilling & Well Service, Inc. to drill the Burkley-Phillips No. 1 well on our Buena Vista Prospect. Drilling commenced on July 21, 2010 and the well reached the projected total depth of 22,000 feet on December 27, 2010.  Our total drilling cost was approximately $10,200,000, and we anticipate that we will incur approximately $5,000,000 in additional post-drilling completion costs during the current fiscal year.  We have not yet determined whether the well is productive.

Fiscal Years Ended February 28, 2010 and 2009

As indicated above, Petrohawk acquired 60% of our Company's right, title and interest in and to the leases in the DeSoto Parish in August 2008.  Petrohawk was designated as the operator on all development relating to these leases, and carried out all drilling and extractive operations during the fiscal years ended February 28, 2010 and 2009. Petrohawk reported to us that its horizontal drilling and completion methodology at the material times focused on completing wells with longer laterals and maximizing the number of fracture stages, spaced approximately 325 feet apart.  The objective of this technique was to minimize the total number of wells required to effectively drain the reservoir, resulting in lower overall development costs.  Petrohawk also reported to us that it was, at the material times, targeting lateral lengths between 4,300 feet and 4,800 feet with up to 15 fracture stages.

The initial well under our agreement with Petrohawk, the Griffiths 11-1 well, was spudded on October 20, 2008, and commenced production at the end of January 2009.

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Drilling began on the second well under our agreement with Petrohawk, the Stevenson Douglas LLC 16-1 well, in April 2009.  The Stephenson Douglas LLC 16-1 well has spudded, and surface casing was cemented at about 1,800 feet.  The Stephenson Douglas LLC 16-1 well has been successfully drilled to a depth of 10,700 feet and 7 5/8 inch intermediate casing was run on the well to this depth.  Petrohawk scheduled a larger rig capable of whip stocking the well and drilling the lateral portion of the wellbore. The well was completed and commenced production in March 2010.

The third well to be drilled, the Dehan 15-1 well, was drilled in May 2009 and commenced production in August 2009.  The well had an initial production rate (IP) of 7.643 MMcfd on a 14/64th choke.  The approximate reading for total gas produced from the Dehan 15-1 well and shipped to market through April 5, 2010 was 1.7 billion cubic feet (Bcf).

The fourth well, the International Paper 12 #1-H, has been drilled and commenced production in April 2010.  The fifth well, the Paul Little 7-H #1, was drilled in May 2010 and is producing.

The table below sets forth the results of drilling activities undertaken by Petrohawk, as operator in the East Holly leases in De Soto Parish during the periods indicated:





|                  | Years Ended February 28,
|----------------- | ------------------------
|2011(1)           | 2010                    
|Gross             | Gross                   
|Exploratory Wells |                         
|Productive(2)     | -                       
|Dry               | -                       
|Total Exploratory | -                       
|Development Wells |                         
|Productive(1)     | -                       
|Dry               | -                       
|Total Development | -                       
|Total Wells       |                         
|Productive(1)     | -                       
|Dry               | -                       
|Total             | -                       

Note:

1.     In April 2010, we engaged RAPAD Drilling & Well Service, Inc. to drill the Burkley-Phillips No. 1 well on our Buena Vista Prospect, which is currently our only drilling project.  Drilling commenced on July 21, 2010 and the well reached the projected total depth of 22,000 feet on December 27, 2010.  We anticipate additional post-drilling completion work on the well during the current fiscal year.  We have not yet determined whether the well is productive.

2.     Although a well may be classified as productive upon completion, future changes in oil and natural gas prices, operating costs and production may result in the well becoming uneconomical, particularly exploratory wells where there is no production history.



Production Information

We had no oil and gas production prior to the fiscal year ended February 28, 2009, and no oil and gas production during the fiscal year ended February 28, 2011.

Net Production, Average Sales Price And Average Production Costs

The table below sets forth the net quantities of gas production (net of all royalties, overriding royalties and production due to others) attributable to us for fiscal years ended February 28, 2011 and 2010, and the average sales prices, average costs per unit of production.

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|East Holly Field (Haynesville Shale),(1)
De Soto Parish, Louisiana | Year Ended February 28,
|------------------------------------------------------------------ | -----------------------
|2011                                                               | 2010                   
|Net Production:                                                    |                        
|Natural Gas (Mcf)                                                  |                        
|Natural Gas Equivalent (Mcf)                                       |                        
|Average Daily Production (Mcf)                                     |                        
|Average Sales Price Per Unit                                       |                        
|Natural Gas (per Mcf)                                              | $                      
|Natural Gas Equivalent (per Mcf)                                   |                        
|Average Cost per Mcf                                               |                        
|Production                                                         |                        
|Direct lifting costs                                               | $                      
|Workover and other                                                 |                        
|Taxes other than income                                            |                        
|Gathering transportation and other                                 |                        

Notes:

1.     On March 12, 2010, we entered into a purchase and sale agreement for the sale to EXCO Operating Company, LP, a wholly owned subsidiary of Exco Resources, of its remaining 40% interest in the Haynesville Shale portion of the East Holly Field leases.  This agreement provided for the sale of all of our right, title and interest below the base of the Cotton Valley formation in the East Holly Field.  Although the transaction closed on April 22, 2010, it had an effective date of January 1, 2010.  We retained all of the rights in all formations above the base of the Cotton Valley formation in the East Holly Field, encompassing 2,255 net acres with an estimated 65 net potential drilling locations, but had no productive oil or natural gas wells on the property or on our Buena Vista Prospect during the fiscal year ended February 28, 2011.

Productive Wells as of Fiscal Year End

The following table sets forth the number of productive oil and natural gas wells in which we owned an interest as of February 28, 2011, 2010 and 2009.  Shut-in wells currently not capable of production are excluded from producing well information.



|            | Year Ended February 28,
|----------- | -----------------------
|2011(1)     | 2010                   
|Gross(2)    | Net(3)                 
|Oil         | -                      
|Natural Gas | -                      
|Total       | -                      

Notes:

1.     On March 12, 2010, we entered into a purchase and sale agreement for the sale to EXCO Operating Company, LP, a wholly owned subsidiary of Exco Resources, of its remaining 40% interest in the Haynesville Shale portion of the East Holly Field leases.  This agreement, which closed on April 22, 2010 with an effective date of January 1, 2010, provided for the sale of all of our right, title and interest below the base of the Cotton Valley formation in the East Holly Field.  We retained all of the rights in all formations above the base of the Cotton Valley formation in the East Holly Field, encompassing 2,021 net acres with an estimated 65 net potential drilling locations, but had no productive oil or natural gas wells on the property or on our Buena Vista Prospect during the fiscal year ended February 28, 2011.

2.     A gross well is a well in which a working interest is owned. The number of gross wells is the total number of wells in which a working interest is owned.

3.     Net wells represent our working interest share of each well. The term "net" as used in "net production" throughout this document refers to amounts that include only acreage or production that we own and produce to our interest, less royalties and production due to others.



Summary Of Developed And Undeveloped Acreage Interests

We own interests in developed and undeveloped oil and natural gas acreage in Louisiana and Mississippi.  Our ownership interests take the form of working interests in oil and natural gas leases that have varying terms.  The following table presents a summary of our acreage interests as of February 28, 2011:

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|Prospect                          | Developed Acreage(1) | Undeveloped Acreage | Total Acreage
|--------------------------------- | -------------------- | ------------------- | -------------
|Gross                             | Net                  | Gross               | Net          
|Louisiana                         |                      |                     |              
|East Holly - Haynesville(2)       | 640                  | 256                 | 2,055        
|East Holly - Cotton Valley(3)     | -                    | -                   | 2,695        
|Mississippi                       |                      |                     |              
|Buena Vista - Haynesville/Bossier | -                    | -                   | 11,839       

Notes:

1.     Consists of acres spaced or assignable to productive wells.

2.     On March 12, 2010, we entered into a purchase and sale agreement for the sale to EXCO Operating Company, LP, a wholly owned subsidiary of Exco Resources, of its remaining 40% interest in the Haynesville Shale portion of the East Holly Field leases.  This agreement, which closed on April 22, 2010 with an effective date of January 1, 2010, provided for the sale of all of our right, title and interest below the base of the Cotton Valley formation in the East Holly Field.

3.     We have retained all of the rights in all formations above the base of the Cotton Valley formation in the East Holly Field, encompassing 2,255 net acres with an estimated 65 net potential drilling locations.

As of February 28, 2011, we had 17,800 net acres scheduled to expire by February 28, 2013, if production is not established or we take no other action to extend the terms. We plan to continue the terms of these licences through operational or administrative actions and do not expect a significant portion of our net acreage position to expire before such actions occur.

We have no gas delivery commitments.

The estimates of quantities of proved and possible reserves above were made in accordance with the definitions contained in SEC Release No. 33-8995, Modernization of Oil and Gas Reporting.

We account for our oil and natural gas producing activities using the full cost method of accounting in accordance with SEC regulations. Accordingly, all costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized.  All general and administrative corporate costs unrelated to drilling activities are expensed as incurred. Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change.  Depletion of evaluated oil and natural gas properties is computed on the units of production method based on proved reserves. The net capitalized costs of evaluated oil and natural gas properties are subject to a quarterly full cost ceiling test.



Capitalized Costs Relating To Oil And Natural Gas Producing Activities

The following table illustrates the total amount of capitalized costs relating to oil and natural gas producing activities and the total amount of related accumulated depreciation, depletion and amortization:



|                                                     | Year Ended February 28,
|---------------------------------------------------- | -----------------------
|2011                                                 | 2010                   
|(in thousands)                                      
|Evaluated oil and natural gas properties             | $                      
|Unevaluated oil and natural gas properties           |                        
|                                                     |                        
|Accumulated depletion, depreciation and amortization |                        
|                                                     | $                      
|                                                     |                        



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Competition

We operate in a highly competitive industry, competing with major oil and gas companies, independent producers and institutional and individual investors, which are actively seeking oil and gas properties throughout the world together with the equipment, labor and materials required to operate properties.  Most of our competitors have financial resources, staff and facilities substantially greater than ours.  The principal area of competition is encountered in the financial ability to acquire good acreage positions and drill wells to explore for oil and gas, then, if warranted, drill production wells and install production equipment.  Competition for the acquisition of oil and gas wells is intense with many oil and gas properties and/or leases or concessions available in a competitive bidding process in which we may lack technological information or expertise available to other bidders.  Therefore, we may not be successful in acquiring and developing profitable properties in the face of this competition.  No assurance can be given that a sufficient number of suitable oil and gas wells will be available for acquisition and development.



Government Regulation

The production and sale of oil and gas are subject to various federal, state and local governmental regulations, which may be changed from time to time in response to economic or political conditions and can have a significant impact upon overall operations.  Matters subject to regulation include discharge permits for drilling operations, drilling bonds, reports concerning operations, the spacing of wells, unitization and pooling of properties, taxation, abandonment and restoration and environmental protection.  These laws and regulations are under constant review for amendment or expansion.  From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve supplies of oil and gas.  Changes in these regulations could require us to expend significant resources to comply with new laws or regulations or changes to current requirements and could have a material adverse effect on our business operations.



Regulation Of Oil And Natural Gas Production

Our oil and natural gas exploration, former production and related operations are subject to extensive rules and regulations promulgated by federal, state and local authorities and agencies.  Failure to comply with such rules and regulations can result in substantial penalties.  The regulatory burden on the oil and natural gas industry increases our cost of doing business and affects our profitability.  Although we believe we are in substantial compliance with all applicable laws and regulations, because such rules and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws.

Many states require permits for drilling operations, drilling bonds and reports concerning operations and impose other requirements relating to the exploration and production of oil and natural gas.  Such states also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum rates of production from wells, and the regulation of spacing, plugging and abandonment of such wells.



Federal Regulation Of Natural Gas

The Federal Energy Regulatory Commission ("FERC") regulates interstate natural gas transportation rates and service conditions, which affect the marketing of natural gas produced by us, as well as the revenues received by us for sales of such production.  Since the mid-1980's, FERC has issued a series of orders that have significantly altered the marketing and transportation of natural gas.  These orders mandate a fundamental restructuring of interstate pipeline sales and transportation service, including the unbundling by interstate pipelines of the sale, transportation, storage and other components of the city-gate sales services such pipelines previously performed.  One of FERC's purposes in issuing the orders was to increase competition within all phases of the natural gas industry.  Certain aspects of these orders may be modified as a result of various appeals and related proceedings and it is difficult to predict the ultimate impact of the orders on us and others.  Generally, the orders eliminate or substantially reduce the interstate pipelines' traditional role as wholesalers of natural gas in favor of providing only storage and transportation service, and have substantially increased competition and volatility in natural gas markets.

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The price, which we may receive for the sale of oil and natural gas liquids, would be affected by the cost of transporting products to markets. FERC has implemented regulations establishing an indexing system for transportation rates for oil pipelines, which, generally, would index such rates to inflation, subject to certain conditions and limitations.  We are not able to predict with certainty the effect, if any, of these regulations on any future operations.  However, the regulations may increase transportation costs or reduce wellhead prices for oil and natural gas liquids.



Environmental Matters

Our operations and properties have been and will be subject to extensive and changing federal, state and local laws and regulations relating to environmental protection, including the generation, storage, handling, emission, transportation and discharge of materials into the environment, and relating to safety and health.  The recent trend in environmental legislation and regulation generally is toward stricter standards, and this trend will likely continue.  These laws and regulations may (i) require the acquisition of a permit or other authorization before construction or drilling commences and for certain other activities; (ii) limit or prohibit construction, drilling and other activities on certain lands lying within wilderness and other protected areas; and (iii) impose substantial liabilities for pollution resulting from our operations.  The permits required for several of our operations are subject to revocation, modification and renewal by issuing authorities.  Governmental authorities have the power to enforce their regulations, and violations are subject to fines or injunctions, or both.  In the opinion of management, we are in substantial compliance with current applicable environmental laws and regulations, and we have no material commitments for capital expenditures to comply with existing environmental requirements.  Nevertheless, changes in existing environmental laws and regulations or in interpretations thereof could have a significant impact on our business operations, as well as the oil and natural gas industry in general.

The Comprehensive Environmental, Response, Compensation, and Liability Act ("CERCL") and comparable state statutes impose strict, joint and several liabilities on owners and operators of sites and on persons who disposed of or arranged for the disposal of "hazardous substances" found at such sites.  It is not uncommon for the neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment.  The Federal Resource Conservation and Recovery Act ("RCRA") and comparable state statutes govern the disposal of "solid waste" and "hazardous waste" and authorize the imposition of substantial fines and penalties for noncompliance.  Although CERCLA currently excludes petroleum from its definition of "hazardous substance," state laws affecting our operations impose clean-up liability relating to petroleum and petroleum related products.  In addition, although RCRA classifies certain oil field wastes as "non-hazardous," such exploration and production wastes could be reclassified as a hazardous wastes, thereby making such wastes subject to more stringent handling and disposal requirements.

We intend to acquire leasehold interests in properties that for many years have produced oil and natural gas.  Although the previous owners of these interests may have used operating and disposal practices that were standard in the industry at the time, hydrocarbons or other wastes may have been disposed of or released on or under the properties.  In addition, some of our properties may be operated in the future by third parties over which we have no control.  Notwithstanding our lack of control over properties operated by others, the failure of the operator to comply with applicable environmental regulations may, in certain circumstances, adversely impact our business operations.

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The National Environmental Policy Act ("NEPA") is applicable to many of our planned activities and operations. NEPA is a broad procedural statute intended to ensure that federal agencies consider the environmental impact of their actions by requiring such agencies to prepare environmental impact statements ("EIS") in connection with all federal activities that significantly affect the environment.  Although NEPA is a procedural statute only applicable to the federal government, a portion of our properties may be acreage located on federal land.  The Bureau of Land Management's issuance of drilling permits and the Secretary of the Interior's approval of plans of operation and lease agreements all constitute federal action within the scope of NEPA. Consequently, unless the responsible agency determines that our drilling activities will not materially impact the environment, the responsible agency will be required to prepare an EIS in conjunction with the issuance of any permit or approval.

The Endangered Species Act ("ESA") seeks to ensure that activities do not jeopardize endangered or threatened animals, fish and plant species, nor destroy or modify the critical habitat of such species.  Under ESA, exploration and production operation, as well as actions by federal agencies, may not significantly impair or jeopardize the species or their habitat. ESA provides for criminal penalties for wilful violations of the Act.  Other statutes that provide protection to animal and plant species and that may apply to our operations include, but are not necessarily limited to, the Fish and Wildlife Coordination Act, the Fishery Conservation and Management Act, the Migratory Bird Treaty Act and the National Historic Preservation Act.  Although we believe that our operations are in substantial compliance with such statutes, any change in these statutes or any reclassification of a species as endangered could subject us to significant expense to modify our operations or could force to discontinue certain operations altogether.

Management believes that we are in substantial compliance with current applicable environmental laws and regulations.



Research And Development Activities

No research and development expenditures have been incurred, either on our account or sponsored by customers, to the date of our inception.



Employees

We do not employ any persons on a full-time or on a part-time basis.  Michael J. Newport is our President/Chief Executive Officer, William D. Thomas is our Chief Financial Officer, Secretary and Treasurer and Peter Wilson is our Vice President of Business Development.  These individuals are primarily responsible for all of our day-to-day operations.  Our executive officers are retained and compensated in accordance with the terms and provisions of certain written and verbal consultant agreements.  Other services are provided by outsourcing and consultant and special purpose contracts.

The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report.  The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.  Our actual results could differ materially from those discussed in the forward looking statements.  Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this annual report, particularly in the section entitled "Risk Factors".  Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

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

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

ITEM 1A.            RISK FACTORS

An investment in our common stock involves a number of very significant risks.  You should carefully consider the following risks and uncertainties in addition to other information in evaluating our company and its business before purchasing shares of our common stock.  Our business, operating results and financial condition could be seriously harmed due to any of the following risks.  The risks described below are all of the material risks that we are currently aware of that are facing our company.  Additional risks not presently known to us may also impair our business operations.  You could lose all or part of your investment due to any of these risks.

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

We are an exploration stage oil and gas company with a history of operating losses.  We expect to continue to incur losses in the foreseeable future, and may never be profitable.  Although our Company has realized revenues in prior operations, as of February 28, 2011, we have an accumulated deficit during the exploration stage of $12,605,974.  Further, we sold our remaining 40% interest in the Haynesville Shale portion of the East Holly Field leases on April 22, 2010, with an effective date of January 1, 2010, and we no longer have interests in any producing oil and gas properties.  Accordingly, we do not expect positive cash flow from operations in the foreseeable future.

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

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

There can be no assurance that we will be able to raise sufficient additional capital or eventually have positive cash flow from operations to address all of our cash flow needs. If we are not able to find alternative sources of cash or generate positive cash flow from operations, our business and shareholders will be materially and adversely affected.

We will need to raise additional financing to complete further exploration activities.

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

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

There can be no assurance that we will be successful in our efforts to raise these required funds, or on terms satisfactory to us. The continued exploration of our oil and gas properties, and the development of our business, will depend upon our ability to establish the commercial viability of our oil and gas properties, to develop cash flow from operations, and ultimately to achieve profitability, none of which can be assured.

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

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

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

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

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

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

Our existing properties do not contain any proved reserves in accordance with the definitions adopted by the SEC and there is no assurance that any exploration program that we carry out will establish reserves. There is a substantial risk that our exploration activities will not result in discoveries of commercially recoverable reserves of oil or gas. Any determination that any of our properties contain commercially recoverable quantities of oil or gas may not be reached until such time that final comprehensive feasibility studies have been concluded establishing that a potential reserve is likely to be economic. There is a substantial risk that any preliminary or final feasibility studies carried out by us will not result in a positive determination that any of our oil and gas properties can be commercially developed.

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Our exploration and development activities on our oil and gas properties may not be commercially successful, which could lead us to abandon our plans to develop the property and our investments in exploration.

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

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

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

There is no guarantee that the potential drilling locations we have or acquire in the future will ever produce natural gas or oil, which could have a material adverse effect upon our results of operations.

Prospects that we decide to drill may not yield natural gas or oil in commercially viable quantities. Our prospects are in the stage of preliminary evaluation and assessment. We have drilled the Burkley-Phillips No. 1 Well on the Buena Vista prospect in Mississippi and expect to complete the well in 2011, and we are planning on drilling wells in the Hosston/Cotton Valley formations of the East Holly Prospect. However, the use of seismic data, historical drilling logs, offsetting well information, and other technologies and the study of producing fields in the same area will not enable us to know conclusively prior to drilling and testing whether natural gas or oil will be present or, if present, whether natural gas or oil will be present in sufficient quantities or quality to recover drilling or completion costs or to be economically viable.

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

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

Our business is difficult to evaluate because we have a limited operating history.

In considering whether to invest in our common stock, you should consider that there is only limited historical financial and operating information available on which to base your evaluation of our performance. Our inception was May 12, 2006 and, as a result, we have a limited operating history.

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

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

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

As part of our growth strategy, we intend to acquire additional oil and gas properties.

As part of our growth strategy, we intend to acquire additional oil and gas production properties. Current and subsequent acquisitions may pose substantial risks to our business, financial condition, and results of operations. In pursuing acquisitions, we will compete with other companies, many of which have greater financial and other resources to acquire attractive properties. Even if we are successful in acquiring additional properties, some of the properties may not produce revenues at anticipated levels or failure to conduct drilling on prospects within specified time periods may cause the forfeiture of the lease in that prospect. There can be no assurance that we will be able to successfully integrate acquired properties, which could result in substantial costs and delays or other operational, technical, or financial problems. Further, acquisitions could disrupt ongoing business operations. If any of these events occur, it would have a material adverse effect upon our operations and results from operations.

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We may be unable to identify liabilities associated with the property or obtain protection from sellers against them.

One of our growth strategies is to capitalize on opportunistic acquisitions of oil and natural gas reserves. However, our review of our current acquired property is inherently incomplete because it generally is not feasible to review in depth every individual property involved in each acquisition. A detailed review of records and properties may not necessarily reveal existing or potential problems, nor will it permit a buyer to become sufficiently familiar with the properties to assess fully their deficiencies and potential. Further, environmental problems, such as ground water contamination, are not necessarily observable even when an inspection is undertaken. We may not be able to obtain indemnification or other protections from the sellers against such potential liabilities, which, if realized, would have a material adverse effect upon our results of operations.

The potential profitability of oil and gas ventures depends upon global political and market related factors beyond our control.

World prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, international, political, social, and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. The potential profitability of oil and gas properties is dependent on these and other factors beyond our control. These factors may materially affect our financial performance if we are successful in our exploration activities and ultimately place any oil or gas wells into production, and, in the near term, may impact on our ability to raise financing for our exploration activities.

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

If we are successful in our exploration activities and ultimately place any oil or gas wells into production, the production area specifics will affect profitability. Adverse weather conditions can hinder drilling operations and ongoing production work. A productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or gas from the well. Production and treatments on other wells in the area can have either a positive or negative effect on our production and wells. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. The content of hydrocarbons is subject to change over the life of producing wells. The marketability of oil and gas from any specific reserve which may be acquired or discovered will be affected by numerous factors beyond our control. These factors include, but are not limited to, the proximity and capacity of oil and gas pipelines, availability of room in the pipelines to accommodate additional production, processing and production equipment operating costs and equipment efficiency, market fluctuations of prices and oil and gas marketing relationships, local and state taxes, mineral owner and other royalties, land tenure, lease bonus costs and lease damage costs, allowable production, and environmental protection. These factors cannot be accurately predicted and the combination of these factors may result in us not receiving an adequate return on our invested capital.

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If production results from operations, we will be dependent upon transportation and storage services provided by third parties.

If we are successful in our exploration activities and ultimately place any oil or gas wells into production, we will be dependent on the transportation and storage services offered by various interstate and intrastate pipeline companies for the delivery and sale of our gas supplies. Both the performance of transportation and storage services by interstate pipelines and the rates charged for such services are subject to the jurisdiction of the Federal Energy Regulatory Commission or state regulatory agencies. An inability to obtain transportation and/or storage services at competitive rates could hinder our processing and marketing operations and/or affect our sales margins.

Our results of operations will be dependent upon market prices for oil and gas, which fluctuate widely and are beyond our control.

If we are successful in our exploration activities and ultimately place any oil or gas wells into production, the production area specifics will affect profitability, our revenue, profitability, and cash flow will depend upon the prices and demand for oil and natural gas. The markets for these commodities are very volatile and even relatively modest drops in prices can significantly affect our financial results and impede our growth. Prices received also will affect the amount of future cash flow available for capital expenditures and may affect our ability to raise additional capital. Lower prices may also affect the amount of natural gas and oil that can be economically produced from reserves either discovered or acquired. Factors that can cause price fluctuations include: (i) the level of consumer product demand; (ii) domestic and foreign governmental regulations; (iii) the price and availability of alternative fuels; (iv) technical advances affecting energy consumption; (v) proximity and capacity of oil and gas pipelines and other transportation facilities; (vi) political conditions in natural gas and oil producing regions; (vii) the domestic and foreign supply of natural gas and oil; (viii) the ability of members of Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls; (ix) the price of foreign imports; and (x) overall domestic and global economic conditions.

The availability of a ready market for our oil and gas, if any, will depend upon numerous factors beyond our control, including the extent of domestic production and importation of oil and gas, the relative status of the domestic and international economies, the proximity of our properties to oil and gas gathering systems, the capacity of those systems, the marketing of other competitive fuels, fluctuations in seasonal demand and governmental regulation of production, refining, transportation and pricing of oil, natural gas and other fuels.

The oil and gas industry in which we operate involves many industry related operating and implementation risks that can cause substantial losses, including, but not limited to, unproductive wells, natural disasters, facility and equipment problems and environmental hazards.

Our drilling activities are subject to many risks, including the risk that we will not discover commercially productive reservoirs. Drilling for oil and natural gas can be unprofitable, not only from dry holes, but from productive wells that do not produce sufficient revenues to return a profit. In addition, our drilling and producing operations may be curtailed, delayed or cancelled as a result of other drilling and production, weather and natural disaster, equipment and service failure, environmental and regulatory, and site specific related factors, including but not limited to: (i) fires; (ii) explosions; (iii) blow-outs and surface cratering; (iv) uncontrollable flows of underground natural gas, oil, or formation water; (v) natural disasters; (vi) facility and equipment failures; (vii) title problems; (viii) shortages or delivery delays of equipment and services; (ix) abnormal pressure formations; and (x) environmental hazards such as natural gas leaks, oil spills, pipeline ruptures and discharges of toxic gases.

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

If we were to experience any of these problems, it could affect well bores, gathering systems and processing facilities, any one of which could adversely affect our ability to conduct operations. We may be affected by any of these events more than larger companies, since we have limited working capital.

The oil and gas industry is highly competitive and there is no assurance that we will be successful in acquiring leases.

The oil and natural gas industry is intensely competitive, and we compete with other companies that have greater resources. Many of these companies not only explore for and produce oil and natural gas, but also carry on refining operations and market petroleum and other products on a regional, national or worldwide basis. These companies may be able to pay more for productive oil and natural gas properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, these companies may have a greater ability to continue exploration activities during periods of low oil and natural gas market prices. Our larger competitors may be able to absorb the burden of present and future federal, state, local and other laws and regulations more easily than we can, which would adversely affect our competitive position. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. In addition, because we have fewer financial and human resources than many companies in our industry, we may be at a disadvantage in bidding for exploratory prospects and producing oil and natural gas properties.

Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our business operations.

Oil and gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages which we may elect not to insure against due to prohibitive premium costs and other reasons. To date we have not been required to spend material amounts on compliance with environmental regulations. However, we may be required to do so in the future and this may affect our ability to expand or maintain our operations.

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

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

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

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

Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.

The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States or any other jurisdiction, may be changed, applied or interpreted in a manner which will fundamentally alter our ability to carry on business. The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate and/or our profitability.

We may be unable to retain key employees or consultants or recruit additional qualified personnel.

Our extremely limited personnel means that we would be required to spend significant sums of money to locate and train new employees in the event any of our employees resign or terminate their employment with us for any reason. Due to our limited operating history and financial resources, we are entirely dependent on the continued service of Michael J. Newport, our President and Chief Executive Officer, and William D. Thomas, our Chief Financial Officer. Further, we do not have key man life insurance on any of these individuals. We may not have the financial resources to hire a replacement if one or all of our officers were to die. The loss of service of any of these officers could therefore significantly and adversely affect our operations.

Our officers and directors may be subject to conflicts of interest.

Our officers and directors serve only part time and are subject to conflicts of interest. Each devotes part of his working time to other business endeavours, including consulting relationships with other entities, and has responsibilities to these other entities. Such conflicts include deciding how much time to devote to our affairs, as well as what business opportunities should be presented to us. Because of these relationships, our officers and directors will be subject to conflicts of interest. We have adopted a Code of Conduct for our officers and directors that includes provisions designed to address such conflicts of interest.

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Nevada law and our articles of incorporation may protect our directors from certain types of lawsuits.

Nevada law provides that our officers and directors will not be liable to us or our stockholders for monetary damages for all but certain types of conduct as officers and directors. Our Bylaws permit us broad indemnification powers to all persons against all damages incurred in connection with our business to the fullest extent provided or allowed by law. The exculpation provisions may have the effect of preventing stockholders from recovering damages against our officers and directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require us to use our limited assets to defend our officers and directors against claims, including claims arising out of their negligence, poor judgment, or other circumstances.

ITEM 1B.            UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.               PROPERTIES

We lease our principal office space located at 21 Waterway Avenue, Suite 300, The Woodlands, Texas 77380, at a rental cost of approximately $2,400 monthly.  The lease may be cancelled at any time with a thirty day notice.

The oil and gas properties in which we have an interest are described above under "Item 1. Business".

ITEM 3.               LEGAL PROCEEDINGS

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

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

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

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ITEM 4.               (Removed and Reserved)

PART II

ITEM 5.               MARKET FOR REGISTRANT

Shares of our common stock commenced trading on the OTC Bulletin Board under the symbol"MNLU:OB" on approximately May 24, 2006.  The market for our common stock is limited, and can be volatile.  The following table sets forth the high and low bid prices relating to our common stock on a quarterly basis for the periods indicated, adjusted to give retroactive effect to stock splits.  These quotations reflect inter-dealer prices without retail mark-up, mark-down, or commissions, and may not reflect actual transactions.

|Quarter Ended     | High Bid | Low Bid
|----------------- | -------- | -------
|February 28, 2011 | $1.00    | $0.47  
|November 30, 2010 | $0.55    | $0.28  
|August 31, 2010   | $0.84    | $0.37  
|May 31, 2010      | $1.61    | $0.71  
|February 28, 2010 | $1.84    | $1.02  
|November 30, 2009 | $1.55    | $0.84  
|August 31, 2009   | $1.70    | $1.15  
|May 31, 2009      | $2.13    | $1.00  
|February 28, 2009 | $2.90    | $1.40  
|November 30, 2008 | $3.15    | $1.75  
|August 31, 2008   | $3.68    | $1.91  
|May 31, 2008      | $2.00    | $0.58  

As of May 30, 2011, we had approximately 20 shareholders of record, which does not include shareholders whose shares are held in street or nominee names.

Dividend Policy

No dividends have ever been declared by the Board of Directors on our common stock.  Our losses do not currently indicate the ability to pay any cash dividends, and we do not indicate the intention of paying cash dividends either on our common stock in the foreseeable future.

Forward Stock Splits

March 2008 Forward Stock Split

On February 25, 2008, our Board of Directors, pursuant to minutes of written consent in lieu of a special meeting, authorized and approved a twenty for one (20:1) forward stock split.  This forward split was effectuated on March 11, 2008 upon filing the appropriate documentation with the Financial Industry Regulatory Authority, Inc.  This forward split increased the issued and outstanding shares of common stock from 1,120,500 to 22,410,000 shares of common stock.  Pursuant to Nevada corporate law, at the time of the forward split of our issued and outstanding stock, our authorized share capital was also increased on a 20:1 basis from 10,000,000 shares of common stock to 200,000,000 shares of common stock, with a par value remaining unchanged at $0.0001 per share.

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May 2008 Forward Stock Split

On May 12, 2008, our Board of Directors, pursuant to minutes of written consent in lieu of a special meeting, authorized and approved a one-and-one-half for one (1.5:1) forward stock split.  This forward split was effectuated on May 29, 2008 upon filing the appropriate documentation with the Financial Industry Regulatory Authority, Inc. This forward split increased our issued and outstanding shares of common stock from 26,410,000 to 39,615,000 shares of common stock.  At the time the Company effected this forward split, due to an administrative oversight, a Certificate of Change to effect a simultaneous 1.5:1 increase of the Company's authorized common stock was not filed with the Nevada Secretary of State.  The Company has rectified this administrative oversight by filing a Certificate of Change with the Nevada Secretary of State to effect, as of May 26, 2010, the 1.5:1 increase of the Company's authorized common stock.

July 2009 Forward Stock Split

On June 12, 2009, our Board of Directors, pursuant to minutes of written consent in lieu of a special meeting, authorized and approved a two for one (2:1) forward stock split.  This forward split was effectuated on July 13, 2009 upon filing the appropriate documentation with the Financial Industry Regulatory Authority, Inc.  This forward split increased the issued and outstanding shares of common stock from 40,484,751 to 80,969,502 shares of common stock.  Pursuant to Nevada corporate law, at the time of the forward split of our issued and outstanding stock, our authorized share capital was also increased on a 2:1 basis.

As a result of these forward splits and increases of our authorized share capital, as of the date of this annual report, our authorized share capital is 600,000,000 shares of common stock, with a par value of $0.0001 per share.

Securities Authorized For Issuance Under Compensation Plans

We have one equity compensation plan, the Mainland Resources Inc. 2008 Stock Option Plan (the "2008 Plan").  The table set forth below presents information relating to our equity compensation plans as of February 28, 2011:

|Plan Category                                              | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights(A) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights(B) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Column (A))
(C)
|---------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------
|Equity Compensation Plans Approved by Securityholders:     | -0-                                                                                            | -0-                                                                            |                                                                                                                        
|Equity Compensation Plans Not Approved by Securityholders: |                                                                                                |                                                                                |                                                                                                                        
|2008 Stock Option Plan                                     | 13,100,000                                                                                     | 1.10                                                                           | 1,900,000                                                                                                              
|Total:                                                     | 13,100,000                                                                                     | 1.10                                                                           | 1,900,000                                                                                                              

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2008 Stock Option Plan

On April 7, 2008, our Board of Directors ratified, approved and adopted a Stock Option Plan for the Company allowing for the grant of up to 4,400,000 options to acquire common shares with terms of up to 10 years.  Subsequently, our Board of Directors ratified, approved and amended the Stock Option Plan increasing the allowable grant as follows: to 7,600,000 options effective July 9, 2008, to 12,000,000 options effective September 22, 2009 and to 15,000,000 options effective March 22, 2010.

The purpose of the 2008 Plan is to enhance our long-term stockholder value by offering opportunities to our directors, officers, employees and eligible consultants to acquire and maintain stock ownership in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service.

The 2008 Plan is to be administered by our Board of Directors or a committee appointed by and consisting of one or more members of the Board of Directors, which shall determine (i) the persons to be granted Stock Options under the 2008 Plan; (ii) the number of shares subject to each option, the exercise price of each Stock Option; and (iii) whether the Stock Option shall be exercisable at any time during the option period up to ten (10) years or whether the Stock Option shall be exercisable in instalments or by vesting only.  At the time a Stock Option is granted under the 2008 Plan, the Board of Directors shall fix and determine the exercise price at which shares of our common stock may be acquired.

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

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

The exercise price of a Stock Option granted pursuant to the 2008 Plan shall be paid in full to us by delivery of consideration equal to the product of the Stock Option in accordance with the requirements of the Nevada Revised Statutes.  Any Stock Option settlement, including payment deferrals or payments deemed made by way of settlement of pre-existing indebtedness may be subject to such conditions, restrictions and contingencies as may be determined.

Incentive Stock Options

The 2008 Plan further provides that, subject to the provisions of the Stock Option Plan and prior shareholder approval, the Board of Directors may grant to any key individuals who are our employees eligible to receive options, one or more incentive stock options to purchase the number of shares of common stock allotted by the Board of Directors (the "Incentive Stock Options").  The option price per share of common stock deliverable upon the exercise of an Incentive Stock Option shall be at least 100% of the fair market value of the common shares of the Company, and in the case of an Incentive Stock Option granted to an optionee who owns more than 10% of the total combined voting power of all classes of our stock, shall not be less than 100% of the fair market value of our common shares.  The option term of each Incentive Stock Option shall be determined by the Board of Directors, which shall not commence sooner than from the date of grant and shall terminate no later than ten (10) years from the date of grant of the Incentive Stock Option, subject to possible early termination as described above.

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As of the date of this annual report, no Stock Options have been exercised.

Comparative Stock Performance

Our shares of common stock were first quoted on the OTC Bulletin Board on May 24, 2006; however, no trades occurred until March 12, 2008.  The graph below compares the cumulative total stockholder return on our common stock for the period from March 12, 2008 to February 28, 2009 and for the years ended February 28, 2010 and 2011, with the cumulative total return of the S&P 500 and the cumulative total return of the S&P Small Cap 600 over the same periods (assuming an investment of $100 in our common stock, the S&P 500 and the S&P Small Cap 600 on March 12, 2008, and the reinvestment of all dividends, if any).  The cumulative returns of the S&P 500 and the S&P Small Cap 600 from March 12, 2008 through February 28, 2011 were closely aligned, which is why the lines tracking the their performance in the chart below are closely correlated.



Recent Sales Of Unregistered Securities

As of the date of this Annual Report and during fiscal year ended February 28, 2011, we did not have any sales of unregistered securities.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

We did not purchase any of our shares of common stock or other securities during the year ended February 28, 2011.

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ITEM 6.               SELECTED FINANCIAL DATA

The following tables set forth Mainland's selected consolidated historical financial information that has been derived from Mainland's audited financial statements as of February 28, 2011, February 28, 2010, February 28 2009, February 29, 2008 and February 28, 2007, and the years then ended and from inception (May 12, 2006) to February 28, 2011.  You should read this financial information in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," our audited financial statements and notes thereto for the year ended February 28, 2011, included in this document. The historical results are not necessarily indicative of the results of operations to be expected in the future.



|                                                                                    | Statement of Operations Data
|----------------------------------------------------------------------------------- | ----------------------------
|                                                                                    | Year Ended
February 28,2011 
|General and Administrative Expenses                                                 |                             
|Consulting fees                                                                     | $       339,558             
|Management fees - related party                                                     | 632,600                     
|Marketing expenses                                                                  | 612,992                     
|Office and general                                                                  | 297,170                     
|Mineral property costs                                                              | -                           
|Professional fees                                                                   | 820,335                     
|Stock based compensation                                                            | 5,119,895                   
|                                                                                    | 7,822,551                   
|Net Operating Loss                                                                  | (7,822,551)                 
|Other Items                                                                         |                             
|Interest income                                                                     | 16,069                      
|Gain on settlement of debt                                                          | -                           
|Loss on abandonment of option deposit                                               | -                           
|Net Loss Before Income Tax                                                          | (7,806,482)                 
|Federal income tax benefit 
     from continuing operations                         | 2,600,000                   
|(Loss) from Continuing Operations                                                   | (5,206,482)                 
|Discontinued Operations                                                             |                             
|Income (Loss) From Discontinued 
     Operations                                    | (204,272)                   
|Gain on disposal of discontinued operations, 
     net of tax expense of $2,600,000 | 10,753,726                  
|Income (Loss) from Discontinued 
     Operations                                    | 10,549,454                  
|Net Income (Loss) for the Period                                                    | 5,342,972                   
|                                                                                    |                             
|Basic and Diluted Loss Per Common Share                                             |                             
|From continuing operations                                                          | $           (0.06)          
|From discontinued operations                                                        | 0.13                        
|                                                                                    | $          0.07             
|Weighted Average Number of Common 
Shares Outstanding - Basic                       | 80,969,502                  
|Weighted Average Number of Common Shares Outstanding - Diluted                      | 81,542,712                  



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|                                          | Balance Sheet Data
|----------------------------------------- | ------------------
|                                          | February 28,      
|                                          | 2011              
|Current Assets                            |                   
|Cash                                      | $       62,978    
|Accounts receivable                       | -                 
|Promissory note receivable                | 60,000            
|Prepaid expenses                          | 38,216            
|Deposit on properties                     | -                 
|Total Oil and Gas Properties              | 14,685,943        
|Assets Held for Sale                      | -                 
|Total Assets                              | $  14,847,137     
|                                          |                   
|Total Current Liabilities                 | $     3,956,030   
|Liabilities Held for Sale                 | -                 
|Total Stockholders' Equity      (Deficit) | 10,891,107        

ITEM 7.               MANAGEMENT'S DISCUSSION AND

The following discussion of our financial condition, changes in financial condition and results of operations for the years ended February 28, 2011 and 2010 should be read in conjunction with our most recent audited consolidated financial statements for the years ended February 28, 2011 and 2010, which are included in this annual report, and the related notes to the financial statements.  This discussion contains forward-looking statements that involve risks, uncertainties and assumptions.  Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this annual report.

Fiscal Year Ended February 28, 2011 Compared To Fiscal Year Ended February 28, 2010

We did not generate any revenue during our fiscal year ended February 28, 2011 or our fiscal year ended February 28, 2010.

During our fiscal year ended February 28, 2011, we incurred general and administrative expenses of $7,822,551 compared to $2,883,482 incurred during our fiscal year ended February 28, 2010.  These general and administrative expenses included the following:

- consulting fees of $339,558 during our fiscal year ended February 28, 2011 (2010 - $311,334), which increased as we ramped up consulting services while conducting our drilling program;
- management fees of $632,600 during our fiscal year ended February 28, 2011 (2010 - $250,164), which increased in 2011 due to our expanded program in Mississippi;
- marketing expenses of $612,992 during our fiscal year ended February 28, 2011 (2010 - $560,025);
- office and general expenses of $297,170 during our fiscal year ended February 28, 2011 (2010 - $123,101), which increased in 2011 due to our expanded program in Mississippi;

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Our general and administrative expenses incurred during our fiscal year ended February 28, 2011 compared to our fiscal year ended February 28, 2010 increased primarily due to an increase in salary expenses from $1,148,000 in 2010 to $5,119,895 in 2011.

As a result, our net operating loss during our fiscal year ended February 28, 2011 was $7,822,551 compared to a net operating loss of $2,883,482 during our fiscal year ended February 28, 2010.

During our fiscal year ended February 28, 2011, we recorded other income in the amount of $16,069, consisting of interest income (2010 - $1,070, consisting of interest income).  During our fiscal year ended February 28, 2011, we recorded a $10,549,454 gain from discontinued operations (2010 - $34,575 loss from discontinued operations).  As a result, our net income for our fiscal year ended February 28, 2011 was $5,342,972 (2010 - net loss of $4,216,987).

Liquidity And Capital Resources

As of February 28, 2011, our current assets were $161,194 (2010 - $642,042) and our current liabilities were $3,956,030 (2010 - $711,044), which resulted in a working capital deficit of $3,794,836 (2010 - $69,002 ). As of February 28, 2011, our current assets were comprised of $62,978 in cash, $60,000 in loans receivable and $38,216 in prepaid expenses.  As of February 28, 2011, current liabilities were comprised of accounts payable and accrued liabilities, drilling advances and shareholder advances/loans.

As of February 28, 2011, our total assets were $14,847,137 (2010 - $12,348,940), comprised of: (i) current assets in the amount of $161,194 (2010 - $642,042), (ii) oil and gas properties, net of accumulated depletion, in the amount of $14,685,943 (2010 - $3,534,436), and (iii) Nil in assets held for sale (2010 - $8,172,462).

As of February 28, 2011, we had $3,956,030 in current liabilities (2010 - $711,044), consisting of accounts payable and accrued liabilities of $3,254,785 (2010 - $711,044), drilling advances of $48,745 (2010 - $Nil), and shareholder advances/loans of $652,500 (2010- $Nil).  At February 28, 2011, we had $Nil in liabilities held for sale (2010 - $11,209,656).

Stockholders' equity increased from $428,240 as of February 28, 2010 to $10,891,107 as of February 28, 2011.

As noted above, during the year ended February 28, 2011, we sold our remaining 40% interest in the Haynesville Shale portion of the East Holly Field leases for $28,159,604 on April 22, 2010, with an effective date of January 1, 2010.  We have applied the net proceeds to: (a) fund the drilling of the Burkley-Phillips No. 1 well on the Buena Vista prospect in Mississippi; and (b) to retire our debt to Guggenheim.  We anticipate that we will incur additional expenses of approximately $5,000,000 for the post-drilling completion work on the Burkley-Phillips No. 1 Well, and we plan to drill wells in the Hosston/Cotton Valley formations of the East Holly Prospect, possibly with a joint venture partner, in 2011.  However, we will require additional funding to complete our 2011 operations program and to complete the merger with American Exploration.  We anticipate that we will receive this funding from a variety of methods, including private placements of equity and/or debt instruments, entering into joint venture transactions with third parties, mezzanine financing, and cash flows from any successful wells.

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We have no lines of credit or other bank financing arrangements.  Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments.  In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) oil and gas operating properties; (ii) possible drilling initiatives on current properties and future properties; and (iii) future property acquisitions.  We may finance these expenses, and any continuing long-term operating expenses, through the methods noted above, namely, private placements of equity and/or debt instruments, entering into joint venture transactions with third parties, mezzanine financing and cash flows from any successful wells.

Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders.  Further, such securities might have rights, preferences or privileges senior to our common stock.  Additional financing may not be available upon acceptable terms, or at all.  If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.

Cash and Working Capital

The following table sets forth our cash and working capital as of February 28, 2011 and 2010:





|                                  | As of
February 28, 2011 | As of 
February 28, 2010
|--------------------------------- | ----------------------- | ------------------------
|Cash                              | $                       | 62,978                  
|Working capital surplus (deficit) | $                       | (3,794,836)             

Cash Flows From (Used In) Operating Activities

For our fiscal year ended February 28, 2011, net cash used in operating activities was $2,976,311.  Our net loss from continuing operations was ($5,206,482).  Net cash flows used in operating activities was adjusted by ($2,600,000) in income tax benefit and $5,119,895 in stock-based compensation.  Net cash flows related to operating activities was further changed by ($6,298) in changes to prepaid expenses, $48,745 in drilling advances and ($332,171) in changes to accounts payable and accrued liabilities.

For our fiscal year ended February 28, 2010, net cash from operating activities was $(1,109,391).  Our net loss from continuing operations was ($4,182,412).  Net cash flows used in operating activities was adjusted by $1,300,000 in non-cash mineral property losses, $1,148,000 in stock-based compensation and $16,125 in non-cash consulting fees.  Net cash flows related to operating activities was further changed by ($31,918) in changes to prepaid expenses and $640,814 in changes to accounts payable and accrued liabilities.

Cash Flows From Investing Activities

For our fiscal year ended February 28, 2011, net cash flows used in investing activities was ($8,335,595), consisting of investment in oil and gas property of ($8,275,595) and ($60,000) in a promissory note receivable advance.

For our fiscal year ended February 28, 2010, net cash flows used in investing activities was ($3,612,436), consisting of investment in oil and gas property of ($3,412,436) and deposit on properties of ($200,000).

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Cash Flows From Financing Activities

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

For our fiscal year ended February 28, 2011, net cash provided by financing activities was $652,500 compared to $1,153,000 for our fiscal year ended February 28, 2010.  Cash flows provided by financing activities in 2011 consisted of related party promissory notes payable of $652,500, while cash flows provided by financing activities in 2010 consisted of proceeds from the exercise of warrants.

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

Plan Of Operation And Funding

As indicated above, as of February 28, 2011, we had current assets of $161,194 and current liabilities of $3,956,030, resulting in a working capital deficit of $3,794,836.  During the year ended February 28, 2011, we sold our remaining 40% interest in the Haynesville Shale portion of the East Holly Field leases for $28,159,604 on April 22, 2010, with an effective date of January 1, 2010.  To date, we have applied the net proceeds to: (a) fund the drilling of the Burkley-Phillips No. 1 Well on the Buena Vista prospect in Mississippi; and (b) to retire our debt to Guggenheim.  As noted above, we anticipate that we will incur additional expenses of approximately $5,000,000 for the post-drilling completion work on the Burkley-Phillips No. 1 Well, and we plan to drill wells in the Hosston/Cotton Valley formations of the East Holly Prospect, possibly with a joint venture partner, in 2011.  However, additional funding will be required to complete our 2011 operations program.  We anticipate that we will receive this funding from a variety of methods, including private placements, equity funding, entering into joint venture transactions with third parties, mezzanine financing and cash flows from successful wells.

We have no lines of credit or other bank financing arrangements.  Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments.  In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) oil and gas operating properties; (ii) possible drilling initiatives on current properties and future properties; and (iii) future property acquisitions.  We intend to finance these expenses with further issuances of securities, and debt issuances.  Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements.  Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders.  Further, such securities might have rights, preferences or privileges senior to our common stock.  Additional financing may not be available upon acceptable terms, or at all.  If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavours or opportunities, which could significantly and materially restrict our business operations.

Material Commitments

During the year ended February 28, 2011, Guggenheim held a promissory note totalling $10,277,485 payable by us.  As a result of our sale of our remaining 40% interest in the Haynesville Shale portion of the East Holly Field leases for $28,159,604 on April 22, 2010, we retired this debt to Guggenheim.

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As described above, our Company has entered into a joint area development agreement with American Exploration to jointly develop contiguous acreage comprising the Buena Vista Prospect.  As operator on the Buena Vista Prospect, we issued an Authority for Expenditure (AFE) for the Burkley-Phillips No. 1 well to be drilled on the Prospect.  We intend to drill the well to a depth sufficient to evaluate the Haynesville Shale, currently expected to total 22,000 feet.  Drilling commenced on July 21, 2010 and the well reached the projected total depth of 22,000 feet on December 27, 2010.  Our total drilling cost was approximately $10,200,000, and we anticipate that we will incur approximately $5,000,000 in additional post-drilling completion costs during the current fiscal year.  American Exploration was unable to fund its 20% share of the estimated total well costs of the Burkley-Phillips No. 1 Well.  As a result, American Exploration has forfeited its right to a 29% working interest in the well and in the Buena Vista Prospect in favor of our Company.  American Exploration will continue to be entitled to receive a 20% working interest in the well and the Prospect after completion (subject to compliance by American Exploration with all other terms and conditions of our letter agreement and related joint operating agreement with American Exploration).  If the merger is approved as proposed and proceeds, American Exploration's 20% working interest in the well and the Prospect after completion will by owned by Mainland Resources, the resultant merged entity.

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

Other than our retired debt to Guggenheim as of February 28, 2011 and our obligations under our joint operating agreement with American Exploration as described above, we did not have any material commitments for capital expenditures as of February 28, 2011.

Tabular Disclosure of Contractual Obligations

The following table provides information regarding our known contractual obligations as of February 28, 2011:

|                                                                  | Payment due by period
|----------------------------------------------------------------- | ---------------------
|Contractual Obligations                                           | Total                
|Long-term debt obligations                                        | Nil                  
|Capital lease obligations                                         | Nil                  
|Operating lease obligations                                       | Nil                  
|Purchase obligations                                              | Nil                  
|Other long-term liabilities reflected on balance sheet under GAAP | Nil                  

Off-Balance Sheet Arrangements

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

Going Concern

The independent auditors' report accompanying our February 28, 2011, February 28, 2010 and February 29, 2009 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.  The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.

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Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-6, "Improving Disclosures about Fair Value Measurements." This update requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The new disclosure requirements are effective for interim and annual periods beginning after December 15, 2009, except for the disclosure of purchases, sales, issuances and settlements of Level 3 measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010. As ASU 2010-6 only requires enhanced disclosures, the Company does not expect that the adoption of this update will have a material effect on its financial position, results of operations or cash flows.

In December 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-28 (ASU 2010-28), Intangibles, Goodwill and Other. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The Company does not expect the provisions of ASU 2010-28 to have a material effect on the Company's financial position, results of operations or cash flows.

ITEM 7A.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

ITEM 8.              FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Balance Sheets as of February 28, 2011 and 2010

Statements of Operations for Fiscal Years Ended February 28, 2011, 2010, 2009 and from Inception (May 12, 2006) to February 28, 2011

Statement of Stockholders' Equity for the Period from Inception (May 12, 2006) to February 28, 2011

Statements of Cash Flows for the Fiscal Years Ended February 28, 2011, 2010, 2009 and from Inception (May 12, 2006) to February 28, 2011

Notes to Financial Statements



41



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De Joya Griffith & Company, LLC

CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS





Report of Independent Registered Public Accounting Firm



To The Board of Directors and Stockholders



We have audited the accompanying balance sheets of Mainland Resources, Inc. (An Exploration Stage Company) as of February 28, 2011 and 2010, and the related statements of operations, stockholders' equity, and cash flows for each of the three-year period ended February 28, 2011 and the period from inception (May 12, 2006) to February 28, 2011. Mainland Resources' management is responsible for these financial statements. Our responsibility is to express an opinion on the financial statements based on our audits.



We conducted our audits in accordance with 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 were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial statements referred to above present fairly, in all material respects, the financial position of Mainland Resources, Inc. as of February 28, 2011 and 2010, and the results of its operations and its cash flows for each of the three-year period ended February 28, 2011 and the period from inception (May 12, 2006) to February 28, 2011, in conformity with accounting principles generally accepted in the United States of America.



The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.





De Joya Griffith & Company, LLC
/s/ De Joya Griffith & Company, LLC
Henderson, NV
May 26, 2011





2580 Anthem Village Drive, Henderson, NV  89052
Telephone (702) 563-1600  
  Facsimile (702) 920-8049

42



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MAINLAND RESOURCES INC.





|                                                                   | February 28,
2011   | February 28,
2010 
|------------------------------------------------------------------ | ------------------- | ------------------
|ASSETS                                                            
|CURRENT ASSETS                                                     |                     |                   
|Cash                                                               | $            62,978 | $          610,124
|Promissory note receivable (Note 4)                                | 60,000              | -                 
|Prepaid expenses                                                   | 38,216              | 31,918            
|TOTAL CURRENT ASSETS                                               | 161,194             | 642,042           
|OIL AND GAS PROPERTIES, (Note 3)                                   |                     |                   
|Unproved                                                           | 14,685,943          | 3,534,436         
|TOTAL OIL AND GAS PROPERTIES                                       | 14,685,943          | 3,534,436         
|ASSETS HELD FOR SALE (Notes 3 and 9)                               | -                   | 8,172,462         
|TOTAL ASSETS                                                       | $    14,847,137     | $    12,348,940   
|LIABILITIES AND STOCKHOLDERS' EQUITY                              
|                                                                   |                     |                   
|CURRENT LIABILITIES                                                |                     |                   
|Accounts payable and accrued liabilities                           | $      3,254,785    | $          711,044
|Drilling advances                                                  | 48,745              | -                 
|Promissory note payable -related party (Note 8)                    | 652,500             | -                 
|TOTAL CURRENT LIABILITIES                                          | 3,956,030           | 711,044           
|LIABILITIES HELD FOR SALE (Notes 3, 5 and 9)                       | -                   | 11,209,656        
|CONTINGENCIES (Note 12)                                            |                     |                   
|                                                                   |                     |                   
|STOCKHOLDERS' EQUITY(Note 6)                                       |                     |                   
|Common stock, 600,000,000 shares authorized with $0.0001 par value |                     |                   
|Issued and outstanding - 80,969,502 common shares                  |                     |                   
|(February 28, 2010 - 80,969,502)                                   | 8,097               | 8,097             
|Additional paid-in-capital                                         | 23,488,984          | 18,369,089        
|Deficit accumulated during exploration stage                       | (12,605,974)        | (17,948,946)      
|TOTAL STOCKHOLDERS' EQUITY                                         | 10,891,107          | 428,240           
|TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                           | $    14,847,137     | $    12,348,940   
|                                                                   |                     |                   









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

43



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



|                                                                                  | Year Ended February 28, | Year Ended February 28, | Year Ended February 28, | Inception 
(May 12, 2006) to February 28,
|--------------------------------------------------------------------------------- | ----------------------- | ----------------------- | ----------------------- | -----------------------------------------
|                                                                                  | 2011                    | 2010                    | 2009                    | 2011                                     
|GENERAL AND ADMINISTRATIVE EXPENSES                                               |                         |                         |                        
|Consulting fees                                                                   | $       339,558         | $      311,334          | $       595,374         | $    1,246,266                           
|Management fees-related party (Note 8)                                            | 632,600                 | 250,164                 | 126,400                 | 1,023,584                                
|Marketing expenses                                                                | 612,992                 | 560,025                 | 921,107                 | 2,094,124                                
|Office and general                                                                | 297,170                 | 123,101                 | 82,376                  | 562,318                                  
|Professional fees                                                                 | 820,335                 | 490,858                 | 243,710                 | 1,622,504                                
|Stock based compensation (Note 7)                                                 | 5,119,895               | 1,148,000               | 12,002,685              | 18,270,580                               
|                                                                                  | 7,822,551               | 2,883,482               | 13,971,652              | 24,819,376                               
|NET OPERATING LOSS                                                                | (7,822,551)             | (2,883,482)             | (13,971,652)            | (24,819,376)                             
|                                                                                  |                         |                         |                         |                                          
|OTHER ITEMS                                                                       |                         |                         |                         |                                          
|Interest income                                                                   | 16,069                  | 1,070                   | 7,399                   | 24,538                                   
|Gain on settlement of debt                                                        | -                       | -                       | 33,239                  | 33,239                                   
|Loss on abandonment on option deposit (Note 3)                                    | -                       | (1,300,000)             | -                       | (1,300,000)                              
|NET LOSS BEFORE INCOME TAX                                                        | (7,806,482)             | (4,182,412)             | (13,931,014)            | (26,061,599)                             
|                                                                                  |                         |                         |                         |                                          
|Federal income tax benefit
    from continuing operations                         | 2,600,000               | -                       | -                       | 2,600,000                                
|LOSS FROM CONTINUING OPERATIONS                                                   | (5,206,482)             | (4,182,412)             | (13,931,014)            | (23,461,599)                             
|DISCONTINUED OPERATIONS (Note 9)                                                  |                         |                         |                         |                                          
|Income (loss) from discontinued operations                                        | (204,272)               | (34,575)                | 355,256                 | 101,899                                  
|Gain on disposal of discontinued operations,
    net of tax expense of $2,600,000 | 10,753,726              | -                       | -                       | 10,753,726                               
|INCOME (LOSS) 
     FROM DISCONTINUED OPERATIONS                                  | 10,549,454              | (34,575)                | 355,256                 | 10,855,625                               
|NET INCOME (LOSS) FOR THE PERIOD                                                  | $    5,342,972          | $ (4,216,987)           | $(13,575,758)           | $(12,605,974)                            



|BASIC AND DILUTED LOSS PER COMMON SHARE:                       |                    |                    |                    | 
|-------------------------------------------------------------- | ------------------ | ------------------ | ------------------ | 
|From continuing operations                                     | $           (0.06) | $           (0.05) | $           (0.18) | 
|From discontinued operations                                   | 0.13               | 0.00               | 0.00               | 
|                                                               | $             0.07 | $           (0.05) | $           (0.18) | 
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC   | 80,969,502         | 80,569,066         | 77,055,822         | 
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED | 81,542,712         | -                  | -                  | 

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

44



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MAINLAND RESOURCES INC.(An Exploration Stage Company)STATEMENT OF STOCKHOLDERS' EQUITY 
FOR THE PERIOD FROM MAY 12, 2006 (INCEPTION) TO FEBRUARY 28, 2011(Audited)



|                                                                                           | Common Stock     |            | Deficit accumulated        | Other Accumulated        |                     
|------------------------------------------------------------------------------------------ | ---------------- | ---------- | -------------------------- | ------------------------ | --------------------
|                                                                                           | Number of Shares | Amount     | Additional
Paid in Capital | during
exploration
stage | Comprehensive
Income
|Balance, May 12, 2006                                                                      | -                | $       -  | $           -              | $           -            | $           -       
|Common stock issued for cash
      at $0.0000143 per  share  - June 15, 2006               | 12,000,000       | 1,200      | (1,028)                    | -                        | -                   
|Common stock  issued for mineral properties 
     at $0.000715 per share - July 15, 2006   | 6,210,000        | 621        | 3,819                      | -                        | -                   
|Common stock issued for cash
     at $0.000715 per share - October 6, 2006                 | 25,020,000       | 2,502      | 15,390                     | -                        | -                   
|Donated Services and rent                                                                  | -                | -          | 5,793                      | -                        | -                   
|Foreign currency translation adjustment                                                    | -                | -          | -                          | -                        | 195                 
|Net loss for the period                                                                    | -                | -          | -                          | (11,256)                 | -                   
|Balance, February 28, 2007                                                                 | 43,230,000       | 4,323      | 23,974                     | (11,256)                 | 195                 
|Common stock issued for cash 
     at $0.00085 per share - October 15, 2007                | 24,000,000       | 2,400      | 18,052                     | -                        | -                   
|Donated services and rent                                                                  | -                | -          | 8,627                      | -                        | -                   
|Foreign currency translation adjustment                                                    | -                | -          | -                          | -                        | (617)               
|Net loss for the year                                                                      | -                | -          | -                          | (144,523)                | -                   
|Balance, February  29, 2008                                                                | 67,230,000       | 6,723      | 50,653                     | (155,779)                | (422)               
|Common stock issued for cash at $0.33 
     per  share -   May 1, 2008 to July  22, 2008   | 12,000,002       | 1,200      | 3,998,800                  | -                        | -                   
|Foreign currency translation adjustment                                                    | -                | -          | -                          | -                        | 422                 
|Stock based compensation                                                                   | -                | -          | 12,002,685                 | -                        | -                   
|Net loss for the year                                                                      | -                | -          | -                          | (13,576,180)             | -                   
|Balance, February 28, 2009                                                                 | 79,230,002       | 7,923      | 16,052,138                 | (13,731,959)             | -                   
|Common stock issued for consulting agreement
     at $1.78 per share - March 17, 2009      | 5,000            | 1          | 8,874                      | -                        | -                   
|Common stock issued exercise of warrants
     at $0.67 per share - April 30 - June 1, 2009 | 1,729,500        | 172        | 1,152,828                  | -                        | -                   
|Common stock issued for consulting agreement
     at $1.45 per share - June 1, 2009        | 5,000            | 1          | 7,249                      | -                        | -                   
|Stock based compensation                                                                   | -                | -          | 1,148,000                  | -                        | -                   
|Net loss for the year                                                                      | -                | -          | -                          | (4,216,987)              | -                   
|Balance, February 28, 2010                                                                 | 80,969,502       | 8,097      | 18,369,089                 | (17,948,946)             | -                   
|Stock based compensation                                                                   | -                | -          | 5,119,895                  | -                        | -                   
|Net income for the year                                                                    | -                | -          | -                          | 5,342,972                | -                   
|Balance, February 28, 2011                                                                 | 80,969,502       | $    8,097 | $   23,488,984             | (12,605,974)             | $           -       



45



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

|                                                                                    | Year Ended February 28, | Year Ended February 28, | Year Ended February 28, | Inception
(May 12, 2006) to February 28,
|----------------------------------------------------------------------------------- | ----------------------- | ----------------------- | ----------------------- | ----------------------------------------
|                                                                                    | 2011                    | 2010                    | 2009                    | 2011                                    
|CASH FLOWS FROM OPERATING ACTIVITIES                                                |                         |                         |                         |                                         
|Net income (loss) for the period                                                    | $       5,342,972       | $    (4,216,987)        | $  (13,575,758)         | $  (12,605,974)                         
|Less: (income)loss from operations discontinued operations                          | (10,549,454)            | 34,575                  | (355,256)               | (10,855,625)                            
|Net loss from continuing operations                                                 | $    (5,206,482)        | $    (4,182,412)        | $  (13,931,014)         | $  (23,461,599)                         
|Adjustments to reconcile net loss to net cash used in operating activities:         |                         |                         |                         |                                         
|- Income tax benefit                                                                | (2,600,000)             | -                       | -                       | (2,600,000)                             
|- Non-cash mineral property losses (recoveries)                                     | -                       | 1,300,000               | (33,239)                | 1,271,201                               
|- Stock-based compensation (Note 7)                                                 | 5,119,895               | 1,148,000               | 12,002,685              | 18,270,580                              
|- Non-cash consulting fees (Note 6)                                                 | -                       | 16,125                  | -                       | 16,125                                  
|- Donated services and expenses                                                     | -                       | -                       | -                       | 14,420                                  
|CHANGES IN OPERATING ASSETS AND LIABILITIES                                         |                         |                         |                         |                                         
|- Prepaid expenses                                                                  | (6,298)                 | (31,918)                | -                       | (38,216)                                
|- Drilling advances                                                                 | 48,745                  |                         |                         | 48,745                                  
|- Accounts payable - related parties                                                | -                       | -                       | (6,138)                 | -                                       
|- Accounts payable and accrued liabilities                                          | (332,171)               | 640,814                 | 32,111                  | 378,873                                 
|NET CASH FROM (USED IN) OPERATING ACTIVITIES                                        | (2,976,311)             | (1,109,391)             | (1,935,595)             | (6,099,871)                             
|                                                                                    |                         |                         |                         |                                         
|CASH FLOWS FROM INVESTING ACTIVITIES                                                |                         |                         |                         |                                         
|Investment in oil and gas property                                                  | (8,275,595)             | (3,412,436)             | (70,300)                | (11,759,231)                            
|Promissory note receivable advances                                                 | (60,000)                | -                       | -                       | (60,000)                                
|Deposit on properties                                                               | -                       | (200,000)               | (1,100,000)             | (1,300,000)                             
|NET CASH FLOWS USED IN INVESTING ACTIVITIES                                         | (8,335,595)             | (3,612,436)             | (1,170,300)             | (13,119,231)                            
|                                                                                    |                         |                         |                         |                                         
|CASH FLOWS FROM FINANCING ACTIVITIES                                                |                         |                         |                         |                                         
|Proceeds on sale of common stock                                                    | -                       | -                       | 3,950,000               | 3,988,516                               
|Proceeds from exercised warrants                                                    | -                       | 1,153,000               | -                       | 1,153,000                               
|Promissory Note Payable, related party                                              | 652,500                 | -                       | -                       | 652,500                                 
|Advances from related party                                                         | -                       | -                       | -                       | 83,239                                  
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                           | 652,500                 | 1,153,000               | 3,950,000               | 5,877,255                               
|CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS                                  |                         |                         |                         |                                         
|Net cash provided by operating activities                                           | 21,800,972              | (1,001,764)             | (57,490)                | 22,731,637                              
|Net cash provided by investing activities                                           | (1,410,227)             | (7,251,574)             | (655,834                | (9,326,812)                             
|Net cash provided by financing activities                                           | (10,278,485)            | 10,278,485              | -                       | -                                       
|NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS                              | 10,112,260              | 4,028,675               | (713,324)               | 13,404,825                              
|                                                                                    |                         |                         |                         |                                         
|INCREASE IN CASH                                                                    | (547,146)               | 459,848                 | 130,781                 | 62,978                                  
|CASH, BEGINNING OF PERIOD                                                           | 610,124                 | 150,276                 | 19,495                  | -                                       
|                                                                                    |                         |                         |                         |                                         
|CASH, END OF PERIOD                                                                 | $          62,978       | $        610,124        | $        150,276        | $          62,978                       
|SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
|Cash paid for interest                                                              | $         172,458       | $         201,159       | $            -          | $         201,159                       
|Cash paid for income taxes                                                          | $            -          | $            -          | $            -          | $            -                          
|Common stock issued for acquisition of mineral property                             | $            -          | $            -          | $            -          | $             4,440                     
|Common stock issued for consulting fees                                             | $            -          | $           16,125      | $            -          | $           16,125                      
|Common stock issued for satisfaction of liability                                   | $            -          | $            -          | $           50,000      | $           50,000                      
|Oil and gas property acquired through increase in A/P                               | $       2,875,912       | $            -          | $            -          | $       2,875,912                       
|Donated services and rent                                                           | $            -          | $            -          | $            -          | $           14,420                      

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

46



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MAINLAND RESOURCES INC.



|
|



NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION



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



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



Going concern

The Company commenced operations on May 12, 2006. Although the Company has realized revenues in prior operations, as of February 28, 2011, the Company has an accumulated deficit during the exploration stage of $12,605,974.  The ability of the Company to continue as a going concern is dependent on raising capital to fund ongoing operations and carry out its business plan and ultimately to attain profitable operations.  Accordingly, these factors raise substantial doubt as to the Company's ability to continue as a going concern. These financials do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.  To date, the Company has funded its initial operations by way of private placements of common stock, advances from related parties and bridge loan financing.  During fiscal 2009, the Company completed a private placement of $4,000,000 at $0.33 per unit with each unit consisting of one common share and one half warrant at $0.67 per share exercisable for a period of one year from issuance (refer to Note 6). In addition, during the year ended February 28, 2010, 1,729,500 warrants were exercised at $0.67 for net proceeds to the company of $1,153,000. In fiscal 2011, the Company raised $650,000 through a related party promissory note (refer to Note 8).  Subsequent to the year end, a further $310,000 was raised under the same terms and with the same party.  On August 10, 2009, the Company closed a $3,500,000 bridge loan financing which was replaced effective October 16, 2009 with a secured senior line of credit for $40,000,000 of which $10,278,485 had been advanced as of February 28, 2010. During fiscal 2011, the entire outstanding balance owed on the secured line of credit was repaid from the sale of assets (refer to Note 3 and 5).



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Organization

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



Basis of presentation

These financial statements are presented in United States dollars and have been prepared in accordance with United States generally accepted accounting principles.

47



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



|
|



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)



Oil and gas properties

The Company follows the full cost method of accounting for its oil and gas operations whereby all costs related to the acquisition of methane, petroleum, and natural gas interests are capitalized. Under this method, all productive and non-productive costs incurred in connection with the exploration for and development of oil and gas reserves are capitalized. Such costs include land and lease acquisition costs, annual carrying charges of non-producing properties, geological and geophysical costs, costs of drilling and equipping productive and non-productive wells, and direct exploration salaries and related benefits.  Proceeds from the disposal of oil and gas properties are recorded as a reduction of the related capitalized costs without recognition of a gain or loss unless the disposal would result in a change of 20 percent or more in the depletion rate.  The Company currently operates solely in the U.S.



Depreciation and depletion of proved oil and gas properties is computed on the units-of-production method based upon estimates of proved reserves, as determined by independent consultants, with oil and gas being converted to a common unit of measure based on their relative energy content.



The costs of acquisition and exploration of unproved oil and gas properties, including any related capitalized interest expense, are not subject to depletion, but are assessed for impairment either individually or on an aggregated basis. The costs of certain unevaluated leasehold acreage are also not subject to depletion. Costs not subject to depletion are periodically assessed for possible impairment or reductions in recoverable value. If a reduction in recoverable value has occurred, costs subject to depletion are increased or a charge is made against earnings for those operations where a reserve base is not yet established.



Estimated future removal and site restoration costs are provided over the life of proven reserves on a units-of-production basis.  Costs, which include production equipment removal and environmental remediation, are estimated each period by management based on current regulations, actual expenses incurred, and technology and industry standards.  The charge is included in the provision for depletion and depreciation and the actual restoration expenditures are charged to the accumulated provision amounts as incurred.



The Company applies a ceiling test to capitalized costs which limits such costs to the aggregate of the estimated present value, using a ten percent discount rate of the estimated future net revenues from production of proven reserves at year end at market prices less future production, administrative, financing, site restoration, and income tax costs plus the lower of cost or estimated market value of unproved properties.  If capitalized costs are determined to exceed estimated future net revenues, a write-down of carrying value is charged to depletion in the period.



Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period.  Actual results could differ from those estimates. Significant areas requiring management's estimates and assumptions are the determination of the fair value of transactions involving common stock, stock based compensation, financial instruments as well as deferred tax balances and asset impairment tests.  Further, depreciation, depletion and amortization of oil and gas properties and the impairment of oil and gas properties are determined using estimates of oil and gas reserves. There are numerous uncertainties in estimating the quantity of reserves and in projecting the future rates of production and timing of development expenditures, including future costs to dismantle, dispose, plug, and restore the Company's properties. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way. Proved reserves of oil and natural gas are estimated quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under existing conditions.

48



---



MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



|
|



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)



Asset retirement obligations

The Company has adopted the provisions of FASB ASC 410-20 "Asset Retirement and Environmental Obligations,"which requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the related oil and gas properties. As of February 28, 2011, there has been no asset retirement obligations recorded.



Financial instruments

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



Concentrations of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalent accounts in financial institutions. As of February 28, 2011, the Company's cash and cash equivalents do not exceed federally insured limits.



Earnings (loss) per common share

Basic earnings (loss) per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period.  Dilutive earnings (loss) per share reflect the potential dilution of securities that could share in the earnings of the Company.  Where applicable, dilutive loss per share is equal to that of basic loss per share as the effects of stock options and warrants have been excluded as they are anti-dilutive. Using the treasury stock method, common stock equivalents are 573,210 shares issuable under stock options.



Revenue Recognition

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



Income taxes

The Company follows the liability method of accounting for income taxes.  Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances.  Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.  At February 28, 2011, the Company has a current income tax liability of $Nil. The original balance of $2,600,000 recorded during the period was attributable to the net taxable gain realized from the sale of the Haynesville Shale assets in the East Holly prospect to Exco Operating Company, LP which has been fully offset by deductible exploration costs incurred on the drilling of the Burkley-Phillips #1 well in Mississippi (see Notes 3 and 9).

49



---



MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



|
|



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)



Stock-based compensation

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



The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50.  Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable.  The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.



Recent accounting pronouncements

In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-6, "Improving Disclosures about Fair Value Measurements." This update requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The new disclosure requirements are effective for interim and annual periods beginning after December 15, 2009, except for the disclosure of purchases, sales, issuances and settlements of Level 3 measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010. As ASU 2010-6 only requires enhanced disclosures, the Company does not expect that the adoption of this update will have a material effect on its financial position, cash flows and results of operations.



In December 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-28 (ASU 2010-28), Intangibles, Goodwill and Other. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The Company does not expect the provisions of ASU 2010-28 to have a material effect on the Company's financial position, results of operations or cash flows.

















50



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MAINLAND RESOURCES INC.(An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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NOTE 3 - OIL AND GAS PROPERTIES



East Holly Prospect

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



On December 21, 2009, the Company acquired, under its agreement with Petrohawk, an additional 159.3 net acres for $412,985 and on December 23, 2009 the Company also acquired an additional 51.96 net acres in conjunction with Petrohawk for $94,731 within the Cotton Valley/Haynesville trend in the State of Louisiana.



Cotton Valley/ Haynesville

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



Petrohawk Venture Agreement

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



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



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



Griffiths 11- #1

The first well under the Petrohawk Agreement, the Griffiths 11- #1, began drilling in October 2008.  The well commenced production at the end of January 2009. The Company owned a 40% working interest in the well.



Stevenson Douglas LLC. 16 - #1

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



51



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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NOTE 3 - OIL AND GAS PROPERTIES (continued)



Dehan 15 - #1-H

The third well under the Petrohawk Agreement, the Dehan 15 - #1-H, began drilling in May 2009. The well commenced production in August 2009. The Company owned a 25.73% working interest in the well.



International Paper 12H-1

The fourth well under the Petrohawk Agreement, the International Paper 12-#1H commenced production in April 2010. The Company owned a 20.58% working interest in the well.



Paul Little 7H-#1

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



Exco Operating Company, LP - Sale

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



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



Mississippi Prospect

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



52



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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NOTE 3 - OIL AND GAS PROPERTIES (continued)



Buena Vista -Mississippi Haynesville/Bossier Prospect

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



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



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



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





53



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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|





NOTE 3 - OIL AND GAS PROPERTIES (continued)



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

|                                                             | February 282011      | February 28, 2010    
|------------------------------------------------------------ | -------------------- | ---------------------
|                                                             |                      |                      
|Oil and Gas Properties:                                      |                      |                      
|Proved, subject to depletion                                 | $              -     | $           3,227,866
|Unproved, not subject to depletion                           | 14,685,943           | 8,223,155            
|                                                             |                      |                      
|                                                             |                      | 11,451,021           
|Accumulated depletion                                        | -                    | (1,147,465)          
|                                                             |                      |                      
|Preliminary Oil and Gas Properties                           | 14,685,943           | 10,303,556           
|Less: reclassified to Assets held for Sale (refer to Note 9) | -                    | (6,769,120)          
|                                                             |                      |                      
|Total Oil and Gas Properties                                 | $         14,685,943 | $           3,534,436



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





|                                                                   | AcquisitionCosts | DevelopmentCosts | Total           
|------------------------------------------------------------------ | ---------------- | ---------------- | ----------------
|                                                                   |                  |                  |                 
|Balance, February 28, 2009                                         | $              - | $              - | $              -
|                                                                   |                  |                  |                 
|Incurred during the year                                           | 3,920,152        | 6,743,858        | 10,664,010      
|Reallocated to proven and subject to depletion                     | -                | (2,440,855)      | (2,440,855)     
|                                                                   |                  |                  |                 
|Preliminary unproven properties                                    | 3,920,152        | 4,303,003        | 8,223,155       
|                                                                   |                  |                  |                 
|Less:  reclassified to Assets Held for sale
     (refer to Note 9) | (385,716)        | (4,303,003)      | (4,688,719)     
|                                                                   |                  |                  |                 
|                                                                   |                  |                  |                 
|Balance, February 28, 2010                                         | 3,534,436        | -                | 3,534,436       
|Incurred during the year                                           | 11,151,507       | -                | 11,151,507      
|                                                                   |                  |                  |                 
|Balance, February 28, 2011                                         | $    14,685,943  | $             -  | $     14,685,943
|                                                                   |                  |                  |                 



Depletion of proved oil and gas properties during fiscal 2010 was computed on the units-of-production method based upon estimated proved reserves of 1,901 MMCF, reserves produced during fiscal 2010 of 675,781 Mcf and net capitalized costs to be amortized totalling $3,227,866 resulting in a depletion cost of $1,135,465 for the period and total accumulated depletion costs as of February 28, 2010 of $1,147,465.  Effective January 1, 2010, the Company sold its proven properties at the East Holly Prospect to Exco (refer to Note 9).

54



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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NOTE 4 - PLAN OF MERGER



Merger Agreement and Plan of Merger

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



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



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



On September 27, 2010, the Company approved an unsecured promissory loan of $60,000 to AEC. The note had an original maturity date of December 31, 2010 and an interest rate of 12% per annum. The maturity date of this loan was extended to August 31, 2011.

55



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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NOTE 5 - PROMISSORY NOTE



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



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



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



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



56



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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NOTE 6 - STOCKHOLDERS' EQUITY



(a)       Share Capital

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



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



All references in these financial statements to number of common shares, price per share and weighted average number of common shares outstanding prior to the 20:1 forward stock split on March 11, 2008, the 1.5:1 forward stock split on May 29, 2008 and the 2:1 forward stock split on July 15, 2009 have been adjusted to reflect these stock splits on a retroactive basis, unless otherwise noted.



On May 26, 2010 the Company corrected an administrative oversight regarding the Company's authorized share capital in relationship to the 1.5 for 1 forward split that was effective May 28, 2008, by filing a Certificate of Change with the Nevada Secretary of State.  As a result, as of May 26, 2010, the Company's authorized share capital has been increased from 400,000,000 to 600,000,000 shares of common stock, par value $0.0001 per share.  There was no change to the Company's issued and outstanding share capital.



On March 22, 2010 the Board of Directors increased the allowable number of options to be granted from 12,000,000 shares to 15,000,000 shares.



(b)       Private Placements

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



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



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



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



(c)       Other issuances

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



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



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



57



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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NOTE 6 - STOCKHOLDERS' EQUITY (continued)



(d)       Share Purchase Warrants

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



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



The Company's share purchase warrants activity for the year ended February 28, 2011 is summarized as follows:



|                            | Number of Warrants | Weighted average exercise Price per share | Weighted average 
remaining In contractual life (in years)
|--------------------------- | ------------------ | ----------------------------------------- | ----------------------------------------------------------
|Balance, February 28, 2009  | 6,000,000          |                                           | $                 0.67                                    
|Issued                      | -                  |                                           | -                                                         
|Expired                     | (4,270,500)        |                                           | 0.67                                                      
|Exercised                   | (1,729,500)        |                                           | 0.67                                                      
|                            |                    |                                           |                                                           
|Balance,  February 28, 2010 | -                  |                                           | -                                                         
|Issued                      | -                  |                                           | -                                                         
|Expired                     | -                  |                                           | 0.67                                                      
|Exercised                   | -                  |                                           | 0.67                                                      
|                            |                    |                                           |                                                           
|Balance, February 28, 2011  | -                  |                                           | $             -                                           



NOTE 7 - STOCK OPTION PLAN



On April 7, 2008, the Board of Directors of the Company ratified, approved and adopted a Stock Option Plan for the Company allowing for the grant of up to 4,400,000 options to acquire common shares with terms of up to 10 years.  Subsequently, the Board of Directors of the Company ratified, approved and amended the Stock Option Plan increasing the allowable grant as follows: to 7,600,000 options effective July 9, 2008, to 12,000,000 options effective September 22, 2009 and to 15,000,000 options effective March 22, 2010. In the event an optionee ceases to be employed by or to provide services to the Company for reasons other than cause, any Stock Option that is vested and held by such optionee may be exercisable within up to ninety calendar days after the effective date that his position ceases. No Stock Option granted under the Stock Option Plan is transferable. Any Stock Option held by an optionee at the time of his death may be exercised by his estate within one year of his death or such longer period as the Board of Directors may determine.



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



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

58



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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NOTE 7 - STOCK OPTION PLAN (continued)



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



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



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



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



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

59



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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|



NOTE 7 - STOCK OPTION PLAN (continued)



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



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



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

60



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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|

NOTE 7 - STOCK OPTION PLAN (continued)

As approved by the Board of Directors, on March 18, 2010, the Company granted a total of 1,000,000 stock options to a consultant of the Company at $1.15 per share for terms of ten years with such terms and provisions of the grant, including exercise price and duration of exercise period, to be determined at the time of grant as follows: (a) 100,000 Stock Options vesting immediately on effective date (b) 200,000 Stock Options vesting 90 days after effective date, (c) 200,000 Stock Options vesting 180 days after effective date and (d) 500,000 Stock Options vesting when the Company has completed its listing and commences trading of its shares of common stock with a designated trading symbol (the "Trading Date") with the NYSE Amex Equities, formerly known as the American Stock Exchange ("NYSE Amex Equities"). The total fair value of the initial 100,000 options as of March 18, 2010 was estimated at $99,660 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 2.44%, a dividend yield of 0% and expected volatility of 111.2% and was recorded as a stock based compensation expense in 2011. The total fair value of the second tranche of 200,000 options as of June 16, 2010 was estimated at $183,200 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 2.06%, a dividend yield of 0% and expected volatility of 98.3% and was recorded as a stock based compensation expense in fiscal 2011. The total fair value of the third tranche of 200,000 options as of September 14, 2010 was estimated at $70,180 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 1.43%, a dividend yield of 0% and expected volatility of 219.0% and was recorded as a stock based compensation expense in fiscal 2011.

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

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

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

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

On February 2, 2011, the Company granted a total of 1,350,000 stock options to a consultant of the Company at $0.75 per share for a term of 10 years.  The total fair value of these options at the date of grant was estimated at $1,085,265 and determined using the Black-Scholes option pricing model with the following assumptions; an expected life of 5 years, a risk free interest rate of 2.10%, a dividend yield of 0% and expected volatility of 207% and was recorded as a stock based compensation expense in fiscal 2011.





61



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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|



NOTE 7 - STOCK OPTION PLAN (continued)



The Company's stock option activity for the year ended February 28, 2011 is summarized as follows:



|                           | Number of Options | Weighted average 
exercisePrice per share | Weighted average 
remainingIn contractual life (in years)
|-------------------------- | ----------------- | ----------------------------------------- | ---------------------------------------------------------
|Balance, February 28, 2009 | 6,200,000         |                                           | $                 1.15                                   
|Granted                    | 800,000           |                                           | 1.50                                                     
|Exercised                  | -                 |                                           | -                                                        
|Expired / cancelled        | -                 |                                           | -                                                        
|Balance, February 28, 2010 | 7,000,000         |                                           | 1.19                                                     
|Granted                    | 6,300,000         |                                           | 1.02                                                     
|Exercised                  | -                 |                                           | -                                                        
|Expired / cancelled        | (200,000)         |                                           | 1.40                                                     
|Balance, February 28, 2011 | 13,100,000        |                                           | $                 1.10                                   





NOTE 8 - RELATED PARTY TRANSACTIONS



The Company paid a total of $632,600 in management fees to officers and directors of the Company for the year ended February 28, 2011 (February 28, 2010 - $234,039; February 28, 2009 - $126,400).



The Company has paid $53,840 to an officer and director of the Company to provide office space and office services for the period ended February 28, 2011 (February 28, 2010 - $Nil; February 28, 2009 - $Nil).



The Company has paid $2,250 to an officer and director of the Company as an advance on expenses for the period ended February 28, 2011.



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



62



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

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



During fiscal 2011, a shareholder advanced $650,000 to the Company pursuant to a Demand secured Promissory Note which bears interest at 10% per annum.  As at February 28, 2011, accrued interest was $6,397 which has been included in accounts payable and accrued liabilities.  Subsequent to year end, further advances of $310,000 were made under the same terms.  The Demand Secured Promissory Note had a due date of March 31, 2011.  The due date was subsequently extended to June 30, 2011.  The Demand Secured promissory Note is secured by assets of the Company.



63



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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NOTE 9 - DISCONTINUED OPERATIONS



Exco Operating Company, LP - Sale

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



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





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



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





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



64



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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|



NOTE 9 - DISCONTINUED OPERATIONS (continued)



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





|                                           | Year Ended February 28, | Year Ended February 28, | Year Ended February 28, | Inception 
(May 12, 2006) to February 28,
|------------------------------------------ | ----------------------- | ----------------------- | ----------------------- | -----------------------------------------
|                                           | 2011                    | 2010                    | 2009                    | 2011                                     
|                                           |                         |                         |                         |                                          
|REVENUES                                   |                         |                         |                         |                                          
|Oil and gas revenue                        | $                       | $   2,407,600           | $      516,579          | $   2,924,179                            
|                                           |                         |                         |                         |                                          
|GENERAL AND ADMINISTRATIVE EXPENSES        |                         |                         |                         |                                          
|Operating costs and taxes                  | 21,814                  | 667,275                 | 149,323                 | 816,598                                  
|Depletion Allowance                        | -                       | 1,135,465               | 12,000                  | 1,147,465                                
|Mineral property costs                     | -                       | -                       | -                       | 14,510                                   
|                                           |                         |                         |                         |                                          
|                                           | 21,814                  | 1,802,740               | 161,323                 | 2,000,387                                
|                                           |                         |                         |                         |                                          
|NET OPERATING INCOME (LOSS)                | 21,814                  | 604,860                 | 355,256                 | 923,792                                  
|OTHER ITEMS                                |                         |                         |                         |                                          
|Interest expense                           | (172,458)               | (201,159)               | -                       | (373,617)                                
|Finance costs                              | (10,000)                | (438,276)               | -                       | (448,276)                                
|                                           |                         |                         |                         |                                          
|INCOME (LOSS) FROM DISCONTINUED OPERATIONS | $     (204,272)         | $       (34,575)        | $      355,256          | $      101,899                           



65



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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NOTE 10 - INCOME TAXES



The Company has adopted the FASB ASC 740-10, "Income Taxes". As of February 28, 2011, February 28, 2010, and February 29, 2009, the Company had net operating loss carry forwards of approximately $4,805,750; $4,779,401 and $1,710,414, respectively that may be available to reduce future years' taxable income through 2031. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carryforwards.



During the year ended February 28, 2011 the Company realized a gain for tax purposes in connection with the discontinued operations disposal as described in Note 9.  After utilizing all of the then available operating loss carryforwards, the Company had an estimated tax liability of approximately $2,600,000.  This tax liability was further reduced to $Nil through the utilization of a portion of the operating loss carryforwards that resulted from operations from the date of the disposal through February 28, 2011.



The provision for income taxes consisted of the following components for the years ended February 28, 2011, February 28, 2010 and February 28, 2009:





|                           | 2011  | 2010  | 2009 
|-------------------------- | ----- | ----- | -----
|Current:                   |       |       |      
|Federal                    | 35.0% | 35.0% | 35.0%
|State                      | 0.0%  | 0.0%  | 0.00%
|Deferred:                  | -     | -     | -    
|Total income tax provision | 35.0% | 35.0% | 35.0%



Components of net deferred tax assets, including a valuation allowance, are as follows at February 28:





|                                | 2011                | 2010                | 2009               
|------------------------------- | ------------------- | ------------------- | -------------------
|Deferred tax assets:            |                     |                     |                    
|Net operating loss carryforward | $         4,805,750 | $         4,779,401 | $         1,710,414
|                                |                     |                     |                    
|Total deferred tax assets       | 1,682,013           | 1,672,790           | 598,645            
|Less: Valuation Allowance       | (1,682,013)         | (1,672,790)         | (598,645)          
|                                |                     |                     |                    
|Net Deferred Tax Assets         | $            -      | $            -      | $            -     



The valuation allowance for deferred tax assets as of February 28, 2011, February 28, 2010 and February 29, 2009 was $1,682,013, $1,672,790 and $598,645, respectively.  In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible.  Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment.  As a result, management determined it was more likely than not the deferred tax assets would not be realized as of February 28, 2011, February 28, 2010 and February 28, 2009.



66



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MAINLAND RESOURCES INC. (An Exploration Stage Company)NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011, FEBRUARY 28, 2010 and FEBRUARY 28, 2009
(Audited)



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NOTE 11 - SUBSEQUENT EVENTS



Demand Secured Promissory Note

During fiscal 2011, a shareholder advanced $650,000 to the Company pursuant to a Demand Secured Promissory Note which bears interest at 10% per annum.  As at February 28, 2011, accrued interest was $6,397.  Subsequent to year end, further advances of $310,000 were made under the same terms.  The Demand Secured Promissory Note had a due date of March 31, 2011.  The due date was subsequently extended to June 30, 2011.





NOTE 12 -CONTINGENCIES



During August 2009, the Company was included in a third party lawsuit by a former director of the Company. The former Director made certain allegations against the Company, as specifically described in the body of the Company's August 31, 2009 and November 30, 2009 filings on Form 10-Q and the February 28, 2010 10-K. Although the Company refutes these allegations and believes it should not be included in this action and that the claims contained within the lawsuit are without merit, it is possible that the Company may be exposed to a loss contingency. The amount of such loss, if any, could not previously be reasonably estimated and accordingly, no amount was recorded. During the year, the suit was settled with a result that there was no financial impact or ongoing obligation to the Company.



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

67



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

None.

ITEM 9A.            CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the 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 president (also our principal executive officer) and our secretary, treasurer and chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.

As of February 28, 2011, we carried out an evaluation, under the supervision and with the participation of our President/Chief Executive Officer and our Chief Financial Officer of the effectiveness of our disclosure controls and procedures. Based on the foregoing, our President/Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of February 28, 2011.

Management's Annual Report On Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Under the supervision and with the participation of our management, including the chief executive officer and chief financial officer, we evaluated the effectiveness of our internal control over financial reporting as of February 28, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework.

Based upon this assessment, we determined that our internal control over financial reporting as of February 28, 2011 was not effective.

Management identified the following material weaknesses in internal control over financial reporting:  the Company does not maintain an adequate purchasing/accounts payable system and does not adequately and timely apply closing procedures. Management has resolved these weaknesses by instituting improved and timely monthly reconciliations between joint interest billings and recorded accounts payables as well as improving the management review process for closing to ensure any adjustments are identified and recorded in a timely basis.

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management's report.

Changes in Internal Controls

There have been no changes in our internal control over financial reporting during our fourth fiscal quarter of our fiscal year ended February 28, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B.            OTHER INFORMATION

Not applicable.

PART III

ITEM 10.            DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Current

All of our directors hold office until the next annual general meeting of the shareholders or until their successors are elected and qualified.  Our officers are appointed by our board of directors and hold office until their earlier death, retirement, resignation or removal.

Our directors and executive officers, their ages and positions held are as follows:

|Name               | Age | Position with Company                                      
|------------------ | --- | -----------------------------------------------------------
|Michael J. Newport | 56  | President, Chief Executive Officer and a director          
|William D. Thomas  | 59  | Secretary/Treasurer, Chief Financial Officer and a director
|Simeon King Horton | 58  | Director                                                   
|Angelo Viard       | 37  | Director                                                   
|Peter G. Wilson    | 42  | Director                                                   
|Gerry Jardine      | 59  | Director                                                   

Business Experience

The following is a brief account of the education and business experience of each director, executive officer and key employee during at least the past five years, indicating each person's principal occupation during the period, and the name and principal business of the organization by which he or she was employed, and including other directorships held in reporting companies.

Michael J. Newport.  Mr. Newport has been our President since February 29, 2008, and served as our Chief Executive Officer between February 29, 2008 and August 23, 2010.  Mr. Newport was reappointed as our Chief Executive Officer and as a director effective February 14, 2011.

Mr. Newport previously served as a director of our Company from February 29, 2008 until December 3, 2009.  Mr. Newport has been actively involved in land management for nearly thirty years.  He started his career with Amoco in their New Orleans office in May 1979 where he spent two years.  Mr. Newport was actively involved in supervising brokers and writing all forms of land contracts for North and South Louisiana, Mississippi, Alabama and Florida.  He then became a district landman for Harkins & Company in their Jackson, Mississippi office where he spent four years assembling drilling prospects and all land activities associated with operations in Mississippi, Alabama, Florida and Louisiana.  The next four years were spent in Harkin's Oklahoma City office where he had the same responsibilities for Oklahoma and Arkansas as well as Mississippi, Alabama, Florida and Louisiana.  Mr. Newport then joined Greenhill Petroleum in 1989 in Houston, Texas, where he was the land manager for six years in their Permian Basin Region.  In addition to land management activities, Mr. Newport was responsible for acquisitions and divestitures.  After leaving Greenhill, Mr. Newport has spent the last thirteen years managing brokers for West Texas, South Texas, East Texas, Oklahoma and North Louisiana as well as performing all landman management activities for various operators actively drilling and completing wells in these areas.  Mr. Newport has nearly thirty years of experience in all phases of oil and gas land management with expertise in acquisitions, operations, divestitures, agreement preparation, negotiations, CAD mapping and broker supervision.

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Mr. Newport received a BBA in Finance in June of 1977, an MBA degree in August of 1978 and also completed hours for a Petroleum Land Management degree in May of 1979, all from the University of Oklahoma.

William D. Thomas.  Mr. Thomas has served as our Chief Financial Officer and Secretary/Treasurer from July 9, 2008 until September 22, 2009 and from March 26, 2010 to the present.  In addition, Mr. Thomas has served as a director of our Company since September 22, 2009.  Mr. Thomas has over thirty years of experience in the finance and accounting areas for the natural resource sector. Currently, Mr. Thomas is also the President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and a Director of Mercer GoldCorp. (OTCBB:  MRGP), the Chief Financial Officer of Sono Resources Inc (OTCBB: GVRS) and the Chief Financial Officer of Morgan Creek Energy, Inc. (OTCBB: MCKE), Nevada corporations that trade on the OTC Bulletin Board. Mr. Thomas has held various successive management positions with Kerr McGee Corporation's China operations based in Beijing, China, ending in 2004 with his final position as Director of Business Services. For a brief period after leaving Kerr McGee, Mr. Thomas acted as a self-practitioner in the accounting and finance field. In July 2007 Mr. Thomas took on the role of Chief Financial Officer for two public resource companies; Hana Mining Inc. (TSX-V: HMG) and NWT Uranium Corp (TSX-V: NWT; OTCBB: NWURF). Mr. Thomas resigned from NWT Uranium Corp. and Hana Mining Inc in July, 2008 and March, 2010 respectively.

Mr. Thomas was previously general manager (1999-2002), and finance and administration manager (1996-1999), of Kerr McGee's China operations. While in China, Mr. Thomas was responsible for finance, including Sarbanes Oxley reporting, budgeting, treasury, procurement, taxation, marketing, insurance and business development, including commercial negotiations with the Chinese partner, China National Offshore Oil Co (CNOOC), and other Chinese and joint venture partners. Mr. Thomas focused heavily on supporting exploration and development operations for three operated blocks in Bohai Bay, as well as evaluation and negotiation of new venture blocks in the East China Sea and the South China Sea. He was also responsible for the liaison with CNOOC and other Chinese oil companies, Kerr McGee US management and joint venture partners, where his main focus was to ensure cost effective and timely achievement of various approved work programs and budgets. He was also Chief Representative for Kerr McGee on the Joint Management Committee. Mr. Thomas previously worked as finance director of Kerr McGee's UK operations based in London/Aberdeen (1992-1996), and Kerr McGee's Canadian operations in Calgary, Alberta, Canada (1984-1992), including the predecessor company, Maxus Canada Ltd, which was acquired by Kerr McGee Ltd. Over the course of his career Mr. Thomas has been involved in all aspects of managing accounting, budgeting, human resources, administration, insurance, taxation and other business support aspects surrounding gas properties for Kerr McGee. Mr. Thomas was responsible to ensure compliance with COPAS, SEC, FASB and international accounting regulations. He participated on a team that developed the Oracle accounting system application to the Kerr McGee's worldwide operations. He was most notably involved in that company's initial entry into both China and the UK North Sea start ups of local and expatriate personnel that eventually developed into core areas (over $1 billion in value) for Kerr McGee, including the company's first operated offshore oil fields in China (CFD 1-1) and the UK (Gryphon).

In his early career Mr. Thomas also held senior management positions in the finance divisions of Norcen Energy Ltd., of Calgary, Alberta (1981-1984), Denison Mines Ltd, of Ontario, Canada (1978-1981), and Algoma Steel Corporation, of Sault Ste Marie, Ontario, Canada (1977). He was also a Senior Auditor for the accounting firm, Coopers & Lybrand, in Toronto, Canada (1975-1977).

Mr. Thomas attained his Chartered Accountant (CA) designation from the Canadian Institute of Chartered Accountants in 1977. He holds an Honors Bachelor of Commerce and Finance from the University of Toronto, Ontario, Canada.

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The Company's Board of Directors has determined that Mr. Thomas should serve as a director given his over thirty years of experience in the finance and accounting areas for the natural resource sector and his involvement with our Company since July 2008.

Simeon King Horton.  Ms. Horton has been one of our directors since August 18, 2008.  Ms. Horton is a Petroleum Geologist with over thirty years' experience, and provides geological consulting services to Mainland from time to time on a per diem basis. Ms. Horton has an extensive background in exploration and development of major oil and gas projects working as a consultant for oil and gas companies.

Ms. Horton worked for Mr. Dudley Hughes, an independent geologist, in Jackson, Mississippi, from 1977 to 1986. During that time, she gained broad experience in the Mississippi/Alabama Salt Basin, Black Warrior Basin in North Mississippi and Northwest Alabama, and South Florida.  The main targets of exploration were the Smackover/Norphlet Formations (located in the Salt Basin), the Paleozoics (located in the Black Warrior Basin), and the Sunniland Lime (located in South Florida).  Ms. Horton was also exposed to the Perth Basin in Australia.  As District Geologist, she was extensively involved in the exploration and development of a very aggressive drilling program and all facets of the industry.

In 1986, Ms. Horton moved to Shreveport, Louisiana where she was a consultant for various oil and gas investors until 1989.

From 1989 to 1996, Ms. Horton worked with Grigsby Petroleum in Shreveport, Louisiana, a company owned by Mr. Jack Grigsby, an independent geologist. Grigsby Petroleum is very active in North Louisiana and East Texas with numerous properties. Among these are Hosston and Cotton Valley production.  Ms. Horton was responsible for all the producing properties, the development of the properties, and the drilling of new wells for Grigsby Petroleum.

From 1996 to present, Ms. Horton has been a consulting petroleum geologist. She has been very active in the Hosston/Cotton Valley trends in North Louisiana and East Texas. She has generated drilling prospects in the area, and has successfully been responsible for the drilling of the Hosston/Cotton Valley in an area where there are sixteen to twenty wells per section.

Simeon King Horton received a Bachelor of Science degree with a Major in Geology and a Minor in Mathematics from the University of Southern Mississippi, Hattiesburg, Mississippi in 1977. She graduated with honors and was selected Outstanding Graduating Senior in Geology for the academic year of 1976-1977. She attended geology field camp thru the Rolla School of Mines, University of Missouri, which was conducted in the state of Utah.

Ms. Horton is an active member of the American Association of Petroleum Geologists and the Shreveport Geological Society, Shreveport, Louisiana.

The Company's Board of Directors has determined that Ms. Horton should serve as a director given her over thirty years of experience as a petroleum geologist and her involvement with our Company since August 2008.

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Angelo Viard.

Mr. Viard is also a Director of Morgan Creek Energy and Geneva Resources, both being Nevada corporations that trade on the OTC Bulletin Board.  Mr. Viard holds a master in computer science, a BS in business management and administration, and an A/A in computer business administration and network.

The Company's Board of Directors has determined that Mr. Viard should serve as a director given his business experience and his involvement with our Company since September 2008.

Peter G. Wilson.   Mr. Wilson has served as our Vice President of Business Development (not an executive officer position) and a member of our Board of Directors since December 3, 2009.  During the past eighteen years, Mr. Wilson has been involved in senior level management of public companies through his private investment company.  His experience spans a wide range of project finance, development and contract negotiations within the mining, energy and real estate industries.  Mr. Wilson's business experience includes international assignments in the United Kingdom, Canada, the United States, Switzerland and Norway.  Mr. Wilson has worked extensively with overseas investor groups and within the E & P market in Louisiana, Texas and Oklahoma.  From approximately October 2008 to present, Mr. Wilson has led the finance and exploration team as the President/Chief Executive Officer of Morgan Creek Energy Corp., a publicly listed company on the OTC Bulletin Board.  From April 2007 through October 2009, Mr. Wilson was the president and a director of Hana Mining Ltd., a publicly TSX-V listed exploration company seeking to develop a copper-silver resource in Botswana, Africa.  Additionally, during 2005 and 2006, he served as the president and chief executive officer of Sun Oil and Gas Corp., and from 1997 to 2005, Mr. Wilson was a director and vice president of Petroreal Oil Corp., a small oil producer engaged in energy asset purchases.  From 1993 to 1999, Mr. Wilson was the vice president of Samoth Equity Corporation (now Sterling Center Corp.), a real estate lender, where he began his involvement with capital markets and finance.

The Company's Board of Directors has determined that Mr. Wilson should serve as a director given his senior level management experience with public companies, particularly at petroleum companies.

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Gerry Jardine.

The Company's Board of Directors has determined that Mr. Jardine should serve as a director given his experience in assisting private and public entities with finance, development and investor relations.

Family Relationships

There are no family relationships among our directors or officers.

Involvement In Certain Legal Proceedings

To the best of our knowledge and belief, none of our directors or executive officers has been involved in any of the following events during the past ten years that is material to an evaluation of the ability of such person to serve as an executive officer or director of our Company:

1.     a petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

2.     such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

3.     such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

(i)     acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

(ii)    engaging in any type of business practice; or

(iii)   engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

4.     such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3(i) above, or to be associated with persons engaged in any such activity;

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5.     such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;

6.     such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

7.     such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

(i)     any Federal or State securities or commodities law or regulation;

(ii)    any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

(iii)   any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

8.     such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the United States Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

The Company is not aware of any material legal proceedings in which any of the following persons is a party adverse to the Company or has a material interest adverse to the Company: (a) any current director, officer, or affiliate of the Company, or any owner of record or beneficial owner of more than five percent of any class of voting securities of the Company; (b) any person proposed for appointment or election as a director or officer of our Company; or (c) any associate of any such person.

Compliance with Section 16(A) of the Exchange Act

Section 16(a) of the Exchange Act requires our directors and officers, and the persons who beneficially own more than ten percent of our common stock, to file reports of ownership and changes in ownership with the SEC.  Copies of all filed reports are required to be furnished to us pursuant to Rule 16a-3 promulgated under the Exchange Act.  Based solely on the reports received by us and on the representations of the reporting persons, we believe that these persons have complied with all applicable filing requirements during the fiscal year ended February 28, 2011.

Code of Ethics

We have adopted a Code of Conduct that applies to all of our executive officers and directors, including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions.  Our Code of Conduct has been filed as an Exhibit to our Annual Report on Form 10-K for the year ended February 28, 2010.

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Audit Committee

As of the date of this Annual Report, Messrs. Viard, Mr. Wilson and Mr. Thomas have been appointed as members to our Audit Committee.  Messrs Viard and Wilson are "independent" within the meaning of Rule 10A-3 under the Exchange Act and all are in addition financial experts.  The Audit Committee operates under a written audit committee charter adopted by the Board of Directors on February 4, 2009 and revised on May 19, 2010.

Compensation Committee

As of the date of this Annual Report, Ms. Horton and Mr. Viard have been appointed as members to our Compensation Committee.  The Compensation Committee operates under a written charter adopted by the Board of Directors pursuant to a written consent resolutions signed by all the members of the Board of Directors on February 4, 2009 and revised on May 19, 2010.

ITEM 11.            EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview Of Compensation Process

The Compensation Committee of our Board of Directors is responsible for setting the compensation of our executive officers, overseeing the Board's evaluation of the performance of our executive officers and administering our equity-based incentive plans, 401(k) plan and deferred compensation plan, among other things.  The Compensation Committee undertakes these responsibilities pursuant to a written charter adopted by the Compensation Committee and the Board of Directors, which will be reviewed at least annually by the Compensation Committee.

The Compensation Committee is composed solely of "non-employee directors" as defined in Rule 16b-3 of the rules promulgated under the Exchange Act, "outside directors" for purposes of regulations promulgated pursuant to Section 162(m) of the Internal Revenue Code ("IRC"), and "independent directors" as defined in Section 303A of the New York Stock Exchange ("NYSE") corporate governance listing standards, in each case as determined by the Board of Directors.  Our Board of Directors recommends Compensation Committee membership based on such knowledge, experience and skills that it deems appropriate in order to adequately perform the responsibilities of the Compensation Committee.

The Compensation Committee annually reviews executive compensation and our compensation policies to ensure that the Chief Executive Officer and the other executive officers are rewarded appropriately for their contributions to us and that the overall compensation strategy supports the objectives and values of our organization, as well as stockholder interests.  The Compensation Committee will conduct this review and compensation determination through a comprehensive process involving a series of meetings typically occurring in the first quarter of each year.

Compensation Philosophy

The fundamental objective of our executive compensation policies is to attract, retain and motivate executive leadership for us that will execute our business strategy, uphold our values and deliver results and long-term value to our stockholders.  Accordingly, the Compensation Committee seeks to develop compensation strategies and programs that will attract, retain and motivate highly qualified and high-performing executives through compensation that is:

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(i)      Performance Based: a significant component of compensation should be determined based on whether or not we meet certain performance criteria that in the view of our Board of Directors are indicative of our success;

(ii)     Stockholder Based: equity incentives should be used to align the interests of our executive officers with those of our stockholders;

(iii)   Fair: compensation should take into account compensation among similarly situated companies, our success relative to peer companies and our overall pay scale.

The Compensation Committee's compensation philosophy for an executive officer emphasizes an overall analysis of the executive's performance for the year, projected role and responsibilities, required impact on execution of our strategy, external pay practices, total cash and total direct compensation positioning, and other factors the Compensation Committee deems appropriate.  The Compensation Committee's philosophy also considers employee retention, vulnerability to recruitment by other companies and the difficulty and costs associated with replacing executive talent.  Based on these objectives, compensation programs for similarly situated companies and the philosophies of the Compensation Committee, the Compensation Committee has determined that we should provide our executive officers compensation packages composed of the following elements: (i) base salary, which reflects individual performance and is designed primarily to be competitive with salary levels at comparably sized companies; and (ii) long-term stock-based incentive awards which strengthen the mutuality of interests between executive officers and our stockholders.

Summary Compensation Table

The following table sets forth the compensation paid during our fiscal years ended February 28, 2011, February 28, 2010 and February 28, 2009 to any individual who served as our principal executive officer or principal financial officer during our fiscal year ended February 28, 2011 (the "Named Executive Officers").  We have no other executive officers other than our principal executive officer and our principal financial officer.

Summary Compensation Table



|Name and Principal Position                       | Year     | Salary($) | Bonus($) | Stock Awards($) | Option Awards($)(1) | Non-Equity Incentive Plan Compensation($) | Non-Qualified Deferred Compensation Earnings($) | All Other Compensation($) | Total($)
|------------------------------------------------- | -------- | --------- | -------- | --------------- | ------------------- | ----------------------------------------- | ----------------------------------------------- | ------------------------- | --------
|Nicholas Atencio
CEO(2)                           | 2011     | $172,426  | $-0-     | $-0-            | $471,450            | $-0-                                      | $-0-                                            | $-0-                      | $643,876
|2010                                              | $-0-     | $-0-      | $-0-     | $-0-            | $-0-                | $-0-                                      | $-0-                                            | $-0-                     
|2009                                              | $-0-     | $-0-      | $-0-     | $-0-            | $-0-                | $-0-                                      | $-0-                                            | $-0-                     
|Michael Newport, President/CEO(3)                 | 2011     | $180,000  | $-0-     | $-0-            | $-0-                | $-0-                                      | $-0-                                            | $-0-                      | $180,000
|2010                                              | $160,000 | $-0-      | $-0-     | $-0-            | $-0-                | $-0-                                      | $-0-                                            | $160,000                 
|2009                                              | $95,000  | $-0-      | $-0-     | $1,651,500      | $-0-                | $-0-                                      | $-0-                                            | $1,746,500               
|William Thomas, Treasurer, Secretary and CFO(4)   | 2011     | $139,706  | $-0-     | $-0-            | $-0-                | $-0-                                      | $-0-                                            | $-0-                      | $139,706
|2010                                              | $17,372  | $-0-      | $-0-     | $-0-            | $-0-                | $-0-                                      | $-0-                                            | $17,372                  
|2009                                              | $10,400  | $-0-      | $-0-     | $1,995,000      | $-0-                | $-0-                                      | $-0-                                            | $2,005,400               
|Mark Witt, former Secretary, Treasurer and CFO(5) | 2011     | $-0-      | $-0-     | $-0-            | $-0-                | $-0-                                      | $-0-                                            | $-0-                      | $-0-    
|2010                                              | $56,667  | $-0-      | $-0-     | $-0-            | $-0-                | $-0-                                      | $-0-                                            | $56,667                  
|2009                                              | $-0-     | $-0-      | $-0-     | $-0-            | $-0-                | $-0-                                      | $-0-                                            | $-0-                     

Notes:

1.     This amount represents the fair value of these Stock Options at the date of grant which was estimated using the Black-Scholes option pricing model.

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2.     Mr. Atencio served as our Chief Executive Officer from August 23, 2010 through the date of his resignation on February 14, 2011.

3.     Mr. Newport was appointed as our President/Chief Executive Officer on February 29, 2008.  Mr. Newport was succeeded by Mr. Atencio as our Chief Executive Officer on August 23, 2010, but continued to serve as our President. He was reappointed as our Chief Executive Officer upon Mr. Atencio's resignation effective February 14, 2011.

4.     Mr. Thomas has served as our Chief Financial Officer and Secretary/Treasurer from July 9, 2008 until September 22, 2009 and from March 26, 2010 to the present.

5.     Mr. Witt served as our Chief Financial Officer and Secretary/Treasurer from September 22, 2009 until March 26, 2010.

Grants of Plan-Based Awards Table

There were no options awards to our Named Executive Officers during our fiscal year ended February 28, 2011.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information as at February 28, 2011 relating to outstanding equity awards held by the Named Executive Officers as of that date.



|Name                                                                  | Option Awards                                                         | Stock Awards                                                                                    
|--------------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------
|Number of Securities Underly-ing Unexer-cised Options Exer-cisable(#) | Number of Securities Underlying Unexercised Options Unexer-cisable(#) | Equity Incentive Plan Awards:  Number of Securities Under-lying Unexer-cised Unearned Options(#)
|Nicholas Atencio                                                      | 1,500,000                                                             | -0-                                                                                             
|Michael Newport                                                       | 1,800,000
300,000
-0-                                                 | -0-
-0-
1,500,000                                                                               
|William Thomas                                                        | 1,500,000                                                             | -0-                                                                                             
|Mark Witt*                                                            | -0-                                                                   | 3,000,000*                                                                                      

Notes:

1.     These stock options shall vest in incremental periods as reflected below (each hereinafter the "Vesting Date"). The exercise price at each Vesting Date shall be the lesser of: (a) the thirty day weighted average price of the Company's shares of common stock prior to each of the respective Vesting Date; or (b) the issue price as established by the Board of Directors of the Company's shares of common stock at each of the equity fundings referenced below in (i).  The Vesting Date of the Stock Options is as follows: (i) 500,000 Stock Options when the Company has successfully completed its listing and commences trading of its shares of common stock with a designated trading symbol (the "Trading Date") with the NYSE Amex Equities, formerly known as the American Stock Exchange ("NYSE Amex Equities") or other Senior exchange as the case may be; (ii) 500,000 Stock Options at the one year anniversary date of the Trading Date (the "First Trading Anniversary Date"); and (iii) 500,000 Stock Options at the second year anniversary date of the Trading Date (the "Second Trading Anniversary Date").

2.     These stock options shall vest in incremental periods as reflected below (each hereinafter the "Vesting Date"). The exercise price at each Vesting Date shall be the lesser of: (a) the thirty day weighted average price of the Company's shares of common stock prior to each of the respective Vesting Date; or (b) the issue price as established by the Board of Directors of the Company's shares of common stock at each of the equity fundings referenced below in (i).  The Vesting Date of the Stock Options is as follows: (i) 1,500,000 Stock Options shall vest on the date the Company closes equity funding(s) aggregating $10,000,000; (ii) 500,000 Stock Options shall vest when the Company has successfully completed its listing and commences trading of its shares of common stock with a designated trading symbol (the "Trading Date") with the NYSE Amex Equities, formerly known as the American Stock Exchange ("NYSE Amex Equities") or comparable major exchange; (iii) 500,000 Stock Options shall vest at the one year anniversary date of the Trading Date (the "First Trading Anniversary Date"); and (iv) 500,000 Stock Options shall vest at the two year anniversary date of the Trading Date.

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*     As of the date of this annual report, the 3,000,000 stock options granted to Mark Witt have been cancelled and replaced by issuance of 500,000 stock options with an effective date of March 23, 2010 with a two year term and an exercise price of $1.25 per share.

Option Exercises and Stock Vested

During our fiscal year ended February 28, 2011, there were no exercises of stock options, SARs or similar instruments, or vesting of any stock by any of our Named Executive Officers.

Pension Benefits

We do not provide pension benefits.

Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans

We do not have any nonqualified contribution or other nonqualified deferred compensation plans.

Potential Payments upon Termination or Change-in-Control

Mark N. Witt resigned as the Chief Financial Officer/Treasurer of the Company effective as of March 23, 2010. Under the terms of his separation and release agreement with the Company dated March 26, 2010, Mr. Witt is entitled to a severance payment of $77,419, payable within 10 business days, as well as 500,000 common stock options, exercisable for two years at an exercise price of $1.25 per share.

We have no other agreement or arrangement with any of our Named Executive Officers that provides for payment upon termination or change-in-control.

Compensation of Directors

The following table sets forth information relating to compensation paid to our directors during fiscal year ended February 28, 2011:



|Name                   | Fees Earned or Paid in Cash($) | Stock Awards($) | Option Awards($) | Non-Equity Incentive Plan Compensation($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings($) | All Other Compensation($) | Total($)
|---------------------- | ------------------------------ | --------------- | ---------------- | ----------------------------------------- | -------------------------------------------------------------------------- | ------------------------- | --------
|William D. Thomas(1)   | $139,706                       | -0-             | -0-              | -0-                                       | -0-                                                                        | -0-                       | $139,706
|Simeon King Horton(2)  | $51,246                        | -0-             | -0-              | -0-                                       | -0-                                                                        | -0-                       | $51,246 
|Angelo Viard (3)       | $54,362                        | -0-             | -0-              | -0-                                       | -0-                                                                        | -0-                       | $54,362 
|Peter G. Wilson        | -0-                            | -0-             | 0                | -0-                                       | -0-                                                                        | -0-                       | -0-     
|Michael J. Newport(4)  | $180,000                       | -0-             | -0-              | -0-                                       | -0-                                                                        | -0-                       | $180,000
|Johnathan A. Moore (5) | -0-                            | -0-             | -0-              | -0-                                       | -0-                                                                        | -0-                       | -0-     
|Nicholas Atencio(6)    | $172,426                       | -0-             | $471,450         | -0-                                       | -0-                                                                        | -0-                       | $643,876

Notes:

1.      Mr. Thomas has served as a Director since September 22, 2009.  He also serves as a Named Executive Officer.  Information regarding compensation paid to him is included in the Summary Compensation Table above.

2.     We paid to Ms. King Horton an aggregate of $51,246 for providing geological consulting services to the Company.

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3.     We paid VCS an aggregate $54,362 under the terms of our agreement with VCS.  Mr. Viard is the sole director, officer and shareholder of VCS.

4.     Mr. Newport served as a Director from February 8, 2008 to December 3, 2009; he was reappointed as a Director on February 14, 2011.  He also serves as a Named Executive Officer.  Information regarding compensation paid to him is included in the Summary Compensation Table above.

5.      Mr. Moore served as a Director from December 3, 2009 to March 3, 2010.

6.     Mr. Atencio served as a Director from August 23, 2010 to February 14, 2011.  He also served as a Named Executive Officer from August 23, 2010 to February 14, 2011.

Employment And Consulting Agreements

Michael J. Newport

Effective September 22, 2009, the Board of Directors authorized the execution of a two-year Executive Services Agreement with Michael J. Newport, the President and Chief Executive Officer of Mainland. In accordance with the terms and provisions of the Executive Services Agreement, the Company agreed to continue to pay Mr. Newport a monthly salary of $15,000, and the Company granted an aggregate of 1,500,000 stock options to Mr. Newport under its 2008 Stock Option Plan, as amended, subject to vesting as follows: (a) 500,000 stock options were to vest when the Company completes a listing and commences trading of its shares of common stock with the NYSE Amex Equities Exchange, formerly known as the American Stock Exchange ("NYSE Amex Equities"); (b) 500,000 stock options were to vest at the one year anniversary date of such listing, and (c) 500,000 stock options were to vest at the second year anniversary date of such listing.  The exercise price at each vesting date was to be the lesser of (a) the thirty-day weighted average price of the Company's shares of common stock prior to each of the respective vesting dates and (b) the issue price of the shares of common stock in the equity financings above.

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

Pursuant to the terms of the Executive Services Agreement, Mr. Newport agreed to continue to provide services to the Company in the capacity as the President and Chief Executive Officer, and to provide consulting advice on exploration strategies, management and operational service considerations.  Mr. Newport resigned as Chief Executive Officer effective August 23, 2010 in order to facilitate the appointment of Nicholas W. Atencio to that office.  Mr. Newport continued to serve the Company as President at that time.

Mr. Newport was reappointed as Chief Executive Officer and a director effective February 14, 2011, and is also the President of our Company.

Nicholas W. Atencio

In connection with Nicholas W. Atencio's appointment as Chief Executive Officer and a director of Mainland, effective on August 23, 2010, the Company entered into an Executive Services Agreement with Mr. Atencio.  Pursuant to the terms of the Executive Services Agreement, Mr. Atencio agreed to serve as Chief Executive Officer of the Company for an initial term of two years, renewable automatically unless terminated in accordance with the terms of the Executive Services Agreement.

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Pursuant to the terms of the Executive Services Agreement, the Company agreed to pay Mr. Atencio a gross monthly fee of $25,000. In addition, the Company granted Mr. Atencio options under its 2008 Stock Option Plan, as amended, to purchase up to 3,500,000 shares of the Company's common stock, expiring on August 23, 2020. Of the 3,500,000 options: (a) 1,500,000 vested immediately and are exercisable at $0.47 per share; (b) an additional 750,000 stock options will become vested and exercisable upon the successful completion by the Company of equity and/or debt financings of not less than an aggregate of $5,000,000 and, subject to the terms of the 2008 Stock Option Plan, as amended, will then be exercisable at an exercise price then equal to the 15 previous day weighted average closing share price of the Company's common shares on either of the OTC Bulletin Board or such other stock exchange or over-the-counter market on which the Company's common shares then trade prior to the completion date of $5,000,000 in equity and/or debt financings; (c) an additional 750,000 stock options will become vested and exercisable upon the successful closing by the Company of an agreement with any third party investing equity partner which allows for the initiation of drilling on the Cotton Valley/Hosston formations in East Holly Field, located in Louisiana, in which the Company currently holds a 100% working interest (collectively, the "East Holly Closing Date" herein), and, subject to the terms of the 2008 Stock Option Plan, as amended, will then be exercisable at an exercise price then equal to the 15 previous day weighted average closing share price of the Company's common shares on either of the OTC Bulletin Board or such other stock exchange or over-the-counter market on which the Company's common shares then trade prior to the East Holly Closing Date; and (d) an additional 500,000 stock options will become vested and exercisable upon the Company having completed a listing and having its common shares listed for trading on either of the NYSE Amex Equities or the NASDAQ Stock Exchange, and, subject to the terms of the 2008 Stock Option Plan, as amended, will then be exercisable at an exercise price then equal to the 15 previous day weighted average closing share price of the Company's common shares on either of the OTC Bulletin Board or such other stock exchange or over-the-counter market on which the Company's common shares then trade prior to the date of the Company's listing on the NYSE Amex Equities or the NASDAQ Stock Exchange.

Mr. Atencio resigned as Chief Executive Officer and as a director of our Company on February 14, 2011.  However, he continues to actively serve our Company as a technical consultant on terms which consistent with his existing Executive Services Agreement.

William Thomas

We do not have a written contractual arrangement with our Treasurer/Chief Financial Officer, William Thomas; however, we pay him a month to month salary of $11,000.

Simeon King Horton

Simeon King Horton provides geological consulting services to our Company.  We do not have a written agreement with her; she works as a consultant and bills at the rate of $1000/day plus expenses.

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

The following table sets forth information as of May 30, 2011 regarding the beneficial ownership of our common stock by:

- each person who is known by us to beneficially own more than 5% of our shares of common stock; and
- each named executive officer, each director and all of our directors and executive officers as a group.

The number of shares beneficially owned and the percentage of shares beneficially owned are based on 80,969,502 shares of common stock outstanding as of May 30, 2011.

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For the purposes of the information provided below, shares that may be issued upon the exercise or conversion of options, warrants and other rights to acquire shares of our common stock that are exercisable or convertible within 60 days following May 30, 2011, are deemed to be outstanding and beneficially owned by the holder for the purpose of computing the number of shares and percentage ownership of that holder, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.

|Name And Address Of Beneficial Owner                                          | Amount And Nature Of Beneficial Ownership(1) | Percentage Of Beneficial Ownership(1)
|----------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------
|Michael J. Newport 
21 Waterway Avenue, Suite 300 
The Woodlands, Texas 77380 | 4,239,992(2)                                 | 5.2%                                 
|William D. Thomas
21 Waterway Avenue, Suite 300 
The Woodlands, Texas 77380   | 1,590,000(3)                                 | 2.0%                                 
|Simeon King Horton
21 Waterway Avenue, Suite 300 
The Woodlands, Texas 77380  | 1,100,000(4)                                 | 1.3%                                 
|Angelo Viard
21 Waterway Avenue, Suite 300 
The Woodlands, Texas 77380        | 500,000(5)                                   | *                                    
|Peter G. Wilson
21 Waterway Avenue, Suite 300 
The Woodlands, Texas 77380     | 1,300,000(6)                                 | 1.6%                                 
|                                                                              |                                              |                                      
|All executive officers and directors as a group (5 persons)                   | 8,729,992(7)                                 | 10.8%                                

Notes:

*      Less than one percent.

1.      Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares.  Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares).  In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided.  In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights.  As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person's actual ownership or voting power with respect to the number of shares of common stock actually outstanding as of the date of this annual report.  As of the date of this annual report, there are 80,969,502 shares issued and outstanding.

2.      This figure includes: (i) 639,992 shares of common stock; (ii) 1,800,000 Stock Optionsto purchase 1,800,000 shares of our common stock at an exercise price of $0.58 per share expiring on April 7, 2018; (iii) 300,000 Stock Options to purchase 300,000 shares of our common stock at an exercise price of $1.50 per share expiring on February 4, 2019; and (iv) 1,500,000 Stock Options to purchase 1,500,000 shares of our common stock at an exercise price of $1.47 per share expiring on April 7, 2020.

3.      This figure includes 90,000 shares of common stock and 1,500,000 Stock Options to purchase 1,500,000 shares of our common stock at an exercise price of $1.50 per share expiring on July 9, 2018.

4.      This figure includes: (i) 800,000 Stock Options to purchase 800,000 shares of our common stock at an exercise price of $1.50 per share expiring on July 18, 2018; and (ii) 300,000 Stock Option to purchase 300,000 shares of our common stock at an exercise price of $1.50 per share expiring on February 4, 2019.

5.      This figure includes 500,000 Stock Options to purchase 500,000 shares of our common stock at an exercise price of $1.50 per share expiring November 18, 2018.

6.     This figure includes 300,000 shares of common stock and 1,000,000 Stock Options to purchase 1,000,000 shares of our common stock at an exercise price of $1.55 per share expiring on April 8, 2020.

7.     This figure includes: (i) 1,029,992 shares of common stock and (ii) 7,700,000 Stock Options to purchase 7,700,000 shares of our common stock.

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Changes In Control

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

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

Except for the transactions described below, we have not had any transactions since the beginning of our fiscal year ended February 28, 2011, nor do we have any currently proposed transactions, in which we were or are to be a participant and the amount exceeds $120,000, and in which any of our directors, officers or principal stockholders, or any associate or affiliate of the foregoing, had or will have any material interest, direct or indirect.

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

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

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Effective August 23, 2010, the Board of Directors authorized the execution of a two-year executive service agreement with Nicholas W. Atencio, the former Chief Executive Officer and a director of the Company (the "Executive Service Agreement"). In accordance with the terms and provisions of the Executive Service Agreement: (i) the Company shall continue to pay Mr. Atencio a monthly salary of $25,000; (ii) the Company would grant an aggregate of 3,500,000 stock options (the "Stock Options") to Mr. Atencio under its 2010 Stock Option Plan, as amended (the "Stock Option Plan"), with such terms and provisions of the grant, including exercise price and duration of exercise period, to be determined at the time of grant as follows: (a) 1,500,000 Stock Options shall vest on the effective date of the executive services agreement at an exercise price of $0.44 per share and (b) a further 750,000 Stock Options would vest upon successful completion by the Company during the term of the executive agreement of an equity or debt financing of at least $5 million and (c) a further 750,000 Stock options would vest upon successful closing by the Company during the term of the executive services agreement of an agreement with any third party investing equity partner which allows for the initiation of drilling on the Cotton Valley/Hosston formations in the East Holly Field located in Louisiana and (d) a further 500,000 Stock Options would vest when the Company has completed its listing and commences trading of its shares of common stock with a designated trading symbol (the "Trading Date") with the NYSE Amex Equities, formerly known as the American Stock Exchange.  Mr. Atencio resigned as Chief Executive Officer and as a director of our Company on February 14, 2011.  However, he continues to actively serve our Company as a technical consultant on terms which consistent with his existing Executive Services Agreement.

During fiscal 2011, a shareholder advanced $650,000 to the Company pursuant to a demand secured promissory note which bears interest at 10% per annum.  As at February 28, 2011, accrued interest was $6,397 which has been included in accounts payable and accrued liabilities.  Subsequent to year end, further advances of $310,000 were made under the same terms.  The demand secured promissory note had a due date of March 31, 2011.  The due date was subsequently extended to June 30, 2011.

Review, Approval or Ratification of Transactions with Related Persons

Our Audit Committee is charged with reviewing and approving all related party transactions and reviewing and making recommendations to the board of directors, or approving any contracts or other transactions with any of our current or former executive officers.

Where You Can Find More Information

Statements contained in this annual report as to the contents of any contract, agreement or other document referred to include those terms of such documents that we believe are material.  Whenever a reference is made in this annual report to any contract or other document of ours, you should refer to the exhibits that are a part of the annual report for a copy of the contract or document.

You may read and copy all or any portion of the annual report or any other information that Mainland Resources Inc. files at the SEC's public reference room at One Station Place, 100 F Street, NE, Washington, DC 20549.  You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room.  Our SEC filings, including the annual report, are also available to you on the SEC's website at

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Glossary of Oil and Gas Terms

The following are abbreviations and definitions of certain terms commonly used in the oil and gas industry and this document:

Bbl.  One stock tank barrel of 42 U.S. gallons liquid volume, used in reference to crude oil or other liquid hydrocarbons.

Bbls/d.  Barrels of oil produced per day.

Bcf.  One billion cubic feet of gas or CO2.

BOE.  One barrel of oil equivalent, using the ratio of one barrel of crude oil, condensate or natural gas liquids to six Mcf of natural gas.

BOE/d.  BOE per day.

Development costs.*  Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing the oil and gas.

Development well.  A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive.

Exploration costs.*  Costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects of containing oil and gas reserves, including costs of drilling exploratory wells and exploratory-type stratigraphic test wells.

Exploratory well.*  A well drilled to find and produce oil or gas in an unproved area, to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir, or to extend a known reservoir.

Field.*  An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.

MBbls.  One thousand barrels of crude oil or other liquid hydrocarbons.

Mcf.  One thousand cubic feet of natural gas or CO2.

MMBbls.  One million barrels of crude oil or other liquid hydrocarbons.

MMBOE.  One million BOEs.

MMBtu.  One million British thermal units. One British thermal unit is the amount of heat required to raise the temperature of a one pound mass of water from 58.5 to 59.5 degrees Fahrenheit.

MMcf.  One million cubic feet of natural gas or CO2.

Production costs.*  Costs incurred to operate and maintain wells and related equipment and facilities, including depreciation and applicable operating costs of support equipment and facilities and other costs of operating and maintaining those wells and related equipment and facilities.

Proved developed reserves.*   Crude oil, natural gas and natural gas liquids reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.

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Proved properties.

Proved reserves.* The estimated quantities of crude oil, natural gas, and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made.

Proved undeveloped reserves.*  Reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required.

Reserve life.  A measure of the productive life of an oil and gas property or a group of properties, expressed in years. Reserve life is calculated by dividing proved reserve volumes at year-end by production for that year.

Reservoir.  A porous and permeable underground formation containing a natural accumulation of producible oil and/or gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

Standardized Measure.  The present value, discounted at 10% per year, of estimated future net revenues from the production of proved reserves, computed by applying sales prices in effect as of the dates of such estimates and held constant throughout the productive life of the reserves (except for consideration of price changes to the extent provided by contractual arrangements) and deducting the estimated future costs to be incurred in developing, producing and abandoning the proved reserves (computed based on current costs and assuming continuation of existing economic conditions). Future income taxes are calculated by applying the statutory federal and state income tax rate to pre-tax future net cash flows, net of the tax basis of the properties involved and utilization of available tax carryforwards related to oil and gas operations.

Stratigraphic test well.*  A drilling effort, geologically directed, to obtain information pertaining to a specific geologic condition. Such wells customarily are drilled without the intention of being completed for hydrocarbon production.

Notes

*     This definition is an abbreviated version of the complete definition as defined by the SEC in Rule 4-10(a) of Regulation S-X.

ITEM 14.            PRINCIPAL ACCOUNTING FEES AND SERVICES

De Joya Griffith & Company, LLC serve as our independent registered public accounting firm and audited our financial statements for the fiscal years ended February 28, 2011 and 2010.  Aggregate fees for professional services rendered to us by our auditors are set forth below:



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|                   | Year EndedFebruary 28, 2011 | Year EndedFebruary 28, 2010
|------------------ | --------------------------- | ---------------------------
|Audit Fees         | $ 50,394                    |                            
|Audit-Related Fees | -                           |                            
|Tax Fees           | -                           |                            
|All Other Fees     | -                           |                            
|Total              | $ 50,394                    |                            

Audit Fees.

Audit-Related Fees. Our auditors provided audit-related services to us in connection with the review of other regulatory filings.

Tax Fees. Our auditors did not provide tax preparation services.

All Other Fees. Our auditors did not provide any other services to us other than those described above.

Pre-Approval of Services by the Independent Auditor

The Audit Committee is responsible for the pre-approval of audit and permitted non-audit services to be performed by the Company's independent auditor, De Joya Griffith & Company, LLC.  The Audit Committee will, on an annual basis, consider and, if appropriate, approve the provision of audit and non-audit services by De Joya Griffith & Company, LLC.  Thereafter, the Audit Committee will, as necessary, consider and, if appropriate, approve the provision of additional audit and non-audit services by De Joya Griffith & Company, LLC which are not encompassed by the Audit Committee's annual pre-approval and are not prohibited by law.  The Audit Committee has approved all of the audit and permitted non-audit services performed by De Joya Griffith & Company, LLC in the year ended February 28, 2011.



PART IV

ITEM 15.            EXHIBITS

|Exhibit No. | Document                                                                                                                                       
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------
|2.1         | Merger Agreement and Plan of Merger between Mainland Resources, Inc. and American Exploration Corporation dated March 22, 2010 (1)             
|2.2         | Letter Agreement between Mainland Resources, Inc. and American Exploration Corp., dated July 28, 2010, amending the Merger Agreement (15)      
|2.3         | Amending Agreement between Mainland Resources, Inc. and American Exploration Corp., dated September 7, 2010, amending the Merger Agreement (15)
|2.4         | Amending Agreement between Mainland Resources, Inc. and American Exploration Corp., dated December 23, 2010, amending the Merger Agreement (16)
|2.5         | Amending Agreement between Mainland Resources, Inc. and American Exploration Corp., dated March 14, 2011, amending the Merger Agreement (17)   

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|Exhibit No. | Document                                                                                                                                                                                                            
|----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.6         | Amending Agreement between Mainland Resources, Inc. and American Exploration Corp., dated May 17, 2011, amending the Merger Agreement (18)                                                                          
|3.1         | Articles of Incorporation (2)                                                                                                                                                                                       
|3.2         | Certificate of Amendment, filed with Nevada Secretary of State March 11, 2008 (13)                                                                                                                                  
|3.3         | Certificate of Amendment, filed with Nevada Secretary of State July 7, 2009 (3)                                                                                                                                     
|3.4         | Certificate of Change filed with Nevada Secretary of State May 26, 2010 (4)                                                                                                                                         
|3.4         | Bylaws (2)                                                                                                                                                                                                          
|10.1        | Property Agreement between Mainland Resources Inc. and Vijesh Harakh dated July 1, 2006 (2)                                                                                                                         
|10.2        | Trust Agreement between Mainland Resources Inc. and Vijesh Harakh dated July 1, 2006 (2)                                                                                                                            
|10.3        | Option Agreement between Kingsley Resources Inc. And Mainland Resources Inc. dated February 27, 2008 (5)                                                                                                            
|10.4        | Letter Agreement dated July 14, 2008 between Mainland Resources Inc. and Petrohawk Energy Corporation (6)                                                                                                           
|10.5        | Assignment, Conveyance and Bill of Sale between Mainland Resources Inc. and Petrohawk Energy Corporation dated August 4, 2008 (7)                                                                                   
|10.6        | Agreement dated August 4, 2008 between Mainland Resources Inc. and Petrohawk Energy Corporation (3)                                                                                                                 
|10.7        | Option Agreement between Mainland Resources Inc. and Westrock Land Corp. dated September 4, 2008 (3)                                                                                                                
|10.8        | Agreement between Mainland Resources Inc. and VCS Group Inc. dated February 11, 2009(3)                                                                                                                             
|10.9        | Senior Secured Bridge Loan by and among Mainland  Resources  Inc., Guggenheim Corporate Funding LLC, and the Lenders  Signatory thereto, dated August 10, 2009 (8)                                                  
|10.10       | Executive Services Agreement between Mainland Resource, Inc. and Michael J. Newport, dated September 22, 2009 (9)                                                                                                   
|10.11       | Executive Services Agreement between Mainland Resource, Inc. and Mark N. Witt, dated September 22, 2009 (10)                                                                                                        
|10.12       | Senior Secured Advancing Line of Credit Agreement dated October 16, 2009 by and among Mainland Resources Inc., Guggenheim Corporate Funding LLC, and the financial institutions from time to time party thereto (11)
|10.13       | Promissory Note dated October 16, 2009 between Mainland Resources Inc. and Guggenheim Corporate Funding LLC (11)                                                                                                    
|10.14       | Deed of Trust, Security Agreement, Financing Statement and Assignment of Production between Mainland Resources Inc. and Guggenheim Corporate Funding LLC dated October 13, 2009 (11)                                
|10.15       | Purchase Agreement by and between Mainland Resources, Inc. and EXCO Operating Company, LP, dated March 12, 2010 (12)                                                                                                
|10.16       | Option Agreement between Mainland Resources, Inc. and Westrock Land Corp., dated June 22, 2009, as amended September 28, 2009 (13)                                                                                  

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|Exhibit No. | Document                                                                                                                                      
|----------- | ----------------------------------------------------------------------------------------------------------------------------------------------
|10.17       | Letter Agreement between Mainland Resources, Inc. and American Exploration Corp., dated October 1, 2009 (13)                                  
|10.18       | Operating Agreement between Mainland Resources, Inc. and American Exploration Corp., dated October 1, 2009 (13)                               
|10.19       | Executive Services Agreement with Nicholas Atencio dated August 23, 2010 (16)                                                                 
|10.20       | Promissory Note between Mainland Resources, Inc. (as Lender) and American Exploration Corporation (as Borrower), dated September 27, 2010 (14)
|10.21       | Amendment No. 1 to Promissory Note (15)                                                                                                       
|10.22       | Amendment No. 2 to Promissory Note *                                                                                                          
|10.23       | Amendment No. 3 to Promissory Note *                                                                                                          
|14.1        | Code of Conduct.(13)                                                                                                                          
|31.1        | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act.*                             
|31.2        | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act.*                             
|32.1        | Certification of Chief Executive Officer and Chief Financial *                                                                                
|99.1        | Report from Ryder Scott Company, L.P., dated May 11, 2010 (reissued September 7, 2010)(19)                                                    
|99.2        | Report from Ryder Scott Company, L.P., dated December 29, 2010.*                                                                              

Notes:

*  Filed herewith

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







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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MAINLAND RESOURCES INC.

By:       "Michael J. Newport"
             Michael J. Newport
             President, CEO and Director
             Date: June 1, 2011



By:       "William Thomas"
             William Thomas
             CFO, Treasurer and Director
             Date: June 1, 2011

In accordance with the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:       "Michael J. Newport"
             Michael J. Newport
             President, CEO and a Director
             Date: June 1, 2011



By:       "William Thomas"
             William Thomas
             CFO, Treasurer and a Director
             Date: June 1, 2011



By:       "Peter Wilson"
             Peter Wilson
             Vice President Corporate Development and a Director
             Date: June 1, 2011



By:       "Gerry Jardine"
             Gerry Jardine
             Director
             Date: June 1, 2011