Mogul Energy International, Inc. - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - Mogul Energy International, Inc.	Financial_Report.xls
EX-3.2 - EXHIBIT 31.2 - Mogul Energy International, Inc.	ex31_2.htm
EX-31.1 - EXHIBIT 31.1 - Mogul Energy International, Inc.	ex31_1.htm
EX-32.1 - EXHIBIT 32.1 - Mogul Energy International, Inc.	ex32_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2011

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-138806

MOGUL ENERGY INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware		98-0461623
State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

2500 Wilcrest Drive, Suite 405, Houston, Texas		77042
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:		(713) 784-2446

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT: None

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x No o

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§Sec.229.405 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 x No o

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

Large accelerated filer £	Accelerated filer o
Non-accelerated filer £	Smaller reporting company x
(Do not check if a smaller reporting Company)

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

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.As of August 9, 2011, there were 57,445,987 common shares outstanding.

PART I

Mogul Energy International, Inc.

Financial Statement Index

Index

Balance Sheet	F-1

Statements of Operations	F-2

Statements of Cash Flows	F-3

Notes to the Financial Statements	F-4 to F-10

Mogul Energy International, Inc.

Balance Sheets

(expressed in U.S. dollars)

Unaudited

	June 30, 2011			December 31, 2010
Assets:
Current
Cash	$	66,889		$	65,085
Investments held for sale		19,350			102,052
Prepaid and deposits		52,554			100,477
Other receivables		111,841			72,611
Restricted funds		159,741			-
Total current assets		410,375			340,225
Non-current
Oil and gas properties		66,896			36,342
Other property and equipment – net		17,316			-
Total Assets	$	494,587		$	376,567

Current Liabilities:
Accounts payable	$	174,821		$	31,537
Accrued expenses and other payables		30,322			38,106
Drilling advances		147,366			-
Due to related parties		620,355			-
Total current liabilities		972,864			69,643
Contingencies and commitments		135,616			300,000
Total Liabilities		1,108,480			369,643

Shareholders’ Equity:
Accumulated deficit	$	(8,228,198	)	$	(7,656,718	)
Common stock (Authorized: 100,000,000 shares, $0.0001 par value. Outstanding: 57,445,987 shares at 06/30/11 and 12/31/10)		5,744			5,744
Additional paid-in capital		7,638,241			7,638,241
Warrants & Options:		114,000			144,000
Preferred: 10,000,000 shares authorized, none issued		-			-
Foreign exchange adjustment		(142,709	)		(151,187	)
Other comprehensive income (loss)		(970	)		56,844
Total Shareholders’ Equity		(613,893	)		6,924
Total Shareholders’ Equity and Liabilities		494,587		$	376,567

The Notes are an integral part of the Financial Statements

F-1

Mogul Energy International, Inc.

Statements of Operations

For the Three Months Ended March 31, 2011 and 2010

(expressed in U.S. dollars)

Unaudited

	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010			Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
Revenue:
Oil and gas sales		7,698			-			7,698			-
Management fees		5,217			-			5,217			-
Total revenue		12,915			-			12,915			-
Expenses:
Lease operating expense		44			-			44			-
Production tax		355			-			355			-
Depreciation, depletion and amortization		4,025						4,316			-
General and administrative		287,763			257,290			516,692			440,083
Taxes, other		83,357			-			83,357
Total expenses		(375,550	)		(257,290	)		(604,714	)		(413,370	)
Other income and expenses
Gain on sale of oil and gas properties		-			575,000			-			575,000
Gain on sale of investment held for sale		-			47,187			20,319			310,931
Net income (loss) for the periods	$	(362,635	)	$	364,897		$	(571,480	)	$	445,848

Other comprehensive income:
Net unrealized gain (loss) on investments held for sale for periods	$	(13,050	)	$	(83,836	)	$	(57,814	)	$	83,486
Foreign exchange adjustment		(18,574	)		(23,646	)		8,478			(5,645	)
Total other comprehensive gain (loss) for the periods	$	(31,624	)	$	(107,482	)	$	(49,336	)	$	77,841

Total comprehensive net gain (loss) for the periods	$	(394,259	)	$	257,415		$	(620,816	)	$	523,689

Basic earnings (loss) per share	$	(0.01	)	$	0.01		$	(0.01	)	$	0.01

Weighted average common shares outstanding		57,445,987			57,445,987			57,445,987			57,445,987

The Notes are an integral part of the Financial Statements

F-2

Mogul Energy International, Inc.

Statements of Cash Flows

For the Three Months Ended March 31, 2011 and 2010

(Expressed in U.S. dollars)

Unaudited

	Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
Operating Activities
Net income (loss) for periods	$	(571,480	)	$	445,848
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion, amortization		4,316			-
Gain on disposition of exploration Property		-			(575,000	)
Gain on investment held for sale		(20,319	)		(310,931	)
Changes in non-cash working capital
Accounts payables (decrease) increase		143,284			(122,976	)
Accrued expenses and other payables		(7,784	)		-
Drilling advances		147,366			-
Other receivables (decrease) increase		(39,230	)		(2,193	)
Prepaid and deposits		47,923			(61,098	)
Restricted cash		(159,741	)		-
Contingency decrease		(164,384	)
Cash used in operating activities	$	(620,049		$	(626,349	)
Investing Activities
Purchases of other property and equipment		(21,631	)		-
Proceeds - sale of investments held for sale		45,206			448,806
Proceeds from the disposition of exploration property		-			1,000,000
Oil and gas properties		(30,554	)		(21,472	)
Cash used for investing activities	$	(6,979	)	$	1,427,334
Financing Activities
Due to related parties		620,355			(145,320	)
Bank indebtedness		-			(43,110	)
Cash from financing activities	$	620,355		$	188,430
Foreign exchange adjustment		8,478			(5,645	)
Increase (decrease) in cash during periods		1,804			606,910
Cash beginning of periods		65,085			7,481
Cash at end of periods	$	66,889,		$	614,390
Interest paid during period		-			32,972
Taxes paid during period		-			-
Schedule of Non-cash Transactions
Expiration of shareholder warrants		-			62,185
Net unrealized gain (loss) on investments held for sale	$	(57,814	)	$	(83,836	)

The Notes are an integral part of the Financial Statements

F-3

Mogul Energy International, Inc.

Notes to the March 31, 2011 and 2010 Financial Statements

NOTE 1 - Organization and Nature of Business

Mogul Energy International, Inc. (Company), formed on July 25, 2005 as a Delaware corporation is engage in the business of oil and gas exploration. The Company’s primary focus is to review prospective drilling opportunities in close proximity to existing or previously producing oil and gas properties; secure partners to share in the risk of drilling and plan the drilling of wells to define the prospective area and; provide the development expertise on these properties through the production life of the prospect.

In management’s opinion all of the adjustments necessary for a fair statement of the results of the interim period ended June 30, 2011 have been made, such adjustments are of a normal recurring nature. These financial statements for the six months ended June 30, 2011 should be read in conjunction with our audited financial statements for the year ended December 31, 2010.

NOTE 2 - Going Concern

Beginning in 2010, the Company is no longer considered an exploration stage company for financial reporting purposes because it has had significant revenues from its intended principal business.

However, the Company has a history of operating losses, and an $8,228,198 accumulated deficit through June 30, 2011. This and other factors raise substantial doubt about the ability of the Company to continue as a going concern. Management plans to address these matters through the sale of additional shares of its common stock and/or additional borrowings to finance the Company’s operations and to achieve profitable operations through successful exploration and development of oil and gas properties.

Although there is no assurance that the Company will be successful in these actions, management believes that it will be able to secure the necessary financing to continue operations for the foreseeable future. Accordingly, these financial statements do not reflect adjustments to the carrying value of assets and liabilities, the reported expenses and balance sheet classifications used that would be necessary if the going concern assumption were not appropriate. Such adjustments would be material and would have an adverse effect on the ability of the Company to continue as a going concern.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires use of estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because of various factors affecting future costs and operations, actual results could differ from estimates. Critical accounting policies and estimates used in the preparation of the financial statements relate to the accounting for impairments and carrying amounts of exploration properties including the realizable value of capitalized resource properties for exploration and evaluation costs. Future operations will be affected to the extent there are material differences between the estimated and actual amounts.

NOTE 3 - Securities available for sale

At June 30, 2011 the Company held 135,000 common shares of Sea Dragon Energy Inc., a Canadian company trading on the TSX Venture exchange under the symbol SDX. This investment is accounted for as held for sale. The fair market value of these shares was estimated to be $19,350 at June 30, 2011. During the period the Company sold 165,000 common shares for net proceeds of $45,134.

F-4

Mogul Energy International, Inc.

Notes to the March 31, 2011 and 2010 Financial Statements

NOTE 4- Other Receivables

This account consists of $60,722 of receivables due from partners for property acquisition, drilling and operating costs.

The Company’s Harmonized Sales Tax receivable was $26,207 at June 30, 2011 compared to $20,403 during the same period in 2010. This receivable relates to the Goods and Services Tax (Canada). The Company anticipates the full amount to be refunded within 12 months of the balance sheet date. Due to the nature of this receivable management does not consider an allowance for doubtful accounts to be necessary.

Other receivables also include amounts to be billed to the joint venture partners and rent from sublet office space.

NOTE 5 – Other Property and Equipment

Other property and equipment is recorded at original cost and depreciated using the declining balance method. A summary of the property and equipment for the quarter ended June 30, 2011 is as follows:

	June 30, 2011
Furniture and fixtures	$	11,669
Computer equipment		1,933
Software		14,239
Total other property and equipment		27,841
Less: accumulated depreciation		(10,525	)
Other property and equipment – net	$	17,316

NOTE 6 - Foreign Exchange Rate

The impact of the cumulative effect of the unrealized monetary adjustment is accounted for in the equity section of the balance sheet. This adjustment was $142,709 loss compared to $154,103 during the same period in 2010. A realized foreign exchange loss of $17,577 was recognized in six months ended June 30, 2011 and was accounted for as an increase of general and administrative expenses. The realized loss for the similar period in 2010 was $22,818.

NOTE 7 – Restricted Cash

As of June 30, 2011 the Company held $159,741 in escrow received from our joint venture partners.

NOTE 8 – Drilling Advances

During 2011 the Company received drilling advances from Joint venture partners with a remaining balance of $147,366 at June 30, 2011. These advances will be applied towards the payment of drilling costs incurred in 2011.

F-5

Mogul Energy International, Inc.

Notes to the March 31, 2011 and 2010 Financial Statements

NOTE 9 - Capital Stock

Common Stock

At June 30 2011, 57,445,987 shares of the Company`s common stock was outstanding.

Employee Stock Option Plan

The following table summarizes the continuity of the Company’s stock options:

June 30, 2011
	Options		Weighted Average Exercise Price		Weighted Average Remaining Life (years)
Options outstanding at beginning of period		2,850,000	$	0.05		4.31
Options issued during the period		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Expired		-		-		-
Outstanding at the end of period		2,850,000	$	0.05		4.31

On October 22, 2010 the Company granted 2,850,000 fully vested stock options to directors, officers, employees and contractors. These options will expire on October 22, 2015. The fair value of the options is $0.04 calculated using the Black-Scholes method: risk free rate 1.1%, share price $0.04, strike price $0.05, volatility 215%, and dividend yield 0.00.

Preferred Stock

The Company’s Articles of Incorporation authorize its Board of Directors, without approval from the common shareholders, to issue 10,000,000 shares of preferred stock in any series, rights and preferences as determined by the Board. Preferred shares may be issued that: have greater voting rights than the common stock, diluting the value of any outstanding shares of common stock.

NOTE 10 – Related Party Transactions

At June 30, 2011 the Company has received a zero interest loan of $620,355 from a private company owned by a Director of the Company.

On January 26, 2011, the Company entered into a Stafford Area Participation Agreement with Aura Oil Holdings Ltd., a corporation organized under the laws of Bermuda. Pursuant to the terms of the Agreement, Aura purchased an 8.3333% interest in the Company’s oil and gas leases, leasehold rights, and rights to participate in the development of oil, gas and other related substances in the Stafford Prospect for $75,521. Mr. Naeem Tyab, the Company’s Chairman of the Board as of the date of the Agreement, is the sole shareholder of Aura.

The Company sub leases office space in its Toronto location to a related party with directors in common.

F-6

Mogul Energy International, Inc.

Notes to the March 31, 2011 and 2010 Financial Statements

NOTE 11 - Oil and Gas Properties

Saskatchewan Exploration Program

Due to the expiration of the mineral leases, Management does not plan further exploration for its oil and gas interest in Saskatchewan. Consistent with this plan, an impairment charge of $1,203,247 related to the expiration of substantially all leased property assets and their related acquisition costs previously capitalized on the balance sheet as Exploration and Evaluation. An impairment charge of $412,134 was recognized for the dry hole and other related costs pertaining to the 2008 exploration program.

Ryerson 16-17-009-31W1M

This well had oil shows in a core sample taken in 2008. The well was subsequently suspended pending further evaluation. As of December 31, 2010 the Company determined the well uneconomical and it has been plugged and abandoned. An impairment charge $523,558 has been made against previously capitalized costs.

Capitalized costs relating to the oil and gas acquisitions and exploration activity – Canada

Net book value December 31, 2008	$	435,512
Additions: during 2009		62,720
Net book value December 31, 2009		498,232
Reduced: during 2010		(18,983	)
Additions: Reclamations costs		44,309
Less accumulated depreciation, depletion, amortization and impairment		(523,558	)
Net book value December 31, 2010	$	-

United States – California

Excelaron

On February 12, 2009 the Company entered into an agreement with Excelaron LLC (“Excelaron”), a California company, whereby Excelaron has agreed to permit the Company to subscribe for a 40% Members Percentage Interest in Excelaron. In substance the subscription of this interest is contingent upon the Company making a $2,300,000 capital contribution to be used to acquire and develop oil and gas lease agreements that Excelaron has entered into. These leases are located in California. Should the Company not meet the contingent payment amounts its interest in Excelaron would be significantly reduced. For every $250,000 invested below $1,000,000 the Company would receive a 2% interest in Excelaron and 5% for each $250,000 above the $1,000,000 threshold. As of March 31, 2010 the Company’s investment in Excelaron totalled $425,000,

On October 5, 2009 the Company entered a binding letter of intent with Vesta Capital Corp (“Vesta”), Excelaron and other parties pursuant to which we agreed to sell and assign our 40% interest in Excelaron in exchange for 38,500,000 common shares of Vesta (the “Vesta Shares”), as part of a qualifying transaction (collectively, the “Excelaron Transaction”) in accordance with the policies of the TSX Venture Exchange pursuant to which Vesta would become a publicly traded company on the TSX-V. While the original agreement was not executed the parties continued to negotiate in good faith.

F-7

Mogul Energy International, Inc.

Notes to the March 31, 2011 and 2010 Financial Statements

On January 12, 2010 the Company was party to a Definitive Agreement, whereby the Company was to relinquish its interest in Excelaron to Vesta Capital Corporation, a Canadian pool company on the TSX Venture Exchange (“TSX-V”) and United Hydrocarbon Corporation (“UHC”), a related company incorporated in Ontario, Canada as part of a Qualifying Transaction on the TSX-V.

The Company made an advance to Excelaron in the form of a loan of $425,000 on January 14th, 2010. The loan called for interest of $10,000 per month for the period in which the loan was outstanding. This principle and interest were completely repaid on April 30, 2010.

On April 30, 2010 following several amendments to the Definitive Agreement, an Amended Qualifying Transaction Agreement was executed pursuant to which we agreed to accept, in lieu of the Vesta Shares, an aggregate of $1,000,000 Canadian Dollars less $150,000 in debt financing repaid and $87,900 in legal and consulting fees. The Company also received the reimbursement of approximately, $425,000 of advances made by us to Excelaron, in exchange for the Excelaron Interest.

United States - Texas

North Pasture Prospect

On December 8 2010 The Company entered into a signed Joint Operating Agreement and Participation Agreement for the first prospect in which the Company, as operator, would acquire a 25% net revenue interest upon the successful completion of the initial well subject to the acquisition of leases for the North Pasture Contract Acreage Area of San Patricio County, Texas. On June 22, 2011 the Company acquired the leasehold rights to 245 acres increasing the total acreage of the prospect to approximately 260 acres.

Stafford Prospect

On November 26, 2010 the Company entered into signed Joint Operating Agreement and Participation Agreement, in which the Company acquired oil and gas leases in the Stafford Prospect in Jackson County, Texas. As operator the Company acquired a 15% working interest on the successful completion of the initial well drilled on the property.

On March 6th, 2011 the Company completed the drilling of the Stafford Well #1 at the La Ward NE Field area in Jackson County, Texas. The well, located approximately 10 miles south of Ganado, was drilled to a total depth of 7,400 feet. Initial open-hole logging indicates multiple productive zones from the Frio formation with both oil and gas shows. Additional testing and analysis and production of several other productive zones are ongoing. The Company will evaluate the results of this well for any potential offsetting locations in the near future.

On June 22, 2011 the Company staked the proposed location for the drilling of the Stafford Well #2 in Jackson County, Texas

F-8

Mogul Energy International, Inc.

Notes to the March 31, 2011 and 2010 Financial Statements

Capitalized costs relating to the oil and gas acquisitions and exploration activity – United States

Net book value at December 31, 2009	$	425,000
Reduction: repayment by Vesta to acquire interest in Excelaron		(425,000	)
Additions: related to California leases		1,396
Additions: acquisition costs related to leases for oil and gas rights in Texas		33,613
Additions: Acquisition of 15% working interest for Stafford lease		1,333
Net book value at December 31, 2010	$	36,342
Reduction: Billed to joint interest partners		(33,613	)
Additions: Lease acquisition costs		7,510
Additions: Geological and geophysical		1,422
Additions: Intangible drilling costs		37,947
Additions: Intangible completion costs		960
Additions: Lease and well equipment		16,328
Net book value at June 30, 2011	$	66,896

NOTE 12 – Contingencies and Commitments

Office Leases

Our principal office is located at 2500 Wilcrest Drive, Suite 405, Houston, Texas, 77042, USA. This is a sub-lease agreement that expires on June 30, 2012 at a cost of $1,193 per month.

We also have administrative offices located at 207 West Hastings Street, Suite 1111, Vancouver, British Columbia, Canada V6B 1H7. The Company sublets office space from a related party for $1,313 per month, renewable annually.

Additionally, the Company has an office at Suite 201, 47 Colborne St., Toronto, Ontario, Canada M5E 1P8. This is a lease at a monthly cost of $8,417.

Environmental Uncertainties

The Company may be exposed to financial risks in the oil and gas exploration business for pollution or hazards against which it cannot adequately insure or which it may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.

Flow-through Financing

The Company raised a total of CAD$950,000 in 2008 on a flow-through basis. The gross proceeds of the financing were renounced to investors at December 31, 2008 and were to be used by the Company to incur qualified Canadian exploration expenses by June 30, 2010. The company spent CAD$154,850 on qualified capital exploration expenditures leaving a commitment of approximately CAD$795,150 that was not spent on qualified capital exploration expenditures by July of 2010. The Company has paid $55,000 in taxes and penalties assessed by the Canadian Customs and Revenue Agency. An additional $83,357 tax was assessed as of June 30, 2011 that is as yet unpaid. This tax is stated under the caption “Tax, other” on the Company’s Income Statement. The Company has paid out $171,894 to shareholders as an indemnity for tax losses they incurred. The Company estimates that a possible $135,616 still remains to be paid to investors.

F-9

Mogul Energy International, Inc.

Notes to the March 31, 2011 and 2010 Financial Statements

Governmental Regulations and Licensing

In order to drill for, recover, transport or sell any gas or oil from the properties subject to the Company’s drilling rights, the Company will generally be required to obtain additional licenses and permits and enter into agreements with various landowners and/or government authorities. The issuance of these permits and licenses generally will be contingent upon the consent of the governmental authority having jurisdiction over the property, which entities have broad discretion in determining whether or not to grant such authority. These licenses, permits, and agreements will generally contain numerous restrictions and require payment of development and exploration fees and royalties typically based on the recoverable reserves or expenditures. The amount of any such fee and royalties and other terms will determine in part, the commercial viability of any extraction prospect.

NOTE 13 - Loss Per Share

Loss per share is calculated using the weighted average number of shares issued during the relevant period. The weighted average number of common shares was 57,445,987 for the period ended June 30, 2011.

NOTE 14 – Subsequent Events

Subsequent to the period the Company acquired 300 acres in Aransas County, Texas.

F-10

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relates to future events and/or our future financial performance. Generally, you can identify forward-looking statements by terminology such as “intends,” "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", or "potential" or the negative of these terms or other comparable terminology. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. These statements reflect only our current expectations and involve known and unknown risks, uncertainties and other factors, many of which are unforeseen, including the risks in Item 1A entitled "Risk Factors," that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements. These forward-looking statements are 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, and are intended to be covered by the safe harbours created thereby. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our unaudited interim financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our unaudited interim financial statements and the related notes that appear elsewhere in this Quarterly Report.

In this Quarterly Report, unless otherwise specified, all references to "common shares" refer to common shares in the capital of Mogul Energy International, Inc., and the terms "we" "us" and "our" mean Mogul Energy International, Inc. (the “Company” and “Registrant”).

Overview

Our strategy is to acquire interest in, and/or to operate oil and gas properties that have existing or the high potential of oil and or natural gas reserves. Existing well bores with proven oil and gas reserves can usually be purchased for a fraction of the original cost to drill and complete a new well. Property purchased with proven reserves reduce the risk of not finding hydrocarbons are economically and viable to develop due to the elimination of the associated cost of finding the hydrocarbons. After the property has been purchased, the primary cost for establishing new production is the re-completion cost.

We have shifted our focus to acquiring leases and operating joint venture projects in the state of Texas, United States. We do not plan on any further exploration in Saskatchewan, Canada other than to complete reclamation activities required in the abandonment and relinquishment of our leases in the Province.

Cash Requirements

Further cash requirements may be necessary should we wish to participate in further development of our prospects prospect and working capital. These funds may be raised through equity financing, debt financing, the sale of assets, or other sources, which may result in further dilution in the equity ownership of our shares. There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on their investment in our common stock. Further, we may continue to be unprofitable.

Selected Annual Financial Information

	June 30, 2011			June 30, 2010
Cash		66,889			65,085
Securities available for sale		19,350			102,052
Working capital		(562,489	)		270,582
Total assets		494,375			376,567
Total liability		1,108,480			369,643
Shareholders' equity		(613,893	)		6,924
Share capital		7,638,241			7,638,241
Weighted average common shares outstanding		57,445,987			57,445,987
Accumulated deficit		(8,228,198	)		(7,656,718	)
Cash flow from operations		(620,049	)		(626,349	)
Net loss		(571,480	)		445,848
Loss per share		(0.01	)		0.01

At June 30, 2011 we had total assets of $494,375 as compared to $376,567 as at June 30, 2010. Total assets during the period includes a restricted cash balance of $159,741. Working capital at March 31, 2011 was a deficit balance of $18,803 and at June 30, 2011 this deficit increased to $562,489. The Company has received $620,355 in loans from a related party which largely account for the increase in the working capital deficit (working capital at June 30, 2010 $306,924).

As of the six months ended June 30, 2011, we had current liabilities of $972,864. Of the liability $147,366 is for drilling advances to be used in 2011 and $620,355 consists of zero interest loans received from a related party. Current liabilities in the corresponding period of 2010 were $69,643. Our total liabilities included an accrual of $300,000 for the potential claims at December 31, 2010. At June 30, 2011 we have repaid claims in the amount of $165,384 with $135,616 remaining as a contingency for additional claims due to reassessments denying personal tax deductions to investors in connection with funds raised in 2008 via a flow-though financing (see Financial Statements Note 12).

	Six months ended June 30, 2011			Six months ended June 30, 2010
Revenues
Oil and gas sales		7,698			-
Management fees		5,217			-
Total revenues		12,915			-

Expenses
General & Administration:
Depreciation, depletion & amortization		4,316			-
Internet and telephone		10,625			7,999
Insurance		21,944			-
Production tax		355			-
Professional fees		122,033			109,281
Rent		27,057			36,556
Travel & Promotion		34,834			57,537
Realized foreign exchange loss		17,577			-
Wages		241,103			139,813
Other		41,513			89,798
Total General and administration expenses		(604,714	)		(440,083	)
Gain on disposition of exploration property					575,000
Gain on sale of securities available for sale		20,319			310,931
Service revenue		-			12,865
Net loss		(571,840	)		80,951

For the three month period ended June 30, 2011 total general and administrative costs were $604,714 compared to $440,083 in the corresponding period of 2010.

Internet and telephone charges increased 33% due to communication between our new head office in Texas and our Canadian offices. Professional fees increased largely due to increases in audit fees related to our year-end audit.

Rent expenses have decreased this period as compared to the same period last year as the Company is subletting office space in its Toronto office.

Travel and Promotions costs have decreased 40% for the period in 2011 compared to 2010 due to decreased travel and promotion expenses. This decrease is a result of operations being predominately based in Texas.

Wages increased to $241,103 in 2011 compared to $139,813 in the corresponding period in 2010 due to the use and hiring of individuals with expertise in oil and gas development in the State of Texas.

During the six months ended June 20, 2011 the Company sold 165,000 common shares of Sea Dragon Energy Inc. for net proceeds of $45,206 leaving the Company with 135,000 common shares of Sea Dragon Energy Inc., a Canadian company trading on the TSX Venture exchange under the symbol SDX. This investment is accounted for as held for sale. The remaining shares had an estimated fair market value of $19,350 at June 30, 2011.

Cash used for operations during the period in 2011 was $620,049 (2010 loss of $626,349). Restricted cash was $159,741 and the cash committed to drilling in 2011 was 147,366. There were no corresponding amounts for these numbers in the comparable period in 2010.

Investing activities in the period in 2011 increased $17,322 during the period for the purchase of furniture and computer hardware for our new head office in Texas. Proceeds from the sale of shares over the six months were $45,169 compared with $448,806 during the same period in 2010. Capitalized oil and gas assets increased $30,554 as compared to $21,472 in 210. Investing activities in 2011 consisted of cash inflows of $620.355 zero interest loans form a related party compared to the repayment of loans and bank indebtedness in the comparable six month period in 2010.

Milestones

During the six months ended June 30, 2011

Texas, United States

Stafford Prospect, Jackson County, Texas

On November 26, 2010, we entered into a Joint Operating Agreement and a Participation Agreement with C. H. Squyres Family, LLC, Fossil Oil Company LLC and certain other individuals who are signatories thereto to develop an extension to the La Ward NE Field in Jackson County (Stafford Prospect). The agreement provided for the shared costs in the acquisition of oil and gas leases in the Stafford Prospect. As operator, we participate in the drilling of the initial well with an 8.89% working interest and will acquire a 6.11% promoted interest resulting in our having a 15.00% working interest upon the successful completion of the initial well drilled on the property. Each participant would also pay the same percentage costs for the next well as was paid on the first well.

On March 6th, 2011, we completed the drilling of the Stafford Well #1 at the La Ward NE Field area in Jackson County, Texas. The well was drilled to a total depth of 7,400 feet. Initial open-hole logging indicates multiple productive zones from the Frio formation with both oil and gas shows. The deepest prospective oil zone shows a structural sand 10 feet higher to an offsetting productive well with a sand thickness of 5 ½ feet with a 33% porosity and 20% water saturation. Additional tests and analysis of the several other productive zones will continue while the casing is installed, cemented and surface equipment are put into place. Mogul will evaluate the results of this well for potential offsetting locations.

Stafford Well #1 has produced 707 barrels of oil over the last two months to June 30, 2011 as the Company continues testing and analyzing the production of multiple productive zones. The Company has a 15% working interest in the Stafford Well #1.

On June 22, 2011 we staked the proposed location for drilling the Stafford Well #2 in Jackson county, Texas.

North Pasture Prospect – San Patricio County, Texas

On December 8, 2010, we entered into a Joint Operating Agreement and a Participation Agreement with Global Oil and Gas Resources Inc., Dolimiti Partners LLC, Indian Lane Asso., LLC, Plastiform Packaging, Inc. and certain other individuals who are signatories thereto for the first prospect known as the North Pasture Prospect in San Patricio County, Texas. Subject to the continued acquisition of the mineral leases in the area, we, as operator, would pay no proportionate cost for the drilling of the well and would earn a 25% net working interest upon the successful completion of the initial well.

To date we are still working to acquire oil and gas rights in the designated an Area of Mutual Interest covering a one mile distance from the North Pasture Contract Acreage Area of San Patricio County, Texas.

We have acquired leasehold rights to an additional 245 acres increasing our total acreage of the prospect to 260 acres.

Saskatchewan Exploration Program

We do not plan on any further exploration in Saskatchewan due to the expiration of our mineral leases. Our Ryerson 16-17-009-31W1M well, previously suspended after encountering a heavily oil stained, marginal reservoir within the Bakken interval, was determined by management to be uneconomical and it has been plugged and abandoned. On December 31, 2010 an impairment charge $523,558 has been made against previously capitalized costs.

Material Asset Purchases and Sales

On February 12, 2009, we had acquired a 40% interest (the “Excelaron Interest”) in Excelaron LLP, a privately held company based in California (“Excelaron”). The acquisition was contingent upon our making a capital contribution of $2,300,000 in installments over a specified period. After making payments of $425,000 we engaged in assigning our interest to other parties better positioned to capitalize on this asset in exchange for either shares or cash.

On March 26, 2010, an Amended Qualifying Transaction Agreement was executed pursuant to which we agreed to accept, an aggregate of $1,000,000 Canadian Dollars (less $150,000 in debt financing repaid and $87,900 in legal and consulting fees) and the reimbursement of approximately, $425,000 of advances made by us to Excelaron, in exchange for the Excelaron Interest. The agreement was consummated on April 30 of 2010.

Purchase of Significant Equipment

We do not intend to purchase any significant equipment (excluding oil and gas activities) over the next twelve months ending December 31, 2011.

Liquidity and Capital Resources

We have no current arrangements with any party to supplement our operations or provide us with financing in the future. In the future, we may be required to seek additional capital by selling debt or equity securities, selling assets, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. We provide no assurance that financing will be available in amounts or on terms acceptable to us, or at all.

Going Concern

We have suffered recurring losses from operations. The continuation of our Company as a going concern is dependent upon our Company attaining and maintaining profitable operations and raising additional capital. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our Company discontinue operations.

Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above, in their report on the annual financial statements for the period ended December 31, 2010, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements for the period ended December 31, 2010, contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to obtain further funds required for our continued operations. As noted herein, we are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

No information is provided under this Item because the Company is a smaller reporting company.

Item 4T. Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

As required under the Exchange Act, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as of the end of the period covered by this report, being September 30, 2010. We are responsible for establishing and maintaining adequate internal controls and procedures for the financial reporting of our company. Disclosure control and procedures are the controls and other procedures that are designed to ensure that we record, process, summarize and report in a timely manner the information that we must disclose in reports that we file with or submit to the SEC. Our management has concluded, based on their evaluation, that as of June 30, 2011, as the result of the material weaknesses, our disclosure controls and procedures were ineffective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. For more information, see Item 9A – Controls and Procedures – in Part II of our Annual Report on Form 10-K for the year ended December 31, 2010.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in Item 1A – Risk Factors – in Part I of our Annual Report on Form 10-K for the year ended December 31, 2010.

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

Between June 30, 2011 and December 21, 2010, the Company did not sell any equity securities of the Company which were not registered under the Securities Act.

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Securities Holders

None

Item 5. Other Information

There have been no material changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors.

Item 6. Exhibits

Exhibit
Number	Description

(3)	(i) Articles of Incorporation; and (ii) Bylaws
3.1	Certificate of Incorporation (1)*
3.2	By-laws (1)*
3.3	Form of Subscription Agreement ($0.15) dated for reference December 12, 2007 (incorporated by reference from our Form 8-K filed on February 15, 2008)*
3.4	Form of Flow Through Subscription Agreement ($0.18) dated for reference December 12, 2007 (incorporated by reference from our Form 8-K filed on February 15, 2008)*

(4)	Instruments Defining the Rights of Security Holders
4.1	2007 Stock Incentive Plan (incorporated by reference from our Form 8-K filed on August 10, 2007)*

(10)	Material Contracts
10.1	Letter of Intent dated July 30, 2007 (incorporated by reference from our Form 8-K filed on August 7, 2007)*
10.2	Form of Stock Option Agreement (incorporated by reference from our Form 8-K filed on August 10, 2007)*
10.3	Stafford Area Participation Agreement – Aura Oil Holdings Ltd. (incorporated by reference from our Current Report on Form 8-K filed on March 21, 2011)
10.4	North Pasture Joint Operating Agreement
10.5	Stafford Joint Operating Agreement
10.6	Form of the Stafford Participation Agreement between C.H. Squires Family, LLC, Fossil Oil Company LLC and certain individuals who are signatories thereto.
10.7	Form of the North Pasture Participation Agreement between Global Oil and Gas Resources Inc., Dolimiti Partners LLC, Indian Lane Asso., LLC, Plastiform Packaging, Inc. and certain other individuals who are signatories thereto.

(14)	Code of Ethics
14.1	Code of Ethics

(23)	Consents of Experts and Counsel
23.1	Consent of Jorgensen & Co.

(31)	Certifications
31.1	Certification of Principal Executive Officer pursuant to Section 302
31.2	Certification of Principal Financial and Accounting Officer pursuant to Section 302
32.1	Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 1350

SIGNATURES

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

MOGUL ENERGY INTERNATIONAL, INC.

/s/ Timothy J. Turner

By: Timothy J. Turner, President

(Chief Executive Officer)

Dated: August 12, 2011

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

/s/ Timothy J. Turner

By: Timothy J. Turner, Director and President

(Chief Executive Officer)

/s/ Naeem Tyab

By: Naeem Tyab, Chairman of the Board

/s/ Henry Kloepper

By: Henry Kloepper, Director

/s/ Gary Countryman

By: Gary Countryman, Director

Dated: August 12, 2011

Attached files

Mogul Energy International, Inc. Reports

Also read