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-0.13
Q1
CERX
COLOMBIA ENERGY RESOURCES, INC.
false
Smaller Reporting Company
2012
10-Q
2012-03-31
0001045390
--12-31
<div style="font: 10pt Times New Roman, Times, Serif">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>5. STOCKHOLDERS’ EQUITY</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Subscription Agreement with LIFE</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On May 6, 2010, the Company entered into a Subscription Agreement
with LIFE. Pursuant to the Subscription Agreement, the Company sold
an aggregate of 19,080,000 (post-split) shares (the
“Shares”) of its common stock to LIFE for an aggregate
purchase price of $100,000, which funds were used to eliminate the
Company’s then current liabilities. The Shares represented
94.1% of the Company’s issued and outstanding shares of
common stock immediately following the transaction, and the
transaction resulted in a change in control of the Company.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Reverse Stock Split</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On July 28, 2010, the Company executed a reverse stock split of its
common stock in which two new shares of common stock were issued
for every five shares of common stock held as of the date of the
reverse stock split. This reverse split has been applied
retrospectively in the consolidated financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Convertible Series A Preferred Stock</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<font style="font-size: 10pt">On June 1, 2011, the first closing of
a private placement of a minimum of 200 units and a maximum of 300
units for a purchase price of $100,000 per unit was
completed.  Each Unit consists of 10,000 shares of our
Series A Preferred Stock, which shares initially are convertible
into an aggregate of 50,000 shares of common stock
at any time and a five-year stock purchase warrant entitling the
holder thereof to purchase 3,500 shares of Common Stock for $.001
per share. At the first closing of the offering, certain holders of
10% convertible promissory notes converted their notes into shares
of Series A Preferred Stock and were also granted warrants to
purchase shares of common stock at the rate of 3,500 shares for
each $100,000 aggregate principal amount of notes
converted.   In the first closing, an aggregate of
2,920,500 shares of Series A Preferred Stock and warrants to
purchase 1,022,175 shares of Common Stock were issued, in
consideration of aggregate cash proceeds of $22,000,000 and the
conversion of notes in the aggregate principal amount of
$7,305,000. Holders of the Series A preferred stock are entitled to
certain rights and preferences over the common stock as described
below.</font> <font style="font-size: 10pt">Aggregate cash fees of
$1,139,853 were paid to the placement agents at the first
closing.  In addition, the placement agents were issued
five-year warrants, substantially similar to the warrants sold in
the offering, to purchase an aggregate of 480,000 shares of common
stock for an exercise price of $2.00 per share.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Dividends are payable on the Series A Preferred Stock at the rate
per share (as a percentage of the Stated Rate, which was originally
$10.00) of 9% per annum, payable quarterly, in arrears, on each
March 15, June 15, September 15 and December 15. For dividend
payment dates occurring prior to June 1, 2013, the dividend is
payable one-third in cash and two-thirds in common stock.
Thereafter, the dividend is payable, at the option of the Company,
either 100% in cash or one-third in cash and two-thirds in
stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Series A Preferred Stock votes with the common stock as a
single class and each holder of shares of Series A Preferred Stock
shall be entitled to a number of votes equal to the number of
shares of common stock into which such shares of Series A Preferred
Stock could be converted. Each share of Series A Preferred Stock is
convertible at any time at the holder's option into a number of
shares of our common stock equal to $10.00 divided by the
conversion price (initially $2.00), or initially five shares,
subject to adjustment for stock splits, stock dividends,
distributions, subdivisions and combinations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Series A Preferred Stock is subject to mandatory conversion by
the company commencing November 30, 2012, if the closing bid price
of the company’s common stock exceeds 2.5 times the
then-applicable conversion price for 60 consecutive days. The
Series A Preferred Stock is also subject to mandatory conversion
beginning on the date that 60% or more of the shares of Series A
Preferred issued on June 1, 2011 have been converted to common
stock in a voluntary conversion.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Amended Certificate of Designation provides that in the event
of the liquidation, dissolution or winding up of our affairs,
whether voluntary or involuntary, the holders of shares of Series A
Preferred Stock then outstanding would be entitled to receive, out
of assets available for distribution to stockholders, before any
payment is made or any assets distributed to the holders of our
common stock or any other class or series of preferred stock that
is junior to the Series A Preferred Stock, an amount per share of
the Series A Preferred Stock equal to $15.00 as a liquidation
preference. A consolidation or merger with another entity or the
sale or other disposition of all or substantially all of the assets
under specified circumstances would be deemed to be a liquidation,
dissolution or winding up of our company. However, these events are
solely within Company control.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Stock Options</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company is seeking to recruit and retain experienced
professionals from the global energy, natural resource development
and mining industries. The Company will seek to offer compensation
that is commensurate with the qualifications of future employees
and advisors, including the ability to offer equity participation
with vesting provisions typical of early-stage public companies. On
May 12, 2010, the Board of Directors adopted the 2010 Equity
Incentive Plan (“Incentive Plan”), which gives the
Company the ability to grant stock options, stock appreciation
rights (“SARs”), restricted stock and stock bonuses
(collectively, “Awards”) to employees or consultants of
the Company or of any subsidiary of the Company and to non-employee
members of the Company’s advisory board or the board of
directors of the Company or the Company’s subsidiaries. The
Incentive Plan was amended on August 31, 2011.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Board of Directors has authorized 6,133,334 shares of common
stock for issuance under the Incentive Plan. In the event of any
change in the number of shares of Company common stock outstanding
by reason of any stock dividend or split, reverse stock split,
recapitalization, merger, consolidation, combination or exchange of
shares or similar corporate change, the maximum number of shares of
common stock with respect to which the Board of Directors may grant
awards, appropriate adjustments will be made to the shares subject
to the Incentive Plan and to any outstanding Awards. Shares
available for Awards under the Incentive Plan may be either
newly-issued shares or treasury shares. If an Award or portion
thereof shall expire or terminate for any reason without having
been exercised in full, the unexercised shares covered by such
Award shall be available for future grants of Awards under the
Incentive Plan.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The aggregate grant date fair value of stock option awards granted
were determined in accordance with ASC Topic 718. The Company uses
the Black-Scholes Options Pricing Model (Black-Scholes) to estimate
fair value of its stock-based awards. Black-Scholes requires
various judgmental assumptions, including estimating stock price
volatility, expected option life and forfeiture rates. If the
Company had made different assumptions, the amount of its deferred
stock-based compensation, stock-based compensation expense, net
loss and net loss per share amounts could have been significantly
different. The Company believes that it has used reasonable
methodologies, approaches and assumptions to determine the fair
value of its common stock and that deferred stock-based
compensation and related amortization were recorded properly for
accounting purposes. If any of the assumptions used change
significantly, stock-based compensation expense may differ
materially in the future from that recorded in the current
period.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
The following table sets forth the number of options granted and
outstanding and the weighted average exercise price stock option
activity for the three months ended March 31, 2012:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
</p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">Number
of Shares Subject to Option</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Weighted Average Exercise Price</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Weighted Average Remaining Contractual Term</td>
<td style="font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 55%; font-size: 10pt">Outstanding at December 31,
2011</td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 12%; font-size: 10pt; text-align: right">
3,738,334</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">$</td>
<td style="width: 12%; font-size: 10pt; text-align: right">
2.86</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 12%; font-size: 10pt; text-align: right">
 4.5 years</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; text-align: left">Granted during the
Period</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">117,200</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">1.70</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">4.6 years</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt">Exercised</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">-</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">-</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">-</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; padding-bottom: 1pt">
Forfeited/canceled/expired</td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
-</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
$</td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
-</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
-</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; padding-bottom: 1pt">Outstanding March
31, 2012</td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
3,855,534</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
$</td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
2.83</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
4.5 years</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; padding-bottom: 1pt">Exercisable at
March 31, 2012</td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
1,178,884</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
$</td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
2.74</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
4.2 years</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; text-align: left">Shares vested at
March 31, 2012</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">1,619,482</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">2.74</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">4.5 years</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The weighted-average exercise price per share for the options
granted during the three month ended March 31, 2012 and 2011 was
$1.70 per share and $2.50 per share, respectively. The total
intrinsic value of options exercisable during the three months
ended March 31, 2012 and 2011 was $220,500 and $262,938,
respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
<br />
During the three months ended March 31, 2012 and 2011, the total
intrinsic value of options exercised (i.e. the difference between
the market price at exercise and the price paid by the employee to
exercise the options) was $0 and $0, respectively, and the total
amount of cash received from exercise of these options was $0 and
$3,000 respectively. The total grant date fair value of stock
options vested during the three months ended March 31, 2012 and
2011 was $0.1 million and $0.2 million, respectively. Stock
compensation expense was $364,099 and $366,266 during the three
months ended March 31, 2012 and 2011, respectively, and $1,565,172
for the cumulative period from November 6, 1996 (date of inception)
through March 31, 2012.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The following table summarizes information about stock options
outstanding and exercisable as of March 31, 2012.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td colspan="2" style="font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="6" style="font-size: 10pt; text-align: left">Stock
Options Outstanding</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="6" style="font-size: 10pt; text-align: left">Stock
Options Exercisable</td>
<td style="font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Weighted-</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Average</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Weighted-</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
 </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Weighted-</td>
<td style="font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="font-size: 10pt; text-align: center">Range
of</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Number</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Remaining</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Average</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Number</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Average</td>
<td style="font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="font-size: 10pt; text-align: center">
Exercise</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">of
Shares</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Contractual</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Exercise</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">of
Shares</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Exercise</td>
<td style="font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="font-size: 10pt; text-align: center">
Price</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Outstanding</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">Life in
Years</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Price</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Exercisable</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Price</td>
<td style="font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 1%; font-size: 10pt; text-align: left">$</td>
<td style="width: 14%; font-size: 10pt; text-align: right">
0.05</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 14%; font-size: 10pt; text-align: right">
530,000</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 14%; font-size: 10pt; text-align: right">4.0</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">$</td>
<td style="width: 14%; font-size: 10pt; text-align: right">
0.05</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 14%; font-size: 10pt; text-align: right">
105,000</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">$</td>
<td style="width: 13%; font-size: 10pt; text-align: right">
0.05</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">1.50</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">175,000</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">4.4</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">1.50</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">81,250</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">1.50</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">1.70</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">117,200</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">4.6</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">1.70</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">29,300</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">1.70</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">2.50</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">1,858,334</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">4.7</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">2.50</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">564,584</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">2.50</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">3.00</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">50,000</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">4.6</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">3.00</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">12,500</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">3.00</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">5.00</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left; border-bottom: Black 1pt solid">
 </td>
<td style="font-size: 10pt; text-align: right; border-bottom: Black 1pt solid">
1,125,000</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">4.6</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">5.00</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left; border-bottom: Black 1pt solid">
 </td>
<td style="font-size: 10pt; text-align: right; border-bottom: Black 1pt solid">
281,250</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">5.00</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">3,855,534</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">1,073,884</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.4pt">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Stock Warrants</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company issued warrants to purchase an aggregate of 3,200,000
shares of common stock to investors in the Notes offering. Of those
warrants, 726,000 shares had not been exercised as of March 31,
2012. All of the warrants issued to investors in the Notes offering
expire on June 30, 2015 and have an exercise price of $0.01 per
share. The value of these warrants at issuance had been accounted
for in shareholder’s equity as an increase in additional paid
in capital.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
In connection with the Notes financing, the Company issued stock
warrants to purchase an aggregate of 340,640 shares of common stock
to the security brokers in the Notes offering on December 23,
2010.  All of the warrants issued to the security brokers
expire on December 20, 2015 and have an exercise price of $2.50 per
share.  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
As part of the first closing of the Series A Preferred Stock
Financing, the Company issued stock warrants to purchase an
aggregate of 1,025,675 shares of common stock to the investors in
the Stock Financing on June 1, 2011.  Of those warrants,
975,100 shares had not been exercised as of March 31, 2012. All of
the warrants issued to the Series A preferred stock investors
expire on June 1, 2016 and have an exercise price of $0.01 per
share. In addition, 480,000 in stock warrants were issued to
security brokers in the stock offering. All of the warrants issued
in connection with the Stock Financing expire on June 1, 2016 and
have an exercise price of $2.00 per share.   Except for the
warrants issued to the holders of the converted notes payable, the
fair value of the warrants issued to the holders of Series A
preferred stock and to the security brokers was reported as an
increase and decrease in additional paid-in capital. The fair value
of the warrants issued to the holders of the Notes that were
converted to Series A preferred stock was estimated at $682,753
using the Black-Scholes pricing model, and was accounted for as an
increase in additional paid-in capital and expense.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
A summary of the stock warrants activity for the quarter ended
March 31, 2012 is presented below:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
</p>
<table cellpadding="0" cellspacing="0" align="center" style="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">Number
of</td>
<td style="font-size: 10pt; text-align: center"> </td>
<td style="font-size: 10pt; text-align: center"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
 </td>
<td style="font-size: 10pt; text-align: center"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-size: 10pt; padding-bottom: 1pt; text-align: center">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt; text-align: center">
 </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Shares</td>
<td style="font-size: 10pt; padding-bottom: 1pt; text-align: center">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt; text-align: center">
 </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Exercise Price</td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 50%; font-size: 10pt">Outstanding at December 31,
2011</td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 12%; font-size: 10pt; text-align: right">
2,725,240</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">$</td>
<td style="width: 12%; font-size: 10pt; text-align: right">
0.81</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt">Granted</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">-</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">-</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt">Exercised</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">(53,500</td>
<td style="font-size: 10pt; text-align: left">)</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">0.01</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; padding-bottom: 1pt">Cancelled</td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="font-size: 10pt; text-align: left; padding-bottom: 1pt">
 </td>
<td style="font-size: 10pt; text-align: right; border-bottom: Black 1pt solid">
-</td>
<td style="font-size: 10pt; text-align: left; padding-bottom: 1pt">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="font-size: 10pt; text-align: left; border-bottom: Black 1pt solid">
 </td>
<td style="font-size: 10pt; text-align: right; border-bottom: Black 1pt solid">
-</td>
<td style="font-size: 10pt; text-align: left; padding-bottom: 1pt">
</td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; padding-bottom: 1pt">Outstanding at
March 31, 2012</td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="font-size: 10pt; text-align: left; padding-bottom: 1pt">
 </td>
<td style="font-size: 10pt; text-align: right; border-bottom: Black 1pt solid">
2,671,740</td>
<td style="font-size: 10pt; text-align: left; padding-bottom: 1pt">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="font-size: 10pt; text-align: left; border-bottom: Black 1pt solid">
$</td>
<td style="font-size: 10pt; text-align: right; border-bottom: Black 1pt solid">
0.83</td>
<td style="font-size: 10pt; text-align: left; padding-bottom: 1pt">
 </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
At March 31, 2012, the range of warrant prices for shares under
warrants and the weighted-average remaining contractual life is as
follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
</p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td colspan="2" style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="10" style="font-size: 10pt; text-align: center">Stock
Warrants Outstanding</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="6" style="font-size: 10pt; text-align: center">Stock
Warrants Exercisable</td>
<td style="font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Range of Exercise Price</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Number of Shares Outstanding</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Weighted-Average Remaining Contractual Life in Years</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Weighted-Average Exercise Price</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Number of Shares Exercisable</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Weighted-Average Exercise Price</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 1%; font-size: 10pt; text-align: left">$</td>
<td style="width: 14%; font-size: 10pt; text-align: right">
0.01</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 14%; font-size: 10pt; text-align: right">
1,651,100</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 14%; font-size: 10pt; text-align: right">4.0</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">$</td>
<td style="width: 14%; font-size: 10pt; text-align: right">
0.01</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 14%; font-size: 10pt; text-align: right">
1,651,100</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">$</td>
<td style="width: 13%; font-size: 10pt; text-align: right">
0.01</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">1.89</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">100,000</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">5.0</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">1.89</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">100,000</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">1.89</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">2.00</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">580,000</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">4.5</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">2.00</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">580,000</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">2.00</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
$</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: right">2.50</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
340,640</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: right">3.5</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
$</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: right">2.50</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
340,640</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
$</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: right">2.50</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: right">
 </td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">
2,671,740</td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: right">
 </td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: right">
 </td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">
2,671,740</td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: right">
 </td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Restricted Stock Units</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
The Board of Directors has authorized a compensation plan for
non-employee directors of the Company beginning January 1, 2012.
Under the plan directors would receive cash compensation of $4,000
per month and $6,250 per month for the Chairman. In addition, each
non-employee board member would receive restricted stock in the
form of restricted stock units (“RSUs”) for each year
of service based upon the fair market value of the stock on the
grant date. The RSUs would be granted on the date of the annual
meeting of shareholders. The vesting period for the restricted
stock units would expire at end of the director’s term which
would normally be the next annual meeting of shareholders.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
On January 3, 2012, RSUs of 214,200 were awarded to the
non-employee directors of the Company. The RSUs vested on the date
of the annual shareholders meeting which was May 8, 2012. The total
fair value related to the RSUs was $220,222.</p>
</div>
-106118
-1594620
<div style="font: 10pt Times New Roman, Times, Serif">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>8. COMMITMENTS AND CONTINGENCIES</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Mining Concessions</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On July 19, 2010 the Company entered into an agreement to purchase
two coal concessions (Ingeominas Titles GG7-111 and GG7-11522X). As
of March 31, 2012, the concessions have been fully paid for and are
listed under the Company’s name on the official website of
the Colombian mining authority, Ingeominas. Under the terms of the
contract, the Company will pay to the sellers a royalty payment of
$2.00 per ton of coal extracted under the term of the concession.
This royalty payment applies to all coal mined by our Company from
these concessions.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On October 20, 2010 the Company entered into an agreement to
purchase an additional coal concession (Ingeominas title FLG-092)
that form the North Block Mining Project. The Company has paid to
the seller $315,000 and owes an additional $1,200,000 payable in
six payments of $200,000 every three months beginning August 2011.
The first such payment was made in installments with the last
occurring on January 13, 2012. In addition, the Company has paid to
Ingeominas $114,502 which represents past due governmental fees
owed by the seller. Also, as per the terms of the contract, the
Company will pay to the sellers a royalty payment of $2.00 per ton
of coal extracted under the term of the concession. This royalty
payment applies to all coal mined by our Company from this
concession.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On February 11, 2011, the Company deposited $100,000 on three
additional coal concessions in the state of Boyaca, Colombia. The
aggregate purchase price of these concessions was $2.50 million,
$666,585 of which has been paid as of March 31, 2012. An amount of
$222,277 was due upon the Colombian Institute of Mining and
Geology’s approval of a third mining license; this was paid
on January 15, 2012. An amount of $111,138 is due upon the earlier
of the recording and publication of the assignment in the National
Mining Register or 90 days following the prior payment and the
balance of $1,500,000 is payable in three payments of approximately
$500,000 every 6 months thereafter. There will also be an ongoing
royalty payment to the sellers of $2.75 per ton of coal mined.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company does not owe future concession payments on Ruku and
Boavita.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
All the mining concessions are in the exploration phase. While in
the exploration and construction phase, royalties to the government
are owed based on the applicable minimum wage rate times the number
of hectares. Once the concessions enter the production phase,
royalties owed to the government are equal to 5% of production.
Each concession has a 30 year production phase, less the total time
spent in exploration and construction.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Management and Services Agreement with LIFE</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On August 3, 2010, we entered into a Management and Services
Agreement with LIFE Power & Fuels LLC, a Delaware limited
liability company and one of our principal shareholders, pursuant
to which LIFE agreed to provide certain
corporate,  financial, and merger and acquisition
advisory services and assistance with securing equipment leases and
other equipment financing.  In exchange for its services,
LIFE is entitled to receive a monthly fee equal to the lesser of 1%
of our gross coal sales or $2 per ton of coal sold by us; provided,
however, that such monthly fee shall not be less than
$25,000.  The term of the Management Agreement is
initially 36 months, but the agreement shall automatically renew
for successive 12-month periods unless it is terminated by either
party in writing. Upon termination, and for a period of five years
thereafter, LIFE will continue to be entitled to receive an amount
equal to the lesser of 1% of our gross coal sales or $2 per ton of
coal sold by us from all mines and coking facilities on concessions
acquired or coke projects initiated during the term of the
Management Agreement. During the initial term of this agreement, we
have agreed to pay a minimum of $900,000 to LIFE.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Lease Commitments</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company and its subsidiary in Colombia lease their current
office facilities under non-cancelable operating lease agreements
that expire in 2016. The future minimum lease payments under these
operating leases are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<table cellpadding="0" cellspacing="0" align="center" style="border-collapse: collapse; width: 70%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Bogota</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">San
Anselmo</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Quantum</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
 </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Operating</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Operating</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Total</td>
<td style="font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Lease</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Lease</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
All Leases</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; text-align: center">Year ending
December 31:</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 25%; font-size: 10pt; text-align: center">
2013</td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 12%; font-size: 10pt; text-align: right">
197,377</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 12%; font-size: 10pt; text-align: right">
5,130</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 12%; font-size: 10pt; text-align: right">
202,507</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; text-align: center">2014</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">197,377</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">-</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">197,377</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; text-align: center">2015</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">197,377</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">-</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">197,377</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; text-align: center; padding-bottom: 1pt">
2016</td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
115,136</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
-</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
115,136</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; text-align: center; padding-bottom: 2.5pt">
Total</td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">
707,266</td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">
5,130</td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">
712,396</td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
<b>Asset Retirement Obligations</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
The Company is subject to certain environmental and regulatory
obligations which will require the Company to restore the mine
properties after the mining has been completed. Three months prior
to the expected date of completion, the Company is required to
provide a plan for restoration and abandonment and estimate its
cost. The Company believes that an asset retirement obligation as
of and for the periods ended March 31, 2012 and 2011 is not
material as the Company is still in the exploration phase. The
Company will continue to monitor and evaluate this obligation.</p>
</div>
<div style="font: 10pt Times New Roman, Times, Serif">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>4. CONVERTIBLE NOTES PAYABLE</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
In multiple closings, the most recent taking place on December 21,
2010, the Company issued $8,000,000 aggregate principal amount of
10% convertible promissory notes (the “Notes”). The
proceeds of the Notes offering were used to fund exploration-sta ge
activities of the Company, including the identification, analysis
and negotiation for coal resources in Colombia that meet the
Company’s criteria for mining, processing and export
potential.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Notes are secured by the Company’s interest in the
business operation of its subsidiary in Colombia. The Notes accrue
interest at an annual rate of 10%. Principal and interest are due
on June 30, 2012. The Notes can be converted at any time into
common stock at a rate equal to $2.50 of principal for each share
of common stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
During the first closing of the Series A Preferred Stock, the
aggregate principal amount of $7,305,000 was converted to shares of
Series A Preferred Stock. As of March 31, 2012 and December 31,
2011, the Company has $642,033 and $604,351 respectively, of Notes
outstanding.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Notes are hybrid financial instruments that blend characteristics
of both equity and debt securities. They embody settlement
alternatives available to the holder providing for either
redemption of the principal and interest for cash at maturity
(“Forward Component”) or conversion into the
Company’s common stock (“Embedded Conversion
Feature” or “ECF”).  The Notes also
embody contingent equity-linked share price protections on the ECF
in the form of down-round, anti-dilution adjustments to the
conversion price during the term to maturity. As a result, the
Company determined that the Notes contain certain embedded
derivative features. The Company’s evaluation resulted in the
conclusion that the compound derivative financial instrument
required bifurcation and separately account for the embedded
conversion option as a derivative liability, carried at fair value
and marked-to-market each period. The aggregate fair value of the
embedded conversion feature was estimated at $3,072,000 on the date
of issuance of the Notes.  At March 31, 2012 and December 31,
2011, the fair value of the embedded conversion feature was
estimated at $268,000 and $264,000 respectively. The fair value of
the embedded conversion feature liability pertaining to the Notes
that was converted to preferred stock was adjusted as an increase
in preferred stock. The initial value of the embedded conversion
feature was recorded as discount in notes payable and is being
accreted to interest expense method through the maturity or
conversion date of the Notes. The balance of the unamortized
discount related to the ECF was $37,684 and $75,366 as of March 31,
2012 and December 31, 2011, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<font style="font-size: 10pt">At the closings of the Notes
issuance, the Company also issued to the Notes investors five-year
warrants to purchase an aggregate of 3,200,000 shares of common
stock for a purchase price of $0.01 per share. The total number of
outstanding warrants issued in the Notes offering was 676,000 and
726,000 as of March 31, 2012 and December 31, 2011 respectively.
The stock warrants were initially recorded as discount on notes
payable and were allocated based upon their relative fair values on
the date of the issuance, which aggregated to $2,388,790. The fair
value of the stock warrants were calculated using the Black-Scholes
pricing model. The discount in notes payable is being amortized to
interest expense through the maturity or conversion date of the
Notes. The portion of unamortized discount pertaining to the Notes
that were converted to preferred stock was adjusted as a reduction
to preferred stock.</font> <font style="font-size: 10pt">The
balance of the unamortized discount related to the warrants was
$6,076 and $15,282 as of March 31, 2012 and December 31, 2011,
respectively.</font></p>
</div>
-2343084
-3541083
37682
652621
<div style="font: 10pt Times New Roman, Times, Serif">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>6. EARNINGS (LOSS) PER SHARE</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The elements for calculation of earnings (loss) per share for the
year three months ended March 31, 2012 and 2011 were as
follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<table cellpadding="0" cellspacing="0" align="center" style="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="6" style="font-size: 10pt; text-align: center">Quarter
ended</td>
<td style="font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="6" style="font-size: 10pt; text-align: center">March
31</td>
<td style="font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
2012</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
2011</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 50%; font-size: 10pt; text-align: left">Net loss
attributable to common shareholders</td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">$</td>
<td style="width: 12%; font-size: 10pt; text-align: right">
(3,692,880</td>
<td style="width: 1%; font-size: 10pt; text-align: left">)</td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">$</td>
<td style="width: 12%; font-size: 10pt; text-align: right">
(2,985,177</td>
<td style="width: 1%; font-size: 10pt; text-align: left">)</td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; text-align: left">Weighted average
shares used in basic and diluted computation</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">25,241,457</td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">23,530,570</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; text-align: left">Earnings (loss) per
share basic and diluted</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">(0.15</td>
<td style="font-size: 10pt; text-align: left">)</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">(0.13</td>
<td style="font-size: 10pt; text-align: left">)</td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company’s issued and outstanding common shares as of
March 31, 2012 do not include the underlying shares exercisable
with respect to the issuance of the warrants exercisable at $0.01
per share. However, the Company has given effect to the issuance of
these warrants in computing loss per share in accordance with ASC
No. 260.</p>
</div>
-3146377
364099
18215
895304
<div style="font: 10pt Times New Roman, Times, Serif">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
<b>9. SUBSEQUENT EVENTS</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
Management has evaluated subsequent events through May 15, 2012,
which represents the date the unaudited interim consolidated
financial statements were issued. The following subsequent events
occurred as of such date:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
The Company resumed production at its Rukú Mining Complex on
April 17, 2012 after being temporarily halted in February due to
vandalism.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On December 28, 2011, the Board of Directors of Colombia Energy
Resources, Inc. (the “Company”) adopted a compensation
plan whereby each non-employee board member would receive
restricted stock in the form of restricted stock units
(“RSUs”) for each year of service based upon the fair
market value of the common stock on the grant date. The RSUs would
be granted on the date of the annual meeting of shareholders. The
vesting period for the RSUs would expire at end of the
director’s term which would normally be the next annual
meeting of shareholders. On January 3, 2012, RSUs for the partial
year were granted to each non-employee director. The amount awarded
to each non-employee director for the partial year was set at
$50,000 or 35,700 RSUs, for a total of 214,200 RSUs. These RSUs
were awarded to each of the six non-employee members of the Board
of Directors, which excluded Mr. Stovash, the Company’s Chief
Executive Officer, who is also a member of the Board of Directors.
These partial year RSU awards vested effective as of the date of
the 2012 annual meeting of shareholders held on May 8, 2012 (the
“Annual Meeting”). In addition, effective as of the
date of the Annual Meeting RSUs representing 83,333 shares each
were awarded to all five remaining non-employee directors of the
Company, which excluded Mr. Wolff who did not stand for reelection
to the Board of Directors at the Annual Meeting. A total of 416,665
RSUs were granted and will vest as of the date of the 2013 annual
meeting of shareholders.</p>
</div>
-4000
-3040259
144897
-3692880
148897
26779
1594620
151797
-3291274
-3937703
<div style="font: 10pt Times New Roman, Times, Serif">
<table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0">
<tr style="vertical-align: top; text-align: justify">
<td style="width: 0in"></td>
<td style="width: 0.5in; text-align: left"><b>1.</b></td>
<td style="text-align: justify"><b>ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES</b></td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Description of Business and Principles of Consolidation</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Colombia Energy Resources, Inc. (the “Company”) is
engaged in the business of acquiring and developing coal mining
assets, and mining and selling metallurgical coal in the Republic
of Colombia, South America. The Company owns and controls mining
concessions in the provinces of Boyaca and Santander.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Although the Company commenced limited production in December 2011,
it is still considered an exploration stage company under the
criteria set forth by the Securities and Exchange Commission
(“SEC”) since it has not yet demonstrated the existence
of proven or probable reserves, as defined by the SEC, at its
Rukú Mining Complex in Socota, Colombia or at any of its other
properties. As a result, and in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”) for exploration stage companies, all
expenditures for exploration and evaluation of the Company’s
properties are expensed as incurred and unless mineralized material
is classified as proven or probable reserves, substantially all
expenditures for mine and exploration activities have been and will
continue to be expensed as incurred. Certain expenditures, such as
for mining equipment or other general-purpose equipment, may be
capitalized, subject to evaluation of the possible impairment of
the asset. The Company expects to remain as an exploration stage
company for the foreseeable future. The Company will not exit the
exploration stage unless and until it demonstrates the existence of
proven or probable reserves that meet the SEC guidelines.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The definition of proven and probable reserves is set forth in SEC
<i>Industry Guide 7</i>. Proven reserves are reserves for which (a)
quantity is computed from dimensions revealed in outcrops,
trenches, workings or drill holes; (b) grade and/or quality are
computed from the results of detailed sampling; and (c) the sites
for inspection, sampling and measurement are spaced so closely and
the geologic character is so well defined that size, shape, depth
and mineral content of reserves are well-established. Probable
reserves are reserves for which quantity and grade and/or quality
are computed from information similar to that used for proven
reserves, but the sites for inspection, sampling, and measurement
are farther apart or are otherwise less adequately spaced. The
degree of assurance, although lower than that for proven reserves,
is high enough to assume continuity between points of observation.
In addition, reserves cannot be considered proven and probable
until they are supported by a feasibility study, indicating that
the reserves have had the requisite geologic, technical and
economic work performed and are economically and legally
extractable at the time of the reserve determination.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company’s current operations are focused on production,
exploration and development activities. The Company has retained
leading engineering and geological services firms in the U.S. and
Colombia to conduct exploration work in selected concessions owned
by the Company. The Company’s team of executives, advisors
and partners is comprised of experienced entrepreneurs and business
professionals in U.S. and Colombia that have a broad breadth of
experience in coal mining and substantial industry
relationships.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Through its wholly-owned subsidiaries, the Company owns 100% of
Colombia Clean Power S.A.S. (formerly known as Energia Andina
Santander Resources S.A.S.), a Colombian company established to
acquire and develop coal concessions. The non-controlling interest
represents the 30% ownership in Ruku’s mining operations not
controlled by the Company. See Note 2. Colombia Clean Power
S.A.S.’ corporate offices are located in Bogota,
Colombia.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The accompanying unaudited condensed consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Company History and Basis of Reporting</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the Company's audited
consolidated financial statements and accompanying notes in the
Company's Annual Report on Form 10-K for the year ended December
31, 2011 filed with the SEC on March 30, 2012. The accompanying (a)
consolidated balance sheet as of December 31, 2011, which has been
derived from the audited consolidated financial statements, and (b)
unaudited condensed consolidated financial statements have been
prepared pursuant to SEC Rule 8-03 of Regulation S-X. As a result,
while the Company believes the disclosures made are adequate to
make the information not misleading, certain information and note
disclosures normally included in audited financial statements
prepared in accordance with U.S. GAAP have been condensed or
omitted pursuant to those rules and regulations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The unaudited results of operations for the interim periods shown
in these financial statements are not necessarily indicative of
operating results for the entire year. In the opinion of
management, the accompanying unaudited condensed consolidated
financial statements recognize all adjustments of a normal
recurring nature considered necessary to fairly state the
Company’s consolidated financial position as of March 31,
2012, and its consolidated results of operations and comprehensive
income (loss) for the three months ended March 31, 2012, and cash
flows for the three months ended March 31, 2012.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company was incorporated in the State of Nevada on November 6,
1996 under the name “Freedom Resources Enterprises,
Inc.” to engage in the business of self-help publications and
workshops. Between November 1996 and September 2005 the Company
generated minimal revenues, and in October 2005, the Company ceased
all business operations. From October 2005 to early May 2010, the
Company did not engage in any business activities. Prior to this
period, the Company’s management had been evaluating
potential business opportunities that might be available to the
Company to preserve its shareholders’ investment in its
common shares.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On May 6, 2010, the Company entered into a subscription agreement
(the “Subscription Agreement”) with LIFE Power &
Fuels, LLC (“LIFE”), pursuant to which it issued to
LIFE 19,080,000 (post-split) shares of its common stock, which
shares represented approximately 94.1% of its issued and
outstanding shares of common stock at such time, elected one new
director to its board of directors and changed its management team.
Concurrently with the closing of the transactions contemplated by
the Subscription Agreement, the Company ceased to be a shell
company, as defined in Rule 12b-2 of the Exchange Act, and adopted
a new plan of operations. Subsequently, LIFE sold approximately
4,800,000 shares of the Company's common stock to certain related
parties. Also, in March 2011, LIFE distributed 2,159,996 shares of
the Company’s common stock to LIFE’s limited partner
investors. As of March 31, 2012, LIFE owned approximately 26.4%
(adjusted for dilution of shares) of the outstanding shares of the
Company.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On July 28, 2010, the Company affected a reverse stock split of two
shares for every five shares of common stock outstanding.
Accordingly, outstanding shares and share price of common stock and
stock options were adjusted to account for the effects of the
reverse stock split.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Effective July 28, 2010, the Company changed its name from Freedom
Resources Enterprises, Inc. to “Colombia Clean Power &
Fuels, Inc.”</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
In 2011 we completed a non-public offering of units in which each
unit consisted of 10,000 shares of Series A Preferred Stock
convertible into an aggregate of 50,000 shares of
common stock at any time and a five-year stock purchase warrant
entitling the holder thereof to purchase 3,500 shares of Common
Stock for $0.01 per share. Certain holders of 10% convertible
promissory notes in the aggregate amount of $7,305,000 converted
their notes into 730,500 shares of Series A Preferred Stock and
were also granted warrants to purchase 255,675 shares of our common
stock.   In addition, the Company issued an aggregate of
2,200,000 shares of Series A Preferred Stock and warrants to
purchase 1,022,175 shares of Common Stock in consideration of
aggregate cash proceeds of $22,000,000. Aggregate cash fees of
$1,139,855 were paid to the placement agents.  In
addition, the placement agents were issued five-year warrants,
substantially similar to the warrants sold in the offering, to
purchase an aggregate of 480,000 shares of common stock for an
exercise price of $2.00 per share. The securities sold in this
offering have not been registered under the Securities Act and may
not be offered or sold in the United States absent registration or
an applicable exemption from registration requirements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On September 6, 2011, shareholders owning a majority of the voting
control of the Company authorized, by written consent, an amendment
to the articles of incorporation to change the name of the Company
from “Colombia Clean Power & Fuels, Inc.” to
“Colombia Energy Resources, Inc.” and authorized the
change of domicile of the Company from the State of Nevada to the
State of Delaware through the merger of the Company with and into a
Delaware corporation formed solely for the purpose of changing
domicile. The effective date of the change of domicile and name
change was November 4, 2011.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On November 7, 2011, the quotation of the Company’s common
stock on the OTC QX was approved.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Going Concern</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The accompanying unaudited condensed consolidated financial
statements have been prepared in conformity with U.S. GAAP which
contemplate continuation of the Company as a going concern. The
Company has incurred recurring losses since the date of inception
that resulted in an accumulated deficit attributable to common
stockholders of $29,431,435 as of March 31, 2012. Although the
Company had $7,371,246 of available cash at March 31, 2012, that
amount is not adequate to meet its capital expenditures and
operating requirements over the next 12 months. In addition, the
Company is dependent upon obtaining funds from investors. These
factors raise substantial doubt about the ability of the Company to
continue as a going concern. Management plans to raise additional
funds through issuance of notes or shares of stock in 2012 in order
to meet its capital expenditures and operating requirements.
However, there is no assurance that the Company will be successful
in raising the additional funds it needs. The unaudited condensed
consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Use of Estimates</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The preparation of the consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Cash and Cash Equivalents</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company considers all highly-liquid investments with maturities
of three months or less at the date of purchase to be cash
equivalents. As of March 31, 2012 and December 31, 2011, there were
no cash equivalents.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Other Current Assets and Other Assets</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Other current assets and other assets include direct expenses
incurred, including the fair value of stock warrants issued to
brokers, as a result of the Company’s Note financing (see
Note 4). Placement agent fees and other direct costs incurred in
this transaction are being amortized over the life of the
Notes.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Property and Equipment</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Property and equipment, which include ten mining concessions in the
states of Santander and Boyaca, Colombia and construction in
progress, are stated at cost. Mining concessions will be amortized
using the units-of-production method based upon recoverable proven
and probable reserves of the mine and when the Company commences
operation. Equipment is depreciated using the straight-line method
over the estimated useful life of the asset of 5 years. Repairs and
maintenance are charged to expense as incurred, and costs of
significant renewals and improvements are capitalized.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Inventory</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
At March 31, 2012 inventory consists of raw coal extracted from the
Ruku mining site and is carried at the lower of cost or market.
Coal inventory costs include labor, supplies, equipment, operating
overhead and other related costs.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Impairment of Long-Lived Assets</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Long-lived assets, such as property and equipment are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset or asset group may not be
recoverable. Events that trigger a test for recoverability include
material adverse changes in projected revenues and expenses,
significant underperformance relative to historical or projected
future operating results, and significant negative industry or
economic trends. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be generated
by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized for
the amount by which the carrying amount of the asset exceeds the
fair value of the asset. The Company did not recognize any
impairment charges during the periods presented.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Mineral Exploration and Development Costs</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company accounts for mineral exploration costs in accordance
with Accounting Standards Codification (ASC) No. 932, <i>Extractive
Activities</i>. All exploration expenditures are expensed as
incurred. Expenditures to acquire new mines (e.g. purchase of
mining concessions), to define further mineralization in existing
ore bodies, and to expand the capacity of operating mines, are
capitalized and will be amortized on a units of production basis
over proven and probable reserves.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Derivative Instruments</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company issued convertible notes payable that are considered
hybrid financial instruments that blend the characteristics of both
equity and debt securities. They embody settlement alternatives
available to the holder providing for either redemption of the
principal and interest for cash at maturity (“Forward
Component”) or conversion into the Company’s common
stock (“Embedded Conversion Feature” or
“ECF”).  The convertible notes payable also
embody contingent equity-linked share price protections on the ECF
in the form of down-round, anti-dilution adjustments to the
conversion price during the term to maturity. The Company
determined that the convertible notes payable contain an embedded
derivative feature that is bifurcated and accounted for as a
derivative instrument in accordance with ASC No. 815-40,
<i>Derivatives and Hedging-Contracts in Entity’s Own
Equity</i>. The embedded conversion feature is carried at fair
value and marked-to-market at the end of each reporting period. The
Company uses the binomial lattice model to estimate the fair value
of the embedded conversion feature. See Note 4.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Foreign Currency Translation</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company and its wholly-owned Dutch and Spanish subsidiaries,
Energia Andina Santander Resources Coop UA and Energia Andina
Resources España, S.L., maintain accounting records using U.S.
dollars. Colombia Clean Power S.A.S., the Company’s principal
Colombian subsidiary, maintains accounting records in Colombian
Pesos.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The financial statements of Colombia Clean Power S.A.S. are
translated into U.S. dollars using the closing rate method. The
balance sheet items are translated into U.S. dollars using the
exchange rates at the respective balance sheet dates. The capital
account is translated at the historical exchange rate prevailing at
the time of the transactions while income and expenses items are
translated at the average exchange rate for the year. All exchange
differences are presented as currency translation adjustment within
the “consolidated statements of stockholders equity”.
The foreign currency translation gain or loss resulting from the
translation of the financial statements expressed in Colombian
Pesos to U.S. dollars is reported as a currency translation
adjustment and as a component of “other comprehensive income
(loss)” in the consolidated financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Earnings (Loss) Per Share</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Earnings (loss) per share are presented in accordance with the
provisions of the ASC No. 260, <i>Earnings Per Share</i>. ASC No.
260 requires presentation of basic and diluted earnings per share
in conjunction with the disclosure of the methodology used in
computing such earnings per share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Basic earnings (loss) per share excludes dilution and is computed
by dividing net income (loss) available to common stockholders by
the weighted average common shares outstanding during the period.
Diluted earnings (loss) per share takes into account the potential
dilution that could occur if securities or other contracts to issue
common stock were exercised and converted into common stock using
the treasury method. The basic and diluted earnings (loss) per
share were the same for the three-month periods ended March 31,
2012 and 2011 because the Company was in a net loss position.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company’s issued and outstanding common shares as of
March 31, 2012 do not include the underlying shares exercisable
with respect to the 1,651,100 outstanding warrants exercisable at
$0.01 per share. However, the Company has given effect to the
issuance of these warrants in computing basic loss per share in
accordance with ASC No. 260.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
As of March 31, 2012, the Company had outstanding stock warrants,
restricted stock units, and stock options exercisable to purchase,
and convertible notes and convertible preferred stock that were
convertible into an aggregate of 21,602,274 shares of common stock
that were considered anti-dilutive because of the net loss.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Segments</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company operates in one business segment. The Company and its
subsidiaries’ assets are located primarily in the United
States of America and in Colombia.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
As of March 31, 2012, long-term assets of approximately $11,700,000
and $900,000 are in Colombia and in the United States,
respectively. As of December 31, 2011, long-term assets of
approximately $10,600,000 and $800,000 were in Colombia and in the
United States, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
For the three-month ended March 31, 2012, the Company did not
generate any revenues.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Reclassification</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Certain balances in the prior period’s financial statements
were reclassified to conform to the current period’s
presentation.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<font style="font-style: normal">Concentration of Credit
Risk</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents.
Cash and cash equivalents are deposited with high credit quality
financial institutions to minimize credit risk; however, the
Company may periodically exceed federal deposit insurance
limits.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<font style="font-style: normal">Income Taxes</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the periods in which those temporary
differences are expected to be recovered or settled. The effect on
deferred taxes of a change in tax rates is recognized as income in
the period that includes the enactment date. A valuation allowance
is recorded to reduce the carrying amounts of deferred tax assets
unless it is more likely than not that such assets will be
realized.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company recognizes liabilities for uncertain positions based
upon the provisions of ASC No. 740, <i>Income Taxes</i>. The
Company recognizes the effect of income tax positions only if those
positions are more likely than not of being sustained. Recognized
income tax positions are measured at the largest amount that is
greater than 50% likely of being realized. Changes in recognition
or measurement are reflected in the period in which the change in
judgment occurs. The Company accounts for interest and penalties
generated by income tax contingencies as interest expense in the
consolidated statements of operations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company’s subsidiaries are subject to foreign
taxation.</p>
<p style="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<font style="font-style: normal">Share-Based
Compensation</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company accounts for share-based compensation in accordance
with ASC No. 718, <i>Compensation-Stock Compensation</i>, which
establishes accounting for stock-based awards exchanged for
employee services. Accordingly, stock-based compensation cost is
measured at grant date, based on the fair value of the award, and
is recognized as expense on a straight-line basis over the employee
requisite service period, which is generally four years. The
Company’s stock compensation is generally accounted for as an
equity instrument.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
ASC No. 718 requires forfeitures to be estimated at the time of
grant and revised if necessary in subsequent periods if actual
forfeitures differ from those estimates. Changes in estimated
forfeitures will be recognized through a cumulative catch-up
adjustment in the period of change and will also impact the amount
of compensation expense to be recognized in future periods.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<font style="font-style: normal">Fair Value of Financial
Instruments</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
For financial instruments consisting of cash and cash equivalents,
accounts payable and accrued liabilities, the carrying amounts are
reasonable estimates of fair value due to their relative short
maturities. Based on borrowing rates available to the Company, the
convertible notes payable approximate their fair value. The fair
value of derivative liability was determined using Level 3 inputs
described below.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The Company adopted amendments to the accounting standard
addressing the measurement of the fair value of financial assets
and financial liabilities. Under this standard, fair value is
defined as the price that would be received to sell an asset or
paid to transfer a liability (i.e., the “exit price”)
in an orderly transaction between market participants at the
measurement date.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
In determining fair values of all reported assets and liabilities
that represent financial instruments, the Company uses the carrying
market values of such amounts. The standard establishes a hierarchy
for inputs used in measuring fair value that maximizes the use of
observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available.
Observable inputs reflect assumptions market participants would use
in pricing an asset or liability based on market data obtained from
independent sources. Unobservable inputs reflect a reporting
entity’s pricing an asset or liability developed based on the
best information available in the circumstances. The fair value
hierarchy consists of the following three levels:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 13.5pt; text-align: justify">
<i>Level 1</i>–instrument valuations are obtained from
real-time quotes for transactions in active exchange markets
involving identical assets.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 13.5pt; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 13.5pt; text-align: justify">
<i>Level 2</i>–instrument valuations are obtained from
readily-available pricing sources for comparable instruments.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 13.5pt; text-align: justify">
<i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 13.5pt; text-align: justify">
<i>Level 3</i>–instrument valuations are obtained
without observable market values and require a high-level of
judgment to determine the fair value.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
At March 31, 2012, the Company’s only financial liability,
embedded conversion feature, was carried at fair value using Level
3 inputs and totaled $268,000. The financial instrument that is
measured at fair value on a recurring basis is summarized as
follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-family: Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-size: 10pt; border-bottom: Black 1pt solid">
Liabilities</td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Level 1</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Level 2</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Level 3</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Total</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 40%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 12%; text-align: right"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 12%; text-align: right"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 12%; text-align: right"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 12%; text-align: right"> </td>
<td style="width: 1%; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; text-align: left; padding-bottom: 2.5pt; text-indent: -0.12in; padding-left: 0.12in">
Derivative liability - embedded conversion feature</td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">
-</td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">
-</td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">
268,000</td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">
268,000</td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The following table shows the changes in Level 3 liability measured
at fair value on a recurring basis for the three-month period ended
March 31, 2012:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">
</p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-family: Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Derivative</td>
<td style="font-size: 10pt"> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
</tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Liability -</td>
<td style="font-size: 10pt"> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
</tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Embedded</td>
<td style="font-size: 10pt"> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
</tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Conversion</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center">
Total</td>
<td style="font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Feature</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">
Level 3</td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 70%; font-size: 10pt; padding-left: 5.4pt">
Balance, December 31, 2011</td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">$</td>
<td style="width: 12%; font-size: 10pt; text-align: right">
264,000</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">$</td>
<td style="width: 12%; font-size: 10pt; text-align: right">
264,000</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">
Unrealized loss on change in fair value</td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
4,000</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
4,000</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; padding-bottom: 2.5pt; padding-left: 5.4pt">
Balance, March 31, 2012</td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">
268,000</td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">
268,000</td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">
<b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Recent Accounting Pronouncements</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
There were no accounting pronouncements or changes in accounting
pronouncements during the three-month period ended March 31, 2012,
that are of significance to the Company.</p>
</div>
52713
-217538
393408
<div style="font: 10pt Times New Roman, Times, Serif">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>2. ACQUISITION OF MINING ASSETS</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>North Block Mining Project</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On July 19, 2010 the Company entered into an agreement to purchase
two coal concessions (Ingeominas Titles GG7-111 and GG7-11522X).
The concessions have been fully paid for and are listed under the
Company’s name on the official website of the Colombian
mining authority, Ingeominas. Under the terms of the contract, the
Company will pay to the sellers a royalty payment of $2.00 per ton
of coal extracted under the term of the concession. This royalty
payment applies to all coal mined by our Company from these
concessions.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On October 20, 2010 the Company entered into an agreement to
purchase an additional coal concession (Ingeominas title FLG-092).
The Company has paid to the seller $315,000 and owes an additional
$1,200,000 payable in six payments of $200,000 every three months
beginning August 2011. The first such payment was made in
installments with the last occurring on January 13, 2012. A portion
of these amounts will offset against the per ton royalty described
below. In addition, the Company has paid to Ingeominas $114,502
which represents past due governmental fees owed by the seller.
Also, as per the terms of the contract, the Company will pay to the
seller a royalty payment of $2.00 per ton of coal extracted under
the term of the concession. This royalty payment applies to all
coal mined by our Company from this concession. 50% of this royalty
is applied to amortize the $1,200,000 in concession payments.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Otanche Mining Project</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On February 11, 2011, the Company made a deposit of $100,000 to
purchase three additional coal concessions in the state of Boyaca,
Colombia. The aggregate purchase price of these concessions was
$2.50 million, $666,585 of which has been paid as of March 31,
2012. An amount of $222,277 was due upon the Colombian Institute of
Mining and Geology’s approval of a third mining license; this
was paid on January 15, 2012. An amount of $111,138 is due upon the
earlier of the recording and publication of the assignment in the
National Mining Register or 90 days following the prior payment and
the balance of $1,500,000 is payable in three payments of
approximately $500,000 every 6 months thereafter. There will also
be an ongoing royalty payment to the sellers of $2.75 per ton of
coal mined.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Rukú Mining Complex</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On August 22, 2011, the Company entered into an agreement to
purchase a 70% working interest in two coal mining concessions
located near Socota, Colombia from Howerd Milton Cubides Botia (the
“Assignor”). The agreement also included the right to a
concession being permitted and another one in the process of being
purchased. These concessions cover approximately 222 acres and
included a coal mine that has been operating for eighteen years
producing metallurgical coal for the local market. In October 2011,
the agreement was amended with both parties agreeing that the
Assignor would continue to provide capital and operating
expenditures on the mining property through October 18, 2011.
Thereafter, the Company gained operating control of the mining
properties. Operating funds will be provided by each party in
proportion to its interest in the mining concessions, provided that
the Company has agreed to fund the project in full and receive 50%
of the proceeds allocable to the Assignor until the additional
funds provided by us are repaid.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The acquisition was considered a purchase of a business and was
accounted for as a purchase business combination effective when the
Company obtained control of the mining assets on October 18,
2011. Accordingly, the results of operations of the acquired
business are included in the Company’s consolidated financial
statements beginning on October 18, 2011, the date when the Company
obtained control of the mining assets.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
The cost of acquiring the 70% interest is based on a series of
contingent payments over the next three years consisting of the
number of proven tons of reserves as determined by an independent
engineer’s review of our exploration program multiplied by
certain dollar amounts per ton. The Company initially paid $500,000
to the Assignor upon signing of the agreement in August 2011. Upon
obtaining control on October 18, 2011, the Company determined the
fair value at October 18, 2012 of the mining rights and other
assets acquired to be $4,541,502. This was allocated to the assets
acquired and liabilities assumed based on estimated fair values of
the assets acquired and liabilities assumed. The purchase price
allocation was as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; color: red">
<b> </b></p>
<table cellpadding="0" cellspacing="0" align="center" style="border-collapse: collapse; width: 80%; font-family: Times New Roman, Times, Serif">
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; font-weight: bold">Assets Acquired and
Liabilities Assumed:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 65%; font-size: 10pt; text-align: left">Property
and equipment</td>
<td style="width: 1%; font-size: 10pt"> </td>
<td style="width: 1%; font-size: 10pt; text-align: left">$</td>
<td style="width: 12%; font-size: 10pt; text-align: right">
827,238</td>
<td style="width: 1%; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; text-align: left">Concession mining
rights</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">3,484,000</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; padding-bottom: 1pt">Goodwill</td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">230,264</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; padding-bottom: 1pt">Taxes payable</td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
(674</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
)</td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; font-weight: bold; text-align: left; padding-bottom: 2.5pt">
</td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">
4,540,828</td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt"><b>Total Purchase Price:</b></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; text-align: left; padding-left: 0.24in">Cash
Paid</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left">$</td>
<td style="font-size: 10pt; text-align: right">500,000</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; text-align: left; padding-left: 0.24in">
Contingent Earnout Liabiliites</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">2,678,580</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; text-align: left; padding-left: 0.24in">
Noncontrolling Interest</td>
<td style="font-size: 10pt"> </td>
<td style="font-size: 10pt; text-align: left"> </td>
<td style="font-size: 10pt; text-align: right">1,362,248</td>
<td style="font-size: 10pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
 </td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; font-weight: bold; text-align: left; padding-bottom: 2.5pt">
</td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">
4,540,828</td>
<td style="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">
 </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; color: red">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">
On February 2, 2012, our Colombian subsidiary entered into a
contract with Dairo Ruben Herrera Perez and Ariel Salcedo Leal in
connection with the assignment of mining concession contract
FI7-081. The concession is adjacent to our Rukú Mining Complex
and will allow more efficient access to Rukú’s coal
resources and ultimately, lower operating costs and improved
safety. The concession has 17 hectares (42 acres) and metallurgical
coal resources similar in quality to Rukú’s. Its permit,
FI7-081, is currently in the construction or preoperative phase.
Compensation for the property includes $167,079 paid at signing of
the agreement on February 3, 2012 and an additional $111,386 due
upon governmental approval of the concession’s transfer to
our Colombian subsidiary which we anticipate later this year.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>Boavita Mining Project</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<font style="background-color: White"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">
On October 7, 2011, our Colombian subsidiary entered into an
agreement (the “Option Agreement”) with Americana de
Minerales de Exploracion S.A.S. (“AMERALEX”) for the
option to purchase all of the rights of AMERALEX in mining
concession FFB-081 covering approximately 1,550 hectares
(approximately 3,830 acres) located in the jurisdiction of the
Municipalities of Boavita and La Uvita, Department of Boyacá,
Republic of Colombia (the “Boavita Mining Concession”).
Once INGEOMINAS approves the mining plan, we have up to 24 months
to conduct exploration of the entire concession, evaluate and
characterize the coal deposit, and exercise the option. The
purchase price will be determined based upon the determination of
proven and probable reserves using standard methodology. We are
obligated to pay an agreed amount upon reaching a firm purchase
arrangement and approval of the mining plan. We are obligated to
pay an agreed amount nine months after the first payment. Upon
completion of the exploration work, and if we exercise the option
to acquire the concession, we are obligated to make an additional
payment. Beginning 30 months after the initial payment under the
option Agreement, we are obligated to make annual payments;
however, the total aggregate purchase price will be limited to the
final calculation of proven and probable reserves, not to exceed an
agreed maximum amount.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">
On December 27, 2011, we entered into an operations agreement with
AMERALEX which allows for the immediate start of mining operations
on the Boavita Mining Concession once INGEOMINAS, the Colombian
state mining authority, approves the mining plan, which occurred on
March 13, 2012. As compensation to AMERALEX for this right, we paid
$100,000 on the date the agreement was entered into and have agreed
to pay $150,000 upon approval of the agreement by our
company’s board of directors. We have also agreed to pay
AMERALEX a 5% royalty on monthly sales, 50% of which will be offset
by the $250,000 upfront payments. On March 15, 2012 the agreement
was amended to extend its term 90 days and further define the
manner in which the royalty is calculated.</p>
</div>
177731
<div style="font: 10pt Times New Roman, Times, Serif">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
Accounts payable and accrued liabilities of $2,367,085 and
$1,697,875 as of March 31, 2012 and December 31, 2011,
respectively, are broken down as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">
</p>
<table cellpadding="0" cellspacing="0" align="center" style="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-size: 10pt; font-weight: bold; text-align: center">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; border-bottom: Black 1pt solid; text-align: center">
<b>March 31, 2012</b></td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-size: 10pt; border-bottom: Black 1pt solid; text-align: center">
<b>December 31, 2011</b></td>
<td style="padding-bottom: 1pt; font-size: 10pt"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 46%; font-size: 10pt; text-align: left; padding-bottom: 1pt">
Accounts payable</td>
<td style="width: 1%; font-size: 10pt; padding-bottom: 1pt">
 </td>
<td style="width: 1%; padding-bottom: 1pt; font-size: 10pt; text-align: left">
$</td>
<td style="width: 14%; padding-bottom: 1pt; font-size: 10pt; text-align: right">
1,138,207</td>
<td style="width: 1%; padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="width: 1%; font-size: 10pt; padding-bottom: 1pt">
 </td>
<td style="width: 1%; padding-bottom: 1pt; font-size: 10pt; text-align: left">
$</td>
<td style="width: 14%; padding-bottom: 1pt; font-size: 10pt; text-align: right">
601,128</td>
<td style="width: 1%; padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; text-align: left; padding-bottom: 1pt">
Mining Concession payable (current portion)</td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: right">
1,361,138</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: right">
1,018,699</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-size: 10pt; text-align: left; padding-bottom: 1pt">
Accrued payroll</td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
101,212</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">
78,048</td>
<td style="padding-bottom: 1pt; font-size: 10pt; text-align: left">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 10pt; padding-bottom: 1pt; padding-left: 0.24in">
<b>TOTAL</b></td>
<td style="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; font-weight: bold; text-align: left">
$</td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; font-weight: bold; text-align: right">
2,600,557</td>
<td style="padding-bottom: 1pt; font-size: 10pt; font-weight: bold; text-align: left">
 </td>
<td style="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">
 </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; font-weight: bold; text-align: left">
$</td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; font-weight: bold; text-align: right">
1,697,875</td>
<td style="padding-bottom: 1pt; font-size: 10pt; font-weight: bold; text-align: left">
 </td>
</tr>
</table>
</div>
<div style="font: 10pt Times New Roman, Times, Serif">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
<b>7. RELATED PARTY TRANSACTIONS</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
At March 31, 2012, LIFE owned approximately 26.4% (adjusted for
dilution of shares) of the outstanding shares of the Company.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
As described in Note 4, the Company had a convertible note payable
to LIFE totaling $80,000 as of December 31, 2010. The note was
converted to preferred shares as part of the Stock Financing.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
On August 3, 2010, the Company entered into a 3-year management and
services agreement with LIFE pursuant to which LIFE agreed to
provide certain corporate, financial, and merger and acquisition
advisory services to the Company and assistance with securing
equipment leases and other equipment financing through June 30,
2013. Under the terms of the contract, LIFE is paid a fee equal to
the lesser of 1% of gross coal sales or $2 per ton of coal sold
with a minimum monthly fee of $25,000 plus expenses. Total
management fees and expenses during the quarter ended March 31,
2012 were $75,000 compared with $87,839 for the three-month period
ended March 31, 2011. The accrued management fees payable as of
March 31, 2011 and December 31, 2011 were $87.839 and $310.000,
respectively, included in “Accounts Payable & Accrued
Liabilities” in the Consolidated Balance Sheets.</p>
</div>
3291274
16975
-3146377
270609
435083
25241457
-0.15
0001045390
2012-01-01
2012-03-31
0001045390
2011-01-01
2011-03-31
0001045390
1996-11-06
2012-03-31
0001045390
2011-12-31
0001045390
2010-12-31
0001045390
2012-03-31
0001045390
2011-03-31
0001045390
2012-05-10
shares
iso4217:USD
iso4217:USD
shares
Derived from the Company's audited December 31, 2011 consolidated balance sheet.