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

FORM 10-QSB
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2008

Or

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

For the transition period from ____________ to ________________

Commission file number 000-51519

True North Energy Corporation
(Exact name of small business issuer as specified in its charter)
     
Nevada
 
98-0434820
(State or other jurisdiction of
 incorporation or organization)
 
(IRS Employer Identification
No.)
     
2 Allen Center, 1200 Smith Street, 16 th Floor
Houston, Texas 77002
(Address of principal executive offices)
 
(713) 353-3948
(Registrant’s telephone number, including area code)
 
(Former address if changed since last report)

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2). Yes o   No x

As of March 3, 2008 there were 69,076,449 shares of the issuer’s common stock, par value $0.001, issued and outstanding.

Transitional Small Business Disclosure Format (check one): Yes  o No x
 

TRUE NORTH ENERGY CORPORATION
JANUARY 31, 2008 QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS

   
PAGE
     
 
Special Note Regarding Forward Looking Information
3
     
 
PART I - FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements
4
     
Item 2.
Plan of Operation
15
     
Item 3.
Controls and Procedures
19
     
 
PART II - OTHER INFORMATION
 
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
19
     
Item 5.
Other Information
19
     
Item 6.
Exhibits
21
 
2
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes” and similar language. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed “Plan of Operation” as well as in the “Description of Business - Risk Factors” section in our Annual Report on Form 10-KSB for the year ended April 30, 2007. You should carefully review the risks described in our Annual Report and in other documents we file from time to time with the Securities and Exchange Commission. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.
 
Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. These factors include, among others:
 
·  
The risks associated with oil and gas exploration;
·  
Our ability to raise capital to fund capital expenditures;
·  
Our ability to find, acquire, market, develop and produce new properties;
·  
Oil and gas price volatility;
·  
Uncertainties in the estimation of proved reserves and in the projection of future rates of production and timing of development expenditures;
·  
Operating hazards attendant to the natural gas and oil business;
·  
Downhole drilling and completion risks that are generally not recoverable from third parties or insurance;
·  
Availability and cost of material and equipment;
·  
Delays in anticipated start-up dates;
·  
Actions or inactions of third-party operators of our properties;
·  
Our ability to find and retain skilled personnel;
·  
Regulatory developments;
·  
Environmental risks; and
·  
General economic conditions.

All references in this Form 10-QSB to the “Company,” “True North Energy,” “we,” “us” or “our” are to True North Energy Corporation. All references to share amounts in this Form 10-QSB give retroactive effect to a 5:1 forward stock split that was affected by the Company on April 18, 2006.
 
3

PART 1 – FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS

 
PAGE
 
 
Consolidated Balance Sheets as of January 31, 2008 (Unaudited) and April 30, 2007
5
   
Consolidated Statements of Operations for the three and nine month periods ended January 31, 2008 and 2007 (Unaudited)
6
   
Consolidated Statements of Cash Flows for the nine month periods ended January 31, 2008 and 2007 (Unaudited)
7
   
Notes to Consolidated Financial Statements (Unaudited)
8
 
4
 

TRUE NORTH ENERGY CORPORATION
Consolidated Balance Sheets
 
   
January 31, 2008
 
April 30, 2007
 
   
(Unaudited)
     
Assets
             
Current assets:
             
Cash and cash equivalents
 
$
183,462
 
$
267,845
 
Accounts receivable
   
247,146
   
-
 
Prepaid expenses and other current assets
   
3,044
   
385,009
 
Note receivable
   
-
   
180,000
 
Total current assets
   
433,652
   
832,854
 
Website development (net of accumulated amortization of $15,155 and $9,172, respectively)
   
8,771
   
14,754
 
Property and equipment (net of accumulated depreciation of $3,927 and $1,875, respectively)
   
7,297
   
9,349
 
Oil and gas properties, using successful efforts accounting method, including unproven properties of $2,498,378 and $685,400, respectively (net of accumulated depreciation, depletion and amortization of $534,529 and $-0-, respectively)
   
5,558,105
   
685,400
 
Deferred financing costs
   
599,515
   
-
 
Total assets  
 
$
6,607,340
 
$
1,542,357
 
               
Liabilities and Stockholders’ Equity
             
Current liabilities:
             
Accounts payable  
 
$
140,924
 
$
43,912
 
Accrued liabilities  
   
1,090,822
   
98,546
 
Stock compensation payable    
   
41,082
   
161,171
 
Current portion of notes payable  
   
758,503
   
196,656
 
Total current liabilities  
   
2,031,331
   
500,285
 
Notes payable, net of unamortized discount of $815,185 and $-0-, respectively  
   
2,490,618
   
250,000
 
Asset retirement obligations  
   
52,774
   
-
 
Total liabilities  
   
4,574,723
   
750,285
 
               
Commitments and contingencies
             
               
Stockholders’ Equity:
             
Preferred Stock, $0.0001 par value; 20,000,000 shares authorized, no shares issued or outstanding
   
-
   
-
 
Common Stock, par value $.0001; 250,000,000 shares authorized; 69,076,449 and 64,662,700 shares issued and outstanding, respectively
   
6,908
   
6,466
 
Additional paid-in capital
   
22,092,683
   
10,007,662
 
Accumulated deficit
   
(20,066,974
)
 
(9,222,056
)
Total stockholders’ equity
   
2,032,617
   
792,072
 
Total liabilities and stockholders’ equity
 
$
6,607,340
 
$
1,542,357
 
 
See notes to financial statements.
 
5

TRUE NORTH ENERGY CORPORATION
Consolidated Statements of Operations
(Unaudited)

   
Three Months Ended
January 31,
 
Nine Months Ended
January 31,
 
   
2008
 
2007
 
2008
 
2007
 
Revenues
 
$
542,819
 
$
-
 
$
837,272
 
$
-
 
                           
Costs and expenses:
                         
Exploration costs
   
3,795
   
3,486,719
   
313,234
   
4,225,899
 
Lease operating expenses
   
225,789
   
-
   
471,774
   
-
 
Accretion expense
   
1,890
   
-
   
2,774
   
-
 
General and administrative:
                         
Compensation and benefits
   
86,295
   
437,295
   
9,200,719
   
1,204,846
 
Legal and accounting
   
167,544
   
57,308
   
280,375
   
161,937
 
Advisory board fees
   
26,961
   
253,973
   
63,909
   
276,187
 
Investor relations
   
8,642
   
29,091
   
50,746
   
136,657
 
Other
   
47,771
   
16,936
   
214,728
   
130,848
 
Depreciation, depletion and amortization
   
359,274
   
2,678
   
542,564
   
5,960
 
Total costs and expenses
   
927,961
   
4,284,000
   
11,140,823
   
6,142,334
 
 
                         
Loss from operations
   
(385,142
)
 
(4,284,000
)
 
(10,303,551
)
 
(6,142,334
)
 
                         
Other income (expense):
                         
Interest income
   
-
   
1,437
   
764
   
7,887
 
Interest expense
   
(294,473
)
 
-
   
(542,132
)
 
-
 
 
                         
Loss before income taxes
   
(679,615
)
 
(4,282,563
)
 
(10,844,919
)
 
(6,134,447
)
Income taxes
   
-
   
-
   
-
   
-
 
 
                         
Net loss
 
$
(679,615
)
$
(4,282,563
)
$
(10,844,919
)
$
(6,134,447
)
 
                         
Basic and diluted loss per common share
 
$
(0.01
)
$
(0.07
)
$
(0.16
)
$
(0.10
)
                           
Weighted-average common shares outstanding -
basic and diluted
   
68,745,675
   
63,781,100
   
67,247,183
   
62,619,263
 
 
See notes to financial statements.
 
6

TRUE NORTH ENERGY CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
 
   
Nine Months Ended January 31,
 
   
2008
 
2007
 
           
Cash Flows From Operating Activities
             
Net loss  
 
$
(10,844,919
)
$
(6,134,447
)
Adjustments to reconcile net loss to net cash used in operating activities:
             
Depreciation, depletion and amortization  
   
542,564
   
5,960
 
Stock-based compensation
   
9,034,241
   
1,276,187
 
Dry hole costs
   
-
   
3,983,742
 
Amortization of deferred financing costs and debt discount
   
319,614
   
-
 
Accretion expense
   
2,774
   
-
 
Changes in operating assets and liabilities:
             
Accounts receivable
   
(247,146
)
 
-
 
Prepaid expenses and other current assets
   
316,240
   
-
 
Accounts payable
   
97,011
   
99,081
 
Accrued liabilities
   
541,474
   
(15,000
)
Net cash used in operating activities  
   
(238,147
)
 
(784,477
)
               
Cash Flows From Investing Activities
             
Additions to oil and gas properties  
   
(2,906,879
)
 
(4,964,438
)
Purchases of property and equipment  
   
-
   
(11,224
)
Website development
   
-
   
(16,700
)
Net cash used in investing activities  
   
(2,906,879
)
 
(4,992,362
)
               
Cash Flows From Financing Activities
             
Proceeds from issuance of common stock  
   
-
   
7,000,000
 
Proceeds from notes payable  
   
4,250,000
   
-
 
Increase in deferred financing costs  
   
(557,007
)
 
-
 
Payments on notes payable  
   
(632,350
)
 
-
 
Net cash provided by financing activities  
   
3,060,643
   
7,000,000
 
               
Net increase in cash and cash equivalents  
   
(84,383
)
 
1,223,161
 
Cash and cash equivalents, beginning of period  
   
267,845
   
37,223
 
               
Cash and cash equivalents, end of period  
 
$
183,462
 
$
1,260,384
 
               
Supplemental Disclosure of Cash Flow Information
             
Cash paid for interest  
 
$
163,626
 
$
-
 
Income taxes    
   
-
   
-
 
               
Non-Cash Investing and Financing Activities
             
Common stock issued for oil and gas properties  
 
$
1,988,626
 
$
-
 
Discount on notes for relative fair value  
   
781,624
   
-
 
Discount on notes for overriding royalty interest granted to lenders  
   
200,000
   
-
 
Stock subscription receivable  
   
-
   
1,000,000
 
 
7
TRUE NORTH ENERGY CORPORATION
Notes to Consolidated Financial Statements

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES  

The accompanying unaudited interim financial statements of True North Energy Corporation (“True North” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. These unaudited interim financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-KSB previously filed with the Securities and Exchange Commission.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements that would substantially duplicate the disclosure contained in the Company’s audited financial statements for the year ended April 30, 2007 as reported in Form 10-KSB have been omitted.

These consolidated financial statements include the accounts of the Company and its recently formed, wholly owned subsidiary, ICF Energy Corporation (“ICF”). All material intercompany accounts and transactions have been eliminated in consolidation.
 
Accounts receivable primarily consist of accrued revenues from oil and gas production and joint interest expenditures due from joint interest owners in oil and gas properties.
 
Revenues are recognized for oil and natural gas sales when production is sold to a purchaser at a fixed or determinable price. The Company accounts for its gas imbalances that result from its normal operations using the sales method, under which the Company recognizes its revenues on all production delivered to the purchaser.
 
Asset retirement obligations are recorded in the period in which they are incurred and reasonably estimatable. The Company recognized asset retirement obligations totaling $50,000 associated with the Texas oil and gas properties it acquired in September 2007 (see Note 3). The Company routinely reviews and reassesses its estimates to determine if an adjustment to the value of the asset retirement obligation is required.
 
Certain reclassifications have been made to the prior year financial statements to conform with the current presentation.

The Company was incorporated on February 1, 2006 and was in the exploration stage through July 31, 2007. During the three months ended October 31, 2007 the Company became an operating company and is no longer considered to be in the exploration stage.

NOTE 2 – GOING CONCERN

The accompanying financial statements have been prepared on a going concern basis, which implies that True North will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of True North as a going concern is dependent upon many factors including, but not limited to, continued financial support from its shareholders, receipt of additional financing when and as needed to finance its ongoing business, and the attainment of profitable operations.

True North only recently began generating revenues and has accumulated significant losses. The Company will require additional financing in order to execute its business plan. There can be no assurance that such financing will be available to the Company as and when needed or, if available, the reasonableness of the terms of such financing. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments relative to the recoverability or classification of recorded assets or liabilities that might be necessary should the Company be unable to continue as a going concern.

8
 
NOTE 3 – OIL AND GAS PROPERTIES

Colorado Leases
In June 2007 the Company acquired certain oil and gas leases covering more than 17,000 acres in Colorado. The purchase price for these leases approximated $1.4 million and was paid with a combination of cash (approximately $345,000) and 1,832,769 shares of the Company’s common stock valued at approximately $1,063,000. The Company advanced the proposed seller $180,000 of the cash consideration during January 2007 in the form of a note receivable. The note bore interest at the rate of 5% per annum and was repaid upon the closing of the Company’s acquisition of the Colorado oil and gas leases.

Prime Transaction
On September 19, 2007, the Company acquired certain oil and gas properties and related assets (the “Properties”) in Brazoria County, Texas from Prime Natural Resources, Inc. (“Prime”) for approximately $3.7 million, including closing and other transaction-related costs. The purchase price was paid with a combination of cash ($2.4 million), 1,928,375 shares of the Company’s restricted common stock valued at approximately $926,000, and the assumption of certain assumed liabilities totaling approximately $343,000. The Company’s consolidated statements of operations include the revenues and expenses associated with the acquired assets from the date of acquisition.

The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of the Properties had occurred as of May 1, 2006. The pro forma information is presented for information purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition of the Properties been consummated as of that time, nor is it intended to be a projection of future results.

   
Three Months Ended
January 31,
 
Nine Months Ended
January 31,
 
   
2008
 
2007
 
2008
 
2007
 
                   
Revenues
 
$
542,819
 
$
674,758
 
$
2,095,578
 
$
2,342,492
 
Net loss
   
(460,302
)
 
(4,281,835
)
 
(10,236,856
)
 
(6,037,435
)
Loss per share – basic and diluted
 
$
(0.01
)
$
(0.07
)
$
(0.15
)
$
(0.09
)
 
In January 2008 we entered into an agreement with Savant Alaska LLC (“Savant”) pursuant to which we agreed to assign to Savant an interest in one of the Company’s Alaska oil and gas leases. In exchange, the Company received the opportunity to earn up to a two percent working interest in a production unit if the test well Savant is drilling on adjacent acreage is successful. The test well will be drilled at the sole expense of Savant and its drilling partners.
 
NOTE 4 – NOTES PAYABLE

Convertible Notes
On March 30, 2007 True North executed an agreement with an off-shore investor pursuant to which it agreed to issue $500,000 of notes payable (the “Notes”). Proceeds of the Notes were received in two equal installments during April and May 2007. The Notes bear interest at the rate of 8% per annum. Subject to prior conversion or acceleration, the principal balance of the notes is due in a single payment on the third anniversary of the date of each note. Interest on the Notes originally was payable semi-annually beginning the first day of the first month following 180 days from the respective dates of the Notes.
 
9
 
On September 18, 2007, the Company and the Convertible Notes lender entered into a subordination agreement. Pursuant to that agreement, the lender agreed to subordinate, in right of payment and priority, the Convertible Notes to the Secured Notes issued in September 2007 (see below). Payment of interest on the Convertible Notes also was postponed until repayment in full of the Secured Notes as a result of the Subordination Agreement.

In connection with the issuance of the Notes, the Company issued warrants for the purchase of up to 182,249 shares of the Company’s common stock at an exercise price of $1.92 per share as well as warrants for the purchase of up to an additional 298,330 shares of the Company’s common stock at an exercise price of $1.17 per share. These warrants are exercisable for a period of three years from the date of issuance (August 30, 2007).

The fair value of the warrants was estimated using the Black Scholes option-pricing model, which resulted in a total fair value of $125,706 and a relative fair value of $100,310. A discount on the notes payable was recognized in an amount equal to the relative fair value of the warrants. The debt discount is being accreted to interest expense using the effective interest method over the remaining term of the notes. Interest expense resulting from the accretion of the debt discount approximated $7,100 and $18,500 during the three-month and nine-month periods ended January 31, 2008.

The conversion option and warrant issuance features of the convertible notes were evaluated under FAS 133 and EITF 00-19 for derivative accounting. As neither the conversion option or the warrants were deemed to be liabilities, derivative accounting was not applicable. The Company also evaluated the conversion option under EITF 98-5 and EITF 00-27 and determined that the conversion option was contingent and ultimately did not result in a beneficial conversion feature.

Bridge Notes
On August 23, 2007 True North received an aggregate of $250,000 in loan proceeds from two persons (the “Lenders”) and issued to each of the Lenders a secured promissory note in the principal amount of $125,000 (the “Bridge Notes”). The Bridge Notes bore interest at the rate of 12% per annum. Subject to earlier payment, at the Company’s option, interest on the unpaid principal amount of the Bridge Notes was payable in monthly installments commencing September 1, 2007 and principal was due and payable on the earlier of November 19, 2007 or 15 days following the closing of the acquisition of the Prime Assets. As more fully described below, the Bridge Notes were repaid in September 2007 upon consummation of the acquisition of the Properties and related financing.

The Company issued 100,000 shares of its restricted common stock to the Lenders in connection with the Bridge Notes. Each Bridge Note was secured by 1,250,000 shares of restricted common stock (the “Stock”) standing in the name of Massimiliano Pozzoni and/or John Folnovic, both of who are officers and significant shareholders of the Company. True North paid each Lender a cash fee of $3,750 to reimburse them for the costs and expenses incurred by them in connection with the loan transaction and further agreed to pay the reasonable fees and disbursements of the Lenders’ respective legal counsels in connection with the enforcement of their rights under the Bridge Notes.

10
 
Secured Notes
The Company financed the purchase of the Properties and the repayment of the Bridge Notes through the issuance of senior secured term notes (the “Secured Notes”) to two purchasers (the “Purchasers”). The aggregate principal amount of the Secured Notes totaled $3,750,000. The Secured Notes, which mature on September 18, 2010, bear interest at the rate of 13% per annum.

Amortizing payments of principal and interest are due monthly. During the twelve-month period ending September 18, 2008, the amount of such monthly principal payments is equal to the greater of $100,000 or sixty percent (60%) of the net revenue relating to all oil and gas properties of ICF for the immediately preceding calendar month. Thereafter, the monthly principal payment shall be equal to $100,000 or eighty percent (80%) of the net revenue relating to all oil and gas properties of ICF for the immediately preceding calendar month, provided, however, such percentage will increase to one hundred percent (100%) upon the occurrence and during the continuance of an event of default.

The Purchasers also were granted warrants for the purchase of up to 1,953,126 shares of the Company’s common stock in connection with the issuance of the Secured Notes. These warrants bear an exercise price of $0.48 per share and expire September 18, 2012. The fair value of the warrants was estimated using the Black Scholes option-pricing model, which resulted in a total fair value of approximately $833,000 and a relative fair value of approximately $681,000. A discount on the notes payable was recognized in an amount equal to the relative fair value of the warrants.

In addition to the above, the Company issued an aggregate 5% overriding royalty interest in the oil and gas properties of ICF to the Purchasers. The amount of the overriding royalty interest will reduce to an aggregate 3% rate upon the payment in full of the Secured Notes. The fair value of the overriding royalty interests was estimated using the discounted cash flow method and recorded as a discount to the Secured Notes. The Company’s basis in the Properties was reduced by a like amount.

The aggregate debt discount resulting from the issuance of the warrants and the overriding royalty interest is being accreted to interest expense using the effective interest method over the remaining term of the notes. Interest expense resulting from the accretion of the debt discount associated with the Secured Notes approximated $52,000 and $114,000 during the three-month and nine-month periods ended January 31, 2008, respectively.
 
The Company incurred transaction costs of approximately $720,000 in connection with the issuance of the Secured Notes. Such costs include $128,000 representing the estimated fair value associated with warrants awarded to a financial advisor for the purchase of up to 300,000 shares of the Company’s common stock. These warrants have an exercise price of $0.48 per share and expire September 18, 2012. The fair value of the warrants was estimated using the Black Scholes option-pricing model. The deferred financing costs are being amortized using the effective interest method over the remaining term of the Secured Notes.
 
11
 
The Company’s borrowing activity is summarized below:

   
Balance
as of
April 30,
2007
 
Increases
 
Decreases
 
Balance
as of
January 31,
2008
 
                   
Insurance notes payable
 
$
196,656
 
$
-
 
$
(196,656
)
$
-
 
Convertible Notes
   
250,000
   
250,000
   
-
   
500,000
 
Bridge Notes
   
-
   
250,000
   
(250,000
)
 
-
 
Secured Notes
   
-
   
3,750,000
   
(185,694
)
 
3,564,306
 
     
446,656
   
4,250,000
   
(632,350
)
 
4,064,306
 
Debt discount
   
-
   
(981,624
)
 
248,240
   
(815,185
)
Carrying value of debt
 
$
446,656
 
$
3,268,376
 
$
(384,110
)
$
3,249,121
 
                           
Total notes payable
                   
$
3,249,121
 
Less current portion
                     
(758,503
)
Long-term notes payable
                   
$
2,490,618
 
 
Future maturities of long-term debt are as of follows as of January 31, 2008:

Three months ending April 30, 2008
 
$
300,000
 
Year Ending April 30:
 
 
 
 
2009
   
1,200,000
 
2010
   
1,700,000
 
2011
   
1,692,910
 
2012 and thereafter
   
-
 
     
4,892,910
 
Less: interest
   
(828,604
)
   
$
4,064,306
 

NOTE 5 – STOCK-BASED COMPENSATION

During the year ended April 30, 2007 the Company entered into an employment agreement with its chief executive officer. Pursuant to the terms of the employment agreement, that individual was granted five million shares of the Company’s restricted stock issuable ratably at the end of each annual service period. The restricted stock grant vested ratably over a period of five years. The employment agreement was amended in May 2007 to, among other things, reflect the voluntary revocation of the restricted stock grant.

Contemporaneously with the amendment of the employment agreement, True North’s chief executive officer purchased 15.5 million shares of the Company’s common stock from True North’s principal shareholder. True North recognized stock-based compensation expense of approximately $8.9 million during the three-month period ended July 31, 2007 in connection with this purchase, which was calculated as the difference between the purchase and market prices of the 15.5 million shares less the previously recognized stock-based compensation expense associated with the original restricted stock grant.

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A total of 325,000 shares of True North’s common stock was earned by members of the Company’s advisory board during the nine months ended January 31, 2008 in connection with services provided thereby. Of this amount, 250,000 shares were issued as a result of the completion of the advisory board’s initial year of service. The remaining 75,000 shares represent payment of quarterly advisory board fees for each of the three-month periods ended July 31 st , October 31 st , and January 31 st . As of January 31, 2008, $26,082 is reflected as stock compensation payable in the Company’s balance sheet related to annual fees payable to members of the Company’s advisory board for the period ending October 4, 2008. This amount reflects stock compensation expenses associated with 81,284 shares earned through January 31, 2008 that are not issuable by the Company until October 2008.

The Company issued 227,605 shares of its common stock during the nine months ended January 31, 2008 in connection with certain consulting agreements, including a consulting agreement with Prime as described below. The stock was valued at $69,832 of which $24,832 was previously expensed as part of the April 30, 2007 stock payable balance. In December 2007, the Company entered into a consulting agreement with Prime pursuant to which Prime provides the Company with bookkeeping, accounting, financial reporting and related services. The agreement was effective as of October 1, 2007 and expires June 30, 2008.
 
NOTE 6 – COMMON STOCK WARRANTS

The Company accounts for stock warrants issued to third parties in accordance with the provisions of EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, and EITF 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vender’s Products. Under the provisions of EITF 96-18, because none of the Company’s agreements have a disincentive for nonperformance, the Company records a charge for the fair value of the portion of the warrants earned from the point in time when vesting of the warrant becomes probable. Final determination of fair value of the warrants occurs upon actual vesting.

During the nine-month period ended January 31, 2008, the Company issued warrants to purchase an aggregate of 2,733,705 shares of the Company’s common stock, respectively. Such warrants are exercisable at prices ranging from $0.48. to $1.92 per share and expire at various times through September 2012. All of the warrants granted to date were fully vested on the date of grant. No warrants have been exercised to date.

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A summary of warrant activity is as follows:

   
Number of
Warrants
 
Weighted-
Average
Exercise
Price
 
           
Outstanding at April 30, 2007
   
4,405,555
 
$
2.74
 
Granted
   
2,733,705
   
0.65
 
Exercised  
   
-
   
-
 
Outstanding at January 31, 2008
   
7,139,260
 
$
1.94
 

The range of warrant prices for shares under warrants and the weighted-average remaining contractual life as of January 31, 2008 is as follows:

Warrants Outstanding and Exercisable
 
Range of Warrant Exercise Price
 
Number of
Warrants
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Life
 
               
Less than $1.00
   
2,253,126
 
$
0.48
   
4.9
 
$1.00 to $2.00
   
2,730,579
   
0.65
   
1.8
 
More than $2.00
   
2,155,555
   
3.89
   
2.0
 
Outstanding at January 31, 2008
   
7,139,260
             

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ITEM 2. PLAN OF OPERATION

We commenced operation as an oil and gas exploration and development company in February 2006. We are presently engaged in oil and gas activities in Alaska, Texas and Colorado. During the year ended April 30, 2007 we also participated in oil and gas exploration activities in Louisiana.
 
We have only recently began to generate revenues. Our ability to develop and maintain a meaningful level of revenues from operations is dependent on our ability to successfully drill exploration and production wells and complete producing property acquisitions. At the present time, we own interests in two producing wells, which cover approximately 1,150 acres and produce about one million standard cubic feet of gas and ten barrels of oil per day.

Alaska Properties

In January and May 2006, we acquired oil and gas leases representing approximately 25,000 acres in the Cook Inlet basin and approximately 10,000 acres in the North Slope basin areas of Alaska. We are in the process of having the Cook Inlet leases re-registered in our name. We currently maintain a 100% working interest ownership in our Alaska leases, but may elect to sell a portion of our interests at some point in the future.

Effective January 23, 2008 we entered into an Acreage Contribution Contract with Savant Alaska LLC (“Savant”) pursuant to which we have agreed to assign to Savant certain interests of ours in State of Alaska Lease ADL-390839 in exchange for our earning a working interest of up to 2% in a production unit if the test well Savant is drilling on adjacent acreage is successful. The test well will be drilled at the sole expense of Savant and its drilling partners. For a more detailed description of the Acreage Contribution Contract see “Part II - Item 5 - Other Information”.

Colorado Properties

In June 2007 we acquired certain oil and gas interests and properties in northwest Colorado in an area covering more than 17,000 acres. These oil and gas interests are non-producing properties. We hold a 100% working interest in the leases comprising part of the acquired assets. We currently are refining our development plans for the area and expect to start seismic work during the second half of 2008. The purchase price for the interests and properties was approximately $1.4 million, together with an overriding royalty of one to three percent based on the applicable net revenue interest remaining after the landowner’s royalty and existing burdens have been deducted. The purchase price was paid in cash (approximately $345,000) and shares of our restricted common stock ($1,063,000). The number of shares issued was determined based upon the value of our common stock at the market close on June 21, 2007, less a 35% discount. Pursuant thereto, on July 6, 2007 we issued 1,832,769 shares of common stock to the seller. In January 2007 we loaned $180,000 to the seller. Repayment of this loan, which bore interest at an annual rate of 5%, was received in full at the closing of the acquisition.

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Texas Properties

On September 19, 2007 our newly formed, wholly owned subsidiary ICF Energy Corporation (“ICF”) acquired certain oil and gas properties and related assets in Brazoria County, Texas from Prime Natural Resources, Inc. (the “Prime Assets”) for approximately $3.7 million, including closing and other transaction costs. The purchase price was paid with a combination of cash ($2.4 million), 1,928,375 shares of our restricted common stock valued at approximately $926,000, and the assumption of certain liabilities totaling approximately $343,000.

We financed the purchase of the Prime Assets through the issuance of secured term notes (the “Secured Notes”) to two purchasers (the “Purchasers”). The aggregate principal amount of the Secured Notes totaled $3,750,000. As a result of this transaction, the Purchasers became our and ICF's senior secured lenders. The Secured Notes, which mature on September 18, 2010 (the “Maturity Date”), provide for interest payments on the outstanding principal amount at the rate of 13% per annum. Amortizing payments of principal and interest are due monthly. In addition, we issued common stock purchase warrants to the Purchasers for the purchase of up to 1,953,126 shares of our common stock in connection with the issuance of the Secured Notes and reimbursed the Purchasers’ transaction related costs totaling $336,000.

General

We will require additional financing to fund development costs associated with our existing prospects as well as for any additional lease acquisitions. No assurance can be given that such additional financing will be available to us as and when needed or, if available, the terms on which it will be available.

We plan to spend approximately $1 million during the year ending April 30, 2008 on exploration and development activities such as seismic data acquisition, additional lease acquisition, technical studies and participating in joint venture development and exploration drilling.  We do not anticipate drilling on our Alaska properties during the next twelve months (except as related to the Kupcake Prospect as described above).  Our primary efforts in Alaska will focus on exploring opportunities to sell a portion of our Alaskan Cook Inlet Harriet Point prospect working interests in an effort to reduce our risk and financial exposure.
 
We will require additional financing to meet our working capital requirements, including the cost of reviewing and negotiating transactions and other ordinary general and administrative costs such as regulatory compliance, investor relations, consulting and advisory services, Internet/web hosting, executive compensation, office and general expenses, professional fees, travel and entertainment, and rent and related expenses. We estimate that the level of working capital needed for these general and administrative costs for the next 12 months will approximate $1 million. However, this estimate is subject to change, depending on the number of transactions in which we ultimately become involved. 

Oil and gas exploration requires significant outlays of capital and in many situations may offer a limited probability of success. We hope to enhance our chances for success by effectively using available technology, rigorously evaluating sub-surface data, and, to the extent possible, managing dry hole and financial risks.

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We intend to rely on synergistic partnering with sophisticated industry partners. The ideal partner would tend to be a regionally focused independent that has a solid grasp on the play's history, and a demonstrated understanding of the technology required to exploit the play. There can be no assurance that we will be able to successfully negotiate any such partnering agreements or raise the necessary financing to invest in such ventures, or that any such venture will yield us any revenues or profits.

We continue to target selected acquisitions of proved on-shore properties in the United States and Canada. We are biased toward acquisitions of long-lived reserves and intend to target negotiated acquisitions. By focusing our efforts on negotiated acquisitions, we seek to avoid competitive bidding situations that are the norm for the sale of these assets and typically result in higher sales prices.

We face competition from firms that are well established, successful, better capitalized and, in many instances, willing to pay more for properties than what we might consider prudent. Our success will depend on the execution of our business plan to:

·
identify available transactions;
·
quickly evaluate which transactions are most promising; and
·
negotiate creative transaction structures.

Presently our staff consists of our two executive officers, John Folnovic and Massimiliano Pozzoni. We do not expect significant changes in our number of employees during the next twelve months. We intend to outsource certain technical and administrative functions on an as-needed basis in order to conduct our operating activities. Our management team will select and hire these contractors and manage and evaluate their work performance.

Business Strategy

We plan to grow our business onshore in the U.S. through a balance of drilling and acquisitions. We will focus our efforts regionally to achieve economies of scale with predictable risk and bases of production. Our principal goals are to provide the Company and our shareholders with opportunity, growth and value. With these goals in mind, we have adopted the following objectives:

 
·
Lease potentially significant productive acreage in under-explored, neglected, but still highly productive basins such as the Cook Inlet and Beaufort Sea areas in Alaska;

 
·
Lease as much of the potentially productive natural gas acreage in unconventional gas plays that we can identify;

 
·
Focus exclusively onshore in North America (and away from geopolitical unrest) where we can benefit from the highly trained and experienced workforce, large available seismic and well control database, and readily available drilling and production technologies;
 
17
 
 
·
Acquire all of the existing conventional natural gas and oil production and reserves we can afford; and

 
·
Engage in low to medium risk exploration and development of oil and gas reserves with sophisticated, industry-leading partners.

We believe that natural gas demand is likely to steadily increase as the U.S. economy grows and as natural gas is increasingly seen as the most practical way to reduce greenhouse gas emissions and reduce the risk of climate change. We believe these factors will lead to continuing natural gas price strength in the years to come. Better technologies applied to unconventional reservoirs in a time of structurally higher natural gas prices will result in the discovery and development of significant new natural gas reserves.

As a result of these trends, we have expanded our focus beyond just Alaska and began to aggressively pursue new unconventional gas resource plays with potentially substantial upsides. We believe that this course of action will allow us to be well positioned for future success.

As we pursue these objectives, our business will be subject to the risks typically associated with a start-up company in the competitive and volatile oil and gas resources business.

Our tactics to execute our strategies and achieve our goals and objectives include:

 
·
Increasing development of internally generated prospects and opportunities;
 
·
Funding prospects developed by proven geoscientists;
 
·
Completing negotiated acquisitions of proved properties;
 
·
Maintaining tight control of general and administrative and geological and geophysical costs by keeping employee levels low and outsourcing as much of our activities as possible;
 
·
Designing creative deal structures to access acreage, seismic data, prospects and capital;
 
·
Arranging necessary financing to execute the business plan; and
 
·
Using equity ownership incentives to align the interests of all our employees and management with that of our shareholders.

Going Concern

In its report as of and for the year ended April 30, 2007 dated July 25, 2007, our auditors, Malone and Bailey, PC, expressed an opinion that there is substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. We have had minimal revenues since our inception and have accumulated a net loss of $20.1 million. Our continuation as a going concern is dependent upon future events, including our ability to raise additional capital and to generate positive cash flows.
 
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ITEM 3.   CONTROLS AND PROCEDURES  

(a)   Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our senior management, consisting of our chief executive officer and chief financial officer, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective.

(b)   Changes in Internal Control over Financial Reporting . There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 30, 2008 we issued 167,101 shares of our common stock to Prime Natural Resources, Inc. representing payment of the stock fee due to Prime Natural Resources, Inc. under our December 21, 2007 Consulting Agreement with Prime Natural Resources, Inc. for the three-month period ended December 31, 2007. The shares were issued in reliance on Section 4(2). The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended, since the foregoing issuance did not involve a public offering, the recipient had access to information that would be included in a registration statement, the recipient took the shares for investment and not resale, and we took appropriate measures to restrict resale.

On December 17, 2007 we issued an aggregate of 275,000 shares of our common stock to our five advisory board members representing payment of the quarterly fee for the three-month period ended October 31, 2007 (25,000 shares) and the annual fee for the year ended October 5, 2007 (250,000 shares). The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended, since the foregoing issuance did not involve a public offering, the recipient had access to information that would be included in a registration statement, the recipient took the shares for investment and not resale, and we took appropriate measures to restrict resale.

ITEM 5.   OTHER INFORMATION

On November 6, 2007 we entered into a pooling agreement (the “Pooling Agreement”) with Savant Alaska, LLC (“Savant”) which was given effect as of July 1, 2007. Savant holds leases for the exploration and production of oil and natural gas in an area of Alaska that is contiguous to certain of our North Slope Alaskan interests. Under the Pooling Agreement, we and Savant agreed that we would pool certain leasehold interests, on a net acreage basis, and further agreed to jointly drill a test well within the Savant Kupcake Prospect. The test well was to be located in Section 29, T11N, R17E and was planned to be drilled to a depth of 11,000 feet in order to test the Kemik formation. We were unable to raise our share of the test well drilling costs in time, which would have resulted in our earning a working interest within the pooled area of approximately 8.5%, and in January 2008 the Pooling Agreement was terminated by mutual agreement. Effective January 23, 2008 however, we entered into an Acreage Contribution Contract (the “Contract”) with Savant pursuant to which we have agreed to conditionally assign to Savant the part of our leasehold interest that was to be the subject of the Pooling Agreement (the “Lease Acreage”) in exchange for Savant’s drilling a test well within the Kupcake Prospect and allowing us to potentially earn a working interest of up to 2% in the future production unit if the test well is successful. Under the Contract, in the event the test well is discontinued prior to reaching the required depth, Savant also has the right to drill a substitute well within the Kupcake Prospect.
 
19
 
If Savant fails to drill the test well or substitute well, as the case may be, to the required depth, in the manner and time provided in the Contract, Savant will relinquish its rights in the Lease Acreage. If Savant drills the test well or substitute well, as the case may be, to the required depth, in the manner and time provided in the Contract, it will earn an assignment, effective from the date of the release of the rotary rig from the test well, covering an undivided 75% of 8/8th’s working interest and a proportionate (in accordance with our assigned working interest) 78.33% net revenue interest in the Lease Acreage, limited to the depths and formation lying between the surface and the stratigraphic equivalent of 100 feet below the total depth drilled in the test well.

On December 21, 2007 we entered into a nine month consulting agreement (the ‘Consulting Agreement”) with Prime Natural Resources, Inc. (“Prime”) pursuant to which Prime provides us with bookkeeping, accounting, financial reporting and related services. The Consulting Agreement was given retroactive effect to October 1, 2007, the date on which Prime began rendering such services. As compensation for the services rendered to us by Prime under the Consulting Agreement we pay Prime a monthly cash fee of $5,000 and also pay Prime a quarterly fee in the form of shares of our common stock valued at $45,000 payable at the end of each of the quarters ended December 31, 2007, March 31, 2008 and June 30, 2008. The number of shares issuable to Prime for each quarterly period is determined by taking the average closing price of our common stock during the last five business days of each month during the quarter and apportioning such number of shares equal to the amount of $15,000 for each of the three months comprising the quarter. We have granted Prime piggyback registration rights with respect to these share payments. The Consulting Agreement also provides for reimbursement of any expenses incurred by Prime on our behalf. On January 30, 2008 we issued 167,101 shares to Prime constituting payment of the stock fee due to Prime under the Consulting Agreement for the three months ended December 31, 2007.
 
20
 
ITEM 6.   EXHIBITS

(a)   Exhibits.

Exhibit No.
 
Description
31.1
 
Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive Officer
31.2
 
Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Financial Officer
32.1
 
Rule 1350 Certification of Chief Executive Officer
32.2
 
Rule 1350 Certification of Chief Financial Officer
 
21
 
SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  TRUE NORTH ENERGY CORPORATION
     
Dated: March 11, 2008
By:
    /s/ John Folnovic
   
John Folnovic
   
President, Chief Executive Officer
 
22
  
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