Debt and Debt Guarantee

Notes Payable

As of December 31, 2011 and 2010, the Company has a note payable of $25,000 bearing interest at 12% per annum collateralized by a general security arrangement over all of the Company’s assets. The note was payable in full on May 18, 2007 and is therefore in default as of December 31, 2011 and 2010. During the three months ended March 31, 2012 and year ended December 31, 2011, the Company accrued interest expense of $1,244 and $5,082, respectively. As of December 31, 2011, the balance of the note payable, including accrued interest, is $45,575. On March 26, 2012, $46,819, the note balance and accrued interest, was converted to 187,277shares of common stock at a fair market value of $0.25 per share. As of June 30, 2012, there is no remaining balance on the note.

During the year ended December 31, 2011, the Company received $71,000 for a demand note bearing interest at 24% per annum. During the six months ended June 30, 2012 and the year ended December 31, 2011, the Company accrued interest expense of $6,211 and $5,929, respectively. As of December 31, 2011, the balance of the note payable, including accrued interest, is $76,929. On April 30, 2012, $83,140, the note balance and accrued interest, was converted to 332,561 shares of common stock at a fair market value of $0.25 per share. As of June 30, 2012, there is no remaining balance on the note.

During the year ended December 31, 2011, the Company acquired mineral properties in exchange for a $300,000 note payable. A down payment of $50,000 was paid and the remainder of $250,000 was paid in three payments starting in October of 2011. This note was paid in full during the year ended December 31, 2011.

During the year ended December 31, 2011, the Company received $79,980 for a demand note bearing interest at 6% per annum. During the six months ended June 30, 2012 and the year ended December 31, 2011, the Company accrued interest expense of $2,688 and $0, respectively. As of December 31, 2011, the balance of the note payable is $79,980. On April 30, 2012, $82,668, the note balance and accrued interest, was converted to 330,671 shares of common stock at a fair market value of $0.25 per share. As of June 30, 2012, there is no remaining balance on the note.

Notes Payable – Related Party

During the six months ended June 30, 2012, the Company was loaned $39,200 from an officer. The loan is unsecured, bears no interest, and is due on demand. The balance of the loan as of June 30, 2012 was $39,200.

Convertible Debentures - 2009

In August and September of 2009, the company received $1,000,000 from an investor to issue a convertible debenture, bearing interest at a rate of 18% per annum paid monthly on any unpaid principal balance to the investor, secured by the assets of the Company. $500,000 of the debenture was due on August 13, 2010 and the other $500,000 was due on September 15, 2010. During the year ended December 31, 2010, the Company amended the promissory note to extend the repayment date of the first to August 13, 2011 and the second to September 15, 2011. On August 13, 2011, the Company entered into a second amendment to extend the repayment date of the first note to August 13, 2012 and the second note to September 15, 2012. The debenture calls for monthly interest payments to the investor until the debenture is fully paid. The holder of the convertible debenture has the right to convert any portion of the unpaid principal and/or accrued interest at any time at the lower of $0.35 per share or a 25% discount to the average closing price of the five proceeding days. With the debentures, the Company issued 2,857,142 warrants to purchase common shares of the Company for $0.50 per share. The warrants had a term of two years and expired during 2011. Interest payments continue to be made. During the year ended December 31, 2010, the Company and Holder agreed to reduce the initial conversion price from the lower of $0.35 per share or a 25% discount to the average closing price of the five proceeding days to the lower of $0.25 per share or a 25% discount to the average closing price of the five proceeding days. At the time of this adjustment the 25% discount to the average closing price of the five proceeding days was $0.25.

The warrants issued and beneficial conversion feature associated with the above convertible debentures were valued using the black-scholes option pricing model and bifurcated out of the debenture proceeds and recorded as additional paid in capital in the amount of $581,626. A discount on the convertible debenture was recorded in the same amount and was amortized into interest expense over the original life of the debenture using the interest method. As of December 31, 2010, all of the discount had been amortized into interest expense.

In March of 2010, $350,000 of the debenture balance was converted at a conversion rate of $0.35 per share to 1,000,000 shares of stock. As of June 30, 2012 and December 31, 2011, the balance due on the convertible debentures was $633,306 and $633,306, respectively.

Convertible Debentures - 2010

During the year ended December 31, 2010, the company received $1,462,774 from an investor to issue a convertible debenture, bearing interest at a rate of 24% per annum. The note was due May 17, 2011. The holder of the convertible debenture had the right to convert any portion of the unpaid principal and/or accrued interest at any time at the conversion price of $0.90, which was the market value at the time.

In November of 2010, the Company amended the agreement to reduce the conversion price applicable to the conversion from $0.90 per share to $0.25 per share. The amendment made no other changes to the terms of the original debenture. The Company determined and recorded a beneficial conversion feature in relation to this amendment. The beneficial conversion feature was valued at $515,271 and recorded as additional paid in capital. A discount on the convertible debenture was recorded in the same amount and will be amortized into interest expense over the remaining life of the debenture using the interest method. For the three months ended March 31, 2012 and the year ended December 31, 2011, $202,517 and $386,453, respectively, was amortized into interest expense in relation to these discounts.

During the year ended December 31, 2011, the Company received additional funds of $1,700,918. The beneficial conversion feature was valued at $472,377 and recorded as additional paid in capital. A discount on the convertible debenture was recorded in the same amount and will be amortized into interest expense over the remaining life of the debenture using the interest method. For the year ended December 31, 2011, $260,306 was amortized into interest expense in relation to these discounts.

The total amount of discounts amortized into interest expense during the year ended December 31, 2010 and 2011 was $512,839 and $646,760, respectively, and $212,070 during the six months ended June 30, 2012.

In May of 2011, the Company amended the agreement to increase the credit line from $1,500,000 to $1,800,000. In July of 2011, the Company amended the agreement to increase the credit line from $1,800,000 to $2,000,000 in exchange for a 3% royalty interest in the proceeds of the Company’s working interests in mineral properties. In August of 2011, the Company amended the agreement to extend the repayment date for all advances before September 30, 2010 to November 17, 2012; and all other advances after September 30, 2010 to be due one year from the date of advance. Additionally the credit line was increased from $2,000,000 to $3,000,000 in exchange for an additional 3% royalty interest.

The 6% royalty interest given in the amendments was valued at the present value of estimated future payments over the life of the wells. $113,164 was recorded as a royalty interest payable and corresponding prepaid financing charges. The prepaid expense will be amortized over the extension period of the loans. For the six months ended June 30, 2012 and the year ended December 31, 2011, $42,437 and $35,364 was amortized into interest expense in relation to this prepaid, respectively. At December 31, 2011, $4,418 royalties were paid and earned. As of December 31, 2011, $77,800 remains in prepaid expenses. During the six months ended June 30, 2012, the royalty interest was terminated. The remaining prepaid and the related royalty interest payable was written off for a total gain on forgiveness of debt of $77,800 for the six month period ended June 30, 2012.

In December of 2011, $1,090,902 of the debenture balance was converted into 4,363,611 shares of common stock at a conversion rate of $0.25 per share.

During the six months ended June 30, 2012, the Company received additional funds under this debenture of $198,000.

In March of 2012, $2,731,822 of the debenture balance was converted into 10,927,289 shares of common stock at a conversion rate of $0.25 per share.

On April 30, 2012, $431,395 of the remaining debenture balance plus interest was converted into 1,725,580 shares of common stock at a conversion rate of $0.25 per share.

As of June 30, 2012 and December 31, 2011, the balance due on the convertible debentures, net of the discount of $0 and $212,070, was $0 and $2,164,205, respectively.

The debenture also had provisions for the payment of a finder’s fee related to the proceeds. A total of $158,185 had been accrued throughout the life of the debenture as additional funds were received. During the six months ended June 30, 2012, the total amount was forgiven resulting in a gain on forgiveness of debt of $158,185.

Loan Guarantee

In 2004, the Company received a demand for payment from Canadian Western Bank (“CWB”) pursuant to a guarantee provided by the Company in favor of Calgary Chemical, a former subsidiary. The Company divested itself of Calgary Chemical in 1998 under an agreement with a former president and purchaser. The agreements included an indemnity guarantee from the purchaser of Calgary Chemical, whereby the purchaser would indemnify and save harmless the Company from any and all liability, loss, damage or expenses. Upon receipt of the demand, the Company accrued the amount of the claim since in the opinion of legal counsel it is more likely than not that CWB would prevail in this action. No interest expense has been accrued on this balance. During the three months ended March 31, 2012, the Company determined, due to the age of the loan guarantee and the appropriate statute of limitations, that the loan guarantee was invalid. The Company wrote off the loan guarantee as well as the other comprehensive loss related to the foreign currency adjustments made on the loan and realized a gain on forgiveness of debt of $86,746.

Interest expense

Interest expense related to all of the above items for the six months ended June 30, 2012 and 2011, was $460,704 and $783,360, respectively.