CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS





This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements are based on current expectations and projections
about future events. These forward-looking statements are subject to known and
unknown risks, uncertainties and assumptions about Discovery that may cause
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In some
cases, forward-looking statements can be identified by the use of terminology
such as "may," "might," "should," "could," "would," "expect," "plan,"
"anticipate," "believe," "estimate," "continue," or the negative of such terms
or other similar expressions. Factors that might cause or contribute to such a
discrepancy include, but are not limited to, those described in Discovery's
other Securities and Exchange Commission filings. The following discussion
should be read in conjunction with Discovery's financial statements and related
notes thereto included elsewhere in this report.



                                    General



Discovery Energy Corp. (the "Company") was incorporated under the laws of the
state of Nevada on May 24, 2006 under the name "Santos Resource Corp". The
current business of the Company is the exploration and development of the
584,651 gross acres (914 sq. miles) area in South Australia ("Prospect") held
under Petroleum Exploration License PEL 512 ("License"). The Prospect is located
in the "Western Flank" area, which is the southwest Permian edge of the Cooper
and Eromanga Basins, the most prolific producing onshore region in Australia.
There are three separate acreage blocks in the Prospect: West (~400,000 acres),
South (~181,000 acres) and Lycium (~4,000 acres). In May 2012, the Company
incorporated a wholly owned Australian subsidiary, Discovery Energy SA Ltd.
("Subsidiary"), for the purpose of acquiring a 100% working interest in the
License. In May 2016, the Subsidiary's legal entity status changed from public
to private and its name changed to Discovery Energy SA Pty Ltd. The Company is
in the initial exploration phase of determining whether or not the Prospect
contains economically recoverable volumes of crude oil, natural gas and/or
natural gas liquids (collectively "Hydrocarbons"). Although the Company's
current focus is primarily on the Prospect, management from time-to-time
exchanges information with other industry participants regarding additional
investment opportunities in Australia. The Company's internet address is
https://discoveryenergy.com.



Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and
15(d) of the Securities Exchange Act of 1934, as amended, are available free of
charge on our website as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the Securities and Exchange
Commission (the "SEC"). The SEC maintains an internet site that contains our
public filings with the SEC and other information regarding the Company, at
http://www.sec.gov.



                         Recent Developments and Events



Suspension of Work Commitment. On August 16, 2021, the Company received from the
Government of South Australia, Department of Energy and Mining, confirmation
that such agency had approved the Company's application for an additional
six-month suspension of the work commitment relating to the License to April 28,
2024. Prior to this further suspension, the Company's remaining work commitments
were due to be completed by October 29, 2023. The deadlines for the Company's
remaining work commitments are detailed in the section below captioned "Current
Primary Activity."



                             Historical Milestones

To date, the Company has achieved the following milestones:

* On October 26, 2012, the License was granted to the Subsidiary. After the

License grant, the Company's primary focus was on completing a financing to

raise sufficient funds so that the Company could undertake a required

proprietary seismic acquisition program. After exploring a number of possible

financings, the precipitous decline in crude oil prices starting in the summer

of 2014 delayed the Company's ability to successfully complete a financing of


    the type being sought.




2

* The Company completed the Debentures and Warrants financing described in the

section below captioned "Liquidity and Capital Resources - Financing History

and Immediate, Short-Term Capital Needs - Debentures Financing." Among other

uses, the proceeds from the Debentures enabled the Company to undertake

required seismic work. The original terms of the Debentures and Warrants

provided that the Debentures were to become due, and the Warrants were to

expire, on May 27, 2021. However, on February 4, 2021, the parties to the

Debentures and Warrants extended the maturity date of the Debentures and the

expiration date of the Warrants to December 31, 2023. Moreover, in this

connection, the Company issued additional Warrants to purchase 8,752,058

additional common shares at a per-share exercise price of $0.20, subject to

adjustment upon the occurrence of certain customary events. For more

information about the Debentures and the Warrants, see the section below

captioned "Liquidity and Capital Resources - Financing History and Immediate,

Short-Term Capital Needs - Debentures Financing."

* On October 30, 2016, fieldwork was completed on the Company's proprietary Nike

3D seismic survey (the "Nike Survey") covering an approximately 69 sq. mile

(179 sq. km.) section of the western portion of the South Block and directly

on trend and in close proximity to mature producing oilfields and recent

discoveries on the blocks to the north. The Nike Survey was completed at a

"turnkey price" of approximately $2.4 million.

* The raw data from the Nike Survey was converted to analytical quality

information, processed and interpreted by the Company's geophysical advisor.

Interpretation of the processed data included advanced technical analysis by

specialized consultants. This technical work identified an inventory of more

than 30 leads judged to be potential areas of Hydrocarbon accumulations. The

Company has prioritized these initial prospective locations for presentation

to potential sources of significant additional capital. Technical analysis is

on-going.

* In June 2017, the Company completed the archeological and environmental field

surveys of seven prospective drilling locations as required by applicable laws

and regulations. It subsequently filed reports on these surveys with the South

Australian government. No material issues were identified at any of the

prospective drilling sites.

* In addition to the amounts raised pursuant to the Debentures arrangements,

since the Company adopted its current business plan, the Company has raised

funds totaling approximately $4.6 million through private placements of the

Company's common shares.

* In several transactions to date, the Company (through the Subsidiary)

purchased portions of an original 7.0% royalty interest relating to the

Prospect retained by the party that, in effect, transferred and sold the

License to the Company. As a result, the Company (through the Subsidiary) now

owns an aggregate 5.0% royalty interest, while the previous holder of the

original 7.0% royalty interest continues to hold a 2.0% royalty interest. The

aggregate purchase price for the aggregate 5.0% royalty interest was $540,500.






                            Current Primary Activity

The Company's current primary activity is to complete either a major financing or a major joint venture relationship, or both, so that it can execute the remaining work commitment described below, and develop the Prospect.





The License is subject to a five-year work commitment, which imposes certain
financial obligations on the Company. In management's view, the geotechnical
work completed in Years 1 and 2 of the commitment was sufficient to satisfy the
License requirements for those two years. Required reports in connection with
these activities were timely filed. To date, no comments from the government
have been received, and management understands that the relevant government
agency is required by law to furnish comments within 30 days after the reports
are filed. Moreover, such agency has extended and modified the work commitment a
number of times since the filing of the reports, and has accommodated several
Company requests.



3

To date, a number of extensions and modifications of the work commitment have been granted. The current remaining work commitment is as follows:

* Year 3 ending April 28, 2022 - Shoot 2D seismic data totaling at least

approximately 62 miles (100 km.) and shoot 3D seismic data totaling at a

minimum approximately 77 sq. miles (200 sq. km.) and drill two wells.

* Year 4 ending April 29, 2023 - Shoot 3D seismic data totaling a minimum of


    approximately 77 sq. miles (200 sq. km.) and drill two wells.
  * Year 5 ending April 28, 2024 - Drill three wells.





The Company needs a significant amount of additional capital to fulfill its
obligations under the work commitment. Moreover, the Debentures will mature in
December 2023, and the Company will need to raise additional funds or generate
sufficient revenues through Hydrocarbon production to timely repay the
Debentures, if they are not converted. The Company's capital requirements and
financing activities are described in the section below captioned "Liquidity and
Capital Requirements." The success of the initial phase of the Plan of Operation
depends upon the Company's ability to obtain additional capital or enter into a
suitable joint venture arrangement in order to acquire additional seismic data
and successfully drill commitment wells. Failure to obtain required additional
capital or enter into a suitable joint venture arrangement will materially and
adversely affect the Company and its stockholders in ways that are discussed in
the section below captioned "Liquidity and Capital Resources - Consequences of a
Financing Failure." The Company cannot provide assurance that it will obtain the
necessary capital and/or enter into a suitable joint venture agreement.



                             Results of Operations

Results of operations for the three- and six-month periods ended August 31, 2021 and 2020 are summarized in the table below:





                           Three Months          Three Months           Six Months            Six Months
                               Ended                 Ended                 Ended                 Ended
                          August 31, 2021       August 31, 2020       August 31, 2021       August 31, 2020
Revenue                  $               -     $               -     $               -     $               -
Operating expenses                (298,577 )          (1,157,619 )            (608,530 )          (1,565,357 )

Other income (expense)            (207,243 )            (602,523 )         

  (508,053 )          (1,192,596 )
Net income (loss)        $        (505,820 )   $      (1,760,142 )   $      (1,116,583 )   $      (2,757,953 )

Operating expenses for the three- and six-month periods ended August 31, 2021 and 2020 are summarized in the table below:





                           Three Months          Three Months           Six Months            Six Months
                               Ended                 Ended                 Ended                 Ended
                          August 31, 2021       August 31, 2020       August 31, 2021       August 31, 2020
General and
administrative           $         298,577     $         363,981     $         608,530     $         768,869
Warrant modification
expense                                  -               769,888                     -               769,888
Exploration costs                        -                23,750                     -                26,600
Total Operating
Expenses                 $         298,577     $       1,157,619     $     

   608,530     $       1,565,357

Results of Operations for the Three-Month Periods Ended August 31, 2021 and 2020





Revenues. The Company did not earn any revenues for either of the three-month
periods ended August 31, 2021 and 2020. Sales revenues are not anticipated until
such time as the Prospect has commenced commercial operations. As the Company is
presently in the exploration stage of its operations, no assurance can be
provided that commercially exploitable levels of Hydrocarbons on the Prospect
will be discovered, or if such resources are discovered, that the Prospect will
commence commercial operations.



4







Operating Expenses. Total operating expenses incurred during the three-month
period ended August 31, 2021 decreased by $859,042 (74%), compared to those
incurred during the three-month period ended August 31, 2020. The decrease is
primarily due to warrant modification expense for the amount of approximately
$770,000 for the three-month period ended August 31, 2020 while there was zero
modification expense for the three-month period ended August 31, 2021.
Additionally, general and administrative expense decreased by approximately
$88,000 due lower third-party professional service fees for the three-month
period ended August 31, 2021, partially offset by increases in other expenses.



Net Income (Loss). The Company had a net loss of $505,820 for the three-month
period ended August 31, 2021, compared to a net loss of $1,760,142 for the
three-month period ended August 31, 2020. The primary driver of this change is
attributable to the decrease in warrant modification expense and other expenses.
Due to the extension of the Maturity Date of the Debentures to December 31,
2023, other expenses decreased by approximately $290,000 in amortization expense
relating to the Debentures. Loss per common share, on both a basic and fully
diluted basis, for the three-month periods ended August 31, 2021 and 2020 were
$0.00 and $0.01, respectively.

Results of Operations for the Six-Month Periods Ended August 31, 2021 and 2020





Revenues. The Company did not earn any revenues in either of the comparative
six-month periods ended August 31, 2021 and August 31, 2020. Sales revenues are
not anticipated until such time as the Prospect has commenced commercial
production of Hydrocarbons. As the Company is presently in the exploration stage
of its operations, no assurance can be provided that commercially exploitable
levels of Hydrocarbons on the Prospect will be discovered, or if such resources
are discovered, that the Prospect will commence commercial production.



Operating Expenses. Total operating expenses incurred during the six-month
period ended August 31, 2021 decreased by $956,827 (61%), compared to those
incurred during the six-month period ended August 31, 2020. The decrease is
primarily due general and administrative and warrant modification expenses. For
the six-month period ended August 31, 2021, general and administrative expense
decreased by approximately $217,000 due lower third-party professional service
fees, partially offset by increases in other expenses. Additionally, there were
approximately $770,000 in warrant modification expense for the six-month period
ended August 31, 2020 while there was zero modification expense for the
six-month period ended August 31, 2021.



Net Income (Loss). The Company had a net loss of $1,116,583 for the six-month
period ended August 31, 2021, compared to a net loss of $2,757,953 for the
six-month period ended August 31, 2020. The primary driver of this change is
attributable to the warrant modification expense and other expenses. Due to the
extension of the Maturity Date of the Debentures to December 31, 2023, other
expenses decreased by approximately $580,000 in amortization expense relating to
the Debentures. Loss per common share, on both a basic and fully diluted basis,
were $0.01 for the six-month period ended August 31, 2021 and $0.02 for the
six-month period ended August 31, 2020.



      Cash Flows for the Six-Month Periods Ended August 31, 2021 and 2020

Cash Used in Operating Activities: Operating activities for the six-month period ended August 31, 2021 used cash of $137,034, compared to $262,589 for the six-month period ended August 31, 2020 primarily due to lower third-party professional service fees during the six-month period ended August 31, 2021

Cash Used in Investing Activities: No cash was used for investing activities during either of the six-month periods ended August 31, 2021 and August 31, 2020.


Cash Provided by Financing Activities: Proceeds from a Paycheck Protection
Program loan in the amount of $120,000 was received for the six-month period
ended August 31, 2021. Financing activities totaled $218,750 during the
six-month period ended August 31, 2020, resulting from the private placement of
500,000 common shares at $0.20 per common share for gross proceeds of $100,000,
and proceeds from a Paycheck Protection Program loan in the amount of $118,750.



                         Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.





5







                        Liquidity and Capital Resources

Financing History and Immediate, Short-Term Capital Needs





Early Financings. From January 2012 through May 27, 2016, business activities
were financed primarily through private placements of common shares. During that
period, several rounds of equity financing were conducted which raised total
"seed" capital in the amount of $2,723,750 resulting in the issuance of
19,657,501 common shares. Moreover, from time to time, officers and directors of
the Company provided short-term bridge funding. These advances were repaid out
of proceeds from the Debentures financings described below.



Debentures Financing. Beginning in May 2016 and continuing through August 2018,
the Company relied on a series of placements of convertible Debentures (debt
instruments convertible into common shares). The 14 Debentures comprising this
series were issued pursuant to a Securities Purchase Agreement executed on May
27, 2016. Debentures having an aggregate original principal amount of $6,850,000
have been placed. In conjunction with certain Debentures and the February 2021
extension of the maturity date of the Debentures, Warrants were issued that give
the holder the right to purchase up to a maximum of 27,877,058 common shares at
an initial per-share exercise price of $0.20.

Each of the Debentures includes the following features:

* The Debentures bear interest at the rate of eight percent (8%) per annum,

compounded quarterly. However, upon the occurrence and during the continuance

of a stipulated event of default, the Debentures will bear interest at the

rate of twelve percent (12%) per annum.

* Interest need not be paid on the Debentures until the principal amount of the

Debentures becomes due and payable. Instead, accrued interest is added to the

outstanding principal amount of the Debentures quarterly. Nevertheless, the

Company may elect to pay accrued interest in cash at the time that such

interest would otherwise be added to the outstanding principal amount of the

Debentures.

* The principal amount of and accrued interest on the Debentures are due and

payable in a single balloon payment on or before December 31, 2023.

* The Company is not entitled to prepay the Debentures.

* The Debentures are convertible, in whole or in part, into Common Shares at the

option of holders, at any time and from time to time. The conversion price for

Debentures having an aggregate original principal amount of $5,887,500 is

$0.16, while the conversion price for a Debenture with an original principal

amount of $962,500 is $0.20. All conversion prices are subject to certain

adjustments that are believed to be customary in transactions of this nature,

including so-called "down round" financing adjustments. The Company is subject

to certain liabilities and liquidated damages for its failure to honor timely

a conversion of the Debentures, and these liabilities and liquidated damages

are believed to be customary in transactions of this nature.

* The holders of the Debentures are entitled to have them redeemed completely or

partially upon certain events (such as a change of control transaction

involving the Company or the sale of a material portion of the Company's

assets) at a redemption price equal to 120% of the then outstanding principal

amount of the Debentures and 100% of accrued and unpaid interest on the

outstanding principal amount of the Debentures, plus all liquidated damages

and other amounts due thereunder in respect of the Debentures.

* The Debentures feature negative operating covenants, events of defaults and

remedies upon such events of defaults that are believed to be customary in

transactions of this nature. One of the remedies upon an event of default is

the Debentures holders' right to accelerate the maturity of the Debentures

such that all amounts owing under the Debentures would become immediately due

and payable. The Debentures holders would then be able to resort to the

collateral securing the Debentures, if the Company did not pay the amount

outstanding, which is likely to be the case.

* The Debentures are secured by virtually all of the Company's assets owned

directly or indirectly but for the License, which is held by the Subsidiary.

Moreover, the Company has separately guaranteed the Debentures and has pledged

all of its stock in the Subsidiary to secure such guarantee. The essential

effect of these security arrangements is that, if the Company defaults on or

experiences an event of default with respect to the Debentures, the holders of

the Debentures could exercise the rights of a secured creditor, which could

result in the partial or total loss of nearly all of the Company's assets, in

which case its business could cease and all or substantially all stockholders'

equity could be lost. For more information about this, see the section below


    captioned "Consequences of a Financing Failure."




6

Each of the Warrants includes the following features:

* The initial per-share exercise price of the Warrants is $0.20 and is subject

to certain adjustments that are generally believed to be customary in

transactions of this nature. Subject to certain exceptions, the exercise price

of the Warrants involves possible adjustments downward to the price of any

common shares or their equivalents sold by the Company during the term of the

Warrants for less than the then applicable exercise price of the Warrants.

Upon the adjustment of the exercise price, the number of shares issuable upon

exercise of the Warrants is proportionately adjusted so the aggregate exercise

price of the Warrants remains unchanged.

* All of the Warrants are currently exercisable and will remain so until their

expiration date of December 31, 2023.

* The Company is subject to certain liabilities and liquidated damages for

failure to honor timely an exercise of the Warrants, and these liabilities and


    liquidated damages are believed to be customary in transactions of this
    nature.

The largest holder of the Debentures has the right to have elected to the Company's Board of Directors one nominee. To date, the holder has not exercised this right.


The proceeds from the Debentures placements were generally used to fund the
acquisition, processing and interpretation of the Nike Survey data and payment
of the Company's and the Debentures holders' expenses associated with the
placements. A portion of these proceeds were used to retire all of the then
outstanding indebtedness, and to acquire a 5.0% overriding royalty interest
relating to the Prospect. Funds were also used for payment of general and
administrative expenses. In addition to the preceding, a portion of the proceeds
was used to pay for geophysical consulting services.



COVID-19. The Company initially experienced no material impacts from the
COVID-19 pandemic with respect to liquidity and capital. However, the negative
impact on financial markets was, and continues to be, significant. Initially,
the pandemic resulted in a severe decrease in demand for Hydrocarbons, in
particular transportation fuels. This decrease resulted in a major drop in the
price of crude oil and its resulting impact on financial markets in general and
in particular, the energy industry. Demand has now recovered substantially and
crude oil prices have increased to above $70 per barrel for the next three years
based on the forward curve. Exploration and production operations are recovering
and funding is becoming more widely available. However, the recent increase in
infection rates is concerning though there has, to date, been no negative
Hydrocarbons sector activity impact. For further information on this topic, see
the risk factor captioned "PANDEMICS OR DISEASE OUTBREAKS (SUCH AS THE NOVEL
CORONAVIRUS, ALSO KNOWN AS THE COVID-19 VIRUS) COULD MATERIALLY AND ADVERSELY
AFFECT US IN A VAREITY OF WAYS" in the Company's Annual Report on Form 10-K for
the Company's fiscal year ended February 28, 2021.



Equity Placements. Subsequent to the start of the Debentures placements, the
Company continued certain private capital raising transactions involving its
common shares. Beginning in November 2016 and concluding in July 2020, the
Company closed on a series of private placements in which an aggregate of
9,075,000 shares were issued for an aggregate purchase price of $1,886,250.



Paycheck Protection Program Loan. In connection with the Paycheck Protection
Program established by the Coronavirus Aid, Relief, and Economic Security Act,
the Company borrowed an initial loan during fiscal year 2021 in the amount of
$118,750 and a second loan during fiscal year 2022 in the amount of $120,000.
The Company was recently advised that the outstanding balance of the initial
loan has been reduced to $18,302. The Company is in the process of applying for
the forgiveness of the second loan to the maximum extent permitted by applicable
law.



7







Available Cash. As of October 12, 2021, the Company had cash of approximately
$1,400 and had negative working capital of approximately $5,540,000. Management
believes that the cash on hand, as of the preceding date, will be sufficient to
finance general and administrative expenses through December 31, 2021 although
no assurance of this can be provided. This amount of cash on hand stresses the
Company's need to raise additional funds in the immediate future. A plan for
financing these obligations is discussed below. Management intends to finance
all of the general and administrative expenses beyond available cash on hand by
undertaking to raise up to $10.0 million through a private placement of common
shares. If successful in raising $10.0 million in the private placement, it is
estimated that the related net proceeds will be sufficient to finance both
general and administrative expenses, and a number of work commitment obligations
through February 2023. However, no assurance can be given that the amounts will
be adequate. Moreover, no assurance can be provided of successfully raising any
additional funds for this purpose.



Long-Term Capital Needs



The five-year work commitment relating to the License imposes certain
obligations on the Company. The work requirements of the first two years, which
included geotechnical studies and the Nike Survey, have been completed and
reports and certain work materials have been submitted as required by the South
Australian government. Going forward, additional funds will be required to meet
the seismic and drilling obligations of License Years 3, 4 and 5. Working
capital will also be needed to satisfy general and administrative expenses.
Between October 2021 and April 2024 (the month in which the Company's work
commitments are currently required to be completed), the Company estimates that
it will need to raise an additional $20 million (includes $10 million discussed
above) to have sufficient capital to meet the remaining work commitments
specified in the License and to fund operations. Net revenues produced from
successful oil wells could provide some of the funds required to meet these
capital needs. However, no assurance can be given that this or any other amount
of financing will be obtained or that any oil revenue will be earned.



If successful with the initial wells, work will continue with a full development
plan, the scope of which is now uncertain; however, all plans are subject to the
availability of sufficient funding and the receipt of all governmental
approvals.

Failure to procure a joint venture partner or raise additional funds will preclude the Company from pursuing its business plan, as well as expose the Company to the loss of the License, as discussed below. Moreover, if the business plan proceeds as just described, but the initial wells do not prove to hold producible reserves, the Company could be forced to cease its initial exploration efforts on the Prospect.

Major Financing Efforts and Other Sources of Capital


The Company's capital strategy has been, and continues to be, to attempt to
engage in a single major capital raise transaction to provide sufficient funds
to satisfy its capital needs for a number of years. While management has not
completely abandoned this strategy, the Company did shift its emphasis in an
effort to engage in one or more smaller capital raise transactions to provide
sufficient funds to satisfy near term capital needs. During a two-year period
beginning in May 2016, the Company completed a series of placements of its
Debentures having an aggregate original principal amount of $6,850,000.
Regarding the future financing of the Company's work commitments, the
interpretation and analysis of the Nike Survey resulted in an inventory of more
than 30 leads judged to be potential areas of crude oil accumulations. These
initial prospective locations were prioritized and the results are being
presented to prospective investors with a view to securing the capital to
commence the Company's initial drilling program. The Company needs to complete a
major capital raise transaction to continue moving its business plan forward. In
the interim, the Company is continuing efforts to raise comparably smaller
amounts to cover general and administrative expenses. The Company has no
assurance that it will be able to raise any required funds. The Company is also
pursuing efforts to secure one or more joint venture partners.



Sales from production as a result of successful exploration and drilling efforts
would provide the Company with incoming cash flow. The associated proved
reserves would most likely increase the value of the Company's rights in the
Prospect. This, in turn, should enable the Company to obtain bank financing
(after the wells have produced for a period of time to satisfy the lenders
requirements). Both of these results would enable the Company to continue with
its development activities. Positive cash flow is a critical success factor for
the Company's plan of operation. Management believes that, if the Company's plan
of operation successfully progresses (and production is realized), sufficient
cash flow and debt financing will be available for purposes of properly pursuing
its plan of operation, although the Company can make no assurances in this

regard.



8







Finally, to reduce its cash requirements, the Company might attempt to satisfy
some of its obligations by issuing its common shares or selling a portion of its
interest to a joint venture partner. The issuance of additional shares would
result in dilution in the percentage ownership interests of the Company's
existing stockholders.

Consequences of a Financing Failure





If required financing is not available on acceptable terms, the Company could be
prevented from satisfying its work commitment obligations or developing the
Prospect to the point that the Company is able to repay the Debentures, which
become due in December 2023. Failure to satisfy work commitment obligations
could result in the eventual loss of the License and the total loss of the
Company's assets and properties. Failure to timely pay the Debentures could
result in the eventual exercise of the rights of a secured creditor and the
possible partial or total loss of the Company's assets and properties. Failure
to procure required financing on acceptable terms could prevent the Company from
developing the Prospect. If any of the preceding events were to occur, the
Company could be forced to cease its operations, which could result in a
complete loss of stockholders' equity. If additional financing is not obtained
through an equity or debt offering, the Company could find it necessary to sell
all or some portion of the Prospect under unfavorable circumstances and at an
undesirable price. However, no assurance can be provided that the Company will
be able to find interested buyers or that the funds received from any such
partial sale would be adequate to fund additional activities. Future liquidity
will depend upon numerous factors, including the success of the Company's
exploration and development program, satisfactory achievement of License
commitments and capital raising activities.



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