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<body><p align="center"><b><font color="#ff163d"><font size="-1">As filed with the United States Securities and Exchange Commission on July 21, 2006</font></font></b></p>
<p align="right"><b><font size="-1">Registration No.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font></b></p>
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<p align="center"><b>UNITED STATES SECURITIES<br>AND EXCHANGE COMMISSION<br>WASHINGTON, D.C. 20549</b></p>
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<H1 align="center"><b>FORM S-1</b></H1>
<p align="center"><b>REGISTRATION STATEMENT UNDER<br>THE SECURITIES ACT OF 1933</b></p>
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<H1 align="center"><b>Maverick Oil and Gas, Inc.<br></b><font size="+2">(Name of Registrant as specified in its charter)</font></H1>
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<b>Nevada </b></td>
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<b>1040 </b></td>
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<b>98-0377027 </b></td>
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<font size="-1">(State or other jurisdiction of<br>incorporation or organization) </font></td>
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<font size="-1">(primary standard industrial<br> classification code number) </font></td>
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<font size="-1">(IRS Employer Identification No.)</font></td>
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<p align="center"><b><font size="-1">888 East Las Olas Boulevard, Suite 400<br>Fort Lauderdale, Florida 33301<br>(954) 463-5707<br></font></b><font size="-1">Address and telephone number of principal executive offices and principal place of business</font></p>
<p align="center"><b><font size="-1">V. Ray Harlow<br>Chief Executive Officer<br>Maverick Oil and Gas, Inc.<br>888 East Las Olas Boulevard, Suite 400<br>Fort Lauderdale, FL 33301<br>(954) 463-5707</font></b></p>
<p align="center"><b><font size="-1">Stephen M. Cohen<br>Director of Legal Affairs/Corporate Counsel<br>Maverick Oil and Gas, Inc.<br>1835 Market Street, Suite 1500<br>Philadelphia, PA 19103<br>(215) 568-4891<br></font></b><font size="-1">(Name, address and telephone number of agent for service)</font></p>
<p align="center"><font size="-1">Copies to:<br></font><b><font size="-1">Brian North, Esq.<br>Buchanan Ingersoll &amp; Rooney PC<br>1835 Market Street, 14th Floor<br>Philadelphia, PA 19103<br>(215) 665-8700 </font></b></p>
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<p align="left"><font size="-1">Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement. </font></p>
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<p align="left"><font size="-1">If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;<font face='Wingdings'>&#111;</font></font></p>
<p align="left"><font size="-1">If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering.&nbsp;<font face='Wingdings'>&#111;</font></font></p>
<p align="left"><font size="-1">If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;<font face='Wingdings'>&#111;</font></font></p>
<p align="left"><font size="-1">If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. &nbsp;<font face='Wingdings'>&#111;</font></font></p>
<p align="center"><b><font size="-1">Calculation of Registration Fee</font></b></p>
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<b><font size="-1">Title of each class of securities<br>to be registered<br><hr noshade color="#000000"></font></b></td>
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<b><font size="-1">Amount to be<br>registered(1)<br><hr noshade color="#000000"></font></b></td>
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<b><font size="-1">Proposed maximum<br>offering price<br>per share(2)<br><hr noshade color="#000000"></font></b></td>
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<b><font size="-1">Proposed maximum<br>aggregate offering<br>price<br><hr noshade color="#000000"></font></b></td>
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<b><font size="-1">Amount of<br>registration fee<br><hr noshade color="#000000"></font></b></td>
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<p style="margin-left:1em;text-indent:-1em"><font size="-1">Common stock, par value $0.001 per share</font></p></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">30,089,004</font></td>
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<font size="-1">(</font><font size="-1">3) </font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">$</font></td>
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<font size="-1">.92 </font></td>
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<font size="-1">$</font></td>
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<font size="-1">27,681,884 </font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">$</font></td>
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<font size="-1">2,962 </font></td>
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<p align="left"><font size="-1">(1)&nbsp;In accordance with Rule 416(a), the registrant is also registering hereunder an indeterminate number of shares that may be issued and resold resulting from stock splits, stock dividends or similar transactions.</font></p>
<p align="left"><font size="-1">(2)&nbsp;Estimated in accordance with Rule 457(c) of the Securities Act of 1933 solely for the purpose of computing the amount of the registration fee based on the average of the high and low prices reported on the OTC Bulletin Board on July 18, 2006.</font></p>
<p align="left"><font size="-1">(3)&nbsp;Consists of: (i) 11,424,328 shares of the registrant&rsquo;s common stock issuable upon conversion or redemption of, or the payment of the principal of, or interest on, $10 million of outstanding Secured Convertible Debentures issued on June 21, 2006; and (ii) 18,664,676 shares of the registrant&rsquo;s common stock issuable upon exercise of outstanding warrants granted in conjunction with the June 21, 2006 issuance of our Secured Convertible Debentures.</font></p>
<p align="left"><b><font size="-1">The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the United States Securities and Exchange Commission, acting pursuant to said section 8(a), may determine.</font></b></p>
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<p align="center"><b><font color="#ff163d"><font size="-1">PRELIMINARY PROSPECTUS</font></font></b></p>
<p align="center"><b><font color="#ff163d"><font size="-1">SUBJECT TO COMPLETION, DATED JULY 21, 2006</font></font></b></p>
<p align="left"><font size="-1">The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.</font></p>
<H1 align="center"><b>Maverick Oil and Gas, Inc. </b></H1>
<H1 align="center"><b>30,089,004 shares of common stock </b></H1>
<p align="left">The selling shareholders identified in this prospectus may offer and sell up to an aggregate of 30,089,004 shares of our common stock which we may issue to them upon the exercise of certain warrants or upon the conversion or redemption of, or the payment of interest on, or the principal of, certain convertible debentures issued to them. All of the convertible debentures and warrants were issued to the selling shareholders in private placement transactions completed prior to the filing of the registration statement of which this prospectus is a part.</p>
<p align="left">The selling shareholders may sell all or a portion of their shares through public or private transactions at prevailing market prices or at privately negotiated prices.</p>
<p align="left">We are not selling any shares of our common stock in this offering and will not receive any proceeds from this offering. We may receive proceeds on exercise of outstanding warrants for shares of common stock covered by this prospectus if the warrants are exercised for cash. If the warrants are exercised by means of &ldquo;cashless exercise,&rdquo; we will not receive any additional proceeds. In addition, our obligation to pay amounts otherwise due under the convertible debentures will be reduced as a result of the issuance of our common stock in conversion or redemption of, or the payment of the principal of, or interest on, the convertible debentures.</p>
<p align="left">The selling shareholders may offer the shares covered by this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices or negotiated prices, in negotiated transactions, or in trading markets for our common stock. We will bear all costs associated with this registration.</p>
<p align="left">Our common stock trades on the OTC Bulletin Board under the symbol &ldquo;MVOG.OB&rdquo; The closing price of our common stock on the OTC Bulletin Board on July 19, 2006, was $.94 per share.</p>
<p align="left"><i><b>You should consider carefully the risk factors beginning on page 3 of this prospectus.</b></i></p>
<p align="left"><b>Neither the Securities and Exchange Commission nor any state securities commission has approved these securities or determined that this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.</b></p>
<p align="center">The date of this prospectus is <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u>, 2006.</p>
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<p align="center"><b><font size="-1">TABLE OF CONTENTS</font></b></p>
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<font size="-1">ABOUT THIS PROSPECTUS</font></td>
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<font size="-1">1 </font></td>
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<font size="-1">PROSPECTUS SUMMARY</font></td>
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<font size="-1">1 </font></td>
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<font size="-1">RISK FACTORS</font></td>
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<font size="-1">3 </font></td>
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<font size="-1">FORWARD-LOOKING STATEMENTS</font></td>
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<font size="-1">12 </font></td>
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<font size="-1">AVAILABLE INFORMATION</font></td>
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<font size="-1">13 </font></td>
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<font size="-1">USE OF PROCEEDS</font></td>
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<font size="-1">13 </font></td>
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<font size="-1">MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS</font></td>
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<font size="-1">13 </font></td>
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<font size="-1">SELECTED FINANCIAL DATA</font></td>
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<font size="-1">14 </font></td>
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<font size="-1">MANAGEMENT&rsquo;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</font></td>
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<font size="-1">15 </font></td>
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<font size="-1">CHANGE OF ACCOUNTANTS</font></td>
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<font size="-1">24 </font></td>
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<font size="-1">QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">24 </font></td>
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<font size="-1">BUSINESS</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">24 </font></td>
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<font size="-1">LEGAL PROCEEDINGS</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">30 </font></td>
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<font size="-1">DESCRIPTION OF PROPERTY</font></td>
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<font size="-1">30 </font></td>
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<font size="-1">DIRECTORS AND EXECUTIVE OFFICERS</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">33 </font></td>
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<font size="-1">CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS</font></td>
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<font size="-1">36 </font></td>
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<font size="-1">EXECUTIVE COMPENSATION</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">36 </font></td>
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<font size="-1">SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">40 </font></td>
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<font size="-1">SELLING SHAREHOLDERS</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">43 </font></td>
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<font size="-1">PLAN OF DISTRIBUTION</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<td align='right' valign='bottom'>
<font size="-1">45 </font></td>
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<font size="-1">DESCRIPTION OF SECURITIES</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<td align='right' valign='bottom'>
<font size="-1">47 </font></td>
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<font size="-1">INTEREST OF NAMED EXPERTS</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">54 </font></td>
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<font size="-1">LEGAL MATTERS</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">55 </font></td>
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<font size="-1">INDEMNIFICATION OF DIRECTORS AND OFFICERS</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">55 </font></td>
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<font size="-1">CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<td align='right' valign='bottom'>
<font size="-1">56 </font></td>
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<font size="-1">FINANCIAL STATEMENTS</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">57 </font></td>
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<font size="-1">INFORMATION NOT REQUIRED IN PROSPECTUS</font></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">II-1 </font></td>
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<p align="center"><b><font size="-1">ABOUT THIS PROSPECTUS</font></b></p>
<p align="left"><font size="-1">This prospectus is part of a registration statement we filed with the Securities and Exchange Commission. You should rely only on the information provided in this prospectus and incorporated by reference in this prospectus. We have not authorized anyone to provide you with information different from that contained in or incorporated by reference into this prospectus. The selling shareholders are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock. The rules of the Securities and Exchange Commission may require us to update this prospectus in the future.</font></p>
<p align="center"><b><font size="-1">PROSPECTUS SUMMARY</font></b></p>
<p align="left"><font size="-1">This summary highlights selected information contained elsewhere in this prospectus. It is not complete and may not contain all of the information that is important to you. To understand this offering fully, you should read the entire prospectus carefully. Investors should carefully consider the information set forth under the heading &ldquo;Risk Factors.&rdquo; In this prospectus, the terms &ldquo;Maverick&rdquo; &ldquo;we,&rdquo; &ldquo;us,&rdquo; and &ldquo;our&rdquo; refer to Maverick Oil and Gas, Inc.</font></p>
<p align="left"><i><b><font size="-1">Our Company</font></b></i></p>
<p align="left"><font size="-1">We are an early stage independent energy company engaged in oil and gas exploration, exploitation, development and production. We currently participate in these activities through the interests we hold in oil and gas exploration and development projects in Arkansas, Texas and Colorado. Our strategy is to continue the development of our current exploration projects and to expand our operations by acquiring additional exploration opportunities and properties with existing production, taking advantage of the industry experience of our management team and modern techniques such as horizontal drilling and 3D seismic analysis.</font></p>
<p align="left"><font size="-1">Our operations are focused on identifying and evaluating prospective oil and gas properties and contributing capital to projects that we believe have the potential to produce oil or gas in commercial quantities. Over time, as we complete the exploration and development stage of a project, our primary focus for that project will gradually shift to drilling and production.</font></p>
<p align="left"><font size="-1">We participate in projects directly, as well as indirectly as equity participants in our subsidiaries and other investees. Until recently, we have not been involved as the operator of the projects in which we participate. Instead, we have relied on others for drilling, delivering any gas or oil reserves we discover, and negotiating all sales contracts. Recently, however we have become the operator of two of our existing projects, and we expect to act as the operator of certain of the projects in which we participate in the future. Such operatorship will be a key component of our strategy to increase our reserves and production.</font></p>
<p align="left"><font size="-1">Consistent with our efficient operating model, we intend to rely on leading third party sources of outsourced drilling and field management services, as necessary. We expect that this will allow us to achieve significant cost savings and operational efficiencies by outsourcing an appropriate level of the capital-intensive aspects of our business. We believe that our business model will permit us to maximize the use of our otherwise limited resources, reduce the risk of unsuccessful drilling efforts, and capitalize on the experience of our management team and consultants.</font></p>
<p align="left"><font size="-1">Our development efforts have initially focused on six projects; four of which are in Texas, one in Colorado and one in Arkansas. These regions are characterized by potentially long-lived reserves with predictable and relatively low production depletion rates, lower service costs than in more competitiveor remote areas, a favorable regulatory environment that encourages drilling efforts, and limited federal land or land access impediments.</font></p>
<p align="left"><font size="-1">Preliminary drilling results and comprehensive technical evaluations have suggested that at least two of the four Texas projects, the Colorado and the Arkansas project could contain substantial reserves </font></p>
<p align="center">1</p>
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<p align="left"><font size="-1">that could be extracted at commercially attractive prices. However, drilling has only recently commenced on certain of the Texas and Colorado properties. As a result, we cannot be sure that our expectations will be realized. Estimates of oil and gas reserves are developed through a subjective process that depends upon many assumptions, and some or all of those assumptions may not be realized.</font></p>
<p align="left"><font size="-1">Our current projects are focused on low-risk exploratory drilling and development. Each project is screened on available geologic and engineering data, surrounding production from similar wells, and proximity to infrastructure. We utilize a risk-based economic evaluation that compares various production and price scenarios to rank projects for investment. Our overall business plan employs the same technique for price and production.</font></p>
<p align="left"><font size="-1">Our primary objectives are to build reserves, production, cash flow and earnings per share by acquiring oil and gas properties, exploring for new oil and gas reserves, and optimizing production and value from existing oil and gas properties. We have crafted a business model specifically designed to exploit the unique opportunities currently available to small companies in the oil and gas industry.</font></p>
<p align="left"><font size="-1">We are managed by a small highly experienced team of employees and some retained consultants focused on finding and structuring attractive oil and gas investment opportunities and then extracting the maximum value from them. Our management team, lead by our Chief Executive Officer, Mr.&nbsp;V.&nbsp;Ray Harlow, joined us in connection with our March 10, 2005 acquisition of Hurricane Energy, an early-stage independent oil and gas business founded in 2003 that targeted the acquisition of producing, development, and exploitation reserves principally in the U.S. Gulf Coast region.</font></p>
<p align="left"><font size="-1">Our goal is to create long-term value for our investors by building a significant oil and natural gas reserve base. We seek to acquire and exploit properties with the following characteristics:</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;locations within or close to areas with an established production history and infrastructure</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;multiple productive sands and reservoirs</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;current production levels with significant identified proven and potential reserve upside opportunities</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;the opportunity to obtain a significant interest as well as operatorship</font></p>
<p align="left"><font size="-1">We believe significant competitive opportunities are available to us primarily because large energy companies continue to focus their attention and resources on the discovery and development of large oil and gas fields, while divesting themselves of lower producing mature fields. Also, the recent economics of the oil and gas market have improved as prices have risen substantially. Given these conditions and our efficient operating model, we believe that we have the opportunity, as a small independent energy company, to successfully compete in our chosen market.</font></p>
<p align="left"><font size="-1">Our principal offices are located at 888 East Las Olas Boulevard, Suite 400, Fort Lauderdale, Florida 33301. Our telephone number is (954) 463-5707.</font></p>
<p align="left"><i><b><font size="-1">The Offering</font></b></i></p>
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<p style="margin-left:0em"><i><font size="-1">Common stock outstanding: </font></i></p></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">99,446,116 shares as of July 17, 2006 </font></td>
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<p style="margin-left:0em"><i><font size="-1">Common stock that may be offered by selling shareholders: </font></i></p></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">Up to 30,089,004 shares, representing 11,424,328 shares of common stock issuable upon conversion or redemption, or the payment of the principal of, or interest on, $10 million of Secured Convertible Debentures issued by us on June 21, 2006 (the &ldquo;June 2006 Secured Convertible Debentures&rdquo;), and 18,664,676 shares of common stock issuable upon the exercise of warrants issued by us to the purchasers of such June 2006 <BR>Secured Convertible Debentures in that transaction. </font></td>
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<p align="center">2</p>
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<p style="margin-left:0em"><i><font size="-1">Total proceeds raised by offering: </font></i></p></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">We will not receive any proceeds from the resale or other disposition of the shares covered by this prospectus by any selling shareholder. We will receive proceeds from exercise of the warrants for shares of common stock that are covered by this prospectus if those warrants are exercised for cash. If the warrants are exercised by means of &ldquo;cashless exercise,&rdquo; we will not receive any additional proceeds. In addition, our obligation to pay amounts otherwise due under the June 2006 Secured Convertible Debentures will be reduced as a result of the issuance of our common stock in conversion or redemption of, or the payment of the principal of, or interest on, our June 2006 Secured Convertible Debentures. </font></td>
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<p style="margin-left:0em"><i><font size="-1">Risk factors: </font></i></p></td>
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&nbsp;&nbsp;&nbsp;&nbsp;</td>
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<font size="-1">There are significant risks involved in investing in our company. For a discussion of risk factors you should consider before buying our common stock, see &ldquo;Risk Factors&rdquo; beginning on page 3. </font></td>
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<p align="center"><b><font size="-1">RISK FACTORS</font></b></p>
<p align="left"><font size="-1">Our business and an investment in our securities are subject to a variety of risks. The following risk factors could result in a material adverse effect upon our business, financial condition, and results of operations, our ability to implement our business plan, and the market price for our securities. Many of these events are outside of our control.</font></p>
<p align="left"><b><font size="-1">Risks Relating to Our Business</font></b></p>
<p align="left"><i><b><font size="-1">Our future performance depends on our ability to find, acquire and develop oil and gas properties.</font></b></i></p>
<p align="left"><font size="-1">Our future performance depends upon our ability to find, acquire, and develop oil and gas reserves that are economically recoverable. Without successful exploration, exploitation or acquisition activities, we will not be able to develop reserves or generate revenues. No assurance can be given that we will be able to find, acquire or develop reserves on acceptable terms, or that commercial quantities of oil and gas deposits will be discovered sufficient to enable us to recover our exploration and development costs or sustain our business.</font></p>
<p align="left"><font size="-1">The successful acquisition and development of oil and gas properties requires an assessment of recoverable reserves, future oil and gas prices and operating costs, potential environmental and other liabilities and other factors. Such assessments are necessarily inexact and their accuracy inherently uncertain. In addition, no assurance can be given that our exploitation and development activities will result in the discovery of any reserves. Our operations may be curtailed, delayed or canceled as a result of a lack of adequate capital and other factors, such as title problems, weather, compliance with governmental regulations or price controls, mechanical difficulties, or unusual or unexpected formations, pressures and/or work interruptions. In addition, the costs of exploitation and development may materially exceed initial estimates.</font></p>
<p align="left"><font size="-1">We can provide no assurance that oil and gas will be discovered in commercial quantities in any of our present properties or in properties we may acquire the future. Our success will depend upon our ability to acquire working and revenue interests in properties upon which gas and oil reserves are ultimately discovered in commercial quantities. Although our new management team has significant industry experience, we do not have an established history of locating and developing properties that have oil and gas reserves.</font></p>
<p align="left"><i><b><font size="-1">Our business plan is subject to risks inherent in the oil and gas industry.</font></b></i></p>
<p align="left"><font size="-1">Our oil and gas interests are subject to the economic risks typically associated with exploration, development and production activities, including the necessity of significant expenditures to locate and acquire properties and to drill exploratory wells. In addition, the cost and timing of drilling, completing and operating wells is often uncertain. In conducting exploration and development activities, the presence of unanticipated pressure or irregularities in formations, miscalculations or </font></p>
<p align="center">3</p>
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<p align="left"><font size="-1">accidents may cause exploration, development and production activities to be unsuccessful. This could result in a total loss of our investment in a particular property. If exploration efforts are unsuccessful in establishing proved reserves and exploration activities cease, the amounts accumulated as unproved costs will be charged against earnings as impairments. </font></p>
<p align="left"><i><b><font size="-1">Development of our current projects and expansion of our operations will require significant capital expenditures which we may be unable to fund.</font></b></i></p>
<p align="left"><font size="-1">In view of our recent sale of the June 2006 Secured Convertible Debentures, our business plan now contemplates a sale of one of our material projects, as well as developing our remaining exploration properties and expanding our business by acquiring additional oil and gas properties. Our plan of operations for the next twelve months anticipates capital spending of approximately $37 million. However, our current funding will only sustain our operations through the beginning of the fourth calendar quarter of 2006. We plan to obtain the additional funding we need through the debt and equity markets. The terms of our June 2006 Secured Convertible Debentures, as well as $20 million of secured convertible debentures issued by us on January 5, 2006 (the &ldquo;January 2006 Secured Convertible Debentures&rdquo;) place limitations on the timing and pricing of any subsequent
rounds of equity financing. These limitations could impair our ability to secure the full amount of capital required by our plan of operations, absent the consent of the holders of the January 2006 Secured Convertible Debentures and the June 2006 Secured Convertible Debentures. There is no assurance that such additional financing will be available to us or, if it is, whether we will be able to complete such financing in light of the restrictions of this recent transaction.</font></p>
<p align="left"><font size="-1"> </font></p>
<p align="left"><i><b><font size="-1">We need additional capital.</font></b></i></p>
<p align="left"><font size="-1">We have either spent or allocated most of the proceeds from our January 2006 Secured Convertible Debentures and our June 2006 Secured Convertible Debentures (collectively referred to as our &ldquo;Secured Convertible Debentures&rdquo;) and as we expected, our current capital resources will not be sufficient to sustain operations or to fund all development and drilling of our existing projects, beyond the beginning of the fourth calendar quarter of 2006. In addition, our current capital resources, together with our expected cash flow from operations, will not be sufficient to cover the interest and current portion of our long-term debt due within the next twelve months. We will, therefore, continue to seek additional capital over the next 12 months to finance the development of our existing projects and to fund our future growth and exploration activities. This
may take the form of either debt-based financing, or sale of equity securities. In the shorter term, if we are unable to obtain additional funds when we need them or if we cannot obtain funds on terms favorable to us, we may need to delay, scale back, or eliminate plans for further development efforts. An inability to secure additional funds would require us to consider a sale of certain assets or otherwise incur a risk of default upon our Secured Convertible Debentures.</font></p>
<p align="left"><i><b><font size="-1">The terms of our Secured Convertible Debentures require us to sell our Barnett Shale Property within certain time periods</font></b></i></p>
<p align="left"><font size="-1">The terms of our June 2006 Secured Convertible Debentures require us to use our best efforts to sell our Barnett Shale project by December 31, 2006 for a purchase price equal to its fair market value. If the cash consideration to be received in any such sale is less than the amount required to retire our Secured Convertible Debentures, the consent of the holders of a majority of the outstanding principal amount of the June 2006 Secured Convertible Debentures is required. If such consent is not provided, the deadline for the sale is extended until March 31, 2007. If we have not sold the Barnett Shale project prior to the applicable deadline, the holders of the June 2006 Secured Convertible Debentures have the right to require us to make certain redemptions of those debentures. It is not likely that we will be able to fund any such redemptions in the absence
of such a sale. There can be no assurances that we will be able to sell our Barnett Shale project within the required period. Furthermore, the obligation to sell our Barnett Shale project within the applicable deadlines may result in a lower sales price than could be obtained in the absence of those deadlines.</font></p>
<p align="center">4</p>
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<p align="left"><i><b><font size="-1">The funding of our Fayetteville Project relies upon liquidity of our partners</font></b></i></p>
<p align="left"><font size="-1">Our Maverick Woodruff County, LLC subsidiary, is a 45% project participant in the development of our leasehold acreage in Woodruff and surrounding counties within Eastern Arkansas. Our 45% partner is an early-stage public company which recently experienced liquidity concerns during our second quarter and became delinquent in its funding to the project by approximately $3.5 million. Although this partner has recently completed a financing and become current in its funding obligations, we cannot be certain that it will have sufficient capital resources to maintain its funded contributions to the project. A failure by this partner, or any other project partner, to maintain its prorata funding of the project, could impair the project&rsquo;s ability to acquire and develop the acreage as expected.</font></p>
<p align="left"><i><b><font size="-1">Short-term need to increase authorized capital stock.</font></b></i></p>
<p align="left"><font size="-1">We are presently authorized to issue 200,000,000 shares of common stock, almost all of which have been issued or reserved for issuance to cover the potential exercise of outstanding options and warrants, and upon conversion of our January 2006 Secured Convertible Debentures. Accordingly, we do not have sufficient authorized capital available to permit the issuance of any of the securities covered by this prospectus, or any other material issuance of securities. However, pursuant to an Information Statement dated July 17, 2006, effective as of August 7, 2006, we plan to amend our Articles of Incorporation to increase the number of authorized shares of our common stock from 200 million shares to 260 million shares. The action was approved pursuant to written consent by the holders of a majority of our shares Until this process is completed, if at all, our access
to proceeds from one or more financing transactions will be limited. An event of default would occur under our June 2006 Secured Convertible Debentures if we do not amend our articles of incorporation by September 4, 2006.</font></p>
<p align="left"><i><b><font size="-1">We are an early stage company implementing a new business plan.</font></b></i></p>
<p align="left"><font size="-1">We are an early stage company with only a limited operating history upon which to base an evaluation of our current business and future prospects, and we have just begun to implement our business plan. Since our inception, we have suffered recurring losses from operations and have depended on external financing to sustain our operations. During the years ended August 31, 2004 and 2005, respectively, we reported losses of $155,731 and $29,142,004. We also reported a loss of $26,201,551 for the nine months ended May 31, 2006. </font></p>
<p align="left"><i><b><font size="-1">We rely heavily upon reserve estimates when determining whether or not to invest in oil or gas properties.</font></b></i></p>
<p align="left"><font size="-1">The oil and gas reserve information that we use in evaluating oil and gas prospects is based on reserve estimates involving a great deal of uncertainty. Different reserve engineers may make different estimates of reserves and cash flows based on the same available data. Reserve estimates depend in large part upon the reliability of available geologic and engineering data, which is inherently imprecise. Geologic and engineering data are used to determine the probability that a reservoir of oil and natural gas exists at a particular location, and whether oil and natural gas are recoverable from a reservoir. Recoverability is ultimately subject to the accuracy of data including, but not limited to, geological characteristics of the reservoir, structure, reservoir fluid properties, the size and boundaries of the drainage area, reservoir pressure, and the anticipated
rate of pressure depletion. The evaluation of these and other factors is based upon available seismic data, computer modeling, well tests and information obtained from production of oil and natural gas from adjacent or similar properties, but the probability of the existence and recoverability of reserves is less than 100% and actual recoveries of proved reserves can differ from estimates.</font></p>
<p align="left"><font size="-1">Reserve estimates also require numerous assumptions relating to operating conditions and economic factors, including the price at which recovered oil and natural gas can be sold, the costs of recovery, assumptions concerning future operating costs, severance and excise taxes, development costs and </font></p>
<p align="center">5</p>
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<p align="left"><font size="-1">workover and remedial costs, prevailing environmental conditions associated with drilling and production sites, availability of enhanced recovery techniques, ability to transport oil and natural gas to markets and governmental and other regulatory factors, such as taxes and environmental laws. A negative change in any one or more of these factors could result in quantities of oil and natural gas previously estimated as proved reserves becoming uneconomic. For example, a decline in the market price of oil or natural gas to an amount that is less than the cost of recovery of such oil and natural gas in a particular location could make production commercially impracticable. The risk that a decline in price could have that effect is magnified in the case of reserves requiring sophisticated or expensive production enhancement technology and equipment, such as some
types of heavy oil. Each of these factors, by having an impact on the cost of recovery and the rate of production, will also affect the present value of future net cash flows from estimated reserves.</font></p>
<p align="left"><font size="-1">In addition, the 10% discount factor, which is required by the Securities and Exchange Commission to be used to calculate discounted future net cash flows for reporting purposes, is not necessarily the most appropriate discount factor based on interests rates in effect from time to time and risks associated with us or the oil and gas industry in general.</font></p>
<p align="left"><i><b><font size="-1">Our ability to produce sufficient quantities of oil and gas from our properties may be adversely affected by a number of factors outside of our control.</font></b></i></p>
<p align="left"><font size="-1">The business of exploring for and producing oil and gas involves a substantial risk of investment loss. Drilling oil and gas wells involves the risk that the wells may be unproductive or that, although productive, that the wells may not produce oil and/or gas in economic quantities. Other hazards, such as unusual or unexpected geological formations, pressures, fires, blowouts, loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well. Adverse weather conditions can also hinder drilling operations. A productive well may become uneconomic due to pressure depletion, water encroachment, mechanical difficulties, etc, which impair or prevent the production of oil and/or gas from the well.</font></p>
<p align="left"><font size="-1">There can be no assurance that oil and gas will be produced from the properties in which we have interests. In addition, the marketability of any oil or gas that we acquire or discover may be influenced by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. We cannot predict how these factors may affect our business.</font></p>
<p align="left"><font size="-1">In addition, the success of our business depends upon the efforts of various third parties that we do not control. We rely upon various companies to assist us in identifying desirable oil and gas prospects to acquire and to provide us with technical assistance and services. We also rely upon the services of geologists, geophysicists, chemists, engineers and other scientists to explore and analyze oil and gas prospects to determine a method in which the oil and gas prospects may be developed in a cost-effective manner. In addition, we rely upon the owners and operators of oil and gas drilling equipment to drill and develop our prospects to production. Although we have developed relationships with a number of third-party service providers, we cannot assure you that we will be able to continue to rely on such persons. If any of these relationships with third-party
service providers are terminated or are unavailable on commercially acceptable terms, we may not be able to execute our business plan.</font></p>
<p align="left"><i><b><font size="-1">Market fluctuations in the prices of oil and gas could adversely affect our business.</font></b></i></p>
<p align="left"><font size="-1">Prices for oil and gas tend to fluctuate significantly in response to factors beyond our control. These factors include, but are not limited to, the continued threat of war in the Middle East and actions of the Organization of Petroleum Exporting Countries and its maintenance of production constraints, thefuel sources, transportation interruption, the impact of drilling levels on crude oil and natural gas supply, and the environmental and access issues that could limit future drilling activities for the industry.</font></p>
<p align="center">6</p>
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<p align="left"><font size="-1">Changes in oil and gas prices may significantly affect our capital resources, liquidity and expected operating results. Price changes directly affect revenues and can indirectly impact expected production by changing the amount of funds available to reinvest in exploration and development activities. Reductions in oil and gas prices not only reduce revenues and profits, but could also reduce the quantities of reserves that are commercially recoverable. Significant declines in prices could result in non-cash charges to earnings due to impairment. We do not currently engage in any hedging program to mitigate our exposure to fluctuations in oil and gas prices.</font></p>
<p align="left"><font size="-1">Changes in oil and gas prices may also significantly affect our ability to estimate the value of producing properties for acquisition and divestiture and often cause disruption in the market for oil and gas producing properties, as buyers and sellers have difficulty agreeing on the value of the properties. Price volatility also makes it difficult to budget for and project the return on acquisitions and development and exploitation of projects. We expect that oil and gas prices will continue to fluctuate significantly in the future. </font></p>
<p align="left"><i><b><font size="-1">Our business may be harmed if we are unable to retain our interests in leases.</font></b></i></p>
<p align="left"><font size="-1">All of our properties are held under interests in oil and gas mineral leases. If we fail to meet the specific requirements of each lease, the lease may be terminated or otherwise expire. We cannot assure you that we will be able to meet our obligations under each lease. The termination or expiration of our working interest relating to a lease could harm our business, financial condition and results of operations.</font></p>
<p align="left"><font size="-1">We will need significant additional funds to meet capital calls, drilling and other production costs in our effort to explore, produce, develop and sell the natural gas and oil produced by our leases. We may not be able to obtain any such additional funds on terms acceptable to us, or at all. </font></p>
<p align="left"><i><b><font size="-1">Title deficiencies could render our leases worthless.</font></b></i></p>
<p align="left"><font size="-1">The existence of a material title deficiency can render a lease worthless and can result in a large expense to our business. The Company has historically relied upon the judgment of oil and gas lease brokers or landmen who perform the field work in examining records in the appropriate governmental office before attempting to place under lease a specific mineral interest. This is customary practice in the oil and gas industry. However, we anticipate that we, or the person or company acting as operator of the wells located on the properties that we lease, will examine title prior to any well being drilled. Even after taking these precautions, deficiencies in the marketability of the title to the leases may still arise. Such deficiencies may render the lease worthless.</font></p>
<p align="left"><i><b><font size="-1">If we or our operators fail to maintain adequate insurance, our business could be materially and adversely affected.</font></b></i></p>
<p align="left"><font size="-1">Our operations will be subject to risks inherent in the oil and gas industry, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires, pollution, earthquakes and other environmental risks. These risks could result in substantial losses due to injury and loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage, and suspension of operations. Any offshore operations that we engage in will be subject to a variety of operating risks peculiar to the marine environment, such as hurricanes or other adverse weather conditions, to more extensive governmental regulation, including regulations that may, in certain circumstances, impose strict liability for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other
environmental damages. We could be liable for environmental damages caused by previous property owners. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could have a material adverse effect on our financial condition and results of operations.</font></p>
<p align="left"><font size="-1">For projects in which we act as the operator, or in which we may act as the operator in the future, we would maintain insurance coverage for our operations with policy limits and retention liability customary in the industry, including limited coverage for sudden environmental damages and for </font></p>
<p align="center">7</p>
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<p align="left"><font size="-1">existing contamination. We do not believe that insurance coverage for environmental damages that occur over time or insurance coverage for the full potential liability that could be caused by sudden environmental damages is available at a reasonable cost. As a result, we may be subject to liability or may lose substantial portions of our properties in the event of certain environmental damages.</font></p>
<p align="left"><font size="-1">In the projects in which we are not the operator, the operator will be required to maintain insurance of various types to cover our operations with policy limits and retention liability customary in the industry. We believe the operators of our projects have obtained commercially reasonable insurance coverage for those projects and, therefore, have not acquired our own insurance coverage for such prospects. The occurrence of a significant adverse event on such prospects that is not fully covered by insurance could result in the loss of all or part of our investment in a particular prospect which could have a material adverse effect on our financial condition and results of operations. </font></p>
<p align="left"><i><b><font size="-1">We are not obligated to follow any particular criteria for the acquisition of additional oil and gas properties.</font></b></i></p>
<p align="left"><font size="-1">Even though we now employ general criteria for the acquisition of oil and gas properties, we are not obligated to follow any specific criteria and may change our criteria from time to time. Our shareholders will not have the opportunity to evaluate or approve any changes in the criteria we use or how we apply those criteria in pursuing the acquisition of additional oil and gas properties.</font></p>
<p align="left"><i><b><font size="-1">Complying with environmental and other government regulations could be costly and could negatively impact our production.</font></b></i></p>
<p align="left"><font size="-1">Our business is governed by numerous laws and regulations at various levels of government. These laws and regulations govern the operation and maintenance of our facilities, the discharge of materials into the environment and other environmental protection issues. The laws and regulations may, among other potential consequences, require that we acquire permits before commencing drilling, restrict the substances that can be released into the environment with drilling and production activities, limit or prohibit drilling activities on protected areas such as wetlands or wilderness areas, require that reclamation measures be taken to prevent pollution from former operations, require remedial measures to mitigate pollution from former operations, such as plugging abandoned wells and remediating contaminated soil and groundwater, and require remedial measures to
be taken with respect to property designated as a contaminated site.</font></p>
<p align="left"><font size="-1">Under these laws and regulations, we could be liable for personal injury, clean-up costs and other environmental and property damages, as well as administrative, civil and criminal penalties. We maintain limited insurance coverage for sudden and accidental environmental damages as well as environmental damage that occurs over time. However, we do not believe that insurance coverage for the full potential liability of environmental damages is available at a reasonable cost. Accordingly, we could be liable, or could be required to cease production on properties, if environmental damage occurs.</font></p>
<p align="left"><font size="-1">The costs of complying with environmental laws and regulations in the future may harm our business. Furthermore, future changes in environmental laws and regulations could occur that result in stricter standards and enforcement, larger fines and liability, and increased capital expenditures and operating costs, any of which could have a material adverse effect on our financial condition or results of operations. </font></p>
<p align="left"><i><b><font size="-1">We intend to rely on certain third party vendors for outsourced service.</font></b></i></p>
<p align="left"><font size="-1">To maximize the use of our otherwise limited capital and human resources, we intend to rely on third party vendors for outsourced drilling, exploration and other operational services. While we expect that this will allow us to achieve cost savings and operational efficiencies, the use of outsourced resources could expose us to greater risk should we be unable to source critical vendors on a cost budgeted and timely basis. Furthermore, the use of outsourced resources could minimize our ability to control the work product and accountability of such vendors.</font></p>
<p align="center">8</p>
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<PAGE>
<p align="left"><i><b><font size="-1">The oil and gas industry is highly competitive.</font></b></i></p>
<p align="left"><font size="-1">The oil and gas industry is highly competitive. We compete with oil and natural gas companies and other individual producers and operators, many of which have longer operating histories and substantially greater financial and other resources than we do, as well as companies in other industries supplying energy, fuel and other needs to consumers. Many of these companies not only explore for and produce crude oil and natural gas, but also carry on refining operations and market petroleum and other products on a worldwide basis. Our larger competitors, by reason of their size and relative financial strength, can more easily access capital markets than we can and may enjoy a competitive advantage in the recruitment of qualified personnel. They may be able to absorb the burden of any changes in laws and regulation in the jurisdictions in which we do business and
handle longer periods of reduced prices of gas and oil more easily than we can. Our competitors may be able to pay more for productive oil and natural gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than we can. Our ability to acquire additional properties in the future will depend upon our ability to conduct efficient operations, evaluate and select suitable properties, implement advanced technologies and consummate transactions in a highly competitive environment.</font></p>
<p align="left"><b><font size="-1">Risks Relating to our Stock and this Offering</font></b></p>
<p align="left"><i><b><font size="-1">Our common stock is traded on the OTC Bulletin Board and could be subject to extreme volatility.</font></b></i></p>
<p align="left"><font size="-1">Our common stock is currently quoted on the OTC Bulletin Board, which is characterized by low trading volume. Because of this limited liquidity, stockholders may be unable to sell their shares. The trading price of our shares has from time to time fluctuated widely and may be subject to similar fluctuations in the future. The trading price of our common stock may be affected by a number of factors, including events described in the risk factors set forth in this prospectus, as well as our operating results, financial condition, announcements of drilling activities, general conditions in the oil and gas exploration and development industry, and other events or factors. In recent years, broad stock market indices, in general, and smaller capitalization companies, in particular, have experienced substantial price fluctuations. In a volatile market, we may experience
wide fluctuations in the market price of our common stock. These fluctuations may have a negative effect on the market price of our common stock.</font></p>
<p align="left"><i><b><font size="-1">We will seek to raise additional funds in the future, and such additional funding may be dilutive to shareholders or impose operational restrictions.</font></b></i></p>
<p align="left"><font size="-1">We expect to seek to raise additional capital in the future to help fund our acquisition, development, and production of oil and natural gas reserves. Additional equity financing may be dilutive to our shareholders and debt financing, if available, may involve restrictive covenants which may limit our operating flexibility. If additional capital is raised through the issuance of equity securities, the percentage ownership of our shareholders will be reduced. These shareholders may experience additional dilution in net book value per share and any additional equity securities may have rights, preferences and privileges senior to those of the holders of our common stock. </font></p>
<p align="left"><i><b><font size="-1">The influx of additional shares of our common stock onto the market may create downward pressure on the trading price of our common stock.</font></b></i></p>
<p align="left"><font size="-1">The initial sale or secondary resale of substantial amounts of our common stock in the public markets could have an adverse effect on the market price of our common stock and make it more difficult for us to sell our equity securities in the future at prices which we deem appropriate. This prospectus covers the resale of approximately 30.1 million shares of our common stock, including approximately 11.4 million shares that may be issued in the future upon the conversion or redemption of, or the payment of the principal of, or interest on, our recently issued June 2006 Secured Convertible Debentures and upon the exercise of outstanding common stock purchase warrants granted in conjunction with our June 2006 Secured Convertible Debentures. Due to the significance of the </font></p>
<p align="center">9</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">number of shares being registered, as compared to our presently outstanding shares, the entry of those shares into the public market, or the mere expectation of the entry of those shares into the market, could adversely affect the market price of our common stock and could impair our ability to obtain capital through securities offerings.</font></p>
<p align="left"><font size="-1">In addition to the shares covered by this prospectus, we have issued another prospectus during May 2006 covering the resale of approximately 78 million shares of our common stock, including 2.2 million shares that are already outstanding, and 75.7 million shares that may be issued in the future upon the conversion or redemption of, or the payment of the principal of, or interest on, our January 2006 Secured Convertible Debentures and upon the exercise of outstanding common stock purchase warrants.</font></p>
<p align="left"><i><b><font size="-1">Substantial voting power concentrated in the hands of our principal stockholders.</font></b></i></p>
<p align="left"><font size="-1">We have less than ten shareholders who in the aggregate own and control over fifty percent of our outstanding common stock. In addition, the two holders of our Secured Convertible Debentures and associated warrants, although they are unrelated, have the right to acquire in excess of 95 million shares of our Common Stock should they convert all of their Secured Convertible Debentures into our shares, and should they exercise all of their warrants and hold the shares of common stock received upon such conversion and exercise. This would equate to approximately 49% of our outstanding common stock, after giving effect to such issuance. With respect to the holders of our Secured Convertible Debentures and associated warrants, the foregoing determination has been made irrespective of limitations contained within the terms of the Secured Convertible Debentures and
associated warrants, which prohibit the holders thereof from converting the convertible debentures or exercising the warrants, on less than sixty days notice, to the extent such conversion or exercise would cause such holder to beneficially own in excess of 4.99% of our outstanding common stock.</font></p>
<p align="left"><i><b><font size="-1">We depend on the continued service of certain executive officers. We can not assure you that we will be able to retain these persons.</font></b></i></p>
<p align="left"><font size="-1">Because of their collective industry knowledge, marketing skills and industry relationships, for the foreseeable future, our success will depend largely on the continued services of our three executive officers. They became our executive management team in connection with our March 10, 2005 purchase of Hurricane Energy. We have employment agreements with each of these individuals which contain a non-competition covenant which survives their actual term of employment. Nevertheless, should any of these individuals leave the Company, it could have a material adverse effect on our future results of operations.</font></p>
<p align="left"><i><b><font size="-1">The exercise or conversion of our outstanding convertible securities, options and warrants will result in the dilution of the ownership interests of our existing shareholders and may create downward pressure on the trading price of our common stock.</font></b></i></p>
<p align="left"><font size="-1">We may in the future issue up to 118,689,195 additional shares of our common stock upon exercise or conversion of existing outstanding convertible securities as of June 30, 2006, in accordance with the following schedule:</font></p>
<p align="center">10</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Number of Shares<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:2em;text-indent:-2em"><font size="-1">&bull;&nbsp;Upon exercise of options granted under our Stock Option Plan</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,130,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:2em;text-indent:-2em"><font size="-1">&bull;&nbsp;Upon exercise of Non-Plan Options</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">450,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:2em;text-indent:-2em"><font size="-1">&bull;&nbsp;Upon exercise of Warrants</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">22,210,010 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:2em;text-indent:-2em"><font size="-1">&bull;&nbsp;Upon conversion of the principal under January 2006 Secured Convertible Debentures (1)(2)</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">21,331,058 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:2em;text-indent:-2em"><font size="-1">&bull;&nbsp;Upon conversion of the principal under June 2006 Secured Convertible Debentures (1)(2)</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">10,665,529 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:2em;text-indent:-2em"><font size="-1">&bull;&nbsp;Upon exercise of Warrants issued in conjunction with our January 2006 Secured Convertible Debentures (2)(3)</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">41,237,922 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:2em;text-indent:-2em"><font size="-1">&bull;&nbsp;Upon exercise of Warrants issued in conjunction with our June 2006 Secured Convertible Debentures (2)(3)</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">18,664,676 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:2em;text-indent:-2em"><font size="-1">TOTAL</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">118,689,195 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<div align="left">
<p><hr noshade color="#000000" align='left' width=72 size=0>
</p>
</div>
<p align="left"><font size="-1">(1) Does not include shares issuable in lieu of interest due under the Debentures.</font></p>
<p align="left"><font size="-1">(2) With respect to the holders of our Secured Convertible Debentures and associated warrants, the foregoing determination has been made irrespective of limitations contained within the terms of the Secured Convertible Debentures and associated warrants, which prohibit the holders thereof from converting the Secured Convertible Debentures or exercising the warrants, on less than sixty days notice, to the extent such conversion or exercise would cause such holder to beneficially own in excess of 4.99% of our outstanding common stock </font></p>
<p align="left"><font size="-1">(3) Includes warrants to purchase 31,996,587 shares of our Common Stock originally issued on January 5, 2006, as subsequently increased by 9,241,335 shares to reflect the anti-dilutive effect of our June 2006 Secured Convertible Debentures.</font></p>
<p align="left"><i><b><font size="-1">The accounting treatment for our secured convertible debentures and related warrants may create volatility in our reporting earnings.</font></b></i></p>
<p align="left"><font size="-1">The January 2006 Secured Convertible Debentures contain an embedded conversion feature, pursuant to which all or part of the debt owed to the holders may be converted into shares of our common stock at a negotiated conversion price, and the warrants we issued to the purchasers of such Secured Convertible Debentures provide them with the right to purchase our common stock at negotiated exercise prices. As a result of the terms of our agreement to register the resale of the shares of common stock issuable upon conversion or exercise of these instruments, we are required under applicable accounting rules to treat the conversion feature of the January 2006 Secured Convertible Debentures and the associated warrants as liabilities, rather than as equity instruments. This classification as liabilities also requires that we account for them at fair value and include
changes in fair value as a component of other income (expense) for so long as the warrants remain classified as liabilities. Changes in fair value are based upon the market price of our common stock and are calculated using the Black Scholes method of valuation. As a result, as the market price of our common stock increases, our other expense increases, and as the market price of our common stock decreases, our other income increases. This accounting treatment could result in wide swings of our other income (expense) and net income in the future while these features of the facility are outstanding.</font></p>
<p align="left"><font size="-1">The June 2006 Secured Convertible Debentures will be reviewed for the application of EITF 00-19 and FAS 133 in regards to accounting for embedded derivatives. However, inasmuch as the June 2006 Secured Convertible Debentures contain many of the same features as the January 2006 Secured Convertible Debentures, we expect that the conversion feature of the June 2006 Secured Convertible </font></p>
<p align="center">11</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">Debentures and the associated warrants will similarly be accounted for as embedded derivative instruments. </font></p>
<p align="left"><i><b><font size="-1">We may issue shares of preferred stock with greater rights than our common stock.</font></b></i></p>
<p align="left"><font size="-1">Our articles of incorporation authorize our board of directors to issue shares of preferred stock and to determine the price and other terms for those shares without the approval of our shareholders. Any such preferred stock we may issue in the future could rank ahead of our common stock, in terms of dividends, liquidation rights, and voting rights.</font></p>
<p align="left"><i><b><font size="-1">We are not subject to certain of the corporate governance provisions of the Sarbanes-Oxley Act of 2002.</font></b></i></p>
<p align="left"><font size="-1">Since our common stock is not listed for trading on a national securities exchange, we are not subject to certain of the corporate governance requirements established by the national securities exchanges pursuant to the Sarbanes-Oxley Act of 2002, including, without limitation, their rules relating to independent directors, director nominations, audit committees, and the adoption of a codes of ethics. Although we have voluntarily elected to adopt certain of these corporate governance requirements, until our securities are listed for trading on a National Securities Exchange, we may modify or revoke certain of these governance provisions. If that occurs, the advantages offered by those corporate governance provisions will not exist with respect to the Company. </font></p>
<p align="left"><i><b><font size="-1">We do not anticipate paying dividends.</font></b></i></p>
<p align="left"><font size="-1">We have not paid any cash dividends on our common stock since our inception and we do not anticipate paying cash dividends in the foreseeable future. Negative covenants in certain of our existing debt and equity instruments prohibit the payment of dividends. In the event we are not contractually restricted from paying dividends in the future, such dividends would be at the discretion of our board of directors and would depend on our future earnings, regulatory considerations, our financial requirements and other similarly unpredictable factors. For the foreseeable future, we anticipate that we will retain any earnings which we may generate from our operations to finance and develop our growth and that we will not pay cash dividends to our stockholders.</font></p>
<p align="center"><b><font size="-1">FORWARD-LOOKING STATEMENTS</font></b></p>
<p align="left"><font size="-1">Most of the matters discussed within this registration statement include forward-looking statements on our current expectations and projections about future events. In some cases you can identify forward-looking statements by terminology such as &ldquo;may,&rdquo; &ldquo;should,&rdquo; &ldquo;potential,&rdquo; &ldquo;continue,&rdquo; &ldquo;expects,&rdquo; &ldquo;anticipates,&rdquo; &ldquo;intends,&rdquo; &ldquo;plans,&rdquo; &ldquo;believes,&rdquo; &ldquo;estimates,&rdquo; and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties. Actual results and events may vary significantly from those discussed in the forward-looking statements. </font></p>
<p align="left"><font size="-1">These forward-looking statements may include, among other things, statements relating to the following matters:</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;the level of oil and gas reserves that can be extracted at any of our projects</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;our ability to extract reserves at commercially attractive prices</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;our ability to realize significant cost savings by outsourcing much of the capital-intensive aspects of our business to others</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;the likelihood that our new management team will increase our profile in the industry and create new acquisition and development opportunities for us</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;our ability to compete against companies with much greater resources than us</font></p>
<p align="center">12</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">These forward-looking statements are made as of the date of this prospectus, and we assume no obligation to explain the reason why actual results may differ. In light of these assumptions, risks, and uncertainties, the forward-looking events discussed in this prospectus might not occur.</font></p>
<p align="center"><b><font size="-1">AVAILABLE INFORMATION</font></b></p>
<p align="left"><font size="-1">We file annual, quarterly and special reports, as well as proxy statements and other information with the Securities and Exchange Commission. You may read and copy any document we file with the Commission at their Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain further information about the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. Our Commission filings are also available to the public over the Internet at the Commission&rsquo;s web site at http://www.sec.gov, which contains reports, proxy statements and other information regarding registrants like us that file electronically with the Commission. </font></p>
<p align="center"><b><font size="-1">USE OF PROCEEDS</font></b></p>
<p align="left"><font size="-1">We will not receive any proceeds from sale of the shares of common stock covered by this prospectus by the selling shareholders. We will, however, receive proceeds on exercise of outstanding warrants for shares of common stock covered by this prospectus if the warrants are exercised for cash. If the warrants are exercised in a &ldquo;cashless exercise,&rdquo; we will not receive any additional proceeds for the exercise of the warrants. Furthermore, the warrants may expire without having been exercised. Even if some or all of these warrants are exercised, we cannot predict when they will be exercised and when we would receive the proceeds. We intend to use any proceeds we receive upon exercise of the warrants for general working capital and other corporate purposes. </font></p>
<p align="left"><font size="-1">In addition, our obligation to pay amounts otherwise due under our Secured Convertible Debentures will be reduced as a result of the issuance of our common stock in conversion or redemption of, or the payment of the principal of, or interest on, the Secured Convertible Debentures. We intend to use any proceeds we receive upon exercise of the warrants for general working capital and other corporate purposes.</font></p>
<p align="center"><b><font size="-1">MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS</font></b></p>
<p align="left"><b><font size="-1">Market Information</font></b></p>
<p align="left"><font size="-1">Our common stock currently trades on the OTC Bulletin Board under the symbol &ldquo;MVOG.OB.&rdquo; The first reported trade in our common stock occurred on August 3, 2004. The following table states the range of the high and low bid-prices per share of our common stock for each of the calendar quarters since the first reported trade, as reported by the OTC Bulletin Board. These quotations represent inter-dealer prices, without retail mark-up, July 18, 2006 was $.92 per share.</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">High<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Low<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">FISCAL YEAR ENDED AUGUST 31, 2004 </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Quarter ended August 31, 2004</font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1.50 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1.05 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">FISCAL YEAR ENDED AUGUST 31, 2005 </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Quarter ended November 30, 2004</font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">2.15 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1.40 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Quarter ended February 28, 2005</font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">2.10 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1.10 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Quarter ended May 31, 2005</font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">3.56 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1.36 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Quarter ended August 31, 2005</font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1.99 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1.00 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">FISCAL YEAR ENDED AUGUST 31, 2006 </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Quarter ended November 30, 2005</font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1.20 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">0.85 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Quarter ended February 28, 2006 </font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1.55 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">0.78 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Quarter ended May 31, 2006</font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1.45 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">0.93 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Quarter ending August 31, 2006 (through July 18, 2006)</font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1.11 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">0.75 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="center">13</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><b><font size="-1">Holders</font></b></p>
<p align="left"><font size="-1">As of July 12, 2006, there were 318 shareholders of record of our common stock. However, based upon a broker-inquiry recently conducted in conjunction with our Information Statement dated July 17, 2006, we believe that we have over approximately 12,000 additional beneficial shareholders as of the record date of June 29, 2006. </font></p>
<p align="left"><b><font size="-1">Dividend Policy</font></b></p>
<p align="left"><font size="-1">On June 15, 2004, the Company approved a 22 for 1 forward stock split, effected in the form of a stock dividend. We have not paid any cash dividends on our common stock to date, and we have no intention of paying cash dividends in the foreseeable future. Negative covenants in our Secured Convertible Debentures prohibit the payment of dividends. Whether we will declare and pay dividends in the future will be determined by our board of directors at their discretion, subject to certain limitations imposed under Nevada corporate law. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our board of directors.</font></p>
<p align="center"><b><font size="-1">SELECTED FINANCIAL DATA</font></b></p>
<p align="left"><font size="-1">The following selected financial data as of and for the dates indicated have been derived from our consolidated financial statements. You should read the following selected financial data together with the consolidated financial statements and related footnotes of the Company and &ldquo;Management&rsquo;s Discussion and Analysis of Financial Condition and Results of Operations.&rdquo;</font></p>
<p align="left"><font size="-1">The selected consolidated statement of operations data of the Company for each of the years in the two year period ended August 31, 2005 and the consolidated balance sheet data of the Company as of August 31, 2005 and 2004 are derived from the Company&rsquo;s consolidated financial statements that have been audited by Malone &amp; Bailey, PC and are included in this prospectus. The selected consolidated statement of operations data of the Company for the year ended August 31, 2003 are derived from the Company&rsquo;s consolidated financial statements that have been audited by Morgan &amp; Company and are included in this prospectus. The consolidated balance sheet data of the Company as of August 31, 2003 is derived from the Company&rsquo;s audited consolidated financial statements which are not included in this prospectus. The selected consolidated statement
of operations data of the Company for the nine months ended May 31, 2006 and the consolidated balance sheet data of the Company as of May 31, 2006 are derived from the unaudited consolidated financial statements included in this prospectus. The unaudited consolidated financial statements include, in our opinion, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation. The historical results are not necessarily indicative of the operating results to be expected in the future.</font></p>
<p align="center">14</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=7>
<b><font size="-1">Nine Months<br>Ended May 31,<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=11>
<b><font size="-1">Year Ended August 31,<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<b><font size="-1">Consolidated Statement of Operations Data: (In Thousands, Except Per Share Amounts)</font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2006<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2004<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2003<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total revenue</font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1,839 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">46 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">284 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Operating expenses</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(12,974</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(18,156</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(28,671</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(160</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(28</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Loss before minority interest</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(11,135</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(18,110</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(28,387</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(160</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(28</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Minority interest</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(65</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">997 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,354 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">5 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Loss from operations</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(11,200</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(17,113</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(27,034</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(155</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(28</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Other income (expense): </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Change in fair value of derivatives</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(12,904</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Interest income and other</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">68 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">24 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">50 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(1</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Interest Expense</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(2,166</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2,056 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(2,158</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total Other income (expenses)</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(15,002</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(2,032</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(2,108</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(1</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net Loss to common stockholders</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(26,202</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(19,145</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(29,142</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(156</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(28</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Basic and diluted loss per common share</font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">(0.27</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">(0.25</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">(0.36</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">(0.00</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">(0.00</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Basic and diluted weighted average common shares outstanding</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">98,348,755 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">75,475,782 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">80,741,335 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">58,678,904 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">58,520,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='center' valign='bottom' colspan=21>
<b><font size="-1">Consolidated Balance Sheet Data: (In Thousands)</font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=11>
<b><font size="-1">August 31,<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">May 31,<br>2006<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2004<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2003<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Cash and cash equivalents</font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1,481 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">3,009 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">597 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">32 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Working capital</font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">(30,523</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">929 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">(1,660</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">30 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em"><font size="-1">Total assets</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">39,769 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">17,072 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4,229 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">32 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Stockholders&rsquo; equity (Deficit)</font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">(3,743</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">12,702 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1,774 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">30 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="center"><b><font size="-1">MANAGEMENT&rsquo;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</font></b></p>
<p align="left"><font size="-1">This discussion is intended to further the reader&rsquo;s understanding of our financial condition and results of operations and should be read in conjunction with our consolidated financial statements and related notes included elsewhere herein. This discussion also contains statements that are forward-looking. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of the risks and uncertainties set forth elsewhere in this prospectus and in our other SEC filings. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date hereof.</font></p>
<p align="left"><b><font size="-1">Overview</font></b></p>
<p align="left"><font size="-1">We are an early stage independent energy company engaged in oil and gas exploration, exploitation, development and production. We currently participate in these activities through the interests we hold in oil and gas exploration and development projects in Arkansas, Texas and Colorado. Our strategy is to continue the development of our current exploration projects and to expand our operations by </font></p>
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<p align="left"><font size="-1">acquiring additional exploration opportunities and properties with existing production, taking advantage of the industry experience of our management team and modern techniques such as horizontal drilling and 3D seismic analysis. </font></p>
<p align="left"><font size="-1">Our operations are focused on identifying and evaluating prospective oil and gas properties and contributing capital to projects that we believe have the potential to produce oil or gas in commercial quantities. Over time, as we complete the exploration and development stage of a particular project, our primary focus for that project will gradually shift to drilling and production. </font></p>
<p align="left"><font size="-1">We participate in projects directly, as well as indirectly as equity participants in subsidiaries and investees. Until recently, we have not been involved as the operator of the projects in which we participate. Instead, we have relied on others for drilling, delivering any gas or oil reserves we discover, and negotiating all sales contracts. Recently, however, we have become the operator of two of our existing projects, and we expect to act as the operator of certain of the projects in which we participate in the future. Operatorship will be a key component of our strategy to increase our reserves and production. </font></p>
<p align="left"><font size="-1">We seek to create shareholder value by building oil and gas reserves, production revenues and operating cash flow. We believe that building oil and gas reserves and production, on a cost-effective basis, is an important indicator of performance success for an independent oil and gas company such our company. We seek to build oil and gas reserves, production, and cash flow through a balanced program of capital expenditures involving acquisition, exploitation and exploration activities. We intend to place primary emphasis on issuances of public and private debt and equity to finance our business. </font></p>
<p align="left"><font size="-1">Our ability to generate future revenues and operating cash flow will depend on the successful exploration, exploitation and/or acquisition of oil and gas producing properties, development of our inventory of capital projects, the volume and timing of our production, as well as commodity prices for oil and gas. Such pricing factors are largely beyond our control, and may result in fluctuations in our earnings. </font></p>
<p align="left"><font size="-1">We believe significant opportunities are available to us primarily because we can effectively compete with large energy companies who continue to focus their attention and resources on the discovery and development of large oil and gas fields, while divesting themselves of less productive mature fields. Also, the recent economics of the oil and gas market have improved as prices have risen substantially. </font></p>
<p align="left"><font size="-1">Given these conditions, the significant experience of our management team and our efficient operating model, we believe that we have the opportunity, as an early stage independent energy company, to successfully compete in our chosen market. </font></p>
<p align="left"><b><font size="-1">Results of Operations.</font></b></p>
<p align="left"><b><font size="-1">Nine months ended May 31, 2006 compared to nine months ended May 31, 2005</font></b></p>
<p align="left"><font size="-1">As we have remained in the early stages of development, our revenues from operations only recently commenced during the third quarter of fiscal 2005. We realized revenues from operations of $1,838,644 for the nine month periods ended May 31, 2006, compared to revenues of $46,129 for the comparable prior year period.</font></p>
<p align="left"><font size="-1">We incurred a net loss of $26,201,551 for the nine month period ended May 31, 2006 compared to a net loss of $19,144,810 for the nine month period ended May 31, 2005. Non-cash charges were the largest component of our losses for both periods. Our loss from operations for the nine month period ended May 31, 2006 was $11,199,899, compared to a loss from operations of $17,113,290 for the comparable prior year period.</font></p>
<p align="left"><font size="-1">Total expenses were $28,043,903 for the nine month period ended May 31, 2006, as compared to $20,212,486 for the nine month period ended May 31, 2005. General and administrative expenses were $11,122,975 for the nine month period ended May 31, 2006, as compared to $10,001,847 for the nine </font></p>
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<p align="left"><font size="-1">month period ended May 31, 2005. Non-cash share based compensation expense of $5,813,266 and $8,143,247 for the nine month periods ended May 31, 2006 and 2005, respectively, was a major contributor to general and administrative expense. The year to year increase in general and administrative expenses is reflective of establishing the proper level of professional staff to run the Company and professional fees associated with a high level of financing and regulatory reporting activity. Non-cash expenses of $21,263,925 for the nine month period ended May 31, 2006 included $5,813,266 share based compensation, $1,082,580 depletion, depreciation and amortization, and $12,903,519 for the mark to market of the conversion feature of the debentures and investment warrants primarily associated with our January 5, 2006 issuance of $20 million of Secured Convertible Debentures
(the &ldquo;January 2006 Secured Convertible Debentures&rdquo;) and $1,464,560 non-cash interest expense. Non-cash charges for the nine month period ended May 31 2005 of $16,012,169 included $8,143,247 share based compensation, $2,056,073 convertible note discount amortization, and $5,710,416 impairment.</font></p>
<p align="left"><font size="-1">EITF-00-19 and FAS 133 require that certain financial instruments that meet certain conditions be treated as derivatives with embedded liabilities and must be established as a liability on the balance sheet and marked to market through the income statement on a regular basis. This is a non-cash accounting event and does not represent a current or future cash requirement of the Company and as such has no impact on liquidity. This convention will cause a non-cash expense to be realized during periods when our share price rises and non-cash income to be recognized when our share price falls. This accounting treatment does not impact operating income.</font></p>
<p align="left"><b><font size="-1">Year ended August 31, 2005 compared to year ended August 31, 2004</font></b></p>
<p align="left"><font size="-1">As we have remained in the early stages of development, our revenues only recently commenced during the third quarter of fiscal 2005, and totaled $283,785 for the full year ended August 31, 2005. We had no revenues during the fiscal year ended August 31, 2004. </font></p>
<p align="left"><font size="-1">We incurred operating expenses of $28,671,108 during the year fiscal ended August 31, 2005. The majority of these expenses were associated with projects we no longer participate in, an abandoned acquisition attempt, and the accounting treatment of acquiring Hurricane Energy and bringing on its management team. These costs include exploration expenses and asset impairment of $10,450,046, loss on earnest money deposit (associated with our attempted acquisition of Camden Resources, Inc.) of $4,250,000 and share based compensation expense of $9,982,798. General and administrative expense for the fiscal year ended August 31, 2005 was $3,680,202. Depletion, depreciation and amortization expense for the year ended August 31, 2005 was $153,409. Lease operating expense of $154,653 for the year reflects the start up production in some of our projects, but also includes
the cost of projects we are exiting. </font></p>
<p align="left"><font size="-1">During 2005, we evaluated the commercial viability of all our development projects. Two of these projects, Maverick Basin and Turner La Escalera, were deemed non commercial and we decided to cease participation in the future development of these fields. Accordingly, we recognized $4,739,630 of exploration expense and $5,710,416 of impairment costs. </font></p>
<p align="left"><font size="-1">A significant component of our operating expenses during the year ended August 31, 2005 constitute non- cash charges related to the acquisition of Hurricane Energy. Since Hurricane Energy remained an early stage company at the time of acquisition, and since at that time its management team constituted its principal asset, the transaction was accounted for as a purchase of net assets and not as a business combination. Accordingly, for accounting purposes, we have recognized non-cash compensation expense of $9.1 million associated with the aggregate value of our shares and warrants issued to the former Hurricane management team (now our senior management team). </font></p>
<p align="left"><font size="-1">Our fiscal 2005 results were also adversely affected by a charge of $4.25 million associated with an October 2005 settlement of our dispute with Camden Resources, Inc. During the third quarter of fiscal 2005, we instituted litigation to recover a $5,000,000 earnest money deposit paid in connection with our attempted purchase of the shares of Camden Resources, Inc. During October 2005, we entered </font></p>
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<p align="left"><font size="-1">into a settlement of the dispute and recovered $750,000 of the earnest money deposit. Accordingly, our 2005 financial statements reflect a charge of $4,250,000. </font></p>
<p align="left"><b><font size="-1">Liquidity and Capital Resources</font></b></p>
<p align="left"><font size="-1">As of August 31, 2005, we had a positive net working capital balance of $929,350, compared to a net working capital deficit of $1,660,427 at year end August 31, 2004. The increase in our working capital position was primarily attributable to net cash from financing activities received during fiscal 2005 and the conversion of a note issued to Trident Growth Fund, LP in 2004. </font></p>
<p align="left"><font size="-1">Net cash used in operations was $2,205,091 for the year ended August 31, 2005. The primary use of cash in operating activities was to fund our net loss. Net cash used in investing activities for the year was $23,576,885 and primarily consisted of the purchase of oil and gas interests, drilling programs, and the deposit for the Camden Resources transaction, compared to $3,121,344 of investing activities for the year ended August 31, 2004. </font></p>
<p align="left"><font size="-1">Net cash provided by financing activities during the fiscal year ended August 31, 2005 was $28,194,082, compared to $3,641,500 of cash provided for the year ended August 31, 2004. This cash was provided during our second fiscal quarter of 2005, when we received gross proceeds of $28,435,000 from the private sale of 14,217,500 investment units at $2.00 per unit. Each unit consisted of two shares of our common stock and a three-year warrant to purchase one share of our common stock at an exercise price of $2.00 per share. </font></p>
<p align="left"><font size="-1">Net working capital decreased by $31,452,595 as of May 31, 2006 to a deficit of $30,523,245, as compared to the surplus of $929,350 as of August 31, 2005. This decrease is primarily attributable to a $32,144,491 increase in current liabilities during this period. $27,146,137 of this increase is associated with our January 2006 Secured Convertible Debentures and associated warrants. $4,166,667 of this increase is the portion of that debt that is due to be repaid over the first six months of 2007 and $22,979,470 is the derivative liability associated with the January 2006 Secured Convertible Debentures and associated warrants. This non-cash liability is recognized as a current liability because the debenture holders have the option to convert the debentures into our shares immediately should they choose. $4,987,230 of the increase is a payable to our Fayetteville
partners for lease assignments that will be settled as we catch up with our pro-rata share of funding with our Fayetteville Shale project partners.</font></p>
<p align="left"><font size="-1">Our working capital position was affected by the following transactions during the nine-month period ending May 31, 2006. During October 2005, we sold convertible debentures and warrants to purchase 500,000 shares of our common stock to Trident Growth Fund, LP for gross proceeds of $2,000,000. The convertible debentures had a principal amount of $2,000,000 and bore interest at an annual rate of 12%. The convertible debentures were repaid in full on January 6, 2006.</font></p>
<p align="left"><font size="-1">The warrants have a term of five years and an exercise price of $1.00 per share The exercise price of the warrants is subject to customary anti-dilution adjustments and a &ldquo;full ratchet&rdquo; adjustment in the event of the issuance of common stock or common stock equivalents for a price less than the then exercise price of the warrants. By application of these anti-dilution adjustments, the exercise price of the warrants was reduced to $.9376 per share following the issuance of our January 2006 Secured Convertible Debentures referred to below.</font></p>
<p align="left"><font size="-1">Also in October 2005, our subsidiary, Maverick Woodruff County, LLC, borrowed $1,000,000 to finance lease acquisitions in the Fayetteville Shale project. The loan was secured by a pledge of the membership interests of Maverick Woodruff County, LLC. However, the loan automatically converted into shares of the common stock of one of our Fayetteville project participants in February 2006 when we acquired and distributed to this participant its pro rata interest in 50,000 leasehold acres.</font></p>
<p align="left"><font size="-1">From inception of our Barnett Shale project through October 19, 2005, Reichmann Petroleum Corp served as the managing partner of RBE and as the operator of a portion of the project. Dyke Ferrell, the principal shareholder of Reichmann Petroleum, owned an approximate 13% interest in RBE. During October 2005, we acquired the 13% interest in RBE from Mr. Ferrell in consideration for the </font></p>
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<p align="left"><font size="-1">purchase price of $1,750,000 and 250,000 shares of our common stock. Of the purchase price, $250,000 was paid during October 2005 and the balance of $1,500,000 was paid in January 2006 upon completion by us of a financial audit of all relevant financial and other data relating to the operation of RBE by Reichmann Petroleum. In connection with this purchase, we became the managing member of RBE and operator of the 100% owned portion of the project.</font></p>
<p align="left"><font size="-1">During November 2005, we sold 200,000 investment units at a price of $10 per unit to Millenium Global Investments, Ltd. Each unit consisted of ten shares of our common stock and a thirty (30) month warrant to purchase four shares of our common stock at an exercise price of $1.70 per share. The Millenium warrants were restructured following our issuance of the January 2006 Secured Convertible Debentures. As restructured, Millenium surrendered warrants to purchase 800,000 shares of our common stock at an exercise price of $1.70 per share, in exchange for warrants to purchase 2,000,000 shares of our common stock; of which 1,000,000 have an exercise price of $.9376 per share; 500,000 have an exercise price of $1.50 per share; and 500,000 have an exercise price of $2.00 per share.</font></p>
<p align="left"><font size="-1">On January 5, 2006, we sold for $20 million our January 2006 Secured Convertible Debentures and associated five-year warrants to purchase up to 31,996,587 shares of our common stock (the &ldquo;January 2006 Warrants&rdquo;). The January 2006 Secured Convertible Debentures have an aggregate principal amount of $20 million, bear interest at 7.5% per annum, and have a maturity date on the third anniversary of their issuance, subject to the right of the holders to extend the maturity date for a period of up to three years. Interest payments commenced on a quarterly basis during June 2006, with principal payments due in twenty-four equal monthly installments commencing in January 2007. Under limited circumstances, interest and principal payments may be made in shares of our common stock priced at an agreed upon discount to market. The January 2006 Secured Convertible
Debentures are convertible into shares of our common stock at an initial conversion price of approximately $0.9376 per share, subject to full-ratchet anti-dilution adjustments which reduce the conversion price to any lower price at which the Company issues any common stock, or is obligated to issue common stock pursuant to options, warrants, or convertible securities in the future, except for the issuance of certain excluded securities. Also, under limited circumstances, the Company has the right to force the holders to convert certain partial amounts due under the January 2006 Secured Convertible Debentures, upon payment of certain additional warrants. The Company&rsquo;s obligations under the January 2006 Secured Convertible Debentures are secured by a security interest in all of the Company&rsquo;s assets. The terms of the January 2006 Secured Convertible Debentures preclude the Company
from incurring any other indebtedness, subject to limited carve-outs for trade payables, other forms of operating indebtedness and up to $5 million in senior debt. Of the January 2006 Warrants, 21,331,059 had an initial exercise price of $0.9376 per share, 5,332,764 had an initial exercise price of $1.50 per share, and the remaining 5,332,764 had an initial exercise price of $2.00 per share. The exercise prices of the January 2006 Warrants are subject to anti-dilution adjustments which reduce the exercise price to any lower price at which the Company issues any common stock, or is obligated to issue common stock pursuant to options, warrants, or convertible securities, in the future, except for the issuance of certain excluded securities. Upon adjustment of the exercise price of the January 2006 Warrants, the number of shares issuable upon exercise of the January 2006 Warrants will be correspondingly
adjusted. </font></p>
<p align="left"><font size="-1">As a result of our issuance of the June 2006 Secured Convertible Debentures described below, and the anti-dilution adjustment provisions of the January 2006 Warrants issued on January 5, 2006, the exercise price of approximately 5.3 million of the January 2006 Warrants was reduced from $2.00 to $0.9376, the exercise price of approximately 5.3 million of the January 2006 Warrants was reduced from $1.50 to $0.9376, and an approximately 9.3 million additional shares of common stock became issuable upon exercise of the January 2006 Warrants.</font></p>
<p align="left"><font size="-1">As part of this transaction, we secured effectiveness of a registration statement filed with the Securities and Exchange Commission for the purpose of registering the resale of the shares of common stock issuable pursuant to the January 2006 Secured Convertible Debentures and exercise of the January 2006 Warrants. The registration statement must remain effective for a predetermined </font></p>
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<p align="left"><font size="-1">period subject to certain &ldquo;grace periods&rdquo;. If we fail to meet the deadlines for the continued effectiveness of the registration statement, we will be required to pay liquidated damages of two percent of the aggregate purchase price of the January 2006 Secured Convertible Debentures on the date of such failure and on every 30th day thereafter until such failure is cured. </font></p>
<p align="left"><font size="-1">On June 21, 2006, we sold for $10 million our June 2006 Secured Convertible Debentures and associated warrants to purchase 18,664,676 shares of our common stock (the &ldquo;June 2006 Warrants&rdquo;) in a private placement transaction. The June 2006 Secured Convertible Debentures have an aggregate principal amount of $10 million and are convertible into 10,665,529 shares of our common stock (at an initial conversion price of $0.9376 per share), subject to anti-dilution adjustments. The June 2006 Secured Convertible Debentures have a maturity date on the first anniversary of their issuance, subject to the right of the holders to extend the date for the payment of any installment of principal described below. The June 2006 Secured Convertible Debentures bear interest at the rate of 9.75% per annum, which rate is increased to 15% upon the occurrence of an event
of default under the June 2006 Secured Convertible Debentures. Our obligations under the June 2006 Secured Convertible Debentures are secured by a security interest in all of the Company&rsquo;s assets.</font></p>
<p align="left"><font size="-1">The June 2006 Warrants have an initial exercise price of $0.9376 per share, subject to anti-dilution adjustment which reduces the exercise price to any lower price at which the Company issues any common stock, or is obligated to issue common stock pursuant to options, warrants or convertible securities, in the future, except for the issuance of certain excluded securities. Upon adjustment of the exercise price of the June 2006 Warrants, the number of shares issuable upon exercise of the June 2006 Warrants will be correspondently adjusted.</font></p>
<p align="left"><font size="-1">The principal amount of the June 2006 Secured Convertible Debentures is to be repaid in equal monthly installments commencing on November 1, 2006 (or, if earlier, on the first day of the calendar month following the date the registration statement required by a registration rights agreement entered into in connection with the June 2006 Secured Convertible Debentures and warrants (the &ldquo;Registration Rights Agreement&rdquo;) is declared effective) and ending on June 21, 2007, the first anniversary of the date of their issuance. Such principal payments may be paid in cash or, at the option of the Company if certain conditions are satisfied, in shares of our common stock. Any shares of common stock used to pay an installment of principal will be valued at the lower of (1) the then applicable conversion price of the June 2006 Secured Convertible Debentures
and (2) 82.5% of the arithmetic average of the weighted average price of the common stock for the fifteen trading days preceding the installment payment date (but no greater than the arithmetic average of the weighted average price for the first and last three trading days of such fifteen trading day period). The number of shares of common stock which may be issued for the payment of any installment of principal may not exceed 22.5% of the aggregate dollar trading volume over the twenty trading days before the date the Company delivers notice of its election to pay an installment of principal in shares of its common stock. If we use shares of our common stock to pay an installment of principal, we may be required to deliver additional shares of common stock to pay such principal if the arithmetic average of the weighted average price for the nineteen (19) trading days following the installment
payment date is less than the price used in determining the number of shares that were delivered on the installment payment date. The holders of the June 2006 Secured Convertible Debentures may elect to defer the payment of any installment of principal for a period of up to two years from the date such installment was originally due.</font></p>
<p align="left"><font size="-1">The June 2006 Secured Convertible Debentures are convertible at the option of the holders into shares of our common stock at an initial conversion price of $0.9376 per share, subject to anti-dilution adjustments. The anti-dilution adjustments include a &ldquo;full ratchet&rdquo; adjustment which reduces the conversion price to any lower price at which we issue any common stock, or are obligated to issue common stock pursuant to options, warrants, or convertible securities in the future, except for the issuance of certain excluded securities.</font></p>
<p align="left"><font size="-1">Interest on the June 2006 Secured Convertible Debentures commenced accruing as of June 21, 2006, however, the first payment will not be required until the first day of the month immediately following </font></p>
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<p align="left"><font size="-1">the earlier of: (i) the date on which the Registration Statement required by the Registration Rights Agreement is declared effective by the Securities and Exchange Commission; or (ii) October 21, 2006. At our option, provided certain conditions are satisfied, interest may be paid by the issuance of common stock. Any shares of common stock used to pay interest will be valued at 82.5% of the arithmetic average of the weighted average price of the common stock for the five trading days preceding the interest payment date.</font></p>
<p align="left"><font size="-1">The June 2006 Secured Convertible Debentures require that we use our best efforts to sell our interest in the Barnett Shale project by December 31, 2006 for a purchase price equal to its fair market value. If the cash consideration to be received in any such sale is less than the amount required to retire the June 2006 Secured Convertible Debentures and the January 2006 Secured Convertible Debentures (collectively, the &ldquo;Secured Convertible Debentures&rdquo;), the consent of the holders of a majority of the outstanding principal amount of the June 2006 Secured Convertible Debentures is required. If such consent is not provided, the deadline for the sale is extended until March 31, 2007.</font></p>
<p align="left"><font size="-1">The proceeds from the sale of the Barnett Shale project must be deposited and retained in an escrow account until such time as there are no Secured Convertible Debentures outstanding. The holders of the June 2006 Secured Convertible Debentures have the right for a period of three months after the proceeds are deposited into escrow to require us to redeem their debentures in cash or in stock (at the conversion price of the June Secured Convertible Debentures) at a 25% premium. We may use the proceeds in the escrow fund to make payments on the Secured Convertible Debentures. A ratable portion of the escrowed proceeds may also be withdrawn by us as the principal amount of the debentures are reduced. In addition, if the closing sale price of our common stock for thirty trading days during any forty consecutive trading day period is more than $2.00 and certain conditions
are satisfied by us, we may withdraw an amount of the escrowed proceeds equal to ten percent of the aggregate dollar trading volume during such forty day trading period.</font></p>
<p align="left"><font size="-1">If we have not sold the Barnett Shale project prior to the applicable deadline, the holders of the June Secured Convertible Debentures have the right to have one-third of the outstanding principal amount of the 2006 Secured Convertible Debentures held by them redeemed, plus accrued and unpaid interest. If we have not sold the Barnett Shale project within three months after the applicable deadline, the holders of the June 2006 Secured Convertible Debentures have the right to have an additional one-third of the principal amount redeemed, plus accrued and unpaid interest. If the proceeds from the sale of the Barnett Shale project are less than the amount required to retire the Secured Convertible Debentures, the holders of the June 2006 Secured Convertible Debentures have the right to require us to redeem a portion of the deficiency, which may be paid in cash
or registered shares of common stock. If the proceeds from the sale of the Barnett Shale project exceed the amount required to retire the Secured Convertible Debentures, we may retain any such excess for working capital purposes.</font></p>
<p align="left"><font size="-1">As part of this transaction, we have agreed to file a registration statement with the Securities and Exchange Commission for the purpose of registering the resale of the shares of common stock issuable pursuant to the June 2006 Secured Convertible Debentures and exercise of the June 2006 Warrants. The registration statement must be filed and declared effective by the Commission within certain time periods, and must remain effective for a predetermined period subject to certain &ldquo;grace periods&rdquo;. If we fail to meet the deadlines for the filing or effectiveness of the registration statement, we will be required to pay liquidated damages of two percent of the aggregate purchase price of the June 2006 Secured Convertible Debentures and June 2006 Warrants on the date of such failure and on every 30th day thereafter until such failure is cured.</font></p>
<p align="left"><font size="-1">Effective as of June 30, 2006, we issued 423,551 registered shares of our common stock as an interest payment to the holders of the January Secured Convertible Debentures. These shares were issued in lieu of a cash payment of $373,973 that would have otherwise been paid representing interest due through June 30, 2006.</font></p>
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<p align="left"><font size="-1">Our plan of operation for the next twelve months is to continue to conduct oil and gas exploration, development, drilling and production operations on our existing projects in Arkansas and Colorado, as well as any new projects we may identify during the year. We intend to continue drilling and developing efforts in our Barnett Shale project. However, as part of the sale of our June 2006 Secured Convertible Debentures, we have agreed to use our best efforts to sell our Barnett Shale project. In light of the foregoing, our capital spending plan for the next twelve months, excluding potential acquisitions, contemplates the expenditure of approximately $37 million across all of our various projects, with the greatest concentration in the Fayetteville Shale project. However, our current funding will only be sufficient to sustain operations through the fourth calendar
quarter of 2006. Our ability to fund our operations and capital spending plan thereafter, depends upon a number of assumptions including: (i) our ability to secure additional financing; (ii) our ability to sell our Barnett Shale project; (iii) completion of our pending amendment to our corporate charter to increase the number of shares of capital stock available for future issuance; (iv) the geology of the various projects validating our expectations as to reserve levels and supporting the drilling of multiple well locations; (v) the commercial viability of the overall projects, and (vi) all such other assumptions referenced in the in this report under the caption &ldquo;Forward-Looking Statements.&rdquo;</font></p>
<p align="left"><font size="-1">The funding provided by our recent financing transactions during fiscal 2005 and the first nine months of fiscal 2006, has enabled us to make significant progress in our development efforts, including, among other things, increasing our ownership interest in the Barnett Shale project, completing our first two wells in the Barnett Shale project, securing the use of a drilling rig for, and commencing our first two wells in, the Fayetteville Shale project, and acquiring approximately 125,000 gross acres in the Fayetteville Shale play. However, we have either spent or allocated most of the proceeds from our recent sale of Secured Convertible Debentures, and as we expected, our current capital resources will not be sufficient to fund all development and drilling of our existing projects, or to cover the interest and current portion of our long-term debt due within
the next twelve months. We will, therefore, attempt to sell our interest in our Barnett Shale project and continue to seek additional capital over the next 12 months to finance the development of our existing projects and to fund our future growth and exploration activities. This may take the form of either debt-based financing, or sale of equity securities. Any sale of equity securities would require us to complete the pending amendment to our corporate charter (to increase the number of shares of capital stock available for issuance). In the shorter term, if we are unable to obtain additional funds when we need them or if we cannot obtain funds on terms favorable to us, we may need to delay, scale back, or eliminate plans for further development efforts. An inability to secure additional funds would require us to consider sale of certain assets or otherwise incur a risk of default upon
our Secured Convertible Debentures.</font></p>
<p align="left"><font size="-1"> </font></p>
<p align="left"><b><font size="-1">Critical Accounting Policies</font></b></p>
<p align="left"><font size="-1">Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. These estimates are based on information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary significantly from those estimates under different assumptions and conditions.</font></p>
<p align="left"><font size="-1">Critical accounting policies are defined as those significant accounting policies that are most critical to an understanding of a company&rsquo;s financial condition and results of operation. We consider an accounting estimate or judgment to be critical if (i) it requires assumptions to be made that were uncertain at the time the estimate was made, and (ii) changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition.</font></p>
<p align="left"><font size="-1">We believe that the following significant accounting policies are the most critical to an evaluation of our future financial condition and results of operations.</font></p>
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<p align="left"><b><font size="-1">Proved Oil and Natural Gas Reserves</font></b></p>
<p align="left"><font size="-1">Proved reserves are defined by the SEC as the estimated quantities of crude oil, condensate, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty are recoverable in future years from known reservoirs under existing economic and operating conditions. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. Prices do not include the effect of derivative instruments, if any, entered into by the Company. </font></p>
<p align="left"><font size="-1">Proved developed reserves are those reserves expected to be recovered through existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery are included as proved developed reserves only after testing of a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved.</font></p>
<p align="left"><font size="-1">Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on non-drilled acreage, or from existing wells where a relatively major expenditure is required for re-completion. Reserves on non-drilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other non-drilled units are claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation.</font></p>
<p align="left"><font size="-1">Volumes of reserves are estimates that, by their nature, are subject to revision. The estimates are made using all available geological and reservoir data as well as production performance data. There are numerous uncertainties in estimating crude oil and natural gas reserve quantities, projecting future production rates and projecting the timing of future development expenditures. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way and estimates of engineers that we use may differ from those of other engineers. The accuracy of any reserve estimate is a function of the quantity of available data and of engineering and geological interpretation and judgment. Accordingly, future estimates are subject to change as additional information becomes
available.</font></p>
<p align="left"><b><font size="-1">Successful Efforts Accounting</font></b></p>
<p align="left"><font size="-1">The Company utilizes the successful efforts method to account for our crude oil and natural gas operations. Under this method of accounting, all costs associated with oil and gas lease acquisition costs, successful exploratory wells and all development wells are capitalized and amortized on a unit-of-production basis over the remaining life of proved developed reserves and proved reserves on a field basis. Unproved leasehold costs are capitalized pending the results of exploration efforts. Exploration costs, including geological and geophysical expenses, exploratory dry holes and delay rentals, are charge to expense when incurred.</font></p>
<p align="left"><b><font size="-1">Impairment of Properties</font></b></p>
<p align="left"><font size="-1">We review our proved properties at the field level when management determines that events or circumstances indicate that the recorded carrying value of the properties may not be recoverable. Such events include a projection of future oil and natural gas reserves that will be produced from a field, the timing of this future production, future costs to produce the oil and natural gas, and future inflation levels. If the carrying amount of an asset exceeds the sum of the undiscounted estimated future net cash flows, we recognize impairment expense equal to the difference between the carrying value and the fair value of the asset which is estimated to be the expected present value of future net cash flows from proved reserves, utilizing a risk-free rate of return. The Company cannot predict the amount of impairment charges that may be recorded in the future. Unproved
leasehold costs are reviewed periodically and a loss is recognized to the extent, if any, that the cost of the property has been impaired.</font></p>
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<p align="left"><b><font size="-1">Asset Retirement Obligations</font></b></p>
<p align="left"><font size="-1">The Company is required to make estimates of the future costs of the retirement obligations of its producing oil and gas properties. This requirement necessitates that the Company make estimates of its property abandonment costs that, in some cases, will not be incurred until a substantial number of years in the future. Such cost estimates could be subject to significant revisions in subsequent years due to changes in regulatory requirements, technological advances and other factors that may be difficult to predict.</font></p>
<p align="left"><b><font size="-1">Income Taxes</font></b></p>
<p align="left"><font size="-1">The Company is subject to income and other related taxes in areas in which it operates. When recording income tax expense, certain estimates are required by management due to timing and the impact of future events on when income tax expenses and benefits are recognized by the Company. The Company will periodically evaluate its tax operating loss and other carryforwards to determine whether a gross deferred tax asset, as well as a related valuation allowance, should be recognized in its financial statements.</font></p>
<p align="center"><b><font size="-1">CHANGE OF ACCOUNTANTS</font></b></p>
<p align="left"><font size="-1">On December 10, 2004, the Board of Directors of the Company engaged Malone &amp; Bailey, PC as its independent accountant and dismissed Morgan &amp; Co., as its independent accountant. During the fiscal years ended August 31, 2004 and 2003, the Company did not consult Malone &amp; Bailey, PC regarding the application of accounting principles to a specific completed or contemplated transaction or regarding the type of audit opinion that might be rendered by Malone &amp; Bailey, PC on the Company&rsquo;s financial statements, and Malone &amp; Bailey, PC did not provide any written or oral advice that was an important factor considered by the Company in reaching a decision as to any such accounting, auditing or financial reporting issue.</font></p>
<p align="center"><b><font size="-1">QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</font></b></p>
<p align="left"><b><font size="-1">Interest Rate and Credit Rating Risk</font></b></p>
<p align="left"><font size="-1">As of May 31, 2006, we had approximately $1,480,581 in cash and cash equivalents, and short term investments. At May 31, 2006, approximately $1,304,779 was held in our operating accounts to be used for general corporate purposes, and $175,802 was invested in overnight repurchase agreements, 100% collateralized with AAA rated US Government Securities. Based on sensitivity analyses performed on the financial instruments held as of May 31, 2006, an immediate 10% change in interest rates is not expected to have a material effect on our near term financial condition or results. </font></p>
<p align="left"><b><font size="-1">Commodity Risk</font></b></p>
<p align="left"><font size="-1">Our major commodity price risk exposure is to the prices received for our natural gas and oil production. Realized commodity prices received for our production are the spot prices applicable to natural gas and crude oil. Prices received for natural gas and oil are volatile and unpredictable and are beyond our control. For the quarter ended May 31, 2006, a 10% fluctuation in the prices for natural gas and oil production would have had less than an approximate $0.1 million impact on our revenues.</font></p>
<p align="center"><b><font size="-1">BUSINESS</font></b></p>
<p align="left"><b><font size="-1">GENERAL</font></b></p>
<p align="left"><font size="-1">We are an early stage independent energy company engaged in oil and gas exploration, exploitation, development and production. We currently participate in these activities through the interests we hold in oil and gas exploration and development projects in Arkansas, Texas and Colorado. Our strategy is to continue the development of our current exploration projects and to expand our operations by acquiring additional exploration opportunities and properties with existing production, taking </font></p>
<p align="center">24</p>
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<p align="left"><font size="-1">advantage of the industry experience of our management team and modern techniques such as horizontal drilling and 3D seismic analysis.</font></p>
<p align="left"><font size="-1">Our operations are focused on identifying and evaluating prospective oil and gas properties and contributing capital to projects that we believe have the potential to produce oil or gas in commercial quantities. Over time, as we complete the exploration and development stage of a project, our primary focus for that project will gradually shift to drilling and production. </font></p>
<p align="left"><font size="-1">We participate in projects directly, as well as indirectly as equity participants in our subsidiaries and other investees. Until recently, we have not been involved as the operator of the projects in which we participate. Instead, we have relied on others for drilling, delivering any gas or oil reserves we discover, and negotiating all sales contracts. Recently, however we have become the operator of two of our existing projects, and we expect to act as the operator of certain of the projects in which we participate in the future. Such operatorship will be a key component of our strategy to increase our reserves and production.</font></p>
<p align="left"><font size="-1">Our management team, lead by our Chief Executive Officer, Mr. V. Ray Harlow, joined us in connection with our March 10, 2005, acquisition of Hurricane Energy, an early-stage independent oil and gas business founded in 2003 that targeted the acquisition of producing, development, and exploitation reserves principally in the U.S. Gulf Coast region. </font></p>
<p align="left"><font size="-1">Consistent with our efficient operation model, we intend to rely on leading third party sources of outsourced drilling and field management services, as necessary. We expect that this will allow us to achieve significant cost savings and operational efficiencies by outsourcing an appropriate level of the capital-intensive aspects of our business. We believe that our business model will permit us to maximize the use of our otherwise limited resources, reduce the risk of unsuccessful drilling efforts, and capitalize on the experience of our management team and consultants. </font></p>
<p align="left"><font size="-1">Our development efforts have initially focused on six projects; four of which are in Texas, one in Colorado and one in Arkansas. These regions are characterized by potentially long-lived reserves with predictable and relatively low production depletion rates, lower service costs than in more competitive or remote areas, a favorable regulatory environment that encourages drilling efforts, and limited federal land or land access impediments.</font></p>
<p align="left"><font size="-1">Preliminary drilling results and comprehensive technical evaluations have suggested that at least two of the four Texas projects, the Colorado and the Arkansas project could contain substantial reserves that could be extracted at commercially attractive prices. However, drilling has only recently commenced on certain of the Texas and Colorado properties, and we are still in the lease acquisition phase in Arkansas. As a result, we cannot be sure that our expectations will be realized. Estimates of oil and gas reserves are developed through a subjective process that depends upon many assumptions, and some or all of those assumptions may not be realized. </font></p>
<p align="left"><font size="-1">Our current projects are focused on low-risk exploratory drilling and development. Each project is screened on available geologic and engineering data, surrounding production from similar wells, and proximity to infrastructure. We utilize a risk-based economic evaluation that compares various production and price scenarios to rank projects for investment. Our overall business plan employs the same technique for price and production.</font></p>
<p align="left"><font size="-1">Our primary objectives are to build reserves, production, cash flow and earnings per share by acquiring oil and gas properties, exploring for new oil and gas reserves, and optimizing production and value from existing oil and gas properties. We have crafted a business model specifically designed to exploit the unique opportunities currently available to small companies in the oil and gas industry. </font></p>
<p align="left"><font size="-1">We are managed by a small highly experienced team of employees and some retained consultants focused on finding and structuring attractive oil and gas investment opportunities and then extracting the maximum value from them. Our goal is to create long-term value for our investors by building a significant oil and natural gas reserve base. We seek to acquire and exploit properties with the following characteristics:</font></p>
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<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;locations within or close to areas with an established production history and infrastructure</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;multiple productive sands and reservoirs</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;current production levels with significant identified proven and potential reserve upside opportunities</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;the opportunity to obtain a significant interest as well as operatorship</font></p>
<p align="left"><font size="-1">We believe significant competitive opportunities are available to us primarily because large energy companies continue to focus their attention and resources on the discovery and development of large oil and gas fields, while divesting themselves of lower producing mature fields. Also, the recent economics of the oil and gas market have improved as prices have risen substantially. Given these conditions and our efficient operating model, we believe that we have the opportunity, as a small independent energy company, to successfully compete in our chosen market.</font></p>
<p align="left"><font size="-1">Our principal offices are located at 888 East Las Olas Boulevard, Suite 400, Fort Lauderdale, Florida 33301. Our telephone number is (954) 463-5707.</font></p>
<p align="left"><b><font size="-1">Projects</font></b></p>
<p align="left"><i><font size="-1">Fayetteville Shale</font></i></p>
<p align="left"><font size="-1">In September 2005, through our wholly-owned subsidiary, Maverick Woodruff County, LLC, we initiated efforts to develop oil and gas properties located within the Fayetteville Shale play in Arkansas and commenced actively acquiring acreage in Northeastern Arkansas. Pursuant to a joint operating agreement with our two project partners, we are the operator of, and have a 45% working interest in, the project.</font></p>
<p align="left"><font size="-1">As of the date of this report, we have fully executed leases on approximately 125,000 acres (56,250 net acres to Maverick) and have approximately another 25,000 acres under contract pending title work for a total of 150,000 acres committed to date. It is our intention to maintain our interest at the net position of 56,250 acres and, if possible, bring in a fourth partner to acquire the final 25,000 acres on a promoted basis. This strategy will enable us to focus our financial resources on drilling and development activities while still maintaining a critical mass of acreage for development in the play. The total cost to Maverick to secure the target level of leased acreage has been approximately $15 million. </font></p>
<p align="left"><font size="-1">We commenced our initial drilling operations during the first calendar quarter of 2006. To date we have drilled and fracture stimulated two test wells and have commenced drilling a third. Pending successful test results and final completion, production could commence during the fourth quarter of 2006. We plan to have drilled our initial series of six to eight test wells by the end of the calendar year. Following full interpretation of data gathered during this operation, we could initiate a full development program by the first of the calendar year 2007. </font></p>
<p align="left"><i><font size="-1">Barnett Shale</font></i></p>
<p align="left"><font size="-1">We hold a 63% membership interest in RBE, LLC, a Delaware limited liability company (&ldquo;RBE&rdquo;), that was formed to explore for oil and gas in the Barnett Shale area of North Texas. We acquired a 50% interest in RBE during August 2004 from Ferrell RBE Holdings, LLC (&ldquo;Ferrell RBE&rdquo;) for $2 million, of which $1 million was paid to Ferrell RBE and the balance represented our assumption of Ferrell RBE&rsquo;s obligation to make a $1 million capital contribution to RBE.</font></p>
<p align="left"><font size="-1">Through our interest in RBE, we own a working interest in more than 4,000 net leasehold acres in Wise County, Texas. A majority portion of that acreage is operated by Devon Energy and a portion is operated by us that until recently was operated by Reichmann Petroleum. The interests acquired are subject to a 25% royalty. Drilling is complete on the initial test well within the acreage operated by us, the Pauline Cook #1, and this well is flowing to sales. We initiated drilling on the second well, the Flowers 1-H, on this acreage on June 7, 2006. This well satisfies our drilling commitments required to </font></p>
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<p align="left"><font size="-1">retain leasehold rights on this tract. The Portwood 4H well was drilled on the Devon operated portion of the project and started flowing to sales in December 2005. This allowed RBE to retain its leasehold rights with respect to the acreage on the portion of the project. A second well, the Bridges W. B. GU1, was spud in this acreage on June 19, 2006 and drilling is now complete and the well is awaiting completion. This is the first of three consecutive wells that Devon plans to drill and complete on this acreage this year. </font></p>
<p align="left"><font size="-1">From inception of the project through October 19, 2005, Reichmann Petroleum Corp served as the managing partner of RBE and as the operator of a minority portion of the project. Dyke Ferrell, the principal shareholder of Reichmann Petroleum, owned an approximate 13% interest in RBE. During October 2005, we acquired the 13% interest in RBE from Mr. Ferrell in consideration for the purchase price of $1,750,000 and 250,000 shares of our common stock. In connection with this purchase, we became the managing member of RBE and operator of the minority acreage portion of the project, formerly operated by Reichmann Petroleum Corp. </font></p>
<p align="left"><font size="-1">The RBE operating agreement provides that cash distributions by RBE are to be made first to us until the aggregate distributions equal $1,000,000 and then to the members in proportion to their ownership interests.</font></p>
<p align="left"><font size="-1">In connection with our sale of the June 2006 Secured Convertible Debentures, we agreed to use our best efforts to sell our interests in the Barnett Shale project. See our discussion under &ldquo;Management&rsquo;s Discussion and Analysis of Financial Condition and Results of Operations&rdquo; &mdash; &ldquo;Liquidity and Capital Resources&rdquo;.</font></p>
<p align="left"><i><font size="-1">Whitewater </font></i></p>
<p align="left"><font size="-1">On February 1, 2005, Maverick Whitewater, LLC, a subsidiary that we formed to explore for oil and gas in Colorado, paid $5,600,000 to South Oil, Inc. (including $2,000,000 of prepaid drilling costs) to acquire a working interest in approximately 12,000 net mineral acres in Mesa and Delta Counties in Colorado. The conveyance also included two shut-in gas wells and a pipeline tap. The interest was acquired subject to a 12.5% carried working interest, proportionately reduced in favor of prior parties in interest. To date, eleven exploration/ delineation wells have been drilled. In March 2006, we assumed operatorship of this project from South Oil and have begun to assess test results and formulate a field development plan, including plans to connect to the Trans Colorado pipeline. We are currently in the process of transitioning this operatorship to a local operator
who will buy in to a 10% working interest in this project proportionately from the existing owners. The successful execution of this strategy will allow us to focus more of our personnel and financial resources on the Fayetteville Shale project while still maintaining a 27% interest in this project.</font></p>
<p align="left"><font size="-1">Maverick Whitewater has two separate classes of ownership interest, Class A and Class B. We acquired all of the Class A interests. South Oil, Inc. acquired all of the Class B interests. We serve as the manager of Maverick Whitewater and so are responsible for making all decisions and taking all actions regarding Maverick Whitewater&rsquo;s business. The operating agreement provides that cash distributions are to be made first to us as the Class A member until the aggregate distributions to us equal our initial capital contribution, and then 85% to us as the Class A member and 15% to the Class B member. </font></p>
<p align="left"><i><font size="-1">Zapata County</font></i></p>
<p align="left"><font size="-1">We acquired a 19.8% limited partnership interest in PHT Resendez Partners, L.P. on October 5, 2004 in return for an initial capital contribution of $1,000,000. PHT Resendez had a net working leasehold interest on approximately 800 net acres located in Zapata County, Texas. The initial test well, known as Resendez #1 has been drilled and completed and production facilities and sales pipelines have been installed. Gas production and sales commenced during April 2005. We also acquired a working interest in the La Duquesa project on approximately 400 net acres in Zapata County, Texas. The initial well on this project has been successfully completed and gas production and sales commenced during August 2005.</font></p>
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<p align="left"><i><font size="-1">Turner/LaEscalera</font></i></p>
<p align="left"><font size="-1">On February 14, 2005, Maverick Turner Escalera, L.L.C., a wholly owned subsidiary that we formed to explore for oil and gas in West Texas, paid $1,200,000 to South Oil, Inc. to acquire a working interest in approximately 1700 net option acres with drill-to-earn terms in Tom Green County, Texas, and a 17.5% interest in 1631.25 leasehold acres in Pecos County, Texas. We subsequently acquired approximately 200 net acres in Pecos County, Texas, subject to a 12.5% carried working interest and a 12.5% back-in after payout to prior parties in interest. </font></p>
<p align="left"><font size="-1">Seven wells have been drilled on the Turner Ranch portion of the project in Tom Green County resulting in six marginal producers and one dry hole with production rates in all wells less than expected. Of the six wells that have been tested, only one has been deemed capable of producing at commercial levels. We have ceased participating in development activities in the Turner Ranch portion of this project. </font></p>
<p align="left"><font size="-1">The two test wells on the La Escalera portion of the project in Pecos County were unsuccessful. Accordingly, we have ceased participating in development activities in the La Escalera portion of the project.</font></p>
<p align="left"><i><font size="-1">Maverick Basin </font></i></p>
<p align="left"><font size="-1">On July 28, 2004, we acquired a 74.25% Class A membership interest in Maverick Basin Exploration, LLC, a Delaware limited liability company (&ldquo;MBE&rdquo;). MBE is an oil and gas exploration and production company that entered into an exploration and joint operating agreement with Blue Star Operating, Inc., an oil and gas exploration and production company based in Dallas, Texas (&ldquo;Blue Star&rdquo;). This operating agreement gave MBE the right to drill four wells in order to secure a 10,240-acre parcel in the Maverick Basin in Texas, which is located adjacent to the Mexican border.</font></p>
<p align="left"><font size="-1">We acquired our interest in MBE in August 2004 in exchange for assuming an obligation to make capital contributions to MBE totaling $4,000,000. We paid these capital contributions in full during the second quarter of our 2005 fiscal year. In addition, we incurred $2.5 million of drilling and other expenses during fiscal 2005 related to this project.</font></p>
<p align="left"><font size="-1">There have been 3 wells drilled to date. These wells have not tested at commercial rates. As a result, we have ceased participating in development activities for this project, and in March 2006, we terminated our interest in this project and surrendered our interest to Blue Star in consideration for Blue Star&rsquo;s agreement to fulfill well abandonment obligations.</font></p>
<p align="left"><b><font size="-1">Company Background</font></b></p>
<p align="left"><font size="-1">We were incorporated under the laws of the State of Nevada on June 18, 2002 as Waterloo Ventures Inc. From our inception through April 2004, we were engaged in acquiring and exploring mineral properties. We actively maintained an option to acquire an interest in the &ldquo;East Red Rock&rdquo; mineral claim in Ontario, Canada until April 2004, when, in conjunction with a change of control, we elected to suspend all further payments and exploration work needed to maintain the claim in good standing. Accordingly, as of April 2004, we suspended all mineral exploration activities, commenced our oil and gas business, and, by virtue of a merger with a wholly owned subsidiary, changed our name to Maverick Oil and Gas, Inc.</font></p>
<p align="left"><b><font size="-1">Sales And Marketing</font></b></p>
<p align="left"><font size="-1">The principal target customers for our crude oil production are expected to be refiners, remarketers and other companies, some of which are expected to have pipeline facilities near the producing properties we acquire. In the event pipeline facilities are not conveniently available, we intend to truck or barge crude oil to storage, refining or pipeline facilities.</font></p>
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<p align="left"><font size="-1">The principal target customers for our gas production are expected to be pipelines, utilities, gas marketing firms, industrial users and local distribution companies. We intend to use existing gathering systems and interstate and intrastate pipelines to consummate gas sales and deliveries.</font></p>
<p align="left"><font size="-1">We intend to sell our oil and natural gas production under both short-term (less than one year) and long-term (one year or more) agreements at prices negotiated with third parties. Under both short-term and long-term contracts, typically either the entire contract (in the case of short-term contracts) or the price provisions of the contract (in the case of long-term contracts) are renegotiated from intervals ranging in frequency from daily to annually.</font></p>
<p align="left"><font size="-1">We have not yet adopted any specific sales and marketing plans. However, as production levels increase, the need to hire sales and marketing personnel will be addressed.</font></p>
<p align="left"><b><font size="-1">Title To Properties</font></b></p>
<p align="left"><font size="-1">We believe that the title to our leasehold properties is good and defensible in accordance with standards generally acceptable in the oil and gas industry, subject to exceptions that are not so material as to detract substantially from the use of such properties. Our leasehold properties are subject to royalty, overriding royalty and other outstanding interests customary in the industry. The properties may be subject to burdens such as liens incident to operating agreements and current taxes, development obligations under oil and gas leases and other encumbrances, easements and restrictions. We do not believe any of these burdens will materially interfere with our use of these properties.</font></p>
<p align="left"><font size="-1">As is customary in the oil and gas industry, a preliminary title examination is conducted at the time that we acquire properties believed to be suitable for drilling operations. We rely upon the brokers of the properties to conduct the title examination. We will perform necessary curative work with respect to any significant defects in title prior to proceeding with operations.</font></p>
<p align="left"><b><font size="-1">Competition</font></b></p>
<p align="left"><font size="-1">The oil and natural gas business is highly competitive. We compete with private and public companies in all facets of the oil and natural gas business, including suppliers of energy and fuel to industrial, commercial and individual customers. Numerous independent oil and gas companies, oil and gas syndicates and major oil and gas companies actively seek out and bid for oil and gas prospects and properties as well as for the services of third-party providers, such as drilling companies, upon which we rely. Many of these companies not only explore for, produce and market oil and natural gas, but also carry out refining operations and market the resultant products on a worldwide basis. A substantial number of our competitors have longer operating histories and substantially greater financial and personnel resources than we do. </font></p>
<p align="left"><font size="-1">Competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the government of the United States and other countries, as well as factors that we cannot control, including international political conditions, overall levels of supply and demand for oil and gas, and the markets for synthetic fuels and alternative energy sources. Intense competition occurs with respect to marketing, particularly of natural gas.</font></p>
<p align="left"><b><font size="-1">Government And Environmental Regulation</font></b></p>
<p align="left"><font size="-1">Domestic development, production and sale of oil and gas are extensively regulated at both the federal and state levels. Legislation affecting the oil and gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden. Also, numerous departments and agencies, both federal and state, have issued rules and regulations binding on the oil and gas industry and its individual members, compliance with which is often difficult and costly and some of which carry substantial penalties for failure to comply. State statutes and regulations require permits for drilling operations, drilling bonds and reports concerning wells. Texas and other states in which we intend to conduct operations also have statutes and regulations governing conservation matters, </font></p>
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<p align="left"><font size="-1">including the unitization or pooling of oil and gas properties and establishment of maximum rates of production from oil and gas wells.</font></p>
<p align="left"><font size="-1">Our operations are subject to extensive and developing federal, state and local laws and regulations relating to environmental, health and safety matters; petroleum; chemical products and materials; and waste management. Permits, registrations or other authorizations are required for the operation of certain of our facilities and for our oil and gas exploration and production activities. These permits, registrations or authorizations are subject to revocation, modification and renewal. Governmental authorities have the power to enforce compliance with these regulatory requirements, the provisions of required permits, registrations or other authorizations, and lease conditions, and violators are subject to civil and criminal penalties, including fines, injunctions or both. Failure to obtain or maintain a required permit may also result in the imposition of civil
and criminal penalties. Third parties may have the right to sue to enforce compliance. </font></p>
<p align="left"><font size="-1">Some risk of costs and liabilities related to environmental, health and safety matters is inherent in our operations, as it is with other companies engaged in similar businesses, and there can be no assurance that material costs or liabilities will not be incurred. In addition, it is possible that future developments, such as stricter requirements of environmental or health and safety laws and regulations affecting our business or more stringent interpretations of, or enforcement policies with respect to, such laws and regulations, could adversely affect us. To meet changing permitting and operational standards, we may be required, over time, to make site or operational modifications at our facilities, some of which might be significant and could involve substantial expenditures. There can be no assurance that material costs or liabilities will not arise from
these or additional environmental matters that may be discovered or otherwise may arise from future requirements of law. </font></p>
<p align="left"><b><font size="-1">Employees And Consultants</font></b></p>
<p align="left"><font size="-1">As we remain in the development stage, our staffing is limited. As of July 18, 2006, we had 18 employees, all of whom are full-time employees. We employ a Chief Executive Officer, Chief Financial Officer and Controller, staff accountant, corporate counsel and two clerical/administrative personnel in our Fort Lauderdale, Florida headquarters. In addition, at our field offices in Dallas and Arkansas, we employ senior geology, land management, petroleum engineering and administrative personnel. We also utilize certain outsourced third parties to provide operational, technical and certain administrative services. As production levels increase, we may find the need to hire additional personnel. None of our employees are represented by a union. We have never experienced an interruption in operations from any kind of labor dispute and we consider the working relationship
among our staff to be excellent.</font></p>
<p align="center"><b><font size="-1">LEGAL PROCEEDINGS</font></b></p>
<p align="center"><font size="-1">NONE</font></p>
<p align="center"><b><font size="-1">DESCRIPTION OF PROPERTY</font></b></p>
<p align="left"><font size="-1">Our executive offices consist of approximately 4355 feet of leased office space located at 888 East Las Olas Boulevard, Suite 400, Fort Lauderdale, Florida. In addition, we have an operations office in suburban, Dallas, Texas consisting of approximately 4,072 feet of leased office space, and we have recently purchased a small office building in McCrory, Arkansas to house the operations personnel and consultants working for our Fayetteville Shale Project.</font></p>
<p align="left"><b><font size="-1">Oil and Gas Properties</font></b></p>
<p align="left"><font size="-1">The following table summarizes our gross and net developed and undeveloped oil and natural gas acreage under lease as of August 31, 2005.</font></p>
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<p style='page-break-before: always'></p>
<PAGE>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Gross<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Net<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Developed acreage </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Zapata County</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2,496.40 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">556.07 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Turner/Escalera</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">560.00 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">53.90 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">3,056.40 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">609.97 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Undeveloped Acreage </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Maverick Basin</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10,240.00 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">3,801.60 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Barnett Shale</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">12,081.50 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">3,521.30 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Turner/Escalera</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">19,476.82 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2,131.76 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:1em"><font size="-1">Whitewater</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">40,463.84 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">11,969.93 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">82,262.16 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">21,424.59 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="-1">A developed acre is considered to be an acre spaced or assignable to productive wells. A gross acre is an acre in which a working interest is owned. A net acre is the result that is obtained when our fractional ownership working interest is multiplied by gross acres. The number of net acres is the sum of the factional working interests owned in gross acres expressed as whole numbers and fractions thereof.</font></p>
<p align="left"><font size="-1">Undeveloped acreage is considered to be those lease acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil or natural gas, regardless of whether that acreage contains proved reserves, but does not include undrilled acreage held by production under the terms of a lease. As is customary in the oil and gas industry, we can generally retain our interest in undeveloped acreage by drilling activity that establishes commercial production sufficient to maintain the leases or by paying delay rentals during the remaining primary term of leases.</font></p>
<p align="left"><font size="-1">The oil and gas leases in which we have an interest are for varying primary terms, and if production under a lease continues from our developed lease acreage beyond the primary term, we are entitled to hold the lease for as long as oil or natural gas is produced. </font></p>
<p align="left"><font size="-1">We do not have any obligations under existing contracts or agreements calling for the provision of fixed and determinable quantities of oil and gas over the next three years, and have therefore not filed any information or reports with any federal authority or agency containing estimates of total proved developed or undeveloped net oil or gas reserves. Our oil and gas properties consist primarily of oil and gas wells and our interests in leasehold acreage, both developed and undeveloped. </font></p>
<p align="left"><b><font size="-1">Reserves</font></b></p>
<p align="left"><font size="-1">Our estimates of oil and gas reserves are derived from reports prepared by Miller and Lents, Ltd., petroleum consultants. Proved reserves are the estimated quantities that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Due to the inherent uncertainties and the limited nature of reservoir data, such estimates are subject to change as additional information becomes available. The estimates of reserves, future cash flows and present value are based on various assumptions, including those prescribed by the SEC, and are inherently imprecise. Although we believe these estimates are reasonable, actual future production, cash flows, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves
may vary substantially from these estimates. Also, the use of a 10% discount factor for reporting purposes may not necessarily represent the most appropriate discount factor, given actual interest rates and risks to which our business or the oil and natural gas industry in general are subject. </font></p>
<p align="left"><font size="-1">Based on reserve reports prepared by Miller and Lents, Ltd. dated August 31, 2005, we had estimated total proved reserves of 1,080 MMcfe of which 420 MMcfe were proved producing reserves. We have not reported our reserves to any federal authority or agency.</font></p>
<p align="center">31</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">The following table sets forth certain information as of August 31, 2005 with respect to our estimated proved oil and gas reserves pursuant to SEC guidelines, present value of proved reserves and standardized measure of discounted future net cash flows. </font></p>
<p align="left"><font size="-1">The following table sets forth certain information as of August 31, 2005 regarding our proved oil and gas reserves in each of our principal producing areas:</font></p>
<p align="center"><b><font size="-1">Proved Reserves</font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Oil(a)<br>MBbls<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Gas<br>(MMcf)<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Total Gas<br>Equivalent<br>(MMcfe)<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Percent of Present<br>Value of Proved<br>Reserves<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Present Value of<br>Proved Reserves<br>(in thousands)<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Percent of Present<br>Value of Proved<br>Reserves<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Whitewater</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">320 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">320 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">29.6</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">977 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">18.5</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Zapata County</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">6 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">651 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">692 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">64.1</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">3,843 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">72.9</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Other (b)</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">9 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">16 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">68 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">6.3</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">456 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">8.6</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">15 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">987 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,080 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">100.0</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font><font size="-1"> </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">5,276 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">100.0</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="-1">(a)&nbsp;Includes natural gas liquids.<br>(b)&nbsp;Primarily West Texas</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=7>
<b><font size="-1">Proved Developed<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=7>
<b><font size="-1">Proved Total<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Producing<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Nonproducing<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Undeveloped<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Proved<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top' colspan=15>
<b><font size="-1">(Dollars in thousands)</font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Gas (MMcf)</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">346 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">322 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">319 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">987 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Oil and natural gas liquids (MBbls)</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">12 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">3 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">15 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total (MMcfe)</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">420 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">341 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">319 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,080 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Present value of proved reserves</font></p></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">2,829 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1,470 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">977 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">5,276 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Standardized measure of discounted future net cash flows</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="-1">These calculations were prepared using standard geological and engineering methods generally accepted by the petroleum industry and in accordance with SEC financial accounting and reporting standards. The estimated present value of proved reserves does not give effect to indirect expenses such as general and administrative expenses, debt service and future income tax expense or to depletion, depreciation, and amortization.</font></p>
<p align="left"><font size="-1">In accordance with applicable financial accounting and reporting standards of the SEC, the estimates of our proved reserves and the present value of proved reserves set forth herein are made using oil and gas sales prices estimated to be in effect as of the date of such reserve estimates and are held constant throughout the life of the properties. Estimated quantities of proved reserves and their present value are affected by changes in oil and gas prices. The average prices utilized for the purpose of estimating our proved reserves and the present value of proved reserves as of August 31, 2005 were $65.45 per Bbl of oil and natural gas liquids and natural gas liquids and $10.88 per Mcf of gas. </font></p>
<p align="left"><b><font size="-1">Production</font></b></p>
<p align="left"><font size="-1">For the twelve months ended August 31, 2005, our total net production was approximately 1,399 barrels of oil and 31,687 Mcf of natural gas. The average prices received for our oil and gas sales were $51.35 per barrel and $6.67 per Mcf, respectively. Our average lifting cost per Mcfe was $3.38</font></p>
<p align="left"><font size="-1">We had no production for the twelve month periods ended August 31, 2003 and 2004.</font></p>
<p align="left"><b><font size="-1">Productive Wells and Acreage</font></b></p>
<p align="left"><font size="-1">As of August 31, 2005, we had 3 productive wells. One of these wells produces oil and two of the wells produce gas. We had total gross acreage of 85,319 acres, consisting of 3,056 developed acres and 82,262 undeveloped acres. We had total net acreage of 22,035 acres, consisting of 610 developed acres and 21,425 undeveloped acres.</font></p>
<p align="center">32</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><b><font size="-1">Drilling Activity</font></b></p>
<p align="left"><font size="-1">The following table sets forth our drilling activity during the twelve month period ended August 31, 2005. We did not engage in any drilling activities in the twelve month periods ended August 31, 2003 and 2004.</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=9>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=9>
<b><font size="-1">(Excludes wells in progress at the end of the period)</font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Gross<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Net<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Development Wells: </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Oil</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Gas</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Dry</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Total</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Exploratory Wells: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Oil</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">.1 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Gas</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">8</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2.0 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Dry</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">9</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1.9 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Total</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">18</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4.0 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total Wells: </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Oil</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">.1 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Gas</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">8</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2.0 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Dry</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">9</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1.9 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Total</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">18</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4.0 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="-1">The information contained in the foregoing table should not be considered indicative of future drilling performance, nor should it be assumed that there is any necessary correlation between the number of productive wells drilled and the amount of oil and gas that may ultimately be recovered by us.</font></p>
<p align="left"><font size="-1">We do not own any drilling rigs, and all of our drilling activities are conducted by independent drilling contractors.</font></p>
<p align="left"><b><font size="-1">Present Activities</font></b></p>
<p align="left"><font size="-1">A description of our present activities is contained in &ldquo;BUSINESS<sup>4</sup>Projects,&rdquo; beginning on page 24.</font></p>
<p align="left"><b><font size="-1">Delivery Commitments</font></b></p>
<p align="left"><font size="-1">At August 31, 2005, we had no delivery commitments with our purchasers.</font></p>
<p align="center"><b><font size="-1">DIRECTORS AND EXECUTIVE OFFICERS</font></b></p>
<p align="left"><font size="-1">Below is certain information regarding our directors and executive officers.</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<b><font size="-1">Name<br><hr noshade color="#000000"></font></b></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<b><font size="-1">Age<br><hr noshade color="#000000"></font></b></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<b><font size="-1">Position Held<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">V. Ray Harlow</font></p></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">53 </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Chief Executive Officer and Director </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">John A. Ruddy</font></p></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">58 </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Chief Financial Officer </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">James M. Parrish</font></p></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">51 </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Executive Vice-President&mdash;operations and business development </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Lance E. Johnson</font></p></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">59 </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Director </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">David Preng</font></p></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">59 </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Director </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Andrej Rucigaj</font></p></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">41 </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Director</font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Matthew Fitzgerald</font></p></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">48 </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Director </font></td>
</tr>
</table>
<p align="left"><font size="-1">V. Ray Harlow has served as our Chief Executive Officer and a member of our board of directors since March 2005. Mr. Harlow has 32 years of experience in the industry, in particular in the area of upstream oil and gas exploration and development. From August 2003 until March 2005, he was chief </font></p>
<p align="center">33</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">executive officer and managing member of Hurricane Energy, LLC. Between October 1997 and August 2003, he was an independent energy consultant. From August 1987 until October 1997, he was with Sun Company, Inc. (doing business as Sunoco), then the largest independent refining and marketing company in the U.S. From May 1991 to October 1997, he was the chairman and managing director of Sun International Oil Company, the international subsidiary of Sunoco. Prior to his tenure at Sunoco, Mr. Harlow held executive management positions with Arco, Amoco and Transcontinental Oil.</font></p>
<p align="left"><font size="-1">John A. Ruddy has served as our Chief Financial Officer since March 2005. Mr. Ruddy has 27 years of experience in the oil and gas industry. From October 2003 until March 2005 he served as Chief Financial Officer of Hurricane Energy, LLC. From December 1996 to September 2003, Mr. Ruddy was the Chief Financial Officer of the Sunoco Marketing Division. From 1993 to 1996, he was the Chief Financial Officer for Sunoco&rsquo;s International Exploration and Production division. Mr. Ruddy spent 25 years with Sunoco, Inc., the largest independent refining and marketing company in the U.S. Mr. Ruddy has extensive experience in acquisitions and divestments in both the upstream and downstream areas, having participated in transactions valued in excess of $1.5 billion during his career. </font></p>
<p align="left"><font size="-1">James M. Parrish has served as our Executive Vice-President since March 2005. His principal duties will be to oversee our field operations, act as liaison with any strategic partners, and manage our oil and gas hedging activities. From 2003 until March 2005, he was executive vice president of Hurricane Energy, LLC, where he was responsible for managing investor relations and relations with financial institutions, as well as developing strategic alliances with industry partners. From 2002 to 2003, he was a principal with Champion Group Capital, Inc., of Dallas, Texas, a commercial mortgage banker financing commercial real estate. From 1987 to 2002, he was a manager of Dillon Gage Capital Markets, of Dallas, Texas, and founded its capital markets group. </font></p>
<p align="left"><font size="-1">Lance E. Johnson joined our Board of Directors on August 10, 2005. Mr. Johnson is a veteran of 30 years in the energy industry. Following service of six years in the United States Air Force as an officer and pilot, Mr. Johnson joined Mobil Oil Corporation in 1975. Mr. Johnson held numerous senior management positions within Mobil Oil Corporation including Managing Director of Mobil Exploration Norway, General Manager of Production for Mobil U.S. Exploration and Production, Chairman and President of Mobil North Sea Ltd. In 1996, Mr. Johnson was appointed Executive Vice President of Mobil Oil Corporation for Supply, Trading and Transportation and in 1998 he assumed responsibility for worldwide New Exploration and Production Ventures. Coincident with the merger of Exxon and Mobil in 1999, Mr. Johnson was appointed Vice President of ExxonMobil Production Company
from which position he retired in June, 2002. He holds a B.S. in Mechanical Engineering from Tufts University and a Masters Degree in Industrial Management from Central Michigan University. </font></p>
<p align="left"><font size="-1">David Preng joined our Board of Directors on September 28, 2005. Mr. Preng has served as Chief Executive Officer and President of Preng and Associates since 1980. Preng and Associates is an international executive search firm specializing in placements within the oil and gas industry. Mr. Preng served on the Board of Directors of Remington Oil and Gas, Inc., a publicly held oil and gas company, from April 29, 1997 through its sale on July 1, 2006. Mr. Preng is a member of the National Association of Corporate Directors - Houston Chapter, Community National Bank, and the International Advisory Board of Texas A&amp;M University. He is also a Fellow for the Institute of Directors. He holds a B. S. in Business Administration from Marquette University and a Masters Degree in Business Administration from DePaul University. </font></p>
<p align="left"><font size="-1">Andrej Rucigaj joined our Board of Directors on September 28, 2005. Mr. Rucigaj has worked as a manager in the investment and finance fields for the last 10 years, with a focus on the energy sector. Since 2001, Mr. Rucigaj served as an investment manager of Aktiva Group, an Amsterdam based private investment fund. Aktiva is controlled by Darko Horvat, one of the principal beneficiaries of Line Trust Corporation Limited, a principal shareholder of the Company. From 1994 to 2001, Mr. Rucigaj worked as an officer of Arkada, an investment fund in Slovenia. Mr. Rucigaj holds a B.S. in </font></p>
<p align="center">34</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">Electrical Engineering from ETH (Swiss Federal Institute of Technology) and an MBA from INSEAD, The European Institute of Business Administration (Fountainebleau, France). </font></p>
<p align="left"><font size="-1">Matthew Fitzgerald joined our Board of Directors on January 27, 2006. Mr. Fitzgerald has been the Senior Vice President and Chief Financial Officer of Grant Prideco, Inc. since January 2004. Grant Prideco, Inc. is the world leader in drill stem technology development and drill pipe manufacturing, sales and service, a global leader in drill bit technology, manufacturing, sales and service, and a leading provider of high-performance engineered connections and premium tubular products and services. Prior to his current position with Grant Prideco, Inc., Mr. Fitzgerald served as Executive Vice President, Chief Financial Officer, and Treasurer of Veritas DGC, beginning in March 2001. Mr. Fitzgerald was employed by BJ Services Company from 1989 to 2001, where he served as Vice President and Controller from 1998 to 2001 and as Controller beginning in 1989. From 1988
to 1989, Mr. Fitzgerald was the Corporate Audit Director for Baker Hughes, Inc. Mr. Fitzgerald also was a senior manager with the accounting firm of Ernst &amp; Whinney. </font></p>
<p align="left"><b><font size="-1">Directors&rsquo; Term of Office</font></b></p>
<p align="left"><font size="-1">Directors hold office until the next annual meeting of shareholders and the election and qualification of their successors. Our employment agreement with V. Ray Harlow requires that our board of directors nominate him for appointment to the board of directors for so long as he remains our chief executive officer. Officers are elected annually by our board of directors and serve at the discretion of the board of directors. </font></p>
<p align="left"><b><font size="-1">Board of Directors</font></b></p>
<p align="left"><font size="-1">During the fiscal year ending August 31, 2005, our Board took action, by consent resolution or at meetings, on nineteen (19) occasions. All meetings of the Board of Directors were attended by all then-current members and all consent resolutions were unanimous. </font></p>
<p align="left"><font size="-1">The Board of Directors created the Audit Committee at a meeting held on October 17, 2005. The Audit Committee is responsible for monitoring the integrity of the Company&rsquo;s financial reporting standards and practices and its financial statements, overseeing the Company&rsquo;s compliance with ethics and compliance policies and legal and regulatory requirements, and selecting, compensating, overseeing, and evaluating the Company&rsquo;s independent auditors. The members of the Audit Committee are Matthew Fitzgerald, Lance E. Johnson and Andrej Rucigaj. Each of these Audit Committee members is independent as defined in the listing standards of the American Stock Exchange and the rules of the Securities and Exchange Commission. Matthew Fitzgerald is the Chairman of the Audit Committee. The Board has determined that Mr. Fitzgerald is an &ldquo;audit committee
financial expert,&rdquo; as that term is defined in the rules of the Securities and Exchange Commission. </font></p>
<p align="left"><b><font size="-1">Code of Ethics</font></b></p>
<p align="left"><font size="-1">During November 2005, we adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. This had the effect of replacing and superceding our former Code of Ethics adopted during fiscal 2004. Our Code of Ethics is designed to deter wrongdoing and promote: (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in our other public communications; (iii) compliance with applicable governmental laws, rules and regulations; (iv) the prompt internal reporting of violations of the code to an appropriate person or
persons identified in the code; and (v) accountability for adherence to the code. </font></p>
<p align="center">35</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><b><font size="-1">Section 16 Beneficial Ownership Reporting Compliance</font></b></p>
<p align="left"><font size="-1">Section 16(a) of the U.S. Securities and Exchange Act of 1934, as amended (the &ldquo;Exchange Act&rdquo;), requires our officers and directors and persons who own more than ten percent (10%) of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. Such officers, directors and ten percent (10%) stockholders are also required by applicable SEC rules to furnish the us copies of all forms filed with the SEC pursuant to Section 16(a) of the Exchange Act. Based solely on our review of copies of forms filed pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, and written representations from certain reporting persons, we believe that during fiscal 2005 all reporting persons timely complied with all filing requirements applicable to them, except for the following.</font></p>
<p align="left"><font size="-1">Line Trust Corporation Limited, The Atkiva Diversified Trust, and AltaFin, B.V. filed one Form 3 after the date such form was required to be filed. M.V. Oil and Gas Company, the beneficial owner of 20.73% of our outstanding Common Stock, has failed to file a Form 3.</font></p>
<p align="center"><b><font size="-1">CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS</font></b></p>
<p align="left"><font size="-1">Mr. Preng, one of our directors, is the Chief Executive Officer and principal shareholder of Preng and Associates, an international executive search firm specializing in the oil and gas industry. Preng and Associates was engaged by the Company during 2005 to conduct certain executive searches, for which it received fees of approximately $200,000. </font></p>
<p align="left"><font size="-1">Mr. Rucigaj, one of our directors, is an investment manager of Aktiva Group, an Amsterdam based private investment fund. Aktiva is controlled by Darko Horvat, one of the principal beneficiaries of Line Trust Corporation Limited (&ldquo;Line Trust&rdquo;). Line Trust is the independent sole trustee of the Aktiva Diversified Trust (the &ldquo;Aktiva Trust&rdquo;). On February 1, 2005, the Aktiva Trust purchased 9,000,000 investment units from the Company, consisting of 18,000,000 shares of common stock and warrants to purchase an additional 9,000,000 shares of common stock for an aggregate purchase price of $18,000,000. That purchase was made in a private placement by the Company of a total of 14,217,500 investment units and at the same price as the other purchasers in the private placement transaction. Line Trust is also the independent sole trustee of a trust
that indirectly holds all of the shares of stock of AltaFin, B.V. (&ldquo;AltaFin&rdquo;) and of a trust that directly or indirectly holds all of the shares of AltaFin&rsquo;s corporate managing director. On August 2, 2004, AltaFin purchased 1,000,000 investment units from the Company, consisting of 2,000,000 shares of common stock and warrants to purchase 1,000,000 additional shares of common stock, for an aggregate purchase price of $2,000,000. </font></p>
<p align="center"><b><font size="-1">EXECUTIVE COMPENSATION</font></b></p>
<p align="left"><font size="-1">The following table sets forth a summary of the compensation paid or accrued for the three fiscal years ended August 31, 2005 to or for the benefit of our Chief Executive Officer and our four most highly compensated executive officers whose total annual salary and bonus compensation exceeded $100,000 (the &ldquo;Named Executive Officers&rdquo;).</font></p>
<p align="center">36</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><b><font size="-1">Summary Compensation Table</font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=7>
<b><font size="-1">Annual Compensation<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=6>
<b><font size="-1">Long-Term<br>Compensation Awards<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='center' valign='bottom'>
<b><font size="-1">Name and<br>Principal Position<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Salary<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Bonus<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Restricted<br>Stock Awards<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=2>
<b><font size="-1">Number of<br>Options<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">All Other<br>Compensation<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">V. Ray Harlow, Chief<br>Executive Officer</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2005 </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">143,375 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">100,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">82,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">2)</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,230,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">3)</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">John A. Ruddy, Chief <br>Financial Officer</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2005 </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">102,752 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">80,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">65,600</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">2)</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,230,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">3)</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">James M. Parrish, Executive <br>Vice President</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2005 </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">74,077 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">100,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">49,200</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">2)</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,230,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">3)</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Michael Garland, former <br>Chief Executive Officer</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2005 </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">120,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2004 </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">20,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">300,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">4)</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<div align="left">
<p><hr noshade color="#000000" align='left' width=72 size=0>
</p>
</div>
<p align="left"><font size="-1">(1) During the periods reflected, certain of the officers named in this table received perquisites and other personal benefits not reflected in the amounts of their respective annual salaries or bonuses. The dollar amount of these benefits did not, for any individual in any year, exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported for that individual in any year, unless otherwise noted. </font></p>
<p align="left"><font size="-1">(2) This column shows the market value of restricted stock awards granted subsequent to fiscal year 2005 for performance in that fiscal year as follows: Mr. Harlow, 100,000 shares; Mr. Ruddy, 80,000 shares; and Mr. Parish, 60,000 shares. One third of the restricted shares granted to each officer vest on each of the first three anniversaries of the date of the grant. No restricted shares were held by any of these officers as of August 31, 2005. </font></p>
<p align="left"><font size="-1">(3) The options have an exercise price of $2.395 per share. They vested 20% on March 10, 2006, the first anniversary of the date of grant, and will vest 20% on each subsequent anniversary of the date of grant. </font></p>
<p align="left"><font size="-1">(4) Mr. Garland entered into an employment agreement with us on July 27, 2004. The employment agreement provided for a base salary of $10,000 per month and three year options to purchase 300,000 shares of our common stock at $1.50 per share. The agreement provided for a payment of six months severance from his resignation in March 2005. </font></p>
<p align="left"><font size="-1">On March 9, 2005, we entered into an employment agreement with V. Ray Harlow, our Chief Executive Officer. This agreement has a five-year term and requires us to pay Mr. Harlow a base annual salary of $300,000. Under this agreement, we granted Mr. Harlow an option to purchase up to 1,230,000 shares of our common stock at an exercise price of $2.395 per share, vesting in equal installments on each of the first five anniversaries of the date of his employment agreement. If we terminate Mr. Harlow&rsquo;s employment without cause (as defined in the agreement) or by reason of his death or disability, we are required to pay Mr. Harlow his base salary and benefits, not including additional compensation, for a period of six months from the effective date of termination or until the term of the agreement expires, whichever period is shorter, and the options we granted
Mr. Harlow in the agreement will continue to vest through this severance period. Under this agreement, we agreed to nominate Mr. Harlow to a position on our board of directors for so long as he remains our Chief Executive Officer.</font></p>
<p align="left"><font size="-1">On March 9, 2005, we entered into an employment agreement with John A. Ruddy, our Chief Financial Officer. This agreement has a five-year term and requires us to pay Mr. Ruddy a base annual salary of $215,000. Under this agreement, we granted Mr. Ruddy an option to purchase up to 1,230,000 shares of our common stock at an exercise price of $2.395 per share, vesting in equal installments on each of the first five anniversaries of the date of his employment agreement. If we terminate Mr. Ruddy&rsquo;s employment without cause (as defined in the agreement) or by reason of his death or disability, we are required to pay Mr. Ruddy his base salary and benefits, not including </font></p>
<p align="center">37</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">additional compensation, for a period of six months from the effective date of termination or until the term of the agreement expires, whichever period is shorter, and the options we granted Mr. Ruddy in the agreement will continue to vest through this severance period.</font></p>
<p align="left"><font size="-1">On March 9, 2005, we entered into an employment agreement with James M. Parrish, our Executive Vice- President. This agreement has a five-year term and requires us to pay Mr. Parrish a base annual salary of $155,000. Under this agreement, we granted Mr. Parrish an option to purchase up to 1,230,000 shares of our common stock at an exercise price of $2.395 per share, vesting in equal installments on each of the first five anniversaries of the date of his employment agreement. If we terminate Mr. Parrish&rsquo;s employment without cause (as defined in the agreement) or by reason of his death or disability, we are required to pay Mr. Parrish his base salary and benefits, not including additional compensation, for a period of six months from the effective date of termination or until the term of the agreement expires, whichever period is shorter, and the options
we granted Mr. Parrish in the agreement will continue to vest through this severance period.</font></p>
<p align="left"><b><font size="-1">Change in Control Arrangements</font></b></p>
<p align="left"><font size="-1">Under the Company&rsquo;s 2005 Stock Incentive Plan, the stock options held by Mr. Harlow, Mr. Ruddy, and Mr. Parrish were granted pursuant to the Company&rsquo;s 2005 Stock Incentive Plan (the &ldquo;Plan&rdquo;). Under the terms of the Plan, if the Plan is terminated as a result of or following a &ldquo;Change in Control,&rdquo; all participants in the Plan are credited with an additional six months of service for vesting purposes.</font></p>
<p align="left"><b><font size="-1">Directors&rsquo; Compensation</font></b></p>
<p align="left"><font size="-1">Non-employee directors are paid $8,750 per quarter, provided such director has attended in person or by telephone at least 75% of meetings held during the quarter, and a fee of $1,250 for each Board meeting attended in person or telephonically. Upon joining our Board of Directors, each non-employee director received an award of options to purchase 80,000 shares of our common stock with an exercise price equal to the closing price of our common stock on the trading day prior to the date of grant. One half of each director&rsquo;s options will vest upon the completion of one year of such director&rsquo;s Board service and the remaining one half will vest upon the completion of two years of Board service.</font></p>
<p align="left"><b><font size="-1">Stock Options</font></b></p>
<p align="left"><font size="-1">The following table sets forth information on option grants in fiscal 2005 to the Named Executive Officers.</font></p>
<p align="center"><b><font size="-1">Option Grants in Last Fiscal Year</font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td align='center' valign='bottom'>
<b><font size="-1">Name<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=2>
<b><font size="-1">Number of<br>Options<br>Granted<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">% of Total<br>Options Granted<br>to Employees in<br>Fiscal-Year<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=2>
<b><font size="-1">Exercise<br>Price<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Market Price on<br>Date of Grant<br><hr noshade color="#000000"></font></b></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">Expiration<br>Date<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<font size="-1">V. Ray Harlow</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,230,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">1)</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">31</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">2.395</font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">2.43</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">March 2015 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<font size="-1">John A. Ruddy</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,230,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">1)</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">31</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2.395</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2.43</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">March 2015 </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<font size="-1">James M. Parrish</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,230,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">1)</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">31</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2.395</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2.43</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">March 2015 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<font size="-1">Michael Garland</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
</tr>
</table>
<div align="left">
<p><hr noshade color="#000000" align='left' width=72 size=0>
</p>
</div>
<p align="left"><font size="-1">(1) These options vest 20% on March 10, 2006, the first anniversary of the date of grant, and 20% on each subsequent anniversary of the date of grant.</font></p>
<p align="left"><font size="-1">The following table sets forth information concerning year-end option values for fiscal 2005 for the Named Executive Officers. The value of the options was based on the closing price of our common stock on August 31, 2005 of $1.19.</font></p>
<p align="center">38</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">Fiscal Year End Option Values</font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=5>
<b><font size="-1">Number of Unexercised Options at Fiscal Year End </font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Value of Unexercised In-The-Money Options at Fiscal Year End </font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=2>
<b><font size="-1">Shares Acquired<br>on Exercise<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=2>
<b><font size="-1">Value<br>Realized<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=2>
<b><font size="-1">Exercisable<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=2>
<b><font size="-1">Unexercisable<br><hr noshade color="#000000"></font></b></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">Exercisable<br><hr noshade color="#000000"></font></b></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">Unexercisable<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<font size="-1">V. Ray Harlow</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,230,000</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">$&mdash;</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">$&mdash;</font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<font size="-1">John A. Ruddy</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,230,000</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<font size="-1">James M. Parrish</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,230,000</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<font size="-1">Michael Garland</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">300,000</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
</tr>
</table>
<p align="left"><b><font size="-1">Outstanding Stock Options</font></b></p>
<p align="left"><font size="-1">The 2005 Stock Incentive Plan, (the &ldquo;Stock Incentive Plan&rdquo;) covers 10,000,000 shares of common stock. Under its terms, employees, officers and directors of the Company and its subsidiaries are currently eligible to receive non-qualified stock options, restricted stock awards and incentive stock options within the meaning of Section 422 of the Code. In addition, advisors and consultants who perform services for the Company or its subsidiaries are eligible to receive non-qualified stock options under the Stock Incentive Plan. The Stock Incentive Plan is administered by the Board of Directors or a committee designated by the Board of Directors. </font></p>
<p align="left"><font size="-1">All stock options granted under the Stock Incentive Plan are exercisable for a period of up to ten years from the date of grant. The Company may not grant incentive stock options pursuant to the Stock Incentive Plan at exercise prices which are less than the fair market value of the common stock on the date of grant. The term of an incentive stock option granted under the Stock Incentive Plan to a stockholder owning more than 10% of the issued and outstanding common stock may not exceed five years and the exercise price of an incentive stock option granted to such stockholder may not be less than 110% of the fair market value of the common stock on the date of grant. The Stock Incentive Plan contains certain limitations on the maximum number of shares of the common stock that may be awarded in any calendar year to any one individual for the purposes of Section
162(m) of the Code. </font></p>
<p align="left"><font size="-1">In addition to the stock options covered by the Stock Incentive Plan, the Company has outstanding options to purchase 450,000 shares of common stock. Options granted under the plan have been granted subject to 20% annual vesting over a period of five years, contingent on continued service with our company. The following schedule identifies the vesting schedule associated with all our outstanding options as of May 31, 2006:</font></p>
<p align="left"><font size="-1"> </font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">Plan<br><hr noshade color="#000000"></font></b></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">Non-Plan<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=2>
<b><font size="-1">Total<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">Vested as of 8/31/05</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">450,000</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">450,000 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">To vest in Fiscal Year 2006</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">882,000</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">882,000 </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">To vest in Fiscal Year 2007</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">922,000</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">922,000 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">To vest in Fiscal Year 2008</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">802,000</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">802,000 </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">To vest in Fiscal Year 2009</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">762,000</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">762,000 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">To vest in Fiscal Year 2010</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">762,000</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">762,000 </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4,130,000</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">450,000</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4,580,000 </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
</tr>
</table>
<p align="left"><font size="-1">These options were outstanding as of May 31, 2006 at the following exercise prices:</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=6>
<b><font size="-1">Number of Options<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">Plan<br><hr noshade color="#000000"></font></b></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">Non-Plan<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=2>
<b><font size="-1">Total<br><hr noshade color="#000000"></font></b></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">Range of Exercise Prices<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">320,000</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">450,000</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">690,000</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">$1.00 to $1.50 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">120,000</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">120,000</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">$1.50 to $2.00 </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">3,690,000</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">&mdash;</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">3,690,000</font></td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">$2.00 to $2.50 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4,130,000</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">450,000</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4,580,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="center">39</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</font></b></p>
<p align="left"><font size="-1">The following table indicates how many shares of our common stock were beneficially owned as of July 18, 2006, by (1) each person known by us to be the owner of more than 5% of our outstanding shares of common stock, (2) our directors, (3) our executive officers, and (4) all our directors and executive officers as a group. In general, &ldquo;beneficial ownership&rdquo; includes those shares a director or executive officer has sole or shared power to vote or transfer (whether or not owned directly) and rights to acquire common stock through the exercise of stock options and warrants that are exercisable currently or become exercisable within 60 days. Except as indicated otherwise, the persons named in the table below have sole voting and investment power with respect to all shares shown as beneficially owned by them. We based our calculation of the percentage
owned of 99,446,116 shares outstanding on July 18, 2006, and added shares that may be acquired within 60 days to the number of other shares that the person owns as well as to the number of shares outstanding. The address of each of the directors and executive officers listed below is c/o Maverick Oil and Gas, Inc., 888 Las Olas Boulevard, Suite 400, Fort Lauderdale, Florida 33301.</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td align='center' valign='bottom'>
<b><font size="-1">Name and Address<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Number of Shares<br>Beneficially Owned<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Percent of Class<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">V. Ray Harlow...</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,322,539</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">1)(2) </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1.3</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">John A. Ruddy...</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,416,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">1)(3) </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1.4</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">James M. Parrish...</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1,416,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">1)(4) </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1.4</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Lance E. Johnson...</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">103,300</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">5) </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">* </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">David Preng...</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">40,300</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">6) </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">* </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Andrej Rucigaj...</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">6)</font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Matthew Fitzgerald...</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">7) </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Line Trust Corporation Limited...<br>57/63 Line Wall Road<br>P.O. Box 199<br>Gibraltar </font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">31,734,500</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">8) </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">29.1</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">M.V. Oil and Gas Company...<br>Box 751<br>Providenciales<br>Turks &amp; Caicos </font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">19,000,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">9) </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">19.1</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Millenium Global High Yield Fund Limited...<br>64 St. James Street<br>London SW1A 1NF UK </font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">11,250,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">10) </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.9</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">All officers and directors as a group (7 persons)...<br></font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4,298,787 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4.3</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">%</font><font size="-1"> </font></td>
</tr>
</table>
<div align="left">
<p><hr noshade color="#000000" align='left' width=72 size=0>
</p>
</div>
<p align="left"><font size="-1">(*)&nbsp;Less than 1%</font></p>
<p align="left"><font size="-1">(1)&nbsp;These shares do not include 984,000 shares issuable upon exercise of stock options that were granted as part of the acquisition but are not currently exercisable. With respect to Mr. Harlow, this includes 2,012 shares held by Mr. Harlow&rsquo;s wife.</font></p>
<p align="left"><font size="-1">(2)&nbsp;Also does not include 100,000 shares of restricted stock that were granted under our Stock Incentive Plan during February 2006, and vest in one-third annual increments commencing February 2007.</font></p>
<p align="left"><font size="-1">(3)&nbsp;Also does not include 80,000 shares of restricted stock that were granted under our Stock Incentive Plan during February 2006, and vest in one-third annual increments commencing February 2007.</font></p>
<p align="left"><font size="-1">(4)&nbsp;Also does not include 60,000 shares of restricted stock that were granted under our Stock Incentive Plan during February 2006, and vest in one-third annual increments commencing February 2007.</font></p>
<p align="center">40</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">(5)&nbsp;Includes options to purchase 40,000 shares of our common stock at an exercise price of $1.22 per share, which vest on August 10, 2006, provided the above named director remains on our Board of Directors through such vesting date. Does not include options to purchase 40,000 shares of our common stock at an exercise price of $1.22 per share, which vest on August 10, 2007 provided the named director remains on our Board of Directors through such vesting date.</font></p>
<p align="left"><font size="-1">(6)&nbsp;Does not include options to purchase 80,000 shares of our common stock at an exercise price of $1.02 per share, fifty (50%) percent of which vest on September 26, 2006 and fifty (50%) percent of which vest on September 26, 2007, provided the named director remains on our Board of Directors through such vesting dates.</font></p>
<p align="left"><font size="-1">(7)&nbsp;Does not include options to purchase 80,000 shares of our common stock at an exercise price of $1.39 per share, fifty (50%) percent of which vest on February 3, 2007 and fifty (50%) percent of which vest on February 3, 2008, provided the named director remains on our Board of Directors through such vesting dates.</font></p>
<p align="left"><font size="-1">(8)&nbsp;Line Trust Corporation Limited (&ldquo;Line Trust&rdquo;), The Aktiva Diversified Trust (&ldquo;Aktiva&rdquo;), and AltaFin, BV (&ldquo;AltaFin&rdquo;) have filed a Schedule 13D (the &ldquo;Schedule 13D&rdquo;) as members of a &ldquo;group&rdquo; (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to these shares. Aktiva has the beneficial ownership of 27,000,000 of these shares (including 9,000,000 shares issuable upon the exercise of warrants) and AltaFin has the beneficial ownership of 4,734,500 of these shares (including 1,000,000 shares issuable upon the exercise of warrants). Line Trust is the independent sole trustee of Aktiva. Line Trust is also the independent sole trustee of a trust that owns all of the stock of AltaFin and of a trust that directly or indirectly holds all of the shares of AltaFin&rsquo;s
corporate managing director. Line Trust has disclaimed beneficial ownership of these shares, except to the extent of any indirect pecuniary interest therein. The foregoing information is based upon the Schedule 13D. The class of beneficiaries of the trusts described in this note currently includes Darko Horvat and his family members.</font></p>
<p align="left"><font size="-1">(9)&nbsp;Based upon information provided to us, we have been advised that these shares are beneficially owned indirectly by David Stevenson, c/o KDS Capital, 53 Davies Street, Mayfair, London W1K 5JH, U.K.</font></p>
<p align="left"><font size="-1">(10)&nbsp;Includes 3,500,000 shares issuable upon exercise of currently exercisable warrants. Millenium Global Investments Limited is the investment manager of Millenium Global High Yield Fund Limited, and as such has shared voting and dispositive power over the securities owned with Joseph Strubel, portfolio manager of Millenium Global High Yield Fund Limited. Other than the investments of Millenium Global High Yield Fund Limited in the Company&rsquo;s securities, Millenium has not had any material relationship with the Company within the past three years.</font></p>
<div align="left">
<p><hr noshade color="#000000" align='left' width=72 size=0>
</p>
</div>
<p align="left"><font size="-1">The foregoing table does not include: 317,663 shares beneficially owned by Castlerigg Master Investments, Ltd. (&ldquo;Castlerigg&rdquo;) and an aggregate of 71,678,762 shares issuable to Castlerigg as follows: (i) 23,997,441 shares issuable upon the conversion of $22.5 million principal amount of the Secured Convertible Debentures at a conversion price of $0.9376 per share; (ii) 2,754,373 shares that may be issued in lieu of cash interest payments due under the Secured Convertible Debentures (valued at a 17.5% discount to then current trading prices based on certain assumed market conditions) and (iii) 44,926,948 shares upon the exercise of the January 2006 Warrants and the June 2006 Warrants at an exercise price of $0.9376 per share. This assumes the conversion of the principal amount of the Secured Convertible Debentures and the exercise of the January 2006
and June 2006 Warrants at these initial conversion and exercise prices, which are subject to anti-dilution adjustment. The terms of the Secured Convertible Debentures and January 2006 and June 2006 Warrants issued to Castlerigg prohibit Castlerigg from converting the Secured Convertible Debentures and/or exercising the January 2006 and June 2006 Warrants to the extent conversion and/or exercise would otherwise result in Castlerigg beneficially owning more than 4.99% of our shares of common stock after the </font></p>
<p align="center">41</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">conversion and/or exercise; provided, however, that Castlerigg may increase or decrease such percentage limitation (however, not in excess of 9.99%) upon more than 60 days&rsquo; notice. Accordingly, the foregoing table does not reflect the beneficial ownership of Castlerigg, although should it increase such percentage limitation, on more than 60 days&rsquo; notice, it is possible that Castlerigg could become a beneficial holder of more than 5% of our shares. Castlerigg, a British Virgin Islands company, directly owns the secured convertible debentures and warrants. Sandell Asset Management Corp., a Cayman Islands company (&ldquo;SAMC&rdquo;), is the investment manager of Castlerigg. Thomas Sandell is the controlling person of SAMC and may be deemed to share beneficial ownership of the shares beneficially owned by Castlerigg. Castlerigg International Ltd.,
a British Virgin Islands company (&ldquo;Castlerigg International&rdquo;), is the controlling shareholder of Castlerigg International Holdings Limited, a British Virgin Islands company (&ldquo;Holdings&rdquo;). Holdings is the controlling shareholder of Castlerigg. Each of Holdings and Castlerigg International may be deemed to share beneficial ownership of the shares beneficially owned by Castlerigg. SAMC, Mr. Sandell, Holdings and Castlerigg International each disclaims beneficial ownership of the securities owned or beneficially owned by Castlerigg.</font></p>
<p align="left"><font size="-1">The foregoing table does not include 105,888 shares beneficially owned by Kings Road Investments Ltd. (&ldquo;Kings Road&rdquo;) and an aggregate of 23,892,920 shares issuable to Kings as follows: (i) 7,999,146 shares issuable upon the conversion of $7.5 million principal amount of the Secured Convertible Debentures at a conversion price of $0.9376 per share; (ii) 918,125 shares that may be issued in lieu of cash interest payments due under the Secured Convertible Debentures (valued at a 17.5% discount to then current trading prices based on certain assumed market conditions); and (iii) 14,975,649 shares upon the exercise of the January 2006 and June 2006 Warrants at an exercise price of $0.9376 per share. This assumes conversion of the Secured Convertible Debentures and exercise of the January 2006 and June 2006 Warrants at these initial conversion and exercise
prices, which are subject to anti-dilution adjustments. The terms of the Secured Convertible Debentures and January 2006 and June 2006 Warrants issued to Kings Road prohibit Kings Road from converting the Secured Convertible Debentures and/or exercising the January 2006 and June 2006 Warrants to the extent conversion and/or exercise would otherwise result in Kings Road beneficially owning more than 4.99% of our shares of common stock after the conversion and/or exercise; provided, however, that Kings Road may increase or decrease such percentage limitation (however, not in excess of 9.99%) upon more than 60 days&rsquo; notice. Accordingly, the foregoing table does not reflect the beneficial ownership of Kings Road, although should it increase such percentage limitation, on more than 60 days&rsquo; notice, it is possible that Kings Road could become a beneficial holder of more than 5% of our
shares of common stock. Kings Road is a wholly-owned subsidiary of Polygon Global Opportunities Master Fund (&ldquo;Master Fund&rdquo;). Polygon Investment Partners LLP and Polygon Investment Partners LP (the &ldquo;Investment Managers&rdquo;), Polygon Investments Ltd. (the &ldquo;Manager&rdquo;), the Master Fund, Alexander Jackson, Reade Griffith and Paddy Dear share voting and dispositive power of the securities held by Kings Road. The Investment Managers, the Manager, Alexander Jackson, Reade Griffith and Paddy Dear disclaim beneficial ownership of the securities held by Kings Road. Except for the ownership of the secured convertible debentures and associated warrants, Kings Road has not had any material relationship with the Company within the past three years.</font></p>
<p align="left"><b><font size="-1">Securities Authorized for Issuance under Equity Compensation Plans</font></b></p>
<p align="left"><font size="-1">The following table sets forth information, as of May 31, 2006, with respect to the Company&rsquo;s stock option plan under which common stock is authorized for issuance, as well as other compensatory options granted outside of the Company&rsquo;s stock option plan.</font></p>
<p align="center">42</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">(a)</font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">(b)</font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">(c)</font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='center' valign='bottom'>
<b><font size="-1">Plan Category<br></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Number of securities<br>to be issued upon<br>exercise of<br>outstanding options,<br>warrants and rights<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Weighted-average<br>exercise price of<br>outstanding<br>options, warrants<br>and rights<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Number of securities<br>remaining available for<br>future issuance under equity<br>compensation plan<br>(excluding securities<br>reflected in column (a))<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Equity compensation plans approved by security holders</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4,130,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">1)</font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">2.18</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">5,870,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">3)</font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Equity compensation plans not approved by security holders</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">450,000</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">2)</font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">1.50 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4,580,000</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">2.12</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">5,870,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<div align="left">
<p><hr noshade color="#000000" align='left' width=72 size=0>
</p>
</div>
<p align="left"><font size="-1">(1)&nbsp;Includes 240,000 shares of our common stock issuable upon the exercise of options granted to our directors after August 31, 2005 under the Company&rsquo;s 2005 Stock Incentive Plan. The 2005 Stock Incentive Plan was approved by the Company&rsquo;s stockholders on January 27, 2006.</font></p>
<p align="left"><font size="-1">(2)&nbsp;Includes 450,000 shares of common stock issuable upon the exercise of options granted to our former chief executive officer and the former manager of our treasury and accounting functions prior to the adoption of the 2005 Stock Incentive Plan.</font></p>
<p align="left"><font size="-1">(3)&nbsp;Represents shares which may be issued under options available for award under the Company&rsquo;s 2005 Stock Incentive Plan as of May 31, 2006.</font></p>
<p align="center"><b><font size="-1">SELLING SHAREHOLDERS</font></b></p>
<p align="left"><font size="-1">The shares of common stock included in this prospectus (including shares issuable pursuant to the terms of outstanding convertible debentures or warrants) were issued in the following private placement transactions, each of which was exempt from the registration requirements of the Securities Act of 1933, as amended.</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td align='center' valign='bottom'>
<b><font size="-1">Transaction:<br><hr noshade color="#000000"></font></b></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">Covered Shares:<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<font size="-1">Private placement of $10 million principal amount of June 2006 Secured Convertible Debentures and June 2006 Warrants to purchase shares of our common stock. </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">11,424,328 shares issuable upon conversion of or redemption of, or the payment of the principal of, or interest on, our June 2006 Secured Convertible Debentures and June 2006 Warrants to purchase 18,664,676 shares of our common stock. </font></td>
</tr>
</table>
<p align="left"><font size="-1">The selling shareholders may sell all, some or none of their shares in this offering. See &ldquo;Plan of Distribution.&rdquo;</font></p>
<p align="left"><font size="-1">The table below lists the selling shareholders and other information regarding the beneficial ownership of the shares of Common Stock by each of the selling shareholders. The second column lists the number and percentage of shares of Common Stock beneficially owned by each selling shareholder, based on its ownership of shares, the Secured Convertible Debentures or warrants, as of July 17, 2006, assuming conversion of all Secured Convertible Debentures and exercise of the warrants held by the selling shareholders on that date, without regard to any limitations on conversion or exercise. The third column lists the shares of Common Stock being offered by this prospectus by the selling shareholders. Each selling shareholder&rsquo;s percentage of ownership in the following table is based on 99,446,116 shares of common stock outstanding as of July 17, 2006.</font></p>
<p align="center">43</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td align='center' valign='bottom'>
<b><font size="-1">Selling Shareholder<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=7>
<b><font size="-1">Shares<br>owned prior to the<br>offering<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Number of<br>common shares<br>to be sold<br>pursuant to<br>this prospectus<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=7>
<b><font size="-1">Shares beneficially<br>owned<br>after the offering<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Number<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Percent<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Number<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Percent<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Castlerigg Master Investments Ltd. (1)</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">71,996,425(2)(3) </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4.99%(3) </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">22,566,753</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">4) </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">49,429,672 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4.9% </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Kings Road Investments Ltd. (5)</font></p></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">23,998,808(6)(3) </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4.99%(3) </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">7,522,251</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">7) </font></td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">16,476,557 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4.9% </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><b><font size="-1">Total</font></b></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<b><font size="-1">30,089,004 </font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<div align="left">
<p><hr noshade color="#000000" align='left' width=72 size=0>
</p>
</div>
<p align="left"><font size="-1">(1) Castlerigg Master Investments Ltd., a British Virgin Islands company (&ldquo;Castlerigg Master Investments&rdquo;), directly owns the Secured Convertible Debentures and Warrants. Sandell Asset Management Corp., a Cayman Islands company (&ldquo;SAMC&rdquo;), is the investment manager of Castlerigg Master Investments. Thomas Sandell is the controlling person of SAMC and may be deemed to share beneficial ownership of the shares beneficially owned by Castlerigg Master Investments and SAMC. Castlerigg International Ltd., a British Virgin Islands company (&ldquo;Castlerigg International&rdquo;), is the controlling shareholder of Castlerigg International Holdings Limited, a British Virgin Islands company (&ldquo;Holdings&rdquo;). Holdings is the controlling shareholder of Castlerigg Master Investments. Each of Holdings and Castlerigg International may be deemed
to share beneficial ownership of the shares beneficially owned by Castlerigg Master Investments. SAMC, Mr. Sandell, Holdings and Castlerigg International each disclaims beneficial ownership of the securities owned or beneficially owned by Castlerigg Master Investments.</font></p>
<p align="left"><font size="-1">(2) Reflects an aggregate of: (i) 317,663 shares beneficially owned by the named holder; as well as 71,678,762 additional shares that may be issued to the named holder in the future, consisting of : (ii) 15,998,294 shares issuable upon the conversion of $15 million principal amount of our January 2006 Secured Convertible Debentures; (iii) 2,185,274 shares that may be issued in lieu of cash interest payments that may be due under the January 2006 Secured Convertible Debentures; (iv) 30,928,441 shares issuable upon the exercise of the January 2006 Warrants; (v) 7,999,147 shares issuable upon the conversion of $7.5 million principal amount of our June 2006 Secured Convertible Debentures; (vi) 569,099 shares that may be issued in lieu of cash interest payments that may be due under our June 2006 Secured Convertible Debentures; and (vii) 13,998,507 shares issuable
upon the exercise of the June 2006 Warrants.</font></p>
<p align="left"><font size="-1">(3) The terms of the Secured Convertible Debentures and associated warrants prohibit the holder from converting the debentures and/or exercising the warrants to the extent conversion and/or exercise would result in the holder beneficially owning more than 4.99% of our shares after the conversion and/or exercise; provided, however, that the holder may increase or decrease such percentage limitation (however, not in excess of 9.9%) upon more than 60 days notice. The number of shares contained in column #2 above does not reflect this limitation.</font></p>
<p align="left"><font size="-1">(4) Reflects the shares issuable to the named holder upon the conversion of $7.5 million principal of our June 2006 Secured Convertible Debentures, additional shares issuable in lieu of cash interest that may be due under our June 2006 Secured Convertible Debentures, and such additional shares that may be issuable upon exercise of the June 2006 Warrants.</font></p>
<p align="left"><font size="-1">(5) Kings Road Investments Ltd. (&ldquo;Kings Road&rdquo;) is a wholly-owned subsidiary of Polygon Global Opportunities Master Fund (&ldquo;Master Fund&rdquo;). Polygon Investment Partners LLP and Polygon Investment Partners LP (the &ldquo;Investment Managers&rdquo;), Polygon Investments Ltd. (the &ldquo;Manager&rdquo;), the Master Fund, Alexander Jackson, Reade Griffith and Paddy Dear share voting and dispositive power of the securities held by Kings Road. The Investment Managers, the Manager, Alexander Jackson, Reade Griffith and Paddy Dear disclaim beneficial ownership of the securities held by Kings Road. </font></p>
<p align="center">44</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">Except for the ownership of the Secured Convertible Debentures and associated warrants, Kings Road has not had any material relationship with the Company within the past three years.</font></p>
<p align="left"><font size="-1">(6) Reflects an aggregate of: (i) 105,888 shares beneficially owned by the named holder; as well as 23,892,920 additional shares that may be issued to the named holder in the future, consisting of : (ii) 5,332,764 shares issuable upon the conversion of $5 million principal amount of our January 2006 Secured Convertible Debentures; (iii) 728,425 shares that may be issued in lieu of cash interest payments that may be due under the January 2006 Secured Convertible Debentures; (iv) 10,309,480 shares issuable upon the exercise of the January 2006 Warrants; (v) 2,666,382 shares issuable upon the conversion of $2.5 million principal amount of our June 2006 Secured Convertible Debentures; (vi) 189,700 shares that many be issued in lieu of cash interest payments that may be due under our June 2006 Secured Convertible Debentures; and (vii) 4,666,169 shares issuable upon
the exercise of the June 2006 Warrants.</font></p>
<p align="left"><font size="-1"> (7) Reflects the shares issuable to the named holder upon the conversion of $2.5 million principal of our June 2006 Secured Convertible Debentures, additional shares issuable in lieu of cash interest that may be due under our June 2006 Secured Convertible Debentures, and such additional shares that may be issuable upon the exercise of the June 2006 Warrants.</font></p>
<p align="center"><b><font size="-1">PLAN OF DISTRIBUTION</font></b></p>
<p align="left"><font size="-1">The selling shareholders identified in this prospectus may offer and sell up to an aggregate of 30,089,004 shares of our common stock which we may issue to them upon the exercise of certain warrants or upon the conversion or redemption of, or the payment of interest on, or the principal of, certain convertible debentures issued to them. The selling shareholders may sell all or a portion of their shares through public or private transactions at prevailing market prices or at privately negotiated prices. </font></p>
<p align="left"><font size="-1">All of the convertible debentures and warrants described above were previously issued in private placement transactions completed prior to the filing of the registration statement of which this prospectus is a part. </font></p>
<p align="left"><font size="-1">The selling shareholders may sell all or a portion of the shares of common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the selling shareholders will be responsible for underwriting discounts or commissions or agent&rsquo;s commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions,</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;in the over-the-counter market;</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;in transactions otherwise than on these exchanges or systems or in the over-the-counter market;</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;through the writing of options, whether such options are listed on an options exchange or otherwise;</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;purchases by a broker-dealer as principal and resale by the broker-dealer for its account;</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;an exchange distribution in accordance with the rules of the applicable exchange;</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;privately negotiated transactions;</font></p>
<p align="center">45</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;short sales;</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;sales pursuant to Rule 144;</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;broker-dealers may agree with the selling securityholders to sell a specified number of such shares at a stipulated price per share;</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;a combination of any such methods of sale; and</font></p>
<p align="left"></p><p align="left" style="margin-left:5%"><font size="-1">&bull;&nbsp;any other method permitted pursuant to applicable law.</font></p>
<p align="left"><font size="-1">If the selling shareholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling shareholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of common stock or otherwise, the selling shareholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume.
The selling shareholders may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling shareholders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares. </font></p>
<p align="left"><font size="-1">The selling shareholders may pledge or grant a security interest in some or all of the convertible notes or warrants or shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, amending, if necessary, the list of selling shareholders to include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus. The selling shareholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners
for purposes of this prospectus. </font></p>
<p align="left"><font size="-1">The selling shareholders and any broker-dealer participating in the distribution of the shares of common stock may be deemed to be &ldquo;underwriters&rdquo; within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling shareholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.
</font></p>
<p align="left"><font size="-1">Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. </font></p>
<p align="left"><font size="-1">There can be no assurance that any selling shareholder will sell any or all of the shares of common stock registered pursuant to the shelf registration statement, of which this prospectus is a part.</font></p>
<p align="left"><font size="-1">The selling shareholders and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling shareholders and any other participating person. Regulation M may also restrict the ability of any </font></p>
<p align="center">46</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock. </font></p>
<p align="left"><font size="-1">We have agreed to pay all expenses of the registration of the shares of common stock including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or &ldquo;blue sky&rdquo; laws; provided, however, that a selling shareholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the selling shareholders against liabilities, including some liabilities under the Securities Act, in accordance with our agreement to register the shares, or the selling shareholders will be entitled to contribution. We may be indemnified by the selling shareholders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the selling shareholder specifically for use in this prospectus, in accordance with the
related registration rights agreements, or we may be entitled to contribution. </font></p>
<p align="left"><font size="-1">Once sold under the shelf registration statement, of which this prospectus is a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.</font></p>
<p align="center"><b><font size="-1">DESCRIPTION OF SECURITIES</font></b></p>
<p align="left"><font size="-1">Our authorized capital consists of 200 million shares of common stock, par value $0.001 per share, and 10 million shares of preferred stock, par value $0.001 per share. As of July 18, 2006 we had outstanding 99,446,116 shares of common stock and no shares of preferred stock.</font></p>
<p align="left"><b><font size="-1">Common Stock</font></b></p>
<p align="left"><font size="-1">Holders of shares of common stock have the right to cast one vote for each share of common stock in their name on the books of our company, whether represented in person or by proxy, on all matters submitted to a vote of holders of common stock, including election of directors. There is no right to cumulative voting in election of directors. Except where a greater requirement is provided by statute, by our articles of incorporation, or by our bylaws, the presence, in person or by proxy duly authorized, of one or more holders of a majority of the outstanding shares of our common stock constitutes a quorum for the transaction of business. The vote by the holders of a majority of outstanding shares is required to effect certain fundamental corporate changes such as liquidation, merger, or amendment of our articles of incorporation.</font></p>
<p align="left"><font size="-1">There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes do, however, prohibit us from declaring dividends where, after giving effect to the distribution of the dividend (1) we would not be able to pay our debts as they become due in the usual course of business or (2) our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.</font></p>
<p align="left"><font size="-1">We have not declared any dividends, and we do not plan to declare any dividends in the foreseeable future. </font></p>
<p align="left"><font size="-1">Holders of shares of our common stock are not entitled to preemptive or subscription or conversion rights, and no redemption or sinking fund provisions are applicable to our common stock. All outstanding shares of common stock sold in the offering are, or when issued pursuant to the terms of the Secured Convertible Debentures or warrants will be, fully paid and non-assessable.</font></p>
<p align="left"><font size="-1">We are presently authorized to issue 200,000,000 shares of common stock, almost all of which have been issued or reserved for issuance to cover the potential exercise of outstanding options and warrants, and upon conversion of our January 2006 Secured Convertible Debentures. Accordingly, we do not have sufficient authorized capital available to permit the issuance of any of the securities covered by this prospectus, or any other material issuance of securities. However, pursuant to an Information Statement dated July 17, 2006, effective as of August 7, 2006, we plan to amend our </font></p>
<p align="center">47</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">Articles of Incorporation to increase the number of authorized shares of our common stock from 200 million shares to 260 million shares. The action was approved pursuant to written consent by the holders of a majority of our shares (approximately 51.9 million shares). Until this process is completed, if at all, our access to proceeds from one or more financing transactions will be limited. An event of default would occur under our June 2006 Secured Convertible Debentures if we do not amend our articles of incorporation by September 4, 2006.</font></p>
<p align="left"><b><font size="-1">January 2006 Secured Convertible Debentures</font></b></p>
<p align="left"><font size="-1">On January 5, 2006, we issued our January 2006 Secured Convertible Debentures in an aggregate principal amount of $20 million that are convertible into 21,331,059 shares of our common stock at an initial conversion price of approximately $0.9376 per share, subject to anti-dilution adjustments. The January 2006 Secured Convertible Debentures have a maturity date on the third anniversary of their issuance, subject to the right of the holders to extend the date for the payment of any installment of principal described below. The January 2006 Secured Convertible Debentures bear interest at the rate of 7.5% per annum, which rate is increased to 15% upon the occurrence of an event of default under the January 2006 Secured Convertible Debentures. Our obligations under the Secured Convertible Debentures are secured by a security interest in all of our assets. </font></p>
<p align="left"><i><font size="-1">Conversion</font></i></p>
<p align="left"><font size="-1">The January 2006 Secured Convertible Debentures are convertible at the option of the holders into shares of our common stock at an initial conversion price of approximately $0.9376 per share, subject to anti-dilution adjustments. The anti-dilution adjustments include a &ldquo;full ratchet&rdquo; adjustment which reduces the conversion price to any lower price at which we issue any common stock, or are obligated to issue common stock pursuant to options, warrants, or convertible securities in the future, except for the issuance of certain excluded securities.</font></p>
<p align="left"><font size="-1">We may require the holders to convert the January 2006 Secured Convertible Debentures after the registration statement of which this prospectus is a part has been declared effective and prior to January 5, 2009 if (1) the Equity Conditions described below are satisfied and (2) the closing sale price of our common stock equals or exceeds 125% of the initial conversion price of the January 2006 Secured Convertible Debentures for any five consecutive trading days. Any such mandatory conversion can not exceed 25% of the dollar trading volume of our common stock for the 20 trading days before we deliver notice of our election to require the mandatory conversion. If we elect to require such mandatory conversion, we must issue warrants to the holders of the January 2006 Secured Convertible Debentures to purchase the following percentages of the shares of common stock
which are being issued upon such mandatory conversion, based upon the following arithmetic averages of the weighted average prince of our common stock for the five trading days preceding the date we deliver notice of such mandatory conversion (expressed as a percentage of the conversion price as of such date):</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Warrant Coverage<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Arithmetic Average<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">70% </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">125% - 175% </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">60% </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">175% - 225% </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">50% </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">225% - 300% </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">25% </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">300% +</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="-1"> </font></p>
<p align="left"><i><font size="-1">Payment of Interest</font></i></p>
<p align="left"><font size="-1">Interest on the January 2006 Secured Convertible Debentures is payable quarterly during 2006 and monthly beginning in 2007, and may, at our option, if the Equity Conditions described below are satisfied, be paid by the issuance of common stock. Any shares of common stock used to pay interest will be valued at 82.5% of the arithmetic average of the weighted average price of the common stock for the five trading days preceding the interest payment date.</font></p>
<p align="center">48</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><i><font size="-1">Redemption</font></i></p>
<p align="left"><font size="-1">At any time on or after January 5, 2009, we may redeem the January 2006 Secured Convertible Debentures, in whole or in part, by providing the holders thereof with 30 days&rsquo; written notice thereof, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon and the issuance of warrants to purchase a number of shares of common stock equal to the number of shares then issuable upon conversion of the January 2006 Secured Convertible Debentures.</font></p>
<p align="left"><i><font size="-1">Equity Conditions</font></i></p>
<p align="left"><font size="-1">The Equity Conditions which must be satisfied include (1) on each day during the period commencing six months prior to the date the Company delivers notice of its intention to make a payment by issuing its common stock through the date of the payment (the &ldquo;Equity Conditions Period&rdquo;), the registration statement registering the common stock to be issued has been effective and available for the resale of the securities covered thereby or all such securities are eligible for sale without registration, (2) the Company&rsquo;s common stock has been designated for quotation on the OTC Bulletin Board on each day during the Equity Conditions Period and shall not be subject to a threat of delisting or suspension, (3) for a period of one year prior to the date of determination the Company has timely delivered all shares of common stock upon conversion of the
January 2006 Secured Convertible Debentures and upon exercise of the January 2006 Warrants, (4) the shares of common stock to be issued may be issued without causing a holder&rsquo;s beneficial ownership of the Common Stock to exceed 4.99% of the Company&rsquo;s outstanding common stock and without violating the rules of the OTC Bulletin Board, (5) the Company shall have not failed to timely make any payment required to be made under the January 2006 Secured Convertible Debentures, January 2006 Warrants, or related agreements within five business days after the date such payment is due, (6) during the Equity Conditions Period, there shall not have occurred an event of default, an event that with the passage of time or giving of notice would constitute an event of default, or a public announcement of a fundamental transaction involving the Company, (7) the Company shall have no knowledge of
any fact that would cause the registration statement registering the common stock to be issued not to be effective and available for the sale of the securities covered thereby or any shares of common stock issuable upon conversion of the Secured Convertible Debentures or exercise of the warrants not to be eligible for resale pursuant to Securities and Exchange Commission Rule 144(k), and (8) the Company shall not have materially breached any provision or representation or warranty in the January 2006 Secured Convertible Debentures, warrants, and related agreements.</font></p>
<p align="left"><b><font size="-1">June 2006 Secured Convertible Debentures</font></b></p>
<p align="left"><font size="-1">On June 21, 2006, we issued our June 2006 Secured Convertible Debentures in an aggregate principal amount of $10 million that are convertible into 10,665,529 shares of our common stock (at an initial conversion price of $0.9376 per share), subject to anti-dilution adjustments. The June 2006 Secured Convertible Debentures have a maturity date on the first anniversary of their issuance, subject to the right of the holders to extend the date for the payment of any installment of principal described below. The June 2006 Secured Convertible Debentures bear interest at the rate of 9.75% per annum, which rate is increased to 15% upon the occurrence of an event of default under the June 2006 Secured Convertible Debentures. Our obligations under the June 2006 Secured Convertible Debentures are secured by a security interest in all of our assets.</font></p>
<p align="left"><i><font size="-1">Repayment of Principal</font></i></p>
<p align="left"><font size="-1">The principal amount of the June 2006 Secured Convertible Debentures is to be repaid in equal monthly installments commencing on November 1, 2006 (or, if earlier, on the first day of the calendar month following the date the registration statement required by the Registration Rights Agreement is declared effective) and ending on June 21, 2007, the first anniversary of the date of their issuance. Such principal payments may be paid in cash or, at the option of the Company if the Equity Conditions described below are satisfied, in shares of the Company&rsquo;s Common Stock. Any shares of Common Stock used to pay an installment of principal will be valued at the lower of (1) the then </font></p>
<p align="center">49</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">applicable conversion price of the June 2006 Secured Convertible Debentures and (2) 82.5% of the arithmetic average of the weighted average price of the Common Stock for the fifteen trading days preceding the installment payment date (but no greater than the arithmetic average of the weighted average price for the first and last three trading days of such fifteen trading day period). The number of shares of Common Stock which may be issued for the payment of any installment of principal may not exceed 22.5% of the aggregate dollar trading volume over the twenty trading days before the date the Company delivers notice of its election to pay an installment of principal in shares of its Common Stock. If the Company uses shares of Common Stock to pay an installment of principal, the Company may be required to deliver additional shares of Common Stock to pay such
principal if the arithmetic average of the weighted average price for the nineteen (19) trading days following the installment payment date is less than the price used in determining the number of shares that were delivered on the installment payment date.</font></p>
<p align="left"><font size="-1">The holders of the June 2006 Secured Convertible Debentures may elect to defer the payment of any installment of principal for a period of up to two years from the date such installment was originally due.</font></p>
<p align="left"><font size="-1">The Equity Conditions which must be satisfied as of the date of determination include (1) the registration statement required by the Registration Rights Agreement is effective and available for the resale of the securities covered thereby or all such securities are eligible for sale without registration, (2) our Common Stock is designated for quotation on the OTC Bulletin Board and is not be subject to a threat of delisting or suspension, (3) for a period of one year prior to the date of determination the Company has timely delivered all shares of Common Stock upon conversion of the June 2006 Secured Convertible Debentures and upon exercise of the June 2006 Warrants, (4) the shares of Common Stock to be issued may be issued without causing a holder&rsquo;s beneficial ownership of the Common Stock to exceed 4.99% of the Company&rsquo;s outstanding Common Stock
and without violating the rules of the OTC Bulletin Board, (5) the Company shall have not failed to timely make any payment required to be made under the June 2006 Secured Convertible Debentures, January 2006 Warrants, or related agreements within five business days after the date such payment is due, (6) there is not an event of default, an event that with the passage of time or giving of notice would constitute an event of default, or a public announcement of a fundamental transaction involving the Company, (7) the Company shall have no knowledge of any fact that would cause the registration statement required pursuant to the Registration Rights Agreement not to be effective and available for the sale of the securities covered thereby or any shares of Common Stock issuable upon conversion of the June 2006 Secured Convertible Debentures or exercise of the Warrants not to be eligible for
resale pursuant to Commission Rule 144(k), and (8) the Company shall not have materially breached any provision or representation or warranty in the June 2006 Secured Convertible Debentures, June 2006 Warrants, and related agreements.</font></p>
<p align="left"><i><font size="-1">Conversion</font></i></p>
<p align="left"><font size="-1">The June 2006 Secured Convertible Debentures are convertible at the option of the holders into shares of the Company&rsquo;s Common Stock at an initial conversion price of $0.9376 per share, subject to anti-dilution adjustments. The anti-dilution adjustments include a &ldquo;full ratchet&rdquo; adjustment which reduces the conversion price to any lower price at which the Company issues any Common Stock, or is obligated to issue Common Stock pursuant to options, warrants, or convertible securities in the future, except for the issuance of certain excluded securities.</font></p>
<p align="left"><font size="-1">The Company may require the holders to convert the June 2006 Secured Convertible Debentures after the Securities and Exchange Commission has declared effective the registration statement required by the Registration Rights Agreement if (1) the Equity Conditions described above are satisfied, (2) the closing sale price of the Company&rsquo;s Common Stock equals or exceeds 125% of the initial conversion price of the Secured Convertible Debentures for any five consecutive trading days, and (3) the Company has deposited into an escrow account proceeds from the sale of the Company&rsquo;s Barnett Shale property in an amount equal to 125% of the principal amount of the January 2006 Secured Convertible Debentures and the June 2006 Secured Convertible Debentures (the &ldquo;Deposit </font></p>
<p align="center">50</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">Amount&rdquo;). Any such mandatory conversion can not exceed 25% of the dollar trading volume of the Company&rsquo;s Common Stock for the 20 trading days before the Company delivers notice of its election to require the mandatory conversion. If the Company elects to require such mandatory conversion, it must issue warrants to the holders of the June 2006 Secured Convertible Debentures at an exercise price of $2.00 per share, to purchase the following percentages of the shares of Common Stock which are being issued upon such mandatory conversion, based upon the following arithmetic averages of the weighted average price of the Company&rsquo;s Common Stock for the five trading days preceding the date the Company delivers notice of such mandatory conversion (expressed as a percentage of the conversion price as of such date):</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Warrant Coverage<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Arithmetic Average<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">70% </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">125% - 175% </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">60% </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">175% - 225% </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">50% </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">225% - 300% </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">25% </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='top'>
<font size="-1">300% +</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="left"><i><font size="-1">Payment of Interest</font></i></p>
<p align="left"><font size="-1">Interest on the June 2006 Secured Convertible Debentures shall commence accruing as of June 21, 2006, however, the first payment will not be required until the first day of the month immediately following the earlier of: (i) the date on which the Registration Statement required by this transaction is declared effective by the Securities and Exchange Commission; or (ii) the four month anniversary of the closing. At the option of the Company, provided the Equity Conditions described above are satisfied, interest may be paid by the issuance of Common Stock. Any shares of Common Stock used to pay interest will be valued at 82.5% of the arithmetic average of the weighted average price of the Common Stock for the five trading days preceding the interest payment date.</font></p>
<p align="left"><i><font size="-1">Sale of Barnett Shale Property</font></i></p>
<p align="left"><font size="-1">The June 2006 Secured Convertible Debentures require the Company to use its best efforts to sell its Barnett Shale Property by December 31, 2006 for a purchase price equal to its fair market value. If the cash consideration to be received in any such sale is less than the required Deposit Amount, the consent of the holders of a majority of the outstanding principal amount of the June 2006 Secured Convertible Debentures is required. If such consent is not provided, the deadline for the sale is extended until March 31, 2007.</font></p>
<p align="left"><font size="-1">The proceeds from the sale of the Barnett Shale Property must be deposited and retained in an escrow account until such time as there are no Secured Convertible Debentures outstanding. The holders of the June 2006 Secured Convertible Debentures have the right for a period of three months after the proceeds are deposited into escrow to have the Company redeem their Secured Convertible Debentures in cash or in stock (at the Conversion Price) at a 25% premium. The Company may use the proceeds in the escrow fund to make payments on all of the Secured Convertible Debentures. A ratable portion of the escrowed proceeds may also be withdrawn by the Company as the principal amount of the June 2006 Secured Convertible Debentures is reduced. In addition, if the closing sale price of the Company&rsquo;s common stock for thirty trading days during any forty consecutive
trading day period is more than $2.00 and the Equity Conditions are satisfied, the Company may withdraw an amount of the escrowed proceeds equal to ten percent of the aggregate dollar trading volume during such forty day trading period.</font></p>
<p align="left"><font size="-1">If the Company has not sold the Barnett Shale Property prior to the applicable deadline, the holders of the June 2006 Secured Convertible Debentures have the right to have one-third of the outstanding principal amount of the June 2006 Secured Convertible Debentures redeemed, plus accrued and unpaid interest. If the Company has not sold the Barnett Shale Property within three months after the applicable deadline, the holders of the June 2006 Secured Convertible Debentures have the right to have an additional one-third of the principal amount redeemed, plus accrued and unpaid interest.</font></p>
<p align="center">51</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">If the proceeds from the sale of the Barnett Shale Property are less than the Deposit Amount, the holders of the June 2006 Secured Convertible Debentures have the right to have the Company redeem a portion of the deficiency, which may be paid in cash or registered shares of common stock.</font></p>
<p align="left"><b><font size="-1">Warrants</font></b></p>
<p align="left"><font size="-1">As of July 17, 2006 warrants to purchase 82,112,609 shares of Common stock were outstanding. Most of these warrants were granted in connection with investment-related transactions. These warrants entitle the holder to purchase the following number of shares at the following prices:</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Number of Shares<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Exercise Price<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">1,493,174 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='top'>
<font size="-1">0.9376 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">41,237,922(1) </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0.9376</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">2) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">18,664,676(3) </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0.9376</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">2) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">746,586(2) </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0.9376</font></td>
<td align='left' valign='top' nowrap>
<font size="-1">(</font><font size="-1">2) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">792,750 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1.20 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">200,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1.25 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">300,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1.50 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">405,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1.75 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">405,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1.925 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">15,867,500 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2.00 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">1,000,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">0.9376 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">500,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">1.50 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">500,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2.00 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="-1">Holders of our warrants have no voting rights, and therefore no right to participate in shareholder decisions, until such time as the warrants are exercised for shares of our common stock.</font></p>
<p align="left"><font size="-1">(1) Issued in conjunction with the January 2006 Secured Convertible Debentures, as subject to anti-dilution adjustment following the issuance of the June 2006 Secured Convertible Debentures.</font></p>
<p align="left"><font size="-1">(2) The exercise price and the number of shares issuable upon exercise of these warrants are subject to &ldquo;full-ratchet&rdquo; anti-dilution adjustments which reduce the exercise price to any lower price at which we issue any common stock, or are obligated to issue common stock pursuant to options, warrants, or convertible securities in the future, except for the issuance of certain excluded securities. Upon adjustment of the exercise price of the warrants, the number of shares issuable upon exercise of the warrants will be correspondingly adjusted.</font></p>
<p align="left"><font size="-1">(3) Issued in conjunction with the June 2006 Secured Convertible Debentures.</font></p>
<p align="left"><b><font size="-1">Registration Rights</font></b></p>
<p align="left"><font size="-1">This Prospectus has been prepared pursuant to the registration rights granted in connection with our June 2006 Secured Convertible Debentures. That transaction requires us to file a registration statement for the resale of a number of shares of common stock equal to 100% of the number of shares issuable upon conversion of the June 2006 Secured Convertible Debentures, the payment of interest on, and principal of, the June 2006 Secured Convertible Debentures, and upon exercise of the associated June 2006 Warrants. The registration statement must be declared effective by the Commission within no more than 120 days of the closing date, and must remain effective and available for use until the earlier of the date the investors can sell all of the securities covered by the registration statement without restriction pursuant to Securities and Exchange Commission Rule
144(k) and the date all of such securities have been sold pursuant to the registration statement. If we fail to meet the deadlines for the filing or the effectiveness of the registration statement or, subject to certain &ldquo;grace periods&rdquo; periods of up to 20 consecutive days (but no more than 30 days in any 365-day period), if the registration is unavailable after it becomes effective, we will be required to pay liquidated damages of two percent of the aggregate purchase price of the June 2006 Secured </font></p>
<p align="center">52</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">Convertible Debentures and June 2006 Warrants on the date of such failure and on every 30th day thereafter until such failure is cured.</font></p>
<p align="left"><b><font size="-1">Preferred Stock</font></b></p>
<p align="left"><font size="-1">There are no shares of preferred stock outstanding.</font></p>
<p align="left"><b><font size="-1">Provisions having a possible Anti-Takeover Effect</font></b></p>
<p align="left"><i><font size="-1">Nevada General Corporation Law</font></i></p>
<p align="left"><font size="-1">Certain provisions of Nevada Law (contained in chapters 78 and/or 92A of the Nevada Revised Statutes (&ldquo;NGCL&rdquo;)) could be deemed to discourage takeover attempts of the Company that may be considered by some stockholders to be in their best interest. The effect of such provisions could delay or frustrate a merger, tender offer or proxy contest, the removal of incumbent directors, or the assumption of control by stockholders, even if such proposed actions would be beneficial to the Company&rsquo;s stockholders. Such effect could cause the market price of our common stock to decrease or could cause temporary fluctuations in the market price of our common stock that otherwise would not have resulted from actual or rumored takeover attempts. While we have the right to amend our articles of incorporation and/or bylaws so as to not be subject to these provisions,
our board of directors believes that being governed by these provisions is appropriate to protect the interests of the Company&rsquo;s stockholders.</font></p>
<p align="left"><i><font size="-1">Combinations With Interested Stockholders</font></i></p>
<p align="left"><font size="-1">The NGCL generally prohibits a Nevada corporation with 200 or more stockholders of record (defined as a &ldquo;resident domestic corporation&rdquo; under the NGCL) that has a class of voting shares registered with the SEC under Section 12 of the Exchange Act from entering into any &ldquo;combination&rdquo; with an &ldquo;interested stockholder&rdquo; during the three-year period commencing on the date such person first became an interested stockholder, unless: (i) the combination or the transaction by which the person first became an interested stockholder is approved by the board of directors of the corporation before the person first became an interested stockholder, or (ii) the corporation&rsquo;s articles of incorporation provide otherwise. If such approval by the board of directors is not obtained, then the combination may be consummated after the three-year
period expires if: (i) the combination is approved by the stockholders representing a majority of the outstanding voting power owned by the disinterested stockholders at a meeting called for that purpose no earlier than three years after the date the person first became an interested stockholder, or (ii) the consideration to be paid by the interested stockholder exceeds certain thresholds set forth in the NGCL. An &ldquo;interested stockholder&rdquo; is a person that is: (i) the beneficial owner, directly or indirectly, of 10 percent or more of the voting power of the then outstanding shares of the corporation, or (ii) an affiliate or associate of the corporation that at any time during the three-year period immediately preceding the date in question was the beneficial owner, directly or indirectly, of 10 percent or more of the voting power of the then outstanding shares of the corporation.
&ldquo;Combination&rdquo; is defined in the NGCL to encompass a wide variety of transactions with or caused by an interested stockholder, including certain mergers, acquisitions and dispositions of assets, issuances of securities, liquidations and dissolutions, and transactions in which the interested stockholder receives or could receive, directly or indirectly, a benefit on other than a pro-rata basis with the other stockholders of the corporation.</font></p>
<p align="left"><i><font size="-1">Acquisition of Controlling Interest</font></i></p>
<p align="left"><font size="-1">The NGCL governs any acquisition of a &ldquo;controlling interest&rdquo; in a Nevada corporation that has 200 or more stockholders of record, at least 100 or which are Nevada residents, and that does business in Nevada directly or through an affiliated corporation, unless such corporation&rsquo;s articles of incorporation or bylaws in effect on the tenth day following the acquisition provide otherwise. A person acquires a &ldquo;controlling interest&rdquo; whenever such person acquires shares of a subject corporation that, but for the application of these provisions, would enable that person to exercise, directly or indirectly: (i) one-fifth </font></p>
<p align="center">53</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">or more, but less than one-third, (ii) one-third or more, but less than a majority, or (iii) a majority or more, of all of the voting power of the corporation. If a person acquires shares in the corporation and such acquisition results in the person exceeding one of these thresholds, the shares that it acquired in the transaction pursuant to which it crossed the threshold and within the 90 days immediately preceding the date of such acquisition are deemed to be &ldquo;control shares.&rdquo; Control shares are entitled only to such voting rights as are conferred upon such shares by the disinterested stockholders of the corporation at a special or annual meeting of stockholders. In the event the disinterested stockholders confer such voting rights upon the control shares and the acquiror obtains a majority or more of all voting power of the corporation, any stockholder
that did not vote in favor of conferring voting rights upon such shares may dissent and obtain the fair value of its shares.</font></p>
<p align="left"><font size="-1">The Company is not currently subject to the provisions of the NGCL governing the acquisition of a controlling interest because the Company has less than 100 stockholders of record that are Nevada residents and does not conduct business in Nevada. </font></p>
<p align="left"><b><font size="-1">Articles of Incorporation</font></b></p>
<p align="left"><i><font size="-1">Unissued Common Stock.</font></i><font size="-1"> We are authorized to issue 200,000,000 shares of common stock, almost all of which have been issued or reserved for issuance. Effective as of August 7, 2006, we intend to amend our articles of incorportion to permit the issuance or reservation of up to 260,000,000 shares of our common stock. When and if this occurs, we will have authorized but unissued common stock. This will enable our board of directors to render more difficult or to discourage an attempt to obtain control of our company by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of management. If our board of directors were to determine that a takeover proposal was not in the Company&rsquo;s best interests, shares could be issued by the board of directors without stockholder approval in one or
more private placements. Other transactions might prevent, or render more difficult or costly, completion of a takeover transaction by diluting the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group, by placing a substantial voting block in institutional or other hands that might support the position of the incumbent board of directors.</font></p>
<p align="left"><i><font size="-1">Undesignated Preferred Stock.</font></i><font size="-1"> Our undesignated preferred stock enables the board of directors to render more difficult or to discourage an attempt to obtain control of our company by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of management. The issuance of shares of the preferred stock pursuant to the board of directors&rsquo; authority described above may adversely affect the rights of the holders of common stock. For example, preferred stock issued by the Company may rank prior to the common stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common stock. Accordingly, the issuance of shares of preferred stock may discourage bids for the Common Stock or may otherwise adversely affect the
market price of the common stock.</font></p>
<p align="left"><b><font size="-1">Transfer Agent</font></b></p>
<p align="left"><font size="-1">We have retained Holladay Stock Transfer, Inc., 2939 North 67th Place, Scottsdale, AZ 85251, as our transfer agent.</font></p>
<p align="center"><b><font size="-1">INTEREST OF NAMED EXPERTS</font></b></p>
<p align="left"><font size="-1">No expert or counsel named in this registration statement as having prepared or certified any part of this statement or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or will receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant. Nor was any such person connected with the registrant as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.</font></p>
<p align="left"><font size="-1">The audited financial statements as of August 31, 2004 and August 31, 2005 and for the years then ended were audited by Malone &amp; Bailey, PC, an independent registered public accounting firm, to the </font></p>
<p align="center">54</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">extent set forth in its report and for the period from June 18, 2002 (date of inception) to August 31, 2003, have been audited by Morgan &amp; Company, chartered accountants, and are included herein in reliance upon the authority of these firms as experts in accounting and auditing.</font></p>
<p align="center"><b><font size="-1">LEGAL MATTERS</font></b></p>
<p align="left"><font size="-1">The validity of our common stock offered hereby will be passed upon for us by Buchanan Ingersoll &amp; Rooney PC, Philadelphia, Pennsylvania.</font></p>
<p align="center"><b><font size="-1">INDEMNIFICATION OF DIRECTORS AND OFFICERS</font></b></p>
<p align="left"><font size="-1">The Nevada Revised Statutes provide that a director or officer is not individually liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his capacity as a director or officer unless it is proven that his act or failure to act constituted a breach of his fiduciary duties as a director or officer and his breach of those duties involved intentional misconduct, fraud or a knowing violation of law. The Articles of Incorporation or an amendment thereto may, however, provide for greater individual liability. Furthermore, directors may be jointly and severally liable for the payment of certain distributions in violation of Chapter 78 of the Nevada Revised Statutes.</font></p>
<p align="left"><font size="-1">This provision is intended to afford directors and officers protection against and to limit their potential liability for monetary damages resulting from suits alleging a breach of the duty of care by a director or officer. As a consequence of this provision, shareholders of our company will be unable to recover monetary damages against directors or officers for action taken by them that may constitute negligence or gross negligence in performance of their duties unless such conduct meets the requirements of Nevada law to impose such liability. The provision, however, does not alter the applicable standards governing a director&rsquo;s or officer&rsquo;s fiduciary duty and does not eliminate or limit the right of our company or any shareholder to obtain an injunction or any other type of non-monetary relief in the event of a breach of fiduciary duty.</font></p>
<p align="left"><font size="-1">The Nevada Revised Statutes also provide that under certain circumstances, a corporation may indemnify any person for amounts incurred in connection with a pending, threatened or completed action, suit or proceeding in which he is, or is threatened to be made, a party by reason of his being a director, officer, employee or agent of the corporation or serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, if such person (a) is not liable for a breach of fiduciary duty involving intentional misconduct, fraud or a knowing violation of law or such greater standard imposed by the corporation&rsquo;s articles of incorporation; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Additionally, a corporation may indemnify a director, officer, employee or agent with respect to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor, if such person (a) is not liable for a breach of fiduciary duty involving intentional misconduct, fraud or a knowing violation of law or such greater standard imposed by the corporation&rsquo;s articles of incorporation; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, however, indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court to be liable to the corporation or for amounts paid in settlement to the corporation,
unless the court determines that the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses, including attorneys&rsquo; fees, actually and reasonably incurred by him in connection with the defense.</font></p>
<p align="left"><font size="-1">The Company&rsquo;s By-laws provide in substance that every director and officer of the Company shall be entitled to indemnification against expense actually and necessarily incurred in any action suit or </font></p>
<p align="center">55</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">proceeding, in which he or she may be named as a party by reason of being or having been a director or officer of the Company, except to the extent that such officer is finally adjudicated to be liable for negligence or misconduct</font></p>
<p align="center"><b><font size="-1">CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS</font></b></p>
<p align="left"><font size="-1">Malone &amp; Bailey, PC completed the audit of our consolidated financial statements for the years ended August 31, 2004 and August 31, 2005. We had no disagreements with Malone &amp; Bailey, PC (&ldquo;Malone&rdquo;) on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. Morgan &amp; Company (&ldquo;Morgan&rdquo;) completed the audit of our consolidated financial statements for the years ended August 31, 2003 and 2002. On December 13, 2004, we dismissed Morgan as our independent accounting firm and we engaged Malone as our independent accounting firm. The reports of Morgan on our financial statements for the years ended August 31, 2003 and August 31, 2002 did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting
principles, except that each report was modified to indicate that there was substantial doubt about our ability to continue as a going concern. The decision to terminate Morgan and the decision to retain Malone were both unanimously approved by our board of directors.</font></p>
<p align="left"><font size="-1">During the periods covered by the reports of Morgan, and the subsequent interim period through December 13, 2004, the Company had no disagreements with Morgan, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Morgan, would have caused Morgan to make reference to the subject matter of the disagreement in connection with its reports.</font></p>
<p align="left"><font size="-1">Morgan has confirmed that they did not have any disputes or disagreements with our management regarding accounting principles or practices, financial disclosure or auditing scope of procedures.</font></p>
<p align="center">56</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">FINANCIAL STATEMENTS </font></b></p>
<p align="center"><b><font size="-1">INDEX TO THE FINANCIAL STATEMENTS </font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' colspan=3>
<b><font size="-1">As of, and for the years ended August 31, 2005 and August 31, 2004 </font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Report of Malone &amp; Bailey, PC </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">F-1 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Report of Morgan &amp; Company</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">F-2 </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Consolidated Balance Sheets </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">F-3 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Consolidated Statements of Operations </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">F-4 </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Consolidated Statements of Stockholders&rsquo; Equity </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">F-5 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Consolidated Statements of Cash Flows </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">F-6 </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Notes to Consolidated Financial Statements </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">F-7 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' colspan=3>
<b><font size="-1">For the nine months ended May 31, 2006 and 2005 (unaudited)</font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Consolidated Balance Sheet (unaudited) </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">F-17 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Consolidated Statements of Operations (unaudited) </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">F-18 </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Consolidated Statements of Cash Flows (unaudited) </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">F-19 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Notes to Condensed Consolidated Financial Statements (unaudited) </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">F-20 </font></td>
</tr>
</table>
<p align="center"><font size="-1">57</font></p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM </font></b></p>
<p align="left"><font size="-1">To the Board of Directors <br>Maverick Oil and Gas, Inc. and Subsidiaries</font></p>
<p align="left"><font size="-1">Fort Lauderdale, Florida</font></p>
<p align="left"><font size="-1">We have audited the accompanying consolidated balance sheets of Maverick Oil and Gas, Inc. and Subsidiaries as of August 31, 2005 and 2004 and the related consolidated statements of operations, changes in stockholders&rsquo; equity, and cash flows for the two years then ended. These financial statements are the responsibility of Maverick&rsquo;s management. Our responsibility is to express an opinion on these financial statements based on our audits. </font></p>
<p align="left"><font size="-1">We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. </font></p>
<p align="left"><font size="-1">In our opinion, consolidated financial statements referred to above present fairly, in all material respects, the financial position of Maverick Oil &amp; Gas, Inc. and Subsidiaries, as of August 31, 2005 and 2004, and the results of its operations and its cash flows for the periods described in conformity with accounting principles generally accepted in the United States of America. </font></p>
<p align="left"><font size="-1">/s/ Malone &amp; Bailey, PC<br>MALONE &amp; BAILEY, PC<br>www.malone-bailey.com<br>Houston, Texas</font></p>
<p align="left"><font size="-1">November 23, 2005</font></p>
<p align="center">F-1</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM </font></b></p>
<p align="left"><font size="-1">To the Board of Directors and Shareholders <br>Waterloo Ventures Inc. <br>(An Exploration Stage Company) </font></p>
<p align="left"><font size="-1">We have audited the balance sheets of Waterloo Ventures Inc. (an exploration stage company) as at August 31, 2003 and the statements of operations, cash flows, and shareholders&rsquo; equity for the year ended August 31, 2003, and for the cumulative period from June 18, 2002 (date of inception) to August 31, 2003. These financial statements are the responsibility of the Company&rsquo;s management. Our responsibility is to express an opinion on these financial statements based on our audits. </font></p>
<p align="left"><font size="-1">We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. </font></p>
<p align="left"><font size="-1">In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at August 31, 2003 and the results of its operations and cash flows for the periods indicated in conformity with accounting principles generally accepted in the United States of America. </font></p>
<p align="left"><font size="-1">The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1(c) to the financial statements, the Company incurred a net loss of $48,573 since inception, has not attained profitable operations and is dependent upon obtaining adequate financing to fulfill its exploration activities. These factors raise substantial doubt that the Company will be able to continue as a going concern. Management&rsquo;s plans in regard to these matters are also discussed in Note 1(c). The financial statements do not include any adjustments that might result from the outcome of this uncertainty. </font></p>
<p align="left"><font size="-1">Vancouver, Canada<br>October 29, 2003</font></p>
<p align="left"><font size="-1">Morgan &amp; Company Chartered Accountants<br>P.O. Box 10007 Pacific Centre <br>Suite 1488 - 700 West Georgia Street <br>Vancouver, Vd. V7Y 1A1</font></p>
<p align="left"><font size="-1">TEL: (604) 687-5841 <br>Fax: (604) 687-0075 <br>www.morgan-cas.com</font></p>
<p align="center">F-2</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES<br>CONSOLIDATED BALANCE SHEETS</font></b></p>
<p align="center"><font size="-1">ASSETS</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">August 31,<br>2005<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">August 31,<br>2004<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Current Assets: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Cash</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">3,008,854 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">596,748 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Accounts receivable</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">881,410 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Prepaid expenses and advances to operators</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">501,459 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">102,812 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total Current Assets</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,391,723 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">699,560 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Property, Plant and Equipment: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Oil and natural gas properties, successful efforts method of accounting: </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Proved properties, net</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">5,903,686 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Unproved properties not being amortized, net of impairment</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">5,249,902 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3,529,835 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Furniture and equipment, net of accumulated depreciation of $18,199</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">221,285 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total Property, Plant and Equipment, Net</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">11,374,873 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3,529,835 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Other assets</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">342,768 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Investments in limited partnership</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">962,199 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total Assets</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">17,071,563 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">4,229,395 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='center' valign='bottom' colspan=9>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">LIABILITIES AND STOCKHOLDERS&rsquo; EQUITY</font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Current Liabilities: </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Accounts payable and accrued expense</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">3,078,657 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">100,987 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Payables for oil and gas interests</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">353,265 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">400,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Notes payable</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">48,451 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,859,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total Current Liabilities</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3,480,373 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,359,987 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Minority Interest</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">889,475 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">95,212 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Stockholders&rsquo; Equity: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Preferred stock, $.001 par value, authorized 10,000,000 shares;<br>none issued and outstanding<br>Common stock, $.001 par value, authorized 200,000,000 shares; 96,472,565 shares issued and outstanding at August 31, 2005 and 60,520,000 shares issued and outstanding at August 31, 2004</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">96,473 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">60,520 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Additional paid-in capital</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">45,687,506 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,917,980 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Deferred compensation</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(3,735,956</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Deficit accumulated during development stage</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(29,346,308</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(204,304</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total Stockholders&rsquo; Equity</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">12,701,715 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,774,196 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total Liabilities and Stockholders&rsquo; Equity</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">17,071,563 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">4,229,395 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="left"></p>
<p align="center"><font size="-1">See accompanying Notes to Consolidated Financial Statements.</font></p>
<p align="center">F-3</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES<br>CONSOLIDATED STATEMENTS OF OPERATIONS</font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=11>
<b><font size="-1">Years Ended<br>August 31,<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2004<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2003<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Revenues</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">283,785 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Expenses: </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Lease operating expenses</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">154,653 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Exploration costs</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,739,630 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">7,038 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">5,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Share based compensation</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">9,982,798 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Impairment of oil &amp; gas properties</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">5,710,416 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Loss on earnest money deposit</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,250,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">General and administrative</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3,680,202 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">152,481 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">23,444 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Depletion, Depreciation and Amortization</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">153,409 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total expenses</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">28,671,108 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">159,519 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">28,444 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Loss before minority interest</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(28,387,323</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(159,519</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(28,444</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Minority interest</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,353,751 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,788 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Loss from operations</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(27,033,572</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(154,731</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(28,444</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Other income (expenses): </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Interest income and other</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">50,072 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(1,000</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Note discount amortization</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(2,158,504</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Other income (expenses)</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(2,108,432</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(1,000</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net loss to common stockholders</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(29,142,004</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(155,731</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(28,444</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Basic and diluted loss per common share</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(0.36</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(0.00</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(0.00</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Basic and diluted weighted average common shares outstanding</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">80,741,335 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">58,678,904 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">58,520,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="left"></p>
<p align="center"><font size="-1">See accompanying summary of accouting policies and notes to financial statements.</font></p>
<p align="center">F-4</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES<br>CONSOLIDATED STATEMENT OF STOCKHOLDERS&rsquo; EQUITY (DEFICIT)</font></b></p>
<p align="center"><b><font size="-1">Years ended August 31, 2005 and 2004</font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=7>
<b><font size="-1">Common Stock<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Shares<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Amount<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Additional<br>Paid-In<br>Capital<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Accumulated<br>Deficit<br>During<br>Development<br>Stage<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Deferred<br>Compensation<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Total<br>Stockholders&rsquo;<br>Equity<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Balance at August 31, 2003</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">58,520,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">58,520 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">19,980 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(48,573</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">29,927 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Issuance of Common Stock for Cash at $1.00 per share, net of issuance costs of $155,731</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,000,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,898,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,900,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net Loss</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(155,731</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(155,731</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Balance at August 31, 2004</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">60,520,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">60,520 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,917,980 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(204,304</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,774,196 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Discount on convertible debentures, net of minority interest portion of $300,116</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,755,576 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,755,576 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Common Stock issued for cash</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">28,535,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">28,535 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">25,454,756 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">25,483,291 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Common Stock issued for services</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">125,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">125 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">198,625 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">198,750 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Purchase of Hurricane Energy, LLC with Common Stock</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,500,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,500 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">11,785,500 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(11,790,000</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Amortization of deferred compensation related to the purchase of Hurricane Energy, LLC</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">8,054,044 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">8,054,044 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Warrants issued for the purchase of Hurricane Energy, LLC</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">957,747 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">957,747 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Options issued for the purchase of Hurricane Energy, LLC</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">76,107 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">76,107 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Conversion of DDH promissory note to Common Stock</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">942,565 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">943 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">999,057 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,000,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Conversion of Trident note to Common Stock</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,850,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,850 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,848,150 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,850,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Issuance of options for services</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">418,500 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">418,500 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Issuance of Warrants for services</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">275,508 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">275,508 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net Loss</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(29,142,004</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(29,142,004</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Balance at August 31, 2005</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">96,472,565 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">96,473 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">45,687,506 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(29,346,308</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(3,735,956</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">12,701,715 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="left"></p>
<p align="center"><font size="-1">See accompanying Notes to Consolidated Financial Statements.</font></p>
<p align="center">F-5</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES<br>CONSOLIDATED STATEMENTS OF CASH FLOWS</font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=11>
<b><font size="-1">Years Ended<br>August 31,<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2004<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2003<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Cash Flows from Operating Activities: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net loss</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(29,142,004</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(155,731</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(28,444</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Adjustments to reconcile net loss to net cash used in operating activities: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Share based compensation</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">9,982,798 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Minority interest</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(1,353,751</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">95,212 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Gain on equity investments</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(12,199</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Depreciation, depletion and amortization</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,311,910 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">7,650 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Impairment of oil and gas properties</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">5,710,416 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Exploration costs</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,739,630 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">7,038 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Loss on earnest money deposit</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,250,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Changes in working capital: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Increase in accounts receivable</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(881,410</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Increase (Decrease) in prepaid expenses, advances to operators and other</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(723,416</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,500 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Increase in accounts payable and accrued expenses</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,912,935 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">90,796 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">700 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:5em;text-indent:-1em"><font size="-1">Net cash provided by (used in) operating activities</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(2,205,091</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">44,965 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(25,244</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:0em"><font size="-1">Cash Flows from Investing Activities: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Purchase of oil and gas properties</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(19,209,009</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(3,121,344</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Purchase of furniture and equipment</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(167,876</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Camden acquisition deposit</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(4,250,000</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Dividends received</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">50,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:5em;text-indent:-1em"><font size="-1">Net cash used in investing activities</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(23,576,885</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(3,121,344</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:0em"><font size="-1">Cash Flows from Financing Activities: </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Proceeds from issuance of common stock,<br>net of issuance costs</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">25,364,936 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,900,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Proceeds from issuance of debt</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,600,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,951,500 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Proceeds from minority interest owner</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,847,899 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Repayment of debt</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(618,753</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(210,000</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:5em;text-indent:-1em"><font size="-1">Net cash provided by financing activities</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">28,194,082 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3,641,500 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Net Increase (Decrease) in Cash</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,412,106 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">565,121 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(25,244</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Cash at the Beginning of Period</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">596,748 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">31,627 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">56,871 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Cash at the End of Period</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">3,008,854 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">596,748 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">31,627 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:0em"><b><font size="-1">Supplemental disclosure of cash flow information </font></b></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em"><font size="-1">Cash paid during the year for: </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Interest</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">515 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Taxes</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="left"></p>
<p align="center"><font size="-1">See accompanying Notes to Consolidated Financial Statements.</font></p>
<p align="center">F-6</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</font></b></p>
<p align="left"><b><font size="-1">NOTE 1. NATURE OF OPERATIONS </font></b></p>
<p align="left"><font size="-1">Maverick Oil and Gas, Inc. (&ldquo;Maverick&rdquo;) was incorporated in Nevada on June 18, 2002. Maverick and its subsidiaries (collectively, the &ldquo;Company&rdquo;) is an early stage independent energy company engaged in oil and gas exploration, exploitation, development and production. We currently participate in these activities through the interests we hold in oil and gas exploration and development projects in Texas, Colorado and most recently, Arkansas. These regions are characterized by potentially long-lived reserves with predictable and relatively low production depletion rates, lower service costs than in more competitive or remote areas, a favorable regulatory environment that encourages drilling efforts, and limited federal land or land access impediments. Our strategy is to identify projects that fit our investment and production criteria, so
as to enhance production and cash flow and optimize the use of our investment capital.</font></p>
<p align="left"><b><font size="-1">NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES </font></b></p>
<p align="left"><font size="-1">Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. These estimates are based on information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary significantly from those estimates under different assumptions and conditions.</font></p>
<p align="left"><font size="-1">Critical accounting policies are defined as those significant accounting policies that are most critical to an understanding of a company&rsquo;s financial condition and results of operation. We consider an accounting estimate or judgment to be critical if (i) it requires assumptions to be made that were uncertain at the time the estimate was made, and (ii) changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition.</font></p>
<p align="left"><b><font size="-1">Principles of Consolidation</font></b></p>
<p align="left"><font size="-1">The consolidated financial statements include the accounts of Maverick Oil and Gas, Inc. and its subsidiaries. All significant intercompany transactions and balances associated with the consolidated operations have been eliminated. </font></p>
<p align="left"><b><font size="-1">Successful Efforts Accounting</font></b></p>
<p align="left"><font size="-1">The Company follows the successful efforts method to account for its crude oil and natural gas operations. Under this method of accounting, all costs associated with oil and gas lease acquisition costs, successful exploratory wells and all development wells are capitalized and amortized on a unit-of-production basis over the remaining life of proved developed reserves and proved reserves on a field basis. Unproved leasehold costs are capitalized pending the results of exploration efforts. Exploration costs, including geological and geophysical expenses, exploratory dry holes and delay rentals, are charged to expense when incurred.</font></p>
<p align="left"><b><font size="-1">Impairment of Properties</font></b></p>
<p align="left"><font size="-1">Maverick reviews proved properties at the field level when management determines that events or circumstances indicate that the recorded carrying value of the properties may not be recoverable. Such events include a projection of future oil and natural gas reserves that will be produced from a field, </font></p>
<p align="center">F-7</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">the timing of this future production, future costs to produce the oil and natural gas, and future inflation levels. If the carrying amount of an asset exceeds the sum of the undiscounted estimated future net cash flows the Company recognizes impairment expense equal to the difference between the carrying value and the fair value of the asset which is estimated to be the expected present value of future net cash flows from proved reserves, utilizing a risk-free rate of return. The Company cannot predict the amount of impairment charges that may be recorded in the future. Unproved leasehold costs are reviewed periodically and a loss is recognized to the extent, if any, that the cost of the property has been impaired.</font></p>
<p align="left"><b><font size="-1">Valuation of Property and Equipment </font></b></p>
<p align="left"><font size="-1">The Company follows the provisions of Statement of Financial Accounting Standards No. 144 &ldquo;Accounting for Impairment or Disposal of Long-Lived Assets&rdquo; (&ldquo;SFAS 144&rdquo;). SFAS 144 requires that the Company&rsquo;s long-lived assets, including its oil and gas properties, be assessed for potential impairment in their carrying values whenever events or changes in circumstances indicate such impairment may have occurred. An impairment is recognized when the estimated undiscounted future net cash flows of the asset are less than its carrying value. Any such impairment is recognized based on the differences in the carrying value and estimated fair value of the impaired asset.</font></p>
<p align="left"><font size="-1">SFAS 144 provides for future revenue from the Company&rsquo;s oil and gas production to be estimated based upon prices at which management reasonably estimates such products will be sold. These estimates of future product prices may differ from current market prices of oil and gas. Any downward revisions to management&rsquo;s estimates of future production or product prices could result in an impairment of the Company&rsquo;s oil and gas properties in subsequent periods.</font></p>
<p align="left"><font size="-1">The long-lived assets of the Company, which are subject to evaluation, consist primarily of oil and gas properties. During the fiscal year ended August 31, 2005 the company recorded an impairment loss of $5,710,416 on proved oil gas reserves and exploration expenses related to unproved properties of $4,739,630. </font></p>
<p align="left"><b><font size="-1">Other Property and Equipment </font></b></p>
<p align="left"><font size="-1">Other property and equipment of the Company consists primarily of computer equipment, vehicles and furniture and fixtures, which are depreciated over estimated useful lives, ranging from three to seven years, on a straight-line basis. Repairs and maintenance are expensed as incurred while costs incurred that extend the useful life are capitalized. </font></p>
<p align="left"><b><font size="-1">Asset Retirement Obligations</font></b></p>
<p align="left"><font size="-1">The company follows the provisions of Financial Accounting Standards Board Statement No. 143, &ldquo;Accounting for Asset Retirement Obligations&rdquo; (SFAS No. 143). This accounting standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The Company adopted SFAS 143 as of January 1, 2003. The adoption of SFAS No. 143 did not have a material effect
on the Company&rsquo;s financial position or results of operations. </font></p>
<p align="center">F-8</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><b><font size="-1">Revenue Recognition </font></b></p>
<p align="left"><font size="-1">The Company recognizes oil and natural gas revenue for its interest in producing wells as oil and natural gas is produced and sold from those wells. Oil and natural gas sold by the Company is not significantly different from the Company&rsquo;s share of production. </font></p>
<p align="left"><b><font size="-1">Income Taxes</font></b></p>
<p align="left"><font size="-1">The Company is subject to income and other related taxes in areas in which it operates. When recording income tax expense, certain estimates are required by management due to timing and the impact of future events on when income tax expenses and benefits are recognized by the Company. The Company evaluates periodically its tax operating loss and other carryforwards to determine whether a gross deferred tax asset, as well as a related valuation allowance, should be recognized in its financial statements.</font></p>
<p align="left"><font size="-1"> </font></p>
<p align="left"><b><font size="-1">Cash and Cash Equivalents </font></b></p>
<p align="left"><font size="-1">Cash equivalents are considered to be all highly liquid investments having an original maturity of three months or less. </font></p>
<p align="left"><b><font size="-1">Equity Method</font></b></p>
<p align="left"><font size="-1"> Under the guidance of Emerging Issues Task Force D-46, Accounting for Limited Partnership Investments Maverick uses the equity method to account for all of its limited partnership and membership interests that represent an ownership interest that exceeds 5% of the applicable entity, but is less than 50% of the applicable entity. Under the equity method of accounting, Maverick&rsquo;s proportionate share of the investees&rsquo; net income or loss is included in Loss on equity investments in the condensed consolidated statements of operations. Each investment is evaluated each reporting period for impairment.</font></p>
<p align="left"><b><font size="-1">NOTE 3. STOCK BASED COMPENSATION</font></b></p>
<p align="left"><font size="-1">Maverick follows the provisions of SFAS No. 123. As permitted under SFAS No. 123, Maverick has continued to utilize APB 25 in accounting for its stock-based compensation to employees. Had compensation expense for the twelve months ended August 31, 2005 and 2004 been determined under the fair value provisions of SFAS No. 123, as amended by SFAS 148, Maverick&rsquo;s net loss and net loss per share would have been:</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=7>
<b><font size="-1">Twelve Months ended<br>August 31,<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2004<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net loss as reported</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(29,142,004</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(155,731</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Add: Stock-based employee compensation expense included<br>in reported net income determined under APB No. 25, net of related tax effects</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">494,607 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of related tax effects</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(946,504</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(5,666</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Pro forma net loss</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(29,593,901</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(161,397</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Loss per share: </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Basic as reported</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(0.36</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(0.00</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Basic pro forma</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(0.37</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(0.00</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
</table>
<p align="center">F-9</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><b><font size="-1">NOTE 4. INVESTMENT IN LIMITED PARTNERSHIP</font></b></p>
<p align="left"><i><b><font size="-1">PHT Resendez, L.P.</font></b></i></p>
<p align="left"><font size="-1">During October 2004, Maverick purchased a 19.8% interest of PHT Resendez, L.P. (PHT Resendez), a Delaware limited partnership, in exchange for a capital contribution of $1,000,000. PHT Resendez was formed to purchase leasehold interests in certain oil and gas prospects on 1,248.2 acres located in Zapata County, Texas.</font></p>
<p align="left"><font size="-1">At the discretion of PHT Gas, LLC, the general partner, available cash will be distributed first to all limited partners to the extent of their unreturned capital balances until all unreturned capital balances have been returned and then 75% to the limited partners in proportion to their respective percentage interests and 25% to PHT Gas, LLC.</font></p>
<p align="left"><b><font size="-1">NOTE 5. NOTES PAYABLE</font></b></p>
<p align="left"><i><b><font size="-1">3% unsecured demand notes</font></b></i></p>
<p align="left"><font size="-1">On October 12, 2004, MBE borrowed $300,000 pursuant to a 3% unsecured demand note payable and repaid the loan as of February 28, 2005.</font></p>
<p align="left"><font size="-1">On October 29, 2004, MBE borrowed $300,000 pursuant to a 3% unsecured demand note payable and repaid the loan as of August 31, 2005.</font></p>
<p align="left"><b><font size="-1">NOTE 6. CONVERTIBLE DEBENTURE</font></b></p>
<p align="left"><font size="-1">On November 18, 2004, Maverick borrowed $1,000,000 pursuant to a convertible note agreement with DDH Resources II, Limited (DDH). The convertible note was due at the earliest of six months or when Maverick completed an equity raise of at least $5,000,000. Interest accrued at 12% per annum. At maturity date or at the option of the lender, the note and accrued interest were convertible into shares of common stock at a conversion rate of $1.10. To induce DDH into making the loan, Maverick issued 500,000 warrants exercisable for 3 years at $2.00. Based on the conversion rate of $1.10. As a result of this transaction, Maverick recorded a beneficial conversion feature on the note in the amount of $626,914 accounted for a as a note discount, amortized over the life of the loan. In addition, Maverick valued the warrants, via the Black-Scholes method, and an additional
$263,278 discount on the note was recorded. On March 1 2005, DDH exercised its option to convert this note into 942,565 shares of stock. The note discount has been fully amortized as of August 31, 2005.</font></p>
<p align="left"><font size="-1">As of August 31, 2004 Maverick issued a 12% Senior Secured Note dated July 14, 2004 of $1,850,000 to the Trident Growth Fund, LP (Trident). On January 16, 2005, because Maverick was not in compliance with its obligation under the loan agreement, Trident agreed to modify the loan agreement to the following terms: The note became convertible commencing January 16, 2005 and terminating March 31, 2005, all amounts due and owing under the note shall, at the option of Trident, be converted into shares of common stock at a conversion rate of $1.00. Based on the conversion rate of $1.00, Maverick has recorded a beneficial conversion feature on the note in the amount of $1,165,000 which was recorded as a note discount. This discount is being amortized over the life of the loan. As of August 31, 2005, Maverick had amortized the entire discount.</font></p>
<p align="left"><font size="-1">On March 7, 2005, the Trident note was converted into 1,850,000 shares of common stock.</font></p>
<p align="left"><font size="-1">As discussed in Note 12, during October 2005 the Company entered into a Securities Purchase agreement with Trident Growth Fund, L.P. to borrow $2,000,000 in exchange for a convertible debenture and warrants to purchase 500,000 of Maverick&rsquo;s Common Stock. The 12% interest </font></p>
<p align="center">F-10</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">convertible debenture has a principal amount of $2,000,000 and must be repaid on or before October 26, 2006. The warrant has a term of 5 years. </font></p>
<p align="left"><b><font size="-1">NOTE 7. STOCKHOLDERS EQUITY </font></b></p>
<p align="left"><font size="-1">As disclosed in Note 6, Maverick issued 500,000 warrants, exercisable for 3 years, to purchase its common stock at $2.00.</font></p>
<p align="left"><font size="-1">In January and February 2005, Maverick issued 28,535,000 shares of common stock for net proceeds of $25,483,291 in a private placement to investors.</font></p>
<p align="left"><font size="-1">In February 2005, Maverick issued 125,000 shares of common stock valued at $198,750 to Westport Strategic Partners for services.</font></p>
<p align="left"><font size="-1">On March 10, 2005, the Company issued 4,500,000 shares of common stock and options and warrants to purchase an aggregate of 4,500,000 shares of the Maverick&rsquo;s common stock to the former members of Hurricane Energy, LLC, in connection with the purchase of all the membership interests of Hurricane. Options to purchase 3,690,000 shares of common stock were issued under the 2005 Stock Incentive Plan at an exercise price of $2.395 per share. Maverick also issued warrants to purchase 810,000 shares of our common stock. One-half of these warrants are exercisable commencing on the first anniversary of the closing at an exercise price of $1.75 per share. The balance of the warrants can be exercised commencing on the second anniversary of the closing at an exercise price of $1.92 per share. The warrants have the term of three years.</font></p>
<p align="left"><font size="-1">During March 2005, Maverick issued warrants to purchase 200,000 shares of its common stock at an exercise price of $1.25 per share to a third party in consideration for consulting services. The warrants had a fair value of $275,508.</font></p>
<p align="left"><font size="-1">During March 2005, the Company issued 1,600,000 shares to DDH Resources II, Limited, and 250,000 shares to Trident Growth Fund, LP, each in conversion and full payment of approximately $1,850,000 principal amount remaining due under a note issued by a subsidiary.</font></p>
<p align="left"><font size="-1">During March 2005, the Company issued warrants to former employees to purchase 450,000 shares of its common stock in exchange for services. The warrants had an intrinsic value of $418,500 at the grant date, with an exercise price of $1.50. The market value on grant date was $2.43. These warrants have a term of 3 years.</font></p>
<p align="left"><font size="-1">During August and September 2005, the company granted 240,000 stock options to three of its non-employee directors to each purchase 80,000 shares of common stock, provided the director remains on the Company&rsquo;s Board of Directors through the vesting period. One-half (50%) of these options vest during August and September 2006 and the remaining 50% vest during August and September 2007. These options have an exercise price ranging from $1.02 to $1.22 per share and expire during 2015. The average fair value of each option granted was $0.96. All options were granted with an exercise price equal to the market price on the trading day prior to the date of grant. The fair value was estimated on the date of grant using the Black-Scholes option-pricing model with an expected average volatility of 101% and a risk-free interest rate of 2%. </font></p>
<p align="left"><font size="-1">As disclosed in Note 12, during November 2005 Maverick sold 200,000 investment units, each unit consisting of ten shares of the Company&rsquo;s common stock and one warrant to purchase four shares of common stock of the Company. The warrants have a term of five years.</font></p>
<p align="left"><b><font size="-1">NOTE 8. HURRICANE ENERGY, LLC TRANSACTION</font></b></p>
<p align="left"><font size="-1">On March 10, 2005, Maverick acquired 100% of the outstanding membership interests of Hurricane Energy, LLC, a Delaware Limited Liability Company (Hurricane). Hurricane&rsquo;s membership interests </font></p>
<p align="center">F-11</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">were acquired for aggregate consideration of 4.5 million shares of Maverick&rsquo;s common stock, and a combination of options and warrants to acquire an additional 4.5 million shares of Maverick&rsquo;s common stock. The aggregate fair value of Maverick&rsquo;s equity instruments issued as consideration for Hurricane&rsquo;s membership interests totaled $16,113,443.</font></p>
<p align="left"><font size="-1">Since Hurricane remained a development stage company from its inception (on November 23, 2003) through the date of the acquisition, and since at the time of the acquisition its management team constituted its principal assets, the transaction was not accounted for as a business combination, but rather, as a purchase of the net assets acquired.</font></p>
<p align="left"><font size="-1">The membership interests of Hurricane were acquired from a group of 11 members, eight of whom owned approximately 22% of Hurricane (the Hurricane Investors), and three of whom managed and owned approximately 78% of Hurricane (the Hurricane Founders). The Hurricane Founders agreed to become the executive officers of Maverick.</font></p>
<p align="left"><font size="-1">The 4.5 million shares of Maverick common stock were valued at $11,790,000. Of the 4.5 million shares of Maverick&rsquo;s common stock issued, 3,510,000 shares were issued to the Hurricane Founders and 990,000 shares were issued to the Hurricane Investors. At closing, 1,125,000 (25%) of the shares were issued to the Hurricane Founders and the Hurricane Investors. The remaining 3,375,000 shares (75%) are being held in escrow until the first anniversary of the transaction. To receive the balance of their shares, the Hurricane Founders must continue to be employed at the first anniversary. As of August 31, 2005, Maverick has expensed $8,054,044 of the fair value of these shares and allocated $71,608 to the value of the net assets acquired from Hurricane. The remaining balance of $3,735,956, relating solely to the Hurricane Founders shares being held in escrow,
is being accounted for as deferred compensation and will be recognized ratably as an expense up through the first anniversary.</font></p>
<p align="left"><font size="-1">Of the options and warrants issued, options to acquire 3,690,000 shares of Maverick&rsquo;s common stock were issued to the Hurricane Founders in connection with their agreement to become Maverick&rsquo;s executive officers (the Hurricane Founders Options) and warrants to acquire 810,000 shares of Maverick&rsquo;s common stock were issued to the Hurricane Investors (the Hurricane Investors Warrants). The Hurricane Founders Options vest at 20% per annum assuming continued employment. The intrinsic value of the Hurricane Founders Options on the date of grant was $830,250 and is being expensed ratably over the next sixty months. As of August 31, 2005, Maverick has expensed $76,107 of the value of the Hurricane Founders Options. The fair value of the Hurricane Investors Warrants was $957,747 and has been fully expensed as of August 31, 2005.</font></p>
<p align="left"><b><font size="-1">NOTE 9. INCOME TAXES</font></b></p>
<p align="left"><font size="-1">The Company uses the liability method, where deferred taxes and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During fiscal 2005 and 2004, the company incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $19.2 million at August 31, 2005, and will expire in the years 2024 through 2025.</font></p>
<p align="left"><font size="-1">At August 31, 2005, deferred tax assets consisted of the following:</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:0em"><font size="-1">Deferred tax assets </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Net operating loss carryforward</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">6,706,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Valuation allowance</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(6,706,000</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net deferred tax asset</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="center">F-12</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><b><font size="-1">NOTE 10. COMMITMENTS AND CONTINGENCIES</font></b></p>
<p align="left"><b><font size="-1">Leases</font></b></p>
<p align="left"><font size="-1">During the second quarter of our fiscal year 2005, the Company entered into operating lease agreements for its principal offices located in Fort Lauderdale, Florida and the field office located in Dallas, Texas at a total monthly minimum cost of approximately $9,200 and $5,900 respectively. The Florida lease expires in 2008 and the Texas lease expires in 2010. Total rent expense for the fiscal year ended August 31, 2005 was $37,974. </font></p>
<p align="left"><font size="-1">Future minimum annual rental payments for these leases are as follows:</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:0em"><font size="-1">Year ending August 31, </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:2em"><font size="-1">2006</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">190,474 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:2em"><font size="-1">2007</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">199,607 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:2em"><font size="-1">2008</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">122,187 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:2em"><font size="-1">2009</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">77,857 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:2em"><font size="-1">2010</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">54,971 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:2em"></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">645,096 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="left"><b><font size="-1">NOTE 11. LOSS ON EARNEST MONEY DEPOSIT </font></b></p>
<p align="left"><font size="-1">During the third quarter of fiscal 2005, Maverick instituted a litigation to recover a $5 million earnest money deposit paid in connection with the attempted purchase of the shares of Camden Resources, Inc. During October 2005, the Company entered into a settlement of the dispute and recovered $750,000 of the earnest money deposit. Accordingly, the 2005 financial statements reflect a loss on earnest money deposit of $4,250,000.</font></p>
<p align="left"><b><font size="-1">NOTE 12. SUBSEQUENT EVENTS</font></b></p>
<p align="left"><b><font size="-1">Convertible Debenture and Warrants</font></b></p>
<p align="left"><font size="-1">On October 26, 2005, Maverick borrowed $2,000,000 from Trident Growth Fund, LP in exchange for a convertible debenture and warrants to purchase 500,000 shares of our common stock. The convertible debenture has a principal amount of $2,000,000 and bears interest at 12%. It must be repaid on or before October 26, 2006, and is secured by all Maverick&rsquo;s assets (subject to a subordination agreement relating to Maverick Woodruff County, LCC). The debenture is convertible into Maverick shares of common stock at the lesser of $1.00 per share or the price per share of common stock and common stock equivalents sold in the first &ldquo;Qualifying Transaction&rdquo; after the issuance of the debenture. A &ldquo;Qualifying Transaction&rdquo; is (a) an equity and/or debt financing in which we receive gross proceeds of at least $3,000,000 and (b) a merger, consolidation,
sale of all or substantially all of our assets, a tender or exchange offer for our common stock, or a reclassification or compulsory share exchange. The conversion price is subject to customary anti-dilution adjustments and a &ldquo;full ratchet&rdquo; adjustment in the event of the issuance of common stock or common stock equivalents for a price less than the then conversion price of the debenture.</font></p>
<p align="left"><font size="-1">The warrant has a term of 5 years and bears an exercise price equal to the lesser of $1.00 per share or the price per share of common stock and common stock equivalents sold in the first &ldquo;Qualifying Transaction&rdquo; (as defined above) after the issuance of the warrant. The number of shares issuable upon exercise of the warrant will increase by 500,000 for each 150 day period following the issuance of the warrant that the debenture remains unpaid in full. The exercise price of the warrant is subject to customary anti-dilution adjustments and a &ldquo;full ratchet&rdquo; adjustment in the event of the issuance of </font></p>
<p align="center">F-13</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">common stock or common stock equivalents for a price less than the then exercise price of the warrant. </font></p>
<p align="left"><b><font size="-1">Barnett Shale project Operatorship</font></b></p>
<p align="left"><font size="-1">From inception of the Barnett Shale project through October 19, 2005, Reichmann Petroleum Corp served as the managing partner of RBE and as the operator of the 1,942 acre portion of the project. Dyke Ferrell, the principal shareholder of Reichmann Petroleum, owned an approximate 13% interest in RBE. During October 2005, Maverick acquired the 13% interest in RBE from Mr. Ferrell in consideration for the purchase price of $1,750,000 and 250,000 shares of our common stock. Of the purchase price, $250,000 has been paid and the balance of $1,500,000 shall be paid on or before January 19, 2006 subject to completion by Maverick of a financial audit of all relevant financial and other data relating to the operation of RBE by Reichmann Petroleum. In connection with this purchase, the Company became the managing member of RBE and operator of the 1,942 acre portion of
the project. </font></p>
<p align="left"><b><font size="-1">Millenium Global Investments, Ltd.</font></b></p>
<p align="left"><font size="-1">On November 28, 2005, Maverick sold 200,000 investment units at a price of $10 per unit to Millenium Global Investments, Ltd., with each unit consisting of ten (10) shares of the Company&rsquo;s common stock and one (1) warrant to purchase four (4) shares of its common stock subject to an exercise price of $1.70 per share and a term of five (5) years. </font></p>
<p align="left"><b><font size="-1">NOTE 13. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)</font></b></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">All of our operations are directly related to oil and gas producing activities located in Texas and Colorado. </font></p>
<p align="left"><b><font size="-1">Capitalized Costs Relating to Oil and Gas Producing Activities </font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">August 31,<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2004<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Proved oil and gas properties</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">6,038,896 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Unproved oil and gas properties</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">5,249,902 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3,529,835 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total capitalized costs</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">11,288,798 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3,529,835 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Less accumulated depreciation and amortization</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(135,210</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net Capitalized Costs</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">11,153,588 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">3,529,835 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="left"><b><font size="-1">Costs Incurred in Oil and Gas Producing Activities </font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">For the Fiscal Years Ended August 31,<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2004<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Acquisition of proved properties</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">509,369 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Acquisition of unproved properties</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,734,219 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3,121,344 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Development costs</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">13,965,421 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Exploration costs</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,739,630 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">7,038 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Asset retirement costs recognized according to SFAS&nbsp;No.&nbsp;143</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total Costs Incurred</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">23,948,639 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">3,128,382 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="center">F-14</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1"> </font></p>
<p align="left"><b><font size="-1">Results of Operations from Oil and Gas Producing Activities</font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">For the Fiscal Years Ended August 31,<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2004<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Oil and gas revenues</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">283,785 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Production costs</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(135,452</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Production taxes</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(19,201</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Depreciation and amortization</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(135,210</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Results of operations before income taxes</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(6,078</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Provision for income taxes</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Results of Oil and Gas Producing Operations</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(6,078</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="left"><i><b><font size="-1">Proved Reserves</font></b></i></p>
<p align="left"><font size="-1">Our proved oil and gas reserves have been estimated by independent petroleum engineers. Proved reserves are the estimated quantities that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are the quantities expected to be recovered through existing wells with existing equipment and operating methods. Due to the inherent uncertainties and the limited nature of reservoir data, such estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production of these reserves may be substantially different from the original estimate. Revisions result primarily from new information obtained from development drilling and production history; acquisitions of
oil and gas properties; and changes in economic factors. Our proved reserves are summarized in the table below. </font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Crude Oil and<br>Natural Gas<br>Liquids<br>Bbls.<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Natural<br>Gas<br>Mcf<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Reserves at September 1, 2004</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Extensions, discoveries and other additions</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">16,799 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,019,087 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Revisions of prior estimates</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Production</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(1,399</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(31,687</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Reserves at August 31, 2005</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">15,400 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">987,400 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Proved producing reserves</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">12,200 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">346,500 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="left"><i><b><font size="-1">Standardized Measure </font></b></i></p>
<p align="left"><font size="-1">The standardized measure of discounted future net cash flows (&ldquo;standardized measure&rdquo;) and changes in such cash flows are prepared using assumptions required by the Financial Accounting Standards Board. Such assumptions include the use of year-end prices for oil and gas and year-end costs for estimated future development and production expenditures to produce year-end estimated proved reserves. Discounted future net cash flows are calculated using a 10% rate.</font></p>
<p align="left"><font size="-1">As of August 31, 2005 and 2004, estimated well abandonment costs, net of salvage, are deducted from the standardized measure using year-end costs. Such abandonment costs are recorded as a liability on the consolidated balance sheet, using estimated values of the projected abandonment date and discounted using a risk-adjusted rate at the time the well is drilled or acquired. </font></p>
<p align="left"><font size="-1">The standardized measure does not represent management&rsquo;s estimate of our future cash flows or the value of proved oil and gas reserves. Probable and possible reserves, which may become proved in the future, are excluded from the calculations. Furthermore, year-end prices used to determine the </font></p>
<p align="center">F-15</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">standardized measure of discounted cash flows, are influenced by seasonal demand and other factors and may not be the most representative in estimating future revenues or reserve data. </font></p>
<p align="left"><font size="-1">Price and cost revisions are primarily the net result of changes in year-end prices, based on beginning of year reserve estimates. Quantity estimate revisions are primarily the result of the extended economic life of proved reserves and proved undeveloped reserve additions attributable to increased development activity. </font></p>
<p align="left"><font size="-1">The standardized measure of discounted estimated future net cash flows related to proved crude oil and natural gas reserves at August 31, 2005 and 2004 is as follows: </font></p>
<p align="left"><b><font size="-1">Standardized Measure of Discounted Future Cash Flows: </font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2004<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Future cash inflows</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">10,864,200 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Future production costs</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(1,661,300</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Future development costs</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(851,800</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Future income taxes</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Future net cash flows</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">8,351,100 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">10% annual discount</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(3,075,500</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Standardized measure of discounted net cash flows</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">5,275,600 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Share of equity method investee&rsquo;s standardized measure of discounted future net cash flows</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">895,600 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="-1">The primary changes in the standardized measure of discounted estimated future net cash flows for the year ended August 31, 2005 and 2004 are as follows: </font></p>
<p align="left"><b><font size="-1">Changes in Standardized Measure of Discounted Future Cash Flows:</font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2004<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Balance at September 1</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net changes in prices and production costs</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net changes in future development costs</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Sales of oil and gas produced, net</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(164,000</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Extensions, discoveries and other additions</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">5,439,600 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Revisions of previous quantity estimates</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Previously estimated development costs incurred</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net change in income taxes</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Accretion of discount</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Other</font></p></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Balance at August 31, 2005</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">5,275,600 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='center' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="left"></p>
<p align="center">F-16</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">MAVERICK OIL AND GAS, INC AND SUBSIDARIES<br>CONSOLIDATED BALANCE SHEETS<br>(Unaudited)</font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">May 31,<br>2006<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">August 31,<br>2005<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='center' valign='bottom' colspan=9>
<b><font size="-1">ASSETS</font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Current Assets: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Cash</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">1,480,581</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">3,008,854 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Accounts receivable</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,484,657</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">881,410 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Prepaid drilling costs and advances to operators</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,118,381</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">501,459 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total Current Assets</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">5,083,619</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,391,723 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Property, Plant and Equipment: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Oil and natural gas properties, successful efforts method of accounting: </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Proved properties, net</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">9,742,788</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">5,903,686 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Unproved properties not being amortized, net of impairment</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">21,117,914</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">5,249,902 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Properties, Furniture and equipment, net of accumulated depreciation of $72,711 and $18,199</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">827,164</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">221,285 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total Property, Plant and Equipment, Net</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">31,687,866</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">11,374,873 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Prepaid expenses and other assets: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Prepaid loan fees, net of amortization of $319,432</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,792,790</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Other assets</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">204,932 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">342,768 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total prepaid expenses and other assets, Net</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,997,722</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">342,768 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Investment in limited partnership</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">962,199 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1"> Total Assets</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">39,769,207</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">17,071,563 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='center' valign='bottom' colspan=9>
<b><font size="-1">LIABILITIES AND STOCKHOLDERS&rsquo; EQUITY (DEFICIT)</font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Current Liabilities: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Accounts payable and accrued expenses</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">8,072,838</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">3,060,657 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Payables for oil and gas interests</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">355,842</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">353,265 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Notes payable</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">32,047</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">48,451 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Derivative Liability</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">22,979,470</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Current Portion of long-term debt</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,166,667</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total Current Liabilities</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">35,606,864</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3,462,373 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Non-Current Liabilities: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Convertible debentures, Net of discount</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">6,605,878</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Other liabilities</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">18,000</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">18,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Total non-Current Liabilities</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">6,623,878</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">18,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Minority Interest</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,281,802</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">889,475 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Stockholders&rsquo; Equity (Deficit): </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Preferred stock, $.001 par value, authorized 10,000,000 shares; none issued and outstanding</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Common stock, $.001 par value, authorized 200,000,000 shares; 99,022,565 shares issued and outstanding May 31, 2006 and 96,472,565 shares issued and outstanding at August 31, 2005</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">99,023</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">96,473 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Additional paid-in capital</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">51,705,499</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">45,687,506 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Deferred compensation</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(3,735,956</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Accumulated deficit</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(55,547,859</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(29,346,308</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total Stockholders&rsquo; Equity (Deficit)</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(3,743,337</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">12,701,715 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total Liabilities and Stockholders&rsquo; Equity (Deficit)</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">39,769,207</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">17,071,563 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="center"><font size="-1">See accompanying Notes to Consolidated Financial Statements.</font></p>
<p align="center">F-17</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES<br>CONSOLIDATED STATEMENTS OF OPERATIONS<br>(Unaudited)</font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=7>
<b><font size="-1">Three Months Ended<br>May 31,<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=7>
<b><font size="-1">Nine Months Ended<br>May 31,<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2006<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2006<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Oil and gas sales revenues</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1"> 665,156</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">46,129</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1"> 1,838,644</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">46,129 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Expenses: </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Lease operating expenses</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">390,688</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">82,238</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">702,808</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">82,238 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Exploration costs</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3,177</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,104,359</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">65,614</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,174,208 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">General and administrative</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,172,699</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">9,250,687</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">11,122,975</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">10,001,847 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Depreciation, depletion and amortization</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">177,106</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">51,070</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,082,580</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">109,822 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Impairment</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3,018,306</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">5,710,416 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Loss on equity investment</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">18,186</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">77,882 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Total expenses</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,743,670</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">14,524,846</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">12,973,977</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">18,156,413 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Loss before minority interest</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(2,078,514</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(14,478,717</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(11,135,333</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(18,110,284</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Minority interest</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(10,238</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">501,666</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(64,566</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">996,994 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Loss from operations</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(2,088,752</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(13,977,051</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(11,199,899</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(17,113,290</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Other income (expense): </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Change in fair value of derivatives</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">655,910</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(12,903,519</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Interest expense</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(723,507</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(837,495</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(2,166,407</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(2,056,073</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Interest income</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">14,436</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">24,553</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">68,274</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">24,553 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Total other income (expense)</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(53,161</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(812,942</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(15,001,652</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(2,031,520</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net loss to common shareholders</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1"> (2,141,913</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(14,789,993</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1"> (26,201,551</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(19,144,810</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Basic and diluted loss per common share</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1"> (0.02</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1"> (0.15</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1"> (0.27</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1"> (0.25</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Weighted average common shares outstanding</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">98,976,015</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">95,831,341</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">98,348,755</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">75,475,782 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="center"><font size="-1">See accompanying Notes to Consolidated Financial Statements.</font></p>
<p align="center">F-18</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES<br>CONSOLIDATED STATEMENTS OF CASH FLOWS<br>(Unaudited)</font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=7>
<b><font size="-1">Nine Months Ended<br>May 31,<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2006<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2005<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Cash Flows from Operating Activities: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net loss</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(26,201,551</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(19,144,810</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Adjustments to reconcile net loss to net cash used in operating activities: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Share based compensation</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">5,813,266</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">8,143,247 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Minority interest</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">64,566</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(996,994</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Depreciation, depletion and amortization</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,082,580</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">51,066 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Impairment</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">5,710,416 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Loss on equity investment</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">77,882 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Interest expense and amortization of debt discount</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,895,589</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,158,506 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Change in fair value of derivatives</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">12,903,519</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Changes in working capital: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Increase in accounts receivable</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(603,247</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(40,538</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Increase in prepaid expenses, advances to operators and other</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(1,479,087</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(1,419,324</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Increase in accounts payable and accrued expenses</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,420,099</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2,533,749 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Net cash used in operating activities</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(4,104,266</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(2,926,800</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Cash Flows from Investing Activities: </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Purchase of oil and gas properties</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(18,630,138</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(12,054,378</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Acquisition of office building</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(547,800</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Camden Acquisition Deposit</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(5,000,000</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Purchase of furniture and equipment</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(108,512</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(121,005</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Net cash used in investing activities</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(19,286,450</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(17,175,383</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Cash Flows from Financing Activities: </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Proceeds from issuance of common stock, net of issuance costs</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,860,000</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">25,364,936 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Proceeds from issuance of debt</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">21,154,850</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,600,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Proceeds from minority interest owner</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">863,997</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">601,666 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Repayment of debt</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(2,016,404</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(613,866</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Net cash provided by financing activities</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">21,862,443</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">26,952,736 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Net Increase (Decrease) in Cash</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(1,528,273</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">6,850,553 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Cash at the Beginning of Period</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3,008,854</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">596,748 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Cash at the End of Period</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">1,480,581</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">7,447,301 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><b><font size="-1">Supplemental disclosure of cash flow information</font></b></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Cash paid during the period for: </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Interest</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">396,329</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:3em;text-indent:-1em"><font size="-1">Taxes</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="center"><font size="-1">See accompanying Notes to Consolidated Financial Statements.</font></p>
<p align="center">F-19</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>(Unaudited) </font></b></p>
<p align="left"><b><font size="-1">NOTE 1 &mdash; BASIS OF PRESENTATION </font></b></p>
<p align="left"><font size="-1">The unaudited consolidated financial statements included herein have been prepared by Maverick Oil and Gas, Inc. (&ldquo;us&rdquo;, &ldquo;we&rdquo; or the &ldquo;Company&rdquo;), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such adjustments are of a normal recurring nature. Although we believe that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (&ldquo;US GAAP&rdquo;), have been condensed or omitted
pursuant to such rules and regulations. </font></p>
<p align="left"><font size="-1">Certain reclassifications have been made to the prior years&rsquo; financial statements to conform with the current presentation.</font></p>
<p align="left"><font size="-1">These financial statements should be read in conjunction with the financial statements and the notes thereto included in our 2005 Annual Report on Form 10-KSB filed with the Securities and Exchange Commission. The results of operations for interim periods are not necessarily indicative of the results for any subsequent quarter or the entire fiscal year ending August 31, 2006.</font></p>
<p align="left"><b><font size="-1">NOTE 2 &mdash; STOCK BASED COMPENSATION </font></b></p>
<p align="left"><font size="-1">During February 2005, the Company adopted a Stock Incentive Plan (the &ldquo;Stock Incentive Plan&rdquo;) which covers 10,000,000 shares of common stock. Under its terms, employees, officers and directors of the Company and its subsidiaries are currently eligible to receive non-qualified stock options, restricted stock awards and incentive stock options within the meaning of Section 422 Internal Revenue Code of 1986 (the &ldquo;Code&rdquo;). In addition, advisors and consultants who perform services for the Company or its subsidiaries are eligible to receive non-qualified stock options under the Stock Incentive Plan. The Stock Incentive Plan is administered by the Board of Directors or a committee designated by the Board of Directors. </font></p>
<p align="left"><font size="-1">All stock options granted under the Stock Incentive Plan are exercisable for a period of up to ten years from the date of grant. The Company may not grant incentive stock options pursuant to the Stock Incentive Plan at exercise prices which are less than the fair market value of the common stock on the date of grant. The term of an incentive stock option granted under the Stock Incentive Plan to a stockholder owning more than 10% of the issued and outstanding common stock may not exceed five years and the exercise price of an incentive stock option granted to such stockholder may not be less than 110% of the fair market value of the common stock on the date of grant. The Stock Incentive Plan contains certain limitations on the maximum number of shares of the common stock that may be awarded in any calendar year to any one individual for the purposes of Section
162(m) of the Code.</font></p>
<p align="left"><font size="-1">In addition to the stock options covered by the Stock Incentive Plan, the Company has outstanding options to purchase 4,580,000 shares of common stock.</font></p>
<p align="left"><font size="-1">Prior to September 1, 2005 the Company accounted for stock based compensation under Statement of Financial Accounting Standards No. 123 &ldquo;Accounting for Stock-Based Compensation&rdquo; (&ldquo;FAS 123&rdquo;). As permitted under this standard, compensation cost was recognized using the intrinsic value method described in Accounting Principles Board Opinion No. 25, &ldquo;Accounting for Stock Issued to Employees&rdquo; (&ldquo;APB 25&rdquo;). Effective December 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), &ldquo;Share-Based Payment&rdquo; (&ldquo;FAS 123R&rdquo;) and applied the provisions of the Securities and Exchange Commission Staff Accounting Bulletin No. 107 using the </font></p>
<p align="center">F-20</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">modified-prospective transition method. Prior periods were not restated to reflect the impact of adopting the new standard. As a result of the adoption of FAS 123R, stock-based compensation expense recognized during the quarter ended May 31, 2006 includes compensation expense for all share-based payments granted on or prior to, but not yet vested as of August 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of FAS 123, and compensation cost for all share-based payments granted on or subsequent to September 1, 2005, based on the grant date fair value estimated in accordance with the provisions of FAS 123R.</font></p>
<p align="left"><font size="-1">During the quarter ended May 31, 2006, the Company recognized stock-based compensation expenses of $589,488 related to outstanding stock options according to the provisions of FAS 123R, using the modified-prospective transition method.</font></p>
<p align="left"><font size="-1">Prior to the adoption of FAS 123R and for the nine months ended May 31, 2006, no tax benefits from the exercise of stock options has been recognized as no options have been exercised. Any future excess tax benefits derived from the exercise of stock options will be recorded prospectively and reported as cash flows from financing activities in accordance with FAS 123R.</font></p>
<p align="left"><font size="-1">The following table illustrates the pro forma effect on operating results and per share information had the Company accounted for share-based compensation in accordance with FAS 123R for the following periods during our prior fiscal year. All options stock-based compensation options granted to date have been issued on or after March 10, 2005:</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Three Months<br>Ended<br>May 31, 2005<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Nine Months<br>Ended<br>May 31, 2005<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net loss, as reported</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(14,789,993</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(19,144,810</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Plus: Stock-based employee compensation expense included in reported net income, net of related tax effects</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,283,344</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,283,344 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(453,094</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(453,094</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Pro forma net loss</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(13,959,743</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(18,314,560</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net loss per common share: </font></p></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net loss per common share, as reported</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(0.15</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(0.25</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Net loss per common share, pro forma</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(0.15</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">(0.24</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font><font size="-1"> </font></td>
</tr>
</table>
<p align="left"><font size="-1">The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">May 31,<br>2006<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">May 31,<br>2005<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Expected life (years)</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2.98</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">2.98 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Risk-free interest rate</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3.96</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">%</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3.29</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">%</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Expected Volatility </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">65.20</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">%</font><font size="-1"> </font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">41.77</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">%</font><font size="-1"> </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Expected Dividend yield</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">0.0</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">%</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">0.0</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">%</font><font size="-1"> </font></td>
</tr>
</table>
<p align="left"><font size="-1">The range of risk free interest rates used in the Black-Scholes option pricing Model (the &ldquo;Model&rdquo;) was 3.2% to 4.6%. The range of expected volatility used in the Model was 41.3% to 80.7%.</font></p>
<p align="center">F-21</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">A summary of the options issued by the Company for the nine months ended May 31, 2006 is as follows:</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Options<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Weighted-<br>Average<br>Exercise<br>Price per Share<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Weighted-<br>Average<br>Remaining<br>Contractual<br>Term<br>(in years)<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Aggregate<br>Intrinsic<br>Value<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Outstanding on August 31, 2005</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,340,000</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">2.26</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">8.28 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Granted</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">240,000</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">1.14</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">9.69 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Exercised</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Forfeited/Canceled</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Outstanding on May 31, 2006</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">4,580,000</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">2.20</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">8.35</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">19,200 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Exercisable on May 31, 2006</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">450,000</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">1.50</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1.62</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="-1">The weighted-average grant-date fair value for the nine months ended May 31, 2006 and May 31, 2005 was $0.91/share and $0.94/share, respectively. No options were exercised or vested during the periods ended May 31, 2006 and May 31, 2005. The unrecognized share based compensation cost related to stock option expense at May 31, 2006 is $3,053,983 and will be recognized over a weighted average of 4.0 years.</font></p>
<p align="left"><font size="-1">Prior to the adoption of FAS 123R, the Company recorded compensation expense for restricted stock awards based on the fair market value on the date of grant, in accordance with APB 25. The fair value was recorded as deferred compensation in a separate component of shareholders&rsquo; equity and expensed over the vesting period. In accordance with FAS 123R, during the quarter ended February 28, 2006, the deferred compensation balance of $2,011,569 was reclassified to paid-in-capital.</font></p>
<p align="left"><font size="-1">Stock-based compensation expense recognized for restricted stock awards was $287,382 and $6,329,755 for the three months ended May 31, 2006 and May 31, 2005, respectively; and $3,735,957 and $6,329,755 for the nine months ended May 31, 2006 and May 31, 2005, respectively. At May 31, 2006 there is no unrecognized compensation cost related to unvested restricted shares.</font></p>
<p align="left"><font size="-1">A summary of the activity of restricted stock under the Company&rsquo;s compensation plans during the quarter ended May 31, 2006 is as follows:</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Shares<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Weighted Average<br>Grant Date Fair<br>Value<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Outstanding on August 31, 2005</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3,510,000</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">9,196,200 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Granted</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">300,000</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">246,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Vested</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Forfeited/Canceled</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash;</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Outstanding on May 31, 2006</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">3,810,000</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">9,442,200 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="left"><b><font size="-1">NOTE 3 &mdash; CURRENT PROJECTS</font></b></p>
<p align="left"><i><b><font size="-1">Zapata County</font></b></i></p>
<p align="left"><font size="-1">On October 1, 2005, the owners of the PHT Resendez Limited Partnership elected to dissolve the partnership and distribute the assets to the members in proportion to their membership interest in the Limited Partnership. These assets consisted of some cash, a producing gas well, and leasehold interests in oil and gas properties in Zapata County, Texas. Accordingly, we no longer report our investment on an equity method basis, but consolidate the revenues and expenses into our income statement and reflect the investment in cash and fixed asset sections of the balance sheet.</font></p>
<p align="center">F-22</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><i><b><font size="-1">Fayetteville Shale</font></b></i></p>
<p align="left"><font size="-1">During October 2005, our subsidiary Maverick Woodruff County, LLC, borrowed $1,000,000 to finance lease acquisitions in the Fayetteville Shale project. The loan was secured by a pledge of the membership interests of Maverick Woodruff County, LLC. However, the loan automatically converted into shares of the common stock of one of our Fayetteville project participants in February 2006 when we acquired and distributed to this participant its pro-rata interest in 50,000 leasehold acres.</font></p>
<p align="left"><font size="-1">On April 4, 2006, Maverick Woodruff County, LLC received advances of $2.6 million from Bamco, LLC, one of the Fayetteville Shale project partners. The advance was used for the acquisition of additional leasehold acreage in the Fayetteville Shale project. The advance, together with interest at the rate of 8% per annum, will be settled when, and to the extent capital contributed to the project by the Fayetteville Shale project partners brings contributions in line with ownership percentages. Bamco, LLC received a $100,000 fee in conjunction with the advance. To date, $1.1 million of this advance has been settled.</font></p>
<p align="left"><i><b><font size="-1">Barnett Shale</font></b></i></p>
<p align="left"><font size="-1">From inception of the project through October 19, 2005, Reichmann Petroleum Corp served as the managing partner of RBE and as the operator of the 100% owned portion of the project. Dyke Ferrell, the principal shareholder of Reichmann Petroleum, owned an approximate 13% interest in RBE. During October 2005, we acquired the 13% interest in RBE from Mr. Ferrell for $1,750,000 and 250,000 shares of our common stock, for a total purchase price of $2,037,500. Of the cash purchase price, $250,000 was paid in October 2005, and the balance of $1,500,000 was paid in January 2006. In connection with this purchase, we became the managing member of RBE and operator of the 100% owned portion of the project.</font></p>
<p align="left"><b><font size="-1">NOTE 4 &mdash; CONVERTIBLE DEBENTURES AND DERIVATIVE LIABILITY</font></b></p>
<p align="left"><font size="-1">During October 2005, our subsidiary, Maverick Woodruff County, LLC, borrowed $1,000,000 to finance lease acquisitions in the Fayetteville Shale project. The loan was secured by a pledge of the membership interests of Maverick Woodruff County, LLC. However, the loan automatically converted into shares of the common stock of one of our Fayetteville project participants in February 2006 when we acquired and distributed to this participant its pro rata interest in 50,000 leasehold acres.</font></p>
<p align="left"><font size="-1">During October 2005, we sold convertible debentures and warrants to Trident Growth Fund, L.P. for gross proceeds of $2,000,000. The convertible debentures had a principal amount of $2,000,000 and bore interest at 12% per annum (the &ldquo;Trident 2005 Debentures&rdquo;). The warrants are exercisable over a five year term for 500,000 shares of common stock at an exercise price of $1.00 per share (the &ldquo;Trident 2005 Warrants&rdquo;). At its inception, we recorded a beneficial conversion feature on the Trident 2005 Debentures in the amount of $602,966, accounted for as a note discount to be amortized over the life of the loan. The Trident 2005 Debentures were paid in full in January 2006. Upon repayment, the remaining unamortized note discount was recognized as interest expense.</font></p>
<p align="left"><font size="-1">Following the January 5, 2006 issuance of $20 million of secured convertible debentures, as discussed below, and by application of anti-dilution provisions, the exercise price of the Trident 2005 Warrants was reduced to $.9376 per share, and the number of warrants was increased to 533,276. Also, following the January 5, 2006 issuance of $20 million of secured convertible debentures, as discussed below, and by application of anti-dilution provisions, the exercise price of 200,000 warrants issued to Trident during July 2004 (the &ldquo;Trident 2004 Warrants&rdquo;) was reduced to $.9376 per share, and the number of warrants was increased to 213,310.</font></p>
<p align="left"><font size="-1">On January 5, 2006, we sold secured convertible debentures and warrants for gross proceeds of $20,000,000. The secured convertible debentures have an aggregate principal amount of $20,000,000 and are convertible into 21,331,058 shares of our common stock, based upon an initial conversion price of $0.9376 per share, which is subject to anti-dilution adjustments The warrants are exercisable </font></p>
<p align="center">F-23</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">for 31,996,587 shares of our common stock over a five year period with, 21,331,059 having an initial exercise price of $0.9376 per share, 5,332,764 having an initial exercise price of $1.50 per share, and the remaining 5,332,764 having an initial exercise price of $2.00 per share. The exercise prices of the warrants are subject to anti-dilution adjustments. We agreed to register the resale of the shares of common stock issuable upon conversion of the secured convertible debentures and exercise of the warrants. The registration right agreement contains a liquidated damages provision that has been determined to be uneconomic.</font></p>
<p align="left"><font size="-1">As a result, we have determined that the conversion feature of the secured convertible debentures and the warrants issued with the secured convertible debentures are embedded derivative instruments pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Under the provisions of EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company&rsquo;s Own Stock, the accounting treatment of these derivative financial instruments requires that the Company record the derivatives at their fair values as of the inception date of the note agreements and at fair value as of each subsequent balance sheet date as a liability. Any change in fair value is recorded as non-operating, non-cash income or expense at each balance sheet date. The fair value of the derivative liabilities
was estimated using the Black-Scholes option pricing model. This model requires the use of estimates such as the expected holding period, the expected future volatility of the company&rsquo;s common stock and the risk-free rate of return over the holding period. These estimates directly affect the reported amounts of the derivative instrument liabilities. At May 31, 2006, the Company estimated the fair value of the conversion feature and warrant liability and related non-cash expense at $22,979,470 and $12,903,519, respectively.</font></p>
<p align="left"><font size="-1">The following table illustrates the components of our secured convertible debentures included in the accompanying consolidated financial statements:</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">May 31,<br>2006<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">August 31,<br>2005<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Convertible debentures, gross proceeds of $20,000,000: </font></p></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Current Portion, included in current liabilities</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">4,166,667</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Long-term portion</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">15,833,333</font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Less: Unamortized discount</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">(9,227,455</font></td>
<td align='left' valign='bottom' nowrap>
<font size="-1">)</font></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:2em;text-indent:-1em"><font size="-1">Long-term portion, net of unamortized discount</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">6,605,878</font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="-1">Future maturities of the convertible debentures are as follows:</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2006<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2007<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">2008<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Principal payments</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">&mdash; </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">10,000,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">10,000,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Interest</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">1,101,370 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">1,406,507 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">405,822 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Total</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">1,101,370 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">11,406,507 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">10,405,822 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="-1">As discussed in Note 6 &mdash; Subsequent Events, effective as of June 30, 2006 the Company issued registered shares of its common stock in lieu of payment in cash of the accrued interest payable on the January 5, 2006 secured convertible debentures through that date.</font></p>
<p align="left"><font size="-1">As discussed below under Note 6, on June 21, 2006, we sold secured convertible debentures and warrants for gross proceeds of $10,000,000. This transaction will be reviewed for the application of EITF 00-19 and FAS 133 in regards to accounting for embedded derivatives. However, we expect that the conversion feature of the June 21, 2006 secured convertible debentures and the associated warrants will be accounted for as embedded derivative instruments pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Under the provisions of EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company&rsquo;s Own Stock,&rdquo; the accounting treatment of these derivative financial instruments will likely require that the Company record the derivatives at their fair values
as of the inception date of the note agreements and at fair value as of each subsequent balance sheet date as a </font></p>
<p align="center">F-24</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">liability. Any change in fair value will be recorded as non-operating, non-cash income or expense at each balance sheet date.</font></p>
<p align="left"><b><font size="-1">NOTE 5 &mdash; STOCKHOLDERS&rsquo; EQUITY</font></b></p>
<p align="left"><font size="-1">During August and September 2005, we granted stock options to three non-employee directors. Each of the options granted entitle the director to purchase 80,000 shares of common stock, provided that he remains on the Company&rsquo;s Board of Directors through the vesting period. One-half (50%) of these options vest during August and September 2006 and the remaining 50% vest during August and September 2007. These options have an exercise price ranging from $1.02 to $1.22 per share and expire during 2015. The average fair value of each option granted was $0.96. All options were granted with an exercise price equal to the market price on the trading day prior to the date of grant. The fair value was estimated on the date of grant using the Black-Scholes option-pricing model with an expected average volatility of 40% and a risk-free interest rate of 4%.</font></p>
<p align="left"><font size="-1">On November 28, 2005, we sold 200,000 investment units at a price of $10 per unit to Millenium Global Investments, Ltd., with each unit consisting of ten (10) shares of our common stock and one (1) thirty month warrant to purchase four (4) shares of our common stock at an exercise price of $1.70 per share. The Millenium warrants were restructured following our January 5, 2006 issuance of secured convertible debentures and associated warrants. As restructured, Millenium surrendered warrants to purchase 800,000 shares of our common stock at an exercise price of $1.70 per share, in exchange for warrants to purchase 2,000,000 shares of our common stock; of which 1,000,000 were issued at an exercise price of $.9376 per share; 500,000 at an exercise price of $1.50 per share; and 500,000 at an exercise price of $2.00 per share.</font></p>
<p align="left"><font size="-1">On December 2, 2005, we issued 250,000 shares of our common stock to Reichmann Petroleum as part of the purchase price for an additional interest in RBE, LLC, as more fully described in Note 3.</font></p>
<p align="left"><font size="-1">During February 2006, we granted stock options to a non-employee director entitling him to purchase 80,000 shares of common stock, provided that he remains on the Company&rsquo;s Board of Directors through the vesting period. One-half (50%) of these options vests during February 2007 and the remaining 50% vests during February 2008. These options have an exercise price of $1.39 per share and expire during 2016. The average fair value of the option granted was $1.39. The options were granted with an exercise price equal to the market price on the trading day prior to the date of grant. The fair value was estimated on the date of grant using the Black-Scholes option-pricing model with an expected average volatility of 54% and a risk-free interest rate of 4%.</font></p>
<p align="left"><font size="-1">During the quarter ended May 31, 2006, the Company issued no shares of restricted common stock under our 2005 Incentive Stock Plan. During the nine months ended May 31, 2006, the Company issued an aggregate of 300,000 shares of restricted common stock under our 2005 Incentive Stock Plan to certain officers and employees. The shares are subject to annual vesting over a three-year period.</font></p>
<p align="left"><font size="-1">During March and April, 2006, we issued five-year warrants to purchase an aggregate of 1,493,174 shares of our common stock at an exercise price of $.9376 to the investment bankers who assisted in the placement of the January 5, 2006 sale of convertible debentures and associated warrants. The fair value of these warrants was estimated at $1,449,660 accounted for as prepaid loan fees, being amortized over the remainder of the term of the secured convertible debentures. The fair value was estimated at grant date using the Black-Scholes option pricing model with an expected average volatility of 84.18% and a risk-free interest rate ranging from 4.71% to 4.85%. During the quarter ended May 31, 2006 we recognized amortization costs of $111,459 on the original fair value of these warrants. </font></p>
<p align="left"><font size="-1">On April 3, 2006, we agreed to issue up to 115,000 shares of our common stock to our investor relations firm pursuant to an agreement dated August 2005, under which approximately 104,583 of the shares have been earned through May 31, 2006, and the balance to be earned through the end of fiscal 2006.</font></p>
<p align="center">F-25</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">In consideration for certain financial advisory services, during April 2006 we agreed to issue warrants to purchase 200,000 shares of our common stock at an exercise price of $2.00 per share to an investment banker. These warrants will not be issued, however, until we have amended our Articles of Incorporation to increase our authorized capital stock.</font></p>
<p align="left"><b><font size="-1">NOTE 6 &mdash; SUBSEQUENT EVENTS </font></b></p>
<p align="left"><font size="-1">Effective as of June 30, 2006, the Company issued 423,551 registered shares of its common stock as an interest payment to the holders of the $20 million secured convertible debentures issued in January 2006. These shares were issued in lieu of a cash payment of $373,973 that would have otherwise been paid representing interest due through June 30, 2006.</font></p>
<p align="left"><font size="-1">On June 21, 2006, we sold secured convertible debentures and warrants for gross proceeds of $10,000,000. The secured convertible debentures have an aggregate principal amount of $10,000,000 and are convertible into 10,665,529 shares of our common stock, based upon an initial conversion price of $0.9376 per share, which is subject to anti-dilution adjustments The warrants are exercisable for 18,664,676 shares of common stock for a period of five years, at an exercise price of $0.9376 per share. The exercise price of the warrants is subject to anti-dilution adjustments. We agreed to register the resale of the shares of common stock issuable upon conversion of the secured convertible debentures and exercise of the warrants. The registration right agreement contains a liquidated damages provision that has been determined to be uneconomic.</font></p>
<p align="left"><font size="-1">This transaction will be reviewed for the application of EITF 00-19 and FAS 133 in regards to accounting for embedded derivatives. However, inasmuch as the June 21, 2006 transaction contained many of the same features as the January 5, 2006 transaction, we expect that the conversion feature of the June 21, 2006 secured convertible debentures and the associated warrants will be accounted for as embedded derivative instruments pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Under the provisions of EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company&rsquo;s Own Stock, the accounting treatment of these derivative financial instruments could require that the Company record the derivatives at their fair values as of the inception date of the debentures
and at fair value as of each subsequent balance sheet date as a liability. Any change in fair value will be recorded as non-operating, non-cash income or expense at each balance sheet date.</font></p>
<p align="left"><font size="-1">As a result of the issuance of the warrants in connection with the sale of these secured convertible debentures on June 21, 2006 and the anti-dilution adjustment provisions of the warrants issued in connection with the sale of secured convertible debentures on January 5, 2006, the exercise price of approximately 5.3 million of the warrants issued on January 5, 2006 was reduced from $2.00 to $0.9376, the exercise price of approximately 5.3 million of the warrants issued on January 5, 2006 was reduced from $1.50 to $0.9376, and an approximately 9.3 million additional shares of common stock became issuable upon exercise of the warrants issued on January 5, 2006.</font></p>
<p align="left"><font size="-1">During June 2006, we agreed to issue 1.2 million shares of our common stock to a third party for advisory services provided in connection with the acquisition of leasehold acreage by our subsidiary in Woodruff and surrounding counties in Arkansas, subject to certain conditions, including a pending amendment to our Articles of Incorporation to increase the number of shares of common stock authorized and available for issuance.</font></p>
<p align="left"><font size="-1">Pursuant to an Information Statement dated July 17, 2006, on August 7, 2006, we plan to amend our Articles of Incorporation to increase the number of authorized shares of our common stock from 200 million shares to 260 million shares. The action was approved pursuant to written consent by the holders of a majority of our shares (approximately 51.9 million shares). No meeting was held and no proxies were solicited.</font></p>
<p align="left"><font size="-1">During June 2006, we agreed to grant options to purchase 500,000 shares of our common stock and 100,000 shares of restricted common stock, each under our 2005 Incentive Stock Plan, to a new </font></p>
<p align="center">F-26</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">employee. The options will have an exercise price of $1.04 per share, with annual vesting to occur over a period of five years, subject to continued employment with the Company (and subject to acceleration under certain conditions.) The shares of restricted stock will vest upon grant.</font></p>
<p align="center">F-27</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<div align="left">
<p><hr noshade color="#000000" align='left' size=1>
</p>
</div>
<div align="left">
<p><hr noshade color="#000000" align='left' size=0>
</p>
</div>
<p align="left"><font size="-1">No dealer, salesman or any other person has been authorized to give any information or to make any representations other than those contained in this prospectus in connection with the offer made by the prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by Maverick Oil and Gas, Inc. This prospectus does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstance, create any implication that there has been no change in the affairs of Maverick Oil
and Gas, Inc. or that the information contained herein is correct as of any time subsequent to the date hereof.</font></p>
<div align="center">
<p><hr noshade color="#000000" align='center' width=72 size=0>
</p>
</div>
<H1 align="center"><b>MAVERICK OIL AND GAS, INC.</b></H1>
<div align="center">
<p><b><hr noshade color="#000000" align='center' width=72 size=0>
</b></p>
</div>
<p align="center">30,089,004 SHARES OF COMMON STOCK </p>
<H1 align="center"><b>PRELIMINARY PROSPECTUS</b></H1>
<p align="center"><font size="-1">July </font><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u><font size="-1">, 2006</font></p>
<div align="left">
<p><hr noshade color="#000000" align='left' size=0>
</p>
</div>
<div align="left">
<p><hr noshade color="#000000" align='left' size=1>
</p>
</div>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">Part II<br>INFORMATION NOT REQUIRED IN PROSPECTUS</font></b></p>
<p align="left"><b><font size="-1">Item 13. Other Expenses of Issuance and Distribution</font></b></p>
<p align="left"><font size="-1">The following is an estimate of the expenses which will be incurred by the Company in connection with the issuance and distribution of the securities being registered.</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">SEC filing fee</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">2,962 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Legal fees and expenses</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">50,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Accountants&rsquo; fees and expenses</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">15,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Miscellaneous expenses</font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">5,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom'>
<p style="margin-left:4em;text-indent:-2em"><font size="-1">Total</font></p></td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom' nowrap>
<font size="-1">$</font></td>
<td align='right' valign='bottom'>
<font size="-1">72,962 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<hr noshade size=3 color="#000000"></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="left"><b><font size="-1">Item. Indemnification of Directors and Officers</font></b></p>
<p align="left"><font size="-1">Section 78.138 of the Nevada Revised Statutes provides that a director or officer is not individually liable to the corporation or its shareholders or creditors for any damages as a result of any act or failure to act in his capacity as a director or officer unless it is proven that (1) his act or failure to act constituted a breach of his fiduciary duties as a director or officer and (2) his breach of those duties involved intentional misconduct, fraud or a knowing violation of law.</font></p>
<p align="left"><font size="-1">This provision is intended to afford directors and officers protection against and to limit their potential liability for monetary damages resulting from suits alleging a breach of the duty of care by a director or officer. As a consequence of this provision, shareholders of our company will be unable to recover monetary damages against directors or officers for action taken by them that may constitute negligence or gross negligence in performance of their duties unless such conduct falls within one of the foregoing exceptions. The provision, however, does not alter the applicable standards governing a director&rsquo;s or officer&rsquo;s fiduciary duty and does not eliminate or limit the right of our company or any shareholder to obtain an injunction or any other type of non-monetary relief in the event of a breach of fiduciary duty.</font></p>
<p align="left"><b><font size="-1">Item 15. Recent Sales of Unregistered Securities</font></b></p>
<p align="left"><font size="-1">&bull;&nbsp;In July 2004, we issued ten (10) year warrants to purchase 200,000 shares of our common stock at $1.00 per share to Trident Growth Fund, L.P. in connection with a $2,050,000 loan made by Trident to MBE (the &ldquo;Trident 2004 Loan&rdquo;). The exercise price of the warrants is subject to customary anti-dilution adjustments and a &ldquo;full ratchet&rdquo; adjustment in the event of the issuance of common stock or common stock equivalents for a price less than the then exercise price of the warrants. The warrants were issued in a private placement transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the &ldquo;Securities Act&rdquo;), pursuant to Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D, without the payment of underwriting discounts or commissions to any person.</font></p>
<p align="left"><font size="-1">&bull;&nbsp;In August 2004, we sold one million investment units at $2.00 per Unit to AltaFin, B.V., a Netherland Antilles corporation, with each unit consisting of two shares of our common stock and one warrant to purchase a share of our common stock at a purchase price of $2.00 per share and exercisable for a five (5) year period. The units were sold in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D, without the payment of underwriting discounts or commissions to any person.</font></p>
<p align="left"><font size="-1">&bull;&nbsp;During August 2004, we issued warrants to purchase 300,000 shares of our common stock at an exercise price of $1.50 per shares to HMA Advisors, Inc. in consideration of consulting services. These shares were exempt from registration under the Securities Act in reliance on section 4(2)of the </font></p>
<p align="center">II-1</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">Securities Act and the &ldquo;safe harbor&rdquo; private-offering exemption provided by Rule 506 of Regulation D promulgated under the Securities Act.</font></p>
<p align="left"><font size="-1">&bull;&nbsp;On November 18, 2004 we entered into a convertible note agreement with DDH Resources II, Limited (&ldquo;DDH&rdquo;) whereby DDH loaned us $1,000,000. To induce the loan, we issued to DDH warrants to purchase 500,000 shares of our common stock exercisable for 3 (three) years at $2.00 per share. The warrants were issued in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D, without the payment of underwriting discounts or commissions to any person.</font></p>
<p align="left"><font size="-1">&bull;&nbsp;Effective as of December 28, 2004, we agreed to issue three (3) year warrants to purchase 100,000 shares of our common stock at an exercise price of $2.00 per share to Brockington Securities, Inc. in consideration of general investment banking and financial advisory services rendered relative to our financing efforts. The warrants were issued in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D, without payment of underwriting discounts or commissions to any person.</font></p>
<p align="left"><font size="-1">&bull;&nbsp;On January 11, 2005, we issued 125,000 shares of our common stock to Westport Strategic Partners, Inc. in consideration of consulting services. These shares were exempt from registration under the Securities Act in reliance on section 4(2) of the Securities Act and the &ldquo;safe harbor&rdquo; private-offering exemption provided by Rule 506 of Regulation D promulgated under the Securities Act.</font></p>
<p align="left"><font size="-1">&bull;&nbsp;During January and February 2005, we completed a private financing transaction in which we realized gross offering proceeds of $28,435,000. In the transaction, we issued 14,217,500 investment units at a price of $2.00 per unit. Each unit contained two shares of our common stock and a three-year warrant to purchase a share of our common stock at a price of $2.00 per share. In connection with this transaction, we paid aggregate investment banking fees and sales commissions of $2,843,500, non-accountable expenses of $148,000, and we issued warrants to purchase 792,750 shares of our common stock at an exercise price of $1.20 per share to the placement agent for the transaction. The units were exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance on Section 4(2) of the Act and Regulation S of the Act, as well
as the safe harbor private offering exemption provided by Rule 506 of Regulation D, promulgated under the Act.</font></p>
<p align="left"><font size="-1">&bull;&nbsp;On March 10, 2005, we issued 4,500,000 shares of our common stock and options and warrants to purchase an aggregate of 4,500,000 shares of our common stock to the former members of Hurricane Energy, LLC, in connection with our purchase of all of the membership interests of Hurricane. Options to purchase 3,690,000 shares of our common stock were issued under our 2005 Stock Incentive Plan at an exercise price of $2.395 per share. We also issued warrants to purchase 810,000 shares of our common stock. One-half of these warrants are exercisable, commencing on the first anniversary of the closing, at an exercise price of $1.75 per share. The balance of the warrants can be exercised, commencing on the second anniversary of the closing, at an exercise price of $1.925 per share. The warrants have a term of three years. The shares, options, and warrants
were issued in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D.</font></p>
<p align="center">II-2</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">The shares, options, and warrants were issued to the following individuals:</font></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">Name<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Number of<br>Shares<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Number of<br>Options<br><hr noshade color="#000000"></font></b></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Number of<br>Warrants<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">V. Ray Harlow </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,170,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,230,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">0 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">John Ruddy </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,170,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,230,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">0 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">James Parrish </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,170,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">1,230,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">0 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Lance E. Johnson </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">63,948 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">0 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">45,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Robert A. Solberg </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">63,948 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">0 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">45,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Terry C. McEwen </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">63,948 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">0 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">45,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Susan Hightower </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">63,948 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">0 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">45,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Cornelius Dupre II </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">487,892 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">0 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">450,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Michael T. Lynch </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">118,420 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">0 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">90,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Anthony J. Weido </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">63,948 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">0 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">45,000 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<p style="margin-left:1em;text-indent:-1em"><font size="-1">Kurt R. Peters </font></p></td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">63,948 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">0 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='bottom'>
<font size="-1">45,000 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="-1">&bull;&nbsp;During March 2005, we issued warrants to purchase 200,000 shares of our common stock at an exercise price of $1.25 per share for a period of three (3) years to Birchwood Capital, Inc. in consideration of consulting services. These shares were issued in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) of the Securities Act.</font></p>
<p align="left"><font size="-1">&bull;&nbsp;During March 2005, we issued warrants to purchase 150,000 shares of our common stock at an exercise price of $1.50 per share for a period of three (3) years to Carlo Seidel, our former interim chief financial officer, in consideration of consulting services. These shares were issued in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) of the Securities Act.</font></p>
<p align="left"><font size="-1">&bull;&nbsp;During March 2005, we issued 1,600,000 shares of our common stock to DDH Resources II, Limited, and 250,000 shares to Trident Growth Fund, LP, each in conversion and full payment of the $1,850,000 principal amount remaining due under the Trident 2004 Loan. The shares were issued in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Sections 3(a)(9) and 4(2) of the Securities Act.</font></p>
<p align="left"><font size="-1">&bull;&nbsp;During March 2005, we issued 942,565 shares of our common stock to DDH upon conversion of a $1 million loan made by DDH to us on November 18, 2004. The shares of our common stock issued to DDH were issued in a transaction exempt from the registration requirements of the Securities Act pursuant to Sections 3(a)(9) and 4(2) thereunder.</font></p>
<p align="left"><font size="-1">&bull;&nbsp;On October 26, 2005, we issued to Trident Growth Fund, LP, a $2,000,000 a convertible debenture and warrants to purchase 500,000 shares of our common stock. The convertible debenture has a principal amount of $2,000,000 and bears interest at 12%. It must be repaid on or before October 26, 2006, and is secured by a security interest in all of our assets (subject to a subordination agreement relating to Maverick Woodruff County, LCC). The debenture is convertible into our shares of common stock at the lesser of $1.00 per share or the price per share of common stock and common stock equivalents sold in the first &ldquo;Qualifying Transaction&rdquo; after the issuance of the debenture, (which is defined as an equity and/or debt financing in which we receive gross proceeds of at least $3,000,000). The conversion price is subject to customary anti-dilution
adjustments and a &ldquo;full ratchet&rdquo; adjustment in the event of the issuance of common stock or common stock equivalents for a price less than the then conversion price of the debenture. The warrants have a term of 5 years and bear an exercise price equal to the lesser of $1.00 per share or the price per share of common stock and common stock equivalents sold in the first &ldquo;Qualifying Transaction&rdquo; (as defined above) after the issuance of the warrants. The number of shares issuable upon exercise of the warrants will increase by 500,000 for each 150 day period following the issuance of the warrants that the debenture remains unpaid in full. The exercise price of the warrants is subject to customary anti-dilution adjustments and a &ldquo;full </font></p>
<p align="center">II-3</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">ratchet&rdquo; adjustment in the event of the issuance of common stock or common stock equivalents for a price less than the then exercise price of the warrants. The convertible debenture and the warrants were issued to Trident Growth Fund, LP., an accredited investor in a private placement transaction exempt from registration requirements of the Securities Act of 1933, pursuant to Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D, without the payment of underwriting discounts or commissions (other than a 3% loan origination fee paid to Trident).</font></p>
<p align="left"><font size="-1">&bull;&nbsp;On November 28, 2005, we sold 200,000 investment units at a price of $10 per unit to Millenium Global High Yield Fund, Ltd., with each unit consisting of ten (10) shares of our common stock and one (1) warrant to purchase four (4) shares of our common stock subject to an exercise price of $1.70 per share and a term of thirty (30) months. The units were sold in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Section 4(2), Rule 506 of SEC Regulation D and Regulation S of the Securities Act without the payment of underwriting discounts or commissions to any person. During February 2006, the warrant component of the units was restructured and modified with Millenium surrendering its original warrants in lieu of warrants to purchase 2,000,000 shares of our stock; 1,000,000 of which have an
exercise price of .9376, 500,000 of which have an exercise price of $1.50 and 500,000 of which have an exercise price of $2.00.</font></p>
<p align="left"><font size="-1">&bull;&nbsp;During December 2005, we issued 250,000 shares of our common stock to Reichmann Petroleum in partial consideration for the purchase of an additional 13% interest in RBE, LLC. The shares of common stock were issued in a private placement transaction exempt from the registration requirements of the Securities Act of 1933, pursuant to Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D.</font></p>
<p align="left"><font size="-1">&bull;&nbsp;On January 5, 2006, the Company issued Secured Convertible Debentures in the principal amount of $20 million and Warrants to purchase up to 31,996,587 shares of the Company&rsquo;s Common Stock. The Secured Convertible Debentures are convertible into 21,331,058 shares of the Company&rsquo;s Common Stock, based upon an initial conversion price of $0.9376 per share, which is subject to anti-dilution adjustments. Of the Warrants, 21,331,059 have an initial exercise price of $0.9376 per share, 5,332,764 have an initial exercise price of $1.50 per share, and the remaining 5,332,764 have an initial exercise price of $2.00 per share. The exercise prices of the Warrants are subject to anti-dilution adjustments. The Secured Convertible Debentures and Warrants were issued to institutional accredited investors in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended (the &ldquo;Securities Act&rdquo;) and Rule 506 promulgated by the Commission thereunder. In connection with the transaction, the Company paid placement agency fees of 7% of the gross proceeds and issued to the placement agents warrants to purchase 1,493,174 shares of the Company&rsquo;s common stock (7% of the shares issuable upon conversion of the Secured Convertible Debenture).</font></p>
<p align="left"><font size="-1">&bull;&nbsp;On June 21, 2006, the Company issued Secured Convertible Debentures in the principal amount of $10 million and Warrants to purchase up to 18,664,676 shares of the Company&rsquo;s Common Stock at an exercise price of $0.9376 per share. The Secured Convertible Debentures are convertible into 10,665,529 shares of the Company&rsquo;s Common Stock, based upon an initial conversion price of $0.9376 per share, which is subject to anti-dilution adjustments. The exercise price of the Warrants is subject to anti-dilution adjustments, The Secured Convertible Debentures and Warrants were issued to institutional accredited investors in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (the &ldquo;Securities Act&rdquo;) and Rule 506 promulgated by the Commission thereunder. </font></p>
<p align="left"><b><font size="-1">Item 16. Exhibits and Financial Statement Schedules</font></b></p>
<p align="left"><font size="-1">The following is a complete list of Exhibits filed as part of this Registration Statement, which are incorporated herein:</font></p>
<p align="left"><font size="-1">(a) Exhibits</font></p>
<p align="center">II-4</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Exhibit<br>Number<br><hr noshade color="#000000"></font></b></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">Description<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2.1 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Plan and Agreement of Merger between the Registrant and Waterloo Ventures, Inc. (2) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">2.2 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">LLC Interest Purchase Agreement dated March 9, 2005 between the Registrant and the Members of Hurricane Energy, LLC (3) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">3.1 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Articles of Incorporation(1) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">3.2 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Amended and Restated By-Laws (7) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">3.3 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Certificate of Amendment to the Articles of Incorporation (4) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4.1 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Securities Purchase Agreement between Trident Growth Fund, LP and Maverick Oil and Gas, Inc. dated as of October 26, 2005 (8) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4.2 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">12% Senior Secured Convertible Debenture of Maverick Oil and Gas, Inc. dated October 26, 2005(8) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4.3 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Pledge of Stock Agreement between Trident Growth Fund, LP and Maverick Oil and Gas, Inc. dated as of October 26, 2005 (8) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4.4 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Security Agreement between Trident Growth Fund, LP and Maverick Oil and Gas, Inc. dated as of October 26, 2005 (8) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4.5 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Common Stock Purchase Warrant Agreement between Trident Growth Fund, LP and Maverick Oil and Gas, Inc. dated as of October 26, 2005 (8) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4.6 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Letter Agreement dated between Trident Growth Fund, LP and Maverick Oil and Gas, Inc. as of October 26, 2005, resulting in a modification to the Security Agreement (8) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">4.7 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Letter Agreement between Trident Growth Fund, LP and Maverick Oil and Gas, Inc. dated as of November 15, 2005, resulting in a modification to the warrant granted to Trident (9) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">5.1 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Opinion of Buchanan Ingersoll PC (11) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">5.2 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Opinion of Woodburn and Wedge (11) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.1 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Operating Agreement of Maverick Basin Exploration , LLC, dated June 23, 2004(2) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.2 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Amendment to Operating Agreement of Maverick Basin Exploration, LLC, dated July 14, 2004(2) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.3 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Amendment to Operating Agreement of Maverick Basin Exploration, LLC, dated July 28, 2004(2) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.4 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Amendment to Operating Agreement of Maverick Basin Exploration, LLC, dated August 6, 2004(2) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.5 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Amendment to Operating Agreement of Maverick Basin Exploration, LLC, dated October 12, 2004(2) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.6 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Amendment to Operating Agreement of Maverick Basin Exploration, LLC, dated November 30, 2004(2) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.7 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">RBE LLC Operating Agreement, dated August 2, 2004(2) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.8 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Amendment to RBE LLC Operating Agreement, dated August 8, 2004(2) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.9 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Amendment to RBE LLC Operating Agreement, dated December 1, 2004(2) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.10 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Employment Agreement with Michael Garland dated July 27, 2004(2) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.11 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Warrant Certificate between the Registrant and AltaFin B.V. dated August 2, 2004(2) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.12 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Option Agreement between the Registrant and Michael Garland dated July 27, 2004(2) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.13 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Subscription Agreement between the Registrant and PHT Resendez Partners, L.P. dated October 5, 2004(2) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.14 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Warrant Certificate between the Registrant and Trident Growth Fund, L.P. dated July 31, 2004(2) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.15 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Interest Purchase Agreement between the Registrant and Ferrell RBE Holdings, LLC dated July 2004(2) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.16 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Interest Purchase Agreement between the Registrant and South Oil, Inc. dated July 2004(2) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.17 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Promissory Note between the Registrant and Trident Growth Fund, LP dated July 14, 2004(2) </font></td>
</tr>
</table>
<p align="center">II-5</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Exhibit<br>Number<br><hr noshade color="#000000"></font></b></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">Description<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.18 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Security Agreement between the Registrant and Trident Growth Fund, LP dated July 14, 2004(2) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.19 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Guaranty between the Registrant and Trident Growth Fund, LP dated July 14, 2002(2) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.20 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Registration Rights Agreement dated March 9, 2005 between the Registrant and the Founders of Hurricane Energy, LLC (3) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.21 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Escrow Agreement dated March 9, 2005 between the Registrant and the Members of Hurricane Energy, LLC (3) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.22 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Employment Agreement dated March 9, 2005 between the Registrant and V. Ray Harlow (3) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.23 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Employment Agreement dated March 9, 2005 between the Registrant and John A. Ruddy (3) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.24 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Employment Agreement dated March 9, 2005 between the Registrant and James Parrish (3) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.25 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">The Registrant&rsquo;s 2005 Stock Option Plan (9) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.26 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Stock Purchase Agreement dated as of April 6, 2005 among Louisa K. Becker, James N. Dettl, Steven K. Miller, Bryant H. Patton, Marcus W. Rhoades, Robert N. Skinner and Yorktown Energy Partners IV, L.P. (Sellers), Camden Resources, Inc. and Maverick Oil and Gas, Inc.(6) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.27 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Form of Securities Purchase Agreement between Millenium Global High Yield Fund, Ltd. and Maverick Oil and Gas Inc., dated as of November 29, 2005(9) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.28 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Form of Common Stock Purchase Warrant between Millenium Global High Yield Fund, Ltd. and Maverick Oil and Gas, Inc., dated as of November 29, 2005(9) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.29 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Securities Purchase Agreement dated January 5, 2006 (relating to the sale of Secured Convertible Debentures and associated Warrants)(10) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.30 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Form of Secured Convertible Debenture dated January 5, 2006(10) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.31 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Form of Warrant dated January 5, 2006(10) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.32 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Form of Registration Rights Agreement dated January 5, 2006(10) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.33 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Form of Security Agreement dated January 5, 2006(10) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.34 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Securities Purchase Agreement dated June 21, 2006 (including relevant portions of accompanying schedules)(12) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.35 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Form of Secured Convertible Debenture dated June 21, 2006(12) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.36 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Form of Warrant dated June 21, 2006(12) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.37 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Form of Registration Rights Agreement dated June 21, 2006(12) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.38 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Form of Pledge and Security Agreement dated June 21, 2006(12) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.39 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Form of Escrow Agreement(12) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">10.40 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Form of Waiver Letter(12) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">14.1 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Code of Business Conduct and Ethics(9) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">21.1 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Subsidiaries of the Registrant (13) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">23.1 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Consent of Malone &amp; Bailey, PC (13) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">23.2 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Consent of Morgan &amp; Company (13) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">23.3 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Consent of counsel (included in Exhibit 5.1 opinion) </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">23.4 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Consent of counsel (included in Exhibit 5.2 opinion) </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='right' valign='top'>
<font size="-1">23.5 </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<font size="-1">Consent of Miller and Lents, Ltd. (11) </font></td>
</tr>
</table>
<p align="left"><font size="-1">(1) Incorporated by reference to our Registration Statement on Form SB-2 filed with the Commission on October 14, 2002.</font></p>
<p align="left"><font size="-1">(2) Incorporated by reference to our Annual Report on 10-KSB filed with the Commission on December 3, 2004.</font></p>
<p align="center">II-6</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">(3) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on March 15, 2005.</font></p>
<p align="left"><font size="-1">(4) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on June 3, 2005.</font></p>
<p align="left"><font size="-1">(5) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on November 1, 2005.</font></p>
<p align="left"><font size="-1">(6) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on April 12, 2005.</font></p>
<p align="left"><font size="-1">(7) Incorporated by reference to the Registrant&rsquo;s current Report on Form 8-K filed with the Commission on January 4, 2006.</font></p>
<p align="left"><font size="-1">(8) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on November 1, 2005.</font></p>
<p align="left"><font size="-1">(9) Incorporated by reference to the Registrant&rsquo;s Annual Report on Form 10-KSB filed with the Commission on November 29, 2005.</font></p>
<p align="left"><font size="-1">(10) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on January 9, 2006.</font></p>
<p align="left"><font size="-1">(11) To be provided upon amendement.</font></p>
<p align="left"><font size="-1">(12) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on June 23, 2006.</font></p>
<p align="left"><font size="-1">(13) Filed herewith.</font></p>
<p align="left"><b><font size="-1">Item 17. Undertakings</font></b></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">The undersigned Registrant hereby undertakes:</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement;</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(i) If the undersigned Registrant is relying on Rule 430B:</font></p>
<p align="center">II-7</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(A) Each prospectus filed by the Registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof, Provided however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(ii) If the undersigned Registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(5) That, for the purpose of determining liability of the undersigned Registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(i) Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424;</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant;</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(iv) Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">(6) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act </font></p>
<p align="center">II-8</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="left"><font size="-1">of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.</font></p>
<p align="center">II-9</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">SIGNATURES</font></b></p>
<p align="left"><font size="-1">In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing this Registration Statement on Form S-1 and authorized this Registration Statement to be signed on its behalf by the undersigned, in Fort Lauderdale, Florida, on the date indicated below. </font></p>
<p align="left"><b><font size="-1">MAVERICK OIL AND GAS, INC.</font></b></p>


<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<font size="-1">Date: July 21, 2006 </font></td>
<td align='left' valign='top'>
<font size="-1">/s/ V. Ray Harlow<br><hr noshade color="#000000" align='left' size=0>
V. Ray Harlow<br>Chief Executive Officer </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<br>&nbsp;<font size="-1">Date: July 21, 2006 </font></td>
<td align='left' valign='top'>
<br>&nbsp;<font size="-1">/s/ John Ruddy<br><hr noshade color="#000000" align='left' size=0>
John Ruddy<br>Chief Financial Officer and<br>Principal Accounting Officer </font></td>
</tr>
</table>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of Maverick Oil and Gas, Inc. hereby constitutes and appoints V. Ray Harlow, his true and lawful attorney-in-fact and agent, with full power of substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file any and all amendments to this Form S-1, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as full to all intents and purposes as he himself might or could do if personally present, thereby ratifying and confirming all that
said attorneys-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done.</font></p>
<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="-1">In accordance with the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.</font></p>


<table width=100% cellpadding=0 cellspacing=0 borde=0>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<b><font size="-1">Signature<br><hr noshade color="#000000"></font></b></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<b><font size="-1">Title<br><hr noshade color="#000000"></font></b></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='top'>
<b><font size="-1">Date<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<font size="-1">/s/ V. Ray Harlow<br><hr noshade color="#000000" align='left' size=0>
V. Ray Harlow </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">Chairman/Chief Executive Officer </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">July 21, 2006 </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<br>&nbsp;<font size="-1">/s/ John Ruddy<br><hr noshade color="#000000" align='left' size=0>
John Ruddy </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<br>&nbsp;<font size="-1">Chief Financial Officer and<br>Principal Accounting Officer </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">July 21, 2006 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<BR><hr noshade color="#000000" align='left' size=0>
<font size="-1">Lance E. Johnson </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<br>&nbsp;<font size="-1">Director </font></td>
<td bgcolor="#ffffff">&nbsp;</td>
<td bgcolor="#ffffff">&nbsp;</td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<br>&nbsp;<font size="-1">/s/ David Preng<br><hr noshade color="#000000" align='left' size=0>
David Preng </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<br>&nbsp;<font size="-1">Director </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">July 21, 2006 </font></td>
</tr>
<tr bgcolor="#ffffff">
<td align='left' valign='top'>
<br>&nbsp;<font size="-1">/s/ Andrej Rucigaj<br><hr noshade color="#000000" align='left' size=0>
Andrej Rucigaj </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<br>&nbsp;<font size="-1">Director </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">July 21, 2006 </font></td>
</tr>
<tr bgcolor="#b2e5ff">
<td align='left' valign='top'>
<br>&nbsp;<font size="-1">/s/ Matthew Fitzgerald<br><hr noshade color="#000000" align='left' size=0>
Matthew Fitzgerald </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<br>&nbsp;<font size="-1">Director </font></td>
<td align='left' valign='top' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">July 21, 2006 </font></td>
</tr>
</table>
<p align="center">II-10</p>
<hr noshade color="#000000">
<p style='page-break-before: always'></p>
<PAGE>
<p align="center"><b><font size="-1">EXHIBIT INDEX</font></b></p>
<table width=100% cellpadding=0 cellspacing=0 border=0>
<tr bgcolor="#ffffff">
<td align='center' valign='bottom' colspan=3>
<b><font size="-1">Exhibit<br>Number<br><hr noshade color="#000000"></font></b></td>
<td align='center' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='center' valign='bottom'>
<b><font size="-1">Description<br><hr noshade color="#000000"></font></b></td>
</tr>
<tr bgcolor="#b2e5ff">
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">21.1 </font></td>
<td bgcolor="#b2e5ff">&nbsp;</td>
<td align='left' valign='bottom' nowrap>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">Subsidiaries of the Registrant </font></td>
</tr>
<tr bgcolor="#ffffff">
<td bgcolor="#ffffff">&nbsp;</td>
<td align='left' valign='bottom'>
<font size="-1">23.1 </font></td>
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<td align='left' valign='bottom' nowrap>
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{"company-data": {"conformed-name": "MAVERICK OIL & GAS, INC.", "cik": "0001193159", "assigned-sic": "1311", "irs-number": "980377027", "fiscal-year-end": "0831"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-135957", "film-number": "06974405"}, "business-address": {"street1": "888 EAST LAS OLAS BOULEVARD", "street2": "SUITE 400", "city": "FORT LAUDERDALE", "state": "FL", "zip": "33301", "phone": "954 463 5707"}, "mail-address": {"street1": "888 EAST LAS OLAS BOULEVARD", "street2": "SUITE 400", "city": "FORT LAUDERDALE", "state": "FL", "zip": "33301"}, "former-company": {"former-conformed-name": "WATERLOO VENTURES INC", "date-changed": "20020926"}}
As filed with the United States Securities and Exchange Commission on July 21, 2006
Registration No.
UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Maverick Oil and Gas, Inc.
(Name of Registrant as specified in its charter)
Nevada
1040
98-0377027
(State or other jurisdiction of
incorporation or organization)
(primary standard industrial
classification code number)
(IRS Employer Identification No.)
888 East Las Olas Boulevard, Suite 400
Fort Lauderdale, Florida 33301
(954) 463-5707
Address and telephone number of principal executive offices and principal place of business
V. Ray Harlow
Chief Executive Officer
Maverick Oil and Gas, Inc.
888 East Las Olas Boulevard, Suite 400
Fort Lauderdale, FL 33301
(954) 463-5707
Stephen M. Cohen
Director of Legal Affairs/Corporate Counsel
Maverick Oil and Gas, Inc.
1835 Market Street, Suite 1500
Philadelphia, PA 19103
(215) 568-4891
(Name, address and telephone number of agent for service)
Copies to:
Brian North, Esq.
Buchanan Ingersoll & Rooney PC
1835 Market Street, 14th Floor
Philadelphia, PA 19103
(215) 665-8700
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
o
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering.
o
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
o
If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.
o
Calculation of Registration Fee
Title of each class of securities
to be registered
Amount to be
registered(1)
Proposed maximum
offering price
per share(2)
Proposed maximum
aggregate offering
price
Amount of
registration fee
Common stock, par value $0.001 per share
30,089,004
(
3)
$
.92
$
27,681,884
$
2,962
(1) In accordance with Rule 416(a), the registrant is also registering hereunder an indeterminate number of shares that may be issued and resold resulting from stock splits, stock dividends or similar transactions.
(2) Estimated in accordance with Rule 457(c) of the Securities Act of 1933 solely for the purpose of computing the amount of the registration fee based on the average of the high and low prices reported on the OTC Bulletin Board on July 18, 2006.
(3) Consists of: (i) 11,424,328 shares of the registrant's common stock issuable upon conversion or redemption of, or the payment of the principal of, or interest on, $10 million of outstanding Secured Convertible Debentures issued on June 21, 2006; and (ii) 18,664,676 shares of the registrant's common stock issuable upon exercise of outstanding warrants granted in conjunction with the June 21, 2006 issuance of our Secured Convertible Debentures.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the United States Securities and Exchange Commission, acting pursuant to said section 8(a), may determine.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED JULY 21, 2006
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
Maverick Oil and Gas, Inc.
30,089,004 shares of common stock
The selling shareholders identified in this prospectus may offer and sell up to an aggregate of 30,089,004 shares of our common stock which we may issue to them upon the exercise of certain warrants or upon the conversion or redemption of, or the payment of interest on, or the principal of, certain convertible debentures issued to them. All of the convertible debentures and warrants were issued to the selling shareholders in private placement transactions completed prior to the filing of the registration statement of which this prospectus is a part.
The selling shareholders may sell all or a portion of their shares through public or private transactions at prevailing market prices or at privately negotiated prices.
We are not selling any shares of our common stock in this offering and will not receive any proceeds from this offering. We may receive proceeds on exercise of outstanding warrants for shares of common stock covered by this prospectus if the warrants are exercised for cash. If the warrants are exercised by means of "cashless exercise," we will not receive any additional proceeds. In addition, our obligation to pay amounts otherwise due under the convertible debentures will be reduced as a result of the issuance of our common stock in conversion or redemption of, or the payment of the principal of, or interest on, the convertible debentures.
The selling shareholders may offer the shares covered by this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices or negotiated prices, in negotiated transactions, or in trading markets for our common stock. We will bear all costs associated with this registration.
Our common stock trades on the OTC Bulletin Board under the symbol "MVOG.OB" The closing price of our common stock on the OTC Bulletin Board on July 19, 2006, was $.94 per share.
You should consider carefully the risk factors beginning on page 3 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved these securities or determined that this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is
, 2006.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
1
PROSPECTUS SUMMARY
1
RISK FACTORS
3
FORWARD-LOOKING STATEMENTS
12
AVAILABLE INFORMATION
13
USE OF PROCEEDS
13
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
13
SELECTED FINANCIAL DATA
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
15
CHANGE OF ACCOUNTANTS
24
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
24
BUSINESS
24
LEGAL PROCEEDINGS
30
DESCRIPTION OF PROPERTY
30
DIRECTORS AND EXECUTIVE OFFICERS
33
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
36
EXECUTIVE COMPENSATION
36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
40
SELLING SHAREHOLDERS
43
PLAN OF DISTRIBUTION
45
DESCRIPTION OF SECURITIES
47
INTEREST OF NAMED EXPERTS
54
LEGAL MATTERS
55
INDEMNIFICATION OF DIRECTORS AND OFFICERS
55
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
56
FINANCIAL STATEMENTS
57
INFORMATION NOT REQUIRED IN PROSPECTUS
II-1
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement we filed with the Securities and Exchange Commission. You should rely only on the information provided in this prospectus and incorporated by reference in this prospectus. We have not authorized anyone to provide you with information different from that contained in or incorporated by reference into this prospectus. The selling shareholders are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock. The rules of the Securities and Exchange Commission may require us to update this prospectus in the future.
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus. It is not complete and may not contain all of the information that is important to you. To understand this offering fully, you should read the entire prospectus carefully. Investors should carefully consider the information set forth under the heading "Risk Factors." In this prospectus, the terms "Maverick" "we," "us," and "our" refer to Maverick Oil and Gas, Inc.
Our Company
We are an early stage independent energy company engaged in oil and gas exploration, exploitation, development and production. We currently participate in these activities through the interests we hold in oil and gas exploration and development projects in Arkansas, Texas and Colorado. Our strategy is to continue the development of our current exploration projects and to expand our operations by acquiring additional exploration opportunities and properties with existing production, taking advantage of the industry experience of our management team and modern techniques such as horizontal drilling and 3D seismic analysis.
Our operations are focused on identifying and evaluating prospective oil and gas properties and contributing capital to projects that we believe have the potential to produce oil or gas in commercial quantities. Over time, as we complete the exploration and development stage of a project, our primary focus for that project will gradually shift to drilling and production.
We participate in projects directly, as well as indirectly as equity participants in our subsidiaries and other investees. Until recently, we have not been involved as the operator of the projects in which we participate. Instead, we have relied on others for drilling, delivering any gas or oil reserves we discover, and negotiating all sales contracts. Recently, however we have become the operator of two of our existing projects, and we expect to act as the operator of certain of the projects in which we participate in the future. Such operatorship will be a key component of our strategy to increase our reserves and production.
Consistent with our efficient operating model, we intend to rely on leading third party sources of outsourced drilling and field management services, as necessary. We expect that this will allow us to achieve significant cost savings and operational efficiencies by outsourcing an appropriate level of the capital-intensive aspects of our business. We believe that our business model will permit us to maximize the use of our otherwise limited resources, reduce the risk of unsuccessful drilling efforts, and capitalize on the experience of our management team and consultants.
Our development efforts have initially focused on six projects; four of which are in Texas, one in Colorado and one in Arkansas. These regions are characterized by potentially long-lived reserves with predictable and relatively low production depletion rates, lower service costs than in more competitiveor remote areas, a favorable regulatory environment that encourages drilling efforts, and limited federal land or land access impediments.
Preliminary drilling results and comprehensive technical evaluations have suggested that at least two of the four Texas projects, the Colorado and the Arkansas project could contain substantial reserves
1
that could be extracted at commercially attractive prices. However, drilling has only recently commenced on certain of the Texas and Colorado properties. As a result, we cannot be sure that our expectations will be realized. Estimates of oil and gas reserves are developed through a subjective process that depends upon many assumptions, and some or all of those assumptions may not be realized.
Our current projects are focused on low-risk exploratory drilling and development. Each project is screened on available geologic and engineering data, surrounding production from similar wells, and proximity to infrastructure. We utilize a risk-based economic evaluation that compares various production and price scenarios to rank projects for investment. Our overall business plan employs the same technique for price and production.
Our primary objectives are to build reserves, production, cash flow and earnings per share by acquiring oil and gas properties, exploring for new oil and gas reserves, and optimizing production and value from existing oil and gas properties. We have crafted a business model specifically designed to exploit the unique opportunities currently available to small companies in the oil and gas industry.
We are managed by a small highly experienced team of employees and some retained consultants focused on finding and structuring attractive oil and gas investment opportunities and then extracting the maximum value from them. Our management team, lead by our Chief Executive Officer, Mr. V. Ray Harlow, joined us in connection with our March 10, 2005 acquisition of Hurricane Energy, an early-stage independent oil and gas business founded in 2003 that targeted the acquisition of producing, development, and exploitation reserves principally in the U.S. Gulf Coast region.
Our goal is to create long-term value for our investors by building a significant oil and natural gas reserve base. We seek to acquire and exploit properties with the following characteristics:
• locations within or close to areas with an established production history and infrastructure
• multiple productive sands and reservoirs
• current production levels with significant identified proven and potential reserve upside opportunities
• the opportunity to obtain a significant interest as well as operatorship
We believe significant competitive opportunities are available to us primarily because large energy companies continue to focus their attention and resources on the discovery and development of large oil and gas fields, while divesting themselves of lower producing mature fields. Also, the recent economics of the oil and gas market have improved as prices have risen substantially. Given these conditions and our efficient operating model, we believe that we have the opportunity, as a small independent energy company, to successfully compete in our chosen market.
Our principal offices are located at 888 East Las Olas Boulevard, Suite 400, Fort Lauderdale, Florida 33301. Our telephone number is (954) 463-5707.
The Offering
Common stock outstanding:
99,446,116 shares as of July 17, 2006
Common stock that may be offered by selling shareholders:
Up to 30,089,004 shares, representing 11,424,328 shares of common stock issuable upon conversion or redemption, or the payment of the principal of, or interest on, $10 million of Secured Convertible Debentures issued by us on June 21, 2006 (the "June 2006 Secured Convertible Debentures"), and 18,664,676 shares of common stock issuable upon the exercise of warrants issued by us to the purchasers of such June 2006
Secured Convertible Debentures in that transaction.
2
Total proceeds raised by offering:
We will not receive any proceeds from the resale or other disposition of the shares covered by this prospectus by any selling shareholder. We will receive proceeds from exercise of the warrants for shares of common stock that are covered by this prospectus if those warrants are exercised for cash. If the warrants are exercised by means of "cashless exercise," we will not receive any additional proceeds. In addition, our obligation to pay amounts otherwise due under the June 2006 Secured Convertible Debentures will be reduced as a result of the issuance of our common stock in conversion or redemption of, or the payment of the principal of, or interest on, our June 2006 Secured Convertible Debentures.
Risk factors:
There are significant risks involved in investing in our company. For a discussion of risk factors you should consider before buying our common stock, see "Risk Factors" beginning on page 3.
RISK FACTORS
Our business and an investment in our securities are subject to a variety of risks. The following risk factors could result in a material adverse effect upon our business, financial condition, and results of operations, our ability to implement our business plan, and the market price for our securities. Many of these events are outside of our control.
Risks Relating to Our Business
Our future performance depends on our ability to find, acquire and develop oil and gas properties.
Our future performance depends upon our ability to find, acquire, and develop oil and gas reserves that are economically recoverable. Without successful exploration, exploitation or acquisition activities, we will not be able to develop reserves or generate revenues. No assurance can be given that we will be able to find, acquire or develop reserves on acceptable terms, or that commercial quantities of oil and gas deposits will be discovered sufficient to enable us to recover our exploration and development costs or sustain our business.
The successful acquisition and development of oil and gas properties requires an assessment of recoverable reserves, future oil and gas prices and operating costs, potential environmental and other liabilities and other factors. Such assessments are necessarily inexact and their accuracy inherently uncertain. In addition, no assurance can be given that our exploitation and development activities will result in the discovery of any reserves. Our operations may be curtailed, delayed or canceled as a result of a lack of adequate capital and other factors, such as title problems, weather, compliance with governmental regulations or price controls, mechanical difficulties, or unusual or unexpected formations, pressures and/or work interruptions. In addition, the costs of exploitation and development may materially exceed initial estimates.
We can provide no assurance that oil and gas will be discovered in commercial quantities in any of our present properties or in properties we may acquire the future. Our success will depend upon our ability to acquire working and revenue interests in properties upon which gas and oil reserves are ultimately discovered in commercial quantities. Although our new management team has significant industry experience, we do not have an established history of locating and developing properties that have oil and gas reserves.
Our business plan is subject to risks inherent in the oil and gas industry.
Our oil and gas interests are subject to the economic risks typically associated with exploration, development and production activities, including the necessity of significant expenditures to locate and acquire properties and to drill exploratory wells. In addition, the cost and timing of drilling, completing and operating wells is often uncertain. In conducting exploration and development activities, the presence of unanticipated pressure or irregularities in formations, miscalculations or
3
accidents may cause exploration, development and production activities to be unsuccessful. This could result in a total loss of our investment in a particular property. If exploration efforts are unsuccessful in establishing proved reserves and exploration activities cease, the amounts accumulated as unproved costs will be charged against earnings as impairments.
Development of our current projects and expansion of our operations will require significant capital expenditures which we may be unable to fund.
In view of our recent sale of the June 2006 Secured Convertible Debentures, our business plan now contemplates a sale of one of our material projects, as well as developing our remaining exploration properties and expanding our business by acquiring additional oil and gas properties. Our plan of operations for the next twelve months anticipates capital spending of approximately $37 million. However, our current funding will only sustain our operations through the beginning of the fourth calendar quarter of 2006. We plan to obtain the additional funding we need through the debt and equity markets. The terms of our June 2006 Secured Convertible Debentures, as well as $20 million of secured convertible debentures issued by us on January 5, 2006 (the "January 2006 Secured Convertible Debentures") place limitations on the timing and pricing of any subsequent
rounds of equity financing. These limitations could impair our ability to secure the full amount of capital required by our plan of operations, absent the consent of the holders of the January 2006 Secured Convertible Debentures and the June 2006 Secured Convertible Debentures. There is no assurance that such additional financing will be available to us or, if it is, whether we will be able to complete such financing in light of the restrictions of this recent transaction.
We need additional capital.
We have either spent or allocated most of the proceeds from our January 2006 Secured Convertible Debentures and our June 2006 Secured Convertible Debentures (collectively referred to as our "Secured Convertible Debentures") and as we expected, our current capital resources will not be sufficient to sustain operations or to fund all development and drilling of our existing projects, beyond the beginning of the fourth calendar quarter of 2006. In addition, our current capital resources, together with our expected cash flow from operations, will not be sufficient to cover the interest and current portion of our long-term debt due within the next twelve months. We will, therefore, continue to seek additional capital over the next 12 months to finance the development of our existing projects and to fund our future growth and exploration activities. This
may take the form of either debt-based financing, or sale of equity securities. In the shorter term, if we are unable to obtain additional funds when we need them or if we cannot obtain funds on terms favorable to us, we may need to delay, scale back, or eliminate plans for further development efforts. An inability to secure additional funds would require us to consider a sale of certain assets or otherwise incur a risk of default upon our Secured Convertible Debentures.
The terms of our Secured Convertible Debentures require us to sell our Barnett Shale Property within certain time periods
The terms of our June 2006 Secured Convertible Debentures require us to use our best efforts to sell our Barnett Shale project by December 31, 2006 for a purchase price equal to its fair market value. If the cash consideration to be received in any such sale is less than the amount required to retire our Secured Convertible Debentures, the consent of the holders of a majority of the outstanding principal amount of the June 2006 Secured Convertible Debentures is required. If such consent is not provided, the deadline for the sale is extended until March 31, 2007. If we have not sold the Barnett Shale project prior to the applicable deadline, the holders of the June 2006 Secured Convertible Debentures have the right to require us to make certain redemptions of those debentures. It is not likely that we will be able to fund any such redemptions in the absence
of such a sale. There can be no assurances that we will be able to sell our Barnett Shale project within the required period. Furthermore, the obligation to sell our Barnett Shale project within the applicable deadlines may result in a lower sales price than could be obtained in the absence of those deadlines.
4
The funding of our Fayetteville Project relies upon liquidity of our partners
Our Maverick Woodruff County, LLC subsidiary, is a 45% project participant in the development of our leasehold acreage in Woodruff and surrounding counties within Eastern Arkansas. Our 45% partner is an early-stage public company which recently experienced liquidity concerns during our second quarter and became delinquent in its funding to the project by approximately $3.5 million. Although this partner has recently completed a financing and become current in its funding obligations, we cannot be certain that it will have sufficient capital resources to maintain its funded contributions to the project. A failure by this partner, or any other project partner, to maintain its prorata funding of the project, could impair the project's ability to acquire and develop the acreage as expected.
Short-term need to increase authorized capital stock.
We are presently authorized to issue 200,000,000 shares of common stock, almost all of which have been issued or reserved for issuance to cover the potential exercise of outstanding options and warrants, and upon conversion of our January 2006 Secured Convertible Debentures. Accordingly, we do not have sufficient authorized capital available to permit the issuance of any of the securities covered by this prospectus, or any other material issuance of securities. However, pursuant to an Information Statement dated July 17, 2006, effective as of August 7, 2006, we plan to amend our Articles of Incorporation to increase the number of authorized shares of our common stock from 200 million shares to 260 million shares. The action was approved pursuant to written consent by the holders of a majority of our shares Until this process is completed, if at all, our access
to proceeds from one or more financing transactions will be limited. An event of default would occur under our June 2006 Secured Convertible Debentures if we do not amend our articles of incorporation by September 4, 2006.
We are an early stage company implementing a new business plan.
We are an early stage company with only a limited operating history upon which to base an evaluation of our current business and future prospects, and we have just begun to implement our business plan. Since our inception, we have suffered recurring losses from operations and have depended on external financing to sustain our operations. During the years ended August 31, 2004 and 2005, respectively, we reported losses of $155,731 and $29,142,004. We also reported a loss of $26,201,551 for the nine months ended May 31, 2006.
We rely heavily upon reserve estimates when determining whether or not to invest in oil or gas properties.
The oil and gas reserve information that we use in evaluating oil and gas prospects is based on reserve estimates involving a great deal of uncertainty. Different reserve engineers may make different estimates of reserves and cash flows based on the same available data. Reserve estimates depend in large part upon the reliability of available geologic and engineering data, which is inherently imprecise. Geologic and engineering data are used to determine the probability that a reservoir of oil and natural gas exists at a particular location, and whether oil and natural gas are recoverable from a reservoir. Recoverability is ultimately subject to the accuracy of data including, but not limited to, geological characteristics of the reservoir, structure, reservoir fluid properties, the size and boundaries of the drainage area, reservoir pressure, and the anticipated
rate of pressure depletion. The evaluation of these and other factors is based upon available seismic data, computer modeling, well tests and information obtained from production of oil and natural gas from adjacent or similar properties, but the probability of the existence and recoverability of reserves is less than 100% and actual recoveries of proved reserves can differ from estimates.
Reserve estimates also require numerous assumptions relating to operating conditions and economic factors, including the price at which recovered oil and natural gas can be sold, the costs of recovery, assumptions concerning future operating costs, severance and excise taxes, development costs and
5
workover and remedial costs, prevailing environmental conditions associated with drilling and production sites, availability of enhanced recovery techniques, ability to transport oil and natural gas to markets and governmental and other regulatory factors, such as taxes and environmental laws. A negative change in any one or more of these factors could result in quantities of oil and natural gas previously estimated as proved reserves becoming uneconomic. For example, a decline in the market price of oil or natural gas to an amount that is less than the cost of recovery of such oil and natural gas in a particular location could make production commercially impracticable. The risk that a decline in price could have that effect is magnified in the case of reserves requiring sophisticated or expensive production enhancement technology and equipment, such as some
types of heavy oil. Each of these factors, by having an impact on the cost of recovery and the rate of production, will also affect the present value of future net cash flows from estimated reserves.
In addition, the 10% discount factor, which is required by the Securities and Exchange Commission to be used to calculate discounted future net cash flows for reporting purposes, is not necessarily the most appropriate discount factor based on interests rates in effect from time to time and risks associated with us or the oil and gas industry in general.
Our ability to produce sufficient quantities of oil and gas from our properties may be adversely affected by a number of factors outside of our control.
The business of exploring for and producing oil and gas involves a substantial risk of investment loss. Drilling oil and gas wells involves the risk that the wells may be unproductive or that, although productive, that the wells may not produce oil and/or gas in economic quantities. Other hazards, such as unusual or unexpected geological formations, pressures, fires, blowouts, loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well. Adverse weather conditions can also hinder drilling operations. A productive well may become uneconomic due to pressure depletion, water encroachment, mechanical difficulties, etc, which impair or prevent the production of oil and/or gas from the well.
There can be no assurance that oil and gas will be produced from the properties in which we have interests. In addition, the marketability of any oil or gas that we acquire or discover may be influenced by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. We cannot predict how these factors may affect our business.
In addition, the success of our business depends upon the efforts of various third parties that we do not control. We rely upon various companies to assist us in identifying desirable oil and gas prospects to acquire and to provide us with technical assistance and services. We also rely upon the services of geologists, geophysicists, chemists, engineers and other scientists to explore and analyze oil and gas prospects to determine a method in which the oil and gas prospects may be developed in a cost-effective manner. In addition, we rely upon the owners and operators of oil and gas drilling equipment to drill and develop our prospects to production. Although we have developed relationships with a number of third-party service providers, we cannot assure you that we will be able to continue to rely on such persons. If any of these relationships with third-party
service providers are terminated or are unavailable on commercially acceptable terms, we may not be able to execute our business plan.
Market fluctuations in the prices of oil and gas could adversely affect our business.
Prices for oil and gas tend to fluctuate significantly in response to factors beyond our control. These factors include, but are not limited to, the continued threat of war in the Middle East and actions of the Organization of Petroleum Exporting Countries and its maintenance of production constraints, thefuel sources, transportation interruption, the impact of drilling levels on crude oil and natural gas supply, and the environmental and access issues that could limit future drilling activities for the industry.
6
Changes in oil and gas prices may significantly affect our capital resources, liquidity and expected operating results. Price changes directly affect revenues and can indirectly impact expected production by changing the amount of funds available to reinvest in exploration and development activities. Reductions in oil and gas prices not only reduce revenues and profits, but could also reduce the quantities of reserves that are commercially recoverable. Significant declines in prices could result in non-cash charges to earnings due to impairment. We do not currently engage in any hedging program to mitigate our exposure to fluctuations in oil and gas prices.
Changes in oil and gas prices may also significantly affect our ability to estimate the value of producing properties for acquisition and divestiture and often cause disruption in the market for oil and gas producing properties, as buyers and sellers have difficulty agreeing on the value of the properties. Price volatility also makes it difficult to budget for and project the return on acquisitions and development and exploitation of projects. We expect that oil and gas prices will continue to fluctuate significantly in the future.
Our business may be harmed if we are unable to retain our interests in leases.
All of our properties are held under interests in oil and gas mineral leases. If we fail to meet the specific requirements of each lease, the lease may be terminated or otherwise expire. We cannot assure you that we will be able to meet our obligations under each lease. The termination or expiration of our working interest relating to a lease could harm our business, financial condition and results of operations.
We will need significant additional funds to meet capital calls, drilling and other production costs in our effort to explore, produce, develop and sell the natural gas and oil produced by our leases. We may not be able to obtain any such additional funds on terms acceptable to us, or at all.
Title deficiencies could render our leases worthless.
The existence of a material title deficiency can render a lease worthless and can result in a large expense to our business. The Company has historically relied upon the judgment of oil and gas lease brokers or landmen who perform the field work in examining records in the appropriate governmental office before attempting to place under lease a specific mineral interest. This is customary practice in the oil and gas industry. However, we anticipate that we, or the person or company acting as operator of the wells located on the properties that we lease, will examine title prior to any well being drilled. Even after taking these precautions, deficiencies in the marketability of the title to the leases may still arise. Such deficiencies may render the lease worthless.
If we or our operators fail to maintain adequate insurance, our business could be materially and adversely affected.
Our operations will be subject to risks inherent in the oil and gas industry, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires, pollution, earthquakes and other environmental risks. These risks could result in substantial losses due to injury and loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage, and suspension of operations. Any offshore operations that we engage in will be subject to a variety of operating risks peculiar to the marine environment, such as hurricanes or other adverse weather conditions, to more extensive governmental regulation, including regulations that may, in certain circumstances, impose strict liability for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other
environmental damages. We could be liable for environmental damages caused by previous property owners. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could have a material adverse effect on our financial condition and results of operations.
For projects in which we act as the operator, or in which we may act as the operator in the future, we would maintain insurance coverage for our operations with policy limits and retention liability customary in the industry, including limited coverage for sudden environmental damages and for
7
existing contamination. We do not believe that insurance coverage for environmental damages that occur over time or insurance coverage for the full potential liability that could be caused by sudden environmental damages is available at a reasonable cost. As a result, we may be subject to liability or may lose substantial portions of our properties in the event of certain environmental damages.
In the projects in which we are not the operator, the operator will be required to maintain insurance of various types to cover our operations with policy limits and retention liability customary in the industry. We believe the operators of our projects have obtained commercially reasonable insurance coverage for those projects and, therefore, have not acquired our own insurance coverage for such prospects. The occurrence of a significant adverse event on such prospects that is not fully covered by insurance could result in the loss of all or part of our investment in a particular prospect which could have a material adverse effect on our financial condition and results of operations.
We are not obligated to follow any particular criteria for the acquisition of additional oil and gas properties.
Even though we now employ general criteria for the acquisition of oil and gas properties, we are not obligated to follow any specific criteria and may change our criteria from time to time. Our shareholders will not have the opportunity to evaluate or approve any changes in the criteria we use or how we apply those criteria in pursuing the acquisition of additional oil and gas properties.
Complying with environmental and other government regulations could be costly and could negatively impact our production.
Our business is governed by numerous laws and regulations at various levels of government. These laws and regulations govern the operation and maintenance of our facilities, the discharge of materials into the environment and other environmental protection issues. The laws and regulations may, among other potential consequences, require that we acquire permits before commencing drilling, restrict the substances that can be released into the environment with drilling and production activities, limit or prohibit drilling activities on protected areas such as wetlands or wilderness areas, require that reclamation measures be taken to prevent pollution from former operations, require remedial measures to mitigate pollution from former operations, such as plugging abandoned wells and remediating contaminated soil and groundwater, and require remedial measures to
be taken with respect to property designated as a contaminated site.
Under these laws and regulations, we could be liable for personal injury, clean-up costs and other environmental and property damages, as well as administrative, civil and criminal penalties. We maintain limited insurance coverage for sudden and accidental environmental damages as well as environmental damage that occurs over time. However, we do not believe that insurance coverage for the full potential liability of environmental damages is available at a reasonable cost. Accordingly, we could be liable, or could be required to cease production on properties, if environmental damage occurs.
The costs of complying with environmental laws and regulations in the future may harm our business. Furthermore, future changes in environmental laws and regulations could occur that result in stricter standards and enforcement, larger fines and liability, and increased capital expenditures and operating costs, any of which could have a material adverse effect on our financial condition or results of operations.
We intend to rely on certain third party vendors for outsourced service.
To maximize the use of our otherwise limited capital and human resources, we intend to rely on third party vendors for outsourced drilling, exploration and other operational services. While we expect that this will allow us to achieve cost savings and operational efficiencies, the use of outsourced resources could expose us to greater risk should we be unable to source critical vendors on a cost budgeted and timely basis. Furthermore, the use of outsourced resources could minimize our ability to control the work product and accountability of such vendors.
8
The oil and gas industry is highly competitive.
The oil and gas industry is highly competitive. We compete with oil and natural gas companies and other individual producers and operators, many of which have longer operating histories and substantially greater financial and other resources than we do, as well as companies in other industries supplying energy, fuel and other needs to consumers. Many of these companies not only explore for and produce crude oil and natural gas, but also carry on refining operations and market petroleum and other products on a worldwide basis. Our larger competitors, by reason of their size and relative financial strength, can more easily access capital markets than we can and may enjoy a competitive advantage in the recruitment of qualified personnel. They may be able to absorb the burden of any changes in laws and regulation in the jurisdictions in which we do business and
handle longer periods of reduced prices of gas and oil more easily than we can. Our competitors may be able to pay more for productive oil and natural gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than we can. Our ability to acquire additional properties in the future will depend upon our ability to conduct efficient operations, evaluate and select suitable properties, implement advanced technologies and consummate transactions in a highly competitive environment.
Risks Relating to our Stock and this Offering
Our common stock is traded on the OTC Bulletin Board and could be subject to extreme volatility.
Our common stock is currently quoted on the OTC Bulletin Board, which is characterized by low trading volume. Because of this limited liquidity, stockholders may be unable to sell their shares. The trading price of our shares has from time to time fluctuated widely and may be subject to similar fluctuations in the future. The trading price of our common stock may be affected by a number of factors, including events described in the risk factors set forth in this prospectus, as well as our operating results, financial condition, announcements of drilling activities, general conditions in the oil and gas exploration and development industry, and other events or factors. In recent years, broad stock market indices, in general, and smaller capitalization companies, in particular, have experienced substantial price fluctuations. In a volatile market, we may experience
wide fluctuations in the market price of our common stock. These fluctuations may have a negative effect on the market price of our common stock.
We will seek to raise additional funds in the future, and such additional funding may be dilutive to shareholders or impose operational restrictions.
We expect to seek to raise additional capital in the future to help fund our acquisition, development, and production of oil and natural gas reserves. Additional equity financing may be dilutive to our shareholders and debt financing, if available, may involve restrictive covenants which may limit our operating flexibility. If additional capital is raised through the issuance of equity securities, the percentage ownership of our shareholders will be reduced. These shareholders may experience additional dilution in net book value per share and any additional equity securities may have rights, preferences and privileges senior to those of the holders of our common stock.
The influx of additional shares of our common stock onto the market may create downward pressure on the trading price of our common stock.
The initial sale or secondary resale of substantial amounts of our common stock in the public markets could have an adverse effect on the market price of our common stock and make it more difficult for us to sell our equity securities in the future at prices which we deem appropriate. This prospectus covers the resale of approximately 30.1 million shares of our common stock, including approximately 11.4 million shares that may be issued in the future upon the conversion or redemption of, or the payment of the principal of, or interest on, our recently issued June 2006 Secured Convertible Debentures and upon the exercise of outstanding common stock purchase warrants granted in conjunction with our June 2006 Secured Convertible Debentures. Due to the significance of the
9
number of shares being registered, as compared to our presently outstanding shares, the entry of those shares into the public market, or the mere expectation of the entry of those shares into the market, could adversely affect the market price of our common stock and could impair our ability to obtain capital through securities offerings.
In addition to the shares covered by this prospectus, we have issued another prospectus during May 2006 covering the resale of approximately 78 million shares of our common stock, including 2.2 million shares that are already outstanding, and 75.7 million shares that may be issued in the future upon the conversion or redemption of, or the payment of the principal of, or interest on, our January 2006 Secured Convertible Debentures and upon the exercise of outstanding common stock purchase warrants.
Substantial voting power concentrated in the hands of our principal stockholders.
We have less than ten shareholders who in the aggregate own and control over fifty percent of our outstanding common stock. In addition, the two holders of our Secured Convertible Debentures and associated warrants, although they are unrelated, have the right to acquire in excess of 95 million shares of our Common Stock should they convert all of their Secured Convertible Debentures into our shares, and should they exercise all of their warrants and hold the shares of common stock received upon such conversion and exercise. This would equate to approximately 49% of our outstanding common stock, after giving effect to such issuance. With respect to the holders of our Secured Convertible Debentures and associated warrants, the foregoing determination has been made irrespective of limitations contained within the terms of the Secured Convertible Debentures and
associated warrants, which prohibit the holders thereof from converting the convertible debentures or exercising the warrants, on less than sixty days notice, to the extent such conversion or exercise would cause such holder to beneficially own in excess of 4.99% of our outstanding common stock.
We depend on the continued service of certain executive officers. We can not assure you that we will be able to retain these persons.
Because of their collective industry knowledge, marketing skills and industry relationships, for the foreseeable future, our success will depend largely on the continued services of our three executive officers. They became our executive management team in connection with our March 10, 2005 purchase of Hurricane Energy. We have employment agreements with each of these individuals which contain a non-competition covenant which survives their actual term of employment. Nevertheless, should any of these individuals leave the Company, it could have a material adverse effect on our future results of operations.
The exercise or conversion of our outstanding convertible securities, options and warrants will result in the dilution of the ownership interests of our existing shareholders and may create downward pressure on the trading price of our common stock.
We may in the future issue up to 118,689,195 additional shares of our common stock upon exercise or conversion of existing outstanding convertible securities as of June 30, 2006, in accordance with the following schedule:
10
Number of Shares
• Upon exercise of options granted under our Stock Option Plan
4,130,000
• Upon exercise of Non-Plan Options
450,000
• Upon exercise of Warrants
22,210,010
• Upon conversion of the principal under January 2006 Secured Convertible Debentures (1)(2)
21,331,058
• Upon conversion of the principal under June 2006 Secured Convertible Debentures (1)(2)
10,665,529
• Upon exercise of Warrants issued in conjunction with our January 2006 Secured Convertible Debentures (2)(3)
41,237,922
• Upon exercise of Warrants issued in conjunction with our June 2006 Secured Convertible Debentures (2)(3)
18,664,676
TOTAL
118,689,195
(1) Does not include shares issuable in lieu of interest due under the Debentures.
(2) With respect to the holders of our Secured Convertible Debentures and associated warrants, the foregoing determination has been made irrespective of limitations contained within the terms of the Secured Convertible Debentures and associated warrants, which prohibit the holders thereof from converting the Secured Convertible Debentures or exercising the warrants, on less than sixty days notice, to the extent such conversion or exercise would cause such holder to beneficially own in excess of 4.99% of our outstanding common stock
(3) Includes warrants to purchase 31,996,587 shares of our Common Stock originally issued on January 5, 2006, as subsequently increased by 9,241,335 shares to reflect the anti-dilutive effect of our June 2006 Secured Convertible Debentures.
The accounting treatment for our secured convertible debentures and related warrants may create volatility in our reporting earnings.
The January 2006 Secured Convertible Debentures contain an embedded conversion feature, pursuant to which all or part of the debt owed to the holders may be converted into shares of our common stock at a negotiated conversion price, and the warrants we issued to the purchasers of such Secured Convertible Debentures provide them with the right to purchase our common stock at negotiated exercise prices. As a result of the terms of our agreement to register the resale of the shares of common stock issuable upon conversion or exercise of these instruments, we are required under applicable accounting rules to treat the conversion feature of the January 2006 Secured Convertible Debentures and the associated warrants as liabilities, rather than as equity instruments. This classification as liabilities also requires that we account for them at fair value and include
changes in fair value as a component of other income (expense) for so long as the warrants remain classified as liabilities. Changes in fair value are based upon the market price of our common stock and are calculated using the Black Scholes method of valuation. As a result, as the market price of our common stock increases, our other expense increases, and as the market price of our common stock decreases, our other income increases. This accounting treatment could result in wide swings of our other income (expense) and net income in the future while these features of the facility are outstanding.
The June 2006 Secured Convertible Debentures will be reviewed for the application of EITF 00-19 and FAS 133 in regards to accounting for embedded derivatives. However, inasmuch as the June 2006 Secured Convertible Debentures contain many of the same features as the January 2006 Secured Convertible Debentures, we expect that the conversion feature of the June 2006 Secured Convertible
11
Debentures and the associated warrants will similarly be accounted for as embedded derivative instruments.
We may issue shares of preferred stock with greater rights than our common stock.
Our articles of incorporation authorize our board of directors to issue shares of preferred stock and to determine the price and other terms for those shares without the approval of our shareholders. Any such preferred stock we may issue in the future could rank ahead of our common stock, in terms of dividends, liquidation rights, and voting rights.
We are not subject to certain of the corporate governance provisions of the Sarbanes-Oxley Act of 2002.
Since our common stock is not listed for trading on a national securities exchange, we are not subject to certain of the corporate governance requirements established by the national securities exchanges pursuant to the Sarbanes-Oxley Act of 2002, including, without limitation, their rules relating to independent directors, director nominations, audit committees, and the adoption of a codes of ethics. Although we have voluntarily elected to adopt certain of these corporate governance requirements, until our securities are listed for trading on a National Securities Exchange, we may modify or revoke certain of these governance provisions. If that occurs, the advantages offered by those corporate governance provisions will not exist with respect to the Company.
We do not anticipate paying dividends.
We have not paid any cash dividends on our common stock since our inception and we do not anticipate paying cash dividends in the foreseeable future. Negative covenants in certain of our existing debt and equity instruments prohibit the payment of dividends. In the event we are not contractually restricted from paying dividends in the future, such dividends would be at the discretion of our board of directors and would depend on our future earnings, regulatory considerations, our financial requirements and other similarly unpredictable factors. For the foreseeable future, we anticipate that we will retain any earnings which we may generate from our operations to finance and develop our growth and that we will not pay cash dividends to our stockholders.
FORWARD-LOOKING STATEMENTS
Most of the matters discussed within this registration statement include forward-looking statements on our current expectations and projections about future events. In some cases you can identify forward-looking statements by terminology such as "may," "should," "potential," "continue," "expects," "anticipates," "intends," "plans," "believes," "estimates," and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties. Actual results and events may vary significantly from those discussed in the forward-looking statements.
These forward-looking statements may include, among other things, statements relating to the following matters:
• the level of oil and gas reserves that can be extracted at any of our projects
• our ability to extract reserves at commercially attractive prices
• our ability to realize significant cost savings by outsourcing much of the capital-intensive aspects of our business to others
• the likelihood that our new management team will increase our profile in the industry and create new acquisition and development opportunities for us
• our ability to compete against companies with much greater resources than us
12
These forward-looking statements are made as of the date of this prospectus, and we assume no obligation to explain the reason why actual results may differ. In light of these assumptions, risks, and uncertainties, the forward-looking events discussed in this prospectus might not occur.
AVAILABLE INFORMATION
We file annual, quarterly and special reports, as well as proxy statements and other information with the Securities and Exchange Commission. You may read and copy any document we file with the Commission at their Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain further information about the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. Our Commission filings are also available to the public over the Internet at the Commission's web site at http://www.sec.gov, which contains reports, proxy statements and other information regarding registrants like us that file electronically with the Commission.
USE OF PROCEEDS
We will not receive any proceeds from sale of the shares of common stock covered by this prospectus by the selling shareholders. We will, however, receive proceeds on exercise of outstanding warrants for shares of common stock covered by this prospectus if the warrants are exercised for cash. If the warrants are exercised in a "cashless exercise," we will not receive any additional proceeds for the exercise of the warrants. Furthermore, the warrants may expire without having been exercised. Even if some or all of these warrants are exercised, we cannot predict when they will be exercised and when we would receive the proceeds. We intend to use any proceeds we receive upon exercise of the warrants for general working capital and other corporate purposes.
In addition, our obligation to pay amounts otherwise due under our Secured Convertible Debentures will be reduced as a result of the issuance of our common stock in conversion or redemption of, or the payment of the principal of, or interest on, the Secured Convertible Debentures. We intend to use any proceeds we receive upon exercise of the warrants for general working capital and other corporate purposes.
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Market Information
Our common stock currently trades on the OTC Bulletin Board under the symbol "MVOG.OB." The first reported trade in our common stock occurred on August 3, 2004. The following table states the range of the high and low bid-prices per share of our common stock for each of the calendar quarters since the first reported trade, as reported by the OTC Bulletin Board. These quotations represent inter-dealer prices, without retail mark-up, July 18, 2006 was $.92 per share.
High
Low
FISCAL YEAR ENDED AUGUST 31, 2004
Quarter ended August 31, 2004
$
1.50
$
1.05
FISCAL YEAR ENDED AUGUST 31, 2005
Quarter ended November 30, 2004
$
2.15
$
1.40
Quarter ended February 28, 2005
$
2.10
$
1.10
Quarter ended May 31, 2005
$
3.56
$
1.36
Quarter ended August 31, 2005
$
1.99
$
1.00
FISCAL YEAR ENDED AUGUST 31, 2006
Quarter ended November 30, 2005
$
1.20
$
0.85
Quarter ended February 28, 2006
$
1.55
$
0.78
Quarter ended May 31, 2006
$
1.45
$
0.93
Quarter ending August 31, 2006 (through July 18, 2006)
$
1.11
$
0.75
13
Holders
As of July 12, 2006, there were 318 shareholders of record of our common stock. However, based upon a broker-inquiry recently conducted in conjunction with our Information Statement dated July 17, 2006, we believe that we have over approximately 12,000 additional beneficial shareholders as of the record date of June 29, 2006.
Dividend Policy
On June 15, 2004, the Company approved a 22 for 1 forward stock split, effected in the form of a stock dividend. We have not paid any cash dividends on our common stock to date, and we have no intention of paying cash dividends in the foreseeable future. Negative covenants in our Secured Convertible Debentures prohibit the payment of dividends. Whether we will declare and pay dividends in the future will be determined by our board of directors at their discretion, subject to certain limitations imposed under Nevada corporate law. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our board of directors.
SELECTED FINANCIAL DATA
The following selected financial data as of and for the dates indicated have been derived from our consolidated financial statements. You should read the following selected financial data together with the consolidated financial statements and related footnotes of the Company and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
The selected consolidated statement of operations data of the Company for each of the years in the two year period ended August 31, 2005 and the consolidated balance sheet data of the Company as of August 31, 2005 and 2004 are derived from the Company's consolidated financial statements that have been audited by Malone & Bailey, PC and are included in this prospectus. The selected consolidated statement of operations data of the Company for the year ended August 31, 2003 are derived from the Company's consolidated financial statements that have been audited by Morgan & Company and are included in this prospectus. The consolidated balance sheet data of the Company as of August 31, 2003 is derived from the Company's audited consolidated financial statements which are not included in this prospectus. The selected consolidated statement
of operations data of the Company for the nine months ended May 31, 2006 and the consolidated balance sheet data of the Company as of May 31, 2006 are derived from the unaudited consolidated financial statements included in this prospectus. The unaudited consolidated financial statements include, in our opinion, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation. The historical results are not necessarily indicative of the operating results to be expected in the future.
14
Nine Months
Ended May 31,
Year Ended August 31,
Consolidated Statement of Operations Data: (In Thousands, Except Per Share Amounts)
2006
2005
2005
2004
2003
Total revenue
$
1,839
$
46
$
284
$
—
$
—
Operating expenses
(12,974
)
(18,156
)
(28,671
)
(160
)
(28
)
Loss before minority interest
(11,135
)
(18,110
)
(28,387
)
(160
)
(28
)
Minority interest
(65
)
997
1,354
5
—
Loss from operations
(11,200
)
(17,113
)
(27,034
)
(155
)
(28
)
Other income (expense):
Change in fair value of derivatives
(12,904
)
—
Interest income and other
68
24
50
(1
)
—
Interest Expense
(2,166
)
2,056
(2,158
)
—
—
Total Other income (expenses)
(15,002
)
(2,032
)
(2,108
)
(1
)
—
Net Loss to common stockholders
(26,202
)
(19,145
)
(29,142
)
(156
)
(28
)
Basic and diluted loss per common share
$
(0.27
)
$
(0.25
)
$
(0.36
)
$
(0.00
)
$
(0.00
)
Basic and diluted weighted average common shares outstanding
98,348,755
75,475,782
80,741,335
58,678,904
58,520,000
Consolidated Balance Sheet Data: (In Thousands)
August 31,
May 31,
2006
2005
2004
2003
Cash and cash equivalents
$
1,481
$
3,009
$
597
$
32
Working capital
$
(30,523
)
929
(1,660
)
30
Total assets
39,769
17,072
4,229
32
Stockholders' equity (Deficit)
$
(3,743
)
$
12,702
$
1,774
$
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion is intended to further the reader's understanding of our financial condition and results of operations and should be read in conjunction with our consolidated financial statements and related notes included elsewhere herein. This discussion also contains statements that are forward-looking. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of the risks and uncertainties set forth elsewhere in this prospectus and in our other SEC filings. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date hereof.
Overview
We are an early stage independent energy company engaged in oil and gas exploration, exploitation, development and production. We currently participate in these activities through the interests we hold in oil and gas exploration and development projects in Arkansas, Texas and Colorado. Our strategy is to continue the development of our current exploration projects and to expand our operations by
15
acquiring additional exploration opportunities and properties with existing production, taking advantage of the industry experience of our management team and modern techniques such as horizontal drilling and 3D seismic analysis.
Our operations are focused on identifying and evaluating prospective oil and gas properties and contributing capital to projects that we believe have the potential to produce oil or gas in commercial quantities. Over time, as we complete the exploration and development stage of a particular project, our primary focus for that project will gradually shift to drilling and production.
We participate in projects directly, as well as indirectly as equity participants in subsidiaries and investees. Until recently, we have not been involved as the operator of the projects in which we participate. Instead, we have relied on others for drilling, delivering any gas or oil reserves we discover, and negotiating all sales contracts. Recently, however, we have become the operator of two of our existing projects, and we expect to act as the operator of certain of the projects in which we participate in the future. Operatorship will be a key component of our strategy to increase our reserves and production.
We seek to create shareholder value by building oil and gas reserves, production revenues and operating cash flow. We believe that building oil and gas reserves and production, on a cost-effective basis, is an important indicator of performance success for an independent oil and gas company such our company. We seek to build oil and gas reserves, production, and cash flow through a balanced program of capital expenditures involving acquisition, exploitation and exploration activities. We intend to place primary emphasis on issuances of public and private debt and equity to finance our business.
Our ability to generate future revenues and operating cash flow will depend on the successful exploration, exploitation and/or acquisition of oil and gas producing properties, development of our inventory of capital projects, the volume and timing of our production, as well as commodity prices for oil and gas. Such pricing factors are largely beyond our control, and may result in fluctuations in our earnings.
We believe significant opportunities are available to us primarily because we can effectively compete with large energy companies who continue to focus their attention and resources on the discovery and development of large oil and gas fields, while divesting themselves of less productive mature fields. Also, the recent economics of the oil and gas market have improved as prices have risen substantially.
Given these conditions, the significant experience of our management team and our efficient operating model, we believe that we have the opportunity, as an early stage independent energy company, to successfully compete in our chosen market.
Results of Operations.
Nine months ended May 31, 2006 compared to nine months ended May 31, 2005
As we have remained in the early stages of development, our revenues from operations only recently commenced during the third quarter of fiscal 2005. We realized revenues from operations of $1,838,644 for the nine month periods ended May 31, 2006, compared to revenues of $46,129 for the comparable prior year period.
We incurred a net loss of $26,201,551 for the nine month period ended May 31, 2006 compared to a net loss of $19,144,810 for the nine month period ended May 31, 2005. Non-cash charges were the largest component of our losses for both periods. Our loss from operations for the nine month period ended May 31, 2006 was $11,199,899, compared to a loss from operations of $17,113,290 for the comparable prior year period.
Total expenses were $28,043,903 for the nine month period ended May 31, 2006, as compared to $20,212,486 for the nine month period ended May 31, 2005. General and administrative expenses were $11,122,975 for the nine month period ended May 31, 2006, as compared to $10,001,847 for the nine
16
month period ended May 31, 2005. Non-cash share based compensation expense of $5,813,266 and $8,143,247 for the nine month periods ended May 31, 2006 and 2005, respectively, was a major contributor to general and administrative expense. The year to year increase in general and administrative expenses is reflective of establishing the proper level of professional staff to run the Company and professional fees associated with a high level of financing and regulatory reporting activity. Non-cash expenses of $21,263,925 for the nine month period ended May 31, 2006 included $5,813,266 share based compensation, $1,082,580 depletion, depreciation and amortization, and $12,903,519 for the mark to market of the conversion feature of the debentures and investment warrants primarily associated with our January 5, 2006 issuance of $20 million of Secured Convertible Debentures
(the "January 2006 Secured Convertible Debentures") and $1,464,560 non-cash interest expense. Non-cash charges for the nine month period ended May 31 2005 of $16,012,169 included $8,143,247 share based compensation, $2,056,073 convertible note discount amortization, and $5,710,416 impairment.
EITF-00-19 and FAS 133 require that certain financial instruments that meet certain conditions be treated as derivatives with embedded liabilities and must be established as a liability on the balance sheet and marked to market through the income statement on a regular basis. This is a non-cash accounting event and does not represent a current or future cash requirement of the Company and as such has no impact on liquidity. This convention will cause a non-cash expense to be realized during periods when our share price rises and non-cash income to be recognized when our share price falls. This accounting treatment does not impact operating income.
Year ended August 31, 2005 compared to year ended August 31, 2004
As we have remained in the early stages of development, our revenues only recently commenced during the third quarter of fiscal 2005, and totaled $283,785 for the full year ended August 31, 2005. We had no revenues during the fiscal year ended August 31, 2004.
We incurred operating expenses of $28,671,108 during the year fiscal ended August 31, 2005. The majority of these expenses were associated with projects we no longer participate in, an abandoned acquisition attempt, and the accounting treatment of acquiring Hurricane Energy and bringing on its management team. These costs include exploration expenses and asset impairment of $10,450,046, loss on earnest money deposit (associated with our attempted acquisition of Camden Resources, Inc.) of $4,250,000 and share based compensation expense of $9,982,798. General and administrative expense for the fiscal year ended August 31, 2005 was $3,680,202. Depletion, depreciation and amortization expense for the year ended August 31, 2005 was $153,409. Lease operating expense of $154,653 for the year reflects the start up production in some of our projects, but also includes
the cost of projects we are exiting.
During 2005, we evaluated the commercial viability of all our development projects. Two of these projects, Maverick Basin and Turner La Escalera, were deemed non commercial and we decided to cease participation in the future development of these fields. Accordingly, we recognized $4,739,630 of exploration expense and $5,710,416 of impairment costs.
A significant component of our operating expenses during the year ended August 31, 2005 constitute non- cash charges related to the acquisition of Hurricane Energy. Since Hurricane Energy remained an early stage company at the time of acquisition, and since at that time its management team constituted its principal asset, the transaction was accounted for as a purchase of net assets and not as a business combination. Accordingly, for accounting purposes, we have recognized non-cash compensation expense of $9.1 million associated with the aggregate value of our shares and warrants issued to the former Hurricane management team (now our senior management team).
Our fiscal 2005 results were also adversely affected by a charge of $4.25 million associated with an October 2005 settlement of our dispute with Camden Resources, Inc. During the third quarter of fiscal 2005, we instituted litigation to recover a $5,000,000 earnest money deposit paid in connection with our attempted purchase of the shares of Camden Resources, Inc. During October 2005, we entered
17
into a settlement of the dispute and recovered $750,000 of the earnest money deposit. Accordingly, our 2005 financial statements reflect a charge of $4,250,000.
Liquidity and Capital Resources
As of August 31, 2005, we had a positive net working capital balance of $929,350, compared to a net working capital deficit of $1,660,427 at year end August 31, 2004. The increase in our working capital position was primarily attributable to net cash from financing activities received during fiscal 2005 and the conversion of a note issued to Trident Growth Fund, LP in 2004.
Net cash used in operations was $2,205,091 for the year ended August 31, 2005. The primary use of cash in operating activities was to fund our net loss. Net cash used in investing activities for the year was $23,576,885 and primarily consisted of the purchase of oil and gas interests, drilling programs, and the deposit for the Camden Resources transaction, compared to $3,121,344 of investing activities for the year ended August 31, 2004.
Net cash provided by financing activities during the fiscal year ended August 31, 2005 was $28,194,082, compared to $3,641,500 of cash provided for the year ended August 31, 2004. This cash was provided during our second fiscal quarter of 2005, when we received gross proceeds of $28,435,000 from the private sale of 14,217,500 investment units at $2.00 per unit. Each unit consisted of two shares of our common stock and a three-year warrant to purchase one share of our common stock at an exercise price of $2.00 per share.
Net working capital decreased by $31,452,595 as of May 31, 2006 to a deficit of $30,523,245, as compared to the surplus of $929,350 as of August 31, 2005. This decrease is primarily attributable to a $32,144,491 increase in current liabilities during this period. $27,146,137 of this increase is associated with our January 2006 Secured Convertible Debentures and associated warrants. $4,166,667 of this increase is the portion of that debt that is due to be repaid over the first six months of 2007 and $22,979,470 is the derivative liability associated with the January 2006 Secured Convertible Debentures and associated warrants. This non-cash liability is recognized as a current liability because the debenture holders have the option to convert the debentures into our shares immediately should they choose. $4,987,230 of the increase is a payable to our Fayetteville
partners for lease assignments that will be settled as we catch up with our pro-rata share of funding with our Fayetteville Shale project partners.
Our working capital position was affected by the following transactions during the nine-month period ending May 31, 2006. During October 2005, we sold convertible debentures and warrants to purchase 500,000 shares of our common stock to Trident Growth Fund, LP for gross proceeds of $2,000,000. The convertible debentures had a principal amount of $2,000,000 and bore interest at an annual rate of 12%. The convertible debentures were repaid in full on January 6, 2006.
The warrants have a term of five years and an exercise price of $1.00 per share The exercise price of the warrants is subject to customary anti-dilution adjustments and a "full ratchet" adjustment in the event of the issuance of common stock or common stock equivalents for a price less than the then exercise price of the warrants. By application of these anti-dilution adjustments, the exercise price of the warrants was reduced to $.9376 per share following the issuance of our January 2006 Secured Convertible Debentures referred to below.
Also in October 2005, our subsidiary, Maverick Woodruff County, LLC, borrowed $1,000,000 to finance lease acquisitions in the Fayetteville Shale project. The loan was secured by a pledge of the membership interests of Maverick Woodruff County, LLC. However, the loan automatically converted into shares of the common stock of one of our Fayetteville project participants in February 2006 when we acquired and distributed to this participant its pro rata interest in 50,000 leasehold acres.
From inception of our Barnett Shale project through October 19, 2005, Reichmann Petroleum Corp served as the managing partner of RBE and as the operator of a portion of the project. Dyke Ferrell, the principal shareholder of Reichmann Petroleum, owned an approximate 13% interest in RBE. During October 2005, we acquired the 13% interest in RBE from Mr. Ferrell in consideration for the
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purchase price of $1,750,000 and 250,000 shares of our common stock. Of the purchase price, $250,000 was paid during October 2005 and the balance of $1,500,000 was paid in January 2006 upon completion by us of a financial audit of all relevant financial and other data relating to the operation of RBE by Reichmann Petroleum. In connection with this purchase, we became the managing member of RBE and operator of the 100% owned portion of the project.
During November 2005, we sold 200,000 investment units at a price of $10 per unit to Millenium Global Investments, Ltd. Each unit consisted of ten shares of our common stock and a thirty (30) month warrant to purchase four shares of our common stock at an exercise price of $1.70 per share. The Millenium warrants were restructured following our issuance of the January 2006 Secured Convertible Debentures. As restructured, Millenium surrendered warrants to purchase 800,000 shares of our common stock at an exercise price of $1.70 per share, in exchange for warrants to purchase 2,000,000 shares of our common stock; of which 1,000,000 have an exercise price of $.9376 per share; 500,000 have an exercise price of $1.50 per share; and 500,000 have an exercise price of $2.00 per share.
On January 5, 2006, we sold for $20 million our January 2006 Secured Convertible Debentures and associated five-year warrants to purchase up to 31,996,587 shares of our common stock (the "January 2006 Warrants"). The January 2006 Secured Convertible Debentures have an aggregate principal amount of $20 million, bear interest at 7.5% per annum, and have a maturity date on the third anniversary of their issuance, subject to the right of the holders to extend the maturity date for a period of up to three years. Interest payments commenced on a quarterly basis during June 2006, with principal payments due in twenty-four equal monthly installments commencing in January 2007. Under limited circumstances, interest and principal payments may be made in shares of our common stock priced at an agreed upon discount to market. The January 2006 Secured Convertible
Debentures are convertible into shares of our common stock at an initial conversion price of approximately $0.9376 per share, subject to full-ratchet anti-dilution adjustments which reduce the conversion price to any lower price at which the Company issues any common stock, or is obligated to issue common stock pursuant to options, warrants, or convertible securities in the future, except for the issuance of certain excluded securities. Also, under limited circumstances, the Company has the right to force the holders to convert certain partial amounts due under the January 2006 Secured Convertible Debentures, upon payment of certain additional warrants. The Company's obligations under the January 2006 Secured Convertible Debentures are secured by a security interest in all of the Company's assets. The terms of the January 2006 Secured Convertible Debentures preclude the Company
from incurring any other indebtedness, subject to limited carve-outs for trade payables, other forms of operating indebtedness and up to $5 million in senior debt. Of the January 2006 Warrants, 21,331,059 had an initial exercise price of $0.9376 per share, 5,332,764 had an initial exercise price of $1.50 per share, and the remaining 5,332,764 had an initial exercise price of $2.00 per share. The exercise prices of the January 2006 Warrants are subject to anti-dilution adjustments which reduce the exercise price to any lower price at which the Company issues any common stock, or is obligated to issue common stock pursuant to options, warrants, or convertible securities, in the future, except for the issuance of certain excluded securities. Upon adjustment of the exercise price of the January 2006 Warrants, the number of shares issuable upon exercise of the January 2006 Warrants will be correspondingly
adjusted.
As a result of our issuance of the June 2006 Secured Convertible Debentures described below, and the anti-dilution adjustment provisions of the January 2006 Warrants issued on January 5, 2006, the exercise price of approximately 5.3 million of the January 2006 Warrants was reduced from $2.00 to $0.9376, the exercise price of approximately 5.3 million of the January 2006 Warrants was reduced from $1.50 to $0.9376, and an approximately 9.3 million additional shares of common stock became issuable upon exercise of the January 2006 Warrants.
As part of this transaction, we secured effectiveness of a registration statement filed with the Securities and Exchange Commission for the purpose of registering the resale of the shares of common stock issuable pursuant to the January 2006 Secured Convertible Debentures and exercise of the January 2006 Warrants. The registration statement must remain effective for a predetermined
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period subject to certain "grace periods". If we fail to meet the deadlines for the continued effectiveness of the registration statement, we will be required to pay liquidated damages of two percent of the aggregate purchase price of the January 2006 Secured Convertible Debentures on the date of such failure and on every 30th day thereafter until such failure is cured.
On June 21, 2006, we sold for $10 million our June 2006 Secured Convertible Debentures and associated warrants to purchase 18,664,676 shares of our common stock (the "June 2006 Warrants") in a private placement transaction. The June 2006 Secured Convertible Debentures have an aggregate principal amount of $10 million and are convertible into 10,665,529 shares of our common stock (at an initial conversion price of $0.9376 per share), subject to anti-dilution adjustments. The June 2006 Secured Convertible Debentures have a maturity date on the first anniversary of their issuance, subject to the right of the holders to extend the date for the payment of any installment of principal described below. The June 2006 Secured Convertible Debentures bear interest at the rate of 9.75% per annum, which rate is increased to 15% upon the occurrence of an event
of default under the June 2006 Secured Convertible Debentures. Our obligations under the June 2006 Secured Convertible Debentures are secured by a security interest in all of the Company's assets.
The June 2006 Warrants have an initial exercise price of $0.9376 per share, subject to anti-dilution adjustment which reduces the exercise price to any lower price at which the Company issues any common stock, or is obligated to issue common stock pursuant to options, warrants or convertible securities, in the future, except for the issuance of certain excluded securities. Upon adjustment of the exercise price of the June 2006 Warrants, the number of shares issuable upon exercise of the June 2006 Warrants will be correspondently adjusted.
The principal amount of the June 2006 Secured Convertible Debentures is to be repaid in equal monthly installments commencing on November 1, 2006 (or, if earlier, on the first day of the calendar month following the date the registration statement required by a registration rights agreement entered into in connection with the June 2006 Secured Convertible Debentures and warrants (the "Registration Rights Agreement") is declared effective) and ending on June 21, 2007, the first anniversary of the date of their issuance. Such principal payments may be paid in cash or, at the option of the Company if certain conditions are satisfied, in shares of our common stock. Any shares of common stock used to pay an installment of principal will be valued at the lower of (1) the then applicable conversion price of the June 2006 Secured Convertible Debentures
and (2) 82.5% of the arithmetic average of the weighted average price of the common stock for the fifteen trading days preceding the installment payment date (but no greater than the arithmetic average of the weighted average price for the first and last three trading days of such fifteen trading day period). The number of shares of common stock which may be issued for the payment of any installment of principal may not exceed 22.5% of the aggregate dollar trading volume over the twenty trading days before the date the Company delivers notice of its election to pay an installment of principal in shares of its common stock. If we use shares of our common stock to pay an installment of principal, we may be required to deliver additional shares of common stock to pay such principal if the arithmetic average of the weighted average price for the nineteen (19) trading days following the installment
payment date is less than the price used in determining the number of shares that were delivered on the installment payment date. The holders of the June 2006 Secured Convertible Debentures may elect to defer the payment of any installment of principal for a period of up to two years from the date such installment was originally due.
The June 2006 Secured Convertible Debentures are convertible at the option of the holders into shares of our common stock at an initial conversion price of $0.9376 per share, subject to anti-dilution adjustments. The anti-dilution adjustments include a "full ratchet" adjustment which reduces the conversion price to any lower price at which we issue any common stock, or are obligated to issue common stock pursuant to options, warrants, or convertible securities in the future, except for the issuance of certain excluded securities.
Interest on the June 2006 Secured Convertible Debentures commenced accruing as of June 21, 2006, however, the first payment will not be required until the first day of the month immediately following
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the earlier of: (i) the date on which the Registration Statement required by the Registration Rights Agreement is declared effective by the Securities and Exchange Commission; or (ii) October 21, 2006. At our option, provided certain conditions are satisfied, interest may be paid by the issuance of common stock. Any shares of common stock used to pay interest will be valued at 82.5% of the arithmetic average of the weighted average price of the common stock for the five trading days preceding the interest payment date.
The June 2006 Secured Convertible Debentures require that we use our best efforts to sell our interest in the Barnett Shale project by December 31, 2006 for a purchase price equal to its fair market value. If the cash consideration to be received in any such sale is less than the amount required to retire the June 2006 Secured Convertible Debentures and the January 2006 Secured Convertible Debentures (collectively, the "Secured Convertible Debentures"), the consent of the holders of a majority of the outstanding principal amount of the June 2006 Secured Convertible Debentures is required. If such consent is not provided, the deadline for the sale is extended until March 31, 2007.
The proceeds from the sale of the Barnett Shale project must be deposited and retained in an escrow account until such time as there are no Secured Convertible Debentures outstanding. The holders of the June 2006 Secured Convertible Debentures have the right for a period of three months after the proceeds are deposited into escrow to require us to redeem their debentures in cash or in stock (at the conversion price of the June Secured Convertible Debentures) at a 25% premium. We may use the proceeds in the escrow fund to make payments on the Secured Convertible Debentures. A ratable portion of the escrowed proceeds may also be withdrawn by us as the principal amount of the debentures are reduced. In addition, if the closing sale price of our common stock for thirty trading days during any forty consecutive trading day period is more than $2.00 and certain conditions
are satisfied by us, we may withdraw an amount of the escrowed proceeds equal to ten percent of the aggregate dollar trading volume during such forty day trading period.
If we have not sold the Barnett Shale project prior to the applicable deadline, the holders of the June Secured Convertible Debentures have the right to have one-third of the outstanding principal amount of the 2006 Secured Convertible Debentures held by them redeemed, plus accrued and unpaid interest. If we have not sold the Barnett Shale project within three months after the applicable deadline, the holders of the June 2006 Secured Convertible Debentures have the right to have an additional one-third of the principal amount redeemed, plus accrued and unpaid interest. If the proceeds from the sale of the Barnett Shale project are less than the amount required to retire the Secured Convertible Debentures, the holders of the June 2006 Secured Convertible Debentures have the right to require us to redeem a portion of the deficiency, which may be paid in cash
or registered shares of common stock. If the proceeds from the sale of the Barnett Shale project exceed the amount required to retire the Secured Convertible Debentures, we may retain any such excess for working capital purposes.
As part of this transaction, we have agreed to file a registration statement with the Securities and Exchange Commission for the purpose of registering the resale of the shares of common stock issuable pursuant to the June 2006 Secured Convertible Debentures and exercise of the June 2006 Warrants. The registration statement must be filed and declared effective by the Commission within certain time periods, and must remain effective for a predetermined period subject to certain "grace periods". If we fail to meet the deadlines for the filing or effectiveness of the registration statement, we will be required to pay liquidated damages of two percent of the aggregate purchase price of the June 2006 Secured Convertible Debentures and June 2006 Warrants on the date of such failure and on every 30th day thereafter until such failure is cured.
Effective as of June 30, 2006, we issued 423,551 registered shares of our common stock as an interest payment to the holders of the January Secured Convertible Debentures. These shares were issued in lieu of a cash payment of $373,973 that would have otherwise been paid representing interest due through June 30, 2006.
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Our plan of operation for the next twelve months is to continue to conduct oil and gas exploration, development, drilling and production operations on our existing projects in Arkansas and Colorado, as well as any new projects we may identify during the year. We intend to continue drilling and developing efforts in our Barnett Shale project. However, as part of the sale of our June 2006 Secured Convertible Debentures, we have agreed to use our best efforts to sell our Barnett Shale project. In light of the foregoing, our capital spending plan for the next twelve months, excluding potential acquisitions, contemplates the expenditure of approximately $37 million across all of our various projects, with the greatest concentration in the Fayetteville Shale project. However, our current funding will only be sufficient to sustain operations through the fourth calendar
quarter of 2006. Our ability to fund our operations and capital spending plan thereafter, depends upon a number of assumptions including: (i) our ability to secure additional financing; (ii) our ability to sell our Barnett Shale project; (iii) completion of our pending amendment to our corporate charter to increase the number of shares of capital stock available for future issuance; (iv) the geology of the various projects validating our expectations as to reserve levels and supporting the drilling of multiple well locations; (v) the commercial viability of the overall projects, and (vi) all such other assumptions referenced in the in this report under the caption "Forward-Looking Statements."
The funding provided by our recent financing transactions during fiscal 2005 and the first nine months of fiscal 2006, has enabled us to make significant progress in our development efforts, including, among other things, increasing our ownership interest in the Barnett Shale project, completing our first two wells in the Barnett Shale project, securing the use of a drilling rig for, and commencing our first two wells in, the Fayetteville Shale project, and acquiring approximately 125,000 gross acres in the Fayetteville Shale play. However, we have either spent or allocated most of the proceeds from our recent sale of Secured Convertible Debentures, and as we expected, our current capital resources will not be sufficient to fund all development and drilling of our existing projects, or to cover the interest and current portion of our long-term debt due within
the next twelve months. We will, therefore, attempt to sell our interest in our Barnett Shale project and continue to seek additional capital over the next 12 months to finance the development of our existing projects and to fund our future growth and exploration activities. This may take the form of either debt-based financing, or sale of equity securities. Any sale of equity securities would require us to complete the pending amendment to our corporate charter (to increase the number of shares of capital stock available for issuance). In the shorter term, if we are unable to obtain additional funds when we need them or if we cannot obtain funds on terms favorable to us, we may need to delay, scale back, or eliminate plans for further development efforts. An inability to secure additional funds would require us to consider sale of certain assets or otherwise incur a risk of default upon
our Secured Convertible Debentures.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. These estimates are based on information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary significantly from those estimates under different assumptions and conditions.
Critical accounting policies are defined as those significant accounting policies that are most critical to an understanding of a company's financial condition and results of operation. We consider an accounting estimate or judgment to be critical if (i) it requires assumptions to be made that were uncertain at the time the estimate was made, and (ii) changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition.
We believe that the following significant accounting policies are the most critical to an evaluation of our future financial condition and results of operations.
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Proved Oil and Natural Gas Reserves
Proved reserves are defined by the SEC as the estimated quantities of crude oil, condensate, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty are recoverable in future years from known reservoirs under existing economic and operating conditions. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. Prices do not include the effect of derivative instruments, if any, entered into by the Company.
Proved developed reserves are those reserves expected to be recovered through existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery are included as proved developed reserves only after testing of a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved.
Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on non-drilled acreage, or from existing wells where a relatively major expenditure is required for re-completion. Reserves on non-drilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other non-drilled units are claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation.
Volumes of reserves are estimates that, by their nature, are subject to revision. The estimates are made using all available geological and reservoir data as well as production performance data. There are numerous uncertainties in estimating crude oil and natural gas reserve quantities, projecting future production rates and projecting the timing of future development expenditures. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way and estimates of engineers that we use may differ from those of other engineers. The accuracy of any reserve estimate is a function of the quantity of available data and of engineering and geological interpretation and judgment. Accordingly, future estimates are subject to change as additional information becomes
available.
Successful Efforts Accounting
The Company utilizes the successful efforts method to account for our crude oil and natural gas operations. Under this method of accounting, all costs associated with oil and gas lease acquisition costs, successful exploratory wells and all development wells are capitalized and amortized on a unit-of-production basis over the remaining life of proved developed reserves and proved reserves on a field basis. Unproved leasehold costs are capitalized pending the results of exploration efforts. Exploration costs, including geological and geophysical expenses, exploratory dry holes and delay rentals, are charge to expense when incurred.
Impairment of Properties
We review our proved properties at the field level when management determines that events or circumstances indicate that the recorded carrying value of the properties may not be recoverable. Such events include a projection of future oil and natural gas reserves that will be produced from a field, the timing of this future production, future costs to produce the oil and natural gas, and future inflation levels. If the carrying amount of an asset exceeds the sum of the undiscounted estimated future net cash flows, we recognize impairment expense equal to the difference between the carrying value and the fair value of the asset which is estimated to be the expected present value of future net cash flows from proved reserves, utilizing a risk-free rate of return. The Company cannot predict the amount of impairment charges that may be recorded in the future. Unproved
leasehold costs are reviewed periodically and a loss is recognized to the extent, if any, that the cost of the property has been impaired.
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Asset Retirement Obligations
The Company is required to make estimates of the future costs of the retirement obligations of its producing oil and gas properties. This requirement necessitates that the Company make estimates of its property abandonment costs that, in some cases, will not be incurred until a substantial number of years in the future. Such cost estimates could be subject to significant revisions in subsequent years due to changes in regulatory requirements, technological advances and other factors that may be difficult to predict.
Income Taxes
The Company is subject to income and other related taxes in areas in which it operates. When recording income tax expense, certain estimates are required by management due to timing and the impact of future events on when income tax expenses and benefits are recognized by the Company. The Company will periodically evaluate its tax operating loss and other carryforwards to determine whether a gross deferred tax asset, as well as a related valuation allowance, should be recognized in its financial statements.
CHANGE OF ACCOUNTANTS
On December 10, 2004, the Board of Directors of the Company engaged Malone & Bailey, PC as its independent accountant and dismissed Morgan & Co., as its independent accountant. During the fiscal years ended August 31, 2004 and 2003, the Company did not consult Malone & Bailey, PC regarding the application of accounting principles to a specific completed or contemplated transaction or regarding the type of audit opinion that might be rendered by Malone & Bailey, PC on the Company's financial statements, and Malone & Bailey, PC did not provide any written or oral advice that was an important factor considered by the Company in reaching a decision as to any such accounting, auditing or financial reporting issue.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate and Credit Rating Risk
As of May 31, 2006, we had approximately $1,480,581 in cash and cash equivalents, and short term investments. At May 31, 2006, approximately $1,304,779 was held in our operating accounts to be used for general corporate purposes, and $175,802 was invested in overnight repurchase agreements, 100% collateralized with AAA rated US Government Securities. Based on sensitivity analyses performed on the financial instruments held as of May 31, 2006, an immediate 10% change in interest rates is not expected to have a material effect on our near term financial condition or results.
Commodity Risk
Our major commodity price risk exposure is to the prices received for our natural gas and oil production. Realized commodity prices received for our production are the spot prices applicable to natural gas and crude oil. Prices received for natural gas and oil are volatile and unpredictable and are beyond our control. For the quarter ended May 31, 2006, a 10% fluctuation in the prices for natural gas and oil production would have had less than an approximate $0.1 million impact on our revenues.
BUSINESS
GENERAL
We are an early stage independent energy company engaged in oil and gas exploration, exploitation, development and production. We currently participate in these activities through the interests we hold in oil and gas exploration and development projects in Arkansas, Texas and Colorado. Our strategy is to continue the development of our current exploration projects and to expand our operations by acquiring additional exploration opportunities and properties with existing production, taking
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advantage of the industry experience of our management team and modern techniques such as horizontal drilling and 3D seismic analysis.
Our operations are focused on identifying and evaluating prospective oil and gas properties and contributing capital to projects that we believe have the potential to produce oil or gas in commercial quantities. Over time, as we complete the exploration and development stage of a project, our primary focus for that project will gradually shift to drilling and production.
We participate in projects directly, as well as indirectly as equity participants in our subsidiaries and other investees. Until recently, we have not been involved as the operator of the projects in which we participate. Instead, we have relied on others for drilling, delivering any gas or oil reserves we discover, and negotiating all sales contracts. Recently, however we have become the operator of two of our existing projects, and we expect to act as the operator of certain of the projects in which we participate in the future. Such operatorship will be a key component of our strategy to increase our reserves and production.
Our management team, lead by our Chief Executive Officer, Mr. V. Ray Harlow, joined us in connection with our March 10, 2005, acquisition of Hurricane Energy, an early-stage independent oil and gas business founded in 2003 that targeted the acquisition of producing, development, and exploitation reserves principally in the U.S. Gulf Coast region.
Consistent with our efficient operation model, we intend to rely on leading third party sources of outsourced drilling and field management services, as necessary. We expect that this will allow us to achieve significant cost savings and operational efficiencies by outsourcing an appropriate level of the capital-intensive aspects of our business. We believe that our business model will permit us to maximize the use of our otherwise limited resources, reduce the risk of unsuccessful drilling efforts, and capitalize on the experience of our management team and consultants.
Our development efforts have initially focused on six projects; four of which are in Texas, one in Colorado and one in Arkansas. These regions are characterized by potentially long-lived reserves with predictable and relatively low production depletion rates, lower service costs than in more competitive or remote areas, a favorable regulatory environment that encourages drilling efforts, and limited federal land or land access impediments.
Preliminary drilling results and comprehensive technical evaluations have suggested that at least two of the four Texas projects, the Colorado and the Arkansas project could contain substantial reserves that could be extracted at commercially attractive prices. However, drilling has only recently commenced on certain of the Texas and Colorado properties, and we are still in the lease acquisition phase in Arkansas. As a result, we cannot be sure that our expectations will be realized. Estimates of oil and gas reserves are developed through a subjective process that depends upon many assumptions, and some or all of those assumptions may not be realized.
Our current projects are focused on low-risk exploratory drilling and development. Each project is screened on available geologic and engineering data, surrounding production from similar wells, and proximity to infrastructure. We utilize a risk-based economic evaluation that compares various production and price scenarios to rank projects for investment. Our overall business plan employs the same technique for price and production.
Our primary objectives are to build reserves, production, cash flow and earnings per share by acquiring oil and gas properties, exploring for new oil and gas reserves, and optimizing production and value from existing oil and gas properties. We have crafted a business model specifically designed to exploit the unique opportunities currently available to small companies in the oil and gas industry.
We are managed by a small highly experienced team of employees and some retained consultants focused on finding and structuring attractive oil and gas investment opportunities and then extracting the maximum value from them. Our goal is to create long-term value for our investors by building a significant oil and natural gas reserve base. We seek to acquire and exploit properties with the following characteristics:
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• locations within or close to areas with an established production history and infrastructure
• multiple productive sands and reservoirs
• current production levels with significant identified proven and potential reserve upside opportunities
• the opportunity to obtain a significant interest as well as operatorship
We believe significant competitive opportunities are available to us primarily because large energy companies continue to focus their attention and resources on the discovery and development of large oil and gas fields, while divesting themselves of lower producing mature fields. Also, the recent economics of the oil and gas market have improved as prices have risen substantially. Given these conditions and our efficient operating model, we believe that we have the opportunity, as a small independent energy company, to successfully compete in our chosen market.
Our principal offices are located at 888 East Las Olas Boulevard, Suite 400, Fort Lauderdale, Florida 33301. Our telephone number is (954) 463-5707.
Projects
Fayetteville Shale
In September 2005, through our wholly-owned subsidiary, Maverick Woodruff County, LLC, we initiated efforts to develop oil and gas properties located within the Fayetteville Shale play in Arkansas and commenced actively acquiring acreage in Northeastern Arkansas. Pursuant to a joint operating agreement with our two project partners, we are the operator of, and have a 45% working interest in, the project.
As of the date of this report, we have fully executed leases on approximately 125,000 acres (56,250 net acres to Maverick) and have approximately another 25,000 acres under contract pending title work for a total of 150,000 acres committed to date. It is our intention to maintain our interest at the net position of 56,250 acres and, if possible, bring in a fourth partner to acquire the final 25,000 acres on a promoted basis. This strategy will enable us to focus our financial resources on drilling and development activities while still maintaining a critical mass of acreage for development in the play. The total cost to Maverick to secure the target level of leased acreage has been approximately $15 million.
We commenced our initial drilling operations during the first calendar quarter of 2006. To date we have drilled and fracture stimulated two test wells and have commenced drilling a third. Pending successful test results and final completion, production could commence during the fourth quarter of 2006. We plan to have drilled our initial series of six to eight test wells by the end of the calendar year. Following full interpretation of data gathered during this operation, we could initiate a full development program by the first of the calendar year 2007.
Barnett Shale
We hold a 63% membership interest in RBE, LLC, a Delaware limited liability company ("RBE"), that was formed to explore for oil and gas in the Barnett Shale area of North Texas. We acquired a 50% interest in RBE during August 2004 from Ferrell RBE Holdings, LLC ("Ferrell RBE") for $2 million, of which $1 million was paid to Ferrell RBE and the balance represented our assumption of Ferrell RBE's obligation to make a $1 million capital contribution to RBE.
Through our interest in RBE, we own a working interest in more than 4,000 net leasehold acres in Wise County, Texas. A majority portion of that acreage is operated by Devon Energy and a portion is operated by us that until recently was operated by Reichmann Petroleum. The interests acquired are subject to a 25% royalty. Drilling is complete on the initial test well within the acreage operated by us, the Pauline Cook #1, and this well is flowing to sales. We initiated drilling on the second well, the Flowers 1-H, on this acreage on June 7, 2006. This well satisfies our drilling commitments required to
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retain leasehold rights on this tract. The Portwood 4H well was drilled on the Devon operated portion of the project and started flowing to sales in December 2005. This allowed RBE to retain its leasehold rights with respect to the acreage on the portion of the project. A second well, the Bridges W. B. GU1, was spud in this acreage on June 19, 2006 and drilling is now complete and the well is awaiting completion. This is the first of three consecutive wells that Devon plans to drill and complete on this acreage this year.
From inception of the project through October 19, 2005, Reichmann Petroleum Corp served as the managing partner of RBE and as the operator of a minority portion of the project. Dyke Ferrell, the principal shareholder of Reichmann Petroleum, owned an approximate 13% interest in RBE. During October 2005, we acquired the 13% interest in RBE from Mr. Ferrell in consideration for the purchase price of $1,750,000 and 250,000 shares of our common stock. In connection with this purchase, we became the managing member of RBE and operator of the minority acreage portion of the project, formerly operated by Reichmann Petroleum Corp.
The RBE operating agreement provides that cash distributions by RBE are to be made first to us until the aggregate distributions equal $1,000,000 and then to the members in proportion to their ownership interests.
In connection with our sale of the June 2006 Secured Convertible Debentures, we agreed to use our best efforts to sell our interests in the Barnett Shale project. See our discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" — "Liquidity and Capital Resources".
Whitewater
On February 1, 2005, Maverick Whitewater, LLC, a subsidiary that we formed to explore for oil and gas in Colorado, paid $5,600,000 to South Oil, Inc. (including $2,000,000 of prepaid drilling costs) to acquire a working interest in approximately 12,000 net mineral acres in Mesa and Delta Counties in Colorado. The conveyance also included two shut-in gas wells and a pipeline tap. The interest was acquired subject to a 12.5% carried working interest, proportionately reduced in favor of prior parties in interest. To date, eleven exploration/ delineation wells have been drilled. In March 2006, we assumed operatorship of this project from South Oil and have begun to assess test results and formulate a field development plan, including plans to connect to the Trans Colorado pipeline. We are currently in the process of transitioning this operatorship to a local operator
who will buy in to a 10% working interest in this project proportionately from the existing owners. The successful execution of this strategy will allow us to focus more of our personnel and financial resources on the Fayetteville Shale project while still maintaining a 27% interest in this project.
Maverick Whitewater has two separate classes of ownership interest, Class A and Class B. We acquired all of the Class A interests. South Oil, Inc. acquired all of the Class B interests. We serve as the manager of Maverick Whitewater and so are responsible for making all decisions and taking all actions regarding Maverick Whitewater's business. The operating agreement provides that cash distributions are to be made first to us as the Class A member until the aggregate distributions to us equal our initial capital contribution, and then 85% to us as the Class A member and 15% to the Class B member.
Zapata County
We acquired a 19.8% limited partnership interest in PHT Resendez Partners, L.P. on October 5, 2004 in return for an initial capital contribution of $1,000,000. PHT Resendez had a net working leasehold interest on approximately 800 net acres located in Zapata County, Texas. The initial test well, known as Resendez #1 has been drilled and completed and production facilities and sales pipelines have been installed. Gas production and sales commenced during April 2005. We also acquired a working interest in the La Duquesa project on approximately 400 net acres in Zapata County, Texas. The initial well on this project has been successfully completed and gas production and sales commenced during August 2005.
27
Turner/LaEscalera
On February 14, 2005, Maverick Turner Escalera, L.L.C., a wholly owned subsidiary that we formed to explore for oil and gas in West Texas, paid $1,200,000 to South Oil, Inc. to acquire a working interest in approximately 1700 net option acres with drill-to-earn terms in Tom Green County, Texas, and a 17.5% interest in 1631.25 leasehold acres in Pecos County, Texas. We subsequently acquired approximately 200 net acres in Pecos County, Texas, subject to a 12.5% carried working interest and a 12.5% back-in after payout to prior parties in interest.
Seven wells have been drilled on the Turner Ranch portion of the project in Tom Green County resulting in six marginal producers and one dry hole with production rates in all wells less than expected. Of the six wells that have been tested, only one has been deemed capable of producing at commercial levels. We have ceased participating in development activities in the Turner Ranch portion of this project.
The two test wells on the La Escalera portion of the project in Pecos County were unsuccessful. Accordingly, we have ceased participating in development activities in the La Escalera portion of the project.
Maverick Basin
On July 28, 2004, we acquired a 74.25% Class A membership interest in Maverick Basin Exploration, LLC, a Delaware limited liability company ("MBE"). MBE is an oil and gas exploration and production company that entered into an exploration and joint operating agreement with Blue Star Operating, Inc., an oil and gas exploration and production company based in Dallas, Texas ("Blue Star"). This operating agreement gave MBE the right to drill four wells in order to secure a 10,240-acre parcel in the Maverick Basin in Texas, which is located adjacent to the Mexican border.
We acquired our interest in MBE in August 2004 in exchange for assuming an obligation to make capital contributions to MBE totaling $4,000,000. We paid these capital contributions in full during the second quarter of our 2005 fiscal year. In addition, we incurred $2.5 million of drilling and other expenses during fiscal 2005 related to this project.
There have been 3 wells drilled to date. These wells have not tested at commercial rates. As a result, we have ceased participating in development activities for this project, and in March 2006, we terminated our interest in this project and surrendered our interest to Blue Star in consideration for Blue Star's agreement to fulfill well abandonment obligations.
Company Background
We were incorporated under the laws of the State of Nevada on June 18, 2002 as Waterloo Ventures Inc. From our inception through April 2004, we were engaged in acquiring and exploring mineral properties. We actively maintained an option to acquire an interest in the "East Red Rock" mineral claim in Ontario, Canada until April 2004, when, in conjunction with a change of control, we elected to suspend all further payments and exploration work needed to maintain the claim in good standing. Accordingly, as of April 2004, we suspended all mineral exploration activities, commenced our oil and gas business, and, by virtue of a merger with a wholly owned subsidiary, changed our name to Maverick Oil and Gas, Inc.
Sales And Marketing
The principal target customers for our crude oil production are expected to be refiners, remarketers and other companies, some of which are expected to have pipeline facilities near the producing properties we acquire. In the event pipeline facilities are not conveniently available, we intend to truck or barge crude oil to storage, refining or pipeline facilities.
28
The principal target customers for our gas production are expected to be pipelines, utilities, gas marketing firms, industrial users and local distribution companies. We intend to use existing gathering systems and interstate and intrastate pipelines to consummate gas sales and deliveries.
We intend to sell our oil and natural gas production under both short-term (less than one year) and long-term (one year or more) agreements at prices negotiated with third parties. Under both short-term and long-term contracts, typically either the entire contract (in the case of short-term contracts) or the price provisions of the contract (in the case of long-term contracts) are renegotiated from intervals ranging in frequency from daily to annually.
We have not yet adopted any specific sales and marketing plans. However, as production levels increase, the need to hire sales and marketing personnel will be addressed.
Title To Properties
We believe that the title to our leasehold properties is good and defensible in accordance with standards generally acceptable in the oil and gas industry, subject to exceptions that are not so material as to detract substantially from the use of such properties. Our leasehold properties are subject to royalty, overriding royalty and other outstanding interests customary in the industry. The properties may be subject to burdens such as liens incident to operating agreements and current taxes, development obligations under oil and gas leases and other encumbrances, easements and restrictions. We do not believe any of these burdens will materially interfere with our use of these properties.
As is customary in the oil and gas industry, a preliminary title examination is conducted at the time that we acquire properties believed to be suitable for drilling operations. We rely upon the brokers of the properties to conduct the title examination. We will perform necessary curative work with respect to any significant defects in title prior to proceeding with operations.
Competition
The oil and natural gas business is highly competitive. We compete with private and public companies in all facets of the oil and natural gas business, including suppliers of energy and fuel to industrial, commercial and individual customers. Numerous independent oil and gas companies, oil and gas syndicates and major oil and gas companies actively seek out and bid for oil and gas prospects and properties as well as for the services of third-party providers, such as drilling companies, upon which we rely. Many of these companies not only explore for, produce and market oil and natural gas, but also carry out refining operations and market the resultant products on a worldwide basis. A substantial number of our competitors have longer operating histories and substantially greater financial and personnel resources than we do.
Competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the government of the United States and other countries, as well as factors that we cannot control, including international political conditions, overall levels of supply and demand for oil and gas, and the markets for synthetic fuels and alternative energy sources. Intense competition occurs with respect to marketing, particularly of natural gas.
Government And Environmental Regulation
Domestic development, production and sale of oil and gas are extensively regulated at both the federal and state levels. Legislation affecting the oil and gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden. Also, numerous departments and agencies, both federal and state, have issued rules and regulations binding on the oil and gas industry and its individual members, compliance with which is often difficult and costly and some of which carry substantial penalties for failure to comply. State statutes and regulations require permits for drilling operations, drilling bonds and reports concerning wells. Texas and other states in which we intend to conduct operations also have statutes and regulations governing conservation matters,
29
including the unitization or pooling of oil and gas properties and establishment of maximum rates of production from oil and gas wells.
Our operations are subject to extensive and developing federal, state and local laws and regulations relating to environmental, health and safety matters; petroleum; chemical products and materials; and waste management. Permits, registrations or other authorizations are required for the operation of certain of our facilities and for our oil and gas exploration and production activities. These permits, registrations or authorizations are subject to revocation, modification and renewal. Governmental authorities have the power to enforce compliance with these regulatory requirements, the provisions of required permits, registrations or other authorizations, and lease conditions, and violators are subject to civil and criminal penalties, including fines, injunctions or both. Failure to obtain or maintain a required permit may also result in the imposition of civil
and criminal penalties. Third parties may have the right to sue to enforce compliance.
Some risk of costs and liabilities related to environmental, health and safety matters is inherent in our operations, as it is with other companies engaged in similar businesses, and there can be no assurance that material costs or liabilities will not be incurred. In addition, it is possible that future developments, such as stricter requirements of environmental or health and safety laws and regulations affecting our business or more stringent interpretations of, or enforcement policies with respect to, such laws and regulations, could adversely affect us. To meet changing permitting and operational standards, we may be required, over time, to make site or operational modifications at our facilities, some of which might be significant and could involve substantial expenditures. There can be no assurance that material costs or liabilities will not arise from
these or additional environmental matters that may be discovered or otherwise may arise from future requirements of law.
Employees And Consultants
As we remain in the development stage, our staffing is limited. As of July 18, 2006, we had 18 employees, all of whom are full-time employees. We employ a Chief Executive Officer, Chief Financial Officer and Controller, staff accountant, corporate counsel and two clerical/administrative personnel in our Fort Lauderdale, Florida headquarters. In addition, at our field offices in Dallas and Arkansas, we employ senior geology, land management, petroleum engineering and administrative personnel. We also utilize certain outsourced third parties to provide operational, technical and certain administrative services. As production levels increase, we may find the need to hire additional personnel. None of our employees are represented by a union. We have never experienced an interruption in operations from any kind of labor dispute and we consider the working relationship
among our staff to be excellent.
LEGAL PROCEEDINGS
NONE
DESCRIPTION OF PROPERTY
Our executive offices consist of approximately 4355 feet of leased office space located at 888 East Las Olas Boulevard, Suite 400, Fort Lauderdale, Florida. In addition, we have an operations office in suburban, Dallas, Texas consisting of approximately 4,072 feet of leased office space, and we have recently purchased a small office building in McCrory, Arkansas to house the operations personnel and consultants working for our Fayetteville Shale Project.
Oil and Gas Properties
The following table summarizes our gross and net developed and undeveloped oil and natural gas acreage under lease as of August 31, 2005.
30
Gross
Net
Developed acreage
Zapata County
2,496.40
556.07
Turner/Escalera
560.00
53.90
Total
3,056.40
609.97
Undeveloped Acreage
Maverick Basin
10,240.00
3,801.60
Barnett Shale
12,081.50
3,521.30
Turner/Escalera
19,476.82
2,131.76
Whitewater
40,463.84
11,969.93
Total
82,262.16
21,424.59
A developed acre is considered to be an acre spaced or assignable to productive wells. A gross acre is an acre in which a working interest is owned. A net acre is the result that is obtained when our fractional ownership working interest is multiplied by gross acres. The number of net acres is the sum of the factional working interests owned in gross acres expressed as whole numbers and fractions thereof.
Undeveloped acreage is considered to be those lease acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil or natural gas, regardless of whether that acreage contains proved reserves, but does not include undrilled acreage held by production under the terms of a lease. As is customary in the oil and gas industry, we can generally retain our interest in undeveloped acreage by drilling activity that establishes commercial production sufficient to maintain the leases or by paying delay rentals during the remaining primary term of leases.
The oil and gas leases in which we have an interest are for varying primary terms, and if production under a lease continues from our developed lease acreage beyond the primary term, we are entitled to hold the lease for as long as oil or natural gas is produced.
We do not have any obligations under existing contracts or agreements calling for the provision of fixed and determinable quantities of oil and gas over the next three years, and have therefore not filed any information or reports with any federal authority or agency containing estimates of total proved developed or undeveloped net oil or gas reserves. Our oil and gas properties consist primarily of oil and gas wells and our interests in leasehold acreage, both developed and undeveloped.
Reserves
Our estimates of oil and gas reserves are derived from reports prepared by Miller and Lents, Ltd., petroleum consultants. Proved reserves are the estimated quantities that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Due to the inherent uncertainties and the limited nature of reservoir data, such estimates are subject to change as additional information becomes available. The estimates of reserves, future cash flows and present value are based on various assumptions, including those prescribed by the SEC, and are inherently imprecise. Although we believe these estimates are reasonable, actual future production, cash flows, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves
may vary substantially from these estimates. Also, the use of a 10% discount factor for reporting purposes may not necessarily represent the most appropriate discount factor, given actual interest rates and risks to which our business or the oil and natural gas industry in general are subject.
Based on reserve reports prepared by Miller and Lents, Ltd. dated August 31, 2005, we had estimated total proved reserves of 1,080 MMcfe of which 420 MMcfe were proved producing reserves. We have not reported our reserves to any federal authority or agency.
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The following table sets forth certain information as of August 31, 2005 with respect to our estimated proved oil and gas reserves pursuant to SEC guidelines, present value of proved reserves and standardized measure of discounted future net cash flows.
The following table sets forth certain information as of August 31, 2005 regarding our proved oil and gas reserves in each of our principal producing areas:
Proved Reserves
Oil(a)
MBbls
Gas
(MMcf)
Total Gas
Equivalent
(MMcfe)
Percent of Present
Value of Proved
Reserves
Present Value of
Proved Reserves
(in thousands)
Percent of Present
Value of Proved
Reserves
Whitewater
0
320
320
29.6
%
977
18.5
%
Zapata County
6
651
692
64.1
%
3,843
72.9
%
Other (b)
9
16
68
6.3
%
456
8.6
%
Total
15
987
1,080
100.0
%
5,276
100.0
%
(a) Includes natural gas liquids.
(b) Primarily West Texas
Proved Developed
Proved Total
Producing
Nonproducing
Undeveloped
Proved
(Dollars in thousands)
Gas (MMcf)
346
322
319
987
Oil and natural gas liquids (MBbls)
12
3
—
15
Total (MMcfe)
420
341
319
1,080
Present value of proved reserves
$
2,829
$
1,470
$
977
$
5,276
Standardized measure of discounted future net cash flows
—
—
—
—
These calculations were prepared using standard geological and engineering methods generally accepted by the petroleum industry and in accordance with SEC financial accounting and reporting standards. The estimated present value of proved reserves does not give effect to indirect expenses such as general and administrative expenses, debt service and future income tax expense or to depletion, depreciation, and amortization.
In accordance with applicable financial accounting and reporting standards of the SEC, the estimates of our proved reserves and the present value of proved reserves set forth herein are made using oil and gas sales prices estimated to be in effect as of the date of such reserve estimates and are held constant throughout the life of the properties. Estimated quantities of proved reserves and their present value are affected by changes in oil and gas prices. The average prices utilized for the purpose of estimating our proved reserves and the present value of proved reserves as of August 31, 2005 were $65.45 per Bbl of oil and natural gas liquids and natural gas liquids and $10.88 per Mcf of gas.
Production
For the twelve months ended August 31, 2005, our total net production was approximately 1,399 barrels of oil and 31,687 Mcf of natural gas. The average prices received for our oil and gas sales were $51.35 per barrel and $6.67 per Mcf, respectively. Our average lifting cost per Mcfe was $3.38
We had no production for the twelve month periods ended August 31, 2003 and 2004.
Productive Wells and Acreage
As of August 31, 2005, we had 3 productive wells. One of these wells produces oil and two of the wells produce gas. We had total gross acreage of 85,319 acres, consisting of 3,056 developed acres and 82,262 undeveloped acres. We had total net acreage of 22,035 acres, consisting of 610 developed acres and 21,425 undeveloped acres.
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Drilling Activity
The following table sets forth our drilling activity during the twelve month period ended August 31, 2005. We did not engage in any drilling activities in the twelve month periods ended August 31, 2003 and 2004.
2005
(Excludes wells in progress at the end of the period)
Gross
Net
Development Wells:
Oil
0
0
Gas
0
0
Dry
0
0
Total
0
0
Exploratory Wells:
Oil
1
.1
Gas
8
2.0
Dry
9
1.9
Total
18
4.0
Total Wells:
Oil
1
.1
Gas
8
2.0
Dry
9
1.9
Total
18
4.0
The information contained in the foregoing table should not be considered indicative of future drilling performance, nor should it be assumed that there is any necessary correlation between the number of productive wells drilled and the amount of oil and gas that may ultimately be recovered by us.
We do not own any drilling rigs, and all of our drilling activities are conducted by independent drilling contractors.
Present Activities
A description of our present activities is contained in "BUSINESS
4
Projects," beginning on page 24.
Delivery Commitments
At August 31, 2005, we had no delivery commitments with our purchasers.
DIRECTORS AND EXECUTIVE OFFICERS
Below is certain information regarding our directors and executive officers.
Name
Age
Position Held
V. Ray Harlow
53
Chief Executive Officer and Director
John A. Ruddy
58
Chief Financial Officer
James M. Parrish
51
Executive Vice-President—operations and business development
Lance E. Johnson
59
Director
David Preng
59
Director
Andrej Rucigaj
41
Director
Matthew Fitzgerald
48
Director
V. Ray Harlow has served as our Chief Executive Officer and a member of our board of directors since March 2005. Mr. Harlow has 32 years of experience in the industry, in particular in the area of upstream oil and gas exploration and development. From August 2003 until March 2005, he was chief
33
executive officer and managing member of Hurricane Energy, LLC. Between October 1997 and August 2003, he was an independent energy consultant. From August 1987 until October 1997, he was with Sun Company, Inc. (doing business as Sunoco), then the largest independent refining and marketing company in the U.S. From May 1991 to October 1997, he was the chairman and managing director of Sun International Oil Company, the international subsidiary of Sunoco. Prior to his tenure at Sunoco, Mr. Harlow held executive management positions with Arco, Amoco and Transcontinental Oil.
John A. Ruddy has served as our Chief Financial Officer since March 2005. Mr. Ruddy has 27 years of experience in the oil and gas industry. From October 2003 until March 2005 he served as Chief Financial Officer of Hurricane Energy, LLC. From December 1996 to September 2003, Mr. Ruddy was the Chief Financial Officer of the Sunoco Marketing Division. From 1993 to 1996, he was the Chief Financial Officer for Sunoco's International Exploration and Production division. Mr. Ruddy spent 25 years with Sunoco, Inc., the largest independent refining and marketing company in the U.S. Mr. Ruddy has extensive experience in acquisitions and divestments in both the upstream and downstream areas, having participated in transactions valued in excess of $1.5 billion during his career.
James M. Parrish has served as our Executive Vice-President since March 2005. His principal duties will be to oversee our field operations, act as liaison with any strategic partners, and manage our oil and gas hedging activities. From 2003 until March 2005, he was executive vice president of Hurricane Energy, LLC, where he was responsible for managing investor relations and relations with financial institutions, as well as developing strategic alliances with industry partners. From 2002 to 2003, he was a principal with Champion Group Capital, Inc., of Dallas, Texas, a commercial mortgage banker financing commercial real estate. From 1987 to 2002, he was a manager of Dillon Gage Capital Markets, of Dallas, Texas, and founded its capital markets group.
Lance E. Johnson joined our Board of Directors on August 10, 2005. Mr. Johnson is a veteran of 30 years in the energy industry. Following service of six years in the United States Air Force as an officer and pilot, Mr. Johnson joined Mobil Oil Corporation in 1975. Mr. Johnson held numerous senior management positions within Mobil Oil Corporation including Managing Director of Mobil Exploration Norway, General Manager of Production for Mobil U.S. Exploration and Production, Chairman and President of Mobil North Sea Ltd. In 1996, Mr. Johnson was appointed Executive Vice President of Mobil Oil Corporation for Supply, Trading and Transportation and in 1998 he assumed responsibility for worldwide New Exploration and Production Ventures. Coincident with the merger of Exxon and Mobil in 1999, Mr. Johnson was appointed Vice President of ExxonMobil Production Company
from which position he retired in June, 2002. He holds a B.S. in Mechanical Engineering from Tufts University and a Masters Degree in Industrial Management from Central Michigan University.
David Preng joined our Board of Directors on September 28, 2005. Mr. Preng has served as Chief Executive Officer and President of Preng and Associates since 1980. Preng and Associates is an international executive search firm specializing in placements within the oil and gas industry. Mr. Preng served on the Board of Directors of Remington Oil and Gas, Inc., a publicly held oil and gas company, from April 29, 1997 through its sale on July 1, 2006. Mr. Preng is a member of the National Association of Corporate Directors - Houston Chapter, Community National Bank, and the International Advisory Board of Texas A&M University. He is also a Fellow for the Institute of Directors. He holds a B. S. in Business Administration from Marquette University and a Masters Degree in Business Administration from DePaul University.
Andrej Rucigaj joined our Board of Directors on September 28, 2005. Mr. Rucigaj has worked as a manager in the investment and finance fields for the last 10 years, with a focus on the energy sector. Since 2001, Mr. Rucigaj served as an investment manager of Aktiva Group, an Amsterdam based private investment fund. Aktiva is controlled by Darko Horvat, one of the principal beneficiaries of Line Trust Corporation Limited, a principal shareholder of the Company. From 1994 to 2001, Mr. Rucigaj worked as an officer of Arkada, an investment fund in Slovenia. Mr. Rucigaj holds a B.S. in
34
Electrical Engineering from ETH (Swiss Federal Institute of Technology) and an MBA from INSEAD, The European Institute of Business Administration (Fountainebleau, France).
Matthew Fitzgerald joined our Board of Directors on January 27, 2006. Mr. Fitzgerald has been the Senior Vice President and Chief Financial Officer of Grant Prideco, Inc. since January 2004. Grant Prideco, Inc. is the world leader in drill stem technology development and drill pipe manufacturing, sales and service, a global leader in drill bit technology, manufacturing, sales and service, and a leading provider of high-performance engineered connections and premium tubular products and services. Prior to his current position with Grant Prideco, Inc., Mr. Fitzgerald served as Executive Vice President, Chief Financial Officer, and Treasurer of Veritas DGC, beginning in March 2001. Mr. Fitzgerald was employed by BJ Services Company from 1989 to 2001, where he served as Vice President and Controller from 1998 to 2001 and as Controller beginning in 1989. From 1988
to 1989, Mr. Fitzgerald was the Corporate Audit Director for Baker Hughes, Inc. Mr. Fitzgerald also was a senior manager with the accounting firm of Ernst & Whinney.
Directors' Term of Office
Directors hold office until the next annual meeting of shareholders and the election and qualification of their successors. Our employment agreement with V. Ray Harlow requires that our board of directors nominate him for appointment to the board of directors for so long as he remains our chief executive officer. Officers are elected annually by our board of directors and serve at the discretion of the board of directors.
Board of Directors
During the fiscal year ending August 31, 2005, our Board took action, by consent resolution or at meetings, on nineteen (19) occasions. All meetings of the Board of Directors were attended by all then-current members and all consent resolutions were unanimous.
The Board of Directors created the Audit Committee at a meeting held on October 17, 2005. The Audit Committee is responsible for monitoring the integrity of the Company's financial reporting standards and practices and its financial statements, overseeing the Company's compliance with ethics and compliance policies and legal and regulatory requirements, and selecting, compensating, overseeing, and evaluating the Company's independent auditors. The members of the Audit Committee are Matthew Fitzgerald, Lance E. Johnson and Andrej Rucigaj. Each of these Audit Committee members is independent as defined in the listing standards of the American Stock Exchange and the rules of the Securities and Exchange Commission. Matthew Fitzgerald is the Chairman of the Audit Committee. The Board has determined that Mr. Fitzgerald is an "audit committee
financial expert," as that term is defined in the rules of the Securities and Exchange Commission.
Code of Ethics
During November 2005, we adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. This had the effect of replacing and superceding our former Code of Ethics adopted during fiscal 2004. Our Code of Ethics is designed to deter wrongdoing and promote: (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in our other public communications; (iii) compliance with applicable governmental laws, rules and regulations; (iv) the prompt internal reporting of violations of the code to an appropriate person or
persons identified in the code; and (v) accountability for adherence to the code.
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Section 16 Beneficial Ownership Reporting Compliance
Section 16(a) of the U.S. Securities and Exchange Act of 1934, as amended (the "Exchange Act"), requires our officers and directors and persons who own more than ten percent (10%) of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. Such officers, directors and ten percent (10%) stockholders are also required by applicable SEC rules to furnish the us copies of all forms filed with the SEC pursuant to Section 16(a) of the Exchange Act. Based solely on our review of copies of forms filed pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, and written representations from certain reporting persons, we believe that during fiscal 2005 all reporting persons timely complied with all filing requirements applicable to them, except for the following.
Line Trust Corporation Limited, The Atkiva Diversified Trust, and AltaFin, B.V. filed one Form 3 after the date such form was required to be filed. M.V. Oil and Gas Company, the beneficial owner of 20.73% of our outstanding Common Stock, has failed to file a Form 3.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Mr. Preng, one of our directors, is the Chief Executive Officer and principal shareholder of Preng and Associates, an international executive search firm specializing in the oil and gas industry. Preng and Associates was engaged by the Company during 2005 to conduct certain executive searches, for which it received fees of approximately $200,000.
Mr. Rucigaj, one of our directors, is an investment manager of Aktiva Group, an Amsterdam based private investment fund. Aktiva is controlled by Darko Horvat, one of the principal beneficiaries of Line Trust Corporation Limited ("Line Trust"). Line Trust is the independent sole trustee of the Aktiva Diversified Trust (the "Aktiva Trust"). On February 1, 2005, the Aktiva Trust purchased 9,000,000 investment units from the Company, consisting of 18,000,000 shares of common stock and warrants to purchase an additional 9,000,000 shares of common stock for an aggregate purchase price of $18,000,000. That purchase was made in a private placement by the Company of a total of 14,217,500 investment units and at the same price as the other purchasers in the private placement transaction. Line Trust is also the independent sole trustee of a trust
that indirectly holds all of the shares of stock of AltaFin, B.V. ("AltaFin") and of a trust that directly or indirectly holds all of the shares of AltaFin's corporate managing director. On August 2, 2004, AltaFin purchased 1,000,000 investment units from the Company, consisting of 2,000,000 shares of common stock and warrants to purchase 1,000,000 additional shares of common stock, for an aggregate purchase price of $2,000,000.
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid or accrued for the three fiscal years ended August 31, 2005 to or for the benefit of our Chief Executive Officer and our four most highly compensated executive officers whose total annual salary and bonus compensation exceeded $100,000 (the "Named Executive Officers").
36
Summary Compensation Table
Annual Compensation
Long-Term
Compensation Awards
Name and
Principal Position
Salary
Bonus
Restricted
Stock Awards
Number of
Options
All Other
Compensation
V. Ray Harlow, Chief
Executive Officer
2005
$
143,375
$
100,000
$
82,000
(
2)
1,230,000
(
3)
—
John A. Ruddy, Chief
Financial Officer
2005
$
102,752
$
80,000
$
65,600
(
2)
1,230,000
(
3)
—
James M. Parrish, Executive
Vice President
2005
$
74,077
$
100,000
$
49,200
(
2)
1,230,000
(
3)
—
Michael Garland, former
Chief Executive Officer
2005
$
120,000
—
—
—
—
2004
$
20,000
—
—
300,000
(
4)
—
(1) During the periods reflected, certain of the officers named in this table received perquisites and other personal benefits not reflected in the amounts of their respective annual salaries or bonuses. The dollar amount of these benefits did not, for any individual in any year, exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported for that individual in any year, unless otherwise noted.
(2) This column shows the market value of restricted stock awards granted subsequent to fiscal year 2005 for performance in that fiscal year as follows: Mr. Harlow, 100,000 shares; Mr. Ruddy, 80,000 shares; and Mr. Parish, 60,000 shares. One third of the restricted shares granted to each officer vest on each of the first three anniversaries of the date of the grant. No restricted shares were held by any of these officers as of August 31, 2005.
(3) The options have an exercise price of $2.395 per share. They vested 20% on March 10, 2006, the first anniversary of the date of grant, and will vest 20% on each subsequent anniversary of the date of grant.
(4) Mr. Garland entered into an employment agreement with us on July 27, 2004. The employment agreement provided for a base salary of $10,000 per month and three year options to purchase 300,000 shares of our common stock at $1.50 per share. The agreement provided for a payment of six months severance from his resignation in March 2005.
On March 9, 2005, we entered into an employment agreement with V. Ray Harlow, our Chief Executive Officer. This agreement has a five-year term and requires us to pay Mr. Harlow a base annual salary of $300,000. Under this agreement, we granted Mr. Harlow an option to purchase up to 1,230,000 shares of our common stock at an exercise price of $2.395 per share, vesting in equal installments on each of the first five anniversaries of the date of his employment agreement. If we terminate Mr. Harlow's employment without cause (as defined in the agreement) or by reason of his death or disability, we are required to pay Mr. Harlow his base salary and benefits, not including additional compensation, for a period of six months from the effective date of termination or until the term of the agreement expires, whichever period is shorter, and the options we granted
Mr. Harlow in the agreement will continue to vest through this severance period. Under this agreement, we agreed to nominate Mr. Harlow to a position on our board of directors for so long as he remains our Chief Executive Officer.
On March 9, 2005, we entered into an employment agreement with John A. Ruddy, our Chief Financial Officer. This agreement has a five-year term and requires us to pay Mr. Ruddy a base annual salary of $215,000. Under this agreement, we granted Mr. Ruddy an option to purchase up to 1,230,000 shares of our common stock at an exercise price of $2.395 per share, vesting in equal installments on each of the first five anniversaries of the date of his employment agreement. If we terminate Mr. Ruddy's employment without cause (as defined in the agreement) or by reason of his death or disability, we are required to pay Mr. Ruddy his base salary and benefits, not including
37
additional compensation, for a period of six months from the effective date of termination or until the term of the agreement expires, whichever period is shorter, and the options we granted Mr. Ruddy in the agreement will continue to vest through this severance period.
On March 9, 2005, we entered into an employment agreement with James M. Parrish, our Executive Vice- President. This agreement has a five-year term and requires us to pay Mr. Parrish a base annual salary of $155,000. Under this agreement, we granted Mr. Parrish an option to purchase up to 1,230,000 shares of our common stock at an exercise price of $2.395 per share, vesting in equal installments on each of the first five anniversaries of the date of his employment agreement. If we terminate Mr. Parrish's employment without cause (as defined in the agreement) or by reason of his death or disability, we are required to pay Mr. Parrish his base salary and benefits, not including additional compensation, for a period of six months from the effective date of termination or until the term of the agreement expires, whichever period is shorter, and the options
we granted Mr. Parrish in the agreement will continue to vest through this severance period.
Change in Control Arrangements
Under the Company's 2005 Stock Incentive Plan, the stock options held by Mr. Harlow, Mr. Ruddy, and Mr. Parrish were granted pursuant to the Company's 2005 Stock Incentive Plan (the "Plan"). Under the terms of the Plan, if the Plan is terminated as a result of or following a "Change in Control," all participants in the Plan are credited with an additional six months of service for vesting purposes.
Directors' Compensation
Non-employee directors are paid $8,750 per quarter, provided such director has attended in person or by telephone at least 75% of meetings held during the quarter, and a fee of $1,250 for each Board meeting attended in person or telephonically. Upon joining our Board of Directors, each non-employee director received an award of options to purchase 80,000 shares of our common stock with an exercise price equal to the closing price of our common stock on the trading day prior to the date of grant. One half of each director's options will vest upon the completion of one year of such director's Board service and the remaining one half will vest upon the completion of two years of Board service.
Stock Options
The following table sets forth information on option grants in fiscal 2005 to the Named Executive Officers.
Option Grants in Last Fiscal Year
Name
Number of
Options
Granted
% of Total
Options Granted
to Employees in
Fiscal-Year
Exercise
Price
Market Price on
Date of Grant
Expiration
Date
V. Ray Harlow
1,230,000
(
1)
31
%
$
2.395
$
2.43
March 2015
John A. Ruddy
1,230,000
(
1)
31
2.395
2.43
March 2015
James M. Parrish
1,230,000
(
1)
31
2.395
2.43
March 2015
Michael Garland
—
—
—
—
—
(1) These options vest 20% on March 10, 2006, the first anniversary of the date of grant, and 20% on each subsequent anniversary of the date of grant.
The following table sets forth information concerning year-end option values for fiscal 2005 for the Named Executive Officers. The value of the options was based on the closing price of our common stock on August 31, 2005 of $1.19.
38
Fiscal Year End Option Values
Number of Unexercised Options at Fiscal Year End
Value of Unexercised In-The-Money Options at Fiscal Year End
Shares Acquired
on Exercise
Value
Realized
Exercisable
Unexercisable
Exercisable
Unexercisable
V. Ray Harlow
—
—
—
1,230,000
$—
$—
John A. Ruddy
—
—
—
1,230,000
—
—
James M. Parrish
—
—
—
1,230,000
—
—
Michael Garland
—
—
300,000
—
—
—
Outstanding Stock Options
The 2005 Stock Incentive Plan, (the "Stock Incentive Plan") covers 10,000,000 shares of common stock. Under its terms, employees, officers and directors of the Company and its subsidiaries are currently eligible to receive non-qualified stock options, restricted stock awards and incentive stock options within the meaning of Section 422 of the Code. In addition, advisors and consultants who perform services for the Company or its subsidiaries are eligible to receive non-qualified stock options under the Stock Incentive Plan. The Stock Incentive Plan is administered by the Board of Directors or a committee designated by the Board of Directors.
All stock options granted under the Stock Incentive Plan are exercisable for a period of up to ten years from the date of grant. The Company may not grant incentive stock options pursuant to the Stock Incentive Plan at exercise prices which are less than the fair market value of the common stock on the date of grant. The term of an incentive stock option granted under the Stock Incentive Plan to a stockholder owning more than 10% of the issued and outstanding common stock may not exceed five years and the exercise price of an incentive stock option granted to such stockholder may not be less than 110% of the fair market value of the common stock on the date of grant. The Stock Incentive Plan contains certain limitations on the maximum number of shares of the common stock that may be awarded in any calendar year to any one individual for the purposes of Section
162(m) of the Code.
In addition to the stock options covered by the Stock Incentive Plan, the Company has outstanding options to purchase 450,000 shares of common stock. Options granted under the plan have been granted subject to 20% annual vesting over a period of five years, contingent on continued service with our company. The following schedule identifies the vesting schedule associated with all our outstanding options as of May 31, 2006:
Plan
Non-Plan
Total
Vested as of 8/31/05
—
450,000
450,000
To vest in Fiscal Year 2006
882,000
—
882,000
To vest in Fiscal Year 2007
922,000
—
922,000
To vest in Fiscal Year 2008
802,000
—
802,000
To vest in Fiscal Year 2009
762,000
—
762,000
To vest in Fiscal Year 2010
762,000
—
762,000
4,130,000
450,000
4,580,000
These options were outstanding as of May 31, 2006 at the following exercise prices:
Number of Options
Plan
Non-Plan
Total
Range of Exercise Prices
320,000
450,000
690,000
$1.00 to $1.50
120,000
—
120,000
$1.50 to $2.00
3,690,000
—
3,690,000
$2.00 to $2.50
4,130,000
450,000
4,580,000
39
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table indicates how many shares of our common stock were beneficially owned as of July 18, 2006, by (1) each person known by us to be the owner of more than 5% of our outstanding shares of common stock, (2) our directors, (3) our executive officers, and (4) all our directors and executive officers as a group. In general, "beneficial ownership" includes those shares a director or executive officer has sole or shared power to vote or transfer (whether or not owned directly) and rights to acquire common stock through the exercise of stock options and warrants that are exercisable currently or become exercisable within 60 days. Except as indicated otherwise, the persons named in the table below have sole voting and investment power with respect to all shares shown as beneficially owned by them. We based our calculation of the percentage
owned of 99,446,116 shares outstanding on July 18, 2006, and added shares that may be acquired within 60 days to the number of other shares that the person owns as well as to the number of shares outstanding. The address of each of the directors and executive officers listed below is c/o Maverick Oil and Gas, Inc., 888 Las Olas Boulevard, Suite 400, Fort Lauderdale, Florida 33301.
Name and Address
Number of Shares
Beneficially Owned
Percent of Class
V. Ray Harlow...
1,322,539
(
1)(2)
1.3
%
John A. Ruddy...
1,416,000
(
1)(3)
1.4
%
James M. Parrish...
1,416,000
(
1)(4)
1.4
%
Lance E. Johnson...
103,300
(
5)
*
David Preng...
40,300
(
6)
*
Andrej Rucigaj...
0
(
6)
0
Matthew Fitzgerald...
0
(
7)
0
Line Trust Corporation Limited...
57/63 Line Wall Road
P.O. Box 199
Gibraltar
31,734,500
(
8)
29.1
%
M.V. Oil and Gas Company...
Box 751
Providenciales
Turks & Caicos
19,000,000
(
9)
19.1
%
Millenium Global High Yield Fund Limited...
64 St. James Street
London SW1A 1NF UK
11,250,000
(
10)
10.9
%
All officers and directors as a group (7 persons)...
4,298,787
4.3
%
(*) Less than 1%
(1) These shares do not include 984,000 shares issuable upon exercise of stock options that were granted as part of the acquisition but are not currently exercisable. With respect to Mr. Harlow, this includes 2,012 shares held by Mr. Harlow's wife.
(2) Also does not include 100,000 shares of restricted stock that were granted under our Stock Incentive Plan during February 2006, and vest in one-third annual increments commencing February 2007.
(3) Also does not include 80,000 shares of restricted stock that were granted under our Stock Incentive Plan during February 2006, and vest in one-third annual increments commencing February 2007.
(4) Also does not include 60,000 shares of restricted stock that were granted under our Stock Incentive Plan during February 2006, and vest in one-third annual increments commencing February 2007.
40
(5) Includes options to purchase 40,000 shares of our common stock at an exercise price of $1.22 per share, which vest on August 10, 2006, provided the above named director remains on our Board of Directors through such vesting date. Does not include options to purchase 40,000 shares of our common stock at an exercise price of $1.22 per share, which vest on August 10, 2007 provided the named director remains on our Board of Directors through such vesting date.
(6) Does not include options to purchase 80,000 shares of our common stock at an exercise price of $1.02 per share, fifty (50%) percent of which vest on September 26, 2006 and fifty (50%) percent of which vest on September 26, 2007, provided the named director remains on our Board of Directors through such vesting dates.
(7) Does not include options to purchase 80,000 shares of our common stock at an exercise price of $1.39 per share, fifty (50%) percent of which vest on February 3, 2007 and fifty (50%) percent of which vest on February 3, 2008, provided the named director remains on our Board of Directors through such vesting dates.
(8) Line Trust Corporation Limited ("Line Trust"), The Aktiva Diversified Trust ("Aktiva"), and AltaFin, BV ("AltaFin") have filed a Schedule 13D (the "Schedule 13D") as members of a "group" (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to these shares. Aktiva has the beneficial ownership of 27,000,000 of these shares (including 9,000,000 shares issuable upon the exercise of warrants) and AltaFin has the beneficial ownership of 4,734,500 of these shares (including 1,000,000 shares issuable upon the exercise of warrants). Line Trust is the independent sole trustee of Aktiva. Line Trust is also the independent sole trustee of a trust that owns all of the stock of AltaFin and of a trust that directly or indirectly holds all of the shares of AltaFin's
corporate managing director. Line Trust has disclaimed beneficial ownership of these shares, except to the extent of any indirect pecuniary interest therein. The foregoing information is based upon the Schedule 13D. The class of beneficiaries of the trusts described in this note currently includes Darko Horvat and his family members.
(9) Based upon information provided to us, we have been advised that these shares are beneficially owned indirectly by David Stevenson, c/o KDS Capital, 53 Davies Street, Mayfair, London W1K 5JH, U.K.
(10) Includes 3,500,000 shares issuable upon exercise of currently exercisable warrants. Millenium Global Investments Limited is the investment manager of Millenium Global High Yield Fund Limited, and as such has shared voting and dispositive power over the securities owned with Joseph Strubel, portfolio manager of Millenium Global High Yield Fund Limited. Other than the investments of Millenium Global High Yield Fund Limited in the Company's securities, Millenium has not had any material relationship with the Company within the past three years.
The foregoing table does not include: 317,663 shares beneficially owned by Castlerigg Master Investments, Ltd. ("Castlerigg") and an aggregate of 71,678,762 shares issuable to Castlerigg as follows: (i) 23,997,441 shares issuable upon the conversion of $22.5 million principal amount of the Secured Convertible Debentures at a conversion price of $0.9376 per share; (ii) 2,754,373 shares that may be issued in lieu of cash interest payments due under the Secured Convertible Debentures (valued at a 17.5% discount to then current trading prices based on certain assumed market conditions) and (iii) 44,926,948 shares upon the exercise of the January 2006 Warrants and the June 2006 Warrants at an exercise price of $0.9376 per share. This assumes the conversion of the principal amount of the Secured Convertible Debentures and the exercise of the January 2006
and June 2006 Warrants at these initial conversion and exercise prices, which are subject to anti-dilution adjustment. The terms of the Secured Convertible Debentures and January 2006 and June 2006 Warrants issued to Castlerigg prohibit Castlerigg from converting the Secured Convertible Debentures and/or exercising the January 2006 and June 2006 Warrants to the extent conversion and/or exercise would otherwise result in Castlerigg beneficially owning more than 4.99% of our shares of common stock after the
41
conversion and/or exercise; provided, however, that Castlerigg may increase or decrease such percentage limitation (however, not in excess of 9.99%) upon more than 60 days' notice. Accordingly, the foregoing table does not reflect the beneficial ownership of Castlerigg, although should it increase such percentage limitation, on more than 60 days' notice, it is possible that Castlerigg could become a beneficial holder of more than 5% of our shares. Castlerigg, a British Virgin Islands company, directly owns the secured convertible debentures and warrants. Sandell Asset Management Corp., a Cayman Islands company ("SAMC"), is the investment manager of Castlerigg. Thomas Sandell is the controlling person of SAMC and may be deemed to share beneficial ownership of the shares beneficially owned by Castlerigg. Castlerigg International Ltd.,
a British Virgin Islands company ("Castlerigg International"), is the controlling shareholder of Castlerigg International Holdings Limited, a British Virgin Islands company ("Holdings"). Holdings is the controlling shareholder of Castlerigg. Each of Holdings and Castlerigg International may be deemed to share beneficial ownership of the shares beneficially owned by Castlerigg. SAMC, Mr. Sandell, Holdings and Castlerigg International each disclaims beneficial ownership of the securities owned or beneficially owned by Castlerigg.
The foregoing table does not include 105,888 shares beneficially owned by Kings Road Investments Ltd. ("Kings Road") and an aggregate of 23,892,920 shares issuable to Kings as follows: (i) 7,999,146 shares issuable upon the conversion of $7.5 million principal amount of the Secured Convertible Debentures at a conversion price of $0.9376 per share; (ii) 918,125 shares that may be issued in lieu of cash interest payments due under the Secured Convertible Debentures (valued at a 17.5% discount to then current trading prices based on certain assumed market conditions); and (iii) 14,975,649 shares upon the exercise of the January 2006 and June 2006 Warrants at an exercise price of $0.9376 per share. This assumes conversion of the Secured Convertible Debentures and exercise of the January 2006 and June 2006 Warrants at these initial conversion and exercise
prices, which are subject to anti-dilution adjustments. The terms of the Secured Convertible Debentures and January 2006 and June 2006 Warrants issued to Kings Road prohibit Kings Road from converting the Secured Convertible Debentures and/or exercising the January 2006 and June 2006 Warrants to the extent conversion and/or exercise would otherwise result in Kings Road beneficially owning more than 4.99% of our shares of common stock after the conversion and/or exercise; provided, however, that Kings Road may increase or decrease such percentage limitation (however, not in excess of 9.99%) upon more than 60 days' notice. Accordingly, the foregoing table does not reflect the beneficial ownership of Kings Road, although should it increase such percentage limitation, on more than 60 days' notice, it is possible that Kings Road could become a beneficial holder of more than 5% of our
shares of common stock. Kings Road is a wholly-owned subsidiary of Polygon Global Opportunities Master Fund ("Master Fund"). Polygon Investment Partners LLP and Polygon Investment Partners LP (the "Investment Managers"), Polygon Investments Ltd. (the "Manager"), the Master Fund, Alexander Jackson, Reade Griffith and Paddy Dear share voting and dispositive power of the securities held by Kings Road. The Investment Managers, the Manager, Alexander Jackson, Reade Griffith and Paddy Dear disclaim beneficial ownership of the securities held by Kings Road. Except for the ownership of the secured convertible debentures and associated warrants, Kings Road has not had any material relationship with the Company within the past three years.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information, as of May 31, 2006, with respect to the Company's stock option plan under which common stock is authorized for issuance, as well as other compensatory options granted outside of the Company's stock option plan.
42
(a)
(b)
(c)
Plan Category
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding
options, warrants
and rights
Number of securities
remaining available for
future issuance under equity
compensation plan
(excluding securities
reflected in column (a))
Equity compensation plans approved by security holders
4,130,000
(
1)
$
2.18
5,870,000
(
3)
Equity compensation plans not approved by security holders
450,000
(
2)
$
1.50
Total
4,580,000
$
2.12
5,870,000
(1) Includes 240,000 shares of our common stock issuable upon the exercise of options granted to our directors after August 31, 2005 under the Company's 2005 Stock Incentive Plan. The 2005 Stock Incentive Plan was approved by the Company's stockholders on January 27, 2006.
(2) Includes 450,000 shares of common stock issuable upon the exercise of options granted to our former chief executive officer and the former manager of our treasury and accounting functions prior to the adoption of the 2005 Stock Incentive Plan.
(3) Represents shares which may be issued under options available for award under the Company's 2005 Stock Incentive Plan as of May 31, 2006.
SELLING SHAREHOLDERS
The shares of common stock included in this prospectus (including shares issuable pursuant to the terms of outstanding convertible debentures or warrants) were issued in the following private placement transactions, each of which was exempt from the registration requirements of the Securities Act of 1933, as amended.
Transaction:
Covered Shares:
Private placement of $10 million principal amount of June 2006 Secured Convertible Debentures and June 2006 Warrants to purchase shares of our common stock.
11,424,328 shares issuable upon conversion of or redemption of, or the payment of the principal of, or interest on, our June 2006 Secured Convertible Debentures and June 2006 Warrants to purchase 18,664,676 shares of our common stock.
The selling shareholders may sell all, some or none of their shares in this offering. See "Plan of Distribution."
The table below lists the selling shareholders and other information regarding the beneficial ownership of the shares of Common Stock by each of the selling shareholders. The second column lists the number and percentage of shares of Common Stock beneficially owned by each selling shareholder, based on its ownership of shares, the Secured Convertible Debentures or warrants, as of July 17, 2006, assuming conversion of all Secured Convertible Debentures and exercise of the warrants held by the selling shareholders on that date, without regard to any limitations on conversion or exercise. The third column lists the shares of Common Stock being offered by this prospectus by the selling shareholders. Each selling shareholder's percentage of ownership in the following table is based on 99,446,116 shares of common stock outstanding as of July 17, 2006.
43
Selling Shareholder
Shares
owned prior to the
offering
Number of
common shares
to be sold
pursuant to
this prospectus
Shares beneficially
owned
after the offering
Number
Percent
Number
Percent
Castlerigg Master Investments Ltd. (1)
71,996,425(2)(3)
4.99%(3)
22,566,753
(
4)
49,429,672
4.9%
Kings Road Investments Ltd. (5)
23,998,808(6)(3)
4.99%(3)
7,522,251
(
7)
16,476,557
4.9%
Total
30,089,004
(1) Castlerigg Master Investments Ltd., a British Virgin Islands company ("Castlerigg Master Investments"), directly owns the Secured Convertible Debentures and Warrants. Sandell Asset Management Corp., a Cayman Islands company ("SAMC"), is the investment manager of Castlerigg Master Investments. Thomas Sandell is the controlling person of SAMC and may be deemed to share beneficial ownership of the shares beneficially owned by Castlerigg Master Investments and SAMC. Castlerigg International Ltd., a British Virgin Islands company ("Castlerigg International"), is the controlling shareholder of Castlerigg International Holdings Limited, a British Virgin Islands company ("Holdings"). Holdings is the controlling shareholder of Castlerigg Master Investments. Each of Holdings and Castlerigg International may be deemed
to share beneficial ownership of the shares beneficially owned by Castlerigg Master Investments. SAMC, Mr. Sandell, Holdings and Castlerigg International each disclaims beneficial ownership of the securities owned or beneficially owned by Castlerigg Master Investments.
(2) Reflects an aggregate of: (i) 317,663 shares beneficially owned by the named holder; as well as 71,678,762 additional shares that may be issued to the named holder in the future, consisting of : (ii) 15,998,294 shares issuable upon the conversion of $15 million principal amount of our January 2006 Secured Convertible Debentures; (iii) 2,185,274 shares that may be issued in lieu of cash interest payments that may be due under the January 2006 Secured Convertible Debentures; (iv) 30,928,441 shares issuable upon the exercise of the January 2006 Warrants; (v) 7,999,147 shares issuable upon the conversion of $7.5 million principal amount of our June 2006 Secured Convertible Debentures; (vi) 569,099 shares that may be issued in lieu of cash interest payments that may be due under our June 2006 Secured Convertible Debentures; and (vii) 13,998,507 shares issuable
upon the exercise of the June 2006 Warrants.
(3) The terms of the Secured Convertible Debentures and associated warrants prohibit the holder from converting the debentures and/or exercising the warrants to the extent conversion and/or exercise would result in the holder beneficially owning more than 4.99% of our shares after the conversion and/or exercise; provided, however, that the holder may increase or decrease such percentage limitation (however, not in excess of 9.9%) upon more than 60 days notice. The number of shares contained in column #2 above does not reflect this limitation.
(4) Reflects the shares issuable to the named holder upon the conversion of $7.5 million principal of our June 2006 Secured Convertible Debentures, additional shares issuable in lieu of cash interest that may be due under our June 2006 Secured Convertible Debentures, and such additional shares that may be issuable upon exercise of the June 2006 Warrants.
(5) Kings Road Investments Ltd. ("Kings Road") is a wholly-owned subsidiary of Polygon Global Opportunities Master Fund ("Master Fund"). Polygon Investment Partners LLP and Polygon Investment Partners LP (the "Investment Managers"), Polygon Investments Ltd. (the "Manager"), the Master Fund, Alexander Jackson, Reade Griffith and Paddy Dear share voting and dispositive power of the securities held by Kings Road. The Investment Managers, the Manager, Alexander Jackson, Reade Griffith and Paddy Dear disclaim beneficial ownership of the securities held by Kings Road.
44
Except for the ownership of the Secured Convertible Debentures and associated warrants, Kings Road has not had any material relationship with the Company within the past three years.
(6) Reflects an aggregate of: (i) 105,888 shares beneficially owned by the named holder; as well as 23,892,920 additional shares that may be issued to the named holder in the future, consisting of : (ii) 5,332,764 shares issuable upon the conversion of $5 million principal amount of our January 2006 Secured Convertible Debentures; (iii) 728,425 shares that may be issued in lieu of cash interest payments that may be due under the January 2006 Secured Convertible Debentures; (iv) 10,309,480 shares issuable upon the exercise of the January 2006 Warrants; (v) 2,666,382 shares issuable upon the conversion of $2.5 million principal amount of our June 2006 Secured Convertible Debentures; (vi) 189,700 shares that many be issued in lieu of cash interest payments that may be due under our June 2006 Secured Convertible Debentures; and (vii) 4,666,169 shares issuable upon
the exercise of the June 2006 Warrants.
(7) Reflects the shares issuable to the named holder upon the conversion of $2.5 million principal of our June 2006 Secured Convertible Debentures, additional shares issuable in lieu of cash interest that may be due under our June 2006 Secured Convertible Debentures, and such additional shares that may be issuable upon the exercise of the June 2006 Warrants.
PLAN OF DISTRIBUTION
The selling shareholders identified in this prospectus may offer and sell up to an aggregate of 30,089,004 shares of our common stock which we may issue to them upon the exercise of certain warrants or upon the conversion or redemption of, or the payment of interest on, or the principal of, certain convertible debentures issued to them. The selling shareholders may sell all or a portion of their shares through public or private transactions at prevailing market prices or at privately negotiated prices.
All of the convertible debentures and warrants described above were previously issued in private placement transactions completed prior to the filing of the registration statement of which this prospectus is a part.
The selling shareholders may sell all or a portion of the shares of common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the selling shareholders will be responsible for underwriting discounts or commissions or agent's commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions,
• on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;
• in the over-the-counter market;
• in transactions otherwise than on these exchanges or systems or in the over-the-counter market;
• through the writing of options, whether such options are listed on an options exchange or otherwise;
• ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
• block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
• purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
• an exchange distribution in accordance with the rules of the applicable exchange;
• privately negotiated transactions;
45
• short sales;
• sales pursuant to Rule 144;
• broker-dealers may agree with the selling securityholders to sell a specified number of such shares at a stipulated price per share;
• a combination of any such methods of sale; and
• any other method permitted pursuant to applicable law.
If the selling shareholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling shareholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of common stock or otherwise, the selling shareholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume.
The selling shareholders may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling shareholders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.
The selling shareholders may pledge or grant a security interest in some or all of the convertible notes or warrants or shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, amending, if necessary, the list of selling shareholders to include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus. The selling shareholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners
for purposes of this prospectus.
The selling shareholders and any broker-dealer participating in the distribution of the shares of common stock may be deemed to be "underwriters" within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling shareholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.
Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.
There can be no assurance that any selling shareholder will sell any or all of the shares of common stock registered pursuant to the shelf registration statement, of which this prospectus is a part.
The selling shareholders and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling shareholders and any other participating person. Regulation M may also restrict the ability of any
46
person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.
We have agreed to pay all expenses of the registration of the shares of common stock including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or "blue sky" laws; provided, however, that a selling shareholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the selling shareholders against liabilities, including some liabilities under the Securities Act, in accordance with our agreement to register the shares, or the selling shareholders will be entitled to contribution. We may be indemnified by the selling shareholders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the selling shareholder specifically for use in this prospectus, in accordance with the
related registration rights agreements, or we may be entitled to contribution.
Once sold under the shelf registration statement, of which this prospectus is a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.
DESCRIPTION OF SECURITIES
Our authorized capital consists of 200 million shares of common stock, par value $0.001 per share, and 10 million shares of preferred stock, par value $0.001 per share. As of July 18, 2006 we had outstanding 99,446,116 shares of common stock and no shares of preferred stock.
Common Stock
Holders of shares of common stock have the right to cast one vote for each share of common stock in their name on the books of our company, whether represented in person or by proxy, on all matters submitted to a vote of holders of common stock, including election of directors. There is no right to cumulative voting in election of directors. Except where a greater requirement is provided by statute, by our articles of incorporation, or by our bylaws, the presence, in person or by proxy duly authorized, of one or more holders of a majority of the outstanding shares of our common stock constitutes a quorum for the transaction of business. The vote by the holders of a majority of outstanding shares is required to effect certain fundamental corporate changes such as liquidation, merger, or amendment of our articles of incorporation.
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes do, however, prohibit us from declaring dividends where, after giving effect to the distribution of the dividend (1) we would not be able to pay our debts as they become due in the usual course of business or (2) our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
We have not declared any dividends, and we do not plan to declare any dividends in the foreseeable future.
Holders of shares of our common stock are not entitled to preemptive or subscription or conversion rights, and no redemption or sinking fund provisions are applicable to our common stock. All outstanding shares of common stock sold in the offering are, or when issued pursuant to the terms of the Secured Convertible Debentures or warrants will be, fully paid and non-assessable.
We are presently authorized to issue 200,000,000 shares of common stock, almost all of which have been issued or reserved for issuance to cover the potential exercise of outstanding options and warrants, and upon conversion of our January 2006 Secured Convertible Debentures. Accordingly, we do not have sufficient authorized capital available to permit the issuance of any of the securities covered by this prospectus, or any other material issuance of securities. However, pursuant to an Information Statement dated July 17, 2006, effective as of August 7, 2006, we plan to amend our
47
Articles of Incorporation to increase the number of authorized shares of our common stock from 200 million shares to 260 million shares. The action was approved pursuant to written consent by the holders of a majority of our shares (approximately 51.9 million shares). Until this process is completed, if at all, our access to proceeds from one or more financing transactions will be limited. An event of default would occur under our June 2006 Secured Convertible Debentures if we do not amend our articles of incorporation by September 4, 2006.
January 2006 Secured Convertible Debentures
On January 5, 2006, we issued our January 2006 Secured Convertible Debentures in an aggregate principal amount of $20 million that are convertible into 21,331,059 shares of our common stock at an initial conversion price of approximately $0.9376 per share, subject to anti-dilution adjustments. The January 2006 Secured Convertible Debentures have a maturity date on the third anniversary of their issuance, subject to the right of the holders to extend the date for the payment of any installment of principal described below. The January 2006 Secured Convertible Debentures bear interest at the rate of 7.5% per annum, which rate is increased to 15% upon the occurrence of an event of default under the January 2006 Secured Convertible Debentures. Our obligations under the Secured Convertible Debentures are secured by a security interest in all of our assets.
Conversion
The January 2006 Secured Convertible Debentures are convertible at the option of the holders into shares of our common stock at an initial conversion price of approximately $0.9376 per share, subject to anti-dilution adjustments. The anti-dilution adjustments include a "full ratchet" adjustment which reduces the conversion price to any lower price at which we issue any common stock, or are obligated to issue common stock pursuant to options, warrants, or convertible securities in the future, except for the issuance of certain excluded securities.
We may require the holders to convert the January 2006 Secured Convertible Debentures after the registration statement of which this prospectus is a part has been declared effective and prior to January 5, 2009 if (1) the Equity Conditions described below are satisfied and (2) the closing sale price of our common stock equals or exceeds 125% of the initial conversion price of the January 2006 Secured Convertible Debentures for any five consecutive trading days. Any such mandatory conversion can not exceed 25% of the dollar trading volume of our common stock for the 20 trading days before we deliver notice of our election to require the mandatory conversion. If we elect to require such mandatory conversion, we must issue warrants to the holders of the January 2006 Secured Convertible Debentures to purchase the following percentages of the shares of common stock
which are being issued upon such mandatory conversion, based upon the following arithmetic averages of the weighted average prince of our common stock for the five trading days preceding the date we deliver notice of such mandatory conversion (expressed as a percentage of the conversion price as of such date):
Warrant Coverage
Arithmetic Average
70%
125% - 175%
60%
175% - 225%
50%
225% - 300%
25%
300% +
Payment of Interest
Interest on the January 2006 Secured Convertible Debentures is payable quarterly during 2006 and monthly beginning in 2007, and may, at our option, if the Equity Conditions described below are satisfied, be paid by the issuance of common stock. Any shares of common stock used to pay interest will be valued at 82.5% of the arithmetic average of the weighted average price of the common stock for the five trading days preceding the interest payment date.
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Redemption
At any time on or after January 5, 2009, we may redeem the January 2006 Secured Convertible Debentures, in whole or in part, by providing the holders thereof with 30 days' written notice thereof, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon and the issuance of warrants to purchase a number of shares of common stock equal to the number of shares then issuable upon conversion of the January 2006 Secured Convertible Debentures.
Equity Conditions
The Equity Conditions which must be satisfied include (1) on each day during the period commencing six months prior to the date the Company delivers notice of its intention to make a payment by issuing its common stock through the date of the payment (the "Equity Conditions Period"), the registration statement registering the common stock to be issued has been effective and available for the resale of the securities covered thereby or all such securities are eligible for sale without registration, (2) the Company's common stock has been designated for quotation on the OTC Bulletin Board on each day during the Equity Conditions Period and shall not be subject to a threat of delisting or suspension, (3) for a period of one year prior to the date of determination the Company has timely delivered all shares of common stock upon conversion of the
January 2006 Secured Convertible Debentures and upon exercise of the January 2006 Warrants, (4) the shares of common stock to be issued may be issued without causing a holder's beneficial ownership of the Common Stock to exceed 4.99% of the Company's outstanding common stock and without violating the rules of the OTC Bulletin Board, (5) the Company shall have not failed to timely make any payment required to be made under the January 2006 Secured Convertible Debentures, January 2006 Warrants, or related agreements within five business days after the date such payment is due, (6) during the Equity Conditions Period, there shall not have occurred an event of default, an event that with the passage of time or giving of notice would constitute an event of default, or a public announcement of a fundamental transaction involving the Company, (7) the Company shall have no knowledge of
any fact that would cause the registration statement registering the common stock to be issued not to be effective and available for the sale of the securities covered thereby or any shares of common stock issuable upon conversion of the Secured Convertible Debentures or exercise of the warrants not to be eligible for resale pursuant to Securities and Exchange Commission Rule 144(k), and (8) the Company shall not have materially breached any provision or representation or warranty in the January 2006 Secured Convertible Debentures, warrants, and related agreements.
June 2006 Secured Convertible Debentures
On June 21, 2006, we issued our June 2006 Secured Convertible Debentures in an aggregate principal amount of $10 million that are convertible into 10,665,529 shares of our common stock (at an initial conversion price of $0.9376 per share), subject to anti-dilution adjustments. The June 2006 Secured Convertible Debentures have a maturity date on the first anniversary of their issuance, subject to the right of the holders to extend the date for the payment of any installment of principal described below. The June 2006 Secured Convertible Debentures bear interest at the rate of 9.75% per annum, which rate is increased to 15% upon the occurrence of an event of default under the June 2006 Secured Convertible Debentures. Our obligations under the June 2006 Secured Convertible Debentures are secured by a security interest in all of our assets.
Repayment of Principal
The principal amount of the June 2006 Secured Convertible Debentures is to be repaid in equal monthly installments commencing on November 1, 2006 (or, if earlier, on the first day of the calendar month following the date the registration statement required by the Registration Rights Agreement is declared effective) and ending on June 21, 2007, the first anniversary of the date of their issuance. Such principal payments may be paid in cash or, at the option of the Company if the Equity Conditions described below are satisfied, in shares of the Company's Common Stock. Any shares of Common Stock used to pay an installment of principal will be valued at the lower of (1) the then
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applicable conversion price of the June 2006 Secured Convertible Debentures and (2) 82.5% of the arithmetic average of the weighted average price of the Common Stock for the fifteen trading days preceding the installment payment date (but no greater than the arithmetic average of the weighted average price for the first and last three trading days of such fifteen trading day period). The number of shares of Common Stock which may be issued for the payment of any installment of principal may not exceed 22.5% of the aggregate dollar trading volume over the twenty trading days before the date the Company delivers notice of its election to pay an installment of principal in shares of its Common Stock. If the Company uses shares of Common Stock to pay an installment of principal, the Company may be required to deliver additional shares of Common Stock to pay such
principal if the arithmetic average of the weighted average price for the nineteen (19) trading days following the installment payment date is less than the price used in determining the number of shares that were delivered on the installment payment date.
The holders of the June 2006 Secured Convertible Debentures may elect to defer the payment of any installment of principal for a period of up to two years from the date such installment was originally due.
The Equity Conditions which must be satisfied as of the date of determination include (1) the registration statement required by the Registration Rights Agreement is effective and available for the resale of the securities covered thereby or all such securities are eligible for sale without registration, (2) our Common Stock is designated for quotation on the OTC Bulletin Board and is not be subject to a threat of delisting or suspension, (3) for a period of one year prior to the date of determination the Company has timely delivered all shares of Common Stock upon conversion of the June 2006 Secured Convertible Debentures and upon exercise of the June 2006 Warrants, (4) the shares of Common Stock to be issued may be issued without causing a holder's beneficial ownership of the Common Stock to exceed 4.99% of the Company's outstanding Common Stock
and without violating the rules of the OTC Bulletin Board, (5) the Company shall have not failed to timely make any payment required to be made under the June 2006 Secured Convertible Debentures, January 2006 Warrants, or related agreements within five business days after the date such payment is due, (6) there is not an event of default, an event that with the passage of time or giving of notice would constitute an event of default, or a public announcement of a fundamental transaction involving the Company, (7) the Company shall have no knowledge of any fact that would cause the registration statement required pursuant to the Registration Rights Agreement not to be effective and available for the sale of the securities covered thereby or any shares of Common Stock issuable upon conversion of the June 2006 Secured Convertible Debentures or exercise of the Warrants not to be eligible for
resale pursuant to Commission Rule 144(k), and (8) the Company shall not have materially breached any provision or representation or warranty in the June 2006 Secured Convertible Debentures, June 2006 Warrants, and related agreements.
Conversion
The June 2006 Secured Convertible Debentures are convertible at the option of the holders into shares of the Company's Common Stock at an initial conversion price of $0.9376 per share, subject to anti-dilution adjustments. The anti-dilution adjustments include a "full ratchet" adjustment which reduces the conversion price to any lower price at which the Company issues any Common Stock, or is obligated to issue Common Stock pursuant to options, warrants, or convertible securities in the future, except for the issuance of certain excluded securities.
The Company may require the holders to convert the June 2006 Secured Convertible Debentures after the Securities and Exchange Commission has declared effective the registration statement required by the Registration Rights Agreement if (1) the Equity Conditions described above are satisfied, (2) the closing sale price of the Company's Common Stock equals or exceeds 125% of the initial conversion price of the Secured Convertible Debentures for any five consecutive trading days, and (3) the Company has deposited into an escrow account proceeds from the sale of the Company's Barnett Shale property in an amount equal to 125% of the principal amount of the January 2006 Secured Convertible Debentures and the June 2006 Secured Convertible Debentures (the "Deposit
50
Amount"). Any such mandatory conversion can not exceed 25% of the dollar trading volume of the Company's Common Stock for the 20 trading days before the Company delivers notice of its election to require the mandatory conversion. If the Company elects to require such mandatory conversion, it must issue warrants to the holders of the June 2006 Secured Convertible Debentures at an exercise price of $2.00 per share, to purchase the following percentages of the shares of Common Stock which are being issued upon such mandatory conversion, based upon the following arithmetic averages of the weighted average price of the Company's Common Stock for the five trading days preceding the date the Company delivers notice of such mandatory conversion (expressed as a percentage of the conversion price as of such date):
Warrant Coverage
Arithmetic Average
70%
125% - 175%
60%
175% - 225%
50%
225% - 300%
25%
300% +
Payment of Interest
Interest on the June 2006 Secured Convertible Debentures shall commence accruing as of June 21, 2006, however, the first payment will not be required until the first day of the month immediately following the earlier of: (i) the date on which the Registration Statement required by this transaction is declared effective by the Securities and Exchange Commission; or (ii) the four month anniversary of the closing. At the option of the Company, provided the Equity Conditions described above are satisfied, interest may be paid by the issuance of Common Stock. Any shares of Common Stock used to pay interest will be valued at 82.5% of the arithmetic average of the weighted average price of the Common Stock for the five trading days preceding the interest payment date.
Sale of Barnett Shale Property
The June 2006 Secured Convertible Debentures require the Company to use its best efforts to sell its Barnett Shale Property by December 31, 2006 for a purchase price equal to its fair market value. If the cash consideration to be received in any such sale is less than the required Deposit Amount, the consent of the holders of a majority of the outstanding principal amount of the June 2006 Secured Convertible Debentures is required. If such consent is not provided, the deadline for the sale is extended until March 31, 2007.
The proceeds from the sale of the Barnett Shale Property must be deposited and retained in an escrow account until such time as there are no Secured Convertible Debentures outstanding. The holders of the June 2006 Secured Convertible Debentures have the right for a period of three months after the proceeds are deposited into escrow to have the Company redeem their Secured Convertible Debentures in cash or in stock (at the Conversion Price) at a 25% premium. The Company may use the proceeds in the escrow fund to make payments on all of the Secured Convertible Debentures. A ratable portion of the escrowed proceeds may also be withdrawn by the Company as the principal amount of the June 2006 Secured Convertible Debentures is reduced. In addition, if the closing sale price of the Company's common stock for thirty trading days during any forty consecutive
trading day period is more than $2.00 and the Equity Conditions are satisfied, the Company may withdraw an amount of the escrowed proceeds equal to ten percent of the aggregate dollar trading volume during such forty day trading period.
If the Company has not sold the Barnett Shale Property prior to the applicable deadline, the holders of the June 2006 Secured Convertible Debentures have the right to have one-third of the outstanding principal amount of the June 2006 Secured Convertible Debentures redeemed, plus accrued and unpaid interest. If the Company has not sold the Barnett Shale Property within three months after the applicable deadline, the holders of the June 2006 Secured Convertible Debentures have the right to have an additional one-third of the principal amount redeemed, plus accrued and unpaid interest.
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If the proceeds from the sale of the Barnett Shale Property are less than the Deposit Amount, the holders of the June 2006 Secured Convertible Debentures have the right to have the Company redeem a portion of the deficiency, which may be paid in cash or registered shares of common stock.
Warrants
As of July 17, 2006 warrants to purchase 82,112,609 shares of Common stock were outstanding. Most of these warrants were granted in connection with investment-related transactions. These warrants entitle the holder to purchase the following number of shares at the following prices:
Number of Shares
Exercise Price
1,493,174
$
0.9376
41,237,922(1)
0.9376
(
2)
18,664,676(3)
0.9376
(
2)
746,586(2)
0.9376
(
2)
792,750
1.20
200,000
1.25
300,000
1.50
405,000
1.75
405,000
1.925
15,867,500
2.00
1,000,000
0.9376
500,000
1.50
500,000
2.00
Holders of our warrants have no voting rights, and therefore no right to participate in shareholder decisions, until such time as the warrants are exercised for shares of our common stock.
(1) Issued in conjunction with the January 2006 Secured Convertible Debentures, as subject to anti-dilution adjustment following the issuance of the June 2006 Secured Convertible Debentures.
(2) The exercise price and the number of shares issuable upon exercise of these warrants are subject to "full-ratchet" anti-dilution adjustments which reduce the exercise price to any lower price at which we issue any common stock, or are obligated to issue common stock pursuant to options, warrants, or convertible securities in the future, except for the issuance of certain excluded securities. Upon adjustment of the exercise price of the warrants, the number of shares issuable upon exercise of the warrants will be correspondingly adjusted.
(3) Issued in conjunction with the June 2006 Secured Convertible Debentures.
Registration Rights
This Prospectus has been prepared pursuant to the registration rights granted in connection with our June 2006 Secured Convertible Debentures. That transaction requires us to file a registration statement for the resale of a number of shares of common stock equal to 100% of the number of shares issuable upon conversion of the June 2006 Secured Convertible Debentures, the payment of interest on, and principal of, the June 2006 Secured Convertible Debentures, and upon exercise of the associated June 2006 Warrants. The registration statement must be declared effective by the Commission within no more than 120 days of the closing date, and must remain effective and available for use until the earlier of the date the investors can sell all of the securities covered by the registration statement without restriction pursuant to Securities and Exchange Commission Rule
144(k) and the date all of such securities have been sold pursuant to the registration statement. If we fail to meet the deadlines for the filing or the effectiveness of the registration statement or, subject to certain "grace periods" periods of up to 20 consecutive days (but no more than 30 days in any 365-day period), if the registration is unavailable after it becomes effective, we will be required to pay liquidated damages of two percent of the aggregate purchase price of the June 2006 Secured
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Convertible Debentures and June 2006 Warrants on the date of such failure and on every 30th day thereafter until such failure is cured.
Preferred Stock
There are no shares of preferred stock outstanding.
Provisions having a possible Anti-Takeover Effect
Nevada General Corporation Law
Certain provisions of Nevada Law (contained in chapters 78 and/or 92A of the Nevada Revised Statutes ("NGCL")) could be deemed to discourage takeover attempts of the Company that may be considered by some stockholders to be in their best interest. The effect of such provisions could delay or frustrate a merger, tender offer or proxy contest, the removal of incumbent directors, or the assumption of control by stockholders, even if such proposed actions would be beneficial to the Company's stockholders. Such effect could cause the market price of our common stock to decrease or could cause temporary fluctuations in the market price of our common stock that otherwise would not have resulted from actual or rumored takeover attempts. While we have the right to amend our articles of incorporation and/or bylaws so as to not be subject to these provisions,
our board of directors believes that being governed by these provisions is appropriate to protect the interests of the Company's stockholders.
Combinations With Interested Stockholders
The NGCL generally prohibits a Nevada corporation with 200 or more stockholders of record (defined as a "resident domestic corporation" under the NGCL) that has a class of voting shares registered with the SEC under Section 12 of the Exchange Act from entering into any "combination" with an "interested stockholder" during the three-year period commencing on the date such person first became an interested stockholder, unless: (i) the combination or the transaction by which the person first became an interested stockholder is approved by the board of directors of the corporation before the person first became an interested stockholder, or (ii) the corporation's articles of incorporation provide otherwise. If such approval by the board of directors is not obtained, then the combination may be consummated after the three-year
period expires if: (i) the combination is approved by the stockholders representing a majority of the outstanding voting power owned by the disinterested stockholders at a meeting called for that purpose no earlier than three years after the date the person first became an interested stockholder, or (ii) the consideration to be paid by the interested stockholder exceeds certain thresholds set forth in the NGCL. An "interested stockholder" is a person that is: (i) the beneficial owner, directly or indirectly, of 10 percent or more of the voting power of the then outstanding shares of the corporation, or (ii) an affiliate or associate of the corporation that at any time during the three-year period immediately preceding the date in question was the beneficial owner, directly or indirectly, of 10 percent or more of the voting power of the then outstanding shares of the corporation.
"Combination" is defined in the NGCL to encompass a wide variety of transactions with or caused by an interested stockholder, including certain mergers, acquisitions and dispositions of assets, issuances of securities, liquidations and dissolutions, and transactions in which the interested stockholder receives or could receive, directly or indirectly, a benefit on other than a pro-rata basis with the other stockholders of the corporation.
Acquisition of Controlling Interest
The NGCL governs any acquisition of a "controlling interest" in a Nevada corporation that has 200 or more stockholders of record, at least 100 or which are Nevada residents, and that does business in Nevada directly or through an affiliated corporation, unless such corporation's articles of incorporation or bylaws in effect on the tenth day following the acquisition provide otherwise. A person acquires a "controlling interest" whenever such person acquires shares of a subject corporation that, but for the application of these provisions, would enable that person to exercise, directly or indirectly: (i) one-fifth
53
or more, but less than one-third, (ii) one-third or more, but less than a majority, or (iii) a majority or more, of all of the voting power of the corporation. If a person acquires shares in the corporation and such acquisition results in the person exceeding one of these thresholds, the shares that it acquired in the transaction pursuant to which it crossed the threshold and within the 90 days immediately preceding the date of such acquisition are deemed to be "control shares." Control shares are entitled only to such voting rights as are conferred upon such shares by the disinterested stockholders of the corporation at a special or annual meeting of stockholders. In the event the disinterested stockholders confer such voting rights upon the control shares and the acquiror obtains a majority or more of all voting power of the corporation, any stockholder
that did not vote in favor of conferring voting rights upon such shares may dissent and obtain the fair value of its shares.
The Company is not currently subject to the provisions of the NGCL governing the acquisition of a controlling interest because the Company has less than 100 stockholders of record that are Nevada residents and does not conduct business in Nevada.
Articles of Incorporation
Unissued Common Stock.
We are authorized to issue 200,000,000 shares of common stock, almost all of which have been issued or reserved for issuance. Effective as of August 7, 2006, we intend to amend our articles of incorportion to permit the issuance or reservation of up to 260,000,000 shares of our common stock. When and if this occurs, we will have authorized but unissued common stock. This will enable our board of directors to render more difficult or to discourage an attempt to obtain control of our company by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of management. If our board of directors were to determine that a takeover proposal was not in the Company's best interests, shares could be issued by the board of directors without stockholder approval in one or
more private placements. Other transactions might prevent, or render more difficult or costly, completion of a takeover transaction by diluting the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group, by placing a substantial voting block in institutional or other hands that might support the position of the incumbent board of directors.
Undesignated Preferred Stock.
Our undesignated preferred stock enables the board of directors to render more difficult or to discourage an attempt to obtain control of our company by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of management. The issuance of shares of the preferred stock pursuant to the board of directors' authority described above may adversely affect the rights of the holders of common stock. For example, preferred stock issued by the Company may rank prior to the common stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common stock. Accordingly, the issuance of shares of preferred stock may discourage bids for the Common Stock or may otherwise adversely affect the
market price of the common stock.
Transfer Agent
We have retained Holladay Stock Transfer, Inc., 2939 North 67th Place, Scottsdale, AZ 85251, as our transfer agent.
INTEREST OF NAMED EXPERTS
No expert or counsel named in this registration statement as having prepared or certified any part of this statement or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or will receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant. Nor was any such person connected with the registrant as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
The audited financial statements as of August 31, 2004 and August 31, 2005 and for the years then ended were audited by Malone & Bailey, PC, an independent registered public accounting firm, to the
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extent set forth in its report and for the period from June 18, 2002 (date of inception) to August 31, 2003, have been audited by Morgan & Company, chartered accountants, and are included herein in reliance upon the authority of these firms as experts in accounting and auditing.
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for us by Buchanan Ingersoll & Rooney PC, Philadelphia, Pennsylvania.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Nevada Revised Statutes provide that a director or officer is not individually liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his capacity as a director or officer unless it is proven that his act or failure to act constituted a breach of his fiduciary duties as a director or officer and his breach of those duties involved intentional misconduct, fraud or a knowing violation of law. The Articles of Incorporation or an amendment thereto may, however, provide for greater individual liability. Furthermore, directors may be jointly and severally liable for the payment of certain distributions in violation of Chapter 78 of the Nevada Revised Statutes.
This provision is intended to afford directors and officers protection against and to limit their potential liability for monetary damages resulting from suits alleging a breach of the duty of care by a director or officer. As a consequence of this provision, shareholders of our company will be unable to recover monetary damages against directors or officers for action taken by them that may constitute negligence or gross negligence in performance of their duties unless such conduct meets the requirements of Nevada law to impose such liability. The provision, however, does not alter the applicable standards governing a director's or officer's fiduciary duty and does not eliminate or limit the right of our company or any shareholder to obtain an injunction or any other type of non-monetary relief in the event of a breach of fiduciary duty.
The Nevada Revised Statutes also provide that under certain circumstances, a corporation may indemnify any person for amounts incurred in connection with a pending, threatened or completed action, suit or proceeding in which he is, or is threatened to be made, a party by reason of his being a director, officer, employee or agent of the corporation or serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, if such person (a) is not liable for a breach of fiduciary duty involving intentional misconduct, fraud or a knowing violation of law or such greater standard imposed by the corporation's articles of incorporation; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Additionally, a corporation may indemnify a director, officer, employee or agent with respect to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor, if such person (a) is not liable for a breach of fiduciary duty involving intentional misconduct, fraud or a knowing violation of law or such greater standard imposed by the corporation's articles of incorporation; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, however, indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court to be liable to the corporation or for amounts paid in settlement to the corporation,
unless the court determines that the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense.
The Company's By-laws provide in substance that every director and officer of the Company shall be entitled to indemnification against expense actually and necessarily incurred in any action suit or
55
proceeding, in which he or she may be named as a party by reason of being or having been a director or officer of the Company, except to the extent that such officer is finally adjudicated to be liable for negligence or misconduct
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Malone & Bailey, PC completed the audit of our consolidated financial statements for the years ended August 31, 2004 and August 31, 2005. We had no disagreements with Malone & Bailey, PC ("Malone") on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. Morgan & Company ("Morgan") completed the audit of our consolidated financial statements for the years ended August 31, 2003 and 2002. On December 13, 2004, we dismissed Morgan as our independent accounting firm and we engaged Malone as our independent accounting firm. The reports of Morgan on our financial statements for the years ended August 31, 2003 and August 31, 2002 did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting
principles, except that each report was modified to indicate that there was substantial doubt about our ability to continue as a going concern. The decision to terminate Morgan and the decision to retain Malone were both unanimously approved by our board of directors.
During the periods covered by the reports of Morgan, and the subsequent interim period through December 13, 2004, the Company had no disagreements with Morgan, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Morgan, would have caused Morgan to make reference to the subject matter of the disagreement in connection with its reports.
Morgan has confirmed that they did not have any disputes or disagreements with our management regarding accounting principles or practices, financial disclosure or auditing scope of procedures.
56
FINANCIAL STATEMENTS
INDEX TO THE FINANCIAL STATEMENTS
As of, and for the years ended August 31, 2005 and August 31, 2004
Report of Malone & Bailey, PC
F-1
Report of Morgan & Company
F-2
Consolidated Balance Sheets
F-3
Consolidated Statements of Operations
F-4
Consolidated Statements of Stockholders' Equity
F-5
Consolidated Statements of Cash Flows
F-6
Notes to Consolidated Financial Statements
F-7
For the nine months ended May 31, 2006 and 2005 (unaudited)
Consolidated Balance Sheet (unaudited)
F-17
Consolidated Statements of Operations (unaudited)
F-18
Consolidated Statements of Cash Flows (unaudited)
F-19
Notes to Condensed Consolidated Financial Statements (unaudited)
F-20
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Maverick Oil and Gas, Inc. and Subsidiaries
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheets of Maverick Oil and Gas, Inc. and Subsidiaries as of August 31, 2005 and 2004 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the two years then ended. These financial statements are the responsibility of Maverick's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, consolidated financial statements referred to above present fairly, in all material respects, the financial position of Maverick Oil & Gas, Inc. and Subsidiaries, as of August 31, 2005 and 2004, and the results of its operations and its cash flows for the periods described in conformity with accounting principles generally accepted in the United States of America.
/s/ Malone & Bailey, PC
MALONE & BAILEY, PC
www.malone-bailey.com
Houston, Texas
November 23, 2005
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Waterloo Ventures Inc.
(An Exploration Stage Company)
We have audited the balance sheets of Waterloo Ventures Inc. (an exploration stage company) as at August 31, 2003 and the statements of operations, cash flows, and shareholders' equity for the year ended August 31, 2003, and for the cumulative period from June 18, 2002 (date of inception) to August 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at August 31, 2003 and the results of its operations and cash flows for the periods indicated in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1(c) to the financial statements, the Company incurred a net loss of $48,573 since inception, has not attained profitable operations and is dependent upon obtaining adequate financing to fulfill its exploration activities. These factors raise substantial doubt that the Company will be able to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 1(c). The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Vancouver, Canada
October 29, 2003
Morgan & Company Chartered Accountants
P.O. Box 10007 Pacific Centre
Suite 1488 - 700 West Georgia Street
Vancouver, Vd. V7Y 1A1
TEL: (604) 687-5841
Fax: (604) 687-0075
www.morgan-cas.com
F-2
MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
August 31,
2005
August 31,
2004
Current Assets:
Cash
$
3,008,854
$
596,748
Accounts receivable
881,410
—
Prepaid expenses and advances to operators
501,459
102,812
Total Current Assets
4,391,723
699,560
Property, Plant and Equipment:
Oil and natural gas properties, successful efforts method of accounting:
Proved properties, net
5,903,686
—
Unproved properties not being amortized, net of impairment
5,249,902
3,529,835
Furniture and equipment, net of accumulated depreciation of $18,199
221,285
—
Total Property, Plant and Equipment, Net
11,374,873
3,529,835
Other assets
342,768
—
Investments in limited partnership
962,199
—
Total Assets
$
17,071,563
$
4,229,395
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expense
$
3,078,657
$
100,987
Payables for oil and gas interests
353,265
400,000
Notes payable
48,451
1,859,000
Total Current Liabilities
3,480,373
2,359,987
Minority Interest
889,475
95,212
Stockholders' Equity:
Preferred stock, $.001 par value, authorized 10,000,000 shares;
none issued and outstanding
Common stock, $.001 par value, authorized 200,000,000 shares; 96,472,565 shares issued and outstanding at August 31, 2005 and 60,520,000 shares issued and outstanding at August 31, 2004
96,473
60,520
Additional paid-in capital
45,687,506
1,917,980
Deferred compensation
(3,735,956
)
—
Deficit accumulated during development stage
(29,346,308
)
(204,304
)
Total Stockholders' Equity
12,701,715
1,774,196
Total Liabilities and Stockholders' Equity
$
17,071,563
$
4,229,395
See accompanying Notes to Consolidated Financial Statements.
F-3
MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
August 31,
2005
2004
2003
Revenues
$
283,785
$
—
$
—
Expenses:
Lease operating expenses
154,653
—
—
Exploration costs
4,739,630
7,038
5,000
Share based compensation
9,982,798
—
—
Impairment of oil & gas properties
5,710,416
—
—
Loss on earnest money deposit
4,250,000
—
—
General and administrative
3,680,202
152,481
23,444
Depletion, Depreciation and Amortization
153,409
—
—
Total expenses
28,671,108
159,519
28,444
Loss before minority interest
(28,387,323
)
(159,519
)
(28,444
)
Minority interest
1,353,751
4,788
—
Loss from operations
(27,033,572
)
(154,731
)
(28,444
)
Other income (expenses):
Interest income and other
50,072
(1,000
)
—
Note discount amortization
(2,158,504
)
—
—
Other income (expenses)
(2,108,432
)
(1,000
)
—
Net loss to common stockholders
$
(29,142,004
)
$
(155,731
)
$
(28,444
)
Basic and diluted loss per common share
$
(0.36
)
$
(0.00
)
$
(0.00
)
Basic and diluted weighted average common shares outstanding
80,741,335
58,678,904
58,520,000
See accompanying summary of accouting policies and notes to financial statements.
F-4
MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended August 31, 2005 and 2004
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Deficit
During
Development
Stage
Deferred
Compensation
Total
Stockholders'
Equity
Balance at August 31, 2003
58,520,000
$
58,520
$
19,980
$
(48,573
)
$
—
$
29,927
Issuance of Common Stock for Cash at $1.00 per share, net of issuance costs of $155,731
2,000,000
2,000
1,898,000
—
—
1,900,000
Net Loss
—
—
—
(155,731
)
—
(155,731
)
Balance at August 31, 2004
60,520,000
60,520
1,917,980
(204,304
)
1,774,196
Discount on convertible debentures, net of minority interest portion of $300,116
—
—
1,755,576
—
—
1,755,576
Common Stock issued for cash
28,535,000
28,535
25,454,756
—
—
25,483,291
Common Stock issued for services
125,000
125
198,625
—
—
198,750
Purchase of Hurricane Energy, LLC with Common Stock
4,500,000
4,500
11,785,500
—
(11,790,000
)
—
Amortization of deferred compensation related to the purchase of Hurricane Energy, LLC
—
—
—
—
8,054,044
8,054,044
Warrants issued for the purchase of Hurricane Energy, LLC
—
—
957,747
—
—
957,747
Options issued for the purchase of Hurricane Energy, LLC
—
—
76,107
—
—
76,107
Conversion of DDH promissory note to Common Stock
942,565
943
999,057
—
—
1,000,000
Conversion of Trident note to Common Stock
1,850,000
1,850
1,848,150
—
—
1,850,000
Issuance of options for services
—
—
418,500
—
—
418,500
Issuance of Warrants for services
—
—
275,508
—
—
275,508
Net Loss
—
—
—
(29,142,004
)
—
(29,142,004
)
Balance at August 31, 2005
96,472,565
$
96,473
$
45,687,506
$
(29,346,308
)
$
(3,735,956
)
$
12,701,715
See accompanying Notes to Consolidated Financial Statements.
F-5
MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
August 31,
2005
2004
2003
Cash Flows from Operating Activities:
Net loss
$
(29,142,004
)
$
(155,731
)
$
(28,444
)
Adjustments to reconcile net loss to net cash used in operating activities:
Share based compensation
9,982,798
—
—
Minority interest
(1,353,751
)
95,212
—
Gain on equity investments
(12,199
)
—
—
Depreciation, depletion and amortization
2,311,910
7,650
—
Impairment of oil and gas properties
5,710,416
—
—
Exploration costs
4,739,630
7,038
—
Loss on earnest money deposit
4,250,000
—
—
Changes in working capital:
Increase in accounts receivable
(881,410
)
—
—
Increase (Decrease) in prepaid expenses, advances to operators and other
(723,416
)
—
2,500
Increase in accounts payable and accrued expenses
2,912,935
90,796
700
Net cash provided by (used in) operating activities
(2,205,091
)
44,965
(25,244
)
Cash Flows from Investing Activities:
Purchase of oil and gas properties
(19,209,009
)
(3,121,344
)
—
Purchase of furniture and equipment
(167,876
)
—
—
Camden acquisition deposit
(4,250,000
)
—
—
Dividends received
50,000
—
—
Net cash used in investing activities
(23,576,885
)
(3,121,344
)
—
Cash Flows from Financing Activities:
Proceeds from issuance of common stock,
net of issuance costs
25,364,936
1,900,000
Proceeds from issuance of debt
1,600,000
1,951,500
—
Proceeds from minority interest owner
1,847,899
—
—
Repayment of debt
(618,753
)
(210,000
)
—
Net cash provided by financing activities
28,194,082
3,641,500
—
Net Increase (Decrease) in Cash
2,412,106
565,121
(25,244
)
Cash at the Beginning of Period
596,748
31,627
56,871
Cash at the End of Period
$
3,008,854
$
596,748
$
31,627
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest
$
515
$
—
$
—
Taxes
$
—
$
—
$
—
See accompanying Notes to Consolidated Financial Statements.
F-6
MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS
Maverick Oil and Gas, Inc. ("Maverick") was incorporated in Nevada on June 18, 2002. Maverick and its subsidiaries (collectively, the "Company") is an early stage independent energy company engaged in oil and gas exploration, exploitation, development and production. We currently participate in these activities through the interests we hold in oil and gas exploration and development projects in Texas, Colorado and most recently, Arkansas. These regions are characterized by potentially long-lived reserves with predictable and relatively low production depletion rates, lower service costs than in more competitive or remote areas, a favorable regulatory environment that encourages drilling efforts, and limited federal land or land access impediments. Our strategy is to identify projects that fit our investment and production criteria, so
as to enhance production and cash flow and optimize the use of our investment capital.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. These estimates are based on information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary significantly from those estimates under different assumptions and conditions.
Critical accounting policies are defined as those significant accounting policies that are most critical to an understanding of a company's financial condition and results of operation. We consider an accounting estimate or judgment to be critical if (i) it requires assumptions to be made that were uncertain at the time the estimate was made, and (ii) changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition.
Principles of Consolidation
The consolidated financial statements include the accounts of Maverick Oil and Gas, Inc. and its subsidiaries. All significant intercompany transactions and balances associated with the consolidated operations have been eliminated.
Successful Efforts Accounting
The Company follows the successful efforts method to account for its crude oil and natural gas operations. Under this method of accounting, all costs associated with oil and gas lease acquisition costs, successful exploratory wells and all development wells are capitalized and amortized on a unit-of-production basis over the remaining life of proved developed reserves and proved reserves on a field basis. Unproved leasehold costs are capitalized pending the results of exploration efforts. Exploration costs, including geological and geophysical expenses, exploratory dry holes and delay rentals, are charged to expense when incurred.
Impairment of Properties
Maverick reviews proved properties at the field level when management determines that events or circumstances indicate that the recorded carrying value of the properties may not be recoverable. Such events include a projection of future oil and natural gas reserves that will be produced from a field,
F-7
the timing of this future production, future costs to produce the oil and natural gas, and future inflation levels. If the carrying amount of an asset exceeds the sum of the undiscounted estimated future net cash flows the Company recognizes impairment expense equal to the difference between the carrying value and the fair value of the asset which is estimated to be the expected present value of future net cash flows from proved reserves, utilizing a risk-free rate of return. The Company cannot predict the amount of impairment charges that may be recorded in the future. Unproved leasehold costs are reviewed periodically and a loss is recognized to the extent, if any, that the cost of the property has been impaired.
Valuation of Property and Equipment
The Company follows the provisions of Statement of Financial Accounting Standards No. 144 "Accounting for Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 requires that the Company's long-lived assets, including its oil and gas properties, be assessed for potential impairment in their carrying values whenever events or changes in circumstances indicate such impairment may have occurred. An impairment is recognized when the estimated undiscounted future net cash flows of the asset are less than its carrying value. Any such impairment is recognized based on the differences in the carrying value and estimated fair value of the impaired asset.
SFAS 144 provides for future revenue from the Company's oil and gas production to be estimated based upon prices at which management reasonably estimates such products will be sold. These estimates of future product prices may differ from current market prices of oil and gas. Any downward revisions to management's estimates of future production or product prices could result in an impairment of the Company's oil and gas properties in subsequent periods.
The long-lived assets of the Company, which are subject to evaluation, consist primarily of oil and gas properties. During the fiscal year ended August 31, 2005 the company recorded an impairment loss of $5,710,416 on proved oil gas reserves and exploration expenses related to unproved properties of $4,739,630.
Other Property and Equipment
Other property and equipment of the Company consists primarily of computer equipment, vehicles and furniture and fixtures, which are depreciated over estimated useful lives, ranging from three to seven years, on a straight-line basis. Repairs and maintenance are expensed as incurred while costs incurred that extend the useful life are capitalized.
Asset Retirement Obligations
The company follows the provisions of Financial Accounting Standards Board Statement No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143). This accounting standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The Company adopted SFAS 143 as of January 1, 2003. The adoption of SFAS No. 143 did not have a material effect
on the Company's financial position or results of operations.
F-8
Revenue Recognition
The Company recognizes oil and natural gas revenue for its interest in producing wells as oil and natural gas is produced and sold from those wells. Oil and natural gas sold by the Company is not significantly different from the Company's share of production.
Income Taxes
The Company is subject to income and other related taxes in areas in which it operates. When recording income tax expense, certain estimates are required by management due to timing and the impact of future events on when income tax expenses and benefits are recognized by the Company. The Company evaluates periodically its tax operating loss and other carryforwards to determine whether a gross deferred tax asset, as well as a related valuation allowance, should be recognized in its financial statements.
Cash and Cash Equivalents
Cash equivalents are considered to be all highly liquid investments having an original maturity of three months or less.
Equity Method
Under the guidance of Emerging Issues Task Force D-46, Accounting for Limited Partnership Investments Maverick uses the equity method to account for all of its limited partnership and membership interests that represent an ownership interest that exceeds 5% of the applicable entity, but is less than 50% of the applicable entity. Under the equity method of accounting, Maverick's proportionate share of the investees' net income or loss is included in Loss on equity investments in the condensed consolidated statements of operations. Each investment is evaluated each reporting period for impairment.
NOTE 3. STOCK BASED COMPENSATION
Maverick follows the provisions of SFAS No. 123. As permitted under SFAS No. 123, Maverick has continued to utilize APB 25 in accounting for its stock-based compensation to employees. Had compensation expense for the twelve months ended August 31, 2005 and 2004 been determined under the fair value provisions of SFAS No. 123, as amended by SFAS 148, Maverick's net loss and net loss per share would have been:
Twelve Months ended
August 31,
2005
2004
Net loss as reported
$
(29,142,004
)
$
(155,731
)
Add: Stock-based employee compensation expense included
in reported net income determined under APB No. 25, net of related tax effects
494,607
—
Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of related tax effects
(946,504
)
(5,666
)
Pro forma net loss
$
(29,593,901
)
$
(161,397
)
Loss per share:
Basic as reported
$
(0.36
)
$
(0.00
)
Basic pro forma
$
(0.37
)
$
(0.00
)
F-9
NOTE 4. INVESTMENT IN LIMITED PARTNERSHIP
PHT Resendez, L.P.
During October 2004, Maverick purchased a 19.8% interest of PHT Resendez, L.P. (PHT Resendez), a Delaware limited partnership, in exchange for a capital contribution of $1,000,000. PHT Resendez was formed to purchase leasehold interests in certain oil and gas prospects on 1,248.2 acres located in Zapata County, Texas.
At the discretion of PHT Gas, LLC, the general partner, available cash will be distributed first to all limited partners to the extent of their unreturned capital balances until all unreturned capital balances have been returned and then 75% to the limited partners in proportion to their respective percentage interests and 25% to PHT Gas, LLC.
NOTE 5. NOTES PAYABLE
3% unsecured demand notes
On October 12, 2004, MBE borrowed $300,000 pursuant to a 3% unsecured demand note payable and repaid the loan as of February 28, 2005.
On October 29, 2004, MBE borrowed $300,000 pursuant to a 3% unsecured demand note payable and repaid the loan as of August 31, 2005.
NOTE 6. CONVERTIBLE DEBENTURE
On November 18, 2004, Maverick borrowed $1,000,000 pursuant to a convertible note agreement with DDH Resources II, Limited (DDH). The convertible note was due at the earliest of six months or when Maverick completed an equity raise of at least $5,000,000. Interest accrued at 12% per annum. At maturity date or at the option of the lender, the note and accrued interest were convertible into shares of common stock at a conversion rate of $1.10. To induce DDH into making the loan, Maverick issued 500,000 warrants exercisable for 3 years at $2.00. Based on the conversion rate of $1.10. As a result of this transaction, Maverick recorded a beneficial conversion feature on the note in the amount of $626,914 accounted for a as a note discount, amortized over the life of the loan. In addition, Maverick valued the warrants, via the Black-Scholes method, and an additional
$263,278 discount on the note was recorded. On March 1 2005, DDH exercised its option to convert this note into 942,565 shares of stock. The note discount has been fully amortized as of August 31, 2005.
As of August 31, 2004 Maverick issued a 12% Senior Secured Note dated July 14, 2004 of $1,850,000 to the Trident Growth Fund, LP (Trident). On January 16, 2005, because Maverick was not in compliance with its obligation under the loan agreement, Trident agreed to modify the loan agreement to the following terms: The note became convertible commencing January 16, 2005 and terminating March 31, 2005, all amounts due and owing under the note shall, at the option of Trident, be converted into shares of common stock at a conversion rate of $1.00. Based on the conversion rate of $1.00, Maverick has recorded a beneficial conversion feature on the note in the amount of $1,165,000 which was recorded as a note discount. This discount is being amortized over the life of the loan. As of August 31, 2005, Maverick had amortized the entire discount.
On March 7, 2005, the Trident note was converted into 1,850,000 shares of common stock.
As discussed in Note 12, during October 2005 the Company entered into a Securities Purchase agreement with Trident Growth Fund, L.P. to borrow $2,000,000 in exchange for a convertible debenture and warrants to purchase 500,000 of Maverick's Common Stock. The 12% interest
F-10
convertible debenture has a principal amount of $2,000,000 and must be repaid on or before October 26, 2006. The warrant has a term of 5 years.
NOTE 7. STOCKHOLDERS EQUITY
As disclosed in Note 6, Maverick issued 500,000 warrants, exercisable for 3 years, to purchase its common stock at $2.00.
In January and February 2005, Maverick issued 28,535,000 shares of common stock for net proceeds of $25,483,291 in a private placement to investors.
In February 2005, Maverick issued 125,000 shares of common stock valued at $198,750 to Westport Strategic Partners for services.
On March 10, 2005, the Company issued 4,500,000 shares of common stock and options and warrants to purchase an aggregate of 4,500,000 shares of the Maverick's common stock to the former members of Hurricane Energy, LLC, in connection with the purchase of all the membership interests of Hurricane. Options to purchase 3,690,000 shares of common stock were issued under the 2005 Stock Incentive Plan at an exercise price of $2.395 per share. Maverick also issued warrants to purchase 810,000 shares of our common stock. One-half of these warrants are exercisable commencing on the first anniversary of the closing at an exercise price of $1.75 per share. The balance of the warrants can be exercised commencing on the second anniversary of the closing at an exercise price of $1.92 per share. The warrants have the term of three years.
During March 2005, Maverick issued warrants to purchase 200,000 shares of its common stock at an exercise price of $1.25 per share to a third party in consideration for consulting services. The warrants had a fair value of $275,508.
During March 2005, the Company issued 1,600,000 shares to DDH Resources II, Limited, and 250,000 shares to Trident Growth Fund, LP, each in conversion and full payment of approximately $1,850,000 principal amount remaining due under a note issued by a subsidiary.
During March 2005, the Company issued warrants to former employees to purchase 450,000 shares of its common stock in exchange for services. The warrants had an intrinsic value of $418,500 at the grant date, with an exercise price of $1.50. The market value on grant date was $2.43. These warrants have a term of 3 years.
During August and September 2005, the company granted 240,000 stock options to three of its non-employee directors to each purchase 80,000 shares of common stock, provided the director remains on the Company's Board of Directors through the vesting period. One-half (50%) of these options vest during August and September 2006 and the remaining 50% vest during August and September 2007. These options have an exercise price ranging from $1.02 to $1.22 per share and expire during 2015. The average fair value of each option granted was $0.96. All options were granted with an exercise price equal to the market price on the trading day prior to the date of grant. The fair value was estimated on the date of grant using the Black-Scholes option-pricing model with an expected average volatility of 101% and a risk-free interest rate of 2%.
As disclosed in Note 12, during November 2005 Maverick sold 200,000 investment units, each unit consisting of ten shares of the Company's common stock and one warrant to purchase four shares of common stock of the Company. The warrants have a term of five years.
NOTE 8. HURRICANE ENERGY, LLC TRANSACTION
On March 10, 2005, Maverick acquired 100% of the outstanding membership interests of Hurricane Energy, LLC, a Delaware Limited Liability Company (Hurricane). Hurricane's membership interests
F-11
were acquired for aggregate consideration of 4.5 million shares of Maverick's common stock, and a combination of options and warrants to acquire an additional 4.5 million shares of Maverick's common stock. The aggregate fair value of Maverick's equity instruments issued as consideration for Hurricane's membership interests totaled $16,113,443.
Since Hurricane remained a development stage company from its inception (on November 23, 2003) through the date of the acquisition, and since at the time of the acquisition its management team constituted its principal assets, the transaction was not accounted for as a business combination, but rather, as a purchase of the net assets acquired.
The membership interests of Hurricane were acquired from a group of 11 members, eight of whom owned approximately 22% of Hurricane (the Hurricane Investors), and three of whom managed and owned approximately 78% of Hurricane (the Hurricane Founders). The Hurricane Founders agreed to become the executive officers of Maverick.
The 4.5 million shares of Maverick common stock were valued at $11,790,000. Of the 4.5 million shares of Maverick's common stock issued, 3,510,000 shares were issued to the Hurricane Founders and 990,000 shares were issued to the Hurricane Investors. At closing, 1,125,000 (25%) of the shares were issued to the Hurricane Founders and the Hurricane Investors. The remaining 3,375,000 shares (75%) are being held in escrow until the first anniversary of the transaction. To receive the balance of their shares, the Hurricane Founders must continue to be employed at the first anniversary. As of August 31, 2005, Maverick has expensed $8,054,044 of the fair value of these shares and allocated $71,608 to the value of the net assets acquired from Hurricane. The remaining balance of $3,735,956, relating solely to the Hurricane Founders shares being held in escrow,
is being accounted for as deferred compensation and will be recognized ratably as an expense up through the first anniversary.
Of the options and warrants issued, options to acquire 3,690,000 shares of Maverick's common stock were issued to the Hurricane Founders in connection with their agreement to become Maverick's executive officers (the Hurricane Founders Options) and warrants to acquire 810,000 shares of Maverick's common stock were issued to the Hurricane Investors (the Hurricane Investors Warrants). The Hurricane Founders Options vest at 20% per annum assuming continued employment. The intrinsic value of the Hurricane Founders Options on the date of grant was $830,250 and is being expensed ratably over the next sixty months. As of August 31, 2005, Maverick has expensed $76,107 of the value of the Hurricane Founders Options. The fair value of the Hurricane Investors Warrants was $957,747 and has been fully expensed as of August 31, 2005.
NOTE 9. INCOME TAXES
The Company uses the liability method, where deferred taxes and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During fiscal 2005 and 2004, the company incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $19.2 million at August 31, 2005, and will expire in the years 2024 through 2025.
At August 31, 2005, deferred tax assets consisted of the following:
2005
Deferred tax assets
Net operating loss carryforward
$
6,706,000
Valuation allowance
(6,706,000
)
Net deferred tax asset
$
—
F-12
NOTE 10. COMMITMENTS AND CONTINGENCIES
Leases
During the second quarter of our fiscal year 2005, the Company entered into operating lease agreements for its principal offices located in Fort Lauderdale, Florida and the field office located in Dallas, Texas at a total monthly minimum cost of approximately $9,200 and $5,900 respectively. The Florida lease expires in 2008 and the Texas lease expires in 2010. Total rent expense for the fiscal year ended August 31, 2005 was $37,974.
Future minimum annual rental payments for these leases are as follows:
Year ending August 31,
2006
$
190,474
2007
199,607
2008
122,187
2009
77,857
2010
54,971
$
645,096
NOTE 11. LOSS ON EARNEST MONEY DEPOSIT
During the third quarter of fiscal 2005, Maverick instituted a litigation to recover a $5 million earnest money deposit paid in connection with the attempted purchase of the shares of Camden Resources, Inc. During October 2005, the Company entered into a settlement of the dispute and recovered $750,000 of the earnest money deposit. Accordingly, the 2005 financial statements reflect a loss on earnest money deposit of $4,250,000.
NOTE 12. SUBSEQUENT EVENTS
Convertible Debenture and Warrants
On October 26, 2005, Maverick borrowed $2,000,000 from Trident Growth Fund, LP in exchange for a convertible debenture and warrants to purchase 500,000 shares of our common stock. The convertible debenture has a principal amount of $2,000,000 and bears interest at 12%. It must be repaid on or before October 26, 2006, and is secured by all Maverick's assets (subject to a subordination agreement relating to Maverick Woodruff County, LCC). The debenture is convertible into Maverick shares of common stock at the lesser of $1.00 per share or the price per share of common stock and common stock equivalents sold in the first "Qualifying Transaction" after the issuance of the debenture. A "Qualifying Transaction" is (a) an equity and/or debt financing in which we receive gross proceeds of at least $3,000,000 and (b) a merger, consolidation,
sale of all or substantially all of our assets, a tender or exchange offer for our common stock, or a reclassification or compulsory share exchange. The conversion price is subject to customary anti-dilution adjustments and a "full ratchet" adjustment in the event of the issuance of common stock or common stock equivalents for a price less than the then conversion price of the debenture.
The warrant has a term of 5 years and bears an exercise price equal to the lesser of $1.00 per share or the price per share of common stock and common stock equivalents sold in the first "Qualifying Transaction" (as defined above) after the issuance of the warrant. The number of shares issuable upon exercise of the warrant will increase by 500,000 for each 150 day period following the issuance of the warrant that the debenture remains unpaid in full. The exercise price of the warrant is subject to customary anti-dilution adjustments and a "full ratchet" adjustment in the event of the issuance of
F-13
common stock or common stock equivalents for a price less than the then exercise price of the warrant.
Barnett Shale project Operatorship
From inception of the Barnett Shale project through October 19, 2005, Reichmann Petroleum Corp served as the managing partner of RBE and as the operator of the 1,942 acre portion of the project. Dyke Ferrell, the principal shareholder of Reichmann Petroleum, owned an approximate 13% interest in RBE. During October 2005, Maverick acquired the 13% interest in RBE from Mr. Ferrell in consideration for the purchase price of $1,750,000 and 250,000 shares of our common stock. Of the purchase price, $250,000 has been paid and the balance of $1,500,000 shall be paid on or before January 19, 2006 subject to completion by Maverick of a financial audit of all relevant financial and other data relating to the operation of RBE by Reichmann Petroleum. In connection with this purchase, the Company became the managing member of RBE and operator of the 1,942 acre portion of
the project.
Millenium Global Investments, Ltd.
On November 28, 2005, Maverick sold 200,000 investment units at a price of $10 per unit to Millenium Global Investments, Ltd., with each unit consisting of ten (10) shares of the Company's common stock and one (1) warrant to purchase four (4) shares of its common stock subject to an exercise price of $1.70 per share and a term of five (5) years.
NOTE 13. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
All of our operations are directly related to oil and gas producing activities located in Texas and Colorado.
Capitalized Costs Relating to Oil and Gas Producing Activities
August 31,
2005
2004
Proved oil and gas properties
$
6,038,896
$
—
Unproved oil and gas properties
5,249,902
3,529,835
Total capitalized costs
11,288,798
3,529,835
Less accumulated depreciation and amortization
(135,210
)
—
Net Capitalized Costs
$
11,153,588
$
3,529,835
Costs Incurred in Oil and Gas Producing Activities
For the Fiscal Years Ended August 31,
2005
2004
Acquisition of proved properties
$
509,369
$
—
Acquisition of unproved properties
4,734,219
3,121,344
Development costs
13,965,421
—
Exploration costs
4,739,630
7,038
Asset retirement costs recognized according to SFAS No. 143
—
—
Total Costs Incurred
$
23,948,639
$
3,128,382
F-14
Results of Operations from Oil and Gas Producing Activities
For the Fiscal Years Ended August 31,
2005
2004
Oil and gas revenues
$
283,785
$
—
Production costs
(135,452
)
—
Production taxes
(19,201
)
—
Depreciation and amortization
(135,210
)
—
Results of operations before income taxes
(6,078
)
—
Provision for income taxes
—
—
Results of Oil and Gas Producing Operations
$
(6,078
)
$
—
Proved Reserves
Our proved oil and gas reserves have been estimated by independent petroleum engineers. Proved reserves are the estimated quantities that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are the quantities expected to be recovered through existing wells with existing equipment and operating methods. Due to the inherent uncertainties and the limited nature of reservoir data, such estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production of these reserves may be substantially different from the original estimate. Revisions result primarily from new information obtained from development drilling and production history; acquisitions of
oil and gas properties; and changes in economic factors. Our proved reserves are summarized in the table below.
Crude Oil and
Natural Gas
Liquids
Bbls.
Natural
Gas
Mcf
Reserves at September 1, 2004
—
—
Extensions, discoveries and other additions
16,799
1,019,087
Revisions of prior estimates
—
—
Production
(1,399
)
(31,687
)
Reserves at August 31, 2005
15,400
987,400
Proved producing reserves
12,200
346,500
Standardized Measure
The standardized measure of discounted future net cash flows ("standardized measure") and changes in such cash flows are prepared using assumptions required by the Financial Accounting Standards Board. Such assumptions include the use of year-end prices for oil and gas and year-end costs for estimated future development and production expenditures to produce year-end estimated proved reserves. Discounted future net cash flows are calculated using a 10% rate.
As of August 31, 2005 and 2004, estimated well abandonment costs, net of salvage, are deducted from the standardized measure using year-end costs. Such abandonment costs are recorded as a liability on the consolidated balance sheet, using estimated values of the projected abandonment date and discounted using a risk-adjusted rate at the time the well is drilled or acquired.
The standardized measure does not represent management's estimate of our future cash flows or the value of proved oil and gas reserves. Probable and possible reserves, which may become proved in the future, are excluded from the calculations. Furthermore, year-end prices used to determine the
F-15
standardized measure of discounted cash flows, are influenced by seasonal demand and other factors and may not be the most representative in estimating future revenues or reserve data.
Price and cost revisions are primarily the net result of changes in year-end prices, based on beginning of year reserve estimates. Quantity estimate revisions are primarily the result of the extended economic life of proved reserves and proved undeveloped reserve additions attributable to increased development activity.
The standardized measure of discounted estimated future net cash flows related to proved crude oil and natural gas reserves at August 31, 2005 and 2004 is as follows:
Standardized Measure of Discounted Future Cash Flows:
2005
2004
Future cash inflows
$
10,864,200
$
—
Future production costs
(1,661,300
)
—
Future development costs
(851,800
)
—
Future income taxes
—
—
Future net cash flows
8,351,100
—
10% annual discount
(3,075,500
)
—
Standardized measure of discounted net cash flows
$
5,275,600
$
—
Share of equity method investee's standardized measure of discounted future net cash flows
$
895,600
$
—
The primary changes in the standardized measure of discounted estimated future net cash flows for the year ended August 31, 2005 and 2004 are as follows:
Changes in Standardized Measure of Discounted Future Cash Flows:
2005
2004
Balance at September 1
$
—
$
—
Net changes in prices and production costs
—
—
Net changes in future development costs
—
—
Sales of oil and gas produced, net
(164,000
)
—
Extensions, discoveries and other additions
5,439,600
—
Revisions of previous quantity estimates
—
—
Previously estimated development costs incurred
—
—
Net change in income taxes
—
—
Accretion of discount
—
—
Other
—
—
Balance at August 31, 2005
$
5,275,600
$
—
F-16
MAVERICK OIL AND GAS, INC AND SUBSIDARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
May 31,
2006
August 31,
2005
ASSETS
Current Assets:
Cash
$
1,480,581
$
3,008,854
Accounts receivable
1,484,657
881,410
Prepaid drilling costs and advances to operators
2,118,381
501,459
Total Current Assets
5,083,619
4,391,723
Property, Plant and Equipment:
Oil and natural gas properties, successful efforts method of accounting:
Proved properties, net
9,742,788
5,903,686
Unproved properties not being amortized, net of impairment
21,117,914
5,249,902
Properties, Furniture and equipment, net of accumulated depreciation of $72,711 and $18,199
827,164
221,285
Total Property, Plant and Equipment, Net
31,687,866
11,374,873
Prepaid expenses and other assets:
Prepaid loan fees, net of amortization of $319,432
2,792,790
—
Other assets
204,932
342,768
Total prepaid expenses and other assets, Net
2,997,722
342,768
Investment in limited partnership
—
962,199
Total Assets
$
39,769,207
$
17,071,563
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses
$
8,072,838
$
3,060,657
Payables for oil and gas interests
355,842
353,265
Notes payable
32,047
48,451
Derivative Liability
22,979,470
—
Current Portion of long-term debt
4,166,667
—
Total Current Liabilities
35,606,864
3,462,373
Non-Current Liabilities:
Convertible debentures, Net of discount
6,605,878
—
Other liabilities
18,000
18,000
Total non-Current Liabilities
6,623,878
18,000
Minority Interest
1,281,802
889,475
Stockholders' Equity (Deficit):
Preferred stock, $.001 par value, authorized 10,000,000 shares; none issued and outstanding
—
—
Common stock, $.001 par value, authorized 200,000,000 shares; 99,022,565 shares issued and outstanding May 31, 2006 and 96,472,565 shares issued and outstanding at August 31, 2005
99,023
96,473
Additional paid-in capital
51,705,499
45,687,506
Deferred compensation
—
(3,735,956
)
Accumulated deficit
(55,547,859
)
(29,346,308
)
Total Stockholders' Equity (Deficit)
(3,743,337
)
12,701,715
Total Liabilities and Stockholders' Equity (Deficit)
$
39,769,207
$
17,071,563
See accompanying Notes to Consolidated Financial Statements.
F-17
MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
May 31,
Nine Months Ended
May 31,
2006
2005
2006
2005
Oil and gas sales revenues
$
665,156
$
46,129
$
1,838,644
$
46,129
Expenses:
Lease operating expenses
390,688
82,238
702,808
82,238
Exploration costs
3,177
2,104,359
65,614
2,174,208
General and administrative
2,172,699
9,250,687
11,122,975
10,001,847
Depreciation, depletion and amortization
177,106
51,070
1,082,580
109,822
Impairment
—
3,018,306
—
5,710,416
Loss on equity investment
—
18,186
—
77,882
Total expenses
2,743,670
14,524,846
12,973,977
18,156,413
Loss before minority interest
(2,078,514
)
(14,478,717
)
(11,135,333
)
(18,110,284
)
Minority interest
(10,238
)
501,666
(64,566
)
996,994
Loss from operations
(2,088,752
)
(13,977,051
)
(11,199,899
)
(17,113,290
)
Other income (expense):
Change in fair value of derivatives
655,910
—
(12,903,519
)
—
Interest expense
(723,507
)
(837,495
)
(2,166,407
)
(2,056,073
)
Interest income
14,436
24,553
68,274
24,553
Total other income (expense)
(53,161
)
(812,942
)
(15,001,652
)
(2,031,520
)
Net loss to common shareholders
$
(2,141,913
)
$
(14,789,993
)
$
(26,201,551
)
$
(19,144,810
)
Basic and diluted loss per common share
$
(0.02
)
$
(0.15
)
$
(0.27
)
$
(0.25
)
Weighted average common shares outstanding
98,976,015
95,831,341
98,348,755
75,475,782
See accompanying Notes to Consolidated Financial Statements.
F-18
MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
May 31,
2006
2005
Cash Flows from Operating Activities:
Net loss
$
(26,201,551
)
$
(19,144,810
)
Adjustments to reconcile net loss to net cash used in operating activities:
Share based compensation
5,813,266
8,143,247
Minority interest
64,566
(996,994
)
Depreciation, depletion and amortization
1,082,580
51,066
Impairment
—
5,710,416
Loss on equity investment
—
77,882
Interest expense and amortization of debt discount
1,895,589
2,158,506
Change in fair value of derivatives
12,903,519
—
Changes in working capital:
Increase in accounts receivable
(603,247
)
(40,538
)
Increase in prepaid expenses, advances to operators and other
(1,479,087
)
(1,419,324
)
Increase in accounts payable and accrued expenses
2,420,099
2,533,749
Net cash used in operating activities
(4,104,266
)
(2,926,800
)
Cash Flows from Investing Activities:
Purchase of oil and gas properties
(18,630,138
)
(12,054,378
)
Acquisition of office building
(547,800
)
—
Camden Acquisition Deposit
—
(5,000,000
)
Purchase of furniture and equipment
(108,512
)
(121,005
)
Net cash used in investing activities
(19,286,450
)
(17,175,383
)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock, net of issuance costs
1,860,000
25,364,936
Proceeds from issuance of debt
21,154,850
1,600,000
Proceeds from minority interest owner
863,997
601,666
Repayment of debt
(2,016,404
)
(613,866
)
Net cash provided by financing activities
21,862,443
26,952,736
Net Increase (Decrease) in Cash
(1,528,273
)
6,850,553
Cash at the Beginning of Period
3,008,854
596,748
Cash at the End of Period
$
1,480,581
$
7,447,301
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest
$
396,329
$
—
Taxes
$
—
$
—
See accompanying Notes to Consolidated Financial Statements.
F-19
MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been prepared by Maverick Oil and Gas, Inc. ("us", "we" or the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such adjustments are of a normal recurring nature. Although we believe that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"), have been condensed or omitted
pursuant to such rules and regulations.
Certain reclassifications have been made to the prior years' financial statements to conform with the current presentation.
These financial statements should be read in conjunction with the financial statements and the notes thereto included in our 2005 Annual Report on Form 10-KSB filed with the Securities and Exchange Commission. The results of operations for interim periods are not necessarily indicative of the results for any subsequent quarter or the entire fiscal year ending August 31, 2006.
NOTE 2 — STOCK BASED COMPENSATION
During February 2005, the Company adopted a Stock Incentive Plan (the "Stock Incentive Plan") which covers 10,000,000 shares of common stock. Under its terms, employees, officers and directors of the Company and its subsidiaries are currently eligible to receive non-qualified stock options, restricted stock awards and incentive stock options within the meaning of Section 422 Internal Revenue Code of 1986 (the "Code"). In addition, advisors and consultants who perform services for the Company or its subsidiaries are eligible to receive non-qualified stock options under the Stock Incentive Plan. The Stock Incentive Plan is administered by the Board of Directors or a committee designated by the Board of Directors.
All stock options granted under the Stock Incentive Plan are exercisable for a period of up to ten years from the date of grant. The Company may not grant incentive stock options pursuant to the Stock Incentive Plan at exercise prices which are less than the fair market value of the common stock on the date of grant. The term of an incentive stock option granted under the Stock Incentive Plan to a stockholder owning more than 10% of the issued and outstanding common stock may not exceed five years and the exercise price of an incentive stock option granted to such stockholder may not be less than 110% of the fair market value of the common stock on the date of grant. The Stock Incentive Plan contains certain limitations on the maximum number of shares of the common stock that may be awarded in any calendar year to any one individual for the purposes of Section
162(m) of the Code.
In addition to the stock options covered by the Stock Incentive Plan, the Company has outstanding options to purchase 4,580,000 shares of common stock.
Prior to September 1, 2005 the Company accounted for stock based compensation under Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("FAS 123"). As permitted under this standard, compensation cost was recognized using the intrinsic value method described in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Effective December 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), "Share-Based Payment" ("FAS 123R") and applied the provisions of the Securities and Exchange Commission Staff Accounting Bulletin No. 107 using the
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modified-prospective transition method. Prior periods were not restated to reflect the impact of adopting the new standard. As a result of the adoption of FAS 123R, stock-based compensation expense recognized during the quarter ended May 31, 2006 includes compensation expense for all share-based payments granted on or prior to, but not yet vested as of August 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of FAS 123, and compensation cost for all share-based payments granted on or subsequent to September 1, 2005, based on the grant date fair value estimated in accordance with the provisions of FAS 123R.
During the quarter ended May 31, 2006, the Company recognized stock-based compensation expenses of $589,488 related to outstanding stock options according to the provisions of FAS 123R, using the modified-prospective transition method.
Prior to the adoption of FAS 123R and for the nine months ended May 31, 2006, no tax benefits from the exercise of stock options has been recognized as no options have been exercised. Any future excess tax benefits derived from the exercise of stock options will be recorded prospectively and reported as cash flows from financing activities in accordance with FAS 123R.
The following table illustrates the pro forma effect on operating results and per share information had the Company accounted for share-based compensation in accordance with FAS 123R for the following periods during our prior fiscal year. All options stock-based compensation options granted to date have been issued on or after March 10, 2005:
Three Months
Ended
May 31, 2005
Nine Months
Ended
May 31, 2005
Net loss, as reported
$
(14,789,993
)
$
(19,144,810
)
Plus: Stock-based employee compensation expense included in reported net income, net of related tax effects
1,283,344
1,283,344
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects
(453,094
)
(453,094
)
Pro forma net loss
$
(13,959,743
)
$
(18,314,560
)
Net loss per common share:
Net loss per common share, as reported
$
(0.15
)
$
(0.25
)
Net loss per common share, pro forma
$
(0.15
)
$
(0.24
)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
May 31,
2006
May 31,
2005
Expected life (years)
2.98
2.98
Risk-free interest rate
3.96
%
3.29
%
Expected Volatility
65.20
%
41.77
%
Expected Dividend yield
0.0
%
0.0
%
The range of risk free interest rates used in the Black-Scholes option pricing Model (the "Model") was 3.2% to 4.6%. The range of expected volatility used in the Model was 41.3% to 80.7%.
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A summary of the options issued by the Company for the nine months ended May 31, 2006 is as follows:
Options
Weighted-
Average
Exercise
Price per Share
Weighted-
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
Outstanding on August 31, 2005
4,340,000
$
2.26
8.28
Granted
240,000
$
1.14
9.69
Exercised
—
$
—
Forfeited/Canceled
—
$
—
Outstanding on May 31, 2006
4,580,000
$
2.20
8.35
$
19,200
Exercisable on May 31, 2006
450,000
$
1.50
1.62
$
—
The weighted-average grant-date fair value for the nine months ended May 31, 2006 and May 31, 2005 was $0.91/share and $0.94/share, respectively. No options were exercised or vested during the periods ended May 31, 2006 and May 31, 2005. The unrecognized share based compensation cost related to stock option expense at May 31, 2006 is $3,053,983 and will be recognized over a weighted average of 4.0 years.
Prior to the adoption of FAS 123R, the Company recorded compensation expense for restricted stock awards based on the fair market value on the date of grant, in accordance with APB 25. The fair value was recorded as deferred compensation in a separate component of shareholders' equity and expensed over the vesting period. In accordance with FAS 123R, during the quarter ended February 28, 2006, the deferred compensation balance of $2,011,569 was reclassified to paid-in-capital.
Stock-based compensation expense recognized for restricted stock awards was $287,382 and $6,329,755 for the three months ended May 31, 2006 and May 31, 2005, respectively; and $3,735,957 and $6,329,755 for the nine months ended May 31, 2006 and May 31, 2005, respectively. At May 31, 2006 there is no unrecognized compensation cost related to unvested restricted shares.
A summary of the activity of restricted stock under the Company's compensation plans during the quarter ended May 31, 2006 is as follows:
Shares
Weighted Average
Grant Date Fair
Value
Outstanding on August 31, 2005
3,510,000
$
9,196,200
Granted
300,000
246,000
Vested
—
—
Forfeited/Canceled
—
—
Outstanding on May 31, 2006
3,810,000
$
9,442,200
NOTE 3 — CURRENT PROJECTS
Zapata County
On October 1, 2005, the owners of the PHT Resendez Limited Partnership elected to dissolve the partnership and distribute the assets to the members in proportion to their membership interest in the Limited Partnership. These assets consisted of some cash, a producing gas well, and leasehold interests in oil and gas properties in Zapata County, Texas. Accordingly, we no longer report our investment on an equity method basis, but consolidate the revenues and expenses into our income statement and reflect the investment in cash and fixed asset sections of the balance sheet.
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Fayetteville Shale
During October 2005, our subsidiary Maverick Woodruff County, LLC, borrowed $1,000,000 to finance lease acquisitions in the Fayetteville Shale project. The loan was secured by a pledge of the membership interests of Maverick Woodruff County, LLC. However, the loan automatically converted into shares of the common stock of one of our Fayetteville project participants in February 2006 when we acquired and distributed to this participant its pro-rata interest in 50,000 leasehold acres.
On April 4, 2006, Maverick Woodruff County, LLC received advances of $2.6 million from Bamco, LLC, one of the Fayetteville Shale project partners. The advance was used for the acquisition of additional leasehold acreage in the Fayetteville Shale project. The advance, together with interest at the rate of 8% per annum, will be settled when, and to the extent capital contributed to the project by the Fayetteville Shale project partners brings contributions in line with ownership percentages. Bamco, LLC received a $100,000 fee in conjunction with the advance. To date, $1.1 million of this advance has been settled.
Barnett Shale
From inception of the project through October 19, 2005, Reichmann Petroleum Corp served as the managing partner of RBE and as the operator of the 100% owned portion of the project. Dyke Ferrell, the principal shareholder of Reichmann Petroleum, owned an approximate 13% interest in RBE. During October 2005, we acquired the 13% interest in RBE from Mr. Ferrell for $1,750,000 and 250,000 shares of our common stock, for a total purchase price of $2,037,500. Of the cash purchase price, $250,000 was paid in October 2005, and the balance of $1,500,000 was paid in January 2006. In connection with this purchase, we became the managing member of RBE and operator of the 100% owned portion of the project.
NOTE 4 — CONVERTIBLE DEBENTURES AND DERIVATIVE LIABILITY
During October 2005, our subsidiary, Maverick Woodruff County, LLC, borrowed $1,000,000 to finance lease acquisitions in the Fayetteville Shale project. The loan was secured by a pledge of the membership interests of Maverick Woodruff County, LLC. However, the loan automatically converted into shares of the common stock of one of our Fayetteville project participants in February 2006 when we acquired and distributed to this participant its pro rata interest in 50,000 leasehold acres.
During October 2005, we sold convertible debentures and warrants to Trident Growth Fund, L.P. for gross proceeds of $2,000,000. The convertible debentures had a principal amount of $2,000,000 and bore interest at 12% per annum (the "Trident 2005 Debentures"). The warrants are exercisable over a five year term for 500,000 shares of common stock at an exercise price of $1.00 per share (the "Trident 2005 Warrants"). At its inception, we recorded a beneficial conversion feature on the Trident 2005 Debentures in the amount of $602,966, accounted for as a note discount to be amortized over the life of the loan. The Trident 2005 Debentures were paid in full in January 2006. Upon repayment, the remaining unamortized note discount was recognized as interest expense.
Following the January 5, 2006 issuance of $20 million of secured convertible debentures, as discussed below, and by application of anti-dilution provisions, the exercise price of the Trident 2005 Warrants was reduced to $.9376 per share, and the number of warrants was increased to 533,276. Also, following the January 5, 2006 issuance of $20 million of secured convertible debentures, as discussed below, and by application of anti-dilution provisions, the exercise price of 200,000 warrants issued to Trident during July 2004 (the "Trident 2004 Warrants") was reduced to $.9376 per share, and the number of warrants was increased to 213,310.
On January 5, 2006, we sold secured convertible debentures and warrants for gross proceeds of $20,000,000. The secured convertible debentures have an aggregate principal amount of $20,000,000 and are convertible into 21,331,058 shares of our common stock, based upon an initial conversion price of $0.9376 per share, which is subject to anti-dilution adjustments The warrants are exercisable
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for 31,996,587 shares of our common stock over a five year period with, 21,331,059 having an initial exercise price of $0.9376 per share, 5,332,764 having an initial exercise price of $1.50 per share, and the remaining 5,332,764 having an initial exercise price of $2.00 per share. The exercise prices of the warrants are subject to anti-dilution adjustments. We agreed to register the resale of the shares of common stock issuable upon conversion of the secured convertible debentures and exercise of the warrants. The registration right agreement contains a liquidated damages provision that has been determined to be uneconomic.
As a result, we have determined that the conversion feature of the secured convertible debentures and the warrants issued with the secured convertible debentures are embedded derivative instruments pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Under the provisions of EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock, the accounting treatment of these derivative financial instruments requires that the Company record the derivatives at their fair values as of the inception date of the note agreements and at fair value as of each subsequent balance sheet date as a liability. Any change in fair value is recorded as non-operating, non-cash income or expense at each balance sheet date. The fair value of the derivative liabilities
was estimated using the Black-Scholes option pricing model. This model requires the use of estimates such as the expected holding period, the expected future volatility of the company's common stock and the risk-free rate of return over the holding period. These estimates directly affect the reported amounts of the derivative instrument liabilities. At May 31, 2006, the Company estimated the fair value of the conversion feature and warrant liability and related non-cash expense at $22,979,470 and $12,903,519, respectively.
The following table illustrates the components of our secured convertible debentures included in the accompanying consolidated financial statements:
May 31,
2006
August 31,
2005
Convertible debentures, gross proceeds of $20,000,000:
Current Portion, included in current liabilities
$
4,166,667
$
—
Long-term portion
$
15,833,333
$
—
Less: Unamortized discount
(9,227,455
)
—
Long-term portion, net of unamortized discount
$
6,605,878
$
—
Future maturities of the convertible debentures are as follows:
2006
2007
2008
Principal payments
$
—
$
10,000,000
$
10,000,000
Interest
$
1,101,370
$
1,406,507
405,822
Total
$
1,101,370
$
11,406,507
$
10,405,822
As discussed in Note 6 — Subsequent Events, effective as of June 30, 2006 the Company issued registered shares of its common stock in lieu of payment in cash of the accrued interest payable on the January 5, 2006 secured convertible debentures through that date.
As discussed below under Note 6, on June 21, 2006, we sold secured convertible debentures and warrants for gross proceeds of $10,000,000. This transaction will be reviewed for the application of EITF 00-19 and FAS 133 in regards to accounting for embedded derivatives. However, we expect that the conversion feature of the June 21, 2006 secured convertible debentures and the associated warrants will be accounted for as embedded derivative instruments pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Under the provisions of EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock," the accounting treatment of these derivative financial instruments will likely require that the Company record the derivatives at their fair values
as of the inception date of the note agreements and at fair value as of each subsequent balance sheet date as a
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liability. Any change in fair value will be recorded as non-operating, non-cash income or expense at each balance sheet date.
NOTE 5 — STOCKHOLDERS' EQUITY
During August and September 2005, we granted stock options to three non-employee directors. Each of the options granted entitle the director to purchase 80,000 shares of common stock, provided that he remains on the Company's Board of Directors through the vesting period. One-half (50%) of these options vest during August and September 2006 and the remaining 50% vest during August and September 2007. These options have an exercise price ranging from $1.02 to $1.22 per share and expire during 2015. The average fair value of each option granted was $0.96. All options were granted with an exercise price equal to the market price on the trading day prior to the date of grant. The fair value was estimated on the date of grant using the Black-Scholes option-pricing model with an expected average volatility of 40% and a risk-free interest rate of 4%.
On November 28, 2005, we sold 200,000 investment units at a price of $10 per unit to Millenium Global Investments, Ltd., with each unit consisting of ten (10) shares of our common stock and one (1) thirty month warrant to purchase four (4) shares of our common stock at an exercise price of $1.70 per share. The Millenium warrants were restructured following our January 5, 2006 issuance of secured convertible debentures and associated warrants. As restructured, Millenium surrendered warrants to purchase 800,000 shares of our common stock at an exercise price of $1.70 per share, in exchange for warrants to purchase 2,000,000 shares of our common stock; of which 1,000,000 were issued at an exercise price of $.9376 per share; 500,000 at an exercise price of $1.50 per share; and 500,000 at an exercise price of $2.00 per share.
On December 2, 2005, we issued 250,000 shares of our common stock to Reichmann Petroleum as part of the purchase price for an additional interest in RBE, LLC, as more fully described in Note 3.
During February 2006, we granted stock options to a non-employee director entitling him to purchase 80,000 shares of common stock, provided that he remains on the Company's Board of Directors through the vesting period. One-half (50%) of these options vests during February 2007 and the remaining 50% vests during February 2008. These options have an exercise price of $1.39 per share and expire during 2016. The average fair value of the option granted was $1.39. The options were granted with an exercise price equal to the market price on the trading day prior to the date of grant. The fair value was estimated on the date of grant using the Black-Scholes option-pricing model with an expected average volatility of 54% and a risk-free interest rate of 4%.
During the quarter ended May 31, 2006, the Company issued no shares of restricted common stock under our 2005 Incentive Stock Plan. During the nine months ended May 31, 2006, the Company issued an aggregate of 300,000 shares of restricted common stock under our 2005 Incentive Stock Plan to certain officers and employees. The shares are subject to annual vesting over a three-year period.
During March and April, 2006, we issued five-year warrants to purchase an aggregate of 1,493,174 shares of our common stock at an exercise price of $.9376 to the investment bankers who assisted in the placement of the January 5, 2006 sale of convertible debentures and associated warrants. The fair value of these warrants was estimated at $1,449,660 accounted for as prepaid loan fees, being amortized over the remainder of the term of the secured convertible debentures. The fair value was estimated at grant date using the Black-Scholes option pricing model with an expected average volatility of 84.18% and a risk-free interest rate ranging from 4.71% to 4.85%. During the quarter ended May 31, 2006 we recognized amortization costs of $111,459 on the original fair value of these warrants.
On April 3, 2006, we agreed to issue up to 115,000 shares of our common stock to our investor relations firm pursuant to an agreement dated August 2005, under which approximately 104,583 of the shares have been earned through May 31, 2006, and the balance to be earned through the end of fiscal 2006.
F-25
In consideration for certain financial advisory services, during April 2006 we agreed to issue warrants to purchase 200,000 shares of our common stock at an exercise price of $2.00 per share to an investment banker. These warrants will not be issued, however, until we have amended our Articles of Incorporation to increase our authorized capital stock.
NOTE 6 — SUBSEQUENT EVENTS
Effective as of June 30, 2006, the Company issued 423,551 registered shares of its common stock as an interest payment to the holders of the $20 million secured convertible debentures issued in January 2006. These shares were issued in lieu of a cash payment of $373,973 that would have otherwise been paid representing interest due through June 30, 2006.
On June 21, 2006, we sold secured convertible debentures and warrants for gross proceeds of $10,000,000. The secured convertible debentures have an aggregate principal amount of $10,000,000 and are convertible into 10,665,529 shares of our common stock, based upon an initial conversion price of $0.9376 per share, which is subject to anti-dilution adjustments The warrants are exercisable for 18,664,676 shares of common stock for a period of five years, at an exercise price of $0.9376 per share. The exercise price of the warrants is subject to anti-dilution adjustments. We agreed to register the resale of the shares of common stock issuable upon conversion of the secured convertible debentures and exercise of the warrants. The registration right agreement contains a liquidated damages provision that has been determined to be uneconomic.
This transaction will be reviewed for the application of EITF 00-19 and FAS 133 in regards to accounting for embedded derivatives. However, inasmuch as the June 21, 2006 transaction contained many of the same features as the January 5, 2006 transaction, we expect that the conversion feature of the June 21, 2006 secured convertible debentures and the associated warrants will be accounted for as embedded derivative instruments pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Under the provisions of EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock, the accounting treatment of these derivative financial instruments could require that the Company record the derivatives at their fair values as of the inception date of the debentures
and at fair value as of each subsequent balance sheet date as a liability. Any change in fair value will be recorded as non-operating, non-cash income or expense at each balance sheet date.
As a result of the issuance of the warrants in connection with the sale of these secured convertible debentures on June 21, 2006 and the anti-dilution adjustment provisions of the warrants issued in connection with the sale of secured convertible debentures on January 5, 2006, the exercise price of approximately 5.3 million of the warrants issued on January 5, 2006 was reduced from $2.00 to $0.9376, the exercise price of approximately 5.3 million of the warrants issued on January 5, 2006 was reduced from $1.50 to $0.9376, and an approximately 9.3 million additional shares of common stock became issuable upon exercise of the warrants issued on January 5, 2006.
During June 2006, we agreed to issue 1.2 million shares of our common stock to a third party for advisory services provided in connection with the acquisition of leasehold acreage by our subsidiary in Woodruff and surrounding counties in Arkansas, subject to certain conditions, including a pending amendment to our Articles of Incorporation to increase the number of shares of common stock authorized and available for issuance.
Pursuant to an Information Statement dated July 17, 2006, on August 7, 2006, we plan to amend our Articles of Incorporation to increase the number of authorized shares of our common stock from 200 million shares to 260 million shares. The action was approved pursuant to written consent by the holders of a majority of our shares (approximately 51.9 million shares). No meeting was held and no proxies were solicited.
During June 2006, we agreed to grant options to purchase 500,000 shares of our common stock and 100,000 shares of restricted common stock, each under our 2005 Incentive Stock Plan, to a new
F-26
employee. The options will have an exercise price of $1.04 per share, with annual vesting to occur over a period of five years, subject to continued employment with the Company (and subject to acceleration under certain conditions.) The shares of restricted stock will vest upon grant.
F-27
No dealer, salesman or any other person has been authorized to give any information or to make any representations other than those contained in this prospectus in connection with the offer made by the prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by Maverick Oil and Gas, Inc. This prospectus does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstance, create any implication that there has been no change in the affairs of Maverick Oil
and Gas, Inc. or that the information contained herein is correct as of any time subsequent to the date hereof.
MAVERICK OIL AND GAS, INC.
30,089,004 SHARES OF COMMON STOCK
PRELIMINARY PROSPECTUS
July
, 2006
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is an estimate of the expenses which will be incurred by the Company in connection with the issuance and distribution of the securities being registered.
SEC filing fee
$
2,962
Legal fees and expenses
50,000
Accountants' fees and expenses
15,000
Miscellaneous expenses
5,000
Total
$
72,962
Item. Indemnification of Directors and Officers
Section 78.138 of the Nevada Revised Statutes provides that a director or officer is not individually liable to the corporation or its shareholders or creditors for any damages as a result of any act or failure to act in his capacity as a director or officer unless it is proven that (1) his act or failure to act constituted a breach of his fiduciary duties as a director or officer and (2) his breach of those duties involved intentional misconduct, fraud or a knowing violation of law.
This provision is intended to afford directors and officers protection against and to limit their potential liability for monetary damages resulting from suits alleging a breach of the duty of care by a director or officer. As a consequence of this provision, shareholders of our company will be unable to recover monetary damages against directors or officers for action taken by them that may constitute negligence or gross negligence in performance of their duties unless such conduct falls within one of the foregoing exceptions. The provision, however, does not alter the applicable standards governing a director's or officer's fiduciary duty and does not eliminate or limit the right of our company or any shareholder to obtain an injunction or any other type of non-monetary relief in the event of a breach of fiduciary duty.
Item 15. Recent Sales of Unregistered Securities
• In July 2004, we issued ten (10) year warrants to purchase 200,000 shares of our common stock at $1.00 per share to Trident Growth Fund, L.P. in connection with a $2,050,000 loan made by Trident to MBE (the "Trident 2004 Loan"). The exercise price of the warrants is subject to customary anti-dilution adjustments and a "full ratchet" adjustment in the event of the issuance of common stock or common stock equivalents for a price less than the then exercise price of the warrants. The warrants were issued in a private placement transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D, without the payment of underwriting discounts or commissions to any person.
• In August 2004, we sold one million investment units at $2.00 per Unit to AltaFin, B.V., a Netherland Antilles corporation, with each unit consisting of two shares of our common stock and one warrant to purchase a share of our common stock at a purchase price of $2.00 per share and exercisable for a five (5) year period. The units were sold in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D, without the payment of underwriting discounts or commissions to any person.
• During August 2004, we issued warrants to purchase 300,000 shares of our common stock at an exercise price of $1.50 per shares to HMA Advisors, Inc. in consideration of consulting services. These shares were exempt from registration under the Securities Act in reliance on section 4(2)of the
II-1
Securities Act and the "safe harbor" private-offering exemption provided by Rule 506 of Regulation D promulgated under the Securities Act.
• On November 18, 2004 we entered into a convertible note agreement with DDH Resources II, Limited ("DDH") whereby DDH loaned us $1,000,000. To induce the loan, we issued to DDH warrants to purchase 500,000 shares of our common stock exercisable for 3 (three) years at $2.00 per share. The warrants were issued in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D, without the payment of underwriting discounts or commissions to any person.
• Effective as of December 28, 2004, we agreed to issue three (3) year warrants to purchase 100,000 shares of our common stock at an exercise price of $2.00 per share to Brockington Securities, Inc. in consideration of general investment banking and financial advisory services rendered relative to our financing efforts. The warrants were issued in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D, without payment of underwriting discounts or commissions to any person.
• On January 11, 2005, we issued 125,000 shares of our common stock to Westport Strategic Partners, Inc. in consideration of consulting services. These shares were exempt from registration under the Securities Act in reliance on section 4(2) of the Securities Act and the "safe harbor" private-offering exemption provided by Rule 506 of Regulation D promulgated under the Securities Act.
• During January and February 2005, we completed a private financing transaction in which we realized gross offering proceeds of $28,435,000. In the transaction, we issued 14,217,500 investment units at a price of $2.00 per unit. Each unit contained two shares of our common stock and a three-year warrant to purchase a share of our common stock at a price of $2.00 per share. In connection with this transaction, we paid aggregate investment banking fees and sales commissions of $2,843,500, non-accountable expenses of $148,000, and we issued warrants to purchase 792,750 shares of our common stock at an exercise price of $1.20 per share to the placement agent for the transaction. The units were exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance on Section 4(2) of the Act and Regulation S of the Act, as well
as the safe harbor private offering exemption provided by Rule 506 of Regulation D, promulgated under the Act.
• On March 10, 2005, we issued 4,500,000 shares of our common stock and options and warrants to purchase an aggregate of 4,500,000 shares of our common stock to the former members of Hurricane Energy, LLC, in connection with our purchase of all of the membership interests of Hurricane. Options to purchase 3,690,000 shares of our common stock were issued under our 2005 Stock Incentive Plan at an exercise price of $2.395 per share. We also issued warrants to purchase 810,000 shares of our common stock. One-half of these warrants are exercisable, commencing on the first anniversary of the closing, at an exercise price of $1.75 per share. The balance of the warrants can be exercised, commencing on the second anniversary of the closing, at an exercise price of $1.925 per share. The warrants have a term of three years. The shares, options, and warrants
were issued in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D.
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The shares, options, and warrants were issued to the following individuals:
Name
Number of
Shares
Number of
Options
Number of
Warrants
V. Ray Harlow
1,170,000
1,230,000
0
John Ruddy
1,170,000
1,230,000
0
James Parrish
1,170,000
1,230,000
0
Lance E. Johnson
63,948
0
45,000
Robert A. Solberg
63,948
0
45,000
Terry C. McEwen
63,948
0
45,000
Susan Hightower
63,948
0
45,000
Cornelius Dupre II
487,892
0
450,000
Michael T. Lynch
118,420
0
90,000
Anthony J. Weido
63,948
0
45,000
Kurt R. Peters
63,948
0
45,000
• During March 2005, we issued warrants to purchase 200,000 shares of our common stock at an exercise price of $1.25 per share for a period of three (3) years to Birchwood Capital, Inc. in consideration of consulting services. These shares were issued in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) of the Securities Act.
• During March 2005, we issued warrants to purchase 150,000 shares of our common stock at an exercise price of $1.50 per share for a period of three (3) years to Carlo Seidel, our former interim chief financial officer, in consideration of consulting services. These shares were issued in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) of the Securities Act.
• During March 2005, we issued 1,600,000 shares of our common stock to DDH Resources II, Limited, and 250,000 shares to Trident Growth Fund, LP, each in conversion and full payment of the $1,850,000 principal amount remaining due under the Trident 2004 Loan. The shares were issued in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Sections 3(a)(9) and 4(2) of the Securities Act.
• During March 2005, we issued 942,565 shares of our common stock to DDH upon conversion of a $1 million loan made by DDH to us on November 18, 2004. The shares of our common stock issued to DDH were issued in a transaction exempt from the registration requirements of the Securities Act pursuant to Sections 3(a)(9) and 4(2) thereunder.
• On October 26, 2005, we issued to Trident Growth Fund, LP, a $2,000,000 a convertible debenture and warrants to purchase 500,000 shares of our common stock. The convertible debenture has a principal amount of $2,000,000 and bears interest at 12%. It must be repaid on or before October 26, 2006, and is secured by a security interest in all of our assets (subject to a subordination agreement relating to Maverick Woodruff County, LCC). The debenture is convertible into our shares of common stock at the lesser of $1.00 per share or the price per share of common stock and common stock equivalents sold in the first "Qualifying Transaction" after the issuance of the debenture, (which is defined as an equity and/or debt financing in which we receive gross proceeds of at least $3,000,000). The conversion price is subject to customary anti-dilution
adjustments and a "full ratchet" adjustment in the event of the issuance of common stock or common stock equivalents for a price less than the then conversion price of the debenture. The warrants have a term of 5 years and bear an exercise price equal to the lesser of $1.00 per share or the price per share of common stock and common stock equivalents sold in the first "Qualifying Transaction" (as defined above) after the issuance of the warrants. The number of shares issuable upon exercise of the warrants will increase by 500,000 for each 150 day period following the issuance of the warrants that the debenture remains unpaid in full. The exercise price of the warrants is subject to customary anti-dilution adjustments and a "full
II-3
ratchet" adjustment in the event of the issuance of common stock or common stock equivalents for a price less than the then exercise price of the warrants. The convertible debenture and the warrants were issued to Trident Growth Fund, LP., an accredited investor in a private placement transaction exempt from registration requirements of the Securities Act of 1933, pursuant to Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D, without the payment of underwriting discounts or commissions (other than a 3% loan origination fee paid to Trident).
• On November 28, 2005, we sold 200,000 investment units at a price of $10 per unit to Millenium Global High Yield Fund, Ltd., with each unit consisting of ten (10) shares of our common stock and one (1) warrant to purchase four (4) shares of our common stock subject to an exercise price of $1.70 per share and a term of thirty (30) months. The units were sold in a private placement transaction exempt from the registration requirements of the Securities Act, pursuant to Section 4(2), Rule 506 of SEC Regulation D and Regulation S of the Securities Act without the payment of underwriting discounts or commissions to any person. During February 2006, the warrant component of the units was restructured and modified with Millenium surrendering its original warrants in lieu of warrants to purchase 2,000,000 shares of our stock; 1,000,000 of which have an
exercise price of .9376, 500,000 of which have an exercise price of $1.50 and 500,000 of which have an exercise price of $2.00.
• During December 2005, we issued 250,000 shares of our common stock to Reichmann Petroleum in partial consideration for the purchase of an additional 13% interest in RBE, LLC. The shares of common stock were issued in a private placement transaction exempt from the registration requirements of the Securities Act of 1933, pursuant to Section 4(2) of the Securities Act and Rule 506 of SEC Regulation D.
• On January 5, 2006, the Company issued Secured Convertible Debentures in the principal amount of $20 million and Warrants to purchase up to 31,996,587 shares of the Company's Common Stock. The Secured Convertible Debentures are convertible into 21,331,058 shares of the Company's Common Stock, based upon an initial conversion price of $0.9376 per share, which is subject to anti-dilution adjustments. Of the Warrants, 21,331,059 have an initial exercise price of $0.9376 per share, 5,332,764 have an initial exercise price of $1.50 per share, and the remaining 5,332,764 have an initial exercise price of $2.00 per share. The exercise prices of the Warrants are subject to anti-dilution adjustments. The Secured Convertible Debentures and Warrants were issued to institutional accredited investors in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") and Rule 506 promulgated by the Commission thereunder. In connection with the transaction, the Company paid placement agency fees of 7% of the gross proceeds and issued to the placement agents warrants to purchase 1,493,174 shares of the Company's common stock (7% of the shares issuable upon conversion of the Secured Convertible Debenture).
• On June 21, 2006, the Company issued Secured Convertible Debentures in the principal amount of $10 million and Warrants to purchase up to 18,664,676 shares of the Company's Common Stock at an exercise price of $0.9376 per share. The Secured Convertible Debentures are convertible into 10,665,529 shares of the Company's Common Stock, based upon an initial conversion price of $0.9376 per share, which is subject to anti-dilution adjustments. The exercise price of the Warrants is subject to anti-dilution adjustments, The Secured Convertible Debentures and Warrants were issued to institutional accredited investors in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") and Rule 506 promulgated by the Commission thereunder.
Item 16. Exhibits and Financial Statement Schedules
The following is a complete list of Exhibits filed as part of this Registration Statement, which are incorporated herein:
(a) Exhibits
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Exhibit
Number
Description
2.1
Plan and Agreement of Merger between the Registrant and Waterloo Ventures, Inc. (2)
2.2
LLC Interest Purchase Agreement dated March 9, 2005 between the Registrant and the Members of Hurricane Energy, LLC (3)
3.1
Articles of Incorporation(1)
3.2
Amended and Restated By-Laws (7)
3.3
Certificate of Amendment to the Articles of Incorporation (4)
4.1
Securities Purchase Agreement between Trident Growth Fund, LP and Maverick Oil and Gas, Inc. dated as of October 26, 2005 (8)
4.2
12% Senior Secured Convertible Debenture of Maverick Oil and Gas, Inc. dated October 26, 2005(8)
4.3
Pledge of Stock Agreement between Trident Growth Fund, LP and Maverick Oil and Gas, Inc. dated as of October 26, 2005 (8)
4.4
Security Agreement between Trident Growth Fund, LP and Maverick Oil and Gas, Inc. dated as of October 26, 2005 (8)
4.5
Common Stock Purchase Warrant Agreement between Trident Growth Fund, LP and Maverick Oil and Gas, Inc. dated as of October 26, 2005 (8)
4.6
Letter Agreement dated between Trident Growth Fund, LP and Maverick Oil and Gas, Inc. as of October 26, 2005, resulting in a modification to the Security Agreement (8)
4.7
Letter Agreement between Trident Growth Fund, LP and Maverick Oil and Gas, Inc. dated as of November 15, 2005, resulting in a modification to the warrant granted to Trident (9)
5.1
Opinion of Buchanan Ingersoll PC (11)
5.2
Opinion of Woodburn and Wedge (11)
10.1
Operating Agreement of Maverick Basin Exploration , LLC, dated June 23, 2004(2)
10.2
Amendment to Operating Agreement of Maverick Basin Exploration, LLC, dated July 14, 2004(2)
10.3
Amendment to Operating Agreement of Maverick Basin Exploration, LLC, dated July 28, 2004(2)
10.4
Amendment to Operating Agreement of Maverick Basin Exploration, LLC, dated August 6, 2004(2)
10.5
Amendment to Operating Agreement of Maverick Basin Exploration, LLC, dated October 12, 2004(2)
10.6
Amendment to Operating Agreement of Maverick Basin Exploration, LLC, dated November 30, 2004(2)
10.7
RBE LLC Operating Agreement, dated August 2, 2004(2)
10.8
Amendment to RBE LLC Operating Agreement, dated August 8, 2004(2)
10.9
Amendment to RBE LLC Operating Agreement, dated December 1, 2004(2)
10.10
Employment Agreement with Michael Garland dated July 27, 2004(2)
10.11
Warrant Certificate between the Registrant and AltaFin B.V. dated August 2, 2004(2)
10.12
Option Agreement between the Registrant and Michael Garland dated July 27, 2004(2)
10.13
Subscription Agreement between the Registrant and PHT Resendez Partners, L.P. dated October 5, 2004(2)
10.14
Warrant Certificate between the Registrant and Trident Growth Fund, L.P. dated July 31, 2004(2)
10.15
Interest Purchase Agreement between the Registrant and Ferrell RBE Holdings, LLC dated July 2004(2)
10.16
Interest Purchase Agreement between the Registrant and South Oil, Inc. dated July 2004(2)
10.17
Promissory Note between the Registrant and Trident Growth Fund, LP dated July 14, 2004(2)
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Exhibit
Number
Description
10.18
Security Agreement between the Registrant and Trident Growth Fund, LP dated July 14, 2004(2)
10.19
Guaranty between the Registrant and Trident Growth Fund, LP dated July 14, 2002(2)
10.20
Registration Rights Agreement dated March 9, 2005 between the Registrant and the Founders of Hurricane Energy, LLC (3)
10.21
Escrow Agreement dated March 9, 2005 between the Registrant and the Members of Hurricane Energy, LLC (3)
10.22
Employment Agreement dated March 9, 2005 between the Registrant and V. Ray Harlow (3)
10.23
Employment Agreement dated March 9, 2005 between the Registrant and John A. Ruddy (3)
10.24
Employment Agreement dated March 9, 2005 between the Registrant and James Parrish (3)
10.25
The Registrant's 2005 Stock Option Plan (9)
10.26
Stock Purchase Agreement dated as of April 6, 2005 among Louisa K. Becker, James N. Dettl, Steven K. Miller, Bryant H. Patton, Marcus W. Rhoades, Robert N. Skinner and Yorktown Energy Partners IV, L.P. (Sellers), Camden Resources, Inc. and Maverick Oil and Gas, Inc.(6)
10.27
Form of Securities Purchase Agreement between Millenium Global High Yield Fund, Ltd. and Maverick Oil and Gas Inc., dated as of November 29, 2005(9)
10.28
Form of Common Stock Purchase Warrant between Millenium Global High Yield Fund, Ltd. and Maverick Oil and Gas, Inc., dated as of November 29, 2005(9)
10.29
Securities Purchase Agreement dated January 5, 2006 (relating to the sale of Secured Convertible Debentures and associated Warrants)(10)
10.30
Form of Secured Convertible Debenture dated January 5, 2006(10)
10.31
Form of Warrant dated January 5, 2006(10)
10.32
Form of Registration Rights Agreement dated January 5, 2006(10)
10.33
Form of Security Agreement dated January 5, 2006(10)
10.34
Securities Purchase Agreement dated June 21, 2006 (including relevant portions of accompanying schedules)(12)
10.35
Form of Secured Convertible Debenture dated June 21, 2006(12)
10.36
Form of Warrant dated June 21, 2006(12)
10.37
Form of Registration Rights Agreement dated June 21, 2006(12)
10.38
Form of Pledge and Security Agreement dated June 21, 2006(12)
10.39
Form of Escrow Agreement(12)
10.40
Form of Waiver Letter(12)
14.1
Code of Business Conduct and Ethics(9)
21.1
Subsidiaries of the Registrant (13)
23.1
Consent of Malone & Bailey, PC (13)
23.2
Consent of Morgan & Company (13)
23.3
Consent of counsel (included in Exhibit 5.1 opinion)
23.4
Consent of counsel (included in Exhibit 5.2 opinion)
23.5
Consent of Miller and Lents, Ltd. (11)
(1) Incorporated by reference to our Registration Statement on Form SB-2 filed with the Commission on October 14, 2002.
(2) Incorporated by reference to our Annual Report on 10-KSB filed with the Commission on December 3, 2004.
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(3) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on March 15, 2005.
(4) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on June 3, 2005.
(5) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on November 1, 2005.
(6) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on April 12, 2005.
(7) Incorporated by reference to the Registrant's current Report on Form 8-K filed with the Commission on January 4, 2006.
(8) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on November 1, 2005.
(9) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB filed with the Commission on November 29, 2005.
(10) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on January 9, 2006.
(11) To be provided upon amendement.
(12) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on June 23, 2006.
(13) Filed herewith.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) If the undersigned Registrant is relying on Rule 430B:
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(A) Each prospectus filed by the Registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof, Provided however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or
(ii) If the undersigned Registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the undersigned Registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
(6) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act
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of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing this Registration Statement on Form S-1 and authorized this Registration Statement to be signed on its behalf by the undersigned, in Fort Lauderdale, Florida, on the date indicated below.
MAVERICK OIL AND GAS, INC.
Date: July 21, 2006
/s/ V. Ray Harlow
V. Ray Harlow
Chief Executive Officer
Date: July 21, 2006
/s/ John Ruddy
John Ruddy
Chief Financial Officer and
Principal Accounting Officer
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of Maverick Oil and Gas, Inc. hereby constitutes and appoints V. Ray Harlow, his true and lawful attorney-in-fact and agent, with full power of substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file any and all amendments to this Form S-1, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as full to all intents and purposes as he himself might or could do if personally present, thereby ratifying and confirming all that
said attorneys-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done.
In accordance with the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ V. Ray Harlow
V. Ray Harlow
Chairman/Chief Executive Officer
July 21, 2006
/s/ John Ruddy
John Ruddy
Chief Financial Officer and
Principal Accounting Officer
July 21, 2006
Lance E. Johnson
Director
/s/ David Preng
David Preng
Director
July 21, 2006
/s/ Andrej Rucigaj
Andrej Rucigaj
Director
July 21, 2006
/s/ Matthew Fitzgerald
Matthew Fitzgerald
Director
July 21, 2006
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EXHIBIT INDEX
Exhibit
Number
Description
21.1
Subsidiaries of the Registrant
23.1
Consent of Malone & Bailey, PC
23.2
Consent of Morgan & Company