|   | þ | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|--------|--------|-----------------------------------------------------------------------------------|

|   |  ̈ | Transition report under Section 13 or 15(d) of the Exchange Act |
|--------|--------|-----------------------------------------------------------------|

| Delaware                        |   | 22-3328734          |
|---------------------------------|--------|---------------------|
| (State or other jurisdiction of |   | (I.R.S. Employer    |
| incorporation or organization)  |   | Identification No.) |

| Large Accelerated filer |  ̈ | Accelerated Filer                                 |  ̈ |
|-------------------------|--------|---------------------------------------------------|--------|
|                    |   |                                              |   |
| Non-Accelerated Filer   |  ̈ | Smaller Reporting Company     | þ |

----

|                                                                                                                |   | Page   |
|---------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                |   |   |
| Part I. Financial Information                                                                                       |   | 4      |
|                                                                                                                |   |   |
| Item 1: Financial Statements (Unaudited)                                                                            |   | 4      |
|                                                                                                                |   |   |
| Condensed Consolidated Balance Sheets at March 31, 2011 and December 31, 2010                                       |   | 4      |
|                                                                                                                |   |   |
| Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2011 and 2010                  |   | 5      |
|                                                                                                                |   |   |
| Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three Months ended March 31, 2011 |   | 6      |
|                                                                                                                |   |   |
| Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2011 and 2010                  |   | 7      |
|                                                                                                                |   |   |
| Notes to Condensed Consolidated Financial Statements                                                                |   | 8      |
|                                                                                                                |   |   |
| Item 2: Management’s Discussion and Analysis                                                                  |   | 13     |
|                                                                                                                |   |   |
| Item 3: Quantitative and Qualitative Disclosures About Market Risk                                                  |   | 15     |
|                                                                                                                |   |   |
| Item 4:  Controls and Procedures                                                                          |   | 15     |
|                                                                                                                |   |   |
| Part II. Other Information                                                                                          |   | 17     |
|                                                                                                                |   |   |
| Item 1: Legal Proceedings                                                                                           |   | 17     |
|                                                                                                                |   |   |
| Item 1A: Risk Factors                                                                                               |   | 17     |
|                                                                                                                |   |   |
| Item 2: Unregistered Sales of Equity Securities and Use of Proceeds                                                 |   | 17     |
|                                                                                                                |   |   |
| Item 3: Defaults Upon Senior Securities                                                                             |   | 17     |
|                                                                                                                |   |   |
| Item 4: Removed and Reserved                                                                                        |   | 17     |
|                                                                                                                |   |   |
| Item 5: Other Information                                                                                           |   | 17     |
|                                                                                                                |   |   |
| Item 6: Exhibits                                                                                                    |   | 17     |
|                                                                                                                |   |   |
| Signatures                                                                                                          |   | 18     |
|                                                                                                                |   |   |
| EX-31.1: CERTIFICATION                                                                                              |   |   |
| EX-31.2: CERTIFICATION                                                                                              |   |   |
| EX-32.1: CERTIFICATIONS                                                                                             |   |   |

----

----

|                                                                                                                              |   | March 31, 2011 |        |   | December 31, 2010 |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|----------------|-------------|--------|-------------------|--------|
|                                                                                                                              |   |           |        |   |              |   |
| ASSETS                                                                                                                            |   |           |        |   |              |   |
| Assets                                                                                                                            |   |           |        |   |              |   |
| Current assets:                                                                                                                   |   |           |        |   |              |   |
| Cash and cash equivalents                                                                                                         |   | $              | 5,541       |   |              | $      | 180,030 |   |
| Restricted cash                                                                                                                   |   |           | 11,410      |   |              |   | 461,259 |   |
| Trading securities - Restricted                                                                                                   |   |           | 717,454     |   |              |   | 276,686 |   |
| Prepaid and other current assets                                                                                                  |   |           | 24,955      |   |              |   | 206 |   |
| Total current assets                                                                                                              |   |           | 759,360     |   |              |   | 918,181 |   |
|                                                                                                                              |   |           |        |   |              |   |   |   |
| Oil and gas properties, unproven                                                                                                  |   |           | 21,100,000  |   |              |   | 21,100,000 |   |
|                                                                                                                              |   |           |        |   |              |   |   |   |
| Total assets                                                                                                                      |   | $              | 21,859,360  |   |              | $      | 22,018,181 |   |
|                                                                                                                              |   |           |        |   |              |   |   |   |
| LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                                                                          |   |           |        |   |              |   |   |   |
|                                                                                                                              |   |           |        |   |              |   |   |   |
| Current Liabilities:                                                                                                              |   |           |        |   |              |   |   |   |
| Senior secured convertible debenture, net of discount                                                                             |   | $              | 26,257,912  |   |              | $      | 25,895,212 |   |
| Account payable and accrued expenses                                                                                              |   |           | 117,000     |   |              |   | 125,000 |   |
| Line of credit                                                                                                                    |   |           | 8,494       |   |              |   | 8,407 |   |
| Convertible debentures                                                                                                            |   |           | 4,970,026   |   |              |   | 4,586,026 |   |
| Accrued interest                                                                                                                  |   |           | 3,203,699   |   |              |   | 2,421,861 |   |
| Derivative liability                                                                                                              |   |           | 2,139,000   |   |              |   | 4,611,000 |   |
| Total current liabilities                                                                                                         |   |           | 36,696,131  |   |              |   | 37,647,506 |   |
|                                                                                                                              |   |           |        |   |              |   |   |   |
| Stockholders' Deficiency:                                                                                                         |   |           |        |   |              |   |   |   |
| Preferred stock, $0.001 par value, 1,000,000 shares authorized Series C Voting Convertible, 921,890 shares issued and outstanding |   |           | 921         |   |              |   | 921 |   |
| Common stock, $0.0001 par value; 10,000,000,000 shares authorized; 2,879,307,140 shares issued and outstanding                    |   |           | 287,931     |   |              |   | 287,931 |   |
| Additional paid-in capital                                                                                                        |   |           | (9,872,115  | )      |              |   | (9,872,115 | ) |
| Accumulated deficiency during exploration stage                                                                                   |   |           | (5,253,508  | )      |              |   | (6,046,062 | ) |
| Total stockholders' deficiency                                                                                                    |   |           | (14,836,771 | )      |              |   | (15,629,325 | ) |
| Total liabilities and stockholders' deficiency                                                                                    |   | $              | 21,859,360  |   |              | $      | 22,018,181 |   |

----

|                                                                    |   | Year Ended March 31, |          |   | Cumulative Periodfrom December 23,2008 (inception) to |   |
|-------------------------------------------------------------------------|--------|-------------------------------------|---------------|--------|--------------------------------------------------------------------------------|--------|
|                                                                    |   | 2011                                |          |   | 2010                                                                           |   |   | March 31, 2011 |   |
| Net Sales                                                               |   | $                                   | -             |   |                                                                           | $      | - |   |   | $ | - |   |
| Cost of Sales                                                           |   |                                | -             |   |                                                                           |   | - |   |   |   | - |   |
|                                                                    |   |                                | -             |   |                                                                           |   | - |   |   |   | - |   |
|                                                                    |   |                                |          |   |                                                                           |   |   |   |   |   |   |   |
| Operating Expenses                                                      |   |                                |          |   |                                                                           |   |   |   |   |   |   |   |
| Impairment loss                                                         |   |                                | -             |   |                                                                           |   | 1,331,215 |   |   |   | 3,041,518 |   |
| General and administrative expenses                                     |   |                                | 150,638       |   |                                                                           |   | 38,003 |   |   |   | 1,161,762 |   |
|                                                                    |   |                                |          |   |                                                                           |   |   |   |   |   |   |   |
| Total Operating Expenses                                                |   |                                | 150,638       |   |                                                                           |   | 1,369,218 |   |   |   | 4,203,280 |   |
|                                                                    |   |                                |          |   |                                                                           |   |   |   |   |   |   |   |
| Loss from operations                                                    |   |                                | (150,638      | )      |                                                                           |   | (1,369,218 | ) |   |   | (4,203,280 | ) |
|                                                                    |   |                                |          |   |                                                                           |   |   |   |   |   |   |   |
| Interest income (expense)                                               |   |                                | (1,528,520    | )      |                                                                           |   | 30 |   |   |   | (4,595,365 | ) |
| Change in fair value of derivative liability                            |   |                                | 2,472,000     |   |                                                                           |   | - |   |   |   | 3,546,000 |   |
| Losses  from trading securities                               |   |                                | (288          | )      |                                                                           |   | (649 | ) |   |   | (863 | ) |
|                                                                    |   |                                |          |   |                                                                           |   |   |   |   |   |   |   |
| Income (loss) before income tax provision                               |   |                                | 792,554       |   |                                                                           |   | (1,369,837 | ) |   |   | (5,253,508 | ) |
|                                                                    |   |                                |          |   |                                                                           |   |   |   |   |   |   |   |
| Income tax provision                                                    |   |                                | -             |   |                                                                           |   | - |   |   |   | - |   |
|                                                                    |   |                                |          |   |                                                                           |   |   |   |   |   |   |   |
| Net income (loss)                                                       |   | $                                   | 792,554       |   |                                                                           | $      | (1,369,837 | ) |   | $ | (5,253,508 | ) |
|                                                                    |   |                                |          |   |                                                                           |   |   |   |   |   |   |   |
| Basic and diluted income (loss) per common share                        |   | $                                   | -             |   |                                                                           | $      | - |   |   |   |   |   |
|                                                                    |   |                                |          |   |                                                                           |   |   |   |   |   |   |   |
| Weighted average number of common shares outstanding, basic and diluted |   |                                | 2,879,307,000 |   |                                                                           |   | 1,383,754,000 |   |   |   |   |   |

----

|                               |   | Series C VotingConvertible preferredstock issued |    |   | Common Stock Issued |   |   | Additional Paid- |   |   | Deficit AccumulatedDuring Exploration |   |   | TotalStockholders' |    |
|---------------------------------------------------|--------|----------------------------------------------------------------------|---------|--------|-------------------------------|--------|--------|-----------------------|--------|--------|-------------------------------------------------|--------|--------|--------------------|---------|
|                                              |   | Shares                                                               |    |   | Amount                        |   |   | Shares                |   |   | Amount                                          |   |   | in Capital    |    |   | Stage |   |   | Deficiency |   |
| December 23, 2008 contribution of assets          |   |                                                                 | -       |   |                          | $      | -      |                  |   |   | -                                               |   |   | $                  | -       |   |   | $ | 24,141,518 |   |   | $ | - |   |   | $ | 24,141,518 |   |
|                                              |   |                                                                 |    |   |                          |   |   |                  |   |   |                                            |   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reverse merger recapitalization                   |   |                                                                 | 805,767 |   |                          |   | 806    |                  |   |   | 127,279,406                                     |   |   |               | 12,728  |   |   |   | (13,534 | ) |   |   | - |   |   |   | - |   |
|                                              |   |                                                                 |    |   |                          |   |   |                  |   |   |                                            |   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2008                        |   |                                                                 | 805,767 |   |                          |   | 806    |                  |   |   | 127,279,406                                     |   |   |               | 12,728  |   |   |   | 24,127,984 |   |   |   | - |   |   |   | 24,141,518 |   |
|                                              |   |                                                                 |    |   |                          |   |   |                  |   |   |                                            |   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares issued prior to reverse merger by acquiree |   |                                                                 | 166,275 |   |                          |   | -      |                  |   |   | 355,562,697                                     |   |   |               | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                              |   |                                                                 |    |   |                          |   |   |                  |   |   |                                            |   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital contribution                              |   |                                                                 | -       |   |                          |   | -      |                  |   |   | -                                               |   |   |               | -       |   |   |   | 732,497 |   |   |   | - |   |   |   | 732,497 |   |
|                                              |   |                                                                 |    |   |                          |   |   |                  |   |   |                                            |   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reverse merger recapitalization                   |   |                                                                 | -       |   |                          |   | 166    |                  |   |   | -                                               |   |   |               | 35,556  |   |   |   | (35,722 | ) |   |   | - |   |   |   | - |   |
|                                              |   |                                                                 |    |   |                          |   |   |                  |   |   |                                            |   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                          |   |                                                                 | -       |   |                          |   | -      |                  |   |   | -                                               |   |   |               | -       |   |   |   | - |   |   |   | (213,110 | ) |   |   | (213,110 | ) |
|                                              |   |                                                                 |    |   |                          |   |   |                  |   |   |                                            |   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2009                        |   |                                                                 | 972,042 |   |                          |   | 972    |                  |   |   | 482,842,103                                     |   |   |               | 48,284  |   |   |   | 24,824,759 |   |   |   | (213,110 | ) |   |   | 24,660,905 |   |
|                                              |   |                                                                 |    |   |                          |   |   |                  |   |   |                                            |   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares issued prior to reverse merger by acquiree |   |                                                                 | (50,152 | )      |                          |   | -      |                  |   |   | 2,396,465,037                                   |   |   |               | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                              |   |                                                                 |    |   |                          |   |   |                  |   |   |                                            |   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital contribution                              |   |                                                                 | -       |   |                          |   | -      |                  |   |   | -                                               |   |   |               | -       |   |   |   | 420,653 |   |   |   | - |   |   |   | 420,653 |   |
|                                              |   |                                                                 |    |   |                          |   |   |                  |   |   |                                            |   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reverse merger recapitalization                   |   |                                                                 | -       |   |                          |   | (51    | )                     |   |   | -                                               |   |   |               | 239,647 |   |   |   | (35,117,527 | ) |   |   | - |   |   |   | (34,877,931 | ) |
|                                              |   |                                                                 |    |   |                          |   |   |                  |   |   |                                            |   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                          |   |                                                                 | -       |   |                          |   | -      |                  |   |   | -                                               |   |   |               | -       |   |   |   | - |   |   |   | (5,832,952 | ) |   |   | (5,832,952 | ) |
|                                              |   |                                                                 |    |   |                          |   |   |                  |   |   |                                            |   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2010                        |   |                                                                 | 921,890 |   |                          |   | 921    |                  |   |   | 2,879,307,140                                   |   |   |               | 287,931 |   |   |   | (9,872,115 | ) |   |   | (6,046,062 | ) |   |   | (15,629,325 | ) |
|                                              |   |                                                                 |    |   |                          |   |   |                  |   |   |                                            |   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                        |   |                                                                 | -       |   |                          |   | -      |                  |   |   | -                                               |   |   |               | -       |   |   |   | - |   |   |   | 792,554 |   |   |   | 792,554 |   |
|                                              |   |                                                                 |    |   |                          |   |   |                  |   |   |                                            |   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, March 31, 2011                           |   |                                                                 | 921,890 |   |                          | $      | 921    |                  |   |   | 2,879,307,140                                   |   |   | $                  | 287,931 |   |   | $ | (9,872,115 | ) |   | $ | (5,253,508 | ) |   | $ | (14,836,771 | ) |

----

|                                                                                      |   | Three Months Ended |       |   | Cumulative Period from |   |
|-------------------------------------------------------------------------------------------|--------|--------------------|------------|--------|------------------------|--------|
|                                                                                      |   | March 31,          |       |   | December 23, 2008      |   |
|                                                                       |   | 2011               |       |   | 2010                   |   |   | (inception) to May 31, 2011 |   |
| Operating activities:                                                                     |   |               |       |   |                   |   |   |   |   |   |   |   |
| Net Income (Loss)                                                                         |   | $                  | 792,554    |   |                   | $      | (1,369,837 | ) |   | $ | (5,253,508 | ) |
| Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities: |   |               |       |   |                   |   |   |   |   |   | - |   |
| Impairment of long-lived assets                                                           |   |               | -          |   |                   |   | 1,331,215 |   |   |   | 3,041,518 |   |
| Change in fair value of derivative liability                                              |   |               | (2,472,000 | )      |                   |   | - |   |   |   | (3,546,000 | ) |
| Unrealized losses on marketable securities                                                |   |               | 288        |   |                   |   | 685 |   |   |   | 1,058 |   |
| Amortization of debt discount                                                             |   |               | 746,700    |   |                   |   | - |   |   |   | 2,539,200 |   |
| Changes in Assets and Liabilities                                                         |   |               |       |   |                   |   |   |   |   |   |   |   |
| Increase in Prepaid and other current assets                                              |   |               | (24,749    | )      |                   |   | - |   |   |   | (24,955 | ) |
| Increase (Decrease) in accounts payable and accrued expenses                         |   |               | (8,000     | )      |                   |   | - |   |   |   | 117,000 |   |
| Increase in accrued interest                                                              |   |               | 781,925    |   |                   |   | - |   |   |   | 2,049,593 |   |
| Net cash used in operating activities                                                     |   |               | (183,282   | )      |                   |   | (37,937 | ) |   |   | (1,076,094 | ) |
|                                                                                      |   |               |       |   |                   |   |   |   |   |   |   |   |
| Investing activities:                                                                     |   |               |       |   |                   |   |   |   |   |   |   |   |
| Restricted cash                                                                           |   |               | 449,849    |   |                   |   | 104,621 |   |   |   | (11,410 | ) |
| Proceeds from sale of trading securities                                                  |   |               | -          |   |                   |   | 355,000 |   |   |   | 814,396 |   |
| Purchases of trading securities                                                           |   |               | (441,056   | )      |                   |   | (459,687 | ) |   |   | (1,532,908 | ) |
| Net cash provided by (used in) investing activities                                       |   |               | 8,793      |   |                   |   | (66 | ) |   |   | (729,922 | ) |
|                                                                                      |   |               |       |   |                   |   |   |   |   |   |   |   |
| Financing activities                                                                      |   |               |       |   |                   |   |   |   |   |   |   |   |
| Line of credit                                                                            |   |               | -          |   |                   |   | - |   |   |   | 8,407 |   |
| Proceeds from advances                                                                    |   |               | -          |   |                   |   | - |   |   |   | 732,497 |   |
| Proceeds from issuance of senior secured convertible debenture                            |   |               | -          |   |                   |   | - |   |   |   | 650,000 |   |
| Capital contribution                                                                      |   |               | -          |   |                   |   | 25,698 |   |   |   | 420,653 |   |
| Net cash provided by financing activities                                                 |   |               | -          |   |                   |   | 25,698 |   |   |   | 1,811,557 |   |
|                                                                                      |   |               |       |   |                   |   |   |   |   |   |   |   |
| (Decrease) Increase in cash                                                               |   |               | (174,489   | )      |                   |   | (12,305 | ) |   |   | 5,541 |   |
|                                                                                      |   |               |       |   |                   |   |   |   |   |   |   |   |
| Cash and cash equivalents, beginning of period                                            |   |               | 180,030    |   |                   |   | 56,743 |   |   |   | - |   |
| Cash and cash equivalents, end of period                                                  |   | $                  | 5,541      |   |                   | $      | 44,438 |   |   | $ | 5,541 |   |
|                                                                                      |   |               |       |   |                   |   |   |   |   |   |   |   |
| NONCASH INVESTING AND FINANCING ACTIVITIES                                                |   |               |       |   |                   |   |   |   |   |   |   |   |
| Oil and gas properties, unproven                                                          |   | $                  | -          |   |                   | $      | - |   |   | $ | 24,141,518 |   |
| Debt discount derived from derivative liability - Convertible debentures                  |   |               | -          |   |                   |   | - |   |   |   | 406,000 |   |
| Debt discount derived from derivative liability - Senior Secured convertible debentures   |   |               | -          |   |                   |   | - |   |   |   | 5,279,000 |   |
|                                                                                      |   |               |       |   |                   |   |   |   |   |   |   |   |
| Reverse merger liabilities and equity adjustments                                         |   |               |       |   |                   |   |   |   |   |   |   |   |
| Accrued interest                                                                          |   |               | -          |   |                   |   | - |   |   |   | 1,154,193 |   |
| Senior secured convertible debenture                                                      |   |               | -          |   |                   |   | - |   |   |   | 27,640,712 |   |
| Convertible debentures                                                                    |   |               | -          |   |                   |   | - |   |   |   | 6,083,026 |   |
|                                                                                      |   |               |       |   |                   |   |   |   |   |   |   |   |
| Total                                                                                     |   | $                  | -          |   |                   | $      | - |   |   | $ | 64,704,449 |   |

----

| 1. | Basis of Presentation and Nature of Organization |
|----|--------------------------------------------------|

| 2. | Summary of Significant Accounting Policies |
|----|--------------------------------------------|

----

| 2. | Summary of Significant Accounting Policies (Continued) |
|----|--------------------------------------------------------|

| Balance of derivative liability as of December 31, 2010 |   | $      | 4,611,000  |   |
|---------------------------------------------------------|--------|--------|------------|--------|
|                                                    |   |   |       |   |
| Change in fair value during year                        |   |   | (2,472,000 | )      |
|                                                    |   |   |       |   |
| Balance at March 31, 2011                               |   | $      | 2,139,000  |   |

|                                              |   | March 31, 2011 |          |   | March 31, 2010 |   |
|---------------------------------------------------|--------|--------------------------|---------------|--------|--------------------------|--------|
|                                              |   |                     |          |   |                     |   |
| Income (Loss) attributable to common stockholders |   | $                        | 793,000       |   |                     | $      | (1,370,000 | )  |
|                                              |   |                     |          |   |                     |   |   |   |
| Weighted-average common shares outstanding        |   |                     | 2,879,307,000 |   |                     |   | 1,383,754,000 |   |
|                                              |   |                     |          |   |                     |   |   |   |
| Basic and diluted income (loss) per share         |   | $                        | -             |   |                     | $      | - |   |

|                                  |   | March 31, 2011 |           |   | March 31, 2010 |   |
|---------------------------------------|--------|--------------------------|----------------|--------|--------------------------|--------|
|                                  |   |                     |           |   |                     |   |
| Warrants                              |   |                     | 2,250,000      |   |                     |   | - |   |
|                                  |   |                     |           |   |                     |   |   |   |
| Senior secured convertible debentures |   |                     | 99,358,000,000 | *      |                     |   | - |   |
|                                  |   |                     |           |   |                     |   |   |   |
| Convertible debentures                |   |                     | 65,908,000,000 | *      |                     |   | - |   |

----

| 3. | Oil and Gas Properties, Unproven |
|----|----------------------------------|

|                             |   | Acquisition Costs |       |   | Impairment |   |       | Total  |   |
|----------------------------------|--------|------------------------|------------|--------|------------|--------|------------|--------|--------|
| Coos Bay Basin Property          |   |                   |       |   |       |   |       |   |   |
| Year ended 2008                  |   | $                      | 24,141,000 |   |       | $      | -          |   |   | $ | 24,141,000 |   |
| Year ended 2009                  |   |                   | -          |   |       |   | -          |   |   |   | - |   |
| Year ended 2010                  |   |                   | -          |   |       |   | (3,041,000 | )      |   |   | (3,041,000 | ) |
| 3 months ended March 31, 2011    |   |                   | -          |   |       |   | -          |   |   |   | - |   |
|                             |   |                   | -          |   |       |   | -          |   |   |   | - |   |
| Inception through March 31, 2011 |   | $                      | 24,141,000 |   |       | $      | (3,141,000 | )      |   | $ | 21,100,000 |   |

| 4. | Environmental Matters |
|----|-----------------------|

| 5. | Convertible Debentures, Derivative Liability and Debt Discount |
|----|----------------------------------------------------------------|

| Current portion of convertible debentures:                               |   |   |       |
|--------------------------------------------------------------------------|--------|--------|------------|
| Convertible debenture payable to YA Global due December 2010 – 5%  |   | $      | 592,000    |   |
| Convertible debenture payable to YA Global due December 2010 – 12% |   |   | 570,000    |   |
| Convertible debenture payable to YA Global due December 2010 – 5%  |   |   | 921,000    |   |
| Convertible debenture payable to YA Global due December 2011– 12%  |   |   | 4,000,000  |   |
| Debt discount (original debt discount of $2,685,000)                     |   |   | (1,113,000 | ) |
| Total current convertible debentures                                     |   | $      | 4,970,000  |   |

----

| 5. | Convertible Debentures, Derivative Liability and Debt Discount (Continued) |
|----|----------------------------------------------------------------------------|

| Current portion of senior secured convertible debentures:                                       |   |   |       |
|-------------------------------------------------------------------------------------------------|--------|--------|------------|
| Senior secured convertible debenture payable to YA Global due August  2012 – 9% |   | $      | 27,641,000 |   |
| Senior secured convertible debenture payable to YA Global due August 2012 – 9%            |   |   | 650,000    |   |
| Debt discount (original debt discount of $3,000,000)                                            |   |   | (2,033,000 | ) |
| Total current senior secured convertible debentures                                             |   | $      | 26,258,000 |   |

|                          |   | December 31, |   |   | March 31, |   |
|-------------------------------|--------|-------------------|--------|--------|----------------|--------|
|                          |   | 2010              |   |   | 2011           |   |
|                          |   |              |   |   |           |   |
| Risk Free Interest Rate       |   |              | 2.5    | %      |           |   | 2.5 | % |
| Volatility                    |   |              | 100    | %      |           |   | 59 | % |
| Term                          |   | 1.00 years        |   |   | .75 years |   |
| Dividend Rate                 |   |              | 0      | %      |           |   | 0 | % |
| Closing Price of Common Stock |   | $                 | 0.0001 |   |           | $      | 0.0001 |   |

| 6. | Line of Credit |
|----|----------------|

| 7. | Subsequent Events |
|----|-------------------|

----

| 7. | Subsequent Events (Continued) |
|----|-------------------------------|

----

----

----

|   | • | lack of documented policies and procedures; and |
|--------|---------|-------------------------------------------------|

|   | • | there is no effective separation of duties, which includes monitoring controls, between the members of management. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------|

|   | • | lack of resources to account for complex and unusual transactions |
|--------|---------|-------------------------------------------------------------------|

----

----

| 31.1 | Section 302 Certification of Chief Executive Officer. |
|------|-------------------------------------------------------|

| 31.2 | Section 302 Certification of Chief Financial Officer. |
|------|-------------------------------------------------------|

| 32.1 | Section 906 Certification of Chief Executive Officer and Chief Financial Officer. |
|------|-----------------------------------------------------------------------------------|

----

|                   | CARBONICS CAPITAL CORPORATION |
|------------------------|-------------------------------|
|                   |                          |
| Date: October 21, 2011 | By:                      | /s/ Stephen J. Schoepfer |
|                   |                          | Name:  Stephen J. Schoepfer |
|                   |                          | Title:  Chief Executive Officer |
|                   |                          |
| Date: October 21, 2011 | By:                           | /s/ Stephen J. Schoepfer |
|                   |                          | Name:  Stephen J. Schoepfer |
|                   |                          | Title:  Chief Financial Officer |

----

| 31.1 | Section 302 Certification of Chief Executive Officer |
|------|------------------------------------------------------|

| 31.2 | Section 302 Certification of Chief Financial Officer |
|------|------------------------------------------------------|

| 32.1 | Section 906 Certification of Chief Executive Officer and Chief Financial Officer |
|------|----------------------------------------------------------------------------------|

----