<PAGE>

================================================================================

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

                                   FORM 10-QSB

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007


[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________
         TO _________________


                                   PENGE CORP.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


          DELAWARE                     000-52180                 71-0895709
----------------------------     ---------------------      -------------------
(State or other jurisdiction     (Commission File No.)         (IRS Employer
      of incorporation)                                     Identification No.)

                             1501 NORTH FAIRGROUNDS
                              MIDLAND, TEXAS 79705
          ------------------------------------------------------------
          (Address of principal executive offices, including zip code)

       Registrant's telephone number, including area code: (423) 683-8800


Check mark whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. YES [X] NO [ ]

Check mark whether the issuer is a shell company (as defined in Rule 12b-2 of
the Act): YES [ ] NO [X]

As of March 31, 2007 the issuer had 24,682,745 shares of common stock
outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

================================================================================

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS


                           PENGE CORP AND SUBSIDIARIES

              UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 2007

<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
                 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


                                    CONTENTS

                                                                           PAGE

--        Unaudited Condensed Consolidated Balance Sheets,
               March 31, 2007 and June 30, 2006                              1

--        Unaudited Condensed Consolidated Statements of
               Operations, for the three and nine months ended
               March 31, 2007 and 2006                                       3

--        Unaudited Condensed Consolidated Statements of
               Cash Flows, for the nine months ended
               March 31, 2007 and 2006                                       4

--        Notes to Unaudited Condensed Consolidated Financial
               Statements                                                    8

<PAGE>

<TABLE>
<S>     <C>
                             PENGE CORP. AND SUBSIDIARIES
                   UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

                                        ASSETS


                                                             March 31,      June 30,
                                                               2007           2006
                                                            ----------     ----------
CURRENT ASSETS:
   Cash                                                     $   74,967     $  111,915
   Accounts receivable, net of $16,315 and $6,193 of
     allowance for doubtful accounts for March 31, 2007
     and June 30, 2006                                          59,153         89,062
   Inventories                                               3,100,701      2,442,469
   Prepaid expenses                                              6,997          4,769
                                                            ----------     ----------
          Total Current Assets                               3,241,818      2,648,215

PROPERTY, PLANT AND EQUIPMENT, net                           4,309,320      4,710,650
                                                            ----------     ----------

LAND HELD FOR SALE                                           1,636,675      1,636,675
                                                            ----------     ----------

OTHER ASSETS:
   Deferred loan costs                                          10,245            229
   Goodwill                                                    150,000        150,000
   Definite-life intangible assets, net                          5,706         13,490

                                                            ----------     ----------
          Total Other Assets                                   165,951        163,719
                                                            ----------     ----------
                                                            $9,353,764     $9,159,259
                                                            ==========     ==========


                                     [Continued]

      The accompanying notes are an integral part of these financial statements.

                                          1
<PAGE>

                                 PENGE CORP. AND SUBSIDIARIES
                        UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

                         LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)

                                          (CONTINUED)


                                                                   March 31,        June 30,
                                                                     2006             2006
                                                                  -----------      -----------
CURRENT LIABILITIES:
   Current portion of notes payable                                 1,579,139          940,272
   Current portion of related party notes payable                     300,000          266,863
   Current portion of convertible notes payable                     1,815,149          918,125
   Current portion of related party convertible notes payable         600,000          150,000
   Current Portion of Lease Liability                                  76,561           63,700
   Accounts payable                                                 1,033,830        1,320,214
   Related party accounts payable                                     237,827          217,590
   Current derivative liabilities                                      64,053           56,203
   Other accrued liabilities                                          542,865          284,040
                                                                  -----------      -----------
          Total Current Liabilities                                 6,249,424        4,217,007

LONG-TERM DEBT:
   Notes payable, less current portion                              1,380,121        1,500,154
   Related party notes payable, less current portion                  488,341          771,760
   Convertible notes payable, less current portion                    484,319        1,578,156
   Related party convertible notes payable,
     less current portion                                                  --          550,000
   Long-term capital lease obligations, less current portion          201,463          255,597
   Deferred income                                                     16,157           23,310

                                                                  -----------      -----------
          Total Long-term Debt                                      2,570,401        4,678,977
                                                                  -----------      -----------
                                                                    8,819,825        8,895,984
                                                                  -----------      -----------

STOCKHOLDERS' EQUITY (DEFICIT):
   Preferred stock, $.001 par value, 10,000,000
     shares  authorized, no shares issued and outstanding                  --               --
   Common stock, $.001 par value, 50,000,000 shares
     authorized, 24,682,745 and 24,515,730 shares
     issued and outstanding, respectively                              28,956           24,516
   Additional paid-in capital                                       5,502,902        3,637,593
   Treasury stock, at cost (408,299 shares, respectively)
   Accumulated (Deficit)                                           (4,997,920)      (3,398,834)

                                                                  -----------      -----------
          Total Stockholders Equity (Deficit)                         533,938          263,275
                                                                  -----------      -----------

                                                                  $ 9,353,763      $ 9,159,259
                                                                  ===========      ===========


          The accompanying notes are an integral part of these financial statements.

                                              2
<PAGE>

                                       PENGE CORP. AND SUBSIDIARIES
                         UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


                                            For the Three Months                For the Nine Months
                                               Ended March 31,                     Ended March 31,
                                        ------------------------------      ------------------------------
                                            2007              2006             2007               2006
                                        ------------      ------------      ------------      ------------
NET REVENUES:
   Sales, net                           $    531,539      $    274,815      $  1,553,360      $  1,707,552

COST OF GOODS SOLD                           245,419           129,020           781,737         1,197,099
                                        ------------      ------------      ------------      ------------

GROSS PROFIT                                 286,120           145,795           771,623           510,453
                                        ------------      ------------      ------------      ------------

OPERATING EXPENSES:
   Salaries, Wages and Related
   Expenses                                  210,736           192,995           580,715           453,036
   Consulting                                     --            10,000                --            26,125
   Advertising                                   466             1,351            15,523             3,277
   Other General and Administrative          116,534            67,093           326,859           221,965
   Depreciation & Amortization                39,035             5,781            94,583            24,601
                                        ------------      ------------      ------------      ------------

          Total Operating Expenses           366,771           277,221         1,017,680           729,004
                                        ------------      ------------      ------------      ------------

INCOME (LOSS) FROM OPERATIONS                (80,651)         (131,426)         (246,057)         (218,551)
                                        ------------      ------------      ------------      ------------

OTHER INCOME (EXPENSE):
   Interest income                                --                14                56               162
   Interest expense related party            (47,671)          (19,988)         (171,213)          (78,182)
   Interest expense                         (221,479)         (279,931)         (604,239)         (560,948)
   Note Conversion/Stock Expense            (459,235)               --          (491,449)               --
   Other income (expense)                    (16,700)               --           (86,184)               --
                                        ------------      ------------      ------------      ------------

          Total Other (Expense)             (745,085)         (299,905)       (1,353,029)         (638,968)
                                        ------------      ------------      ------------      ------------

NET LOSS                                $   (825,736)     $   (431,331)     $ (1,599,086)     $   (857,519)
                                        ============      ============      ============      ============
BASIC AND DILUTED LOSS
   PER COMMON SHARE                     $      (0.03)     $      (0.02)     $      (0.06)     $      (0.04)
                                        ============      ============      ============      ============

WEIGHTED AVERAGE SHARES
   OUTSTANDING                            25,485,062        23,171,832        24,949,435        23,479,928
                                        ============      ============      ============      ============


                                                [Continued]

                The accompanying notes are an integral part of these financial statements.

                                                    3
<PAGE>

                                 PENGE CORP. AND SUBSIDIARIES
                   UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                      For the Nine Months
                                                                         Ended March 31,
                                                                  ----------------------------
                                                                      2007             2006
                                                                  -----------      -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                       $(1,599,086)     $  (857,519)
   Adjustments to reconcile net loss to net cash used by
     operating activities:
        Amortization of deferred loan costs                            31,442           57,258
        Amortization of discounts                                          --            9,924
        Change in deferred loan costs                                 (13,940)              --
        Change in allowance for bad debts                              10,344            2,177
        Depreciation and amortization                                 104,471          218,301
        Contingent derivative liabilities                               6,043               23
        Non-cash expenses related to equity instruments               459,235          131,157
          Accounts receivable                                         (60,435)          58,152
          Inventories                                                (323,828)        (914,956)
          Prepaid expenses                                             (3,644)             843
          Refundable deposits                                              --           (4,440)
          Accounts payable                                           (122,005)         485,616
          Accrued liabilities                                         490,609          100,575
          Customer deposits                                            80,000               --
                                                                  -----------      -----------
             Net Cash Used by Operating Activities                   (940,794)        (712,889)
                                                                  -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Payments for property and equipment                                     --       (1,771,917)
   Payments for land held for sale                                         --          (20,193)
   Proceeds from sale of equipment                                     80,422           72,500
                                                                  -----------      -----------
             Net Cash Provided (Used) by Investing Activities          80,422       (1,719,610)
                                                                  -----------      -----------


                                          [Continued]

          The accompanying notes are an integral part of these financial statements.

                                              4
<PAGE>

                               PENGE CORP. AND SUBSIDIARIES
                UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (CONTINUED)


                                                                  For the Nine Months
                                                                    Ended March 31,
                                                             ----------------------------
                                                                2007              2006
                                                             -----------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Changes in related party advances                              23,038          182,689
   Payments on related party advances                                 --          (65,618)
   Proceeds from notes payable                                   547,500          775,000
   Payments on notes payable                                     (32,365)        (273,595)
   Proceeds from related party notes payable                     125,000          100,000
   Payments on related party notes payable                       (26,139)        (240,852)
   Proceeds from convertible notes payable                       150,000        1,054,500
   Payments on convertible notes payable                         (11,337)              --
   Proceeds from related party convertible notes payable              --          450,000
   Payments on capital lease obligations                         (41,273)         (22,425)
   Proceeds from issuance of common stock                         89,000          350,477
                                                             -----------      -----------
             Net Cash Provided by Financing Activities           823,424        2,310,176
                                                             -----------      -----------

INCREASE IN CASH AND EQUIVALENTS                                 (36,948)        (122,323)

CASH AND EQUIVALENTS AT THE BEGINNING OF THE PERIOD              111,915          338,291
                                                             -----------      -----------

CASH AND EQUIVALENTS AT THE END OF THE PERIOD                $    74,967      $   215,968
                                                             ===========      ===========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the period for:
     Interest                                                $   431,153      $   342,860

     Income Taxes                                            $        --      $        --


                                       [Continued]

        The accompanying notes are an integral part of these financial statements.

                                            5
</TABLE>
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (CONTINUED)


SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

     FOR THE NINE MONTHS ENDED MARCH 31, 2007

         In August 2006, the Company paid $6,000 towards and a related party
         assumed $50,000 of a $56,000 note payable.

         In October 2006, the Company issued 8,572 shares of common stock valued
         at $15,585 to satisfy the decrease in the private placement share price
         of $0.70 to $0.55.

         In October 2006, the Company executed two Promissory Notes for
         outstanding accounts payable for a total of $272,528 with BWI and Eason
         Horticulture Resources.

         In November 2006, the Company issued 50,000 shares of common stock
         valued at $27,500 as part of a secured Promissory note.

         In November 2006, the Company issued 100,000 shares of common stock
         valued at $55,000 as part of a Commercial Lease agreement.

         Between January and March 2007, notes payable and interest of
         $1,234,299 were converted into 4,131,904 shares of stock and a
         conversion expense of $459,235 was recorded as the conversion price was
         decreased from between $0.95-$0.55 to between $0.55-$0.25.


   The accompanying notes are an integral part of these financial statements.

                                       6
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (CONTINUED)


SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
 (CONTINUED)

     FOR THE NINE MONTHS ENDED MARCH 31, 2006

         During the year, a related party paid $72,169 from the sale of personal
         property against a note payable of the Company.

         In November 2005, the Company entered into a Capital Equipment lease
         agreement which netted the Company $38,888 over the carrying value of
         the leased assets.

         In November 2005, the Company purchased fixed assets under capital
         leases with a value of $360,181.

         In December 2005, the Company received 408,296 shares of treasury stock
         to satisfy a subscription receivable.

         In December 2005, the Company entered into a secured, convertible
         Promissory Note for $242,000 for 119.47 acres in Midland, Texas.

         In December 2005, notes payable of $300,000 plus accrued interest were
         converted into 1,091,995 shares of stock.

         In December 2005, the Company reduced the conversion price on certain
         convertible notes payable and recorded interest expense of $85,657.

         In December 2005, the Company assumed a note of a related party and
         reduced the related party's note by $132,718.

         In January 2006, the Company issued 50,000 shares of common stock for
         employee services rendered value at $35,000

         In March 2006, the Company issued 15,000 shares of common stock for
         payment of services rendered valued at $10,500.


   The accompanying notes are an integral part of these financial statements.

                                       7
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     ORGANIZATION - Penge Corp., ("Parent") was organized under the laws of the
     State of Nevada and was reincorporated in Delaware by a Merger on May 17,
     1987.

     Penge Corp. ("Penge") was organized under the laws of the State of Nevada
     on August 6, 2002.

     Major Trees, Inc. ("MT Subsidiary") was organized under the laws of the
     State of Arizona on December 29, 1993.

     S&S Plant Farms, Inc. ("S&S Subsidiary") was organized under the laws of
     the State of Texas on February 23, 1995.

     Texas Landscape Center, Inc. ("TLC Subsidiary") was organized under the
     laws of the State of Texas on September 1, 2005. The subsidiary was
     organized by the Parent and as such, became a wholly owned subsidiary of
     the Parent. The financial statements include operations of Texas Landscape
     Center, Inc from September 1, 2005 through March 31, 2007.

     Parent, Penge, MT Subsidiary, S&S Subsidiary, and TLC Subsidiary ("the
     Company") grow landscaping and garden plants, flowers, shrubs, trees and
     other agricultural products for sale to retail nurseries, landscape
     professionals, and the general public in Southwestern United States. The
     Company has, at the present time, not paid any dividends and any dividends
     that may be paid in the future will depend upon the financial requirements
     of the Company and other relevant factors.

     CONSOLIDATION -The financial statements presented reflect the accounts of
     Parent, Penge, MT Subsidiary, S&S Subsidiary, and TLC Subsidiary; all
     significant inter-company transactions have been eliminated in
     consolidation.

     AGRICULTURAL PRODUCTION - The Company accounts for their agricultural
     activities in accordance with Statement of Position 85-3, "Accounting by
     Agricultural Producers and Agricultural Cooperatives". All direct and
     indirect costs of growing crops are either accumulated as inventory or
     expensed as cost of goods sold. Permanent land development costs are
     capitalized and not depreciated. Limited-life land development costs and
     the development costs to bring long-life and intermediate-life plants into
     production are capitalized and depreciated using the straight-line method
     over the estimated useful lives of the assets.

     CASH AND CASH EQUIVALENTS - The Company considers all highly-liquid debt
     investments purchased with an original maturity of three months or less to
     be cash equivalents.

                                    Continued

                                       8
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     ACCOUNTS RECEIVABLE - Accounts receivable consist of trade receivables
     arising in the normal course of business. At March 31, 2007 and June 30,
     2006, the Company has an allowance for doubtful accounts of $16,315 and
     $6,193, respectively, which reflects the Company's best estimate of
     probable losses inherent in the accounts receivable balance. The Company
     estimates allowances for doubtful accounts based on the aged receivable
     balances and historical losses. The Company records interest income on
     delinquent accounts receivable only when payment is received. The Company
     first applies payments received on delinquent accounts receivable to
     eliminate the outstanding principal. The Company charges off uncollectible
     accounts receivable when management estimates no possibility of collecting
     the related receivable. The Company considers accounts receivable to be
     past due or delinquent based on contractual terms.

     INVENTORIES - Finished goods inventory is stated at the lower of cost or
     market using the retail method as the Company has a large quantity of
     inventory items that have similar costs and markups; the Company does not
     have any individually significant items. Because the Company's inventory
     has these characteristics, it is not beneficial to track inventory costs to
     each individual unit of inventory. Under the retail method, the Company
     counts and extends their inventory at estimated sales prices, based upon
     historical sales, which it then multiplies by its cost ratio to determine
     inventory at cost. The Company's cost ratio is determined by adding the
     total cost of the beginning inventory and all direct and indirect costs of
     growing crops divided by the total estimated sales price of ending
     inventory, based on historical sales, plus sales revenues. Raw material
     inventory is stated at the lower of market or cost using the first-in
     first-out (FIFO) method.

     PROPERTY AND EQUIPMENT - Property and equipment are stated at cost or
     carryover basis. Expenditures for major renewals and betterments that
     extend the useful lives of property and equipment are capitalized upon
     being placed in service. Expenditures for maintenance and repairs are
     charged to expense as incurred. Depreciation is computed using the
     straight-line method over the estimated useful lives of the assets. In
     accordance with Statement of Financial Accounting Standards No. 144,
     "Accounting for the Impairment or Disposal of Long-Lived Assets", the
     Company periodically reviews their property and equipment for impairment.

     LAND HELD FOR SALE - Land held for sale is recorded at the lower of cost or
     net realizable value.

     INTANGIBLE ASSETS - The Company accounts for their intangible assets in
     accordance with Statement of Financial Accounting Standards No. 142,
     "Goodwill and Other Intangible Assets". SFAS No. 142 establishes three
     classifications for intangible assets including definite-life intangible
     assets, indefinite-life intangible

                                    Continued

                                       9
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     assets and goodwill and requires different accounting treatment and
     disclosures for each classification. In accordance with SFAS No. 142, the
     Company periodically reviews their intangible assets for impairment.

     PRODUCT WARRANTY - The Company does not warranty their agricultural
     products against damage that may occur prior to delivery to the customer.
     The Company does warrant trees and shrubs sold through the retail sites for
     one year from purchase. At March 31, 2007 and June 30, 2006, the Company
     has established a reserve for future warranty expense of $7,791 and $0,
     respectively.

     REVENUE RECOGNITION - The Company's revenue comes primarily from the sale
     of agricultural products. The Company recognizes revenue from retail sales
     at the time of retail purchase. The Company recognizes revenue from
     landscaping and wholesale customers when rights and risk of ownership have
     passed to the customer, there is persuasive evidence of a sales
     arrangement, product has been shipped, (delivered to or picked up by the
     customer), the price and terms are finalized and collection of the
     resulting receivable is reasonably assured.

     ADVERTISING COSTS - Cost incurred in connection with advertising of the
     Company's products are expensed as incurred. Such costs amounted to $466
     and $1,351 for the three months ended March 31, 2007 and March 31, 2006
     respectively and $15,523 and $3,277 for the nine months ended March 31,
     2007 and March 31, 2006, respectively.

     LEASE COMMITTMENTS - The Company accounts for lease commitments in
     accordance with SFAS 98, wherein the underlying assets are capitalized and
     the capital lease obligation recorded if the lease commitments meet the
     requirement for capitalization. All other lease obligations are accounted
     for as operating leases wherein payments are expensed as the obligation
     arises [See Note 11].

     STOCK-BASED COMPENSATION - The Company has stock option plans that provide
     for stock-based employee compensation, including the granting of stock
     options, to certain key employees [See Note 12]. Prior to July 1, 2005, the
     Company applied APB Opinion No. 25, "Accounting for Stock Issued to
     Employees", and related Interpretations in accounting for awards made under
     the Company's stock-based compensation plans. Under this method,
     compensation expense was recorded on the date of grant only if the current
     market price of the underlying stock exceeded the exercise price.

     During the periods presented in the accompanying financial statements, the
     Company has granted options under its 2002 Stock Incentive Plan. The
     Company has adopted the provisions of SFAS No. 123R using the
     modified-prospective

                                    Continued

                                       10
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     transition method and the disclosures that follow are based on applying
     SFAS No. 123R. Under this transition method, compensation expense
     recognized during the year ended June 30, 2006 included: (a) compensation
     expense for all share-based awards granted prior to, but not yet vested as
     of July 1, 2005, and (b) compensation expense for all share-based awards
     granted on or after July 1, 2005. Accordingly, no compensation cost has
     been recognized for grants of options to employees and directors in the
     accompanying statements of operations with an associated recognized tax
     benefit of $0 of which $0 was capitalized as an asset for the period ended
     March 2007 and 2006 respectively. In accordance with the
     modified-prospective transition method, the Company's financial statements
     for the prior year have not been restated to reflect, and do not include,
     the impact of SFAS 123R. Had compensation cost for the Company's stock
     option plans and agreements been determined based on the fair value at the
     grant date for awards in 2005 consistent with the provisions of SFAS No.
     123R, the Company's net loss and basic net loss per common share would have
     been increased to the pro forma amounts indicated below:

                                                          March 31, 2006
                                                          ---------------

                  Net loss, as reported                   $     (857,519)
                  Add:  Stock-based employee
                    compensation expense included in
                    reported net loss                                 --
                  Deduct:  Total stock-based employee
                    compensation expense determined
                    under fair value based method                     --
                                                          ---------------

                  Net loss                                      (857,519)
                                                          ---------------

                  Loss per common share, as reported      $        (0.04)
                  Loss per common share, pro forma        $        (0.04)

     INCOME TAXES - The Company accounts for income taxes in accordance with
     Statement of Financial Accounting Standards No. 109, "Accounting for Income
     Taxes" [See Note 13].

     LOSS PER SHARE - The Company calculates loss per share in accordance with
     the Financial Accounting Standards Board issued Statement of Financial
     Accounting Standards (SFAS) No. 128 "Earnings Per Share." Basic loss per
     common share is based on the weighted average number of common shares
     outstanding during each period. Diluted earnings per common share when
     presented are based on shares

                                   Continued

                                       11
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     outstanding as computed under basic EPS and potentially dilutive common
     shares. Potential common shares included in the diluted earnings per share
     calculation include in-the-money stock options that have been granted but
     have not been exercised and convertible notes payable. [See Note 14]

     ACCOUNTING ESTIMATES - The preparation of financial statements in
     conformity with generally accepted accounting principles in the United
     States of America requires management to make estimates and assumptions
     that affect the reported amounts of assets and liabilities, the disclosures
     of contingent assets and liabilities at the date of the financial
     statements and the reported amount of revenues and expenses during the
     reported period. Actual results could differ from those estimated.

     FAIR VALUE OF FINANCIAL INSTRUMENTS -The fair value of the Company's
     accounts receivable, accounts payable, accrued liabilities, and notes
     payable approximate their carrying values based on their effective interest
     rates compared to current market prices for similar assets and liabilities.

     RECLASSIFICATION - The financial statements for the period ended prior to
     March 31, 2007 have been reclassified to conform to the headings and
     classifications used in the March 31, 2007 financial statements.

     RECENTLY ENACTED ACCOUNTING STANDARDS - In June 2006, the Financial
     Accounting Standards Board (FASB) issued Financial Interpretation No. (FIN)
     48, "Accounting for Uncertainty in Income Taxes," which clarifies the
     accounting for uncertainty in income taxes recognized in an enterprise's
     financial statements in accordance with SFAS No. 109, "Accounting for
     Income Taxes." The interpretation prescribes a recognition threshold and
     measurement attribute for the financial statement recognition and
     measurement of a tax position taken or expected to be taken in a tax
     return. The Company is required to adopt FIN 48 beginning in fiscal year
     2008 and the impact that the adoption of FIN 48 will have on its
     consolidated financial statements and notes thereto is expected to be
     immaterial.

     In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
     ("SFAS 157"), which establishes a framework for reporting fair value and
     expands disclosures about fair value measurements. SFAS 157 SFAS No. 158
     will have not have a material impact on the Company's financial statements.

     In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
     Defined Benefit Pension and Other Postretirement Plans, an amendment of
     FASB Statements No. 87, 88, 106 and 132(R)." SFAS No. 158 requires
     employers that

                                    Continued

                                       12
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


RECENTLY ENACTED ACCOUNTING STANDARDS (CONTINUED)

     sponsor defined benefit pension and postretirement benefit plans to
     recognize previously unrecognized actuarial losses and prior service costs
     in the statement of financial position and to recognize future changes in
     these amounts in the year in which changes occur through comprehensive
     income. As a result, the statement of financial position will reflect the
     funded status of those plans as an asset or liability. Additionally,
     employers are required to measure the funded status of a plan as of the
     date of its year-end statement of financial position. SFAS No. 158 will
     have no impact on the Company's financial statements.

NOTE 2   GOING CONCERN

     The accompanying financial statements have been prepared in conformity with
     generally accepted accounting principles of the United States of America,
     which contemplate continuation of the Company as a going concern. However,
     the Company has current liabilities in excess of current assets, incurred
     significant, recurring losses and has not generated positive cash flow from
     operating activities. These factors raise substantial doubt about the
     ability of the Company to continue as a going concern. In this regard,
     management is proposing to raise any necessary additional funds not
     provided by operations through loans or through additional sales of their
     common stock or through possible business combinations. There is no
     assurance that the Company will be successful in raising this additional
     capital or in achieving profitable operations. The financial statements do
     not include any adjustments that might result from the outcome of these
     uncertainties.


NOTE 3            INVENTORIES

     Inventories consist of the following at:

                                                     March 31,        June 30,
                                                       2007             2006
                                                   -----------      -----------

                  Raw Materials                    $    19,566      $    97,904
                  Finished Goods                     3,113,926        2,369,565
                  Allowance for obsolete / slow
                     moving inventory                  (25,000)         (25,000)
                  Warranty Reserve                      (7,791)              --
                                                   -----------      -----------

                                                   $ 3,100,701      $ 2,442,269
                                                   -----------      -----------

     Most of the Company's inventories are collateral on various notes payable
     [See Notes 7, 8, 9 and 10].


                                       13
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4   PROPERTY, PLANT AND EQUIPMENT

     Property and equipment consist of the following at:

<TABLE>
<S>     <C>
                                                          Estimated
                                                       Useful Lives of       March 31,            June 30,
                                                       Assets (Years)          2007                 2006
                                                       ---------------    ---------------     ---------------

         Office furniture and equipment                    1 - 10         $        78,325     $        78,944
         Retail furniture and equipment                    1 - 10                 643,989             613,113
         Leasehold Improvements                            1 - 10                  60,800                   -
         Farm equipment                                    2 - 15               2,353,403           2,540,857
         Buildings                                        20 - 30               1,401,356           1,394,278
         Land                                          not applicable             592,753             592,753
         Construction in Progress                      not applicable              33,622              15,539
                                                                          ---------------     ---------------
         Total                                                                  5,164,248           5,235,484
         Less accumulated depreciation                                           (854,928)           (524,834)
                                                                          ---------------     ---------------

         Property, Plant and Equipment, net                               $     4,309,320     $     4,710,650
                                                                          ---------------     ---------------
</TABLE>

     Depreciation expense for the nine months ended March 31, 2007 and 2006 was
     $94,583 and $24,601, respectively. All of the Company's property and
     equipment are collateral for certain notes payable [See Notes 7, 8, 9 and
     10].


NOTE 5   LAND HELD FOR RESALE

     FARM LAND - On December 21, 2005, the Company purchased a 119 acre parcel
     in Midland, Texas for $242,000. At March 31, 2007, the land is held as
     collateral on a note payable [See Note 9].

     COMMERCIAL PROPERTY - In 2005, the Company also purchased 7 acres of
     commercial property in San Angelo, Texas for $1,394,675. At March 31, 2007,
     the land is held as collateral on a note payable [See Note 9].


                                       14
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6   GOODWILL / DEFINITE-LIFE INTANGIBLE ASSETS

     The following is a summary of goodwill and definite-life intangible assets:

                                                  March 31,      June 30,
                                                    2007           2006
                                                 ---------      ---------
     GOODWILL
         Goodwill                                $ 150,000      $ 150,000
                                                 ---------      ---------
     DEFINITE-LIFE INTANGIBLE ASSETS
         5-year non-compete contract with
              note holder                           28,907         28,907
         5-year non-compete contract with
              shareholder                           28,907         28,907

         Less accumulated amortization             (52,108)       (44,324)
                                                 ---------      ---------

         Net Definite-Life Intangible Assets     $   5,706      $  13,490
                                                 ---------      ---------


     The Company estimates that its amortization expense will approximately be
     as follows for the twelve month periods ended:

                                                 Amortization
                         March 31,                  Expense
                       ------------              ------------
                           2007                      5,706
                        Thereafter                       -
                                                 ------------
                                                     5,706

     Definite Life Intangible Assets - The Company is amortizing their
     definite-life intangible assets on a straight-line basis over five years.
     Amortization expense of $7,784 and $8,672 was recorded for the nine months
     ended March 31, 2007 and 2006, respectively, and has been included in
     general and administrative expense.

     Goodwill - The Company recorded goodwill of $150,000 in connection with the
     acquisition of Profile Diagnostic Sciences, Inc. as the purchase price of
     $150,000 exceeds the $0 net book value of the assets acquired.


                                       15
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7   CONVERTIBLE NOTES PAYABLE

     The Company had the following convertible notes payable summarized in
     groups with similar attributes at:
<TABLE>
<S>     <C>
                                                                                       March 31,           June 30,
                                                                                         2007                2006
                                                                                     ------------        ------------
              12% Note payable, maturing in May to June 2007, convertible at
                 $.65 per share for the first twelve months and $.75 per share
                 for the second twelve
                 months, secured by UCC-1 lien against inventory                          270,000            270,000

              12% Note Payable, maturing in February 2007,
                 convertible at $.30 per share through February
                 2007, secured by UCC-1 lien against inventory                             28,000             228,000

              12% Note Payable, maturing in June to October 2007, convertible at
                 $.65 per share for the first twelve months and $.75 per share
                 for the second twelve
                 months, secured by UCC-1 lien against inventory                          625,000            750,000

              12% Note payable, maturing in October 2007 to May 2008,
                 convertible at $.95 per share for the first twelve months and
                 $1.05 for the second twelve
                 months, secured by UCC-1 lien against inventory                          402,500            452,500

              15% Note Payable, maturing in 2007, convertible at $.30 per share
                 (At the time of conversion, the creditor can require the
                 Company to redeem any amount of the shares in the conversion at
                 $.345 per share), secured by a lien using a Trust Deed and
                 Trust Deed Note, against Major Trees, a lien using a Trust Deed
                 and Trust Deed Note, against Major Trees, TX, and a term life
                 insurance policy on two officers
                 of the Company                                                           409,649             370,125

              12% Note payable, maturing in January 2008, convertible at $.95
                 per share for the first twelve months and $1.10 for the second
                 twelve months,
                 secured by A UCC-1 lien against inventory                                200,000             200,000

              12% Note payable, maturing in March 2008, convertible at $.95 per
                 share for the first twelve months and $1.10 for the second
                 twelve months,

                                                      Continued

                                                         16
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7   CONVERTIBLE NOTES PAYABLE (CONTINUED)

                 secured by 119.47 acres in Midland, TX; refinanced
                 March 2007; 9% Note payable, maturing April
                 2012; monthly payments of $1,928.29.                                     214,319             225,656

              12% Note payable, maturing in January 2008, convertible at $.95
                 per share for the first twelve months and $1.10 for the second
                 twelve months,
                 secured by A UCC-1 lien against inventory                                150,000                  --
                                                                                     ------------        ------------
              Total                                                                     2,299,468           2,496,281
              Less Current Portion                                                     (1,815,149)           (918,125)
                                                                                     ------------        ------------

                                                                                     $    484,319        $  1,578,156
                                                                                     ------------        ------------
</TABLE>

          The convertible notes payable mature as follows for the twelve-month
          periods ended:

                                                            Principle
                                March 31,                      Due
                              ------------               --------------

                                  2008                   $    1,815,149
                                  2009                          274,234
                                  2010                            4,631
                                  2011                            5,064
                                  2012                            5,540
                               Thereafter                       194,850
                                                         --------------
                                                         $    2,299,468
                                                         --------------

     The discounts due to the beneficial conversion feature of the notes are
     being amortized over the term of the respective notes. For the nine months
     ended March 31, 2007 and 2006, the Company amortized $0 and $18,691,
     respectively, for the discounts on notes payable as interest expense.

     At March 31, 2007, the Company had a total of $10,245 in loan fees and
     costs from establishing these convertible notes payable. These costs have
     been deferred and are being amortized over the term of the respective
     notes. For the nine months ended March 31, 2007, the Company amortized
     $29,232 of the deferred loan costs as interest expense.

                                    Continued

                                       17
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7   CONVERTIBLE NOTES PAYABLE (CONTINUED)

     For the nine months ended March 31, 2007 and 2006, interest expense on the
     convertible notes payable amounted to $238,062 and $181,697, respectively.

NOTE 8   RELATED PARTY CONVERTIBLE NOTES PAYABLE

     The Company had the following related party convertible notes payable
     summarized in groups with similar attributes due to shareholders of the
     Company at:
<TABLE>
<S>     <C>
                                                                                      March 31,           June 30,
                                                                                        2007                2006
                                                                                    -------------       -------------
              12% Notes payable, maturing in 2007, convertible at
                 $.30 per share through February 2007, secured by
                 UCC-1 lien against inventory                                       $     100,000       $     100,000

              12% Notes payable, maturing in 2008, convertible at $.65 per share
                 for the first twelve months and $.75 per share for the second
                 twelve months, secured by
                 UCC-1 lien against inventory                                              50,000              50,000

              12% Notes payable, maturing in 2007, convertible at
                 $.30 per share through February 2007, secured by
                 inventory                                                                      -             100,000

              12% Notes Payable, maturing in 2008, convertible
                 at $.70 per share through January 31, 2008,
                 secured by TLC's  building and land in Midland, TX                       450,000             450,000
                                                                                    -------------       -------------
              Total                                                                       600,000             700,000
              Less Current Portion                                                       (600,000)           (150,000)
                                                                                    -------------       -------------
                                                                                    $           -       $     550,000
                                                                                    -------------       -------------
</TABLE>

     The related party convertible notes payable mature as follows for the
twelve-month periods ended:

                                                  Principle
                       March 31,                     Due
                     ------------               --------------
                         2008                   $      600,000
                      Thereafter                             -
                                                --------------
                                                $      600,000
                                                --------------

                                    Continued

                                       18
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8   RELATED PARTY CONVERTIBLE NOTES PAYABLE (CONTINUED)

     The discounts due to the beneficial conversion feature of the notes are
     being amortized over the term of the respective notes. For the nine months
     ended March 31, 2007 and 2006, the Company amortized $938 and $3,616,
     respectively, of the discounts on notes payable as interest expense.

     At March 31, 2007, the Company had a total of $0 in loan fees and costs
     from establishing these convertible notes payable. These costs have been
     deferred and are being amortized over the term of the respective notes. For
     the nine months ended March 31, 2007 and 2006, the Company amortized $229
     and $1,375 respectively, of the deferred loan costs as interest expense.

     For the nine months ended March 31, 2007 and 2006, interest expense on the
     related party convertible notes payable amounted to $52,035 and $32,284,
     respectively.

NOTE 9   NOTES PAYABLE

     The Company had the following notes payable summarized in groups with
     similar attributes at:

<TABLE>
<S>     <C>
                                                                                      March 31,           June 30,
                                                                                        2007                2006
                                                                                    -------------       -------------

              7% Notes payable, yearly payments of $50,000, mature in 2007,
                 secured by Major Tree's outstanding shares of capital stock,
                 financial
                 books and records, equipment, and furniture                        $      77,150       $      77,150

              Unsecured 6% Notes payable, maturing
                 2007                                                                      15,730              21,200

              24% Notes payable, maturity extended to August
                15, 2006, beginning balance of $200,000
                secured by land. Security was released upon
                principle payment of $144,000 in June  2006                                     -              56,000

              24% Notes payable, maturing December 15, 2006
                secured by land; extended month to month on
                December 1, 2006.                                                         200,000             147,500

              14% Notes payable maturing in 2006, secured by MT
                 Subsidiary's land in Cochise County, AZ. Verbally
                 extended to monthly                                                      332,007             280,646


                                                      Continued

                                                          19
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9   NOTES PAYABLE (CONTINUED)

              14% Notes payable, maturing in 2007, secured by the property of an
                 officer in Clark County, Nevada. In September 2005 an officer
                 of the Company paid $72,169 in behalf of the Company and the
                 lien on the property was released by the holder
                 of the note                                                              114,421              99,851

              12% Notes payable, balloon payment due upon
                 maturity, matures in 2007, secured by inventory                                -              85,577

              6.75% Note payable, monthly payments of
                 $3,355, matures in 2021, secured by TLC's building
                 and land                                                                 363,955             376,632

              7% Note payable, monthly payments of $1,370,
                 mature in 2008, secured by S&S' land and office
                 building                                                                 124,848             129,551

              24% Notes payable, maturing November 2006,
                 unsecured.                                                                     -                   -

              24% Notes payable, maturing December 2006,
                 unsecured.                                                                60,000                   -

              24% Notes payable, maturing January 2007,
                 unsecured.                                                                80,000                   -

              24% Notes payable, maturing December 2006,
                 unsecured.                                                                30,000                   -

              24% Notes payable, maturing January 2007,
                 unsecured.                                                                50,000                   -

              24% Notes payable, maturing August 2007,
                 unsecured.                                                                25,000                   -

              24% Notes payable, maturing September 2007,
                 unsecured.                                                               100,000                   -

              9% Notes payable, maturing September 2007,
                 unsecured.                                                               146,170                   -


                                                      Continued

                                                         20
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9   NOTES PAYABLE (CONTINUED)

              12% Notes payable, maturing September 2008,
                 unsecured.                                                                73,660                   -

              Interest rate will be 6% note payable until July 1, 2006.
                Beginning July 1, 2006, interest will accrue at the rate per
                year that will be the lesser of .5% in excess of the Prime
                Interest Rate as published by the Wall Street Journal; or the
                maximum nonusurious rate of interest permitted by applicable
                law. Beginning January 2007, monthly payments necessary to
                amortize the balance over a period ending July 2015 will be
                required. The note matures on July 1, 2010 when the balance will
                be due. Note is secured by land in San Angelo, TX which is held
                for resale. Extension of interest only through
                January 2007.                                                           1,166,319           1,166,319
                                                                                    -------------       -------------
              Total                                                                     2,959,260           2,440,426
              Less Current Portion                                                     (1,579,139)           (940,272)
                                                                                    -------------       -------------
                                                                                    $   1,380,121       $   1,500,154
                                                                                    -------------       -------------

     The notes payable mature as follows for the twelve-month periods ended:

                                                  Principle
                       March 31,                     Due
                     ------------               --------------

                        2008                    $    1,579,139
                        2009                           233,718
                        2010                           193,714
                        2011                           660,947
                        2012                            21,301
                     Thereafter                        270,441
                                                --------------
                                                $    2,959,260
                                                --------------

     At March 31, 2007, the Company had a total of $0 in loan fees and costs
     from establishing these notes payable. These costs have been deferred and
     are being amortized over the term of the respective notes. For the nine
     months ended March 31, 2007, the Company amortized $11,653 of the deferred
     loan costs as interest expense.

     For the nine months ended March 31, 2007 and 2006, interest expense on the
     notes payable amounted to $252,079 and $128,575, respectively.


                                       21
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10  RELATED PARTY NOTES PAYABLE

     The Company had the following related party notes payable summarized in
     groups with similar attributes due to shareholders of the Company at:

                                                                                      March 31,           June 30,
                                                                                        2007                2006
                                                                                    -------------       -------------
              7% Note payable, yearly payments of $75,000,
                 maturing in 2009, secured by Major Tree's
                 farmland, buildings, and equipment                                 $     194,292       $     201,081

              8% Note payable, monthly payments of $2,500,
                 maturing in 2009, secured by land and inventory                          264,760             271,198

               7% Note payable, quarterly payments of $11,660 through March
                 2007, quarterly payments of $13,527 from March 2007 through
                 March 2009, quarterly payments of $15,483 from March 2009
                 through March 2010, matures in 2010, secured by all of the
                 issued and outstanding shares of S&S Plant Farm, Inc.'s capital
                 stock; refinanced March 2007                                                   -             367,282

              12% Note payable, quarterly interest
                 payments beginning April 2006,  maturing
                 January 10, 2007, unsecured; refinanced March 2007                             -             100,000

              24% Notes payable, maturing June 2007,
                 unsecured.                                                                25,000                   -

              10% Note payable, maturing in 2007, secured by
                 UCC-1 lien against inventory, net discount for
                 options issued of $0 and $938                                             50,000              49,062

              12% Notes payable, balloon payment due upon
                 maturity, mature in 2007, secured by inventory                            50,000              50,000

              24% Notes payable, balloon payments due upon
                 maturity, mature in 2008, unsecured.                                      10,000                   -


                                                       Continued

                                                          22
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10  RELATED PARTY NOTES PAYABLE (CONTINUED)

              8% Note payable, payments of $20,000 in April,
               May & June; monthly payments of $3,500 July 2007 through June
                 2009, matures July 2009, secured by all of the issued and
                 outstanding
                 shares of S&S Plant Farm, Inc.'s capital stock.                          194,289                   -
                                                                                    -------------       -------------
              Total                                                                       788,341           1,038,623
              Less Current Portion                                                       (300,000)           (266,863)
                                                                                    -------------       -------------
                                                                                    $     488,341       $     771,760
                                                                                    -------------       -------------

     At March 31, 2007, the Company had a total of $0 in loan fees and costs
     from establishing these notes payable. For the three months ended March 31,
     2007 and 2006, the Company amortized $0 and $2,063, respectively, of the
     deferred loan costs as interest expense.

     For the nine months ended March 31, 2007 and 2006, interest expense on the
     related party notes payable amounted to $85,859 and $62,198, respectively.

     The notes payable mature as follows for the twelve-month periods ended:

                                                  Principle
                       March 31,                     Due
                     ------------               --------------

                        2008                    $      300,000
                        2009                           165,000
                        2010                           323,341
                     Thereafter                              -
                                                --------------
                                                $      788,341
                                                --------------

     The discounts due to the options issued with the notes are being amortized
     over the term of the respective notes. For the nine months ended March 31,
     2007 and 2006, the Company amortized $938 and $5,424, respectively, of the
     discounts on notes payable as interest expense.


                                       23
</TABLE>
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11  CAPITAL LEASES OBLIGATION

     The Company leases equipment under capital leases that expire on October
     2009 and July through November 2010. The gross amount of assets recorded
     under capital leases and the associated accumulated depreciation are
     included under property and equipment and are as follows:

                                                                   March 31,
                                                                      2007
                                                                ---------------

         Farm equipment                                         $       360,181
                                                                ---------------
         Total                                                          360,181
         Less accumulated depreciation                                 (113,784)
                                                                ---------------

         Net Leased Equipment                                   $       246,397
                                                                ---------------

     The Company amortizes its lease obligations over the term of each lease.
     Amortization expense was $70,515 for the nine months ended March 31, 2007.

     The future minimum lease payments are as follows for the twelve-month
periods ended:

                              Amortization
                                March 31,                       Amount Due
                              ------------                    --------------
                                  2008                        $       97,630
                                  2009                                97,630
                                  2010                                92,901
                                  2011                                53,019
                               Thereafter                                  -
                                                              --------------
                  Total minimum obligations                          341,180
                  Executory costs and interest                      (63,156)
                                                              --------------
                  PV of minimum obligations                          278,024
                  Current portion                                  (76,561)
                                                              --------------
                  Long-term obligations                       $      201,463
                                                              --------------


                                       24
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12  CAPITAL STOCK AND OPTIONS

     PREFERRED STOCK - In October 2004, Parent amended its articles of
     incorporation to authorize 10,000,000 shares of preferred stock, $.001 par
     value, with such rights, preferences and designations and to be issued in
     such series as determined by the Board of Directors. At March 31, 2007 and
     June 30, 2006, no preferred shares were issued and outstanding.

     COMMON STOCK - In January 2007, the Company issued 90,909 shares of their
     previously authorized but unissued common stock for the conversion of a
     $50,000 note payable, or $0.55 per share.

     In January 2007, the Company issued 45,455 shares of their previously
     authorized but unissued common stock for cash of $25,000, or $0.55 per
     share.

     Between January 2007 and March 2007, the Company issued 3,451,922 shares of
     their previously authorized but unissued common stock for the conversion of
     $1,035,577 in notes payable, or $0.30 per share and 29,073 shares of their
     previously authorized but unissued common stock for the conversion of
     $8,722 in interest expense, or $0.30 per share. The Company recorded an
     additional $342,568 in non cash, stock conversion fees for adjusting the
     conversion price from between $0.95-$0.55 to between $0.55-$0.30 per share.

     In March 2007, the Company issued 560,000 shares of their previously
     authorized but unissued common stock for the conversion of $140,000 in
     notes payable, or $0.25 per share. The Company recorded an additional
     $116,667 in non cash, stock conversion fees for adjusting the conversion
     price from $0.55 to $0.25 per share.

     In November 2006, the Company issued 100,000 shares of their previously
     authorized but unissued common stock for the signing of a lease with a
     two-year buyout to purchase the Odessa, TX location, stock valued at
     $55,000, or $0.55 per share.

     In November 2006, the Company issued 50,000 shares of their previously
     authorized but unissued common stock for interest expense of $27,500, or
     $0.55 per share.

     In October 2006, the Company issued 58,182 shares of their previously
     authorized but unissued common stock for cash of $32,000, or $0.55 per
     share.

     In October 2006, the Company issued 8,572 shares of their previously
     authorized but unissued common stock for a reduction in private placement
     value of stock valued at $4,715 or $0.55 per share.


                                    Continued

                                       25
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 CAPITAL STOCK AND OPTIONS (CONTINUED)

     In September 2006, the Company issued 45,714 shares of their previously
     authorized but unissued common stock for cash of $32,000, or $.70 per share

     In March and June 2006, the Company issued 59,286 shares of their
     previously authorized but unissued common stock for services and supplies
     valued at $41,500 or $.70 per share.

     In April 2006, the Company issued 35,715 shares of their previously
     authorized but unissued common stock for cash of $25,000, or $.70 per
     share.

     In March 2006, the Company issued 15,000 shares of their previously
     authorized but unissued common stock for services and supplies valued at
     $10,500 or $.70 per share.

     In February and March 2006, the Company issued 142,860 shares of their
     previously authorized but unissued common stock for cash of $100,000, or
     $.70 per share.

     In January 2006, the Company issued 50,000 shares of their previously
     authorized but unissued common stock for employee services rendered valued
     at $35,000 or $.70 per share.

     In December 2005, the Company issued 666,667 shares of their previously
     authorized but unissued common stock for the conversion of $200,000 note
     payable, or $.30 per share.

     In December 2005, the Company issued 308,921 shares of their previously
     authorized but unissued common stock for the conversion of $75,000 note
     payable and $2,230 interest, or $.25 per share. The Company recorded an
     additional $55,117 in interest for the adjusting the conversion price to
     $0.25 per share. In December 2005, the Company issued 116,407 shares of
     their previously authorized but unissued common stock for the conversion of
     $25,000 note payable and $110 interest, or $.22 per share. The Company
     recorded an additional $45,632 in interest for the adjusting the conversion
     price to $0.22 per share.

     In November 2005, the Company issued 35,714 shares of their previously
     authorized but unissued common stock for cash of $25,000, or $.70 per share

     In August 2005, the Company issued 5,000 shares of their previously
     authorized but unissued common stock for the exercise of options at $.30
     per share.


                                    Continued

                                       26
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 CAPITAL STOCK AND OPTIONS (CONTINUED)

     SUBSCRIPTION RECEIVABLE - During Fiscal 2006, the Company received cash of
     $233,977 in payment of subscriptions receivable due from officers of the
     Company. Also during 2006, the Company received 408,296 common shares
     valued at $0.88 per share in payment of $359,300 in subscriptions
     receivable from officers of the Company. The 408,296 common shares were
     held in treasury until canceled during June 2006.

     STOCK OPTION PLAN - In October 2002, the Company's Board of Directors
     approved and adopted the "2002 Stock Incentive Plan" ("the Plan") with a
     maximum of 8,000,000 shares of common stock reserved for issuance under the
     Plan. The Plan provides for both the direct award of shares and for the
     grant of options to purchase shares to employees, officers, directors,
     agents, consultants, advisors and independent contractors. Awards under the
     Plan will be granted as determined by the Board of Directors and the Board
     of Directors shall determine which eligible persons are to receive
     Incentive Stock Options, Non-Statutory Stock Options or stock issuances.
     The Board of Directors also sets the number of shares, the exercise price
     and the exercise terms for grants. Options granted to non-exempt employees
     are required to have an exercise price of at least 85% of the fair market
     value of the common stock at the time of grant. Incentive Stock Options
     must be granted with an exercise price of at least 100% (110% for
     shareholders who own at least 10% of the Company's outstanding stock) of
     the fair market value of the common stock at the time of grant. Incentive
     Stock Options are required to expire within 10 years. At March 31, 2007 and
     2006, total awards available to be granted from the plan amounted to
     3,150,000 and 3,150,000, respectively.

     The fair value of each of the Company's stock option awards is estimated on
     the date of grant using a Black-Scholes option-pricing model that uses the
     assumptions noted in the table below. The fair value of the Company's Stock
     Option awards is expensed on a graded vesting straight-line basis over the
     vesting period of the options, which is generally immediate. Expected
     volatility is based on an average of historical volatility of the Company's
     stock. The risk-free interest rate for periods within the contractual life
     of the stock option award is based on the yield curve of a zero-coupon U.S.
     Treasury bond on the date the award is granted with a maturity equal to the
     expected term of the award. The expected term of awards granted is derived
     from historical experience under the Company's stock-based compensation
     plans and represents the period of time that awards granted are expected to
     be outstanding.


                                    Continued

                                       27
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12  CAPITAL STOCK AND OPTIONS (CONTINUED)

     A summary of the status of options granted at March 31, 2007, and changes
     during the period then ended are as follows:
<TABLE>
<S>     <C>
                                                                  For the Nine Months Ended
                                                                        March 31, 2007
------------------------------------------------------------------------------------------------------------------
                                                                  Weighted       Weighted Average      Aggregate
                                                                   Average          Remaining          Intrinsic
                                                       Shares   Exercise Price    Contractual Term       Value
------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of period                     845,000  $         0.25           4.43 years      $253,500
Granted                                                      -               -
Exercised                                                    -               -
Forfeited                                                                    -
Expired                                              (300,000)               -

Outstanding at end of period                           545,000  $         0.23           6.55 years      $176,250


Vested and expected to vest in the future              545,000  $         0.23           6.55 years      $176,250

Exercisable at end of period                           545,000  $         0.23           6.55 years      $176,250

Weighted average fair value of options
granted                                                      -  $            -
------------------------------------------------------------------------------------------------------------------
</TABLE>

     The Company had no non vested options at the beginning of the period. At
     March 31, 2007 the Company had no non vested options resulting in no
     unrecognized compensation expense.

     The total intrinsic value of options exercised during the nine months ended
     March 31, 2007 and 2006 was $0 and $2,000 respectively. Intrinsic value is
     measured using the fair market value at the date of exercise (for shares
     exercised) or at March 31, 2007 and 2006 (for outstanding options), less
     the applicable exercise price.

     During the nine months ended March 31, 2007 and 2006, the Company received
     cash of $0 and $1,500 and recorded a subscription receivable of $0 and $0
     upon the exercise of awards. The Company realized no tax benefit due to the
     exercise of options as the Company had a loss for the period and historical
     net operating loss carry forwards.

     Common shares issued upon exercise of options are issued from available
     authorized but unissued common shares. As of March 31, 2007, the Company
     has no plans to repurchase common shares issued upon exercise of options.

                                    Continued

                                       28
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12  CAPITAL STOCK AND OPTIONS (CONTINUED)

     A summary of the status of stock options outstanding at March 31, 2007 is
presented below:
<TABLE>
<S>     <C>
                                     Options Outstanding                              Options Exercisable
--------------------------------------------------------------------------------------------------------------------
                                     Weighted Average
  Range of              Number          Remaining         Weighted Average        Number        Weighted Average
Exercise Prices      Outstanding      Contractual Life     Exercise Price       Exercisable      Exercise Price
--------------------------------------------------------------------------------------------------------------------
     $ 0.10            200,000            5.59 years     $       0.10             200,000      $       0.10
       0.30            345,000            6.80 years             0.30             345,000              0.30
-----------------  -----------------  -------------------  ------------------ -----------------  ------------------
   $0.10-0.30          545,000            6.55 years     $       0.23             545,000      $       0.23
-----------------  -----------------  -------------------  ------------------ -----------------  ------------------
</TABLE>

NOTE 13  INCOME TAXES

     The Company accounts for income taxes in accordance with Statement of
     Financial Accounting Standards No. 109, "Accounting for Income Taxes".
     Which requires the Company to provide a net deferred tax asset or liability
     equal to the expected future tax benefit or expense of temporary reporting
     differences between book and tax accounting methods and any available
     operating loss or tax credit carryforwards.

     At March 31, 2007 and June 30, 2006, the total of all deferred tax assets
     is approximately $658,000 and $804,000 and the total of all deferred tax
     liabilities is $191,000 and $191,000. The amount of and ultimate
     realization of the benefits from the deferred tax assets is dependent, in
     part, upon the tax laws in effect, the future earnings of the Company, and
     other future events, the effects of which cannot be determined. Because of
     these uncertainties surrounding the realization of the NOL carryforwards,
     the Company has established a valuation allowance of approximately $722,000
     and $613,000 at March 31, 2007 and June 30, 2006. The change in the
     valuation allowance for the nine months ended March 31, 2007 was
     approximately $27,000.

     At March 31, 2007 and June 30, 2006, the Company has available unused net
     operating loss carryforwards of approximately $4,550,877 and $3,725,141
     respectively, which may be applied against future taxable income and which
     expire in various years through 2027. Also, the Company has unused capital
     loss carryovers at March 31, 2007 and June 30, 2006 of approximately
     $83,812 and $83,812, respectively, which expire in various years through
     2011.


                                       29
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14  LOSS PER SHARE

     The following data shows the amounts used in computing loss per share:

<TABLE>
<S>     <C>
                                                   For the Three Months              For the Nine Months
                                                      Ended March 31,                   Ended March 31,
                                             ------------------------------      ------------------------------
                                                 2007              2006              2007              2006
                                             ------------      ------------      ------------      ------------
     Loss from operations available to
     common shareholders (numerator)         $   (825,736)     $   (431,331)     $ (1,599,086)     $   (857,519)
                                             ------------      ------------      ------------      ------------

     Weighted average number of common
     shares outstanding used in loss per
     share for the period (denominator)        25,485,062        23,171,832        24,949,435        23,479,928
                                             ------------      ------------      ------------      ------------
</TABLE>

     At March 31, 2007, the Company had outstanding options to purchase 545,000
     shares and notes payable convertible into 5,021,405 shares which were not
     used in the computation of loss per share because their effect would be
     anti-dilutive. At March 31, 2006, the Company had outstanding options for
     850,000 shares and notes payable convertible into 5,890,370 shares which
     were not used in the computation of loss per share because their effect
     would be anti-dilutive

NOTE 15  RELATED PARTY TRANSACTIONS

     RELATED PARTY ADVANCES - During the nine months ended March 31, 2007 and
     2006, officers/shareholders of the Company and their relatives have made
     advances to the Company and the Company has repaid the advances as funds
     have been available. During the nine months ended March 31, 2007
     officers/shareholders of the Company and their relatives made advances and
     held paychecks totaling $111,633 and the company repaid advances totaling
     $58,186. Since the Company owed $184,380 from prior-year advances, the
     remaining balance owed to the officers/shareholders of the Company and
     their relatives at March 31, 2007 is $237,827.

     During the year ended June 30, 2006, officers/shareholders of the Company
     and their relatives have made advances to the Company and the Company has
     repaid the advances as funds have been available. During the year ended
     June 30, 2006, officers/shareholders of the Company and their relatives
     made advances totaling $244,853 and the company repaid advances totaling
     $65,618. Since the Company owed $5,144 from prior-year advances, the
     remaining balance owed to the officers/shareholders of the Company and
     their relatives at June 30, 2006 is $184,380.


                                       30
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16  CONCENTRATIONS

     ACCOUNTS RECEIVABLE - At March 31, 2007, 31.7% of the Company's accounts
     receivable was owed by two customers. At June 30, 2006, 41% of the
     Company's accounts receivable was owed by three customers. The following
     table lists the percent of the receivables owed by those customers that
     accounted for 10% or more of the total accounts receivable at March 31,
     2007 and June 30, 2006 respectively:

                                      March 31, 2007      June 30, 2006
                                      --------------      -------------
              Customer A                   18%                  14%
              Customer B                   14%                    *
              Customer C                     *                  14%
              Customer D                     *                  10%

                    * Customer did not account for 10% or more of total accounts
                    receivable

     REVENUES - During the three month period ended March 2007 and 2006
     respectively, the Company had a significant customer which accounted for
     30% and 18% of the Company's total sales. The loss of this significant
     customer could adversely affect the Company's business and financial
     condition.

     During the nine months ended March 2007 and 2006, respectively, the Company
     had a significant customer which accounted for 17% and 44% of the Company's
     total sales. The loss of this significant customer could adversely affect
     the Company's business and financial condition.

     Our revenue increased in the three and nine month periods ended March 2007
     due to the addition of sales from Texas Landscape Center in Midland and one
     month's worth of sales from the Texas Landscape Center in Odessa.

     Cost of goods sold increased during the three month period ended March 31,
     2007 due to higher sales and decreased in the nine month period ended March
     31, 2006 due to the cessation of the low margin sales at S&S Plant Farm.
     Cost of goods sold as a percentage of sales remained relatively unchanged
     at 46% for the three month period ended March 31, 2007 and decreased from
     70% to 50% respectively during the nine month period ended March 2007 and
     2006. Cost of Goods Sold as a percentage of sales has decreased as a result
     of eliminating low margin sales at S&S Plant Farm and having higher margins
     sales at the Texas Landscape Centers.


                                       31
<PAGE>

                          PENGE CORP. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 17  COMMITMENTS AND CONTINGENCIES

     DERIVATIVE LIABILITY FOR THE REDEMPTION OF COMMON STOCK - The Company has a
     convertible note payable which is convertible into common stock at $.30 per
     share. At the time of conversion, the creditor can require the Company to
     redeem any amount of the shares issued in the conversion at $.345 per
     share. At March 31, 2007, the Company owed $411,215 in principal and
     $15,808 in accrued interest on the note. If the note had been converted
     into stock on March 31, 2007, then the Company would have issued 1,423,408
     shares of common stock which would have been redeemable at the creditor's
     option for $491,076. The Company has recorded a remaining contingent
     derivative liability of $1,807 associated with the option.

NOTE 18  SUBSEQUENT EVENTS

     On May 2, 2007, Penge Corp (the "Company"), disposed of the approximately
     7-acre commercial property in San Angelo, Texas by returning the parcel to
     the note holder, the San Angelo Banking Center, the First National Bank of
     Sonora, Texas. The note had a principal balance of $1,166,319 and an
     interest balance of $55,149 for a total of $1,221,468 as of May 2, 2007.
     The book value of the asset was $1,394,675 as of May 2, 2007 which amounts
     to an approximately $173,207 loss on disposal.


                                       32
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


FORWARD-LOOKING STATEMENTS

         This Quarterly Report on Form 10-QSB (this "Report") contains various
forward-looking statements. Such statements can be identified by the use of the
forward-looking words "anticipate," "estimate," "project," "likely," "believe,"
"intend," "expect" or similar words. These statements discuss future
expectations, contain projections regarding future developments, operations, or
financial conditions, or state other forward-looking information. When
considering such forward-looking statements, you should keep in mind the risk
factors noted in the subsection titled "Risk Factors" below and other cautionary
statements throughout this Report and our other filings with the SEC. You should
also keep in mind that all forward-looking statements are based on management's
existing beliefs about present and future events outside of management's control
and on assumptions that may prove to be incorrect. If one or more risks
identified in this Report or any other applicable filings materializes, or any
other underlying assumptions prove incorrect, our actual results may vary
materially from those anticipated, estimated, projected, or intended.


OVERVIEW
--------

         Penge Corp is a Delaware corporation incorporated in 1987 with its
principal offices at 1501 North Fairgrounds, Midland, Texas 79705. Our telephone
number is (432) 683-8800. We are in the wholesale and retail nursery business.
Our stock is traded on the OTC Pink Sheets under the symbol "PNGC."

         Our operations are directly or indirectly run through a subsidiary,
Penge Corp, a Nevada corporation ("Penge Nevada"), which was organized in 2002
to engage in the nursery business. On June 30, 2005, Penge Nevada merged with a
subsidiary of Profile Diagnostic Sciences, Inc., a Delaware corporation with no
current operations. Following the merger, the officers and directors of Penge
Nevada became the officers and directors of Profile Diagnostic Sciences, Inc.
and the business Penge Nevada and its affiliates became the business of Profile
Diagnostic Sciences, Inc. Following the merger, we changed the name of Profile
Diagnostic Sciences, Inc. to "Penge Corp" Unless otherwise specified, references
to "Penge," "we," "us" or the "company" for periods prior to June 30, 2005
relate to Penge Nevada and its affiliates. For periods from and after June 30,
2005, those descriptions relate to Penge Corp (f/k/a Profile Diagnostic
Sciences, Inc.) and its affiliates, including Penge Nevada.

         Since commencing business in August 2002, we have acquired the land and
certain other assets from three tree, shrub and plant farms, one of which is in
Arizona and two of which are in Texas. As we have acquired the properties, we
have taken steps to improve operations and to expand the number of trees, shrubs
and plants growing on, and harvested from, each such property.

         In October 2005, we purchased a vacant 13,000 square foot building on
3.8 acres in Midland, Texas for the site of our first retail nursery. We
completed a $951,000 dollar conversion of the property including a complete
remodel of the building and the addition of 32,000 square feet of greenhouse and
40,000 feet of tree display area. Going forward, both our wholesale and retail
business will be done at this retail center and any future retail centers.

         In December 2006, we entered into a Commercial Lease Agreement with
Marrs & Smith, Ltd., with respect to commercial property located in at 2600
Andres Highway, Odessa, Texas. The primary term of the lease is approximately
two (2) years, and our base rent under the lease is $4,000 per month. The
property is expected to be used primarily for a landscape center and nursery.

         In connection with the lease, we also entered into a Contract of Sale
with Marrs & Smith, Ltd. for the purchase of the property underlying the lease.
The purchase price for the property is $861,704.33, subject to discount if we
close the transaction prior to December 1, 2008. The closing date of the
transaction must be on or after December 1, 2007, but before December 1, 2008.
We also issued 100,000 shares of common stock to Marrs & Smith, Ltd. in
connection with this agreement.

         Going forward, our focus will be to create and to expand a vertically
integrated wholesale and retail nursery business. We expect that our tree, shrub
and plant farms will be able to provide a substantial portion of the inventories
for our recently opened and planned retail nurseries in the coming years. By
owning the tree, shrub and plant farms that provide much of the inventory for


                                       33
<PAGE>

the retail nurseries, we believe that we will be able to compete with, and even
undercut, the "big box stores" that have become the dominant force in the retail
nursery business. These big box stores have been driving many retail nurseries
out of business by buying nursery materials in large quantities at big discounts
from wholesale nursery growers in the United States. This allows them to sell at
a discount using smaller margins and to undercut the small nurseries by 30% to
50%. We believe that our vertically integrated wholesale/retail nursery business
model will allow us to compete with the big box stores on price, while providing
better selection and service.

         For our wholesale business, our goal is to expand the number of trees
and shrubs planted on our farms in the next few years while holding down
increases in our administrative and other general operating expenses. As we
spread our production costs over a larger inventory, we also hope to experience
a decline in our per-unit production and sales costs. We do not plan to expand
our wholesale sales. Instead, we plan to provide most of what we grow to our
retail centers.


GENERAL OUTLOOK
---------------

OUR INDUSTRY AND WHOLESALE/RETAIL BUSINESS MODEL

         The retail nursery business has been under attack for many years from
Home Depot, Lowe's and Wal-Mart. These big box stores buy nursery materials in
large quantities at big discounts from wholesale nursery growers. This allows
them to sell at a discount, using smaller margins, and to undercut the small
nurseries by 30%-50%. Small nurseries generally cannot compete on price and so
they try to compete by offering better service, better selection, and
convenience. Although this approach has worked for some small nurseries, it has
not worked for most of them, and a large number of small nurseries have gone out
of business in the last 10 years primarily because they are unable to compete on
price with the big box stores.

         In the last 5 years, a new model has emerged in the nursery industry
that we believe is able to compete effectively with the big box stores. This
model requires a retail nursery to grow a substantial percentage its own plant
material (trees, shrubs, and flowers) instead of buying them from a wholesale
grower. It is capital intensive for a retail nursery to grow its own products
and it takes from 3-5 years to grow its initial inventory. But, once the model
is in place, it can allow the retail nursery to offer products at prices that
are comparable to those of the big box stores, while continuing to offer a level
of selection and service that the big box stores can not offer.

         Over the last 4 years, we have purchased wholesale operations growing
trees, shrubs, and flowers and plan to continue to open retail operations in
addition to our Midland, Texas retail nursery. We believe that this new hybrid
retail/wholesale nursery business model will enable us to increase sales and
create and sustain a profitable operation. We also believe that the competition
in Texas and surrounding areas has not switched over to the new model, which
should give us at least a 3 - 5 year head start on rolling out the model in this
region.

Our Wholesale Business
----------------------

         We currently own three wholesale nursery operations in Texas and
Arizona. At the end of 2002, we purchased a 272-acre tree farm near Tucson,
Arizona known as "Major Trees" and now referred to as our Major Trees Tucson
Farm. In May of 2004, we acquired a 17-acre of farming property near Houston
Texas on which we have established a wholesale operation and which we refer to
as our Major Trees Houston Farm. In 2005, we purchased the S&S Plant Farm in
Midland, Texas which specializes in plants and flowers. This last farm is a
50-acre property with 8 acres under greenhouse and shade house, and a full
complement of equipment and machinery for propagating trees, shrubs, plants and
flowers from seeds and plugs.

         We now have hundreds of thousands of trees and shrubs planted on the
three wholesale farms, and enough infrastructure and equipment to grow trees,
shrubs, and flowers for multiple locations in west Texas.

         Our wholesale operations are able to provide products to our retail
nurseries, which we believe will allow us to offer competitive pricing, service
and selection. Although we plan to divert our landscape trees, shrubs, plants
and flowers to our retail stores as demand at such stores grows, we plan to
continue our wholesale business for the foreseeable future. We currently grow a
variety of landscape trees, shrubs, bedding plants and flowers on three farms in
Texas and Arizona. Our major wholesale customers include retail nurseries, major


                                       34
<PAGE>

retail outlets and landscape companies located in the southwest United States.
We have experienced strong demand from retailers and landscape companies for our
landscape products in the southwest United States over the last three years,
even as our production capacity has continued to grow, and expect to be able to
maintain relationships with a sufficient number of our customers in order to be
able to sell inventory that is not shipped to our retail stores.

Our Retail Business
-------------------

         Our current retail operations consist of an approximately 4-acre retail
nursery in Midland, Texas and an approximately 4-acre retail nursery in Odessa,
Texas. Midland is a town of just over 100,000 people in western Texas and Odessa
is a town of approximately 120,000 people in western Texas which is located
approximately 20 miles from Midland.

         In December 2006, we entered into a two-year lease agreement with a
buy-out provision with Marrs & Smith, Ltd. for an approximately 4-acre retail
site in Odessa, Texas. Our rent under the lease is $4,000 per month, and we have
the option to purchase the property for $861,704.33 on or after December 1,
2007, but before December 1, 2008.

         In October 2005, we purchased a vacant 13,000 square foot building on
3.8 acres in Midland, Texas for the site of our first retail nursery. We
completed a $951,000 dollar conversion of the property, including a complete
remodel of the building and the addition of 32,000 square feet of greenhouse and
40,000 feet of tree display area. Going forward both our wholesale and retail
business will be done this and other retail centers.

         As the availability of capital and other business factors permit, we
plan to aggressively open retail centers and ramp up our wholesale operations in
the coming years in Texas and surrounding areas. There are over 30 million
people in this region, which we believe could allow us to build a large number
of nurseries to compete in these markets.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

         Capital Commitments and Expenditures. The following table discloses
aggregate information about our contractual obligations including long-term
debt, operating and capital lease payments, office lease payments, contractual
service agreements and the periods in which payments are due as of March 31,
2007.
<TABLE>
<S>     <C>
                                                     LESS THAN                                              AFTER
                                                       1 YEAR           2-3 YEARS         4-5 YEARS        5 YEARS
                                                     (4/1/07 TO         (4/1/08 TO       (4/1/10 TO         (AFTER
     CONTRACTUAL OBLIGATIONS           TOTAL          3/31/08)           3/31/10)         3/31/12)          4/1/12)
----------------------------------  ------------   ----------------  ----------------  ---------------  --------------
Operating leases                              --                 --                --               --              --
Capital leases                           278,024             76,561           159,491           41,972              --
Retail office lease                       80,000             48,000            32,000               --              --
Contractual service agreements                --                 --                --               --              --
Notes payable                          6,647,069          4,294,288         1,194,637          692,853         465,291
                                    ------------   ----------------  ----------------  ---------------  --------------

Total contractual cash obligations     7,005,093          4,418,849         1,386,128          734,825         465,291
                                    ------------   ----------------  ----------------  ---------------  --------------
</TABLE>

         During the nine months ended March 31, 2007, we entered into
convertible and nonconvertible notes in an aggregate principal amount of
$150,000 with interest rates ranging from 9% per annum to 24% per annum. As of
March 31, 2007, the total amount owed under outstanding notes payable was
$6,647,069 in the aggregate, $4,294,288 of which is due and payable within a
period of one year. Of such notes, as of March 31, 2007, a note payable of
$77,150 is in default.

         On May 2, 2007, we sold our approximately 7-acre commercial property in
San Angelo, Texas by returning the parcel to the note holder, the San Angelo
Banking Center, the First National Bank of Sonora, Texas. The note had a
principal balance of $1,166,319 and an interest balance of $55,149 for a total
of $1,221,468 as of May 2, 2007, resulting in a reduction in debt in such
amount. The book value of the asset was $1,394,674.54 as of May 2, 2007, which
amounts to an approximately $173,207 loss on disposal.


                                       35
<PAGE>

         As of March 31, 2007, we had $74,967 in cash and cash equivalents. This
represents a decrease of $36,948 compared to June 30, 2006. Cash used during the
nine months ended March 31, 2007 includes approximately $940,795 used in
operations as well as approximately $80,423 provided by investing activities.
Sources of cash during the nine months ended March 31, 2007 included a net
amount of approximately $823,000 from financing activities. Of the approximately
$823,000 of net cash provided by financing activities, approximately $752,000
was from net cash received less payments made on notes, and $89,000 represented
the proceeds from issuance of common stock less offering costs. The difference
between the approximately $823,000 of net cash provided by financing activities
and the cash itemized above represented new notes payable, advances from related
parties, payments on related party advances and loan costs and payments on
capital lease obligations.

         There were no material capital expenditures for the quarter ended March
31, 2007.

         We anticipate making capital expenditures during the remainder of the
fiscal year ending June 30, 2007 ("Fiscal 2007"). Specifically, resources
permitting, we plan to spend approximately $500,000 for inventory sold during
this past year, inventory and a new watering system, structural repairs, and
other remodeling for the Odessa location, and $1,000,000 for a third retail
nursery.

         LIQUIDITY. The following table reflects selected balance sheet data as
of March 31, 2007:

                                                                  MARCH 31, 2007
                                                                  --------------
         BALANCE SHEET DATA:
         Cash and cash equivalents....................                  74,967
         Working capital (deficit)....................              (3,007,606)
         Total assets.................................               9,353,764
         Retained deficit.............................              (4,997,920)
         Stockholders' equity.........................                 533,938


         As of March 31, 2007, we had $74,967 in cash and cash equivalents,
total current assets of $3,241,818 and current liabilities of $6,249,424,
representing a current working capital deficit of ($3,007,606). Our current
liabilities as of March 31, 2007 include a $2,415,149 balance on secured
convertible notes due within one year, and a $1,879,139 principal balance on
secured and unsecured non-convertible notes payable due within one year.

         With respect to the current portion of our notes payable, we believe
that most of the holders of the convertible and non-convertible notes coming due
in the next year will either convert such debt to equity or replace existing
notes with notes with deferred payment dates. To the extent that does not occur,
we believe that we can raise capital sufficient to repay the current portion of
our long term debt through the issuance of additional notes and the sale of
equity securities and warrants.

         In addition, members of our management have informally agreed to
provide up to $400,000 of short-term financing to us. Such financing bears
interest at 12% per annum. Management may demand payment on 30 days written
notice.

         Other than the informal and nonbinding commitments from management, we
do not have any specific commitments from third parties to provide financing
needed to cover any capital shortfalls with respect to our operations, planned
capital expenditures or near-term debt obligations. We caution that,
particularly in light of the early stage of our business, such financing may not
be available on favorable terms, or at all. We may be compelled to divert
substantial portions of our existing cash and future cash flow to the repayment
of debt, which would limit our ability to replace or expand inventory and
acquire additional farms. This would have an adverse affect on revenues in the
coming years. Portions of this debt are secured by our real property, and
holders of the unsecured debt have standard remedies available to creditor and
secured creditors. If we were to default on such notes and the holders were to
exercise their remedies, we would incur substantial legal expenses, penalties
and related costs and could be forced to seek bankruptcy protection or to
discontinue operations.

         Our consolidated financial statements have been prepared on the
assumption that our Company will continue as a going concern. Our independent
registered public accounting firm has issued its report dated August 12, 2006
that includes an explanatory paragraph stating that recurring losses raise


                                       36
<PAGE>

substantial doubt about our ability to continue as a going concern. It has been
necessary to rely upon financing from the issuance of promissory notes and the
sale of our equity securities to sustain operations in the past. Additional
financing will be required if we are to continue as a going concern.


OFF-BALANCE SHEET ARRANGEMENTS
------------------------------

         There were no off-balance sheet arrangements at March 31, 2007.


SEASONALITY
-----------

         Our underlying wholesale business is the production and sale of trees,
shrubs, bedding plants, and flowers to retailers and landscape companies. As
with other agricultural businesses, our business is seasonal in nature with the
majority of our revenues coming during the March-June and September-December
periods.

         On our Major Trees Tucson Farm, we generally harvest trees in the fall
and generate over 80% of our revenues from that farm between October and
December. Revenues from our Major Trees Tucson Farm during other months of the
year are growing but are still small. Costs associated with the Major Trees
Tucson Farm also peak during approximately the same period as we harvest the
trees, transport them to market and conduct most of our planting activities.

         On our S&S Plant Farm and our Major Trees Houston Farm, we generally
harvest trees, shrubs, bedding plants and flowers between March and June and
between September and December of each year. We generate substantially all of
our revenues from those farms directly or indirectly through our retail
operations at the Texas Landscape Center, during the same period. We also incur
increased transportation, sales and planting expenses during that period.

         The acquisition of the Texas-based farms and the commencement of our
retail businesses have helped balance the seasonality of our business to some
extent. Even so, we will continue to experience dramatic increases and decreases
in revenue and expenses throughout the year and, as a result, our quarterly or
multi-quarterly results will generally not be indicative of our annual results.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES
------------------------------------------

         Management is basing this discussion and analysis of our financial
condition and results of operations on our consolidated financial statements.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our critical accounting policies and estimates,
including those related to agricultural productions, inventories, property and
equipment, acquisition costs and revenue recognition. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

         We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements. These judgments and estimates affect the reported amounts
of assets and liabilities and the reported amounts of revenues and expenses
during the reporting periods. Changes to these judgments and estimates could
adversely affect our future results of operations and cash flows.

         o Agricultural Production - We account for agricultural activities in
accordance with Statement of Position 85-3, "Accounting by Agricultural
Producers and Agricultural Cooperatives". All direct and indirect costs of
growing crops are either accumulated as inventory or expensed as cost of goods
sold. Permanent land development costs are capitalized and not depreciated.
Limited-life land development costs and the development costs to bring long-life
and intermediate-life plants into production are capitalized and depreciated
using the straight-line method over the estimated useful lives of the assets.


                                       37
<PAGE>

         o Inventories - Growing crops inventory is stated at the lower of cost
or market using the retail method as we have a large quantity of inventory items
that have similar costs and markups; we do not have any individually significant
items. Because our inventory has these characteristics, it is not beneficial to
track inventory costs to each individual unit of inventory. Under the retail
method, we count and extend our inventory at estimated sales prices, based upon
historical sales, which we then multiply by our cost ratio to determine
inventory at cost. Our cost ratio is determined by adding the total cost of the
beginning inventory and all direct and indirect costs of growing crops divided
by the total estimated sales price of ending inventory, based on historical
sales, plus sales revenues. Raw material inventory is stated at the lower of
market or cost using the first-in first-out (FIFO) method.

         o Property and Equipment - Property and equipment are stated at cost or
carryover basis. Expenditures for major renewals and betterments that extend the
useful lives of property and equipment are capitalized upon being placed in
service. Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. In accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", we periodically review our property and equipment for
impairment.

         o Revenue Recognition - Our revenue comes primarily from the sale of
agricultural products. We recognize revenue from retails sales at the time of
retail purchase. We recognize revenue from landscaping and wholesale customers
when rights and risk of ownership have passed to the customer, there is
persuasive evidence of a sales arrangement, product has been shipped (delivered
or picked up by the customer), the price and terms are finalized and collection
of the resulting receivable is reasonably assured.

RESULTS OF OPERATIONS
---------------------

THREE AND NINE MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE AND NINE MONTHS
ENDED MARCH 31, 2006

The following table reflects selected operational results for the Three and the
Nine Months Ended March 31, 2007 compared to the Three and the Nine Months Ended
March 31, 2006:

<TABLE>
<S>     <C>
                                       Three Months Ended                Nine Months Ended
                                            March 31                          March 31
                                  ----------------------------      ----------------------------
                                     2007             2006             2007             2006
                                  -----------      -----------      -----------      -----------

Statement of Operations Data:
Revenue                           $   531,539      $   274,815      $ 1,553,360      $ 1,707,552
Cost of goods sold                   (245,419)        (129,020)        (781,737)      (1,197,099)
                                  -----------      -----------      -----------      -----------
Gross profit                          286,120          145,795          771,623          510,453
Operating expenses                   (366,771)        (277,221)      (1,017,680)        (729,004)
                                  -----------      -----------      -----------      -----------
Loss from operations                  (80,651)        (131,426)        (246,057)        (218,551)
Interest and other expense           (745,085)        (299,905)      (1,353,029)        (638,968)
                                  -----------      -----------      -----------      -----------
Net loss                          $  (825,736)     $  (431,331)     $(1,599,086)     $  (857,519)
                                  -----------      -----------      -----------      -----------
Loss Per Common Share                   (0.03)           (0.02)           (0.06)           (0.04)
                                  -----------      -----------      -----------      -----------
</TABLE>

Our results of operations for the nine months ended March 31, 2007 included the
operations of our Major Trees Houston Farm, Major Trees Tucson Farm, S&S Plant
Farm and the Texas Landscape Center in Midland and one month of the Texas
Landscape Center in Odessa. Our results of operations for the nine months ended
March 31, 2006 included our three farms but not either of the Texas Landscape
Centers. We anticipate out future mix of sales to only include Texas Landscape
Centers and Major Trees.

         REVENUE AND COSTS OF GOOD SOLD. Our revenues are derived primarily from
the sale of plants, trees, shrubs and other retail nursery products. Revenues
increased from $274,815 for the three months ended March 2006 to $531,539 for
the three months ended March 2007. Costs of Good Sold increased from $129,020
for the three months ended March 2006 to $245,419 for the three months ended
March 2007.

         Revenues increased due to the addition of sales through Texas Landscape
Center in Midland as well as the addition of one month worth of sales through
Texas Landscape Center in Odessa. Due to discontinued sales to the Texas region
of Home Depot for the quarter ended December 2006, Major Trees had product
available to sell to the wholesale landscape market. Sales at Major Trees
individually increased from $66,181 for the three months ended March 2006 to
$142,195 for the three months ended March 2007. We were also able to sell the
additional trees through our Texas Landscape Centers at a higher margin.


                                       38
<PAGE>

         Cost of goods sold increased due to higher sales, and cost of goods
sold as a percentage of sales remained relatively unchanged decreasing from 47%
for the three months ended March 2006 to 46% for the three months ended March
2007. Overall, our cost of goods sold has improved for Fiscal 2007 as a result
of eliminating low margin sales at S&S Plant Farm, having higher margins sales
through the Texas Landscape Centers, and increasing sales through our Major
Trees Arizona location.

         Revenues decreased from $1,707,552 for the nine months ended March 2006
to $1,553,360 for the nine months ended March 2007. Costs of good sold decreased
from $1,197,099 for the nine months ended March 2006 to $781,737 for the nine
months ended March 2007. Our revenue decreased due to cessation of unprofitable
wholesale business through S&S Plant Farm and the cessation of approximately
$350,000 in wholesale business with the Texas region of Home Depot due to a high
probability of sales returns from the Home Depot new vendor consignment model in
the Texas region.

         Cost of goods sold decreased due to cessation of lower margin sales at
the S&S Plant Farm location and an increase in higher margin sales through the
Texas Landscape Centers and Major Trees Arizona. Cost of goods sold as a
percentage of sales decreased from 70% for the nine months ended March 2006 to
50% for the nine months ended March 2007.

         OPERATING EXPENSES. Operating expenses consist primarily of personnel
expense associated with management, consulting fees, travel expenses,
professional fees, general overhead and non-allocated depreciation. Operating
expenses increased from $277,221 for the three months ended March 2006 to
$366,771 for the three months ended March 2007. Operating expenses as a
percentage of revenue decreased from 101% for the three months ended March 2006
to 69% for the three months ended March 2007. Operating expenses decreased
substantially due to increased sales in the quarter. We expect our operating
expenses as a percentage of revenue to decrease through the remainder of Fiscal
2007.

         Operating expenses increased from $729,004 for the nine months ended
March 2006 to $1,017,680 for the nine months ended March 2007. Operating
expenses as a percentage of revenue increased from 42.6% for the nine months
ended March 2006 to 65.5% for the nine months ended March 2007. The increase in
operating expense was due to increased wages and salaries, advertising,
accounting/legal fees, and other general and administrative expenses associated
with the addition of the two Texas Landscape Centers. We expect our operating
expenses as a percentage of revenue to decrease through the remainder of Fiscal
2007.

         OTHER EXPENSE. Other expense consists of interest paid on outstanding
notes payable, amortization of deferred loan costs, noncash notes payable costs,
conversion of notes payable into stock and losses on the disposal of fixed
assets. Other expense increased from $299,905 for the three months ended March
2006 to $745,085 for the three months ended March 2007. The increase in other
expenses was due to the conversion of $1,234,299 in notes payable and interest
expense during the current three months ended March 2007 over the prior year's
three months ended March 2006. We expect our other expenses to increase as a
percentage of revenue short-term and then to decrease as a percentage of revenue
long-term as our short and long-term notes are paid off and converted to stock.

         Other expense increased from $638,968 for the nine months ended March
2006 to $1,353,029 for the nine months ended March 2007. An increase in other
expenses was attributed to the conversion on notes payable and interest during
the current nine months ended March 2007 over the prior year's nine months ended
March 2006.

         NET LOSS. Our net loss increased from $431,331 for the three months
ended March 2006 to $825,736 for the three months ended March 2007. The increase
in net loss is due primarily to the conversion on notes payable and interest
during the three months ended March 2007. We expect our net loss to increase as
a result of conversion expenses related to our convertible debt for the
remainder of Fiscal 2007 and to decrease in the fiscal year ending June 30, 2008
as a result of higher sales, increased gross margins, and lower operating
expenses as a percentage of sales.

         Our net loss increased from $857,519 for the nine months ended March
2006 to $1,599,086 for the nine months ended March 2007. The increase in net
loss is due primarily to the conversion on notes payable and interest during the
three months ended March 2007. We expect our net loss to increase as a result of
conversion expenses related to our convertible debt for the remainder of Fiscal
2007 and to decrease in the fiscal year ending June 30, 2008 as a result of
higher sales, increased gross margins, and lower operating expenses as a
percentage of sales.


                                       39
<PAGE>

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
---------------------------------------------------------

We consider all forward-looking statements contained in this Quarterly Report to
be covered by and to qualify for the safe harbor protection provided by Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. Stockholders and prospective stockholders
should understand that several factors govern whether the results described by
any such forward-looking statement will be or can be achieved. Any one of those
factors could cause actual results to differ materially from those projected in
this report.

The forward-looking statements contained in this report include plans and
objectives of management for future operations, plans relating to the products
and predictions regarding our economic performance. Assumptions applicable to
the foregoing involve judgments with respect to, among other things, future
economic, competitive, and market conditions, future business decisions, and the
time and money required to successfully complete development projects, all of
which are difficult or impossible to predict accurately and many of which are
beyond our control. Although we believe that the assumptions underlying the
forward-looking statements are reasonable, any of those assumptions could prove
inaccurate. Therefore, we cannot assure that the results contemplated in any of
the forward-looking statements contained herein will be realized. The impact of
actual experience and business developments may cause us to alter our marketing,
capital expenditure plans, or other budgets, which may in turn affect our
results of operations. In light of the inherent uncertainties in forward-looking
statements, the inclusion of any such statement does not guarantee that our
objectives or plans will be achieved. Among other risk factors to consider are
the factors identified in the subsection entitled Risk Factors below.

RISK FACTORS
------------

An investment in our common stock involves a high degree of risk. You should
consider the following discussion of risks in addition to the other information
in this Report and our other Reports filed with the SEC before purchasing any
shares of our common stock. In addition to historical information, the
information in this Report contains forward-looking statements about our future
business and performance. Our actual operating results and financial performance
may be very different from what we expect as of the date of this Report. The
risks described in this Report represent the risks that management has
identified and determined to be material to our company. Additional risks and
uncertainties not currently known to us, or that we currently deem to be
immaterial, may also materially and adversely affect our business operations.
Any of these risks could materially and adversely affect our business, results
of operations and financial condition.

                  Risks Regarding Our Company and Our Business
                  --------------------------------------------

OUR LIMITED OPERATING HISTORY AND EVOLVING BUSINESS PLAN MAKE IT DIFFICULT FOR
YOU TO EVALUATE OUR PERFORMANCE AND FORECAST OUR FUTURE.

We were formed and began operations in 2002, have made several acquisitions of
businesses and assets in the last four years and are in the process of expanding
the focus of our business to include retail, as well as wholesale, nursery
operations. None of our key management personnel have any experience in the
retail nursery business. Our limited operating history, recent acquisitions, and
expanding business focus make it difficult for you to evaluate our ability to
generate revenues, manage costs, create profits and generate cash from
operations. Before investing in our common stock, you should consider the risks
and difficulties we may encounter as a relatively new business, including risks
related to our ability to

         o        implement our business plan;

         o        obtain capital necessary to continue operations and implement
                  our business plan;


                                       40
<PAGE>

         o        anticipate and adapt to changes in the market;

         o        find, acquire and develop new wholesale and retail properties;

         o        administer and manage our operations; and

         o        successfully compete in the retail nursery industry.

         If we fail to successfully manage these risks, our operations and
financial condition will suffer, and we may fail.

WE HAVE INCURRED SUBSTANTIAL LOSSES SINCE OUR INCEPTION AND MAY CONTINUE TO
INCUR LOSSES IN THE FUTURE.

We have experienced net losses in each twelve-month period since inception, with
a retained deficit of approximately $4,997,920 as of March 31, 2007. As we
continue to invest in the purchase of new properties or businesses, and to
expand our wholesale and retail operations, it is unlikely we will become
profitable in the near future. Even if we do become profitable, we may not be
able to maintain profitability or to increase profitability in the future.

OUR ACCOUNTANTS HAVE INCLUDED AN EXPLANATORY PARAGRAPH IN OUR FINANCIAL
STATEMENTS REGARDING OUR STATUS AS A "GOING CONCERN."

         Our consolidated financial statements have been prepared on the
assumption that our company will continue as a going concern. Our independent
registered public accounting firm has issued its report dated August 12, 2006
that includes an explanatory paragraph stating that recurring losses raise
substantial doubt about our ability to continue as a going concern. Our product
line is limited, and it has been necessary to rely upon financing from the
issuance of promissory notes and the sale of our equity securities to sustain
operations in the past. Additional financing will be required if we are to
continue as a going concern.

IF WE CANNOT RAISE SUFFICIENT CAPITAL AT REASONABLE PRICES, OR AT ALL, WE MAY BE
UNABLE TO MEET EXISTING OBLIGATIONS OR ADEQUATELY EXPLOIT EXISTING OR FUTURE
OPPORTUNITIES.

         As of March 31, 2007, we had $74,967 in cash and cash equivalents and a
working capital account deficit of $3,007,606. We need to obtain significant
additional working capital to implement our business plan of expanding our
retail nursery operations and to be able to meet our financial obligations as
they become due. We may not be able to raise the additional capital needed, or
we may be forced to pay an extremely high price for capital. Factors affecting
the availability and price of capital may include the following:

         o        the availability and cost of capital generally;

         o        our financial results;

         o        market interest, or lack of interest, in our industry and
                  business plan;

         o        the success of our business;

         o        the amount of our capital needs; and

         o        the amount of debt, options, warrants and convertible
                  securities we have outstanding.

If we cannot raise sufficient capital or are forced to pay a high price for
capital, we may be unable to meet current or future obligations or adequately
exploit existing or future opportunities. For example, we recently sold, rather
than developed, commercial property in San Angelos, Texas because of a shortage
of working capital. If we are unable to obtain capital for an extended period of
time, we may be forced to discontinue operations.


                                       41
<PAGE>

WE HAVE PLEDGED A SIGNIFICANT PORTION OF OUR ASSETS TO SECURE FINANCING
AGREEMENTS, AND IF WE DEFAULT UNDER SUCH ARRANGEMENTS, OUR CREDITORS MAY
FORECLOSE ON OUR PLEDGED ASSETS.

         We have pledged substantially all of our assets to secure notes payable
funding each of our farms and commercial properties and to secure other
indebtedness. Governing security agreements grant our creditors the rights and
remedies that are commonly provided a secured creditor. If we default under such
arrangements, such creditors may foreclose on, seize, and dispose of all pledged
assets. If this were to occur, we would be forced to discontinue operations.

         OUR EXPANSION INTO THE RETAIL NURSERY BUSINESS CREATES NUMEROUS
ADDITIONAL RISKS.

         We opened our first retail nursery in Midland, Texas in 2006 and our
second retail nursery in Odessa, Texas in 2007. We plan to establish additional
retail stores throughout Texas and the surrounding area over the next several
years. Our business plans anticipate our becoming an integrated wholesale retail
operation. Our foray into the retail nursery business may fail for various
reasons, including the following:

         o        We do not have experience in the retail nursery business and
                  may have failed to properly anticipate marketing needs,
                  operating costs, inventory costs, competition for retail
                  employees, its effect on our wholesale business and other
                  important aspects of the nursery retail business.

         o        We may be unable to draw customers from, and compete with,
                  large stores such as Home Depot or Wal-Mart, which dominate
                  the markets we hope to penetrate. Such stores have established
                  reputations, customer bases and significant amounts of
                  capital. Such capital could be used to increase their
                  advertising, offer goods at a price that is below our
                  production or purchase costs (even if at a short-term loss) or
                  aggressively compete in other ways.

         o        If initial sales are slower than expected, we may not have, or
                  may be unable to obtain, the capital necessary to continue
                  operation of our initial retail store or subsequent stores
                  until sales expand.

         o        We may be unable to supply all variety or quantities of trees,
                  shrubs, flowers and other plants for our retail store. If not,
                  plant inventory may not be available from other sources or may
                  be available only at a high cost.

         o        We do not have, or expect to have, in place long-term supply
                  agreements for non-plant items typically sold at retail
                  stores, such as containers, fertilizers and tools. We may be
                  unable to purchase such inventory at a cost that will permit
                  us to be competitive with the big box stores on those items.

         We have invested significantly in, and borrowed extensively in order to
fund, our new retail nursery businesses. The failure of our retail businesses to
grow as expected or for individual stores to become profitable within a
reasonable time after opening would likely create a significant liquidity
problem and otherwise harm our business, our operations, and our financial
condition.

WE ARE REQUIRED TO MAKE PAYMENTS UNDER OUTSTANDING NOTES IN AMOUNTS EXCEEDING
OUR EXISTING CASH AND CASH EQUIVALENTS BEGINNING IN 2007.

         We have issued convertible and nonconvertible notes to fund operations
having a principal amount of $6,647,069 as of March 31, 2007. Of these notes,
$6,081,509 are secured by our farming and commercial properties, by inventory at
our commercial locations and by trees contained in inventory. As of March 31,
2007, our monthly interest payment with respect to such notes was approximately
$62,000 per month, and we are required to begin paying down principal on these
notes at various times beginning in 2007.

         The amounts payable under our outstanding notes in the current fiscal
year exceeds our current cash and cash equivalents. If we default on payments
under these notes, the holders will have the right to accelerate principal and
interest payments and pursue remedies available at law and under governing
documents. The exercise of such remedies would likely result in our insolvency.


                                       42
<PAGE>

OUR WHOLESALE BUSINESS HAS HISTORICALLY BEEN DEPENDENT UPON A FEW CUSTOMERS, AND
UNTIL OUR RETAIL OPERATIONS ARE DEVELOPED TO THE POINT WHERE WE CAN USE
SUBSTANTIALLY ALL OF OUR WHOLESALE PRODUCTS, WE WILL CONTINUE TO BE VULNERABLE
TO ACTIONS BY A FEW CUSTOMERS.

         In 2006, Home Depot stores located in the Texas region adopted a
pay-by-scan consignment model, which shifted much of the risk of their sales to
their suppliers. We terminated our relationship with Home Depot in such region,
and this termination caused an approximately $350,000 reduction in revenue for
the three months ended December 31, 2006, compared to the same period in 2005.
Home Depots in the California region accounted for approximately $265,000 in
revenue in the quarter ended December 31, 2006. If our relationship with Home
Depot in the California region is terminated, or we lose another significant
customer, our revenues will be harmed for the short term, and possibly for the
long term.

WE MAY BE UNABLE TO CONTINUE TO IDENTIFY APPROPRIATE ACQUISITION TARGETS OR
CONSUMMATE ACQUISITIONS OF THOSE TARGETS, AND IF WE ARE UNABLE TO DO SO OUR
BUSINESS WILL NOT CONTINUE TO GROW AS PLANNED.

         Our business plan anticipates growth in part through continued
acquisition of farming and retail properties or businesses. We may be unable to
implement that acquisition strategy for several reasons, including the
following:

         o        We may be unable to locate suitable nursery businesses or
                  properties for acquisition for various reasons, including:

                  o        the absence of such businesses or properties;
                  o        our lack of knowledge of such businesses or
                           properties or the fact that they are for sale;
                  o        our lack of sufficient working capital to conduct an
                           adequate search for potential acquisition targets,
                           and to conduct the due diligence necessary to
                           evaluate the appropriateness of a potential target;
                           and
                  o        our lack of expertise or experience in evaluating or
                           operating the types of businesses or properties that
                           are for sale.

         o        The owners of businesses and properties that we are interested
                  in acquiring may be unwilling to sell to us for various
                  reasons, including:

                  o        an unwillingness to accept our restricted equity
                           securities or a promissory note as consideration;
                  o        a desire to receive cash and a lack of confidence in
                           our ability to obtain the cash necessary to close;
                  o        concerns with our ability to operate the business
                           profitably or appropriately, and
                  o        a desire to be acquired by a larger company for
                           strategic or personal reasons (including the desire
                           to be employed by a larger, more stable acquirer).

         o        We may be unable to raise the capital necessary to purchase
                  those businesses or properties that we identify as potential
                  acquisition targets quickly enough or at all in order to be
                  able to consummate desired acquisitions.

If we cannot continue to identify appropriate acquisition targets and consummate
acquisitions, our business will not continue to grow as planned.

WE MAY BE UNABLE TO MANAGE SIGNIFICANT GROWTH.

         To successfully implement our business strategy, we must establish and
achieve substantial growth in our customer base through expansion of production
and sales from existing properties, through business acquisitions, and through
expansion into the retail nursery business. If achieved, significant growth
would place significant demands on our management and systems of financial and
internal controls, particularly because of the number of places of businesses
from which we operate or expect to operate. Moreover, significant growth would
require an increase in the number of our personnel, particularly within sales,
accounting and management. The market for such personnel remains highly
competitive, and we may not be able to attract and retain the qualified
personnel required by our business strategy. If successful in expanding our
business, we may outgrow our present management capacity, placing additional
strains on our human resources in trying to locate, manage and staff multiple
locations. If we are unable to adequately manage our projected growth, our
operations and financial condition may fail to improve, or even deteriorate.


                                       43
<PAGE>

WE ARE DEPENDENT UPON KEY PERSONNEL, AND THE LOSS OF SUCH PERSONNEL COULD
SIGNIFICANTLY IMPAIR OUR ABILITY TO IMPLEMENT OUR BUSINESS PLAN.

         We are highly dependent upon the efforts of management, particularly
Kirk Fischer, our Chairman and Chief Executive Officer, KC Holmes, our President
and Chief Financial Officer, and Jim Fischer, our Vice President of Arizona Tree
Operations. Competition for management personnel is intense, and the number of
qualified managers knowledgeable about, and interested in, the tree and shrub
nursery industry is limited. As a result, we may be unable to retain our key
management employees or attract other highly qualified employees in the future.
In addition, the large number of shares of common stock issued to our officers
and directors to date are not subject to repurchase rights if such persons
terminate employment with us, decreasing our ability to provide equity-based
incentive for new management. We may be required to offer significant salaries
and equity-based compensation in order to retain or attract qualified management
personnel and key employees. If we are unsuccessful in retaining or attracting
such employees, the reduction in the quantity or quality of personnel may lead
to a decline in our production, sales or service capacity.

OUR RETAIL CENTERS ARE OUR PRIMARY SOURCES OF REVENUE AND THE COMPETITIVENESS OF
OUR PRICES IS DEPENDENT UPON OUR FARMS' ABILITIES TO PROVIDE A SUBSTANTIAL
AMOUNT OF OUR INVENTORY.

         Our retail centers are our primary source of revenue and our ability to
offer competitive prices will be dependent upon our ability to produce a
substantial portion of our inventory on our farms. The various plant varieties
that we grow on the farms are subject to risks associated with disease, insects,
weather, drought, fire and other natural hazards. We cannot prevent or predict
the impact of disease, insects, weather, drought, fire or other natural hazards
on our trees, shrubs and plants. If our trees, shrubs and plants we grow are
damaged or destroyed by any of those elements, we could suffer a significant
loss of revenue and assets. The loss would be particularly significant if the
affected plants were the Eldarica Pine, which accounted for approximately 46% of
our revenue in Fiscal 2005 and 28% of our sales in Fiscal 2006.

TRADING IN OUR COMMON STOCK IS THIN, AND THERE IS A LIMIT TO THE LIQUIDITY OF
OUR COMMON STOCK.

         Our common stock is quoted on the OTC Pink Sheets but experiences
extremely low volume and is traded on a sporadic basis. Trading in our common
stock is likely to be dominated by a few individuals. Because of the thinness of
the market for our stock, the price of our common stock may be subject to
manipulation by one or more stockholders and may increase or decrease
significantly because of buying or selling by a single stockholder. In addition,
the low volume of trading limits significantly the number of shares that one can
purchase or sell in a short period of time. Consequently, an investor may find
it difficult to dispose of large numbers of shares of our common stock or to
obtain a fair price for our common stock in the market.

EVEN IF A BROADER MARKET FOR OUR COMMON STOCK DEVELOPS, THE MARKET PRICE FOR OUR
COMMON STOCK WILL LIKELY CONTINUE TO BE VOLATILE AND MAY CHANGE DRAMATICALLY AT
ANY TIME.

         Our common stock is quoted on the OTC Pink Sheets, but experiences
extremely low volume and is traded on a sporadic basis. Even if a broader market
for our common stock develops, the market price of our common stock, like that
of the securities of other early-stage companies, can be expected to be highly
volatile. Our stock price may change dramatically as the result of announcements
of our quarterly results, the execution or termination of significant contracts,
significant litigation or other factors or events that would be expected to
affect our business or financial condition, results of operations and other
factors specific to our business and future prospects. In addition, the market
price for our common stock may be affected by various factors not directly
related to our business, including the following:

         o        intentional manipulation of our stock price by existing or
                  future shareholders;
         o        short selling of our common stock or related derivative
                  securities;
         o        a single acquisition or disposition, or several related
                  acquisitions or dispositions, of a large number of our shares;
         o        the interest, or lack of interest, of the market in our
                  business sector, without regard to our financial condition or
                  results of operations;
         o        the adoption of governmental regulations and similar
                  developments in the United States or abroad that may affect
                  our ability to offer our products and services or affect our
                  cost structure; and
         o        economic and other external market factors, such as a general
                  decline in market prices due to poor economic indicators or
                  investor distrust.


                                       44
<PAGE>

OBTAINING ADDITIONAL CAPITAL THROUGH THE FUTURE SALE OF COMMON STOCK AND
DERIVATIVE SECURITIES WILL RESULT IN DILUTION OF SHAREHOLDER INTERESTS.

         We plan to raise additional funds in the future by issuing additional
shares of common stock, or securities such as convertible notes, options,
warrants or preferred stock that are convertible into common stock. Any such
sale of common stock or other derivative securities will lead to further
dilution of the equity ownership of existing holders of our common stock.

OUR COMMON STOCK IS A "LOW-PRICED STOCK" AND SUBJECT TO REGULATION THAT LIMITS
OR RESTRICTS THE POTENTIAL MARKET FOR OUR STOCK.

         Shares of our common stock may be deemed to be "low-priced" or "penny
stock," resulting in increased risks to our investors and certain requirements
being imposed on some brokers who execute transactions in our common stock. In
general, a low-priced stock is an equity security that:

         o        Is priced under five dollars;
         o        Is not traded on a national stock exchange, the Nasdaq
                  National Market or the Nasdaq SmallCap Market;
         o        Is issued by a company that has less than $5 million in net
                  tangible assets (if it has been in business less than three
                  years) or has less than $2 million in net tangible assets (if
                  it has been in business for at least three years); and
         o        Is issued by a company that has average revenues of less than
                  $6 million for the past three years.

         We believe that our common stock is presently a "penny stock." At any
time the common stock qualifies as a penny stock, the following requirements,
among others, will generally apply:

         o        Certain broker-dealers who recommend penny stock to persons
                  other than established customers and accredited investors must
                  make a special written suitability determination for the
                  purchaser and receive the purchaser's written agreement to a
                  transaction prior to sale.

         o        Prior to executing any transaction involving a penny stock,
                  certain broker-dealers must deliver to certain purchasers a
                  disclosure schedule explaining the risks involved in owning
                  penny stock, the broker-dealer's duties to the customer, a
                  toll-free telephone number for inquiries about the
                  broker-dealer's disciplinary history and the customer's rights
                  and remedies in case of fraud or abuse in the sale.

         o        In connection with the execution of any transaction involving
                  a penny stock, certain broker-dealers must deliver to certain
                  purchasers the following:

                  o        bid and offer price quotes and volume information;

                  o        the broker-dealer's compensation for the trade;

                  o        the compensation received by certain salespersons for
                           the trade;

                  o        monthly accounts statements; and a written statement
                           of the customer's financial situation and investment
                           goals.


                                       45
<PAGE>

ITEM 3.       CONTROLS AND PROCEDURES

         (a) Based on the evaluation of our "disclosure controls and procedures"
(as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e))
required by paragraph (b) of Rules 13a-15 or 15d-15, our chief executive officer
and our chief financial officer have concluded that, as of March 31, 2007, our
disclosure controls and procedures were effective in ensuring that information
required to be disclosed by the Company in reports that it files under the
Exchange Act is recorded, processed, summarized and reported within the time
periods required by governing rules and forms.

         (b) There have been no changes in our internal control over financial
reporting identified in connection with the evaluation required by paragraph (d)
of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.


                           PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

         We are not aware of any pending or threatened legal proceedings that,
singly or in the aggregate, would reasonably be expected to have a material
adverse effect on our business, financial condition, or results of operations.


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

None


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Penge Corp is currently in default on a $300,000 note dated September
27, 2002, held by Steve Sutherland with a principal balance of $77,149 and
interest balance of approximately $26,330.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

None


ITEM 5.  OTHER INFORMATION

None


ITEM 6.  EXHIBITS

     See the Exhibit Index attached hereto following the signature page.


                                       46
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                                    Penge Corp
                                     -------------------------------------------


            May 15, 2007                         By: /s/ Kirk Fischer
        ---------------------        -------------------------------------------
                Date                    Kirk Fischer, Chief Executive Officer


            May 15, 2007                          By: /s/ KC Holmes
        ---------------------        -------------------------------------------
                Date                      KC Holmes, Chief Financial Officer


                                       47
<PAGE>

<TABLE>
<S>     <C>
                                           EXHIBIT INDEX

                                                                         INCORPORATED BY REFERENCE/
  EXHIBIT NO.                          EXHIBIT                                 FILED HEREWITH
----------------  ---------------------------------------------------    --------------------------
     31.1         Section 302 Certification of Chief Executive           Filed herewith
                  Officer

     31.2         Section 302 Certification of Chief Financial           Filed herewith
                  Officer

     32.1         Section 906 Certification of Chief Executive           Filed herewith
                  Officer

     32.2         Section 906 Certification of Chief Financial           Filed herewith
                  Officer


                                                48
</TABLE>