**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**








**FORM
      10-KSB**





x ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the
      fiscal year ended December 31, 2006


COMMISSION
      FILE NO. **000-50830**


**OR**


o TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
      OF
      1934




For
      the
      transition period from ______to______


**Calibre
      Energy, Inc.**


(Name
      of
      small business issuer on its charter)








**Nevada**
              (State
                or Other Jurisdiction of Incorporation or Organization)
            1311
              (Primary
                Standard Industrial
              Classification
                Code Number)
            88-0343804
              (I.R.S.
                Employer
              Identification
                Number)





**1667
      K Street, NW, Suite 1230**


**Washington,
      D.C. 20006**


**(202)
      223-4401**


(Address
      and telephone number


of
      principal executive offices and principal place of business)


___________________




**Prentis
      B. Tomlinson, Jr.**


**1667
      K Street, NW, Suite 1230**


**Washington,
      D.C. 20006**


**(202)
      223-4401**


(Name,
      address and telephone number


of
      agent
      for service)


**___________________**




**Copy
      to:**


**Michael
      C. Blaney**


**Vinson
      & Elkins L.L.P.**


**1001
      Fannin, Suite 2300**


**Houston,
      TX 77002**


**(713)
      758-2222**





Check
      whether the issuer (1) filed all reports required to be filed by sections 13
      or
      15(d) of the Exchange Act during the past 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 o





Check
      if
      disclosure of delinquent filers pursuant to Item 405, of Regulation S-B is
      not
      contained in this form **,** and
      no disclosure will be contained, to the best of registrant's knowledge, in
      definitive proxy or information statements incorporated by reference in Part
      III
      of this Form 10-KSB or any amendment to this Form 10-KSB. o




Registrant's
      revenue for its most recent fiscal year: $554,430.





On
      April
      24, 2007 the aggregate market value of the voting stock of Calibre Energy,
      Inc.
      held by non-affiliates of the registrant was $10,244,140. There is currently
      a
      limited public market for the registrant’s common stock.




As
      of
      April 24, 2007 there were 62,437,704, outstanding shares of common stock,
      par value $0.001.




Transitional
      Small Business Format: Yes o No x




Documents
      incorporated by reference: None.










**Cautionary
      Notice Regarding Forward Looking Statements**




“Calibre
      Energy, Inc.,” the “company,” “we,” “us” or “our” refer to Calibre Energy, Inc.,
      a Nevada corporation , except where otherwise indicated or required by context.
      This report contains a number of forward-looking statements that reflect
      management’s current views and expectations with respect to our business,
      strategies, future results and events and financial performance. All statements
      made in this Annual Report other than statements of historical fact, including
      7statements that address operating performance, events or developments that
      management expects or anticipates will or may occur in the future, including
      statements related to revenues, cash flow, profitability, adequacy of funds
      from
      operations, statements expressing general optimism about future operating
      results and non-historical information, are forward looking statements. In
      particular, the words “believe,” “expect,” “intend,” “ anticipate,” “estimate,”
“may,” variations of such words, and similar expressions identify
      forward-looking statements, but are not the exclusive means of identifying
      such
      statements and their absence does not mean that the statement is not
      forward-looking. These forward-looking statements are subject to certain risks
      and uncertainties, including those discussed below. Our actual results,
      performance or achievements could differ materially from historical results
      as
      well as those expressed in, anticipated or implied by these forward-looking
      statements. We do not undertake any obligation to revise these forward-looking
      statements to reflect any future events or circumstances.




Readers
      should not place undue reliance on these forward-looking statements, which
      are
      based on management’s current expectations and projections about future events,
      are not guarantees of future performance, are subject to risks, uncertainties
      and assumptions (including those described below) and apply only as of the
      date
      of this report. Our actual results, performance or achievements could differ
      materially from the results expressed in, or implied by, these forward-looking
      statements. Factors that could cause or contribute to such differences include,
      but are not limited to, those discussed below in “Risk Factors” as well as those
      discussed elsewhere in this report, and the risks discussed in our press
      releases and other communications to shareholders issued by us from time to
      time
      which attempt to advise interested parties of the risks and factors that may
      affect our business. We undertake no obligation to publicly update or revise
      any
      forward-looking statements, whether as a result of new information, future
      events or otherwise.








1


**ITEM
      1. DESCRIPTION OF BUSINESS**




**General**




We
      are an
      independent exploration and production company focused on the acquisition,
      exploitation, development and sale of crude oil and natural gas, in Irbil
      Province of Kurdistan, Iraq, in the Barnett Shale in Texas and the Fayetteville
      Shale in Arkansas.




We
      are a
      Nevada corporation, headquartered in Washington, DC and Houston, Texas. Our
      predecessor company for financial reporting purposes was formed on August 17,
      2005.




**Our
      Executive Offices**





Our
      principal executive and administrative office facility is located at 1667 K
      Street, N.W., Suite 1230, Washington, D.C. 20006 and our telephone number is
      (202) 223-4401. We also have an operations office at Ashford VI, 1155 Dairy
      Ashford South, Fifth Floor, Houston, TX 77079. Our website is www.calibreenergy.com .




**Business
      Strategy**




We
      intend
      to expand and develop our exploration and production business and reserves
      by
      focusing on the exploration of the Bina Bawi Project in Kurdistan, Iraq and
      on
      our projects in the Barnett and Fayetteville Shale. We have a
      10% participating interest in the Bina Bawi Exploration and Production
      Sharing Agreement with the Kurdish Regional Government in Kurdistan, Iraq,
      pursuant to a joint operating agreement with Hawler Energy, Ltd. and A&T
      Petroleum Company, Ltd.




Our
      management has industry experience in many international producing areas and
      has
      the capability to continue to expand the scope of our activities as
      opportunities arise. Key elements of our ultimate success include our ability
      to
      select opportunities that will promote value creation, to form strategic
      alliances with influential local partners in certain prolific hydrocarbon
      regions, to develop our potential as an operator of our future projects, and
      as
      a non-operator to develop a close association with the operating companies
      for
      our projects and to maintain a certain degree of control over the timing,
      expense levels and execution of our projects.




In
      October of 2005, we commenced our activities by focusing on shale gas
      opportunities in the Barnett Shale and the Fayetteville Shale. We are currently
      participating in three projects with Kerogen Resources, Inc., a privately held
      exploration and production company located in Houston, Texas. The projects
      are
      the Reichmann Petroleum project, the South Ft. Worth Basin project and the
      Williston Basin project.  In November 2006, we withdrew from any
      further participation in additional leasing or development activities
      with Kerogen Resources in the South Ft. Worth Basin project.





On
      December 8, 2006, Reichmann Petroleum filed for voluntary Chapter 11 bankruptcy
      protection. All development activity on this joint venture with Reichmann has
      ceased pending the resolution of legal claims. To date, revenues from this
      project have been netted against capital and operating expenditures. As a result
      of the bankruptcy, our net share of working interest production owed to us
      is
      expected to be paid into a separate account under the control of the bankruptcy
      court. However, if our share of working interest production is withheld in
      this
      account for a significant time into the future, such withholding could then
      have
      a material adverse effect on our financial condition, business and our
      operations.




As
      of
      December 31, 2006, we had estimated proved reserves of 1.659 MMcf with expected
      future cash flows before taxes discounted at 10% of approximately $3.4 million
      (see reconciliation of the PV-10 non-GAAP financial measure to the standardized
      measure under Reserves on page 7).




During
      2006, we invested approximately $15.1 million in capital expenditures related
      to
      exploration and development, $10.8 million on our domestic projects and $4.3
      million on our international project. For 2007, we have budgeted approximately
      $4.0 million for ongoing exploration and development of our existing projects.




We
      expect
      to fund our capital expenditures for 2007 through funds made available through
      our recent $5.0 million private placement of Series A Preferred Stock.




In
      addition, we intend to selectively pursue additional interests and to evaluate
      acquisition opportunities in our core areas of focus. We may also choose to
      divest non-core assets and properties to fund any additional
      investments.




2





**Our
      Projects**




Currently,
      we hold non-operating interests in all of our projects. Our growth depends
      heavily on the performance of our operating partners to execute drilling and
      completion programs in an environment where shortages of equipment and talent
      are resulting in the escalation of costs. Currently we do not have the
      capability to act as an operator as additional legal, drilling, completion
      and
      overseas personnel would be required for us to expand our operations and to
      act
      as an operator. However, in the future we may seek to operate wells or seek
      a
      degree of control over operations in projects in which we own an interest as
      we
      believe that by controlling operations, we may be able to more effectively
      manage the cost and timing of exploration and development of our properties,
      including the drilling and fracture stimulation methods used.






*Bina
      Bawi Project*




On
      September 13, 2006, we entered into a Novation and Amendment Agreement
      (“Novation Agreement”) among Hawler Energy, Ltd. (“Hawler Energy”), a Cayman
      Islands company, A & T Petroleum Company, Ltd. (“A&T”), a Cayman Islands
      company, and Hillwood Energy, Ltd. (“Hillwood”), a Cayman Islands company.
      Pursuant to the Novation Agreement, we became parties to the Exploration and
      Production Sharing Agreement (“the EPSA”) dated March 29, 2006 between A&T,
      Hawler Energy and the Oil and Gas Petroleum Establishment of the Kurdistan
      Regional Government (the “OGE”). Our admission as a party to the EPSA is subject
      to the approval of the OGE. We have applied to
      the
      OGE for such approval.




The
      Bina
      Bawi structure is a 30 kilometer by 10 kilometer surface anticline, which may
      contain primary oil and gas reserves within the Upper Triassic reservoir
      objective and secondary reserve potential in the Upper Cretaceous, Lower
      Cretaceous and Jurassic sections of the structure.




Pursuant
      to the terms of the EPSA, the OGE grants the other parties the right to explore
      and produce oil and natural gas from certain territory that includes the Bina
      Bawi. Upon receipt of the OGE’s approval of our becoming a party to the EPSA, we
      will have a 10% participating interest in the wells drilled pursuant to the
      EPSA. The EPSA requires the parties to conduct certain survey work, drill one
      exploratory well and, if the exploratory well is determined to be sufficiently
      profitable, to conduct certain seismic surveys. The total estimated cost for
      all
      parties in the EPSA of the initial survey work and the exploratory well is
      $2.7
      million; the estimated cost of the seismic surveys is approximately $4.0
      million. The EPSA requires the parties thereto to pay OGE a bonus of $2.5
      million upon a “Commercial Discovery,” as defined in the EPSA, and to pay other
      cash bonuses and royalties upon achieving certain production levels.




For
      consideration of Hawler Energy’s assignment to us of the 10% working interest
      through the Novation Agreement, we have entered into a separate letter agreement
      with Hawler Energy pursuant to which, we agreed to pay Hawler Energy $2 million
      on execution of the letter agreement and $1 million upon completion of the
      first
      well under the EPSA, whether it is capable of production or a dry hole. In
      addition, we agreed to pay 20% of all billings, including cash calls, made
      to
      Hawler Energy by A&T, as operator, after August 1, 2006 and we further
      agreed to pay Hawler Energy the remaining 80% of all such billings until the
      total of such payments equals $2.5 million. Upon OGE approval of the assignment
      to us and payment of $2.5 million as provided in the letter agreement, we will
      be obligated to pay the future costs properly payable by the holder of a 10%
      participating interest in the project.




We
      also
      have entered into a letter agreement with Hawler Energy pursuant to which each
      party grants the other party the right to participate in the next acquisition
      of
      any rights or interests for the exploration or production of oil and gas in
      the
      area of the Kurdistan Regional Government of Iraq; provided however such area
      does not include that area pursuant to which Hawler Energy has already granted
      certain rights to other third parties. Pursuant to this letter agreement, we
      will have the right of first refusal to obtain a 9% interest in such an
      acquisition by Hawler Energy and Hawler Energy will have the right of first
      refusal to obtain a 91% interest in acquisition by Calibre of rights or
      interests for the exploration or production of oil and gas in the area of the
      Kurdistan Regional Government of Iraq.





On
      February 21, 2007, we announced that the Bina Bawi 1 exploration well was at
      a
      depth of 3,355 meters (11,007 feet) and had completed logging the lower part
      of
      the hole. Earlier in the drilling of the Bina Bawi 1, oil was recovered from
      the
      drill string during a fishing operation from intervals in the Upper Cretaceous
      at the depths of 550 to 750 meters. The Joint Venture has agreed to commence
      testing to determine the productive and commercial potential of at least three
      zones intersected by the well. Furthermore, the Joint Venture anticipates
      drilling the Bina Bawi 2 appraisal well upon the completion of the Bina Bawi
      1
      in order to evaluate and test the prospective intervals in the Upper Cretaceous.




As
      of
      April 12, 2007, the operator had run 7-inch liner to a depth of 3,264 meters
      in
      preparation for the testing of the well. Although some of the completion
      equipment and supplies have arrived at the well, the operator has continued
      to
      experience difficulties with the importation of important equipment and
      supplies.


*Projects
      with
      Kerogen Resources*




We
      are
      currently participating in three projects with Kerogen Resources, Inc., a small,
      privately held exploration and production company, located in Houston, Texas.
      These are as follows:




3


*Reichmann
      Petroleum Corporation Project*




In
      October 2005, we entered into a joint venture with Kerogen Resources, Crosby
      Minerals and Reichmann Petroleum Corporation to explore, acquire and develop
      properties located in the Barnett Shale in the Ft. Worth Basin of North Texas.
      In October 2005, we acquired, through Kerogen Resources, a 12.5% working
      interest in the Purchase and Sale Agreement with Reichmann that covered 6,190
      net acres of leasehold interests in Parker, Tarrant, Denton, and Johnson
      Counties, Texas. We paid Kerogen Resources $3,179,660 representing lease costs,
      field land costs, abstract costs, and estimated drilling costs on 11 wells.
      Kerogen then paid such amounts to Reichmann Petroleum Corporation as
      reimbursement of leasehold costs, drilling and operating expenses. Costs
      subsequent to July 31, 2005 for the 11 wells and lease operating expenses were
      invoiced under the terms of Participation Joint Venture Agreement and the Joint
      Operating Agreement. Kerogen Resources provides the technical guidance for
      the
      project and in exchange will receive 12.5% of our working interest in each
      well
      drilled. We pay 14.2857% of the costs for the initial well on each prospect
      and
      earn 10.9375% working interest and on all subsequent wells in each prospect
      we
      pay 12.5% for a 10.9375% working interest.




Subsequent
      to the initial acquisition, we agreed to participate with Reichmann in the
      acquisition of certain leases and the drilling, testing and completion of a
      well
      on the Pannell Prospect in Johnson County covering 443 net acres by paying
      25%
      of all costs in the leases and well to earn a 21.875% working interest.
      Additionally, we agreed to participate in the Pipes Prospect in Hill County,
      Texas covering 128.7 acres by paying 8.5714% of drilling costs in the initial
      Pipes 1-H well for a 6.75% working interest and 7.5% of the drilling costs
      in
      the Pipes 2-H and 3-H for a 6.75% working interest. On February 2006, we agreed
      to participate in a Farm out Agreement for the Wilson Hancock 1-H well with
      Reichmann Petroleum and Kerogen by paying 12.5% of drilling costs for a 9.2969%
      working interest in the well.




As
      of
      December 31, 2006, we have paid for these projects a total of $9,118,643, which
      includes the original payment of $3,179,660. We have participated in
      22 gross
      wells of which 12 wells are currently producing, five wells have been drilled,
      completed and fraced and are waiting to be hooked up to a pipeline, and five
      wells have been drilled to total depth, completed and are waiting to be fraced.
      “Frac” or Fracture stimulation is a method of stimulating production by opening
      new flow channels in the rock surrounding a production well by pumping proppant,
      a granular substance that is carried into the formation by the fracturing fluid
      and helps keep the cracks open after a fracture treatment, and fluid into the
      well at high pressure and volume. As of December 31, 2006, our net acreage
      position subject to Reichmann agreements is 792.85 net acres.




On
      December 8, 2006, Reichmann Petroleum filed for voluntary Chapter 11 bankruptcy
      protection. All development activity on this joint venture with Reichmann has
      ceased pending the resolution of legal claims. To date, revenues from this
      project have been netted against capital and operating expenditures. As a result
      of the bankruptcy, our net share of working interest production owed to us
      is
      expected to be paid into a separate account under the control of the bankruptcy
      court. However, if our share of working interest production is withheld in
      this
      account for a significant time into the future, such withholding could then
      have
      a material adverse effect on our financial condition, business and our
      operations.




*South
      Ft. Worth Basin Project*




In
      October 2005, we entered into a Participation Agreement for the exploration
      and
      development of wells in a portion of the South Ft. Worth Basin with Kerogen
      Resources, Wynn Crosby Energy, Inc. (“Crosby”), and Triangle USA (“Triangle”).
      The agreement covers a five county area in Texas, including Johnson, Hill,
      Somervell, Bosque and Hood counties, and consists of all lands in these counties
      outside areas of mutual interest covered by the Reichmann project. Kerogen
      Resources is expected to generate shale gas prospects in the area subject to
      the
      agreement.




The
      Participation Agreement is for a two year term. Kerogen Resources, as the
      technical partner in charge of generating the prospect areas, pays 10% of the
      costs in exchange for a 16% working interest. Triangle and Calibre will each
      pay
      30% of costs for a 27% working interest and Crosby, as operator, will pay 30%
      of
      costs for a 30% working interest. The agreement would bind all parties to the
      same area of mutual interest. Each party is permitted to obtain oil and gas
      leases in the territory, but must offer to assign to the other parties the
      percentage interest in the leases described above. Prospects are defined by
      agreement of the parties. The operator of a lease may require the other parties
      to advance payments for their respective percentages of the costs for leases
      or
      drilling of the lease. In November 2006 we withdrew. from any additional
      leasing or development activities with Kerogen Resources in the South
      Ft. Worth Basin project.




As
      of
      December 31, 2006, Kerogen has leased approximately 11,710.87 net leasehold
      acres. Our net leasehold position pursuant to this agreement is 3,161.93 acres.
      We have advanced $1,684,154 to Kerogen for land costs, prospect fees and for
      geological and geophysical expenditures related to this project. Additionally,
      Kerogen has acquired a 12 square mile 3D seismic program over part of our joint
      leasehold position and we have elected to participate for our share of the
      costs
      of the seismic program. We anticipate that we will acquire additional 3D seismic
      over our other leasehold interests in 2007. We anticipate that we will commence
      development activities on these leases, sell our interest in these properties
      or
      farm out development to a third party by the fourth quarter of 2007.




4




*Williston
      Basin Project*




On
      September 20, 2005, we entered into a Participation Agreement with Kerogen
      Resources covering all of the Williston Basin. Under this agreement, we are
      obligated to pay Kerogen Resources the sum of $638,600 for generation of shale
      gas prospects and for geological and geophysical data in the Williston Basin.
      As
      of December 31, 2006, Calibre has paid $550,000 to Kerogen Resources and the
      balance is due upon the delivery of Kerogen Resources’ technical report. As of
      December 31, 2006, no acreage has been leased pursuant to this agreement.
      Kerogen Resources, as the technical partner in charge of generating the prospect
      areas, will pay 70% of the costs for a 73% working interest in the leasehold
      interests acquired subject to the agreement, and we will pay 30% of the costs
      for a 27% working interest. Each party will control their own leases with
      obligations to offer any leases acquired to the rest of the group pro-rata.
      Prospects are defined based on land and range from 25,000 to 45,000 acres each.
      The operator on a lease may require participating parties to advance funds
      for
      leases or drilling. We do not anticipate participating with Kerogen Resources,
      Inc. in any prospects generated in this basin in 2007.




*Additional
      Acreage*




In
      addition to the three joint venture projects with Kerogen Resources, as of
      December 31, 2006, we have acquired 5,318 gross leasehold acres and 3,417 net
      acres in the Barnett Shale outside of the areas covered by the Reichmann
      Petroleum JV, the South Ft. Worth Basin project and the Williston Basin project.
      We anticipate that we will either commence development activities on these
      leases, sell our interest in these properties or farm out development to a
      third
      party by the end of the third quarter of 2007. Additionally, as of December
      31,
      2006, we have acquired 2,636 gross leasehold acres and 1,276 net leasehold
      acres
      in the Fayetteville Shale development in the Arkoma Basin in Arkansas. These
      leases are five years with an option for an additional five years. We anticipate
      that we will make a decision of whether to commence development activities
      on
      these leases, sell our interest in these properties or farm out development
      to a
      third party by the end of 2007.




“Gross
      leasehold acres” means the total number of acres in which we have a working
      interest. “Net leasehold acres” means the sum of the fractional working
      interests we have in the gross leasehold interests.






**Employees**




As
      of
      December 31, 2006 we employed ten people, none of which are subject to a
      collective bargaining agreement. We consider our relations with our employees
      to
      be good.








**Oil
      and Gas Properties**




***Reserves*** **.** As
      of
      December 31, 2006, we have twelve producing wells in which we have an interest
      and have recently commenced production. Our net working interest in one of
      these
      wells is 25%, in eight wells is 10.9375%, in two wells is 7.5%, and in one
      well
      is 8.57%.




The
      following table presents summary data with respect to our estimated net proved
      oil and natural gas reserves as of the dates indicated. The following table
      presents summary data with respect to our estimated net proved oil and natural
      gas reserves as of the dates indicated. Our reserve estimates as of December
      31,
      2006 were based primarily on reserve reports prepared by Forrest A. Garb &
Associates, our independent reserve engineers. In preparing its reports, Forrest
      A. Garb & Associates evaluated properties representing approximately 100% of
      our PV-10 as of December 31, 2006. All calculations of estimated net proved
      reserves have been made in accordance with the rules and regulations of the
      Securities and Exchange Commission, or the SEC. All of our proven reserves
      are
      associated with the Reichmann Project.





5


**Proved
      Reserves**





**Total
                Reserves 2006****Present
                Value of****Gas**
            **Undiscounted
                Future Net**
            **Proved
                Reserves****MMcf**
            **Revenue**
            **at
                10%**Developed
                Producing
            796.638
            $3,278,918
            $2,246,170Proved
                Nondeveloped
            113.057
            207,277
            69,768Proved
                Undeveloped
            748.911
            2,444,540
            1,076,367Total
            1,658.606
            $5,930,735
            $3,392,305







**Gas**
              **(Mcf)**
            **Oil**
              **(MBbls)**Total
                Proved Reserves:Balance,
                August 17, 2005
            —
            —Extensions
                and discoveries
            69,000Production
            (3,000)Balance,
                December 31, 2005
            66,000
            **—**Extensions
                and discoveries
            1,703,924Production
            (111,318)
            —Balance,
                December 31, 2006
            1,658,606
            —







*Well
      Status Summary* .
      The
      well status of our drilling operations as of December 31, 2006 and December
      31,
      2005 is as follows:




**Number
                of**
              **Gross
                Wells**
              **2006**
            **Number
                of**
              **Gross
                Wells**
              **2005**Producing
            12
            4Fraced
                & Waiting on Gas Line Hookup
            5
            9Drilled,
                Completed, Fraced and Cleaning Up
            -
            4Waiting
                on Fracture Treatment
            5
            3Drilling
            **-**
            2Total
            22
            22





We
      have
      interests in twelve wells
      that are currently producing, five wells that have been drilled, completed
      and
      fraced and are waiting to be hooked up to a pipeline, and five wells that have
      been drilled to total depth, completed and are waiting to be fraced.




However,
      it
      remains uncertain whether the five wells awaiting hookup and the five wells
      awaiting fracture treatment will be completed and realize commercial production
      due to the uncertainty of operations. On December 8, 2006, the operator of
      the
      properties in the Barnett Shale Project, Reichmann Petroleum, filed for
      voluntary Chapter 11 bankruptcy protection. All development activity on this
      joint venture with Reichmann has ceased pending the resolution of legal claims.
      Calibre’s interests in the Reichmann-operated properties are held through
      Calibre’s agreement with Kerogen. To date, revenues from this project have been
      netted against capital and operating expenditures. As a result of the
      bankruptcy, Calibre’s net share of working interest production is expected to
      be
      paid into a separate account under the control of the bankruptcy court. As
      of
      December 31, 2006, Calibre had an outstanding net revenue receivable balance
      of
      $325,000 from Kerogen related to certain wells in the Reichmann project.
      Furthermore, as of December 31, 2006, Calibre had an outstanding joint interest
      payable balance of approximately $1.1 million to Kerogen.  As a result of
      the bankruptcy, production revenue may or may not be collectible. Calibre
      has petitioned the bankruptcy court and expects a resolution in the bankruptcy
      court that will permit payment of Calibre’s share of working interest
      production. Calibre believes it will be successful in collecting its share
      of
      production revenues either in cash or in production-in-kind from Reichmann
      and
      Kerogen. Accordingly, no allowance has been made for the
      receivable.




6





Additionally,
      Kerogen has petitioned the bankruptcy court to potentially continue with the
      development of the Reichmann leases with a new operator. Calibre believes,
      but
      cannot provide assurance, that the bankruptcy court will resolve to permit
      ongoing development operations on the project leases, however, the terms of
      the
      leases for the project generally require commencement of drilling operations
      within the primary term of each lease. If development does not proceed as a
      result of the Reichmann bankruptcy, those undeveloped and partially developed
      leases in the project will terminate and Calibre will have to impair these
      properties. The value of these properties is approximately $450,000 as
      of
      December 31, 2006. The value of capital expenditures invested to date in these
      partially developed wells is approximately $1,250,000.









Our
      gross
      and net gas well ownership position is as follows:




**2006**
            **2005****Gross
                Wells**
            **Net
                Wells**
            **Gross
                Wells**
            **Net
                Wells**Reichmann
                Petroleum Corporation Project
            22
            2.54
            17
            1.52





During
      the period ended December 31, 2006, the average sales price per unit of gas
      produced was $5.79 and the average lifting costs was $2.20.




*Developed
      and Undeveloped Leasehold* .
      As of
      December 31, 2006, we have the following developed and undeveloped leasehold
      interests:




*Developed
      Acreage*


**2006**
                
                
                
                **2005****Gross
                    Leasehold**
                
                **Net**
                  **Leasehold**
                
                **Gross
                    Leasehold**
                
                **Net**
                  **Leasehold**Reichmann
                    Petroleum Project
                
                3,393
                
                292
                
                303
                
                33Total
                
                3,396
                
                292
                
                303
                
                33







*Undeveloped
      Acreage*


**2006**
                
                
                
                **2005****Gross
                    Leasehold**
                
                **Net**
                  **Leasehold**
                
                **Gross
                    Leasehold**
                
                **Net**
                  **Leasehold**Reichmann
                    Petroleum Project
                
                3,237
                
                482
                
                6,633
                
                774So.
                    Ft. Worth Basin Project
                
                11,711
                
                3,162
                
                2,484
                
                1,956Other
                    Ft. Worth Basin
                
                5,316
                
                3,417
                
                -
                
                -Williston
                    Basin Project
                
                -
                
                -
                
                -
                
                -Arkoma
                    Basin
                
                2,636
                
                1,276
                
                -
                
                -Total
                
                22,900
                
                8,337
                
                9,117
                
                2,730










Our
      oil
      and gas properties consist primarily of working interests in oil and gas wells
      and our ownership of interests in leasehold acreage, both developed and
      undeveloped. The table above summarizes our gross and net developed and
      undeveloped oil and natural gas acreage under lease or option as of December
      31,
      2006. A developed acre is considered to be an acre spaced or assignable to
      productive wells. A gross acre is an acre in which a working interest is owned.
      A net acre is the result that is obtained when our fractional ownership working
      interest is multiplied by gross acres. The number of net acres is the sum of
      the
      fractional working interests owned in gross acres expressed as whole numbers
      and
      fractions thereof. Undeveloped acreage is considered to be those lease acres
      on
      which wells have not been drilled or completed to a point that would permit
      the
      production of commercial quantities of oil or natural gas, regardless of whether
      that acreage contains proved reserves, but does not include undrilled acreage
      held by production under the terms of a lease. As is customary in the oil and
      gas industry, we can generally retain our interest in undeveloped acreage by
      drilling activity that establishes commercial production sufficient to maintain
      the leases or by paying delay rentals during the remaining primary term of
      leases. The oil and natural gas leases in which we have an interest are for
      varying primary terms, and if production under a lease continues from our
      developed lease acreage beyond the primary term, we are entitled to hold the
      lease for as long as oil or natural gas is produced.




7




**Government
      Regulation**




*Regulation
      of transportation of oil*




Sales
      of
      crude oil, condensate and natural gas liquids are not currently regulated and
      are made at negotiated prices. Nevertheless, Congress could reenact price
      controls in the future.




Our
      sales
      of crude oil are affected by the availability, terms and cost of transportation.
      The transportation of oil in common carrier pipelines is also subject to rate
      regulation. The Federal Energy Regulatory Commission, or the FERC, regulates
      interstate oil pipeline transportation rates under the Interstate Commerce
      Act.
      In general, interstate oil pipeline rates must be cost-based, although
      settlement rates agreed to by all shippers are permitted and market-based rates
      may be permitted in certain circumstances. Effective January 1, 1995, the FERC
      implemented regulations establishing an indexing system (based on inflation)
      for
      transportation rates for oil that allowed for an increase or decrease in the
      cost of transporting oil to the purchaser. A review of these regulations by
      the
      FERC in 2000 was successfully challenged on appeal by an association of oil
      pipelines. On remand, the FERC in February 2003 increased the index slightly,
      effective July 2001. Intrastate oil pipeline transportation rates are subject
      to
      regulation by state regulatory commissions. The basis for intrastate oil
      pipeline regulation, and the degree of regulatory oversight and scrutiny given
      to intrastate oil pipeline rates, varies from state to state. Insofar as
      effective interstate and intrastate rates are equally applicable to all
      comparable shippers, we believe that the regulation of oil transportation rates
      will not affect our operations in any way that is of material difference from
      those of our competitors.




Further,
      interstate and intrastate common carrier oil pipelines must provide service
      on a
      non-discriminatory basis. Under this open access standard, common carriers
      must
      offer service to all similarly situated shippers requesting service on the
      same
      terms and under the same rates. When oil pipelines operate at full capacity,
      access is governed by prorationing provisions set forth in the pipelines’
published tariffs. Accordingly, we believe that access to oil pipeline
      transportation services generally will be available to us to the same extent
      as
      to our competitors.




*Regulation
      of transportation and sale of natural gas*




Historically,
      the transportation and sale for resale of natural gas in interstate commerce
      have been regulated pursuant to the Natural Gas Act of 1938, the Natural Gas
      Policy Act of 1978 and regulations issued under those Acts by the FERC. In
      the
      past, the federal government has regulated the prices at which natural gas
      could
      be sold. While sales by producers of natural gas can currently be made at
      uncontrolled market prices, Congress could reenact price controls in the future.
      Deregulation of wellhead natural gas sales began with the enactment of the
      Natural Gas Policy Act. In 1989, Congress enacted the Natural Gas Wellhead
      Decontrol Act. The Decontrol Act removed all Natural Gas Act and Natural Gas
      Policy Act price and non-price controls affecting wellhead sales of natural
      gas
      effective January 1, 1993.




FERC
      regulates interstate natural gas transportation rates and service conditions,
      which affects the marketing of natural gas that we produce, as well as the
      revenues we receive for sales of our natural gas. Since 1985, the FERC has
      endeavored to make natural gas transportation more accessible to natural gas
      buyers and sellers on an open and non-discriminatory basis. The FERC has stated
      that open access policies are necessary to improve the competitive structure
      of
      the interstate natural gas pipeline industry and to create a regulatory
      framework that will put natural gas sellers into more direct contractual
      relations with natural gas buyers by, among other things, unbundling the sale
      of
      natural gas from the sale of transportation and storage services. Beginning
      in
      1992, the FERC issued Order No. 636 and a series of related orders to implement
      its open access policies. As a result of the Order No. 636 program, the
      marketing and pricing of natural gas have been significantly altered. The
      interstate pipelines’ traditional role as wholesalers of natural gas has been
      eliminated and replaced by a structure under which pipelines provide
      transportation and storage service on an open access basis to others who buy
      and
      sell natural gas. Although the FERC’ s orders do not directly regulate natural
      gas producers, they are intended to foster increased competition within all
      phases of the natural gas industry.




In
      2000,
      the FERC issued Order No. 637 and subsequent orders, which imposed a number
      of
      additional reforms designed to enhance competition in natural gas markets.
      Among
      other things, Order No. 637 effected changes in FERC regulations relating to
      scheduling procedures, capacity segmentation, penalties, rights of first refusal
      and information reporting. Most pipelines’ tariff filings to implement the
      requirements of Order No. 637 have been accepted by the FERC and placed into
      effect.




Gathering
      service, which occurs upstream of jurisdictional transmission services, is
      regulated by the states on shore and in state waters. Although its policy is
      still in flux, FERC has reclassified certain jurisdictional transmission
      facilities as non-jurisdictional gathering facilities, which may increase our
      costs of getting gas to point of sale locations.




Intrastate
      natural gas transportation is also subject to regulation by state regulatory
      agencies. The basis for intrastate regulation of natural gas transportation
      and
      the degree of regulatory oversight and scrutiny given to intrastate natural
      gas
      pipeline rates and services varies from state to state. Insofar as such
      regulation within a particular state will generally affect all intrastate
      natural gas shippers within the state on a comparable basis, we believe that
      the
      regulation of similarly situated intrastate natural gas transportation in any
      states in which we operate and ship natural gas on an intrastate basis will
      not
      affect our operations in any way that is of material difference from those
      of
      our competitors. Like the regulation of interstate transportation rates, the
      regulation of intrastate transportation rates affects the marketing of natural
      gas that we produce, as well as the revenues we receive for sales of our natural
      gas.


8


*Regulation
      of production*




The
      production of oil and natural gas is subject to regulation under a wide range
      of
      local, state and federal statutes, rules, orders and regulations. Federal,
      state
      and local statutes and regulations require permits for drilling operations,
      drilling bonds and reports concerning operations. Such regulations govern
      conservation matters, including provisions for the unitization or pooling of
      oil
      and natural gas properties, the establishment of maximum allowable rates of
      production from oil and natural gas wells, the regulation of well spacing,
      and
      plugging and abandonment of wells. The effect of these regulations is to limit
      the amount of oil and natural gas that we can produce from our wells and to
      limit the number of wells or the locations at which we can drill, although
      we
      can apply for exceptions to such regulations or to have reductions in well
      spacing. Moreover, each state generally imposes a production or severance tax
      with respect to the production and sale of oil, natural gas and natural gas
      liquids within its jurisdiction.




The
      failure to comply with these rules and regulations can result in substantial
      penalties. Our competitors in the oil and natural gas industry are subject
      to
      the same regulatory requirements and restrictions that affect our operations.




*Environmental,
      health and safety regulation*




*General* .
      Our
      operations are subject to stringent and complex federal, state, local and
      provincial laws and regulations governing environmental protection, health
      and
      safety, including the discharge of materials into the environment. These laws
      and regulations may, among other things:




·
            requirethe acquisition of various permits before drilling
                commences;





·
            restrict
                the types, quantities and concentration of various substances that
                can be
                released into the environment in connection with oil and natural
                gas
                drilling, production and transportation
                activities;





·
            limit
                or prohibit drilling activities on certain lands lying within wilderness,
                wetlands and other protected areas;
                and





·
            require
                remedial measures to mitigate pollution from former and ongoing
                operations, such as requirements to close pits and plug abandoned
                wells.







These
      laws and regulations may also restrict the rate of oil and natural gas
      production below the rate that would otherwise be possible. The regulatory
      burden on the oil and gas industry increases the cost of doing business in
      the
      industry and consequently affects profitability. Additionally, Congress and
      federal and state agencies frequently revise environmental, health and safety
      laws and regulations, and any changes that result in more stringent and costly
      waste handling, disposal and cleanup requirements for the oil and gas industry
      could have a significant impact on our operating costs.




The
      following is a summary of the material existing environmental, health and safety
      laws and regulations to which our business operations are subject.




*Waste
      handling* .
      The
      Resource Conservation and Recovery Act, or RCRA, and comparable state statutes,
      regulate the generation, transportation, treatment, storage, disposal and
      cleanup of hazardous and non-hazardous wastes. Under the auspices of the federal
      Environmental Protection Agency, or EPA, the individual states administer some
      or all of the provisions of RCRA, sometimes in conjunction with their own,
      more
      stringent requirements. Drilling fluids, produced waters and most of the other
      wastes associated with the exploration, development and production of crude
      oil
      or natural gas are currently regulated under RCRA’s non-hazardous waste
      provisions. However, it is possible that certain oil and natural gas exploration
      and production wastes now classified as non-hazardous could be classified as
      hazardous wastes in the future. Any such change could result in an increase
      in
      our costs to manage and dispose of wastes, which could have a material adverse
      effect on our results of operations and financial position.




*Comprehensive
      Environmental Response, Compensation and Liability Act* .
      The
      Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
      also known as the Superfund law, imposes joint and several liability, without
      regard to fault or legality of conduct, in connection with the release of a
      hazardous substance into the environment. Persons potentially liable under
      CERCLA include the current or former owner or operator of the site where the
      release occurred and anyone who disposed or arranged for the disposal of a
      hazardous substance to the site where the release occurred. Under CERCLA, such
      persons may be subject to joint and several liability for the costs of cleaning
      up the hazardous substances that have been released into the environment,
      damages to natural resources and the costs of certain health studies. In
      addition, it is not uncommon for neighboring landowners and other third parties
      to file claims for personal injury and property damage allegedly caused by
      the
      hazardous substances released into the environment.




9


We
      own
      and lease, and may in the future operate, numerous properties that have been
      used for oil and natural gas exploitation and production for many years.
      Hazardous substances may have been released on, at or under the properties
      owned, leased or operated by us, or on, at or under other locations, including
      off-site locations, where such substances have been taken for disposal. In
      addition, some of our properties have been or are operated by third parties
      or
      by previous owners or operators whose handling, treatment and disposal of
      hazardous substances were not under our control. These properties and the
      substances disposed or released on, at or under them may be subject to CERCLA,
      RCRA and analogous state laws. In certain circumstances, we could be responsible
      for the removal of previously disposed substances and wastes, remediate
      contaminated property or perform remedial plugging or pit closure operations
      to
      prevent future contamination. In addition, federal and state trustees can also
      seek substantial compensation for damages to natural resources resulting from
      spills or releases.




*Water
      discharges* .
      The
      Federal Water Pollution Control Act, or the Clean Water Act, and analogous
      state
      laws, impose restrictions and strict controls with respect to the discharge
      of
      pollutants, including oil and other substances generated by our operations,
      into
      waters of the United States or state waters. Under these laws, the discharge
      of
      pollutants into regulated waters is prohibited except in accordance with the
      terms of a permit issued by EPA or an analogous state agency. Federal and state
      regulatory agencies can impose administrative, civil and criminal penalties
      for
      non-compliance with discharge permits or other requirements of the Clean Water
      Act and analogous state laws and regulations.




The
      Safe
      Drinking Water Act, or SDWA, and analogous state laws impose requirements
      relating to underground injection activities. Under these laws, the EPA and
      state environmental agencies have adopted regulations relating to permitting,
      testing, monitoring, record keeping and reporting of injection well activities,
      as well as prohibitions against the migration of injected fluids into
      underground sources of drinking water.




*Air
      emissions* .
      The
      Federal Clean Air Act and comparable state laws regulate emissions of various
      air pollutants through air emissions permitting programs and the imposition
      of
      other requirements. In addition, EPA and certain states have developed and
      continue to develop stringent regulations governing emissions of toxic air
      pollutants at specified sources. Federal and state regulatory agencies can
      impose administrative, civil and criminal penalties for non-compliance with
      air
      permits or other requirements of the Federal Clean Air Act and analogous state
      laws and regulations.




The
      Kyoto
      Protocol to the United Nations Framework Convention on Climate Change became
      effective in February 2005. Under the Protocol, participating nations are
      required to implement programs to reduce emissions of certain gases, generally
      referred to as greenhouse gases, that are suspected of contributing to global
      warming. The United States is not currently a participant in the Protocol,
      and
      Congress has not acted upon recent proposed legislation directed at reducing
      greenhouse gas emissions. However, there has been support in various regions
      of
      the country for legislation that requires reductions in greenhouse gas
      emissions, and some states have already adopted legislation addressing
      greenhouse gas emissions from various sources, primarily power plants. The
      oil
      and natural gas industry is a direct source of certain greenhouse gas emissions,
      namely carbon dioxide and methane, and future restrictions on such emissions
      could impact our future operations.




*National
      Environmental Policy Act* .
      Oil and
      natural gas exploration and production activities on federal lands are subject
      to the National Environmental Policy Act, or NEPA. NEPA requires federal
      agencies, including the Department of Interior, to evaluate major agency actions
      that have the potential to significantly impact the environment. In the course
      of such evaluations, an agency will prepare an Environmental Assessment that
      assesses the potential direct, indirect and cumulative impacts of a proposed
      project and, if necessary, will prepare a more detailed Environmental Impact
      Statement that may be made available for public review and comment. All
      exploration and production activities on federal lands require governmental
      permits that are subject to the requirements of NEPA. This process has the
      potential to delay the development of oil and natural gas projects on federal
      lands.




*Health,
      safety and disclosure regulation* .
      We are
      subject to the requirements of the federal Occupational Safety and Health Act
      (OSHA) and comparable state statutes. The OSHA hazard communication standard,
      the Emergency Planning and Community Right to Know Act and similar state
      statutes require that we organize and/or disclose information about hazardous
      materials stored, used or produced in our operations.




We
      expect
      to incur capital and other expenditures related to environmental compliance.
      Although we believe that our compliance with existing requirements will not
      have
      a material adverse impact on our financial condition and results of operations,
      we cannot assure you that the passage of more stringent laws or regulations
      in
      the future will not have a negative impact on our financial position or results
      of operation.  10





**RISK
      FACTORS**




The
      following factors affect our business and the industry in which it operates.
      The
      risks and uncertainties described below are not the only ones we face.
      Additional risks and uncertainties not presently known or that we currently
      consider immaterial may also have an adverse effect on our business. If any
      of
      the matters discussed in the following risk factors were to occur, our business,
      financial condition, results of operations, cash flows, or prospects could
      be
      materially adversely affected.




**Risks
      Related to Our Business**




*Our
      future operations are highly dependent upon our ability access additional
      capital financing.*




As
      of
      April 16, 2007, we had approximately $1,000,000 in cash, and guaranteed
      commitments to realize an additional $4,000,000 in equity proceeds from the
      April 13, 2007 placement of our Series A Preferred Convertible Stock (“Series A
      Preferred”) with BlueWater Capital Group, LLC, a private investment group
      controlled by our Chairman and Chief Executive Officer, Prentis B. Tomlinson,
      Jr. We anticipate that the proceeds from the Series A Preferred will be
      sufficient to cover our planned capital budget and general and administrative
      expenditures for the remainder of 2007. Our operations beyond 2007 will require
      substantial capital expenditures. If we are not able to continue to raise funds
      or dramatically increase our operational cash flow, we will be forced to curtail
      certain operations and may be unable to continue as a going concern. Additional
      financing through partnering, public or private equity financings, lease
      transactions or other financing sources may not be available on acceptable
      terms, or at all. Additional equity financings could result in significant
      dilution to our stockholders.




*Several
      of our officers and directors are also officers and/or directors for another
      company, which may lead to conflicts of interest for these officers and
      directors.*




Some
      of
      our officers and directors also serve as officers and/or directors of Standard
      Drilling, Inc., a company engaged in the business of drilling services. Standard
      Drilling’s management includes Mr. Prentis Tomlinson as CEO and Mr. Edward Moses
      as President and COO. Our management includes Mr. Tomlinson as Chairman,
      President and CEO and Mr. Moses as Vice Chairman. In addition, two of the four
      members of our Board of Directors, Messrs. Tomlinson and Moses, serve as
      directors of Standard Drilling. Another one of our directors, Mr. Buntain,
      is a
      stockholder in Standard Drilling. In addition, our President and these other
      officers and directors directly or indirectly own approximately 30% of our
      outstanding common stock, 100% of our
      Series A Preferred Stock and approximately 34% of Standard Drilling determined
      in each case according to Rule 13D-3. As officers and/or directors of both
      companies, these individuals will have a duty of loyalty to both companies.
      Although each company has other separate officers and staff, a conflict of
      interest may arise if we enter, or consider entering into any arrangements
      with
      Standard Drilling or if we and Standard Drilling engage, or attempt to engage,
      in the same businesses. We have entered into a Business Opportunity Agreement
      with Standard Drilling pursuant to which we disclaimed interest in any future
      drilling business opportunities, and Standard Drilling disclaimed interest
      in
      any future exploration and production business opportunities; this agreement
      clarifies the separate interests of these two entities and permits those
      officers and directors employed by both companies to manage the respective
      businesses without concern that the interests described in the agreement
      overlap. Nevertheless, transactions or other situations may arise in which
      both
      we and Standard Drilling are interested (such as opportunities for Standard
      Drilling to provide us with drilling services), and in such cases, our officers
      and directors in common might have conflicts of interest that would prevent
      them
      from making decisions or taking actions that are in our shareholders’ best
      interests, and as a result our business and financial results could be adversely
      affected.




*We
      have entered into an agreement with Standard Drilling, Inc. pursuant to which
      we
      agreed to not enter into the oil field services businesses, and thus we cannot
      enter into or invest in any oil field services businesses.*




We
      have
      entered into a Business Opportunity Agreement with Standard Drilling, Inc.
      pursuant to which we agreed to not acquire, invest in or operate any oil field
      services business and Standard Drilling, Inc. agreed to not acquire, invest
      in
      or operate any exploration or production business other than its currently
      owned
      oil and gas properties. Unless this agreement is amended, modified or no longer
      in effect, we cannot acquire or otherwise invest in any oil field service
      business even if we believe such an acquisition or investment would be
      beneficial to us.




*Our
      conflicts committee consists of a single director and, in the event of a
      transaction or other circumstance involving Standard Drilling, the committee
      will not be able to rely on the unconflicted advice of much of our senior
      management, and if our single director resigns or is otherwise unable to perform
      his obligations as a director, we will not be able to take action on a matter
      involving conflicts for our remaining directors until either one or more new
      unconflicted directors are appointed or the Board takes action in the absence
      of
      unconflicted directors.*




11


Mr.
      Steelhammer is our only director who is not director, officer or shareholder
      of,
      or otherwise affiliated with, Standard Drilling, and he does not constitute
      a
      majority of the Board of Directors. Mr. Steelhammer is the sole member of our
      conflicts committee, which is charged with determining all actions that are
      required to be taken or may be taken by us with respect to any opportunity
      or
      transaction that involves a conflict of interest for any officer or director.
      While the conflicts committee will have complete access to our management and
      is
      entitled to engage such outside engineering, financial, legal and other
      assistance as it deems appropriate, in the event of a transaction or other
      circumstance involving Standard Drilling the committee will not be able to
      rely
      on the unconflicted advice of much of our senior management. Further, if Mr.
      Steelhammer resigns or is otherwise unable to perform his obligations as a
      director, we will not be able to take action on any matters that are delegated
      to the conflicts committee until one or more new unconflicted directors are
      appointed and made members of the conflicts committee, or unless and until
      the
      Board determines to take action in the absence of any unconflicted directors,
      relying on its determination as to the fundamental fairness of the proposed
      transaction to our shareholders.





*Employment
      of some of our officers by another company may limit the time they have
      available to devote to managing our business.*




As
      noted
      above, several of our officers, including our President and Vice Chairman,
      are
      also employed as officers and/or directors of Standard Drilling. Standard
      Drilling pays the officers salaries comparable to, and in some cases greater
      than, the salaries we pay them. Currently, Standard Drilling pays Mr. Tomlinson
      and Mr. Moses $20,000 more per year than we pay them. Our employment agreements
      with these officers require them to devote such time to managing our business
      as
      is reasonably necessary to perform their duties under the employment agreement
      but do not specify a specific number of hours or percentage of time. Further,
      the officers have significant discretion on a day to day basis as to whether
      to
      devote time to the management of our business or management of Standard
      Drilling’s business. As a result of the salaries paid to them by, their
      fiduciary duties to, and their ownership of a substantial interest in, Standard
      Drilling, or for any other reason, the officers may determine to devote most
      or
      all of their time to Standard Drilling for an extended period of time. Because
      of the time required of these officers to manage Standard Drilling’s business,
      they may not devote sufficient time to managing our business, and as a result
      our business and financial results could be adversely affected. The supervision
      of the officers’ performance by directors without any conflict of interest
      regarding Standard Drilling is limited to the oversight provided by Mr.
      Steelhammer, unless one or more additional unconflicted directors are added
      to
      our Board in the future.




*We
      have a limited operating history and limited revenues.*




Our
      oil
      and gas business commenced in August of 2005 and, accordingly, is subject to
      substantial risks inherent in the commencement of a new business enterprise.
      Consequently, we have limited assets and operations. To date, we have generated
      limited revenue from our operations, have no business history and may not be
      able to successfully identify, develop and operate oil and gas leases, generate
      revenues, or manage profitable operations that investors can analyze to aid
      them
      in making an informed judgment as to the merits of an investment in us. Any
      investment in us should be considered a high risk investment because the
      investor will be placing funds at risk in a company with unforeseen costs,
      expenses, competition, and other problems to which new ventures are often
      subject. Investors should not purchase our stock unless they can afford to
      lose
      their entire investment.





Our
      operations beyond 2007 will require substantial capital expenditures. If we
      are
      not able to continue to raise funds or dramatically increase our operational
      cash flow, we will be forced to curtail certain operations and may be unable
      to
      continue as a going concern. Additional financing through partnering, public
      or
      private equity financings, lease transactions or other financing sources may
      not
      be available on acceptable terms, or at all. Additional equity financings could
      result in significant dilution to our stockholders.




*There
      is a high demand for leases and drilling rigs in the areas of our operation
      and
      we may not be able to obtain leases or access to rigs at rates that permit
      us to
      be profitable or at all.*




Increases
      in oil and natural gas prices have resulted in a significant increase in demand
      for both oil and gas leases and drilling rigs. As a result, the cost of both
      leases and rigs has increased substantially. In particular the demand for rigs
      has made it difficult in some instances to obtain such services without
      significant advance scheduling. If we cannot obtain leases to oil and gas
      properties and rigs when needed and at reasonable rates, or at all, we may
      not
      be able to complete exploration and development and commence production in
      a
      timely manner. As a result, our associated costs could be substantially higher,
      we may lose our rights to some leases and our business and financial results
      may
      be adversely affected.




*We
      will face intense competition in our industry, and we may not have the capacity
      to compete with larger oil and gas companies also investing in oil and gas
      prospects.*




Identifying
      and realizing attractive investments in the energy sector are highly
      competitive, involve a high degree of uncertainty and often require significant
      capital. There are many companies with more resources in the oil and gas
      industry competing to identify and acquire the most desirable oil and gas
      prospects. If we cannot acquire high quality oil and gas prospects, at a cost
      which allows us to earn a profit, due to such competition, our business and
      financial results will be adversely affected.




*The
      selection of prospects, ownership and operation of oil and gas wells, and the
      ownership of non-operating oil and gas properties are highly speculative
      investments.*


12


Prospects
      may not produce oil or natural gas, or drilling or development on a prospect
      may
      not take place at all. Operations on the interests we acquire may be
      unprofitable, not only because a well may be non-productive “dry hole,” but also
      because the producing life and productivity of wells are unpredictable. Wells
      may not produce oil and/or gas in sufficient quantities or quality to recoup
      the
      investment, let alone return a profit. Further, weather-related and other delays
      may affect the ability to drill for hydrocarbons, produce hydrocarbons, or
      to
      transport hydrocarbons. Development and transportation may be made impracticable
      or impossible by weather, ground conditions, inability to obtain appropriate
      easements, ground water, or other conditions or delays. If any of our prospects
      or wells fails to produce at anticipated levels or if their completion or
      operation is delayed or limited, our business and financial results may be
      adversely affected.




*The
      experts on whom we rely to analyze potential acquisitions may not make accurate
      conclusions about prospects.*




We
      will
      rely on our management and personnel, experts, our partners and other third
      parties to analyze potential prospects in which we invest. If the analysis
      is
      inaccurate, the prospects may not result in productive wells and our business
      and financial results will be adversely affected.







*Third
      parties may operate some of the prospects in which we invest and thus we may
      be
      unable to control their operations in a manner as we believe will yield the
      best
      results.*




Third
      parties manage and control the properties in which we invest. Also, third
      parties may act as the operator of some of our prospects, and in most cases,
      we
      will acquire less than a 100% ownership position in our oil and gas properties.
      Accordingly, third parties may manage and control the drilling, completion
      and
      production operations on the properties. As a result, a prospect may not be
      drilled or operated in the manner we desire. Additionally, we could be held
      liable for the joint activities of other working interest owners of our
      investment properties, including nonpayment of costs and liabilities arising
      from the other working interest owners’ actions. Moreover, if other working
      interest owners do not, or cannot, pay their share of drilling and completion
      costs for a prospect, that prospect might not be fully developed.




*Leasehold
      interests in which we invest may revert before the interest is profitable.*




Many
      leases and mineral interests contain provisions that allow ownership to revert
      back to the original owners after a certain period of time and under certain
      circumstances. Because we may not have control of the majority of the interest
      in a particular lease block or because of a lack of funds or availability of
      equipment, we will have little or no control over the development or drilling
      that takes place, and leases may therefore expire before any commercialization
      of the lease takes place.




*Drilling
      wells is speculative, unpredictable, and we will lose our entire investment
      in
      wells that do not produce in commercial quantities.*




We
      will
      be required to pay our pro rata share of drilling expenses on a prospect where
      we own a working interest. Drilling involves high risk, and the probability
      is
      high that no oil and gas will be discovered in commercial quantities. In most
      instances for any given prospect, a dry hole will result in a total loss of
      any
      amounts invested in the drilling of the prospect, including the amount invested
      in the mineral lease.




*Production
      and marketing conditions may cause production delays.*




Some
      of
      the prospects we acquire may be remote from transportation facilities. Drilling
      wells in areas remote from transportation facilities may delay production from
      those wells until sufficient reserves are established to justify construction
      of
      necessary pipelines and production facilities. The inability to complete wells
      in a timely fashion on a prospect may also result in production delays. In
      addition, marketing demands (which have historically been seasonal) may reduce
      or delay production from wells. The wells on the prospects in which we invest
      may have access to only one potential market. Local conditions, including
      closing businesses, conservation, shifting population, pipeline maximum
      operating pressure constraints, local supply levels and delivery problems could
      halt or reduce sales from the wells in which we invest. The occurrence of any
      of
      these conditions may adversely affect our ability to produce and/or market
      oil
      and gas from the affected wells.




13


*Political
      and economic instability in Iraq could aversely affect our investment in
      projects in Iraq*




We
      have
      entered into an agreement to invest in an exploration and production project
      in
      Iraq. Our investment in Iraq is subject to a variety of political and economic
      risks due in part to insurrection and instability in Iraq,
      including:




·
            loss
                of property and equipment as a result of events such as acts of war,
                insurrection, terrorism, expropriation, or
                nationalization;





·
            increases
                in import, export and transportation regulations and tariffs, taxes
                and
                governmental royalties;





·
            renegotiation
                of contracts with governmental entities that result in less favorable
                terms for us;





·
            changes
                in laws and policies governing operations of foreign-based companies
                in
                Iraq that increase our costs or otherwise adversely affect our
                operations;





·
            changes
                in exchange controls and other laws that affect our ability to transfer
                funds to the United States;





·
            changes
                in the laws and policies of the United States affecting foreign trade,
                taxation and investment; and





·
            the
                possibility of being subject to the exclusive jurisdiction of foreign
                courts in connection with legal disputes and the possible inability
                to
                subject foreign persons to the jurisdiction of courts in the United
                States.




As
      a
      result of any of the foregoing we may lose some or all of our investment in
      Iraq
      or control over the investment or its returns. Our business and financial
      results would be adversely affected by any such event.




*Oil
      and gas markets have historically been unstable and their fluctuation may
      adversely affect the value and marketability of our
      investments.*




Global
      economic conditions, political conditions and other factors create an unstable
      market for the price of oil and natural gas. Oil and gas prices may fluctuate
      significantly in response to supply, demand, political, economic, weather and
      other factors. Such price fluctuation may affect the value of cash flow from
      producing properties and the value and marketability of our
      investments.




*We
      may not be able to be both cost-efficient and geographically diversified.*




While
      we
      will diversify our investments among different properties, prospects, and,
      possibly, geographic regions, the cost to acquire interests in and develop
      oil
      and gas prospects varies greatly in different geographic locations.
      Consequently, if we make investments in a limited geographic area, it may lower
      our cost per investment but would limit the diversity of our portfolio.
      Conversely, if we make investments in a number of different areas, our diversity
      would increase but at a greater cost to us.




*The
      profitability of any investment will be subject to the risk of loss due to
      damage to people or property arising from the hazards of drilling and operating
      prospects and wells.*




We
      intend
      to invest in leaseholds, titles, mineral interests, working interests, royalty
      interests and other energy exploration related assets. Numerous potential
      hazards accompany the development of these interests, including unexpected
      or
      unusual ground formations, pressures, blowouts, and pollution. Any of these
      hazards could injure or kill people or damage property, including causing
      surface damages, equipment damage, reservoir damage and reserve loss. If any
      of
      these potential hazards occur, the associated damages could exceed the value
      of
      our assets and any insurance coverage.




*Our
      activities will be subject to substantial environmental laws and regulations
      and
      the cost of complying with those laws and regulations may be significant.*




We
      will
      be subject to federal, state and local environmental laws, regulations and
      ordinances that may impose liability for the costs of cleaning up, and damages
      resulting from, past spills, disposals and other releases of hazardous
      substances. In particular, under applicable environmental laws, we may be
      responsible for certain costs associated with investigating and remediating
      environmental conditions and may be subject to associated liability, including
      lawsuits brought by private litigants, relating to prospects in which we own
      working interests. These obligations could arise regardless of whether the
      environmental conditions were created by us, a partner or by a prior owner
      or
      tenant. If we incur any such costs, our business and financial results may
      be
      adversely affected.




14


**Risks
      Related to Our Stock**




*The
      Conversion of our Series A Convertible Preferred Shares will result in
      significant and immediate dilution of our existing stockholders and the book
      value of their common stock.*




On
      April
      13, 2007, we completed a private placement of 8,000,000 Series A Convertible
      Preferred Shares with BlueWater Capital Group, LLC, a private investment group
      managed by our Chairman, CEO and President Prentis B. Tomlinson, Jr. in exchange
      for net proceeds of $5,000,000 of which $1,000,000 has been received by Calibre
      and the remaining $4,000,000 has been structured as a non interest bearing
      note
      payable to Calibre in monthly increments of $800,000 over the next 5 months.
      The
      Series A Preferred has that number of votes equal to 51% of the total votes
      entitled to be cast by all outstanding capital stock. After the receipt of
      the
      total proceeds, the preferred shares may be convertible, at the election of
      the
      Holder, into a fixed amount of common stock, equal to 75% of total outstanding
      shares of common stock then issued and outstanding at the time of conversion






Each
      holder of shares of Series A Convertible Preferred Stock shall be entitled
      at
      the election of the holder to cause any or all of such shares to be converted
      into shares of Common Stock on the basis of the Conversion Ratio then in effect,
      provided, however, that the conversion of the Series
      A
      Convertible Preferred Stock shall
      not be effective until the Articles of Incorporation of the Company have been
      amended to increase the number of authorized shares of Common Stock to at least
      200,000,000 shares (the “Amendment”). Each share of Series A Convertible
      Preferred Stock shall be convertible into shares of Common Stock based on the
      ratio required to cause the number of shares of Common Stock issuable upon
      the
      conversion of 8,000,000 shares of Series A Preferred Stock to equal 75% of
      the
      number of shares of Common Stock then issued and outstanding after the
      conversion (the “Conversion Ratio”).




The
      Series A Preferred are not entitled to receive any dividends unless dividends
      are declared and paid by us on the Company’s Common Stock. If we pay dividends
      on our Common Stock, then each holder of a share of Series A Convertible
      Preferred Stock shall be entitled to receive the amount of dividends such holder
      would have received if its shares of Series A Convertible Preferred Stock had
      already been converted into shares of Common Stock. The Series A Preferred
      were
      not issued in conjunction with any warrants.




Prior
      to
      conversion, the Series A Preferred has a liquidation preference equal to $5
      million. In the event of any liquidation, dissolution or winding up of Calibre,
      either voluntary or involuntary (a “liquidation event”), a holder of the Series
      A Convertible Preferred Stock shall be entitled to receive out of our assets,
      prior to the holders of the Common Stock and the holders of Preferred Stock
      with
      rights junior to the Series A Preferred, for each share of Series A Convertible
      Preferred Stock held by such holder, $.625 per share (the “Liquidation
      Preference”).





*The
      holder of our Series A Convertible Preferred Shares controls a majority of
      the
      voting rights of the Company’s shares and exercises a significant degree of
      influence over us, and may make decisions with which you
      disagree.*




The
      voting power of each share of Series A Convertible Preferred Stock shall be
      equal to the number of votes required to cause the aggregate of the votes
      entitled to be cast by all of the issued and outstanding Series A Convertible
      Preferred Stock to equal 51% of all votes entitled to be cast by all our classes
      of stock. The Series A Convertible Preferred Stock shall be entitled to vote
      on
      any and all matters brought to a vote of holders of Common Stock. Holders of
      Series A Convertible Preferred Stock shall be entitled to notice of all
      shareholder meetings or written consents with respect to which they would be
      entitled to vote, which notice would be provided to the holders of the Common
      Stock pursuant to the Company’s Bylaws and applicable statutes




As
      a
      result of any substantial share ownership that one or more of these holders
      of
      Series A Convertible Preferred Stock, such stockholder or stockholders may
      have
      the ability to influence significantly any decisions relating to:




·
            elections
                to our board of directors;





·
            amendments
                to our certificate of
                incorporation;





·
            the
                outcome of any corporate transaction or other matter submitted to
                our
                stockholders for approval, including mergers, consolidations and
                the sale
                of all or substantially all of our assets; and





·
            a
                change of control of Calibre (which may have the effect of
                discouraging third party offers to acquire
                Calibre)




15


*There
      is currently a limited market for our common stock, and any trading market
      that
      develops in the common stock may be highly illiquid and may not reflect the
      underlying value of our net assets or business prospects.*




There
      is
      currently a limited market for our common stock and an improved market for
      our
      common stock may not develop. Accordingly, purchasers of the shares offered
      hereby will be required to bear the economic consequences of holding such
      securities for an indefinite period of time. An active trading market for our
      common stock may not ever develop. Any trading market that does develop may
      be
      volatile, and significant competition to sell our common stock in any such
      trading market may exist, which could negatively affect the price of our common
      stock. As a result, the value of our common stock may decrease. Additionally,
      if
      a trading market does develop, such market may be highly illiquid, and our
      common stock may trade at a price that does not accurately reflect the
      underlying value of our net assets or business prospects. Investors are
      cautioned not to rely on the possibility that an active trading market may
      develop or on the prices at which our stock may trade in any market that does
      develop in making an investment decision.




*If
      our share price is volatile, we may be the target of securities litigation,
      which is costly and time-consuming to defend.*




In
      the
      past, following periods of market volatility in the price of a company’s
      securities, security holders have often instituted class action litigation.
      If
      the market value of our common stock experiences adverse fluctuations and we
      become involved in this type of litigation, regardless of the outcome, we could
      incur substantial legal costs and our management’s attention could be diverted
      from the operation of our business, causing our business to suffer.




*Our
      “blank check” preferred stock could be issued to prevent a business combination
      not desired by management or our current majority
      shareholders.*




Our
      articles of incorporation authorize the issuance of “blank check” preferred
      stock with such designations, rights and preferences as may be determined by
      our
      board of directors without shareholder approval. Our preferred stock could
      be
      utilized as a method of discouraging, delaying, or preventing a change in our
      control and as a method of preventing shareholders from receiving a premium
      for
      their shares in connection with a change of control.




*Future
      sales of our common stock in the public market could lower our stock
      price.*




We
      may
      sell additional shares of common stock in subsequent public or private
      offerings. We may also issue additional shares of common stock to finance future
      acquisitions. Such sales or issuances may be at prices less than the public
      trading price. We cannot predict the size of future issuances of our common
      stock or the effect, if any, that future issuances and sales of shares of our
      common stock will have on the market price of our common stock. Sales of
      substantial amounts of our common stock (including shares issued in connection
      with an acquisition), or the perception that such sales could occur, may
      adversely affect prevailing market prices for our common stock.




*We
      presently do not intend to pay cash dividends on our common
      stock.*




We
      currently anticipate that no cash dividends will be paid on the common stock
      in
      the foreseeable future. While our dividend policy will be based on the operating
      results and capital needs of the business, it is anticipated that all earnings,
      if any, will be retained to finance the future expansion of the our business.
      Therefore, prospective investors who anticipate the need for immediate income
      by
      way of cash dividends from their investment should not purchase the shares
      offered in this offering.




16




**ITEM
      2. DESCRIPTION OF PROPERTY.**




*Office
      Lease* .
      Calibre
      Energy, Inc. leases 2,360 square feet of office space in Washington, D.C. that
      serves as its corporate office. The lease is at market rates and expires in
      October 2008. Additionally, Calibre has an operations office of 4,000 square
      feet in Houston, Texas. The lease is at market rates and expires on August
      30,
      2011.




**ITEM
      3: LEGAL PROCEEDINGS.**




We
      are
      not currently a party to any legal proceedings.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**




No
      meetings were held in 2006.








17




**PART
      II**




**ITEM
      5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
      ISSUER PURCHASES OF EQUITY SECURITIES.**







Shares
      of
      our common stock are traded on the National Association of Securities Dealers
      Inc. Over the Counter Bulletin Board under the symbol “CBRE.OB.” Our common
      stock trades on a limited, sporadic and volatile basis. As of March 30, 2007,
      the last reported sales price of our common stock on the OTC Bulletin Board
      was
      $0.30. As of March 30, 2007, there were 62,437,704 shares of our common stock
      outstanding that were held of record by 522 persons.




The
      following table sets forth, for the periods indicated, the range of high and
      low
      bid information for our common stock. These quotations reflect inter-dealer
      prices, without retail mark-up, mark-down or commission, and may not represent
      actual transactions.




**Price
                Ranges****High**
            **Low****Fiscal
                Year Ended December 31, 2003**First
                Quarter
            0
            0Second
                Quarter
            0
            0Third
                Quarter
            0
            0Fourth
                Quarter
            0
            0**Fiscal
                Year Ended December 31, 2004**First
                Quarter
            0
            0Second
                Quarter
            0
            0Third
                Quarter
            0
            0Fourth
                Quarter
            0
            0**Fiscal
                Year Ended December 31, 2005**First
                Quarter
            0
            0Second
                Quarter
            0
            0Third
                Quarter
            0
            0Fourth
                Quarter
            2.00
            1.42**Fiscal
                Year Ended December 31, 2006**First
                Quarter
            3.00
            1.55Second
                Quarter
            2.90
            1.80Third
                Quarter
            2.80
            1.81Fourth
                Quarter
            2.79
            2.00**Fiscal
                Year Ending December 31, 2007**First
                Quarter
            2.79
            0.30Second
                Quarter (Through May 2, 2007)
            0.47
            0.10
















18




**ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF
      OPERATIONS**




**Overview**




Calibre
      is an exploration and production company focused on the acquisition,
      exploitation and development of high quality, long-lived producing and
      non-producing fractured gas and oil shale properties in selected producing
      basins in North America and in an unexplored region of the Irbil Province of
      Kurdistan, Iraq. Headquartered in Washington, DC and Houston,
      Texas, Calibre is a Nevada corporation. We have a limited operating history
      as our predecessor company for financial reporting purposes was formed on August
      17, 2005.




Calibre
      intends to expand and develop our exploration and production business and
      reserves by initially emphasizing the identification and development of shale
      gas opportunities in the Barnett Shale and the Fayetteville Shale and the
      development of an unexplored area of Kurdistan, Iraq. Calibre has identified
      that the Mississippian developments of the Barnett Shale in the Ft. Worth Basin
      and the Fayetteville Shale development in the Arkoma Basin and the Bina Bawi
      project in Irbil Province of Kurdistan provide the greatest near term economic
      value. Calibre is currently participating in three projects with Kerogen
      Resources, Inc., a privately held exploration and production company located
      in
      Houston, Texas. The projects are the Reichmann Petroleum project, South Ft.
      Worth Basin project and Williston Basin project.  Calibre also has acquired
      10% participating interest in an Exploration and Production Sharing
      Agreement with the Kurdish Regional Government in Kurdistan, Iraq, pursuant
      to a
      joint operating agreement with Hawler Energy, Ltd (Bina Bawi Project).





*Acquisition,
      exploration and development.*




We
      follow
      the full cost method of accounting for oil and gas properties. Accordingly,
      all
      costs associated with acquisition, exploration, and development of oil and
      gas
      reserves, including directly related overhead costs and related asset retirement
      costs, are capitalized.




*General
      and administrative.*




General
      and administrative expenses consist primarily of salaries and benefits, office
      expense, professional services fees, and other corporate overhead costs. We
      anticipate increases in general and administrative expenses as we continue
      to
      increase our staff to expand our operations.




**Status
      of Calibre Energy, Inc.**




On
      February 8, 2007 ,
      the
      Company announced that as of January 31, 2007 we had only approximately $92,000
      in cash and will need to raise additional funds immediately in order to continue
      operations. If we do not raise funds immediately we will be forced to cease
      our
      operations, and our ability to obtain the necessary funding is
      uncertain ***.***





On
      April
      13, 2007, we completed a private placement of 8,000,000 Series
      A
      Convertible Preferred Shares with BlueWater
      Capital Group, LLC, a private investment group managed by our Chairman, CEO
      and
      President Prentis B. Tomlinson, Jr. in exchange for net proceeds of $5,000,000
      of which $1,000,000 has been received by Calibre and the remaining $4,000,000
      has been structured as a non interest bearing note payable to Calibre in monthly
      increments of $800,000 over the next 5 months. The Series A Preferred has that
      number of votes equal to 51% of the total votes entitled to be cast by all
      outstanding capital stock. After the receipt of the total proceeds, the
      preferred shares may be convertible, at the election of the Holder, into a
      fixed
      amount of common stock, equal to 75% of total outstanding shares of common
      stock
      then issued and outstanding after the conversion.




Each
      holder of shares of Series A Convertible Preferred Stock shall be entitled
      at
      the election of the holder to cause any or all of such shares to be converted
      into shares of Common Stock on the basis of the Conversion Ratio then in effect,
      provided, however, that the conversion of the Series
      A
      Convertible Preferred Stock shall
      not be effective until the Articles of Incorporation of the Company have been
      amended to increase the number of authorized shares of Common Stock to at least
      200,000,000 shares (the “Amendment”). Each share of Series A Convertible
      Preferred Stock shall be convertible into shares of Common Stock based on the
      ratio required to cause the number of shares of Common Stock issuable upon
      the
      conversion of 8,000,000 shares of Series A Preferred Stock to equal 75% of
      the
      number of shares of Common Stock then issued and outstanding after the
      conversion (the “Conversion Ratio”).




The
      Series A Preferred are not entitled to receive any dividends unless dividends
      are declared and paid by us on the Company’s Common Stock. If we pay dividends
      on our Common Stock, then each holder of a share of Series A Convertible
      Preferred Stock shall be entitled to receive the amount of dividends such holder
      would have received if its shares of Series A Convertible Preferred Stock had
      already been converted into shares of Common Stock. The Series A Preferred
      were
      not issued in conjunction with any warrants.




Prior
      to
      conversion, the Series A Preferred has a liquidation preference equal to $5
      million. In the event of any liquidation, dissolution or winding up of Calibre,
      either voluntary or involuntary (a “liquidation event”), a holder of the Series
      A Convertible Preferred Stock shall be entitled to receive out of our assets,
      prior to the holders of the Common Stock and the holders of Preferred Stock
      with
      rights junior to the Series A Preferred, for each share of Series A Convertible
      Preferred Stock held by such holder, $.625 per share (the “Liquidation
      Preference”).







19


**Results
      of Operations**




We
      commenced our oil and gas operations in August 2005. Prior to that time we
      did
      not have any significant activities or assets. Consequently, we are only able
      to
      compare results of operations for the twelve month period ended December 31,
      2006 to the period from Inception (August 17, 2005) until December 31,
      2005.




*Oil
      and Gas Revenues.*




For
      the
      period ended December 31, 2006, our oil and gas net sales were $554,430 versus
      $20,778 in 2005. Oil and gas revenues are derived from our proportionate share
      of working interests in oil and gas properties. Over the course of 2006, ten
      additional wells, versus two wells for the prior period ended December 31,
      2005
      began production which led to the increase in revenue.




*General
      and Administrative Expenses.*




For
      the
      period ended December 31, 2006 general and administrative expenses were
      $2,891,374 versus $1,893,602 in 2005. A total of $394,849 was for actual costs
      associated with our general and administrative expense, $1,247,504 was for
      salary and wages for employees and non-cash compensation expense associated
      with
      stock and options granted to members management who we believe are key to the
      development of our business and $1,249,021 was for professional fees, mostly
      associated with legal and accounting costs in association with the filing of
      our
      registration statements.




*Depreciation,
      Depletion, and Amortization and Impairment.*




For
      the
      period ended December 31, 2006, we had an expense of $750,834 for depreciation,
      depletion, and amortization (excluding impairment of $5,368,188) versus $35,599
      in 2005. We had ten wells commence production in 2006 versus two wells for
      the
      year end ended December 31, 2005.





Net
      capitalized costs of oil and gas properties less related deferred taxes are
      limited to the sum of (a) future net revenues (using prices and cost rates
      as of
      the balance sheet date) from proved reserves discounted at 10 percent per annum
      plus (b) cost not being amortized less (c) related income tax effects. Excess
      costs are charged to proved property impairment expense. In 2006, we expensed
      $5,368,188 for a proved property impairment expense, associated with the
      Reichmann Project. Our reserves were lower than expected due to the fall in
      the
      natural gas prices and because of lower than expected proved reserves from
      the
      Reichmann project.




*Operating
      Loss.*




For
      the
      period ended December 31, 2006, we had an operating loss of $8,672,048 versus
      $1,923,107 in 2005. The main factor in our operating loss in 2006 was
      Depreciation, Depletion, Amortization and Impairment expense of $6,119,022.
      Excluding Depreciation, Depletion, Amortization and Impairment expense, we
      had
      an operating loss of $2,553,026 in 2006 versus $1,887,508 for 2005.




*Net
      loss.*




For
      the
      period ended December 31, 2006, we had a net loss of $10,259,461, or ($0.18)
      per
      share (basic and diluted) versus for the year ended December 31, 2005, of
      $1,901,651 or ($0.05) per share (basic and diluted).






**Liquidity
      and Capital Resources**




As
      of
      April 16, 2007, we had approximately $1,000,000 in cash, and expect to realize
      an additional $4,000,000 in equity proceeds from the April 13, 2007 placement
      of
      our Series A Preferred Convertible Stock with BlueWater Capital Group, LLC
      a
      private investment group controlled by our Chairman and Chief Executive Officer,
      Prentis B. Tomlinson, Jr . We anticipate that the proceeds from the Series
      A
      Preferred will be sufficient to cover our planned capital budget for the
      remainder of 2007.




Our
      operations beyond 2007 will require substantial capital expenditures. If we
      are
      not able to continue to raise funds or dramatically increase our operational
      cash flow, we will be forced to curtail certain operations and may be unable
      to
      continue as a going concern. Additional financing through partnering, public
      or
      private equity financings, lease transactions or other financing sources may
      not
      be available on acceptable terms, or at all. Additional equity financings could
      result in significant dilution to our stockholders.




As
      of
      December 31, 2006, we had cash of $1,257,134 and negative working capital of
      $2,729,877, of which $1,703,446 is for a non-cash registration penalty item.




On
      October 31, 2005, we raised an aggregate of $8,000,000 ($7,243,056 net of
      offering costs) through the sale of 20,000,000 shares of common stock and
      warrants to purchase 10,000,000 shares of common stock at an exercise price
      of
      $0.75 per share and a term of 2 years. As of December 31, 2006, 400,000 warrants
      to purchase our common stock have been exercised on a cashless basis.


20
 In
        March and April 2006, we raised an aggregate of $11,560,000 ($10,629,394
        net of
        offering costs) through the sale of 5,780,000 shares of common stock and
        warrants to purchase 5,780,000 shares of common stock at an exercise price
        of
        $2.75 per share and a term of 2 years.




On
      November 6, 2006 we raised $4,812,500 through the private sale of 1,750,000
      shares and warrants to purchase 1,000,000 shares of common stock at an exercise
      price of $1.50 per share and a term of 2 years; as part of the consideration,
      the purchaser also surrendered a warrant to acquire 1,750,000 shares of common
      stock at an exercise price of $2.75 per share.




On
      April
      13, 2007, we completed a private placement of 8,000,000 Series A Convertible
      Preferred Shares with BlueWater Capital Group, LLC, a private investment group
      controlled by our Chairman, CEO and President Prentis B. Tomlinson, Jr. in
      exchange for net proceeds of $5,000,000 of which $1,000,000 has been received
      by
      Calibre and the remaining $4,000,000 has been structured as a non interest
      bearing note payable to Calibre in monthly increments of $800,000 over the
      next
      5 months. The Series A Preferred has that number of votes equal to 51% of the
      total votes entitled to be cast by all outstanding capital stock. After the
      receipt of the total proceeds, the preferred shares may be convertible, at
      the
      election of the Holder, into a fixed amount of common stock, equal to 75% of
      total outstanding shares of common stock after the time of conversion.




Each
      holder of shares of Series A Convertible Preferred Stock shall be entitled
      at
      the election of the holder to cause any or all of such shares to be converted
      into shares of Common Stock on the basis of the Conversion Ratio then in effect,
      provided, however, that the conversion of the Series
      A
      Convertible Preferred Stock shall
      not be effective until the Articles of Incorporation of the Company have been
      amended to increase the number of authorized shares of Common Stock to at least
      200,000,000 shares (the “Amendment”). Each share of Series A Convertible
      Preferred Stock shall be convertible into shares of Common Stock based on the
      ratio required to cause the number of shares of Common Stock issuable upon
      the
      conversion of 8,000,000 shares of Series A Preferred Stock to equal 75% of
      the
      number of shares of Common Stock then issued and outstanding after the
      conversion (the “Conversion Ratio”).




The
      Series A Preferred are not entitled to receive any dividends unless dividends
      are declared and paid by us on the Company’s Common Stock. If we pay dividends
      on our Common Stock, then each holder of a share of Series A Convertible
      Preferred Stock shall be entitled to receive the amount of dividends such holder
      would have received if its shares of Series A Convertible Preferred Stock had
      already been converted into shares of Common Stock. The Series A Preferred
      were
      not issued in conjunction with any warrants.




Prior
      to
      conversion, the Series A Preferred has a liquidation preference equal to $5
      million. In the event of any liquidation, dissolution or winding up of Calibre,
      either voluntary or involuntary (a “liquidation event”), a holder of the Series
      A Convertible Preferred Stock shall be entitled to receive out of our assets,
      prior to the holders of the Common Stock and the holders of Preferred Stock
      with
      rights junior to the Series A Preferred, for each share of Series A Convertible
      Preferred Stock held by such holder, $0.625 per share (the “Liquidation
      Preference”).




**CASH
      FLOW FROM OPERATING ACTIVITIES**




For
      the
      period ended December 31, 2006, net cash used in operating activities was
      ($2,855,963) driven primarily by our net loss, the adjustment for our non cash
      impairment expense, the decrease in our pre-paid expenses and by the increase
      in
      our accounts payable and accrued liabilities.




**CASH
      FLOW FROM INVESTING ACTIVITIES**




For
      the
      period ended December 31, 2006, net cash used in investing activities was
      ($13,634,748) driven primarily by our investment in oil and gas properties
      in
      the Ft. Worth Basin of $10,109,101 and the Bina Bawi Project in Kurdistan,
      Iraq
      of $3,359,106.




**CASH
      FLOW FROM FINANCING ACTIVITIES**




For
      the
      period ended December 31, 2006, net cash provided by financing activities was
      $15,642,096 which was attributed to our sale of common stock and purchase
      warrants. On April 18, 2006, we raised an aggregate of $11,560,000 ($10,629,394
      net of offering costs) through the sale of 5,780,000 shares of common stock
      and
      warrants to purchase 5,780,000 shares of common stock at an exercise price
      of
      $2.75 per share. On November 6, 2006, we raised $4,812,500 through the private
      sale of 1,750,000 shares and warrants to purchase 1,000,000 shares of common
      stock at an exercise price of $1.50 per share and a term of 2 years; as part
      of
      the consideration, the purchaser also surrendered a warrant to acquire 1,750,000
      shares of common stock at an exercise price of $2.75 per share.




**Future
      capital expenditures and commitments**




Expenditures
      for exploration and development of oil and natural gas properties and lands
      costs related to the acquisition of non-producing leasehold are the primary
      use
      of our capital resources. Our budgeted capital and exploration and development
      expenditures are expected to be approximately $6.5 million in 2007 as follows
      (in millions):




**Amount**General
                and Administrative and Capital Costs
            $
                2.5Exploration
                and development drilling
            3.5Seismic
            0.5Total
            $
                6.5


21





As
      of
      April 13, 2007, we have spent approximately $1 million on capital expenditures
      for our international project. Our remaining cash balance and revenues from
      existing projects are sufficient to fund all budgeted development and drilling
      of our existing projects or to cover our current liabilities, obligations and
      contractual commitments for 2007. We will need to raise additional capital
      through the sale of equity and/or debt securities to fully meet our 2007 capital
      budget. Failure to raise necessary capital or generate sufficient cash flow
      from
      operations in 2007 will cause us to curtail existing development or to sell
      certain existing assets to generate cash.




As
      a
      result, the actual amount and timing of our capital expenditures may differ
      materially from our estimates. Some of the other factors which may prevent
      us
      from meeting our 2007 capital budget are among other things, actual drilling
      results, cost overruns, the availability of drilling rigs and other services
      and
      equipment, regulatory, technological and competitive developments, and all
      such
      other assumptions referenced in this report.




**Hedging**




We
      did
      not hedge any of our oil or natural gas production during 2006 and have not
      entered into any such hedges from January 1, 2007 through the date of this
      filing.




**Contractual
      Commitments**


**Payments Due By Period****Less
                Than 1 Year**
            **1-3
                Years**
            **3-5
                Years**
            **More
                than 5 Years**
            **Total**Obligations
            $875,938
            $205,175
            $428,195
            $93,673
            $1,602,981Drilling
                Well in Progress
            1,494,258
            2,494,258
            -
            -
            3,988,516**Total**
            $2,370,196
            $2,699,433
            $428,195
            $93,673
            $5,591,497







All
      of
      our drilling well obligations are associated with the Bina Bawi Project.




As
      of
      December 31, 2006, we had no long-term debt obligations, capital lease
      obligations, purchase obligations or other long-term liabilities reflected
      on
      the balance sheet.




**Off-Balance
      Sheet Arrangements**




As
      of
      December 31, 2006, we had no off-balance sheet arrangements.




**Related
      Party Transactions**




For
      information on these transactions, please read “Certain Relationships and
      Related Party Transactions” in this report.




**Critical
      Accounting Policies**




Our
      discussion and analysis of our financial condition and results of operations
      is
      based on our financial statements, which have been prepared in accordance with
      accounting principles generally accepted in the United States of America. The
      preparation of these financial statements requires us to make estimates and
      judgments that affect the reported amounts of assets, liabilities and expenses.
      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 our most significant
      judgments and estimates used in preparation of our consolidated financial
      statements.




*Reverse
      Acquisition* .
      We
      treated the merger of Calibre Energy, Inc., a Delaware corporation, into a
      subsidiary of Hardwood Doors and Milling Specialties, Inc. as a reverse
      acquisition. Pursuant to the guidance in Appendix B of SEC Accounting Disclosure
      Rules and Practices Official Text, the “merger of a private operating company
      into a non-operating public shell corporation with nominal net assets typically
      results in the owners and management of the private company having actual or
      effective operating control of the combined company after the transaction,
      with
      the shareholders of the former public shell continuing only as passive
      investors. These transactions are considered by the staff to be capital
      transactions in substance, rather than business combinations. That is, the
      transaction is equivalent to the issuance of stock by the private company for
      the net monetary assets of the shell corporation, accompanied by a
      recapitalization.” Accordingly, the reverse acquisition has been accounted for
      as a recapitalization. For accounting purposes, the original Calibre Energy,
      Inc. is considered the acquirer in the reverse acquisition. The historical
      financial statements are those of the original Calibre Energy, Inc. Earnings
      per
      share for periods prior to the merger are restated to reflect the number of
      equivalent shares received by the acquiring company.




*Revenue
      recognition* .
      We
      derive substantially all of our revenues from the sale of oil and natural gas.
      Oil and gas revenues are recorded in the month the product is delivered to
      the
      purchaser and title transfers. We generally receive payment from one to three
      months after the sale has occurred. Each month we estimate the volumes sold
      and
      the price at which they were sold to record revenue. Variances between estimated
      revenue and actual amounts are recorded in the month payment is
      received.


22


*Oil
      and Gas Properties* .
      We
      follow the full cost method of accounting for oil and gas properties.
      Accordingly, all costs associated with acquisition, exploration, and development
      of oil and gas reserves, including directly related overhead costs and related
      asset retirement costs, are capitalized.




All
      capitalized costs of oil and gas properties, including the estimated future
      costs to develop proved reserves, are amortized on the unit-of-production method
      using estimates of proved reserves. Investments in unproved properties and
      major
      development projects in progress are not amortized until proved reserves
      associated with the projects can be determined and are periodically assessed
      for
      impairment. If the results of an assessment indicate that the properties are
      impaired, such impairment is added to the costs being amortized and is subject
      to the ceiling test. In
      addition, the capitalized costs are subject to a “ceiling test,” which limits
      such costs to the aggregate of the “estimated present value,” discounted at a
      10-percent interest rate of future net revenues from proved reserves, based
      on
      current economic and operating conditions, plus the lower of cost or fair market
      value of unproved properties.




Sales
      of
      proved and unproved properties are accounted for as adjustments of capitalized
      costs with no gain or loss recognized, unless such adjustments would
      significantly alter the relationship between capitalized costs and proved
      reserves of oil and gas, in which case the gain or loss is recognized in
      income.




Abandonments
      of properties are accounted for as adjustments of capitalized costs with no
      loss
      recognized.




*Oil
      and Gas Properties Not Subject to Amortization* .
      We are
      currently participating in oil and gas exploration and development activities.
      As of December 31, 2006, substantially all of our activities are in a
      preliminary exploration and drilling stage. Upon completion of development
      of
      each property, we make an estimate of proved producing reserves associated
      with
      such property. Until such time, property, development and exploratory costs
      are
      excluded in computing amortization.





Depreciation,
      depletion and amortization, or DD&A, of capitalized drilling and development
      costs of oil and natural gas properties are generally computed using the unit
      of
      production method on an individual property or unit basis based on total
      estimated proved developed oil and natural gas reserves. Amortization of
      producing leasehold is based on the unit-of-production method using total
      estimated proved reserves. In arriving at rates under the unit-of-production
      method, the quantities of recoverable oil and natural gas are established based
      on estimates made by our geologists and engineers and independent engineers.
      Service properties, equipment and other assets are depreciated using the
      straight-line method over estimated useful lives of 5 to 40 years. Upon sale
      or
      retirement of depreciable or depletable property, the cost and related
      accumulated DD&A are eliminated from the accounts and the resulting gain or
      loss is recognized.




Non-producing
      properties consist of undeveloped leasehold costs and costs associated with
      the
      purchase of certain proved undeveloped reserves. Undeveloped leasehold cost
      is
      expensed over the life of the lease or transferred to the associated producing
      properties. Individually significant non-producing properties are periodically
      assessed for impairment of value and a loss is recognized.




*Oil
      and natural gas reserves and standardized measure of future cash
      flows* .
      Our
      independent engineers and technical staff prepare the estimates of our oil
      and
      natural gas reserves and associated future net cash flows. Current accounting
      guidance allows only proved oil and natural gas reserves to be included in
      our
      financial statement disclosures. The SEC has defined proved reserves as the
      estimated quantities of crude oil and natural gas which geological and
      engineering data demonstrate with reasonable certainty to be recoverable in
      future years from known reservoirs under existing economic and operating
      conditions. Even though our independent engineers and technical staff are
      knowledgeable and follow authoritative guidelines for estimating reserves,
      they
      must make a number of subjective assumptions based on professional judgments
      in
      developing the reserve estimates. Reserve estimates are updated at least
      annually and consider recent production levels and other technical information
      about each field. Periodic revisions to the estimated reserves and future cash
      flows may be necessary as a result of a number of factors, including reservoir
      performance, new drilling, oil and natural gas prices and cost changes,
      technological advances, new geological or geophysical data, or other economic
      factors. We cannot predict the amounts or timing of future reserve revisions.
      If
      such revisions are significant, they could significantly alter future DD&A
      and result in impairment of assets that may be material.




*Impairment
      of Long-Lived Assets* .
      We
      review long-lived assets and certain identifiable assets for impairment whenever
      events or changes in circumstances indicate that the carrying amount of an
      asset
      may not be recoverable. If the sum of the expected future undiscounted cash
      flows is less than the carrying amount of the asset, further impairment analysis
      is performed. An impairment loss is measured as the amount by which the carrying
      amount exceeds the fair value of assets.




*Employee
      Stock Plan* .
      In
      December 2004, the FASB issued SFAS No.123R, “Accounting for Stock-Based
      Compensation” (“SFAS No. 123R”). SFAS No.123R establishes standards for the
      accounting for transactions in which an entity exchanges its equity instruments
      for goods or services. This Statement focuses primarily on accounting for
      transactions in which an entity obtains employee services in share-based payment
      transactions. SFAS No.123R requires that the fair value of such equity
      instruments be recognized as expense in the historical financial statements
      as
      services are performed. Prior to SFAS No.123R, only certain pro forma
      disclosures of fair value were required. Calibre adopted SFAS No. 123R as of
      January 1, 2006.




*Consolidation
      of Variable Interest Entities* .
      In
      January 2003, the FASB issued Interpretation No. 46(R) (“FIN 46”), Consolidation
      of Variable Interest Entities. FIN 46 addresses consolidation by business
      enterprises of variable interest entities (formerly special purpose entities).
      In general, a variable interest entity is a corporation, partnership, trust
      or
      any other legal structure used for business purposes that either (a) does not
      have equity investors with voting rights nor (b) has equity investors that
      do
      not provide sufficient financial resources for the entity to support its
      activities. The objective of FIN 46 is not to restrict the use of variable
      interest entities, but to improve financial reporting by companies involved
      with
      variable interest entities. FIN 46 requires a variable interest entity to be
      consolidated by a company if that company is subject to a majority of the risk
      of loss from the variable interest entity’s activities or entitled to receive a
      majority of the entity’s residual returns or both. The consolidation
      requirements are effective for the first period that ends after March 15, 2004;
      we elected to adopt the requirements effective for the reporting period ended
      December 31, 2006. The adoption of FIN 46 had no effect on our consolidated
      financial statements.


23




**ITEM
      7. FINANCIAL STATEMENTS**






**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors


Calibre
      Energy, Inc.


Washington,
      DC 20006




We
      have
      audited the accompanying balance sheets of Calibre Energy, Inc. as of December
      31, 2006 and 2005 and the related statements of operations, shareholders’
equity, and cash flows for the year ended December 31, 2006 and the period
      from
      August 17, 2005 (inception) to December 31, 2005. These financial statements
      are
      the responsibility of the Company’s management. Our responsibility is to express
      an opinion on these financial statements based on our audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform an audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit also includes examining,
      on a test basis, evidence supporting the amounts and disclosures in the
      financial statements, assessing the accounting principles used and significant
      estimates made by management, as well as evaluating the overall financial
      statement presentation. We believe that our audits provide a reasonable basis
      for our opinion.




In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Calibre Energy, Inc. as of December
      31, 2006 and 2005 and the results of its operations and its cash flows for
      the
      year ended December 31, 2006 and the period from August 17, 2005 (inception)
      to
      December 31, 2005, in conformity with accounting principles generally accepted
      in the United States of America.




The
      accompanying financial statements have been prepared assuming that Calibre
      Energy, Inc. will continue as a going concern. As discussed in Note 3 to the
      financial statements, Calibre Energy, Inc. was formed on August 17, 2005 and
      has
      generated operating losses since inception, has negative cash flow from
      operations and has an accumulated deficit, which raises substantial doubt about
      its ability to continue as a going concern. Management’s plans in regard to
      these matters are described in Note 3. The financial statements do not include
      any adjustments that might result from the outcome of this uncertainty.




Malone
      & Bailey, PC




www.malone-bailey.com


Houston,
      Texas




May
      2,
      2007







24





**Calibre Energy, Inc.****Balance Sheets****December 31, 2006 and 2005**2006
            
            2005**Assets****Current
                Assets**Cash
            
            $
            1,257,134
            
            $
            2,105,749Accounts
                and notes receivableOil
                and gas sales
            
            
            233,690
            
            
            33,960Related
                party accounts receivable
            
            
            406,143
            
            
            -Related
                party note receivable
            
            
            -
            
            
            300,000Prepaid
                expenses and other
            
            
            105,564
            
            
            104,100Total
                current assets
            
            
            2,002,531
            
            
            2,543,809**Noncurrent
                Assets**Oil
                and gas properties, using full cost methodProperties
                subject to amortization
            
            
            9,444,540
            
            
            830,646Properties
                not subject to amortization
            
            
            10,823,688
            
            
            4,478,235Furniture
                and office equipment
            
            
            485,960
            
            
            121,778Less:
                Accumulated depreciation, depletion, amortization and impairment
            
            
            (6,154,621
            )
            
            (35,599
            )Net
                property, furniture and office equipment
            
            
            14,599,567
            
            
            5,395,060Advances
                to operator-related party
            
            
            317,552
            
            
            -Investments-equity
                method, net of depreciation
            
            
            83,125
            
            
            -Other
                assets, net
            
            
            137,213
            
            
            -**Total
                assets**
            
            **$**
            **17,139,988**
            
            **$**
            **7,938,869****Liabilities
                and Shareholders’ Equity****Current
                Liabilities**Accounts
                payable - trade
            
            $
            1,095,696
            
            $
            946,852Accounts
                payable - related party
            
            
            1,740,591
            
            
            -Accounts
                payable - employees
            
            
            -
            
            
            98,630Accrued
                expenses
            
            
            192,675
            
            
            20,482Rights
                units payable
            
            
            1,703,446
            
            
            -Total
                current liabilities
            
            
            4,732,408
            
            
            1,065,964**Non-Current
                Liabilities**Asset
                retirement obligation
            
            
            53,242
            
            
            -**Total
                Liabilities**
            
            **$**
            **4,785,650**
            
            **$**
            **1,065,964**Commitments
                and Contingencies
            
            
            -
            
            
            -**Shareholders’
                Equity**Preferred
                stock; $.001 par value; 10,000,000 shares authorized; none issued
            
            
            -
            
            
            -Common
                stock; $.001 par value; 100,000,000 shares authorized; 62,350,806
                and
                47,000,000 shares issued and outstanding at December 31, 2006 and
                2005,
                respectively
            
            
            62,351
            
            
            47,000Additional
                paid-in capital
            
            
            24,453,099
            
            
            8,727,556Accumulated
                deficit
            
            
            (12,161,112
            )
            
            (1,901,651
            )Total
                shareholders’ equity
            
            
            12,354,338
            
            
            6,872,905**Total
                liabilities and shareholders’ equity**
            
            **$**
            **17,139,988**
            
            **$**
            **7,938,869**





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


25








**Calibre
                Energy, Inc.****STATEMENTS
                OF OPERATIONS****FOR
                THE YEAR ENDED DECEMBER 31, 2006 AND FOR THE PERIOD FROM INCEPTION
                (August
                17, 2005) TO DECEMBER 31, 2005**2006
            
            2005**Revenue:**Oil
                & gas sales, related party
            
            $
            554,430
            
            $
            20,778**Operating
                Expenses:**Lease
                operating
            
            
            169,176
            
            
            14,684Severance
                and ad valorem taxes
            
            
            46,906
            
            
            -Depreciation,
                depletion, amortization and impairment
            
            
            6,119,022
            
            
            35,599General
                and administrative
            
            
            2,891,374
            
            
            1,893,602**Total
                Operating Expense**
            
            
            9,226,478
            
            
            1,943,885**Net
                Income (Loss) From Operations**
            
            
            (8,672,048
            )
            
            (1,923,107
            )Interest
                income
            
            
            116,033
            
            
            21,456Registration
                delay expense
            
            
            (1,703,446
            )
            
            -**Other
                Income (Expense)**
            
            
            (1,587,413
            )
            
            21,456**Net
                Income (Loss)**
            
            $
            (10,259,461
            )
            $
            (1,901,651
            )Earnings
                per share-
                basic and fully diluted
            
            $
            (0.18
            )
            $
            (0.05
            )Weighted
                average shares outstanding- basic and fully diluted
            
            
            55,893,320
            
            
            36,588,824








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





26








**Calibre
                Energy, Inc.****Statements
                of Shareholders’ Equity**For
                the Year Ended December 31, 2006 and for the Period from Inception
                (August
                17, 2005) toDecember
                31, 2005Common
                Stock
            
            AdditionalPaid-in
            
            AccumulatedShares
            
            Amount
            
            Capital
            
            Deficit
            
            TotalBalance,
                August 17, 2005
            
            -
            
            $                
              -
            
            $-
            
            $                       -Initial
                capital from founding shareholders
            
            
            27,000,000
            
            
            27,000
            
            
            -
            
            
            -
            
            
            
            
            
            27,000Issuance
                of common stock and warrants
            
            
            20,000,000
            
            
            20,000
            
            
            7,223,056
            
            
            -
            
            
            
            
            
            7,243,056Stock
                options granted to employees for service
            
            
            -
            
            
            -
            
            
            1,504,500
            
            
            -
            
            
            
            
            
            1,504,500Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,901,651
            )
            
            
            
            
            (1,901,651
            )Balance,
                December 31, 2005
            
            
            47,000,000
            
            $
            47,000
            
            $
            8,727,556
            
            $
            (1,901,651
            )
            
            
            
            $
            6,872,905Issuance
                of common stock for reverse merger
            
            
            3,525,000
            
            
            3,525
            
            
            (3,525
            )
            
            
            
            
            
            
            
            -Issuance
                of common stock and warrants, net
            
            
            11,825,806
            
            
            11,826
            
            
            15,630,270
            
            
            
            
            
            
            
            
            15,642,096Stock
                based compensation
            
            
            -
            
            
            -
            
            
            98,798
            
            
            
            
            
            
            
            
            98,798Net
                loss
            
            
            -
            
            
            -
            
            
            
            
            
            (10,259,461
            )
            
            
            
            
            (10,259,461
            )Balance,
                December 31, 2006
            
            
            62,350,806
            
            $
            62,351
            
            $
            24,453,099
            
            $
            (12,161,112
            )
            
            
            
            $
            12,354,338





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





27











**Calibre
                Energy, Inc.****Statements
                of Cash Flows**For
                the Year Ended December 31, 2006and
                for the Period from August 17, 2005 (Inception) to December 31,
                20052006
            
            2005Cash
                flows from operating activitiesNet
                loss
            
            $
            (10,259,461
            )
            $
            (1,901,651
            )Adjustments
                to reconcile net loss to net cash (used in) provided by operating
                activities:Non
                cash recapitalization expense
            
            
            100,000
            
            
            -Stock
                based compensation
            
            
            98,798
            
            
            1,504,500Registration
                delay expense
            
            
            1,703,446
            
            
            **-**Depreciation,
                depletion, amortization, and impairment expense
            
            
            6,119,022
            
            
            35,599Equity
                in losses of affiliates
            
            
            4,375
            
            
            **-**Changes
                in working capital components:(Increase)
                in accounts receivable
            
            
            (605,873
            )
            
            (33,960
            )(Increase)
                in other assets
            
            
            (238,677
            )
            
            (104,100
            )(Increase)
                in accounts payable
            
            
            50,214
            
            
            1,045,482Increase
                in accrued expense
            
            
            172,193
            
            
            20,482Net
                cash (used in) provided by operating activities
            
            
            (2,855,963
            )
            
            566,352Cash
                flows from investing activitiesAdditions
                to oil and gas properties
            
            
            (13,483,066
            )
            
            (5,308,881
            )Additions
                to furniture, office equipment, other assets and leasehold
                improvements
            
            
            (364,182
            )
            
            (121,778
            )Investment
                in Potomac Energy
            
            
            (87,500
            )
            
            -Receipts
                on notes receivable
            
            
            650,000
            
            
            -Disbursements
                on note receivable
            
            
            (350,000
            )
            
            (300,000
            )Net
                cash (used in) investing activities
            
            
            (13,634,748
            )
            
            (5,730,659
            )Cash
                flows from financing activitiesProceeds
                from sale of common stock, net
            
            
            15,642,096
            
            
            7,270,056Net
                cash provided by financing activities
            
            
            15,642,096
            
            
            7,270,056Net
                (decrease) increase in cash
            
            
            (848,615
            )
            
            2,105,749CashBeginning
                of period
            
            
            2,105,749
            
            
            -End
                of period
            
            $
            1,257,134
            
            $
            2,105,749Supplemental
                cash flow information:Interest
                paid
            
            
            -
            
            
            -Income
                taxes paid
            
            
            -
            
            
            -Non-
              cash investing and financing activity:Asset
              retirement obligation incurred
            
            
            53,242
            
            
            -





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





28




**CALIBRE
      ENERGY, INC.**




**Notes
      to Financial Statements**




**Note
      1.**   **Organization
      and Business Operations**




We
      are an
      independent exploration and production company focused on the acquisition,
      exploitation, development and sale of crude oil and natural gas; in Irbil
      Province of Kurdistan, Iraq; in the Barnett Shale in Texas; and the Fayetteville
      Shale in Arkansas. We are a Nevada corporation, headquartered in Washington,
      DC
      and Houston, Texas. Our predecessor company for financial reporting purposes
      was
      formed on August 17, 2005.





We
      intend
      to expand and develop our exploration and production business and reserves
      by
      focusing on the exploration of the Bina Bawi Project in Kurdistan, Iraq and
      on
      our projects in the Barnett Shale .
      We have
      a 10% participating interest in the Bina Bawi Exploration and
      Production Sharing Agreement with the Kurdish Regional Government in Kurdistan,
      Iraq, pursuant to a joint operating agreement with Hawler Energy, Ltd.





In
      October of 2005, we commenced our operating activities by focusing on shale
      gas
      opportunities in the Barnett Shale and the Fayetteville Shale. We initially
      targeted the Mississippian developments of the Barnett Shale in the Ft. Worth
      Basin and the Fayetteville Shale development in the Arkoma Basin. We are
      currently participating in three projects with Kerogen Resources, Inc., a
      privately held exploration and production company located in Houston, Texas.
      The
      projects are the Reichmann Petroleum project, South Ft. Worth Basin project
      and
      Williston Basin project.





We
      believe that major oil companies, in the course of exploring large tracts of
      international acreage, frequently choose to ignore or abandon smaller
      discoveries, or discoveries with special infrastructure requirements. Smaller
      companies, such as Calibre, without the overhead structures of these larger
      companies can often, through careful due diligence, planning and local
      intelligence, acquire and turn such discoveries into economic and profitable
      developments. Our management has industry experience in many international
      producing areas and has the capability to continue to expand the scope of our
      activities as opportunities arise. Key elements of our ultimate success include
      our ability to select opportunities that will promote value creation, to form
      strategic alliances with influential local partners in certain prolific
      hydrocarbon regions, to develop our potential as an operator of our future
      projects, and as a non-operator to develop a close association with our the
      operating companies for our projects and to maintain a certain degree of control
      over the timing, expense levels and execution of our projects.







**Note
      2.**   **Summary
      of Significant Accounting Policies**




**Use
      of Estimates**




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




Calibre’s
      financials are based on a number of significant estimates, including oil and
      gas
      reserve quantities which are the basis for the calculation of depreciation,
      depletion and impairment of oil and gas properties, and timing and costs
      associated with its retirement obligations.




**Cash
      and Cash Equivalents**




Cash
      and
      cash equivalents include cash in banks and certificates of deposit which mature
      within three months of the date of purchase.




**Concentration
      of Credit Risk**




Financial
      instruments that potentially subject Calibre to concentration of credit risk
      consist of cash. At December 31, 2006, Calibre had $1,057,134 in cash in excess
      of federally insured limits. Calibre maintains cash accounts only at large
      high
      quality financial institutions and Calibre believes the credit risk associated
      with cash is remote.




Calibre's
      receivables primarily consist of accounts
      receivable from oil and gas sales owed to related parties.  Accounts
      receivable are recorded at invoiced amount and generally do not bear
      interest.  Any allowance for doubtful accounts is based on management's
      estimate of the amount of probable losses due to the inability to collect from
      customers. As of December 31, 2006, no allowance for doubtful accounts has
      been
      recorded and none of the accounts receivable have been
      collateralized.




**Oil
      and Gas Properties**




Calibre
      follows the full cost method of accounting for oil and gas properties.
      Accordingly, all costs associated with acquisition, exploration, and development
      of oil and gas reserves, including directly related overhead costs and related
      asset retirement costs, are capitalized.


29


Under
      this method, all costs, including internal costs directly related to
      acquisition, exploration and development activities are capitalizable as oil
      and
      gas property costs. Properties not subject to amortization consist of
      exploration and development costs which are evaluated on a property-by-property
      basis. Amortization of these unproved property costs begins when the properties
      become proved or their values become impaired. Calibre assesses the
      realizability of unproved properties on at least an annual basis or when there
      has been an indication that impairment in value may have occurred. Impairment
      of
      unproved properties is assessed based on management's intention with regard
      to
      future exploration and development of individually significant properties and
      the ability of Calibre to obtain funds to finance such exploration and
      development. Calibre is currently participating in oil and gas exploration
      and
      development activities on onshore properties in the Fort Worth Basin, Williston
      Basin and Arkoma Basin and in an international onshore project in Irbil,
      Kurdistan, Iraq. If the results of an assessment indicate that the properties
      are impaired, the amount of the impairment is added to the capitalized costs
      to
      be amortized. During the year ended December 31, 2006, the Company incurred
      an
      impairment expense on its proved properties of $5,368,188 which is reflected
      in
      the accompanying Statement of Operations. Calibre expects to evaluate the
      properties not subject to amortization by the end of 2007. The costs not subject
      to amortization as of December 31, 2006 are as follows:




Costs
      excluded from amortization consist of the following at December 31,
      2006:





Year
                Incurred
            Acquisition
                Costs
            Exploration
                Costs
            G&G
              Costs
            Development
                Costs
            Capitalized
                Interest
            Total2006
            $4,076,347
            $2,269,106
            -
            -
            -
            $6,345,4532005
            $1,042,418
            $1,083,130
            $2,352,687
            -
            -
            $4,478,235Total
            $5,118,765
            $3,352,236
            $2,352,687
            
            
            $10,823,688







The
      fair
      value of an asset retirement obligation is recognized in the period in which
      it
      is incurred if a reasonable estimate of fair value can be made. The present
      value of the estimated asset retirement costs is capitalized as part of the
      carrying amount of the long-lived asset. For Calibre, asset retirement
      obligations relate to the abandonment of oil and gas producing facilities.
      The
      amounts recognized are based upon numerous estimates and assumptions, including
      future retirement costs, future recoverable quantities of oil and gas, future
      inflation rates and the credit-adjusted risk-free interest rate.




Costs
      of
      oil and gas properties are amortized using the units of production method.
      Amortization expense calculated per equivalent physical unit of production
      amounted to $648,448 and $35,599 for
      the
      years ended December 31, 2006 and 2005, respectively.




Under
      full cost accounting rules for each cost center, capitalized costs of proved
      properties, less accumulated amortization and related deferred income taxes,
      shall not exceed an amount (the "cost ceiling") equal to the sum of (a) the
      present value of future net cash flows from estimated production of proved
      oil
      and gas reserves, based on current economic and operating condition, discounted
      at 10 percent, plus (b) the cost of properties not being amortized, plus (c)
      the
      lower of cost or estimated fair value of any unproved properties included in
      the
      costs being amortized, less (d) any income tax effects related to differences
      between the book and tax basis of the properties involved. If capitalized costs
      exceed this limit, the excess is charged as an impairment expense. During the
      year ended December 31, 2006, the Company incurred an impairment expense on
      its
      proved properties of $5,368,188 which is reflected in the accompanying Statement
      of Operations.




**Furniture
      and Office Equipment**




Furniture
      and office equipment is stated at cost. Depreciation is computed on a
      straight-line basis over the estimated useful lives of 5 years.




**Operating
      Leases**




The
      Company's leasing operations consist principally of
      the leasing of office space and are accounted for as operating leases.  The
      office leases expire over the next 5 years.




**Employee
      Stock Plan**




On
      January 1, 2006, Calibre adopted SFAS No. 123(R), "Share−Based Payment". SFAS
      123(R) replaced SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123(R)
      requires all share−based payments to employees, including grants of employee
      stock options, to be recognized in the financial statements based on their
      fair
      values. The pro forma disclosures previously permitted under SFAS 123 are no
      longer an alternative to financial statement recognition. Caliber adopted SFAS
      123(R) using the modified prospective method which requires the application
      of
      the accounting standard as of January 1, 2006. The consolidated financial
      statements for the year ended December 31, 2006 reflect the impact of adopting
      SFAS 123(R). In accordance with the modified prospective method, the
      consolidated financial statements for prior periods have not been restated
      to
      reflect, and do not include, the impact of SFAS 123(R).





Prior
      to
      2006, Calibre accounted for share−based compensation to employees and directors
      under the intrinsic value method under APB Opinion No. 25. Under this method,
      Calibre had not recognized compensation expense for stock granted when the
      underlying number of shares is known and the exercise price of the option is
      greater than or equal to the fair market value of the stock on the grant date.
      Had Calibre determined compensation expense for stock option grants based on
      their estimated fair value at their grant date, Calibre’s net loss and net loss
      per share would have been as follows:





30


Net
                loss, as reported
            ($1,901,651)Add:
                Stock based intrinsic value included in reported loss
            1,504,500Less:
                Total stock-based employee compensation expense determined under
                thefair
                value based method for all awards
            (1,877,465)Pro
                forma net loss
            ($2,274,616)Basic
                and diluted loss per share:As
                reported:
            ($0.05)Pro
                forma:
            ($0.06)










**Investments**





Investments
      are accounted for under the equity method in circumstances where we are deemed
      to exercise significant influence over the operations of the investee. Under
      the
      equity method, we recognize our share of the investee's earnings and losses
      in
      our consolidated statements of operations. Included in investments at December
      31, 2006 is an equity investment of $83,125. This investment has been accounted
      for under the equity method.




**Income
      Taxes**




Provisions
      for income taxes are based on taxes payable or refundable for the current year
      and deferred taxes on temporary differences between the amount of taxable income
      and pretax financial income and between the tax bases of assets and liabilities
      and their reported amounts in the financial statements. Deferred tax assets
      and
      liabilities are included in the financial statements at currently enacted income
      tax rates applicable to the period in which the deferred tax assets and
      liabilities are expected to be realized or settled as prescribed in SFAS
      Statement No. 109, Accounting for Income Taxes. As changes in tax laws or rates
      are enacted, deferred tax assets and liabilities are adjusted through the
      provision for income taxes. A valuation allowance is established when necessary
      to reduce the deferred tax asset to the amount expected to be realized.




**Revenue
      and Cost Recognition**




Calibre
      uses the sales method of accounting for natural gas and oil revenues. Under
      this
      method, revenues are recognized based on the actual volumes of gas and oil
      sold
      to purchasers. The volume sold may differ from the volumes to which Calibre
      is
      entitled based on our interest in the properties. Costs associated with
      production are expensed in the period incurred.





**Loss
      per share**





Basic
      and
      diluted net loss per share calculations are presented in accordance with
      Financial Accounting Standards Statement 128 and are calculated on the basis
      of
      the weighted average number of common shares outstanding during the year. Common
      stock equivalents have been excluded from the calculation of loss per share
      as
      their effect would be anti-dilutive.





**New
      Accounting Pronouncements**





*FASB
      Interpretation No. 48, Accounting for Uncertainty in Income Taxes − An
      Interpretation of FASB Statement No. 109, ("FIN 48").* FIN 48
      clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise's financial statements in accordance with SFAS No. 109. FIN 48
      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 new FASB standard also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. The evaluation of a tax position in
      accordance with FIN 48 is a two−step process. The first step is a recognition
      process whereby the enterprise determines whether it is more likely than not
      that a tax position will be sustained upon examination, including resolution
      of
      any related appeals or litigation processes, based on the technical merits
      of
      the position. In evaluating whether a tax position has met the
      more−likely−than−not recognition threshold, the enterprise should presume that
      the position will be examined by the appropriate taxing authority that has
      full
      knowledge of all relevant information. The second step is a measurement process
      whereby a tax position that meets the more−likely−than−not recognition threshold
      is calculated to determine the amount of benefit to recognize in the financial
      statements. The tax position is measured at the largest amount of benefit that
      is greater than 50% likely of being realized upon ultimate settlement. The
      provisions of FIN 48 are effective for fiscal years beginning after December
      15,
      2006. Earlier application is permitted as long as the enterprise has not yet
      issued financial statements, including interim financial statements, in the
      period of adoption. The provisions of FIN 48 are to be applied to all tax
      positions upon initial adoption of this standard. Only tax positions that meet
      the more−likely−than−not recognition threshold at the effective date may be
      recognized or continue to be recognized upon adoption of FIN 48. The cumulative
      effect of applying the provisions of FIN 48 should be reported as an adjustment
      to the opening balance of retained earnings (or other appropriate components
      of
      equity or net assets in the statement of financial position) for that fiscal
      year. We are currently evaluating the statement and have not yet determined
      the
      impact of such on our financial statements.





31


*SFAS
      No. 157, Fair Value Measurement, ("SFAS 157").* This new
      standard provides guidance for using fair value to measure assets and
      liabilities. The FASB believes the standard also responds to investors' requests
      for expanded information about the extent to which companies measure assets
      and
      liabilities at fair value, the information used to measure fair value, and
      the
      effect of fair value measurements on earnings. SFAS 157 applies whenever other
      standards require (or permit) assets or liabilities to be measured at fair
      value
      but does not expand the use of fair value in any new circumstances. The standard
      clarifies that for items that are not actively traded, such as certain kinds
      of
      derivatives, fair value should reflect the price in a transaction with a market
      participant, including an adjustment for risk, not just the company's
      mark−to−model value. SFAS 157 also requires expanded disclosure of the effect on
      earnings for items measured using unobservable data. Under SFAS 157, fair value
      refers to the price that would be received to sell an asset or paid to transfer
      a liability in an orderly transaction between market participants in the market
      in which the reporting entity transacts. In this standard, the FASB clarifies
      the principle that fair value should be based on the assumptions market
      participants would use when pricing the asset or liability. In support of this
      principle, SFAS 157 establishes a fair value hierarchy that prioritizes the
      information used to develop those assumptions. The fair value hierarchy gives
      the highest priority to quoted prices in active markets and the lowest priority
      to unobservable data, for example, the reporting entity's own data. Under the
      standard, fair value measurements would be separately disclosed by level within
      the fair value hierarchy. The provisions of SFAS 157 are effective for financial
      statements issued for fiscal years beginning after November 15, 2007, and
      interim periods within those fiscal years. Earlier application is encouraged,
      provided that the reporting entity has not yet issued financial statements
      for
      that fiscal year, including any financial statements for an interim period
      within that fiscal year. We are currently evaluating this statement and have
      not
      yet determined the impact of such on our financial statements. We plan to adopt
      this statement when required at the start of our fiscal year beginning January
      1, 2008.




**Note
      3.**   **Going
      Concern**




As
      shown
      in the accompanying financial statements, Calibre has incurred operating losses
      since inception and expects to continue to incur losses through 2007. At
      December 31, 2006, Calibre had an accumulated deficit of $12,161,112 and a
      working capital deficit of $2,729,877. However, of this $2,729,877 working
      capital deficit, $1,703,446, consisted of a non-cash liability related to a
      charge for a registration delay expense. Calibre has limited financial resources
      until such time that Calibre is able to raise additional capital or generate
      positive cash flow from operations. These factors raise substantial doubt about
      Calibre’s ability to continue as a going concern. Calibre’s ability to achieve
      and maintain profitability and positive cash flow is dependent upon Calibre’s
      ability to locate profitable properties, generate revenue from their planned
      business operations, and control exploration cost. Management plans to fund
      its
      future operation by obtaining additional financing and commencing commercial
      production. However, there is no assurance that Calibre will be able to obtain
      additional financing from investors or private lenders and, if available, such
      financing may not be on commercial terms acceptable to Calibre or its
      shareholders.




**Note
      4.**   **Income
      Taxes**




Net
      deferred tax assets in the accompanying balance sheet consist of the following
      components as of December 31, 2006 and 2005:




2006
            2005Net
                operating loss
            $1,477,856
            $665,578Proved
                property impairment
            1,872,691
            -Stock
                based compensation
            34,579
            -Less
                valuation allowance
            (3,385,126)
            (655,578)Total
            -
            -




The
      components giving rise to the net deferred tax assets described above have
      been
      included in the accompanying balance sheet as noncurrent assets. The deferred
      tax assets are net of a full valuation allowance of $4,647,544 based on the
      amount that management believes will ultimately be realized. Realization of
      the
      deferred tax asset is dependent upon sufficient future taxable income during
      the
      period that deductible temporary differences and carryforwards are expected
      to
      be available to reduce taxable income. Loss carry forwards for tax purposes
      will
      begin to expire in 2025.




The
      income tax provision differs from the amount of income determined by applying
      the U.S. Federal income tax rate to pretax income for the year ended December
      31, 2006 primarily due to the valuation allowance.




**Note
      5.**   **Reichmann
      Petroleum Bankruptcy**




Calibre
      is party to a letter agreement dated October 5, 2005 with Kerogen Resources
      pursuant to which Calibre participates in the Reichmann Petroleum project.
      The
      project is a joint venture with Kerogen Resources, Crosby Minerals and Reichmann
      Petroleum Corporation to explore, acquire and develop properties located in
      the
      Barnett Shale in the Ft. Worth Basin of North Texas. Reichmann is the operator
      of the properties. In October 2005 Calibre acquired, through Kerogen Resources,
      a 12.5% working interest in 6,190 net acres of leasehold interests in Parker,
      Tarrant, Denton, and Johnson Counties, Texas. Subsequent to the initial
      acquisition, Calibre purchased a 25% working interest in 443 net acres of
      leasehold interests from Reichmann Petroleum in Johnson County, Texas. Kerogen
      Resources provides the technical guidance for the project and in exchange
      received 12.5% of our working interest in each well drilled. As of December
      31,
      2006, Calibre has paid Kerogen a total $9,191,599 of which $3,179,660 was for
      the 12.5% working interest in the initial 6,190 acres, prepayment of drilling
      costs on 12 wells and for the 25% working interest in the leasehold interest
      in
      Johnson County, TX and $6,011,939 was for operating costs (ie, drilling and
      completion costs) of the JV since the original payment. Kerogen then paid such
      amounts to Reichmann Petroleum Corporation as reimbursement of leasehold costs,
      drilling and operating expenses. Currently, our net acreage position subject
      to
      the Reichmann agreement is 773.94 net acres. As of December 31, 2006 We have
      participated in 22 gross
      wells of which 12 wells are currently producing, five wells have been drilled,
      completed and fraced and are waiting to be hooked up to a pipeline, and five
      wells have been drilled to total depth, completed and are waiting to be fraced.


32





On
      December 8, 2006, the operator of the properties in the Barnett Shale Project,
      Reichmann Petroleum, filed for voluntary Chapter 11 bankruptcy protection.
      All
      development activity on this joint venture with Reichmann has ceased pending
      the
      resolution of legal claims. Calibre’s interests in the Reichmann-operated
      properties are held through Calibre’s agreement with Kerogen. To date, revenues
      from this project have been netted against capital and operating expenditures.
      As a result of the bankruptcy, Calibre’s net share of working interest
      production is expected to
      be
      paid into a separate account under the control of the bankruptcy court. As
      of
      December 31, 2006, Calibre had an outstanding net revenue receivable balance
      of
      $406,143 from Kerogen related to certain wells in the Reichmann project.
      Furthermore, as of December 31, 2006, Calibre had an outstanding joint interest
      payable balance of approximately $1.1 million to Kerogen.  As a result of
      the bankruptcy, receivable revenue may or may not be collectible. Calibre
      has petitioned the bankruptcy court and expects a resolution in the bankruptcy
      court that will permit payment of Calibre’s share of working interest
      production. Calibre believes it will be successful in collecting its share
      of
      production revenues either in cash or in production-in-kind from Reichmann
      and
      Kerogen. Accordingly, no allowance has been made for the
      receivable.




Additionally,
      Kerogen has petitioned the bankruptcy court to potentially continue with the
      development of the Reichmann leases with a new operator. Calibre believes,
      but
      cannot provide assurance, that the bankruptcy court will resolve to permit
      ongoing development operations on the project leases, however, the terms of
      the
      leases for the project generally require commencement of drilling operations
      within the primary term of each lease. If development does not proceed as a
      result of the Reichmann bankruptcy, those undeveloped and partially developed
      leases in the project will terminate and Calibre will have to impair these
      properties. The value of these properties is approximately $450,000 as
      of
      December 31, 2006. Capital expenditures invested to date in these partially
      developed wells is approximately $1,250,000.




As
      of
      December 31, 2006, Calibre received and paid cash
      calls from Kerogen Resources of $276,000 for certain wells in the Reichmann
      Project. Although several of these cash calls are over a year old, Calibre
      has
      not received detailed support for expenditures or joint interest billings (JIB)
      to associate with these cash calls. Furthermore, $234,000 of the cash calls
      is
      associated with a well which was not ultimately drilled. Calibre has requested
      return of that money or netting of the full amount against existing payables
      with Kerogen Resources on other wells. Calibre believes that it will ultimately
      be successful in recovery, but as a result of the bankruptcy, it could be forced
      to impair the expenditure. The amounts paid for cash calls are reflected in
      related party accounts receivable on the accompanying balance sheet. Upon
      receipt of supporting documentation of these costs, such costs will be
      transferred into oil and gas properties and will be subject to a ceiling test
      and might lead to additional impairment expense.




**Note
      6.**   **Shareholders’
      Equity**




**Preferred
      Stock**




Calibre
      is authorized to issue up to 10 million shares of $.001 par value preferred
      stock, the rights and preferences of which are to be determined by the Board
      of
      Directors at or prior to the time of issuance. As of December 31, 2006, none
      of
      the preferred stock is outstanding.




**Common
      Stock**




As
      of
      December 31, 2006, Calibre is authorized to issue 100,000,000 shares of common
      stock, par value of $.001 per share. The founding shareholders were granted
      and
      issued 27,000,000 shares of common stock at inception. In October 2005, Calibre
      completed a private offering of 20,000,000 shares of common stock at a price
      of
      $.40 per share realizing net proceeds after offering costs of $7.2 million.
      In
      conjunction with the common shares issued, Calibre issued warrants to purchase
      10,000,000 shares of common stock at an exercise price of $.75 per share. The
      warrants expire in October 2007. These warrants are valued at $0.15 per share
      or
      $1,500,000. Calibre paid fees and expenses related to this offering of $756,944.
      Calibre also granted 2,000,000 warrants with an exercise price of $0.40 per
      share. The Warrants expire in October 2007. These warrants were also valued
      at
      $0.15 per share or $300,000.




In
      March
      and April 2006, Calibre raised an aggregate of $11,560,000 ($10,629,394 net
      of
      offering costs) through the sale of 5,780,000 units.  A unit consists of 1
      share of common stock and 1 warrant to purchase shares of common stock at an
      exercise price of $2.75 per share and a term of 2 years.  Subscribers
      for units also are entitled to be issued one
      non-transferable right (a “Right”) for each Unit purchased, each Right entitling
      the holder thereof, subject to certain conditions, to be issued 0.10 of a Unit
      (each whole such Unit, a “Rights Unit”) in the event that either: (i) the
      Company has not filed with the U.S. Securities and Exchange Commission (the
      “SEC”) a Registration Statement (as defined below) and had such Registration
      Statement declared effective by the SEC that is 120 days following the Closing
      Date; or (ii) completed a Canadian Going Public Transaction (the completion
      of
      one or both of such events referred to as the “Liquidity Event”), on or before
      the date that is 120 days following the Closing Date (the “Liquidity Event
      Deadline”), which was August 17, 2006.  As Calibre did
      not complete the Liquidity Event, subscribers in this private placement are
      entitled to be issued 0.10 of a Unit for each Unit they own.  Calibre has
      recorded a liability for the issuance of 578,000 Rights Units and non cash
      registration delay expense of $1,703,446 to reflect the value of the units
      required to be issued.




On
      November 6, 2006, Calibre raised $4,812,500 through the private sale of
      1,750,000 shares and warrants to purchase 1,000,000 shares of common stock
      at an
      exercise price of $1.50 per share and a term of 2 years. As part of the
      consideration, the purchaser also surrendered a warrant to
      acquire 1,750,000 shares of common stock at an exercise price of $2.75 per
      share.




**Note
      7.**  **2005
      Stock Incentive Plan**




Calibre
      adopted the 2005 Stock Incentive Plan (the “Plan”) in October 2005. Under the
      Plan, options may be granted to key employees and other persons who contribute
      to the success of Calibre. Calibre has reserved 9,000,000 shares of common
      stock
      for the Plan. Option awards are generally granted with an exercise price equal
      to the market price of Calibre’s stock at the date of grant. During the year
      ended December 31, 2006, 4,000,000 options were exercised. Calibre received
      proceeds of $200,000 upon the exercise of these options..


33





During the
      twelve month period ended December 31, 2006, Calibre issued 100,000 incentive
      stock options to an employee of Calibre with an exercise price of $2.10 per
      share. These options expire on July 27, 2016, vest 25% on each
      anniversary of the date of issuance over 4 years and had a fair value
      of $167,594 at the date of grant. Calibre valued these options using the
      Black-Scholes option -pricing valuation model. The model uses market sourced
      inputs such as interest rates, stock prices, and option volatilities, the
      selection of which requires management’s judgment, and which may impact the
      value of the options. The assumptions used in the Black-Scholes valuation model
      were: a risk-free interest rate of 5.00%; the current stock price at date of
      issuance of $2.10 per share; the exercise price of the options of $2.10 per
      share; the term of 10 years; volatility of 70.94%; and dividend yield of 0.0%.
      For the twelve month period ended December 31, 2006, Calibre recorded
      compensation expense of $20,950 to amortize the cost of these non-vested options
      over the service period of the options. Calibre issued 300,000 incentive stock
      options to an employee of Calibre with an exercise price of $2.40. These options
      expire on October 10, 2016, vest 25% on each anniversary of the date
      of issuance over 4 years and had a fair value of $589,509 at the date
      of grant. Calibre valued these options using the Black-Scholes option -pricing
      valuation model. The model uses market sourced inputs such as interest rates,
      stock prices, and option volatilities, the selection of which requires
      management’s judgment, and which may impact the value of the options. The
      assumptions used in the Black-Scholes valuation model were: a risk-free interest
      rate of 5.00%; the current stock price at date of issuance of $2.40 per share;
      the exercise price of the options of $2.40 per share; the term of 10 years;
      volatility of 75.12%; and dividend yield of 0.0%. For the twelve month period
      ended December 31, 2006, Calibre recorded compensation expense of $36,844 to
      amortize the cost of these non-vested options over the service period of the
      options




Prior
      to
      January 1, 2006, Calibre granted a total of 650,000 non-vested options including
      options to purchase 50,000 shares of common stock at an exercise price of $0.12
      per share, and options to purchase 600,000 shares of common stock at an exercise
      price of $0.24 per share. All non-vested options vest over a four year service
      period and expire 10 years after the date of grant. For the year ended December
      31, 2006, Calibre recorded compensation expense of $41,004 to amortize the
      cost
      of these options over the service period of the options.










A
      summary
      of option activity as of December 31, 2006, and changes during the twelve months
      ended December 31, 2006 is presented below:





**Options**
                **Shares**
                **Weighted
                    Average Exercise Price**
                **Weighted
                    Average Remaining Contractual Term**
                **Aggregate
                    Intrinsic Value**Outstanding
                    at January 1, 2006
                6,450,000
                $0.09Granted
                400,000
                $2.32Exercised,
                    forfeited, or expired
                (4,000,000)
                $0.05Outstanding
                    at December 31, 2006
                2,850,000
                $0.46
                8.99
                $7,951,500Exercisable
                    at December 31, 2006
                1,962,000
                $0.14
                8.85
                $5,473,980








The
      weighted-average grant-date fair value of options granted during the twelve
      months ended December 31, 2006 was $1.89 per share.




A
      summary
      of Calibre’s non-vested shares as of December 31, 2006 and changes during the
      twelve months ended December 31, 2006, is presented below:




**Nonvested
                Shares**
            **Shares**
            **Weighted-**
              **Average**
              **Grant-Date**
              **Fair
                Value**Nonvested
                at January 1, 2006
            650,000
            $0.25Granted
            400,000
            $2.32Vested
            162,500
            $0.24Forfeited
            -
            -Nonvested
                at December 31, 2006
            887,500
            $1.17





34




As
      of
      December 31, 2006, there was $822,305 of total unrecognized compensation cost
      related to non-vested share-based compensation arrangements granted under the
      Plan. That cost is expected to be recognized over a weighted-average period
      of
      3.3 years. 4,000,000 shares were exercised and 137,500 shares vested during
      the
      twelve month period ended December 31, 2006.





The
      fair
      value of each option granted on December 28, 2006 is estimated on the date
      of
      grant using the Black-Scholes option-pricing model with the following weighted
      average assumptions: December 28, 2006, dividend yield $0, expected volatility
      of 57.99%, risk-free interest rate of 5.0%, and expected lives of 10
      years.




**Note
      8.   Warrants**





Calibre’s
      warrants outstanding and exercisable as of December 31, 2006
      are:


**Exercise
                Price**
            
            **Number
                of shares**
            
            **Remaining
                life**
            
            **Exercisable
                Number of Shares Remaining**$0.40
            
            
            2,000,000
            
            
            1.0
                years
            
            
            2,000,000$0.75
            
            
            10,000,000
            
            
            1.0
                years
            
            
            9,600,000$1.50
            
            
            1,000,000
            
            
            1.9
                years
            
            
            1,000,000$2.00
            
            
            577,500
            
            
            1.5
                years
            
            
            577,500$2.75
            
            
            5,780,000
            
            
            1.5
                years
            
            
            4,030,00019,357,500
            
            
            
            
            
            17,207,500








During
      the twelve months ended December 31, 2006, 400,000 warrants were exercised
      on a
      cashless basis resulting in the issuance of 295,806 shares of common stock,
      1,750,000 warrants priced at $2.75 per share were surrendered and 1,000,000
      warrants priced at $1.50 per share were issued pursuant to the Private Placement
      in November of 2006.





35


**Note
      9. Related Party Transactions.**




**Kerogen
      Resources, Inc.**




Our
      President and Chairman, Mr. Prentis B. Tomlinson, Jr., owns a 17.9% (on a fully
      diluted basis) stake of Kerogen Resources, Inc., a privately held oil and gas
      exploration company. Calibre has entered into four agreements with Kerogen
      Resources, Inc.




First,
      Calibre is party to a letter agreement dated October 5, 2005 with Kerogen
      Resources pursuant to which Calibre participates in the Reichmann Petroleum
      project. The project is a joint venture with Kerogen Resources, Crosby Minerals
      and Reichmann Petroleum Corporation to explore, acquire and develop properties
      located in the Barnett Shale in the Ft. Worth Basin of North Texas. Reichmann
      is
      the operator of the properties. In October 2005 Calibre acquired, through
      Kerogen Resources, a 12.5% working interest in 6,190 net acres of leasehold
      interests in Parker, Tarrant, Denton, and Johnson Counties, Texas. Subsequent
      to
      the initial acquisition, Calibre purchased a 25% working interest in 443 net
      acres of leasehold interests from Reichmann Petroleum in Johnson County, Texas.
      Kerogen Resources provides the technical guidance for the project and in
      exchange received 12.5% of our working interest in each well drilled. As of
      December 31, 2006, Calibre has paid Kerogen a total $9,191,599 of which
      $3,179,660 was for the 12.5% working interest in the initial 6,190 acres,
      prepayment of drilling costs on 12 wells and for the 25% working interest in
      the
      leasehold interest in Johnson County, TX and $6,011,939 was for operating costs
      (ie, drilling and completion costs) of the JV since the original payment.
      Kerogen then paid such amounts to Reichmann Petroleum Corporation as
      reimbursement of leasehold costs, drilling and operating expenses. Currently,
      our net acreage position subject to the Reichmann agreement is 773.94 net acres.
      As of December 31, 2006 we have participated in 22 gross
      wells of which 12 wells are currently producing, five wells have been drilled,
      completed and fraced and are waiting to be hooked up to a pipeline, and five
      wells have been drilled to total depth, completed and are waiting to be fraced.







Second,
      Calibre entered into a Participation Agreement dated September 20, 2005 with
      Kerogen Resources for the exploration and development of prospects in the South
      Fort Worth Basin. Pursuant to this agreement Calibre is obligated to pay Kerogen
      Resources $597,000 for its identification of prospects; as of December 31,
      2006,
      Calibre has paid Kerogen Resources $500,000 of such amount. As of December
      31,
      2006, our net leasehold position pursuant to this agreement is 3,812 acres.
      Calibre has paid approximately $1,184,584 to Kerogen for participation in these
      leases in the Ft. Worth Basin of Texas. All the leasehold acreage is
      undeveloped. The price paid for leases represented market prices for similar
      acreage in the area.




Third,
      Calibre entered into a Participation Agreement dated September 5, 2005 with
      Kerogen Resources for the exploration and development of prospects in the
      Williston Basin. Pursuant to this agreement Calibre is obligated to pay Kerogen
      Resources $638,600 for its identification of prospects and as of December 31,
      2006, Calibre has paid Kerogen Resources $550,000 of such amount. Calibre has
      not leased or developed any properties pursuant to this agreement.




Fourth,
      Calibre held a promissory note issued by Kerogen Resources. The principal owed
      pursuant to the note was $300,000 bearing interest at the rate of 6.25% per
      annum. The principal of this note and accrued interest thereon was due and
      payable in a single installment on the maturity date. The maturity date was
      the
      earlier of September 30, 2006 or the date on which Kerogen Resources received
      gross proceeds of at least $6,000,000 from a sale of equity, in one or more
      transactions. Calibre acquired the note from Mr. Tomlinson in October 2005
      in
      exchange for a payment of $300,000. This note was entered into by Mr. Tomlinson,
      a founder of Calibre Energy, in anticipation of the formation of Calibre. After
      the incorporation of Calibre, the company entered into agreements with Kerogen
      for the purpose of identification, exploration and development of prospects
      in
      the Fort Worth Basin and Williston Basin. The Reichmann Petroleum Project and
      South Fort Worth Basin project are projects identified by these agreements.
      On
      March 24 ,
      2006,
      Kerogen Resources repaid $314,623, the full amount of the promissory note and
      all interest due.




**Standard
      Drilling, Inc** .




On
      March
      24, 2006, Calibre loaned $350,000 to Standard Drilling, Inc. pursuant to a
      loan
      bearing interest at 4% per annum. On April 7, 2006 Standard Drilling, Inc.
      repaid Calibre $350,545, the full amount of the loan with all interest due.
      Mr.
      Tomlinson, our President, controls a limited liability company that, at the
      time
      of the loan, owned 53% of Standard Drilling, Inc. and serves as its CEO.
      Further, Standard Drilling’s principal officers also serve as officers for
      Calibre.




Several
      of Calibre’s officers, including its President and Vice Chairman are also
      employed as officers and/or directors of Standard Drilling, Inc., a company
      engaged in the business of drilling services. As a result, each of these
      officers devoted some of their business time to the management of Standard
      Drilling, Inc. The amount of time devoted to the management of Calibre’s
      business and the management of Standard Drilling’s business by each of these
      officers fluctuates from day to day and week to week. An officer may devote
      his
      time exclusively to the management of our business or to Standard Drilling
      for a
      period of time. Each of the officers has significant discretion as to whether
      to
      devote time to management of the Calibre’s business or to management of Standard
      Drilling’s business.




On
      January 16, 2007 Calibre entered into a Business Opportunity Agreement with
      Standard Drilling, Inc. pursuant to which Calibre agreed to not acquire, invest
      in or operate any oil field services business. Calibre also agreed to advise
      Standard Drilling, Inc., of any such opportunities presented to Calibre. In
      exchange, Standard Drilling, Inc. agreed to not acquire, invest in or operate
      any exploration and production business other than that it currently holds
      and
      to advise Claibre of any exploration and production business that is presented
      to it.




36


Potomac
      Energy, LLC (“Potomac”) is a joint venture entity formed by Calibre and Standard
      Drilling to acquire software licenses and data sufficient to build and maintain
      a land title database that will cover a portion of the Ft. Worth Basin in north
      central Texas. Calibre and Standard Drilling each own 50% of Potomac, and each
      contributed $87,500 to Potomac in the twelve month period ended December 31,
      2006. Calibre and Standard Drilling will pay equally all costs of Potomac.
      Each
      Company will have access to the Potomac database. Calibre uses this database
      to
      generate prospects and to perform land title work on existing prospects.
      Standard Drilling uses this database to perform land title work on its existing
      property as permitted by the Business Opportunity Agreement between Calibre
      and
      Standard Drilling dated January 16, 2007. As of February 6, 2007, Potomac has
      had no other activities other than the purchase of software and has no assets
      other than the software. Potomac is governed by a two person board comprised
      of
      one representative of Calibre Energy and one representative of Standard
      Drilling. William B. Nunnallee, Calibre’s Vice President of Land, serves as an
      officer and director of Potomac. Calibre accounts for its investment in Potomac
      under the equity method .




Calibre
      shares facilities and some overhead costs with Standard Drilling in Washington
      D.C. Calibre has entered into a service agreement pursuant to which Standard
      Drilling will pay Calibre for office space and supplies, use of office
      equipment, secretarial services and any other services Calibre provides to
      them
      in sharing the Washington D.C. office space. Pursuant to the services agreement,
      Standard Drilling reimburses Calibre for 50% of the costs of the health
      insurance provided to officers who are employed by both companies. The agreement
      provides for minimum quarterly payments to Calibre of $70,000 under the services
      agreement. The services agreement may be terminated by either party on 30 days
      notice. The two companies have separate offices and staff in Houston,
      Texas.




Calibre
      no longer anticipates that it will engage Standard Drilling to
      provide Calibre with drilling services.




**Hawler
      Energy, Ltd.**




Calibre
      entered into a Novation and Amendment Agreement among Hawler Energy, Ltd.
      (“Hawler Energy”), a Cayman Islands company, A & T Petroleum Company, Ltd.
      (“A & T”), a Cayman Islands company, and Hillwood Energy, Ltd. (“Hillwood”),
      a Cayman Islands company. Pursuant to the Novation Agreement Calibre became
      parties to the Exploration and Production Sharing Agreement (“the EPSA”) dated
      March 29, 2006 between A&T, Hawler Energy and the Oil and Gas Petroleum
      Establishment of the Kurdistan Regional Government (the “OGE”). Calibre entered
      into a Joint Operating Agreement with Hawler Energy, Ltd, a wholly owned
      subsidiary of Prime Natural Resources. One of Calibre’s former directors, W.
      Richard Anderson, is the CEO of Prime Natural Resources. The Joint Operating
      Agreement with Hawler Energy, Ltd. provides the Company a 10% stake in the
      EPSA
      with the Kurdish Regional Government for the exploration and development of
      the
      Bina Bawi prospects. Pursuant to this agreement, Calibre is obligated to pay
      Hawler Energy, Ltd. at least $5,500,000 for a 10% stake in the EPSA. Calibre
      has
      paid Hawler Energy, Inc. $3,359,106 of such amount during the twelve months
      ended December 31, 2006.







**Note
      10. Commitments and Contingencies**




Calibre
      Energy, Inc. leases 2,360 square feet of office space in Washington, D.C. that
      serves as its corporate office. The lease is at market rates and expires in
      October 2008. Additionally, Calibre has an operations office of 4,000 square
      feet in Houston, Texas. The lease is at market rates and expires on August
      30,
      2011.




At
      December 31, 2006, future minimum lease payments under the operating leases
      are
      as follows:




2007
            $205,1752008
            210,3652009
            107,6062010
            110,2242011
            93,673Total
            $875,938




Total
      rent expense was $154,823 for the year ended December 31, 2006. There were
      $17,700 of leasehold incentives which will be amortized over the life of the
      lease.





As
      of
      March 15, 2007, Calibre had drilling commitments of $2,494,528 in
      2007
      f or
      drilling and completion of wells in progress .
      If
      these commitments are not met, Calibre will not receive assignment for its
      interest in the Bina Bawi prospect.




**Note
      11. Asset Retirement Obligations**




In
      accordance with SFAS 143, “Accounting for Asset Retirement Obligations” Calibre
      records the fair value of a liability for asset retirement obligations (“ARO”)
      in the period in which it is incurred and a corresponding increase in the
      carrying amount of the related long-lived asset. The present value of the
      estimated asset retirement cost is capitalized as part of the carrying amount
      of
      the long-lived asset and is depreciated over the useful life of the asset.
      Calibre accrues an abandonment liability associated with its oil and gas wells
      when those assets are placed in service. The ARO is recorded at its estimated
      fair value and accretion is recognized over time as the discounted liability
      is
      accreted to its expected settlement value. Fair value is determined by using
      the
      expected future cash outflows discounted at Calibre’s credit-adjusted risk-free
      interest rate. No market risk premium has been included in Calibre’s calculation
      of the ARO balance. Calibre’s net ARO liability at December 31, 2006 is
      $53,242.


37


**Note
      12. - Subsequent Events**




*Private
      Placement*




On
      April
      13, 2007, Calibre completed a private placement of 8,000,000 Series A
      Convertible Preferred Shares with BlueWater Capital Group, LLC, a private
      investment group managed by our Chairman, CEO and President Prentis B.
      Tomlinson, Jr. in exchange for net proceeds of $5,000,000 of which $1,000,000
      has been received by Calibre and the remaining $4,000,000 has been structured
      as
      a non interest bearing note payable to the Calibre in monthly increments of
      $800,000 over the next 5 months. The Series A Preferred has that number of
      votes
      equal to 51% of the total votes entitled to be cast by all outstanding capital
      stock. After the receipt of the total proceeds, the preferred shares may be
      convertible, at the election of the Holder, into a fixed amount of common stock,
      equal to 75% of total outstanding shares then issued and outstanding at the
      time
      of conversion.






Each
      holder of shares of Series A Convertible Preferred Stock shall be entitled
      at
      the election of the holder to cause any or all of such shares to be converted
      into shares of Common Stock on the basis of the Conversion Ratio then in effect,
      provided, however, that the conversion of the Series
      A
      Convertible Preferred Stock shall
      not be effective until the Articles of Incorporation of the Company have been
      amended to increase the number of authorized shares of Common Stock to at least
      200,000,000 shares (the “Amendment”). Each share of Series A Convertible
      Preferred Stock shall be convertible into shares of Common Stock based on the
      ratio required to cause the number of shares of Common Stock issuable upon
      the
      conversion of 8,000,000 shares of Series A Preferred Stock to equal 75% of
      the
      number of shares of Common Stock then issued and outstanding after the
      conversion (the “Conversion Ratio”).




The
      Series A Preferred are not entitled to receive any dividends unless dividends
      are declared and paid by us on the Company’s Common Stock. If we pay dividends
      on our Common Stock, then each holder of a share of Series A Convertible
      Preferred Stock shall be entitled to receive the amount of dividends such holder
      would have received if its shares of Series A Convertible Preferred Stock had
      already been converted into shares of Common Stock. The Series A Preferred
      were
      not issued in conjunction with any warrants.




Prior
      to
      conversion, the Series A Preferred has a liquidation preference equal to $5
      million. In the event of any liquidation, dissolution or winding up of Calibre,
      either voluntary or involuntary (a “liquidation event”), a holder of the Series
      A Convertible Preferred Stock shall be entitled to receive out of our assets,
      prior to the holders of the Common Stock and the holders of Preferred Stock
      with
      rights junior to the Series A Preferred, for each share of Series A Convertible
      Preferred Stock held by such holder, $.625 per share (the “Liquidation
      Preference”).




The
      voting power of each share of Series A Convertible Preferred Stock shall be
      equal to the number of votes required to cause the aggregate of the votes
      entitled to be cast by all of the issued and outstanding Series A Convertible
      Preferred Stock to equal 51% of all votes entitled to be cast by all our classes
      of stock. The Series A Convertible Preferred Stock shall be entitled to vote
      on
      any and all matters brought to a vote of holders of Common Stock. Holders of
      Series A Convertible Preferred Stock shall be entitled to notice of all
      shareholder meetings or written consents with respect to which they would be
      entitled to vote, which notice would be provided to the holders of the Common
      Stock pursuant to the Company’s Bylaws and applicable statutes. **







38




SUPPLEMENTAL
      INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES





(UNAUDITED)




The
      standardized measure of discounted future net cash flows is computed by applying
      year-end prices of oil and gas to the estimated future production of proved
      oil
      and gas reserves, less estimated future expenditures (based on year-end costs)
      to be incurred in developing and producing the proved reserves, less estimated
      future income tax expenses (based on year-end statutory tax rates) to be
      incurred on pre-tax net cash flows less tax basis of the properties and
      available credits, and assuming continuation of existing economic conditions.
      The estimated future net cash flows are then discounted using a rate of 10
      percent per year to reflect the estimated timing of the future cash
      flows.




Proved
      Developed and Undeveloped Oil and Gas Reserves (natural gas), at year end
      (net):




Period
                ended December 31, 2006
            Period
                ended December 31, 2005(Mcf)
            (Mcf)Balance,
                January 1, 2006
            
            66,000
            -Extensions
                and discoveries
            
            1,703,318
            69,000Production
            
            (111,318)
            (3,000)Balance,
                December 31, 2006
            
            1,658,000
            66,000





Proved
                developed reservesAt
                December 31, 2005
            
            66,000
            -At
                December 31, 2006
            
            796,638
            (66,000)





Standardized
      Measure of Discounted Future Net Cash Flows:




December
                31, 2006
            December
                31, 2005Future
                cash inflows
            $9,923,393
            $462,794Future
                production costs
            (2,738,780)
            (154,904)Future
                development costs
            (1,253,879)
            (10,938)Future
                net cash flows
            5,930,734
            296,952Future
                income taxes
            -
            (103,933)10%
                annual discount for estimated timing of cash flows
            (2,538,429)
            (60,500)Standardized
                Measure of Discounted Future Net Cash Flows
            $3,392,305
            $132,519











39








Changes
      in Standardized Measure of Discounted Future Net Cash Flows:





For
                Period ended December 31, 2006
            For
                Period ended December 31, 2005Beginning
                of the year
            $132,519
            -Extensions,
                discoveries and improved production
            3,645,040
            138,613Sales
                of oil and gas produced, net of production costs
            (385,254)
            (6,094)End
                of the Year
            $3,392,305
            $132,519










The
      following supplemental information for exploration and development activities
      in
      2006 is disclosed by the following geographic areas: the United States and
      Kurdistan (International)





Capitalized
      costs relating to oil and gas producing activities for the year ending December
      31, 2006 are as follows:


Total
                Capitalized CostsProperties
                being amortized
            $ 9,444,539Properties
                not being amortized - domestic
            6,554,582Properties
                not being amortized - international
            4,269,106Less:
                Accumulated depletion, depreciation, and impairment
            (6,052,233)Net
                Capitalized Costs
            $14,215,994





Costs
      incurred for property acquisition, exploration, and development activities
      for
      the year ended December 31, 2006 are as follows:




Evaluated
            Unevaluated
            TotalAcquisition
                of propertiesProved
            **-**
            **-**
            **-**Unproven
                - Domestic
            **-**
            $4,880,739
            $4,880,739Unproven
                - International
            
            2,000,000
            2,000,000Exploration
                and Development Activities
            
            
            ****Domestic
            5,809,501
            -
            5,809,501International
            -
            2,269,106
            2,269,106Total
                Costs
            $5,809,501
            $9,149,845
            $14,959,346







40


**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**







**Change
      of Accountants**




Effective
      April 7, 2006, our Board of Directors, determined to change our independent
      accountants and dismissed Jones Simkins, PC as our independent registered public
      accounting firm. The Audit Committee of the Board of Directors and the Board
      of
      Directors approved the decision to change independent auditors. Jones Simkins,
      PC had served as our Independent Registered Public Accountant since June 1,
      2001.





During the
      two most recent fiscal years of Hardwood Doors and Milling Specialties, Inc.,
      ending December 31, 2004 and 2005 ,
      (i)
      there were no disagreements between us and Jones Simkins, PC on any matter
      of
      accounting principles or practices, financial statement disclosure or auditing
      scope or procedure which, if not resolved to the satisfaction of Jones Simkins,
      PC would have caused Jones Simkins to make reference to the matter in its
      reports on our financial statements, and (ii) Jones Simkins’ PC report on our
      financial statements did not contain any adverse opinion or disclaimer of
      opinion, and was not qualified or modified as to uncertainty, audit scope,
      or
      accounting principles with the exception of the following “going concern”
qualification:




“As
      of
      December 31, 2005, the Company’s revenue generating activities are not in place,
      and the Company has incurred losses since inception. These factors raise
      substantial doubt about the Company’s ability to continue as a going concern.
      Management intends to seek additional funding through business ventures. There
      can be no assurance that such funds will be available to the Company or
      available on terms acceptable to the Company. The financial statements do not
      include any adjustments that might result from the outcome of these
      uncertainties.”




On
      April
      4, 2006, our Audit Committee recommended the engagement of Malone & Bailey,
      PC as our independent registered public accounting firm. Our Board of Directors
      appointed Malone & Bailey, PC as our Independent Registered Public
      Accountant effective April 7, 2006.




**ITEM
      8A. Controls and Procedures.**




Our
      management, with the participation of our chief executive officer and chief
      financial officer, has evaluated the effectiveness of our disclosure controls
      and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
      Exchange Act of 1934 (the “Exchange Act”)) as of December 31, 2006. Based on
      this evaluation, our chief executive officer and chief financial officer have
      concluded that, as of December 31, 2006, our disclosure controls and procedures
      were not effective. Our conclusion was based on (1) our lack of systematic
      accounting and disclosure procedures, (2) the initial stages of the development
      of our IT systems, (3) the hiring and development of new personnel and (4)
      the
      number of adjustments identified by our independent auditors during the course
      of their audit. Changes in our internal controls over financial reporting
      occurred in the fourth quarter 2006 that materially affected our internal
      control over financial reporting. We attribute all of the identified weaknesses
      to the formative stage of our organizational development. We currently lack
      the
      personnel resources to ensure that our disclosure controls and procedures are
      adequate. We are addressing the procedural and control issues by adding more
      formalized accounting procedures and IT systems to maintain and monitor our
      Oil
      and Gas Properties and Reserves.





Calibre
      has substantially increased its business activities since the merger on January
      27, 2006. Accordingly, Calibre has been required to improve its system of
      internal control over financial reporting during the fiscal quarter covered
      by
      this report by (1) initiating a plan to formalize accounting and disclosure
      procedures for Oil and Gas Properties and Reserve Calculations; (2) further
      development of our internal IT systems; (3) performing additional reviews of
      our
      internal Oil and Gas Properties and Reserve Calculations prior to review by
      our
      independent auditors to ensure that no items that would have a material affect
      or are reasonably likely to have a material affect on internal control over
      financial reporting will be identified prior to issuance of our
      reports.





There
      were no significant changes in our internal control over financial reporting
      during the quarter ended December 31, 2006 that have materially affected or
      are
      reasonably likely to materially affect our internal control over financial
      reporting.













41




**PART
      III**






**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
      WITH
      SECTION 16(a) OF THE EXCHANGE ACT**






The
      information required by this item with respect to the directors, executive
      officers and compliance with Section 16(a) of the Exchange Act is incorporated
      by reference from the information provided under the headings “Election of
      Directors,” “Executive Officers” and “Section 16(a) Beneficial Ownership
      Reporting Compliance,” respectively, contained in the Company’s Proxy Statement
      to be filed with the Securities and Exchange Commission in connection with
      the
      solicitation of the proxies for the Company’s Annual Meeting of Stockholders.






**ITEM
      10. EXECUTIVE COMPENSATION.**






The
      information required by this item is incorporated by reference from the
      information provided under the heading "Executive Compensation" of the Company's
      Proxy Statement.






**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.**






The
      information required by this item is incorporated herein by reference from
      the
      information provided in the Company’s Proxy Statement.






**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**






The
      information required by this item is incorporated herein by reference from
      the
      information provided in the Company’s Proxy Statement.




42


**ITEM
      13. EXHIBITS.**







**(a)**  **Exhibits.** The
      following exhibits of Calibre are included herein.




Exhibit
                No.
            Description2.1
            Amended
                and Restated Agreement and Plan of Reorganization dated January 17,
                2006
                by and among Hardwood Doors and Milling Specialities, Inc., a Nevada
                corporation, Calibre Energy Acquisition Corp., a Delaware corporation,
                and
                Calibre Energy, Inc., a Delaware corporation, (Incorporated by reference
                from Exhibit 3.1 to the Current Report on Form 8-K filed by Calibre
                Energy, Inc. on January 27, 2006)3.1
            Amended
                and Restated Articles of Incorporation of Hardwood Doors and Milling
                Specialties, Inc. (Incorporated by reference to Exhibit 3.1 of Calibre
                Energy, Inc.’s Current Report on Form 8-K filed January 27,
                2006.)3.3
            Bylaws
                of Calibre Energy, Inc. (Incorporated by reference to Exhibit 3.3
                of
                Calibre Energy, Inc.’s Current Report on Form 8-K filed January 27,
                2006.)10.1
            Registration
                Rights Agreement dated October 31, 2005 by and among Calibre Energy,
                Inc.
                and the stockholders named therein. (Incorporated by reference to
                Exhibit
                10.1 of Calibre Energy, Inc.’s Current Report on Form 8-K filed January
                27, 2006.)10.2
            Form
                of Common Stock Warrant dated October 31, 2005 issued by Calibre
                Energy,
                Inc. to the purchasers. (Incorporated by reference to Exhibit 10.2
                of
                Calibre Energy, Inc.’s Current Report on Form 8-K filed January 27,
                2006.)10.3
            Participation
                Agreement (Southern Fort Worth Basin) dated September 20, 2005 among
                Calibre Energy, Inc., Kerogen Resources, Inc. (Incorporated by reference
                to Exhibit 10.3 of Calibre Energy, Inc.’s Current Report on Form 8-K filed
                January 27, 2006.)10.4
            Letter
                Agreement re: Barnett Shale Acquisition dated October 12, 2005 between
                Reichmann Petroleum and Calibre Energy, Inc. (Incorporated by reference
                to
                Exhibit 10.4 of Calibre Energy, Inc.’s Current Report on Form 8-K filed
                January 27, 2006.)10.5
            Participation
                Agreement (Williston Basin) dated September 20, 2005 between Calibre
                Energy, Inc. and Kerogen Energy, Inc. (Incorporated by reference
                to
                Exhibit 10.5 of Calibre Energy, Inc.’s Current Report on Form 8-K filed
                January 27, 2006.)10.6
            First
                Amendment to Participation Agreements dated October 31, 2005 among
                Calibre
                Energy, Inc., Kerogen Resources, Inc., Triangle Petroleum USA, Inc.
                and
                Wynn Crosby Partners I, LP. (Incorporated by reference to Exhibit
                10.6 of
                Calibre Energy, Inc.’s Current Report on Form 8-K filed January 27,
                2006.)10.7
            Calibre
                Energy, Inc. 2005 Stock Incentive Plan (Incorporated by reference
                to
                Exhibit 10.7 of Calibre Energy, Inc.’s Current Report on Form 8-K filed
                January 27, 2006.)10.8
            Form
                of Incentive Stock Option Agreement (Incorporated by reference to
                Exhibit
                10.8 of Calibre Energy, Inc.’s Current Report on Form 8-K filed January
                27, 2006.)10.9
            Form
                of Non-Statutory Stock Option Agreement (Incorporated by reference
                to
                Exhibit 10.9 of Calibre Energy, Inc.’s Current Report on Form 8-K filed
                January 27, 2006.)10.10
            Employment
                Agreement dated September 11, 2005 between Calibre Energy, Inc. and
                Prentis B. Tomlinson, Jr. (Incorporated by reference to Exhibit 10.10
                of
                Calibre Energy, Inc.’s Current Report on Form 8-K filed January 27,
                2006.)10.11
            Employment
                Agreement dated September 22, 2005 between Calibre Energy, Inc. and
                Moses.
                (Incorporated by reference to Exhibit 10.11 of Calibre Energy, Inc.’s
                Current Report on Form 8-K filed January 27, 2006.)10.12
            Employment
                Agreement dated December 21, 2005 between Calibre Energy, Inc. and
                Peter
                F. Frey (Incorporated by reference to Exhibit 10.12 of Calibre Energy,
                Inc.’s Current Report on Form 8-K filed January 27, 2006.)10.13
            Employment
                Agreement dated December 28, 2005 between Calibre Energy, Inc. and
                O.
                Oliver Pennington, III (Incorporated by reference to Exhibit 10.13
                of
                Calibre Energy, Inc.’s Current Report on Form 8-K filed January 27,
                2006.)10.14
            Form
                of Stock Purchase Warrantdated
                April 18, 2006.10.15
            Registration
                RightsAgreement
                dated April 18, 2006.10.16
            Certificate
                of Designation, Preferences, Rights and Limitations of Series A
                Convertible Stock of Calibre Energy, Inc.dated April 13,
                200710.17
            Investment
                Agreement dated as of April 13, 2007 between Calibre Energy, Inc.,
                a
                Nevada corporation and BlueWater Capital Group, LLC, a Delaware limited
                liability company10.18
            Promissory
                Note dated as of April 13, 2007 between Calibre Energy, Inc., a Nevada
                corporation and BlueWater Capital Group, LLC, a Delaware limited
                liability
                company10.19
            Stock
                Pledge Agreement entered into effective April 13, 2007, by and between
                BlueWater Capital Group, LLC, a Delaware limited liability company
                and
                Calibre Energy, Inc., a Nevada corporation10.20
            Guaranty
                dated as of April 13, 2007, made between Prentis B. Tomlinson, Jr.
                and in
                favor of Calibre Energy, Inc. a Nevada corporation, and its successors
                and
                assigns10.21
            Amendment
                to Section 9 of Article II of the Bylaws of the Company dated and
                effective April 13, 200723.1*
            Consent
                of Forrest A. Garb & Associates31.1*
            Chief
                Executive Officer Certification Pursuant to Section 13a-14 of the
                Securities Exchange Act31.2*
            Chief
                Financial Officer Certification Pursuant to Section 13a-14 of the
                Securities Exchange Act32.1*
            Certification
                of the CEO, pursuant to 18 U.S.C. §§ 1350 as adopted pursuant to §§ 906 of
                the Sarbanes-Oxley Act of 200231.2*
            Certification
                of the CFO, pursuant to 18 U.S.C. §§ 1350 as adopted pursuant to §§ 906 of
                the Sarbanes-Oxley Act of 2002


*Filed
      herewith  43





**LEGAL
      MATTERS**




The
      validity of the common stock offered by this report was passed upon for us
      by
      Vinson & Elkins L.L.P., Houston, Texas.






**RESERVE
      ENGINEERS**




Certain
      estimates of our net oil and natural gas reserves and related information as
      of
      December 31, 2006 included in this report have been derived from engineering
      reports prepared by Forrest A. Garb & Associates. All such information has
      been so included on the authority of such firm as experts.















44


**Item
      14. Principal Accountant Fees and Services.**




During fiscal year 2006 and fiscal year 2005, the aggregate fees which we paid
      to Malone & Bailey, PC, our independent auditors, for professional services
      were as follows:


Fiscal
                Year Ended December 31, 2006
            Fiscal
                Year Ended December 31, 2005Audit
                Fees
            $140,875
            $51,585Audit-Related
                Fees
            -
            -Tax
                Fees
            -
            -All
                Other Fees
            -
            -







(1)
            
            Fees
                for audit services include fees associated with the annual audit,
                quarterly reports and with the preparation of our
                SB-2.








Audit-Related
      Fees





There
      were no fees for other audit related services for fiscal year ended
      2006.





Tax
      Fees





There
      were no fees relating to tax compliance, tax advice and tax planning.





All
      Other Fees





There
      were no other aggregate fees billed in either of the last two fiscal years
      for
      products and services provided by the principal accountant, other than the
      services reported above.







**Audit
      Committee Pre-Approval of Audit and Permissible Non-Audit Services of
      Independent Registered Public Accounting Firm.**




As required by the Audit Committee charter, the Audit Committee pre-approves
      the
      engagement of Malone & Bailey, PC for all audit and permissible non-audit
      services. The Audit Committee annually reviews the audit and permissible
      non-audit services performed by Malone & Bailey, PC, and reviews and
      approves the fees charged by Malone & Bailey, PC The Audit Committee has
      considered the role of Malone & Bailey, PC in providing tax and audit
      services and other permissible non-audit services to us and has concluded that
      the provision of such services was compatible with the maintenance of Malone
      & Bailey, PC’s independence in the conduct of its auditing
      functions.


45




SIGNATURES





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned thereunto duly
      authorized.




Date:
                May 4, 2007
            CALIBRE
                ENERGY, INC.
              
              By:
                / s/ Prentis B. Tomlinson, Jr.
              Prentis
                B. Tomlinson, Jr.
              Chairman,
                Chief Executive Officer, and Interim Chief Financial Officer





In
      accordance with the Exchange Act, this report has been signed by the following
      persons on behalf of the registrant and in the capacities and on the dates
      indicated.








Date:
                May 4, 2007
            By:
                /s/ Prentis B. Tomlinson, Jr.
              Prentis
                B. Tomlinson, Jr.
              DirectorBy:
                /s/ Edward L. Moses
              Edward
                L. Moses
              DirectorBy:/s/
                Derek H. L. BuntainDerek
                H. L. Buntain
              DirectorBy:/s/Robert
                H. SteelhammerRobert
                H. Steelhammer
              Director