**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

(Mark One) 

**xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the quarterly period ended: **August 31, 2009** 

or

**[**  **] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the transition period from  _____ to _____

Commission File Number: **000-52721** 

 

| **FOX PETROLEUM INC.**                                 |
|--------------------------------------------------------|
| (Exact name of registrant as specified in its charter) |

 

| **Nevada**                                                     | **N/A**                           |
|----------------------------------------------------------------|-----------------------------------|
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |

 

| **64 Knightsbridge, London, England, UK SW1X 7JF**  |
|-----------------------------------------------------|
| (Address of principal executive offices) (Zip Code) |

 

| **44-207-590-9630**                                        |
|------------------------------------------------------------|
| (Registrant’s telephone number, including area code) |

 

| **N/A**                                                                            |
|------------------------------------------------------------------------------------|
| (Former name, former address and former fiscal year, if changed since last report) |

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

|   | Yes x  No o |
|--------|------------------|

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such            files).                       Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer | o |                                          | Accelerated filer         | o |
|-------------------------|---|-----------------------------------------------|---------------------------|---|
| Non-accelerated filer   | o | (Do not check if a smaller reporting company) | Smaller reporting company | x |

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

|   | Yes o  No x |
|--------|------------------|

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: **84,668,245 shares of common stock outstanding as of October 19, 2009**

 

----

|   | - ii - |
|--------|--------|

 

TABLE OF CONTENTS

 

| PART I - FINANCIAL INFORMATION | 1 |
|--------------------------------|---|

| Item 1. Financial Statements | 1 |
|------------------------------|---|

| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 |
|-----------------------------------------------------------------------------------------------------|----|

| Item 3. Quantitative and Qualitative Disclosures about Market Risks | 33 |
|---------------------------------------------------------------------|----|

| Item 4T. Controls and Procedures | 33 |
|----------------------------------|----|

| PART II – OTHER INFORMATION | 35 |
|-----------------------------------|----|

| Item 1. Legal Proceedings | 35 |
|---------------------------|----|

| Item 1A. Risk Factors | 35 |
|-----------------------|----|

| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | 47 |
|----------------------------------------------------------------------|----|

| Item 3. Defaults upon Senior Securities. | 48 |
|------------------------------------------|----|

| Item 4. Submission of Matters to a Vote of Security Holders. | 48 |
|--------------------------------------------------------------|----|

| Item 5. Other Information | 49 |
|---------------------------|----|

| Item 6. Exhibits. | 49 |
|-------------------|----|

| SIGNATURES | 56 |
|------------|----|

 

 

 

----

|   | - 1 - |
|--------|-------|

 

**PART I - FINANCIAL INFORMATION**

**Item 1. Financial Statements.**

**FOX PETROLEUM INC.**

(A Development Stage Company)

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009

(Stated in US Dollars)

(Unaudited)

 

 

----

|   | - 2 - |
|--------|-------|

 

**FOX PETROLEUM INC.**

(A Development Stage Company)

INTERIM CONSOLIDATED BALANCE SHEETS

August 31, 2008 and February 28, 2009

(Stated in US Dollars)

(Unaudited)

 

|                                                                     |                                                               |                                                                               |
|--------------------------------------------------------------------------|--------------------------------------------------------------------|------------------------------------------------------------------------------------|
| **ASSETS**                                                               | August 31,                                                         | February 28,                                                                       |
|                                                                     | 2009                                                               | 2009                                                                               |
| Current                                                                  |                                                               |                                                                               |
| Cash – general                                                     | $          8,124 | $             737 |
| – restricted                                                       | -                                                                  | 5,468                                                                              |
| VAT refund and other receivables                                         | -                                                                  | 157,718                                                                            |
|                                                                     |                                                               |                                                                               |
|                                                                     | 8,124                                                              | 163,923                                                                            |
|                                                                     |                                                               |                                                                               |
| Oil and gas interests – Note 4                                     | 588,270                                                            | 608,270                                                                            |
|                                                                     |                                                               |                                                                               |
|                                                                     | $      596,394                       | $      772,193                                       |
|                                                                     |                                                               |                                                                               |
| **LIABILITIES**                                                          |                                                               |                                                                               |
|                                                                     |                                                               |                                                                               |
| Current                                                                  |                                                               |                                                                               |
| Accounts payable and accrued liabilities – Notes 4 and 5 and 8(c)  | $  17,398,835                                            | $  16,585,108                                                            |
| Due to related parties – Note 6                                    | 2,000                                                              | 34,000                                                                             |
| Notes payable – Note 5                                             | 5,100,000                                                          | 4,670,667                                                                          |
|                                                                     |                                                               |                                                                               |
|                                                                     | 22,500,835                                                         | 21,289,775                                                                         |
|                                                                     |                                                               |                                                                               |
| Fees payable in stock and warrants – Notes 5(e), 8(b), (d) and (e) | 53,906                                                             | 67,631                                                                             |
|                                                                     |                                                               |                                                                               |
|                                                                     | 22,554,741                                                         | 21,357,406                                                                         |
|                                                                     |                                                               |                                                                               |
| **CAPITAL DEFICIT**                                                      |                                                               |                                                                               |
|                                                                     |
|                                                                     |
| Capital stock – Notes 4, 5, 6, 7, and 8                            |                                                               |                                                                               |
| Authorized:                                                              |                                                               |                                                                               |
| 90,000,000                                                               | common shares, par value $0.001 per share                          |                                                                               |   |
| Issued and outstanding:                                                  |                                                               |                                                                               |
| 84,818,245                                                               | common shares (February 28, 2009: 69,818,245)                      | 84,818                                                                             | 69,818 |
| Additional paid-in capital                                               | 44,937,395                                                         | 40,302,395                                                                         |
| Subscriptions receivable                                                 | (26,000,000)                                                       | (26,000,000)                                                                       |
| Deficit accumulated during the development stage                         | (40,980,560)                                                       | (34,957,426)                                                                       |
|                                                                     |                                                               |                                                                               |
|                                                                     | (21,958,347)                                                       | (20,585,213)                                                                       |
|                                                                     |                                                               |                                                                               |
|                                                                     | $         596,394     | $         772,193                     |
|                                                                     |                                                               |                                                                               |
|                                                                          |                                                                    |                                                                                    |  |  |

Ability to Continue as a Going Concern – Note 2

Commitments – Notes 4, 5, 6, 7, and 8

SEE ACCOMPANYING NOTES 

 

----

|   | - 3 - |
|--------|-------|

 

**FOX PETROLEUM INC.**

(A Development Stage Company)

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

for the three and six months ended August 31, 2009 and 2008 and

for the period November 4, 2004 (Date of Inception) to August 31, 2009

(Stated in US Dollars)

(Unaudited)

 

|                                                  | Three months endedAugust 31,                                                                            | Six months endedAugust 31,                                                                  | November 4, 2004 (Date of Inception) to August 31,                                                      |
|-------------------------------------------------------|---------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
|                                                  | 2009                                                                                                    | 2008                                                                                        | 2009                                                                                                    | 2008 | 2009 |
|                                                  |                                                                                                    |                                                                                        |                                                                                                    |   | (Cumulative) |
|                                                  |                                                                                                    |                                                                                        |                                                                                                    |   |   |
| Expenses                                              |                                                                                                    |                                                                                        |                                                                                                    |   |   |
| Accounting and audit fees                             | $            27,547                    | $           71,065              | $             57,226              | $        104,309  | $            311,881  |
| Accretion of convertible note                         | -                                                                                                  | 98,099                                                                                 | -                                                                                                  | 98,099  | 2,575,492  |
| Advertising and public relations                      | 286                                                                                                | 86,150                                                                                 | 286                                                                                                | 206,241  | 2,001,045  |
| Bank charges                                          | 5,534                                                                                              | 4,012                                                                                  | 9,840                                                                                              | 7,002  | 29,852  |
| Consulting fees –  Notes 6 and 8 b) and e) | 24,917                                                                                             | 431,381                                                                                | 111,574                                                                                            | 625,738  | 746,904  |
| Filing and transfer agent                             | 7,352                                                                                              | 16,512                                                                                 | 7,352                                                                                              | 17,637  | 49,690  |
| Finance fees – Notes 5 and 8 (c)                | 198,013                                                                                            | 76,240                                                                                 | 5,068,630                                                                                          | 729,240  | 9,505,731  |
| Foreign exchange loss                                 | 21,150                                                                                             | -                                                                                      | 265,138                                                                                            | -  | 192,065  |
| Insurance                                             | -                                                                                                  | 36,295                                                                                 | -                                                                                                  | 45,117  | 72,590  |
| Interest on notes payable                             | 84,651                                                                                             | 97,423                                                                                 | 191,648                                                                                            | 103,528  | 843,893  |
| Impairment of oil and gas assets                      | -                                                                                                  | -                                                                                      | -                                                                                                  | -  | 9,458,413  |
| Legal fees                                            | 16,417                                                                                             | 69,564                                                                                 | 26,717                                                                                             | 109,637  | 551,643  |
| Loss on failure to perform                            |                                                                                                    |                                                                                        |                                                                                                    |   |   |
| obligations under oil and gas                         |                                                                                                    |                                                                                        |                                                                                                    |   |   |
| commitments – Note 8(c)                         | -                                                                                                  | -                                                                                      | -                                                                                                  | -  | 12,910,000  |
| License fees                                          | 42,202                                                                                             | -                                                                                      | 67,328                                                                                             | -  | 67,328  |
| Management fees – Note 6                        | 127,377                                                                                            | 151,431                                                                                | 316,333                                                                                            | 228,253  | 1,167,794  |
| Mineral property acquisition and                      |                                                                                                    |                                                                                        |                                                                                                    |   |   |
| exploration costs                                     | -                                                                                                  | -                                                                                      | -                                                                                                  | -  | 17,000  |
| Office and miscellaneous                              | 10,071                                                                                             | 118,248                                                                                | 26,205                                                                                             | 165,069  | 424,486  |
| Travel and entertainment                              | -                                                                                                  | 31,477                                                                                 | -                                                                                                  | 48,314  | 268,333  |
|                                                  |                                                                                                    |                                                                                        |                                                                                                    |   |   |
| Loss for the period before other item                 | (565,517)                                                                                               | (1,287,897)                                                                                 | (6,148,277)                                                                                             | (2,488,184) | (41,194,140) |
|                                                  |                                                                                                    |                                                                                        |                                                                                                    |   |   |
| Other items:                                          |                                                                                                    |                                                                                        |                                                                                                    |   |   |
| Gain on recovery of VAT receivable                    | -                                                                                                  | -                                                                                      | -                                                                                                  | -  | 78,451  |
| Gain on recovery of payables                          | 125,143                                                                                            | -                                                                                      | 125,143                                                                                            | -  | 125,143  |
| Interest and other income                             | -                                                                                                  | -                                                                                      | -                                                                                                  | 494  | 9,986  |
|                                                  |                                                                                                    |                                                                                        |                                                                                                    |   |   |
| Net loss for the period                               | $          (440,374)                                  | $     (1,287,897)                                                  | $       (6,023,134)                                                  | $    (2,487,690) | $        (40,980,560) |
|                                                  |                                                                                                    |                                                                                        |                                                                                                    |   |   |
| Basic and diluted loss per share                      | $                (0.01) | $              (0.08) | $                (0.26) | $             (0.16) |   |
|                                                  |                                                                                                    |                                                                                        |                                                                                                    |   |   |
| Weighted average number of shares outstanding         | 32,818,245                                                                                         | 15,237,267                                                                             | 22,791,071                                                                                         | 15,102,756  |   |

SEE ACCOMPANYING NOTES

----

|   | - 4 - |
|--------|-------|

 

**FOX PETROLEUM INC.**

(A Development Stage Company)

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

for the six months ended August 31, 2009 and 2008 and

for the period November 4, 2004 (Date of Inception) to August 31, 2009

(Stated in US Dollars)

(Unaudited)

 

|                                                             |             |          | November 4,   |
|------------------------------------------------------------------|------------------|---------------|---------------|
|                                                             |             | 2004 (Date of |
|                                                             | Six months ended | Inception) to |
|                                                             | August 31,       | August 31,    |
|                                                             | 2009             | 2008          | 2009          |
|                                                             |             |          | (Cumulative)  |
|                                                             |             |          |          |
| Operating Activities                                             |             |          |          |
| Net loss for the period                                          | $(6,023,134)     | $(2,487,690)  | $(40,980,560) |
| Donated services and rent                                        | -                | -             | 21,000        |
| Amortization of deferred financing costs                         | -                | 76,240        | -             |
| Accretion of convertible debt discount                           | -                | 98,099        | 2,575,492     |
| Fees payable in stock and warrants                               | (3,022)          | 163,650       | 41,472        |
| Finance fee paid in stock and warrants                           | 4,639,297        | 653,000       | 8,275,554     |
| Gain on settlement of amounts payable                            | (125,143)        | -             | (125,143)     |
| Impairment of oil and gas assets                                 | -                | -             | 9,458,413     |
| Gain of VAT receivable written off                               | -                | -             | (78,451)      |
| Change in non-cash working capital balances

related operations: |             |          |          |
| VAT refund and other receivables                                 | 157,718          | (41,570)      | 78,451        |
| Prepaid expenses                                                 | -                | (20,725)      | -             |
| Accounts payable and accrued liabilities                         | 1,368,203        | (254,903)     | 17,845,683    |
|                                                             |             |          |          |
| Net cash used in operating activities                            | 13,919           | (1,813,899)   | (2,888,089)   |
|                                                             |             |          |          |
| Investing Activities                                             |             |          |          |
| Proceeds (investment) in oil and gas interests                   | 20,000           | (1,405,096)   | (7,702,687)   |
| Decrease (increase) in restricted cash                           | 5,468            | (1,003)       | -             |
|                                                             |             |          |          |
| Net cash provided by (used in) investing activities              | 25,468           | (1,406,099)   | (7,702,687)   |
|                                                             |             |          |          |
| Financing Activities                                             |             |          |          |
| Issuance of common shares                                        | -                | -             | 6,196,900     |
| Share subscriptions                                              | -                | -             | -             |
| (Repayment of) advance from related parties                      | (32,000)         | (29,975)      | 2,000         |
| Deferred financing costs                                         | -                | (402,500)     | -             |
| Proceeds from notes payable                                      | -                | 3,400,000     | 4,400,000     |
|                                                             |             |          |          |
| Net cash provided by financing activities                        | (32,000)         | 2,967,525     | 10,598,900    |
|                                                             |             |          |          |
| Increase (decrease) in cash  during the period              | 7,387            | (252,473)     | 8,124         |
|                                                             |             |          |          |
| Cash, beginning of period                                        | 737              | 271,601       | -             |
|                                                             |             |          |          |
| Cash, end of period                                              | $8,124           | $19,128       | $8,124        |

Supplemental Cash Flow Information – Note 9

 

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|   | - 5 - |
|--------|-------|

 

FOX PETROLEUM INC.

(A Development Stage Company)

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CAPITAL DEFICIT)

for the period November 4, 2004 (Date of Inception) to August 31, 2009

(Stated in US Dollars)

(Unaudited)

 

|                                                             |           |      |       |          | Deficit     |        |
|------------------------------------------------------------------|----------------|-----------|------------|---------------|-------------|-------------|
|                                                             |           |      |       |          | Accumulated |        |
|                                                             |           |      | Additional |          | During the  |        |
|                                                             | *Common Shares | Paid-in   | Share      | Development   |        |
|                                                             | Number         | Par Value | Capital    | Subscriptions | Stage       | Total       |
|                                                             |           |      |       |          |        |        |
| Capital stock issued for cash – at $0.0008333              | 5,880,000      | $5,880    | $(980)     | $-            | $-          | $4,900      |
| – at $0.0083333                                            | 3,840,000      | 3,840     | 28,160     | -             | -           | 32,000      |
| – at $0.0833333                                            | 120,000        | 120       | 9,880      | -             | -           | 10,000      |
| Donated services and rent                                        | -              | -         | 3,000      | -             | -           | 3,000       |
| Loss for the period                                              | -              | -         | -          | -             | (18,821)    | (18,821)    |
|                                                             |           |      |       |          |        |        |
| Balance, February 28, 2005                                       | 9,840,000      | 9,840     | 40,060     | -             | (18,821)    | 31,079      |
| Donated services and rent                                        | -              | -         | 9,000      | -             | -           | 9,000       |
| Loss for the year                                                | -              | -         | -          | -             | (45,915)    | (45,915)    |
|                                                             |           |      |       |          |        |        |
| Balance, February 28, 2006                                       | 9,840,000      | 9,840     | 49,060     | -             | (64,736)    | (5,836)     |
| Capital stock issued for cash – at $5.00                   | 20,000         | 20        | 99,980     | -             | -           | 100,000     |
| Donated services and rent                                        | -              | -         | 9,000      | -             | -           | 9,000       |
| Loss for the year                                                | -              | -         | -          | -             | (54,555)    | (54,555)    |
|                                                             |           |      |       |          |        |        |
| Balance, February 28, 2007                                       | 9,860,000      | $9,860    | $158,040   | -             | $(119,291)  | $48,609     |
| Capital stock issued for oil and gas interests                   | 4,000,000      | 4,000     | 997,702    | -             | -           | 1,001,702   |
| Capital stock issued for cash                                    | 1,028,245      | 1,028     | 6,048,972  | -             | -           | 6,050,000   |
| Capital stock issued for oil and gas interests – at $12.05 | 80,000         | 80        | 963,920    | -             | -           | 964,000     |
| Loss for the year                                                | -              | -         | -          | -             | (2,628,203) | (2,628,203) |
| Balance, February 29, 2008                                       | 14,968,245     | 14,968    | 8,168,634  | -             | (2,747,494) | 5,436,108   |
|                                                             |           |      |       |          |        |        |

.../cont’d

 

----

|   | - 6 - |
|--------|-------|

 

Continued

FOX PETROLEUM INC.

(A Development Stage Company)

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CAPITAL DEFICIT)

for the period November 4, 2004 (Date of Inception) to August 31, 2009

(Stated in US Dollars)

(Unaudited) 

|                                                                                                                                                                        |           |                                                                                                                                                                                                                                                                       |          |          | Deficit       |          |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|---------------|---------------|---------------|--------|
|                                                                                                                                                                        |           |                                                                                                                                                                                                                                                                       |          |          | Accumulated   |          |   |
|                                                                                                                                                                        |           |                                                                                                                                                                                                                                                                       | Additional    | Stock         | During the    |          |   |
|                                                                                                                                                                        | *Common Shares | Paid-in                                                                                                                                                                                                                                                                    | Subscriptions | Development   |          |          |
|                                                                                                                                                                        | Number         | Par Value                                                                                                                                                                                                                                                                  | Capital       | Receivable    | Stage         | Total         |   |
|                                                                                                                                                                        |           |                                                                                                                                                                                                                                                                       |          |          |          |          |   |
|                                                                                                                                                                        |           |                                                                                                                                                                                                                                                                       |          |          |          |          |   |
| Balance, February 29, 2008                                                                                                                                                  | 14,968,245     | 14,968                                                                                                                                                                                                                                                                     | 8,168,634     | -             | (2,747,494)   | 5,436,108     |   |
| Capital stock issued for finance fee – at $3.43                                                                                                                  | 150,000        | 150                                                                                                                                                                                                                                                                        | 514,350       | -             | -             | 514,500       |   |
| Capital stock issued pursuant to convertible

debenture            – at $1.63                             | 200,000        | 200                                                                                                                                                                                                                                                                        | 326,504       | -             | -             | 326,704       |   |
| – at $0.39                                                                                                                                                            | 2,500,000      | 2,500                                                                                                                                                                                                                                                                      | 962,598       | -             | -             | 965,098       |   |
| Capital stock subscribed – Note 7 (a) (ii)

– at $0.50                                                                                                          | 52,000,000     | 52,000                                                                                                                                                                                                                                                                     | 25,948,000    | (26,000,000)  |          | -             |   |
| Discount of convertible debt payable - Note 5(e)                                                                                                                            | -              | -                                                                                                                                                                                                                                                                          | 512,588       | -             | -             | 512,588       |   |
| Beneficial conversion feature – Note 5(e)                                                                                                                             | -              | -                                                                                                                                                                                                                                                                          | 1,388,320     | -             | -             | 1,388,320     |   |
| Discount of convertible debt payable - Note 5(e)                                                                                                                            | -              | -                                                                                                                                                                                                                                                                          | 771,101       | -             | -             | 771,101       |   |
| Beneficial conversion feature – Note 5(e)                                                                                                                             | -              | -                                                                                                                                                                                                                                                                          | 1,710,300     | -             | -             | 1,710,300     |   |
| Loss for the period                                                                                                                                                         | -              | -                                                                                                                                                                                                                                                                          | -             | -             | (32,209,932)  | (32,209,932)  |   |
|                                                                                                                                                                        |           |                                                                                                                                                                                                                                                                       |          |          |          |          |   |
| Balance, February 28, 2009                                                                                                                                                  | 69,818,245     | 69,818                                                                                                                                                                                                                                                                     | 40,302,395    | (26,000,000)  | (34,957,426)  | (20,585,213)  |   |
| Capital stock released from escrow pursuant to default on securities purchase agreements –  Note 5(e)         - at $0.31 | 15,000,000     | 15,000                                                                                                                                                                                                                                                                     | 4,635,000     | -             | -             | 4,650,000     |   |
| Loss for the period                                                                                                                                                         | -              | -                                                                                                                                                                                                                                                                          | -             | -             | (6,023,134)   | (6,023,134)   |   |
|                                                                                                                                                                        |           |                                                                                                                                                                                                                                                                       |          |          |          |          |   |
| Balance, August 31, 2009                                                                                                                                                    | 84,818,245     | $84818                                                                                                                                                                                                                                                                     | $44,937,395   | $(26,000,000) | $(40,980,560) | $(21,958,347) |   |
|                                                                                                                                                                        |           |                                                                                                                                                                                                                                                                       |          |          |          |          |   |
|                                                                                                                                                                        | *              | The common stock issued has been retroactively restated to reflect a reverse split of 1 new share for 5 old shares, effective April 21, 2008.  The par value of common stock and additional paid-in capital has been retroactively restated to reflect these changes. |
|                                                                                                                                                                             |                |                                                                                                                                                                                                                                                                            |               |               |               |               |        |  |  |  |  |

 

 

----

|   | - 7 - |
|--------|-------|

 

FOX PETROLEUM INC.

(A Development Stage Company)

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009

(Stated in US Dollars)

(Unaudited)

| Note 1 | Interim Financial Statements |
|--------|------------------------------|

While the information presented in the accompanying six months to August 31, 2009 interim financial statements is unaudited, it includes all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim period presented in accordance with the accounting principles generally accepted in the United States of            America. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. It is suggested that these financial statements be read in conjunction with the Company’s February 28, 2009 financial statements.

Operating results for the six months ended August 31, 2009 are not necessarily indicative of the results that can be expected for the year ending February 28, 2010.

| Note 2 | Nature of Operations and Ability to Continue as a Going Concern |
|--------|-----------------------------------------------------------------|

The Company was incorporated in the State of Nevada on November 4, 2004 and is in the development stage. The Company has oil and gas interests in the North Sea and Texas and has not yet determined whether these properties contain reserves that are economically recoverable. The recoverability of amounts from the properties will be dependent upon the discovery of economically recoverable reserves,            confirmation of the Company’s interest in the underlying properties, the ability of the Company to obtain necessary financing to satisfy the expenditure requirements under the property agreements and to complete the development of the properties and upon future profitable production or proceeds for the sale thereof.

These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next twelve months. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to            adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At August 31, 2009, the Company has a working capital deficiency of $22,492,791, has not yet achieved profitable operations, has accumulated losses of $40,980,560 since its inception and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s            ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address 

----

|   | - 8 - |
|--------|-------|

 

this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available or on acceptable terms, if at all.

| Note 3 | New Accounting Standards |
|--------|--------------------------|

In June 2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity’s Own Stock (“EITF07-5”). EITF07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s            contingent exercise and settlement provisions.  It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation.  EITF07-5 is effective for fiscal years beginning after December 15, 2008.  The adoption of this standard did not have a material impact on the consolidated financial statements of the Company.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”). SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting            principles for nongovernmental entities. SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The adoption of this standard did not have a material impact on the consolidated financial statements of the Company.

In May 2008, the FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 applies to convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement, unless the            embedded conversion option is required to be separately accounted for as a derivative under SFAS 133. Convertible debt instruments within the scope of FSP APB 14-1 are not addressed by the existing APB 14. FSP APB 14-1 requires that the liability and equity components of convertible debt instruments within the scope of FSP APB 14-1 be separately accounted for in a manner that reflects the entity’s nonconvertible debt borrowing rate. This requires an allocation of the            convertible debt proceeds between the liability component and the embedded conversion option (i.e., the equity component). The difference between the principal amount of the debt and the amount of the proceeds allocated to the liability component will be reported as a debt discount and subsequently amortized to earnings over the instrument’s expected life using the effective interest method. The FSP APB 14-1 is effective for the Company’s fiscal year beginning March 1,            2009 and has been applied retrospectively to all periods presented. 

The adoption of this standard did not have a material impact on the consolidated financial statements of the Company.

 

----

|   | - 9 - |
|--------|-------|

 

| Note 3 | New Accounting Standards – (cont’d) |
|--------|-------------------------------------------------|

In April 2008, the FASB issued FSP 142-3, “Determination of the Useful Life of Intangible Assets.” This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets.” The intent of this FSP is to improve the            consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141 (Revised 2007), “Business Combinations,” and other U.S. generally accepted accounting principles (GAAP). This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is            prohibited. The adoption of this standard did not have a material impact on the consolidated financial statements of the Company.

In March 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 161, “Disclosures about Derivative Instruments and Hedging Activities”, an amendment of FASB Statement No. 133, which requires additional disclosures about the objectives of the derivative instruments and hedging activities, the method of accounting for such instruments under SFAS No. 133            and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on our financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The adoption of this standard did not have a material impact on the consolidated financial statements of the Company.

In January 2008, Staff Accounting Bulletin (“SAB”) 110, “Share-Based Payment” was issued. Registrants may continue, under certain circumstances, to use the simplified method in developing estimates of the expected term of share options as initially allowed by SAB 107, “Share-Based Payment”. The adoption of this standard did not have a material impact on the            consolidated financial statements of the Company.

In December 2007, the FASB issued SFAS No. 141 (Revised) “Business Combinations”. SFAS 141 (Revised) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquired. The statement also provides guidance for recognizing            and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective for the first fiscal year beginning after December 15, 2008. The adoption of this standard did not have a material impact on the consolidated financial statements of the Company. 

 

----

|   | - 10 - |
|--------|--------|

 

| Note 3 | New Accounting Standards – (cont’d) |
|--------|-------------------------------------------------|

In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51”. SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance is effective for the first fiscal year beginning after December 15, 2008. 

The adoption of this standard did not have a material impact on the consolidated financial statements of the Company.

In December 2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF No. 07-01, Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property (“EITF 07-01”). EITF 07-01 discusses the appropriate income statement presentation and classification for the activities and payments between the participants in            arrangements related to the development and commercialization of intellectual property. The sufficiency of disclosure related to these arrangements is also specified. EITF 07-01 is effective for fiscal years beginning after December 15, 2008. As a result, EITF 07-01 was effective for the Company as of March 1, 2009. The adoption of this standard did not have a material impact on the consolidated financial statements of the Company.

In April 2009, the FASB issued FASB Staff Position (FSP) FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (FSP 141(R)-1), to amend and clarify the initial recognition and measurement, subsequent measurement and accounting, and related disclosures arising from contingencies in a business combination under SFAS 141(R). Under            the new guidance, assets acquired and liabilities assumed in a business combination that arise from contingencies should be recognized at fair value on the acquisition date if fair value can be determined during the measurement period. If fair value cannot be determined, companies should typically account for the acquired contingencies using existing guidance. The adoption of this standard did not have a material impact on the consolidated financial statements of the            Company.

In April 2009, the FASB issued FSP SFAS No. 107-1, Interim Disclosures about Fair Value of Financial Instruments, which amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, and APB Opinion No. 28, Interim Financial Reporting. FSP SFAS No. 107-1 will require disclosures about fair value of financial instruments in financial statements for interim reporting periods and in annual            financial statements of publicly-traded companies. This FSP also will require entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments in financial statements on an interim and annual basis and to highlight any changes from prior periods. The effective date for this FSP is interim and annual periods ending after June 15, 2009. As a result, the FSP was effective for the Company as of June 1, 2009. The adoption of this            standard did not have a material impact on the consolidated financial statements of the Company.

| Note 3 | New Accounting Standards – (cont’d) |
|--------|-------------------------------------------------|

 

 

 

----

|   | - 11 - |
|--------|--------|

| Note 3 | New Accounting |
|--------|----------------|

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. The FSP amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities. The FSP is effective for interim and            annual periods ending after June 15, 2009. As a result, the FSP was effective for the Company as of June 1, 2009. The adoption of this standard did not have a material impact on the consolidated financial statements of the Company.

In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" The FSP provides additional guidance for estimating fair value when the market activity for an asset or liability has declined significantly. The FSP is effective for interim and annual            periods ending after June 15, 2009. As a result, the FSP was effective for the Company as of June 1, 2009. The adoption of this standard did not have a material impact on the consolidated financial statements of the Company.

In June 2009, the FASB issued FSP No. FAS 167, Amendments to FASB Interpretation No. 46(R). The FSP significantly changes the consolidation model for variable interest entities. This statement requires companies to qualitatively assess the determination of the primary beneficiary of a variable interest entity (“VIE”) based on whether the entity (1) has the power to direct matters            that most significantly impact the activities of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The new accounting statement is effective March 1, 2011 and will be applied retrospectively. As a result, the Company is evaluating the impact on the consolidated financial statements.

In June 2009, the FASB issued FAS No. 168 The FASB Accounting Standards Codification, which establishes the FASB’s Accounting Standards Codification as the exclusive authoritative reference for nongovernmental U.S. GAAP for use in financial statements issued for interim and annual periods ending after September 15, 2009, except for SEC rules and interpretative releases, which are also            authoritative for SEC registrants. As a result, FAS 168 replaces FAS 162 and provides guidance that all codification standards will carry the same level of authority. The Company is currently evaluating the impact of this FSP, but would not expect it to have a material impact on the Company’s consolidated financial statements.

 

 

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|   | - 12 - |
|--------|--------|

 

Note 4            Oil and Gas Interests 

 

|                                        | August 31, 2009 |
|---------------------------------------------|-----------------|
|                                        | United          | United |   |
|                                        | States          | Kingdom | Total |
|                                        |            |   |   |
| Unproved properties                         |            |   |   |
| - acquisition costs                         | $3,701,871      | $23,439 | $3,725,310 |
| - exploration costs                         | 2,347,394       | 4,084,668 | 6,432,062 |
|                                        |            |   |   |
|                                        | 6,049,265       | 4,108,107 | 10,157,372 |
| Less: Write-down of oil & gas interests | (5,438,576)     | (4,019,837) | (9,458,413) |
| Less: Incidental revenue                    | (110,689)       | - | (110,689) |
|                                        |            |   |   |
|                                        | $500,000        | $88,270 | $588,270 |

 

|                                        | February 28, 2009 |
|---------------------------------------------|-------------------|
|                                        | United            | United |   |
|                                        | States            | Kingdom | Total |
|                                        |              |   |   |
| Unproved properties                         |              |   |   |
| - acquisition costs                         | $3,701,871        | $23,439 | $3,725,310 |
| - exploration costs                         | 2,347,394         | 4,084,668 | 6,432,062 |
|                                        |              |   |   |
|                                        | 6,049,265         | 4,108,107 | 10,157,372 |
| Less: Write-down of oil & gas interests | (5,438,576)       | (4,019,837) | (9,458,413) |
| Less: Incidental revenue                    | (90,689)          | - | (90,689) |
|                                        |              |   |   |
|                                        | $520,000          | $88,270 | $608,270 |

| a) | North Slope, Alaska |
|----|---------------------|

On May 29, 2007, the Company entered into a Lease Purchase and Sale Agreement with a company to acquire a combined 100% working interest in 12 state-issued oil and gas leases in the North Slope of Alaska. These leases are subject to a royalty of 16.66667% to the State of Alaska and a private royalty equal to 5% of net revenue. In consideration for the oil and gas leases, the Company issued 4,000,000            restricted common shares of the Company valued at $1,001,702, the transferor’s historical cost. The valuation is based the SEC Staff Accounting Bulletin, Topic 5, G. 

Pursuant to underlying agreements on the property, the Company is obligated to drill one test well to at least 10,000 feet on or before November 14, 2011, four test wells to at least 4,000 feet on or before February 20, 2012, and one test well to at least 4,000 feet on or before January 16, 2012. The Company is currently unable to quantify an estimate of the cost of these wells.

 

 

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|   | - 13 - |
|--------|--------|

 

Note 4            Oil and Gas Interests – (cont’d)

| a) | North Slope, Alaska – (cont’d) |
|----|--------------------------------------------|

By a purchase agreement dated October 10, 2007 and amended November 2, 2007, the Company acquired 8 additional oil and gas leases in the North Slope of the State of Alaska for $850,000 including cash of $250,000 and $600,000 paid by the issuance of 80,000 common shares of the Company. The fair value of the shares issued was $964,000 (based on the quoted market price of the Company’s common            shares on the transaction date) and consequently a further $364,000 has been recorded for this portion of the purchase agreement. These leases are subject to a royalty of 16.66667% to the State of Alaska and a private royalty equal to 5%. Two of the leases acquired pursuant to this agreement are part of the Cook Inlet project described below.

On January 30, 2009, the Company entered into an agreement with the original lease vendors (the “Payers”) regarding twelve of the North Slope oil and gas leases (the “Twelve Leases”). Under the terms of the Agreement, the Payers agreed to use their best efforts to make, on the Company's behalf, annual rental payments for the Twelve Leases totaling up to $64,980 on or before            the February 1, 2009 due date. 

The Company agreed to repay to the Payers by March 2, 2009 any portion of the Payments made by the Payers (the "Repayment Amount"). The Repayment Amount is subject to an 18% interest rate per annum. The Company also granted the Payers a security interest in the Company's right, title, and interest in the Twelve Leases. The Company further agreed to transfer and assign its right, title, and interest            in the Twelve Leases to the Payers in the event of the Company's failure to pay the Repayment Amount in a timely manner. 

The Company failed to pay the Repayment Amount and by an agreement dated May 14, 2009, the Payers agreed to extend the repayment date until August 14, 2009 in return for the lease assignment documents for the Twelve Leases being executed and delivered into escrow.

The Company entered into an agreement dated May 16, 2009 with the Payers in respect of five of the remaining North Slope oil and gas leases (the “Five Leases”). Pursuant to this agreement, the Payers made annual lease payments totaling $25,126 for the Five Leases on behalf of the Company. The amount paid on behalf of the Company is subject to an 18% interest rate per annum. The Company            also executed an assignment to the Payers of the Company's right, title, and interest in the Five Leases to be delivered into escrow in the event the Company fails to repay the payers by August 14, 2009.

The Company could provide no assurance that it would be able to obtain financing arrangements to repay the Payers by August 14, 2009 and consequently, all costs incurred of $2,401,282 were written off on the statement of operations during the year ended February 28, 2009. During the six months ended August 31, 2009, the Company failed to repay the Payers by the due date and assignment of the related            leases to the Payers was triggered. Consequently, the fees were no longer payable and outstanding lease fees and accrued interest of $98,400 were recorded as a gain on recovery of payables.

 

 

----

|   | - 14 - |
|--------|--------|

 

Note 4            Oil and Gas Interests – (cont’d)

Anglesey, North Sea, United Kingdom

Pursuant to a farm-in agreement dated June 8, 2007, the Company agreed to acquire a 33.33% interest in two UK petroleum production licenses (“Licenses”). The Licenses are located in the UK North Sea and have since been merged into one traditional license. As consideration for the Licenses, the Company agreed to fund 100% of the seismic costs and its 33.33% share of the License budget            costs as agreed by the parties. The Company also has the option to acquire an additional 26.67% interest in the Licenses by paying an additional 46.67% of the dry-hole costs of an exploration well. 

The option is effective from completion of the transfer of the assigned interest to the Company and shall continue to be valid and exercisable until 28 days after receipt by the Company of the processed seismic data and final interpretation.

During the year ended February 28, 2009, the Company returned the Licenses to the UK government and consequently all costs incurred of $2,512,856 were written-off on the statement of operations during the year ended February 28, 2009.

| c) | Spears Gas Well, Texas, United States |
|----|---------------------------------------|

Pursuant to a subscription agreement dated October 9, 2007, the Company acquired a 22.5% joint venture interest in a gas well called the Spears Gas Unit 2, Well #1 in the Gomez Field, Pecos County, Texas in consideration for US$500,000.

As at August 31, 2009, the gas well is shut-in awaiting further financing.

| d) | Cook Inlet, Alaska, United States |
|----|-----------------------------------|

By a purchase agreement dated October 10, 2007, the Company acquired 6 oil and gas leases located in Cook Inlet of the State of Alaska for $750,000, payable in installments on or before March 7, 2008. At November 30, 2008, the Company had paid $750,000. Included in these leases were 3 unissued leases that the vendors owned the rights thereto. The leases are subject to a royalty of 16.66667% to the            State of Alaska and a private royalty equal to 5% of net revenue.

Subsequent to February 28, 2009, the Company entered into an agreement dated May 29, 2009 with the Payers in respect of three these oil and gas leases (the “Three Leases”). Pursuant to this agreement, the Payers made annual lease payments totaling $25,780 for the Three Leases on behalf of the Company. The amount paid on behalf of the Company is subject to an 18% interest rate per annum.            The Company also executed an assignment to the Payers of the Company's right, title, and interest in the Five Leases to be delivered into escrow in the event the Company fails to repay the payers by August 14, 2009.

 

 

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|   | - 15 - |
|--------|--------|

 

Note 4            Oil and Gas Interests – (cont’d)

| d) | Cook Inlet, Alaska, United States – (cont’d) |
|----|----------------------------------------------------------|

The Company could provide no assurance that it would be able to obtain financing arrangements to repay the Payers by August 14, 2009 and consequently, all costs incurred of $1,061,727 were written-off on the statement of operations during the year ended February 28, 2009. During the six months ended August 31, 2009, the Company failed to repay the Payers by the due date and the assignment of the            related leases to the Payers was triggered. Consequently, outstanding lease fees and accrued interest of $26,743 were recorded as a gain on write off of amounts payable.

| e) | Bourbon, North Sea, United Kingdom |
|----|------------------------------------|

On November 16, 2007, the Company entered into a farm-out agreement dated November 8, 2007 wherein the Company would be assigned a total of 46% interest in a license block in the UK North Sea. In consideration for the assignment, the Company must pay for 89% of the cost of drilling and exploration well. 

The Company is also required to pay for 46% of license costs. On January 24, 2008, the Company agreed to jointly participate with another company to identify a potential farm-in or acquisition opportunity and transferred a 4.6% carried interest in the license block to that company until a full development plan is approved by the U.K. government. Thereafter, that company will be responsible for its            4.6% share of the costs (10% of the Company’s interest). Subsequent to the transfer, this company became related to the Company as two of its beneficial owners became directors of the Company.

During the year ended February 28, 2009, the license holders terminated the Farm-out agreement effective February 27, 2009. Consequently, all costs incurred of $1,419,627 were written off on the statement of operations during the year ended February 28, 2009.

| f) | Geneseo-Edwards, Kansas, United States |
|----|----------------------------------------|

By a letter agreement dated February 27, 2008, the Company purchased an 80% net revenue interest in three oil leases in Ellsworth County, Kansas, USA by the payment of $80,000. The leases are subject to a landowner royalty of 12.5% and an overriding royalty of 7.5% retained by vendors. The Company was required to drill at least one well on each lease before the leases expire on November 19, 2008,            November 19, 2009 and November 30, 2009 or pay the vendor a penalty of $150,000.

During the year ended February 28, 2009 the Company had drilled four wells on these leases and earned incidental revenue of $90,689 from two of these wells, which was credited against oil and gas interests on the consolidated balance sheet as a result of the wells not yet reaching full commercial production. Since January 2009 production has been suspended due to the need for implementation of water            disposal facilities for which further funding is not currently available.

 

 

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|   | - 16 - |
|--------|--------|

 

Note 4            Oil and Gas Interests – (cont’d)

| f) | Geneseo-Edwards, Kansas, United States – (cont’d) |
|----|---------------------------------------------------------------|

During the year ended February 28, 2009, two trade creditors issued mechanical liens against the oil and gas leases and its facilities for non-payment of outstanding invoices totaling $528,079. 

During the six month period ended August 31, 2009, the Company assigned its interest in these oil and gas leases to a creditor in return for a loan rescheduling (Note 5) and entering into an agreement not to sue the Company for defaulting on a loan agreement. The creditor also received 15,000,000 common shares pledged as security from the Company’s treasury against the notes payable.

Pursuant to the above, costs incurred of $1,975,567 were written-off on the statement of operations and deficit for the year ended February 28, 2009 leaving a net book value of $20,000 recovered during the six month period ended August 31, 2009 for the sale of certain furniture and equipment held for use on the property. 

| g) | UK Onshore, United Kingdom |
|----|----------------------------|

On June 3, 2008, the Company was granted a 90% interest in four UK petroleum production licenses, located in the south of England. In order to maintain the licenses, the Company must undertake seismic exploration estimated to cost $500,000 within the six year term of the license.

Pursuant to a letter agreement dated September 5, 2008, the Company will pay 100% of all costs, expenses, liabilities and obligations arising in respect of operations conducted in respect of each license block until a filed development plan is formally approved by the UK Secretary of State responsible for such matters, for the development of a discovery of petroleum in the blocks. Thereafter, the            Company will each be responsible for 90% of all costs, expenses, liabilities and obligations. 

| h) | 25th Round License Blocks 13/17 & 210/20e, United Kingdom |
|----|---------------------------------------------------------------|

Pursuant to a letter agreement dated September 5, 2008, the Company was granted a 90% interest in an application made for four UK petroleum production licenses. In order to maintain the licenses, the Company must carry out geological and seismic modeling before forming up a drilling location and must begin drilling within the four year term of the license.

Pursuant to the letter agreement, the Company will pay 100% of all costs, expenses, liabilities and obligations arising in respect of operations conducted in respect of each license block until a filed development plan is formally approved by the UK Secretary of State responsible for such matters, for the development of a discovery of petroleum in the blocks. Thereafter, the Company will each be            responsible for 90% of all costs, expenses, liabilities and obligations.

 

 

----

|   | - 17 - |
|--------|--------|

 

| Note 4 | Oil and Gas Interests – (cont’d) |
|--------|----------------------------------------------|

| h) | 25th Round License Blocks 13/17 & 210/20e, United Kingdom – (cont’d) |
|----|--------------------------------------------------------------------------------------|

On November 12, 2008 Fox was formally notified by the UK Department of Energy and Climate Change (DECC) of its success in the 25th Seaward Licensing Round Awards, the rights to explore and develop the block 13/17 concession in the North Sea by the UK government.

On May 1, 2009 Fox received notification from the UK Department of Energy and Climate Change that this Secretary of State’s offer of this license in the 25th round had been withdrawn due to fact that they consider there to have been a material change in the circumstances relating to Fox having adequate funding arrangements already in place. Consequently, all costs incurred of $87,354 were            written-off on the statement of operations and deficit for the year ended February 28, 2009.

| Note 5 | Notes Payable |
|--------|---------------|

 

|                                                                                                         |              | August 31, | February 29, |
|--------------------------------------------------------------------------------------------------------------|--------------|------------|--------------|
|                                                                                                         |              | 2009       | 2008         |
|                                                                                                         |              |       |         |
| Promissory notes (a), (b), (c)                                                                               |              | $450,000   | $450,000     |
| Loan agreement (d)                                                                                           |              | 450,000    | 450,000      |
| Convertible notes payable (e)                                                                                | $3,500,000   |       |         |
| Add: liquidating damages due under 

registration rights agreement                                           | 700,000      |       |         |
| Less: financing costs                                                                                        | (75,545)     |       |         |
| Add: amortization of financing costs             |  75,545 | 4,200,000  | 3,770,667    |
|                                                                                                         |              |       |         |
|                                                                                                         |              | $5,100,000 | $4,670,667   |

On April 2, 2008 the Company was loaned $250,000 by the issuance of a promissory note, to be paid on the earlier of (i) the date that the Company obtains equity financing from a third party in the minimum amount of $1,000,000 net to the Company, or (ii) April 1, 2009. For the period from the date of advance of the loan up to and including the date that the loan is repaid, interest will accrue on the            balance of principal outstanding at the rate of 10% per annum, compounded monthly. Interest will be payable in a balloon payment on the date the loan is repaid. The note is unsecured.

As at August 31, 2009, this loan has not been repaid as the lender has agreed to extend the terms of the loan until the Company is able to obtain further financing.

 

 

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|   | - 18 - |
|--------|--------|

 

Note 5            Notes Payable – (cont’d) 

b)        On May 6, 2008 the Company was loaned $150,000 by the issuance of a promissory note, to be paid on the earlier of (i) the date that the Company obtains equity financing from a third party in the minimum amount of $1,000,000 net to the company, or (ii) May 1, 2009. For the period from the date of advance of the loan up to and including the date that            the loan is repaid, interest will accrue on the loan on the balance of principal outstanding at the rate of 10% per annum, compounded monthly. Interest will be payable in a balloon payment on the date the loan is repaid. The note is unsecured. 

As at August 31, 2009, this loan has not been repaid as the lender has agreed to extend the terms of the loan until the Company is able to obtain further financing.

On May 23, 2008 the Company was loaned $50,000 by the issuance of a promissory note, to be paid on the earlier of (i) the date that the Company obtains equity financing from a third party in the minimum amount of $1,000,000 net to the company, or (ii) May 23, 2009. For the period from the date of advance of the loan up to and including the date that the loan is repaid, interest will accrue on the            loan on the balance of principal outstanding at the rate of 10% per annum, compounded monthly. Interest will be payable in a balloon payment on the date the loan is repaid. The note is unsecured. 

As at August 31, 2009, this loan has not been repaid as the lender has agreed to extend the terms of the loan until the Company is able to obtain further financing.

d)        On May 30, 2008 the Company was loaned $450,000 pursuant to a loan agreement. The principal and interest is to be paid on the earlier of (i) cash being available from operations, (ii) the date that the Company obtains equity or debt financing from a third party in the minimum amount of $1,000,000, or (iii) November 30, 2008. This loan bears interest            at 12% per annum, calculated annually. The loan is secured by the Company’s assets. As additional compensation for the loan, the Company issued to the lender 150,000 common shares of the Company. The fair value of these shares was determined to be $514,500 based on the quoted market price of the shares on the date of issuance and was recorded as a financing fee on the consolidated statement of operations.

As at August 31, 2009, this loan has not been repaid as the lender has agreed to extend the terms of the loan until the Company is able to obtain further financing.

Pursuant to an Amendment to Securities Purchase Agreement, Secured Debenture, Registration Rights Agreement and Security Agreement dated October 31, 2008 ("Amendment Agreement"), the Company amended a Securities Purchase Agreement, Debentures, a Registration Rights Agreement, an Escrow Agreement and a Pledge and Escrow Agreement ("Original Agreements") all originally dated June 24, 2008. Under the            Amendment Agreement the Company issued three secured convertible debentures totaling $3,500,000 consisting of two “Amended Debentures” and one “New Debenture”:

 

 

----

|   | - 19 - |
|--------|--------|

 

| Note 5 | Notes Payable – (cont’d) |
|--------|--------------------------------------|

e) – (cont’d)

Amended Debentures - $2,500,000

The Original Debenture which was a $2,500,000 senior secured convertible note was amended on November 11, 2008 into two debentures each of which are for a total principal amount of $1,250,000 (the “Amended Debentures).

The Amended Debentures bear interest at 10% per annum, compounded monthly. The principal and any unpaid accrued interest owing on the debentures are convertible into common stock of the Company in the event of a default or at the option of the holder at the rate of the lesser of i) 100% of the volume weighted average stock price (“VWAP”) on the date of issuance and ii) at 85% of the            lowest daily closing VWAP as quoted by Bloomberg L.P. during the 5 trading days immediately preceding the conversion date. The Amended Debentures also contain a redemption option whereby the Company can redeem the Amended Debentures provided its common stock is trading below 100% of the VWAP as quoted by Bloomberg L.P on October 31, 2008 by paying the unpaid principal and interest accrued and a prepayment premium of 15%. The Company must redeem the entire principal amount            outstanding on one of the Amended Debentures on April 30, 2009 at a 15% redemption premium; however, there is no mandatory redemption premium on the second Amended Debenture.

In consideration for the holder's agreement to extend the maturity date of the original convertible debt from October 24, 2008 to April 30, 2009, the Company cancelled the original 500,000 warrants issued in connection with the Original Debenture and replaced them with 2,000,000 warrants with a term of 5 years and a decreased exercise price of $0.001. 

The exercise price is subject to an adjustment if, during the term of the warrants, the Company issues shares, options or convertible securities for consideration less than the exercise price, then the exercise price will be adjusted to 85% of such consideration. Additional warrants will be issued if the Company becomes in default under the transaction agreements.

The Company determined the allocation of the net proceeds of the Original convertible debenture based on the relative fair value of the convertible debenture, the 500,000 share purchase warrants and the 200,000 common shares. The fair value of the warrants of $910,000 and the common shares of $580,000 were determined using the Black-Scholes valuation model and the quoted market price of the shares on            the date of issuance, respectively. 

The resulting discount of $839,292 was being accreted over the term of the debenture. The assumptions used in the Black-Scholes calculation are as follows: expected life – 5 years; volatility – 78.26%; Dividend rate – 0%; and risk free interest rate is 0.95%.

 

----

|   | - 20 - |
|--------|--------|

Note 5            Notes Payable – (cont’d) 

e) – (cont’d)

(i) Amended Debentures - $2,500,000 – (cont’d)

The Company recorded a beneficial conversion feature of $1,388,320 with respect to the Original Debentures pursuant to EITF 98-5 Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios. The conversion feature was contingently exercisable in an event of default of the debenture; which occurred on October 24, 2008 when the debenture came            due but was not repaid by the Company. Therefore the amount was recorded as a financing fee during the year ended February 28, 2009.

The Company determined the allocation of the net proceeds of the Amended Debentures based on the relative fair value of the convertible debenture, the share purchase warrants and the common shares. The fair value of the warrants of $1,578,000 and the common shares of $1,975,000 were determined using the Black-Scholes valuation model and the quoted market price of the shares on the date of issuance,            respectively. The resulting discount of $1,736,200 was being accreted over the term of the debentures. The assumptions used in the Black-Scholes calculation are as follows: expected life – 5 years; volatility – 78.26%; Dividend rate – 0%; and risk free interest rate is 3.52%.

The Company was required to pay to the investor at closing of the Original Agreements: $17,500 in legal costs, a $10,000 due diligence fee, a 7% commitment fee and a 2% facility fee, 500,000 share purchase warrants and 200,000 shares of common stock. Finder’s fees of $150,000 and 52,265 share purchase warrants were paid to Partners Consulting in connection with the Original Agreements pursuant            to a finder agreement dated February 15, 2008. This amount is included in fees payable in stock and warrants at February 28, 2009. The warrants expire three years from the date of issuance.

At the closing of the Amended Debentures, the Company also issued 2,500,000 shares of common stock. 

In no event shall the Holder be entitled to convert this Debenture for a number of shares of Common Stock in excess of that number of shares of Common Stock which, upon giving effect to such conversion, would cause the aggregate number of shares of Common Stock beneficially owned by the Holder and its affiliates to exceed 9.99% of the outstanding shares of the Common Stock following such conversion            without the approval of the Company.

Upon the occurrence of an Event of Default by the Company, the Holder has the option to elect that the interest due and payable be paid in cash or in stock at the rate of 85% of the lower of: (i) the VWAP on the date the interest payment is due; or (ii) if the interest payment is not made when due, the VWAP on the date the interest payment is made. 

 

 

----

|   | - 21 - |
|--------|--------|

Note 5            Notes Payable – (cont’d) 

e) – (cont’d)

(i) Amended Debentures - $2,500,000 – (cont’d)

The Debentures are secured by all of the assets and property of the Company and its subsidiaries pursuant to a Security Agreement. The debentures were further secured by a Pledge and Escrow Agreement pursuant to which 15,000,000 common shares of the Company to be held in escrow on behalf of the investor.

Further, the debenture is subject to a currency adjustment clause whereby the exchange rate between the US Dollar and the Euro will be fixed at the date of closing and if the exchange rate moves unfavorably for the holder of the debenture, the Company will be required to adjust conversion and redemption rates to compensate the holder for any such loss.

The debenture also contains certain restrictions on the Company for new share or debt issuances as long as any principal or interest amount remains outstanding on the debenture.

New Debenture - $1,000,000

The New Debenture and has a principal amount of $1,000,000 and matures on October 31, 2010 (the “New Debenture”). The New Debenture bears interest at a rate of 10% per annum compounded monthly. The principal and any unpaid accrued interest owing on the debentures are convertible into common stock of the Company in the event of a default or at the option of the holder at the rate of the            lesser of i) 100% of the volume weighted average stock price on the date of issuance and ii) at 85% of the lowest daily closing VWAP as quoted by Bloomberg L.P. during the 5 trading days immediately preceding the conversion date. 

The Company may redeem any or all of the New Debenture at any time, provided that the Common Stock is trading below the Fixed Price at the time the Company gives the Holder the redemption notice, by paying the unpaid principal and interest accrued and a prepayment premium of 15% redemption premium on the amount redeemed. In any case, the Company must redeem the $1,000,000 debenture maturing October            31, 2010 in equal monthly installments commencing January 31, 2009 until maturity at a 15% redemption premium. 

At the closing of the New Debentures the Company incurred: $7,500 in legal costs, a $45,000 commitment fee, a $1,000 due diligence fee

The Company recorded a beneficial conversion feature of $1,710,300 with respect to the Original Debentures. The amount was being amortized over the term of the debentures, however after an event of default (see below), the entire amount was immediately recognized into income as a financing fee during the year ended February 28, 2009.

 

 

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|   | - 22 - |
|--------|--------|

Note 5            Notes Payable – (cont’d) 

e) – (cont’d)

(ii) New Debenture - $1,000,000 – (cont’d)

Pursuant to the securities purchase agreement, the Company entered into a freestanding investor registration rights agreement dated June 24, 2008 and amended October 31, 2008. Under the terms of this agreement, the Company must have registered at least three (3) times the number of shares which are anticipated to be issued upon conversion of the Debentures issued and shares of common stock issuable            to the purchaser upon exercise of the warrants. The Company has the obligation to use their best efforts to keep the registration of these securities effective by the SEC until all of the securities had been sold by the purchaser. Failure to meet this obligation would result in the Company incurring liquidated damages in the amount of 2% of the liquidated value of the debentures for each 30 day period registration of the securities is not effective.

Under the provisions of FSP EITF 00-19-2 “Accounting for Registration Payment Arrangements (“EITF 00-19-2”), the Company is required to separately recognize and measure a contingent obligation in respect of the liquidating damages in accordance with FASB No.5 “Accounting for Contingencies” and FSB Interpretation No.14 “Reasonable Estimation of the Amount of a            Loss”. At August 31, 2009, an amount of $700,000 (February 28, 2009 - $270,667) has been recognized as the Company has determined that a loss is probable because the Company has failed to maintain effectiveness of its registration statement.

Included in accounts payable and accrued liabilities at August 31, 2009 is $568,623 (February 28, 2009 - $429,167) for accrued interest and redemption premiums on these notes payable.

During the six month period ended August 31, 2009 and the year ended February 28, 2009, the Company failed to make any of the required redemption payments on the New Debenture. This triggered a default, which resulted in all of the debentures immediately becoming due and payable and the remaining discounts on the debentures were immediately recognized in income. 

As at August 31, 2009, the Company had not repaid the $1,250,000 debenture that matured on April 30, 2009. 

As consideration for entering into negotiations to effect a loan rescheduling and the holder entering into an agreement not to sue, the Company assigned its interest in certain oil and gas leases to the holder (Note 4(f)). The holder also received the 15,000,000 common shares pledged as security against for debentures valued at $4,650,000, based on the quoted market price of the Company’s            common shares on the date they were released from escrow.

 

----

|   | - 23 - |
|--------|--------|

Note 5            Notes Payable – (cont’d) 

e) – (cont’d)

 

|                                                   | Face Amount | Discount    | Deferred Financing Costs | Carrying Value |
|--------------------------------------------------------|-------------|-------------|--------------------------|----------------|
| Balance, March 1, 2008                                 | $-          | $-          | $-                       | $-             |
| Issuance of Original Debenture, June 24, 2008          | 2,500,000   | (839,292)   | (252,500)                | 1,408,208      |
|                                                   |        |        |                     |           |
| Commissions paid – cash                          | -           | -           | (150,000)                | (150,000)      |
| Finder’s fees – warrants                   | -           | -           | (7,592)                  | (7,592)        |
| Event of default, October 24, 2008                     | -           |        |                     |           |
| Beneficial conversion feature                          | -           | -           | (1,388,320)              | (1,388,320)    |
| Accretion of debt discount                             | -           | 839,292     | 1,798,412                | 2,637,704      |
| Extinguishment of Original debenture, October 31, 2008 | (2,500,000) | -           | -                        | (2,500,000)    |
| Issuance of Amended Debentures                         | 3,500,000   | (1,736,200) | (53,500)                 | 1,710,300      |
| Beneficial conversion feature                          | -           | -           | (1,710,300)              | (1,710,300)    |
| Commissions paid – cash                          | -           | -           | (60,000)                 | (60,000)       |
| Finder’s fee – warrants                    | -           | -           | (15,545)                 | (15,545)       |
| Event of default, January 31, 2009                     |        |        |                     |           |
| Accretion of debt discount                             | -           | 1,736,200   | 1,839,345                | 3,575,545      |
| Liquidating damages                                    | 270,667     | -           | -                        | 270,667        |
| Balance, February 28, 2009                             | 3,770,667   | -           | -                        | 3,770,667      |
| Liquidating damages                                    | 429,333     |        |                     | 429,333        |
| Balance, August 31, 2009                               | $4,200,000  | $-          | $-                       | $4,200,000     |

| Note 6 | Related Party Transactions – Note 8 |
|--------|-------------------------------------------|

The officers of the Company provide consulting and management services to the Company as follows:

 

|                     |               |             |          |     | November 4,   |
|--------------------------|--------------------|------------------|---------------|----------|---------------|
|                     |               |             |          |     | 2004 (Date of |
|                     | Three months ended | Six months ended | Inception) to |
|                     | August 31,         | August 31,       | August 31,    |
|                     | 2009               | 2008             | 2009          | 2008     | 2009          |
|                     |               |             |          |     |          |
| Consulting fees          | $-                 | $62,145          | $-            | $90,070  | $394,859      |
| Management fees          | 123,090            | 112,560          | 267,946       | 189,382  | 1,119,406     |
| Office and miscellaneous | -                  | -                | -             | -        | 7,000         |
|                     |               |             |          |     |          |
|                     | $123,090           | $174,705         | $267,946      | $279,452 | $1,521,265    |

| Note 6 | Related Party Transactions – Note 8 – (cont’d) |
|--------|------------------------------------------------------------------|

 

 

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|   | - 24 - |
|--------|--------|

 

Included in accounts payable and accrued liabilities at August 31, 2009 is $875,300 (February 28, 2009: $504,293) owed to directors of the Company and companies with directors in common for expenses incurred on behalf of the Company and for unpaid management and consulting fees.

The amounts due to related parties are unsecured, non-interest bearing and have no specific terms for repayment. These amounts were due to the director of the Company and a company controlled by a director of the Company.

Effective May 6, 2008, the Company adopted a compensation policy for its directors pursuant to which the Company will compensate each director, as follows:

| i) | a fee of $1,000 per month; |
|----|----------------------------|

| ii) | 1,000 restricted shares of the common stock of the Company per month; |
|-----|-----------------------------------------------------------------------|

a fee of $1,000 per each quarterly board meeting attended.

Included in accounts payable and accrued liabilities is $48,387 (February 28, 2009: $Nil) for amounts owing to directors of the Company pursuant to this compensation policy.

| Note 7 | Capital Stock – Notes 4, 5, 6, 8 and 10 |
|--------|-----------------------------------------------|

Effective January 11, 2007 the Company completed a forward stock split of the authorized, issued and outstanding shares of common stock on a six new for one old basis. Authorized capital increased from 75,000,000 common shares to 450,000,000 common shares. Effective April 21, 2008 the Company completed a reverse stock split of authorized, issued and outstanding shares of common stock on a one new for            five old basis. Authorized capital decreased from 450,000,000 to 90,000,000. In January 2009, the Company obtained shareholder approval to amend its authorized share capital from 90,000,000 common shares, par value $0.001 to 500,000,000 common shares, par value $0.001. These financial statements have been retroactively restated to reflect reverse stock split, however the increase in authorized share capital will not become effective until not less than 20 days after the information            statement regarding the increase is first mailed to stockholders and until the appropriate filing is made with the Nevada Secretary of State. Subsequent to August 31, 2009, these required filings had not been made but it is management’s intention to do so.

 

 

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|   | - 25 - |
|--------|--------|

 

Note 7            Capital Stock – Notes 4, 5, 6, and 8

| a) | Share Issuance Agreements: |
|----|----------------------------|

i)         On May 17, 2007, the Company entered into a share issuance agreement with a subscriber that will allow the subscriber to advance up to $8,000,000 to the Company in exchange for units of the Company. The units will be issued at a price equal to 80% of the volume-weighted average of the closing price of common share for the 10 banking days            immediately preceding the date of the notice. Each unit will consist of one common share of the Company and one common share purchase warrant. Each common share purchase warrant will entitle the subscriber to purchase one additional common share at 125% of the price of the units for a period of three years. Should the Company seek alternative sources of financing this subscriber has the right to approve the terms. 

Shares issued under the agreement were as follows:

 

|               | Number of | Issue  | Total      |
|--------------------|-----------|--------|------------|
| Issue Date         | Units     | Price  | Proceeds   |
|               |      |   |       |
| May 17, 2007       | 377,358   | $5.30  | $2,000,000 |
| August 1, 2007     | 31,056    | $8.05  | 250,000    |
| September 18, 2007 | 44,199    | $9.05  | 400,000    |
| September 18, 2007 | 52,133    | $10.55 | 550,000    |
| September 27, 2007 | 28,708    | $10.45 | 300,000    |
| October 26, 2007   | 16,381    | $12.21 | 200,000    |
| October 26, 2007   | 21,097    | $11.85 | 250,000    |
| October 26, 2007   | 35,897    | $9.75  | 350,000    |
| November 28, 2007  | 47,337    | $8.45  | 400,000    |
| January 16, 2008   | 43,478    | $3.45  | 150,000    |
| January 24, 2008   | 96,154    | $5.20  | 500,000    |
| January 30, 2008   | 48,387    | $3.10  | 150,000    |
| February 11, 2008  | 89,286    | $2.80  | 250,000    |
| February 26, 2008  | 96,774    | $3.10  | 300,000    |
|               |      |   |       |
|               | 1,028,245 |   | $6,050,000 |

 

 

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|   | - 26 - |
|--------|--------|

 

Note 7            Capital Stock – Notes 4, 5, 6, and 8

| a) | Share Issuance Agreement: – (cont’d) |
|----|--------------------------------------------------|

i) – cont’d

As at August 31, 2009, there are 3,048,246 share purchase warrants outstanding entitling the holders thereof the right to purchase one common share for each warrant held as follows:

 

| Number of | Exercise |               |
|-----------|----------|--------------------|
| Warrants  | Price    | Expiry Date        |
|      |     |               |
| 20,000    | $6.25    | February 23, 2010  |
| 377,358   | $6.65    | May 17, 2010       |
| 31,056    | $10.05   | August 1, 2010     |
| 44,199    | $11.30   | September 10, 2010 |
| 52,133    | $13.20   | September 10, 2010 |
| 28,708    | $13.05   | October 1, 2010    |
| 16,381    | $15.25   | October 26, 2010   |
| 21,097    | $14.80   | October 26, 2010   |
| 35,897    | $12.20   | October 26, 2010   |
| 47,337    | $10.55   | November 28, 2010  |
| 43,478    | $4.30    | January 16, 2011   |
| 96,154    | $6.50    | January 24, 2011   |
| 48,387    | $3.90    | January 30, 2011   |
| 89,286    | $3.50    | February 11, 2011  |
| 96,775    | $3.90    | February 26, 2011  |
| 2,000,000 | $0.001   | October 31, 2013   |
|      |     |               |
| 3,048,246 |     |               |

ii)        On November 5, 2008, the Company entered into a subscription agreement with Carbon Energy Investments Limited (“Carbon Energy”) for the sale of 80,000,000 shares of common stock at a price of $0.50 per share for the aggregate price of $40,000,000. Carbon Energy agreed to pay for the shares as follows:

$15,000,000 on or before November 30, 2008 (later amended to December 12, 2008);

$15,000,000 on or before January 31, 2009; and

$10,000,000 on or before March 31, 2009.

 

 

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|   | - 27 - |
|--------|--------|

 

Note 7            Capital Stock – Notes 4, 5, 6, and 8 – (cont’d)

| a) | Share Issuance Agreement: – (cont’d) |
|----|--------------------------------------------------|

ii) – cont’d

On November 5, 2008, the Company entered into an agreement to purchase shares in Alaska Oil & Gas Resources Limited (“Alaska Oil & Gas”) with Carbon Energy. Carbon Energy is the sole owner of Alaska Oil & Gas. Pursuant to the agreement, the Company agreed to acquire 100% of the issued shares of Alaska Oil & Gas from Carbon Energy in consideration for $57,500,000, $250,000            of which was to be paid in cash and the remainder by the issuance of 57,250,000 shares of common stock. On the same day, two of the Company’s directors were appointed as directors of Alaska Oil & Gas.

On November 28, 2008, the Company entered into an amendment agreement with Carbon Energy relating to purchase of Alaska Oil & Gas whereby it was agreed that the consideration to be paid pursuant to the agreement was varied such that the consideration would amount to $57,500,000, payable by the issuance of 2,000,000 shares of common stock within three business days of November 2008 (issued            subsequently) and 55,500,000 shares on completion of the transaction. 

On December 3, 2008, the Company entered into a letter agreement with Carbon Energy whereby Carbon Energy agreed to return 2,000,000 shares of common stock to the company upon demand unless certain conditions are fulfilled or waived. The conditions are, among others, that Carbon Energy must complete in full the subscription agreement dated November 5, 2008 except that the first $20,000,000 must be            paid to the company on or before December 7, 2008 and that Carbon Energy must sell to the Company Alaska Oil & Gas which must own certain oil and gas leases pursuant to the agreement relating to the purchase of Alaska Oil & Gas.

On November 26, 2008, the Company issued 50,000,000 shares of restricted common stock to Carbon Energy in consideration for $25,000,000 to be received pursuant to the above-mentioned subscription agreement.

On December 2, 2008, the Company issued an additional 2,000,000 shares of restricted common stock to Carbon Energy pursuant to the terms of the amendment agreement for $1,000,000 to be received. 

The Company never received payment for the shares issued to Carbon and Carbon never completed on the sale of Alaska Oil & Gas. As a result, the shares that were previously subscribed were cancelled along with the agreements to purchase Alaska Oil & Gas. Consequently, shares have been excluded from the calculation of loss per share. The Company is currently reviewing its legal position and any            associated remedies relating to the above. 

 

 

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|   | - 28 - |
|--------|--------|

 

Note 7            Capital Stock – Notes 4, 5, 6, and 8 – (cont’d)

| b) | Share Purchase Warrants |
|----|-------------------------|

There were no changes in the Company’s share purchase warrants for the periods ended August 31, 2009 and February 28, 2009 as presented below:

 

|                   | August 31, 2009 |     | February 28, 2009 |
|------------------------|-----------------|----------|-------------------|
|                   |            | Weighted |              |   | Weighted |
|                   |            | Average  |              |   | Average |
|                   | Number of       | Exercise |              | Number of | Exercise |
|                   | Warrants        | Price    |              | Warrants | Price |
| Balance, end of period | 3,048,246       | $2.53    |              | 3,048,246 | $2.53 |

The remaining average life of the warrants at August 31, 2009 is 3.10 years (February 28, 2009: 3.61 years).

A finder's fee of $60,000 and 52,265 share purchase warrants exercisable at $2.87 for a period of three years from the date of issuance (6% of proceeds) were paid to Partners Consulting in connection with the Original Debenture (Note 5(e)) pursuant to a finder agreement dated February 15, 2008. The fair value of the warrants was determined using the Black-Scholes valuation model. The assumptions used            in the Black-Scholes calculation are as follows: expected life – 3 years; volatility – 192%; Dividend rate – 0%; and risk free interest rate is 1.0%. At August 31, 2009 these warrants had not yet been issued and are included in fees payable in stock and warrants.

A finder's fee of $60,000 and 76,923 share purchase warrants exercisable at $0.78 for a period of three years from the date of issuance (6% of additional proceeds) were paid to Partners Consulting in connection with the Amended Debentures (Note 5(e) pursuant to a finder agreement dated February 15, 2008. The fair value of the warrants was determined using the Black-Scholes valuation model. The            assumptions used in the Black-Scholes calculation are as follows: expected life – 3 years; volatility – 192.6%; Dividend rate – 0%; and risk free interest rate is 1.0%. At August 31, 2009 these warrants had not yet been issued and are included in fees payable in stock and warrants.

 

 

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|   | - 29 - |
|--------|--------|

 

Note 8            Commitments – Notes 4, 5, 7 and 10

By agreements dated June 8, 2007, the Company agreed to pay three directors of the Company a total amount of $20,000 per month for an indefinite period for consulting and management services to the Company. The agreements may be terminated at any time with cause and with three months notice without cause. On October 19, 2007 two of these agreements were amended from $12,000 to £9,000 ($17,900)            per month and from $5,000 per month to £7,000 ($13,900). Effective June 1, 2008 these agreements were amended from £9,000 to £15,000 per month and from £7,000 to £12,500 per month. All other terms remained the same. Effective June 1, 2009, the agreement for £12,500 per month was terminated. 

On May 8, 2008 the Company entered into a consulting agreement with Partners Consulting Inc. (“PCI”), a Florida Corporation, to introduce the Company to potential new investors. The consideration payable to PCI is warrants to purchase 50,000 shares of common stock due upon signing the agreement. In addition, PCI will receive 6% of the gross proceeds from any potential financing, payable            in cash and share purchase warrants equal to 6% of the gross proceeds. In the event a financing is facilitated through an investment banker introduced by PCI, PCI will instead receive 3% of the gross proceeds, payable in cash and share purchase warrants equal to 3% of the gross proceeds. All warrants will have a cashless exercise and will be priced at market value as of the date of the financing and with a minimum expiry period of three years. The consulting agreement is for a            period of one year. 

At August 31, 2009 the Company had not yet issued the warrants for 50,000 common shares due upon signing of the agreement but the fair value of these warrants was determined to be $4,364, which was included in fees payable in stock and warrants at August 31, 2009. The fair value of these warrants was determined to be $7,344 at February 28, 2009 and, consequently an amount of $2,982 has been shown as            a credit to consulting fees for the six months ended August 31, 2009. These warrants are exercisable at $2.77 and will expire three years from the date of issuance. The fair value of these warrants was determined using the Black Scholes valuation model. The assumptions used in the Black-Scholes calculation are as follows: expected life – 3 years; volatility – 192%; Dividend rate – 0%; and risk free interest rate is 1.0%.

On May 21, 2008, the Company signed a letter of commitment whereby the Company agreed to commit to the use of a drilling rig commencing no earlier than October 1, 2008 for a total cost of $8,910,000 which has been accrued in accounts payable and accrued liabilities as at February 28, 2009. The Company also committed to enter into a well project management and integrated services contract for the            management of a well program on the rig. The Company is also obligated to pay a fee of 1.75% of the operating rig rate in acknowledgement of the value provided with the rig opportunity, if the Company uses the rig, but not the integrated project management services. The Company also incurred and accrued penalties of $2,000,000 as compensation for lost revenues of the rig owners for its failure to fulfill its obligations under the rig provision contract and may be liable to pay up to            an additional $2,000,000 for its share of additional costs incurred by the rig owners during the Company’s allotted rig slot. 

| Note 8 | Commitments – Notes 4, 5, 7 and 10 – (cont’d) |
|--------|-----------------------------------------------------------------|

 

 

----

|   | - 30 - |
|--------|--------|

 

| c) | - (cont’d) |
|----|------------------|

This additional $2,000,000 amount is subject to a commercial discussion between the parties involved and has been accrued at August 31, 2009 as it is likely that will be incurred. A total of $12,910,000 was recorded as a loss on failure to perform obligations under oil & gas commitments and has been charged to the statement of operations during the year ended February 28, 2009.

By a bonus agreement dated May 22, 2008, the Company agreed to issue 5,000 common shares and £5,000 ($10,000) (paid during the year ended February 29, 2008) to an officer and director of the Company as a performance bonus. At November 30, 2008, the Company had not yet issued the shares due. The fair value of the shares was determined to be $22,150, which was included in fees payable in stock            and warrants at August 31, 2009.

During the six months ended August 31, 2009, the Company recorded a recovery of $8,500 (2008: $Nil) in consulting fees for the change in fair value of 50,000 common shares issuable pursuant to Board of Advisors (“BOA”) agreements dated November 17, 2007 as compensation to the members of the BOA. An amount of $6,500 is included in fees payable in stock and warrants at August 31, 2009 for            these shares.

During the six months ended August 31, 2009, the Company accrued $8,460 (2008: $Nil) in consulting fees for the fair value of 11,000 common shares issuable to a former employee of the Company. This amount is included in fees payable in stock and warrants at August 31, 2009.

| Note 9 | Additional Cash Flow Information |
|--------|----------------------------------|

During the three and six month periods ended August 31, 2009 and 2008 no amounts were paid for income taxes.

During the three and six month periods ended August 31, 2009 and 2008 no amounts were paid for interest charges.

 

 

 

 

 

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|   | - 31 - |
|--------|--------|

 

**Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.**

***Cautionary Note Regarding Forward Looking Statements***

This quarterly report contains forward looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward looking statements by terminology such as “may”, “should”, “intend”, “expect”, “plan”, “anticipate”, “believe”, “estimate”,            “project”, “predict”, “potential”, or “continue” or the negative of these terms or other comparable terminology. These statements speak only as of the date of this quarterly report. Examples of forward looking statements made in this quarterly report include statements about: 

|   | **•** | our future exploration programs and results; |
|--------|------------|----------------------------------------------|

|   | **•** | our future capital expenditures; |
|--------|------------|----------------------------------|

|   | **•** | our future financing; and |
|--------|------------|---------------------------|

|   | **•** | our future investments in and acquisitions of oil and gas properties. |
|--------|------------|-----------------------------------------------------------------------|

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks, such as

|   | **•** | our ability to establish or find reserves; |
|--------|------------|--------------------------------------------|

|   | **•** | volatility in market prices for natural gas and crude oil; |
|--------|------------|------------------------------------------------------------|

|   | **•** | liabilities inherent in natural gas and crude oil operations; |
|--------|------------|---------------------------------------------------------------|

|   | **•** | uncertainties associated with estimating natural gas reserves and crude oil; |
|--------|------------|------------------------------------------------------------------------------|

|   | **•** | competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; |
|--------|------------|------------------------------------------------------------------------------------------------------------------|

|   | **•** | political instability or changes of laws in the countries in which we operate and risks of terrorist attacks; |
|--------|------------|---------------------------------------------------------------------------------------------------------------|

|   | **•** | incorrect assessments of the value of acquisitions; |
|--------|------------|-----------------------------------------------------|

|   | **•** | geological, technical, drilling and processing problems; |
|--------|------------|----------------------------------------------------------|

|   | **•** | the uncertainty inherent in the litigation process, including the possibility of newly discovered evidence or the acceptance of novel legal theories, and the difficulties in predicting the decisions of judges and juries; and |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | other factors discussed under “Item 1A. Risk Factors” commencing on page 40 of this quarterly report. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------|

These risks may cause our company’s or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward looking statements.

Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward looking statements to conform these statements to actual results. 

 

 

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|   | - 32 - |
|--------|--------|

 

In this report, the terms “we”, “us” and “our” refer to Fox Petroleum Inc. and/or its wholly owned subsidiaries, Fox Petroleum (Alaska) Inc., Fox Petroleum, Inc. (a Kansas corporation) and Fox Energy Exploration Limited, as the case may be. 

***Our Business***

We are a development stage company engaged in the identification, acquisition, exploration, and, if warranted, development of prospective oil and gas properties. We have oil and gas leases in Alaska, interests in a UK onshore license, and joint venture interests in a gas well in Texas. 

Because we were not able to pay back Daniel Donkel and Samuel Cade for the Alaskan lease rental fees paid by them on our behalf, the process of assigning our Alaskan leases to Messrs. Donkel and Cade has already started. When all of these leases are assigned, we will own no leases in Alaska. 

In addition, the annual UK onshore license fees are now overdue. It is highly likely that our UK onshore license will be returned to the UK government if we cannot find a suitable assignee. As a result, we are unlikely to have any oil and gas properties in the UK.

**Anticipated Operating Expenses and Working Capital Requirements**

We estimate our minimum operating expenses and working capital requirements for the 12 month period ending August 31, 2010 to be as follows:

| Exploration Costs                                                     | $      | Nil        |
|-----------------------------------------------------------------------|--------|------------|
| Employee and Consultant Compensation                                  |   | 240,000    |
| Professional Fees                                                     |   | 100,000    |
| General and Administrative Expenses                                   |   | 60,000     |
| Current Liabilities due in the 12 month period ending August 31, 2010 |   | 22,500,835 |
| Total                                                                 | $      | 22,900,835 |

*Exploration Costs*

We do not expect to incur exploration costs for the 12 month period ending August 31, 2010 unless we obtain sufficient level of financing.

*Employee and Consultant Compensation*

We estimate our employee and consultant compensation expenses for the 12 month period ending August 31, 2010 to be approximately $240,000. 

*Professional Fees*

We estimate our legal and accounting expenses for the 12 month period ending August 31, 2010 to be approximately $100,000. 

 

 

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|   | - 33 - |
|--------|--------|

 

*General and Administrative Expenses*

We estimate our general and administrative expenses for the 12 month period ending August 31, 2010 to be approximately $60,000. These expenses primarily consist of lease payments, office supplies and office equipment, and travel expenses. 

*Current Liabilities*

As of August 31, 2009, we had the current liabilities of $22,500,835 which are due in the 12 month period ending August 31, 2010. 

***Results of Operation***

*Revenues*

From our inception on November 4, 2004 to August 31, 2009, we had no operating revenues. 

*Expenses*

The major components of our expenses for the three and six month periods ended August 31, 2009 and 2008 are outlined in the table below:

|                             |   | **Three Months Ended August 31,** |   |   | **Six Months Ended August 31,** |
|----------------------------------|--------|-----------------------------------|--------|--------|---------------------------------|
| **Expenses**                     |   | **2009**                          |   |   | **2008**                        |   |   | **2009** |   |   | **2008** |
| Accounting and audit fees        | $      | 27,547                            |   | $      | 71,065                          |   | $ | 57,226 |   | $ | 104,309 |
| Accretion of convertible note    |   | -                                 |   |   | 98,099                          |   |   | - |   |   | 98,099 |
| Advertising and public relations |   | 286                               |   |   | 86,150                          |   |   | 286 |   |   | 206,241 |
| Bank charges                     |   | 5,534                             |   |   | 4,012                           |   |   | 9,840 |   |   | 7,002 |
| Consulting fees                  |   | 24,917                            |   |   | 431,381                         |   |   | 111,574 |   |   | 625,738 |
| Filing and transfer agent        |   | 7,352                             |   |   | 16,512                          |   |   | 7,352 |   |   | 17,637 |
| Finance fees                     |   | 198,013                           |   |   | 76,240                          |   |   | 5,068,630 |   |   | 729,240 |
| Foreign exchange                 |   | 21,150                            |   |   | -                               |   |   | 265,138 |   |   | - |
| Insurance                        |   | -                                 |   |   | 36,295                          |   |   | - |   |   | 45,117 |
| Interest on notes payable        |   | 84,651                            |   |   | 97,423                          |   |   | 191,648 |   |   | 103,528 |
| Legal fees                       |   | 16,417                            |   |   | 69,564                          |   |   | 26,717 |   |   | 109,637 |
| License fees                     |   | 42,202                            |   |   | -                               |   |   | 67,328 |   |   | - |
| Management fees                  |   | 127,377                           |   |   | 151,431                         |   |   | 316,333 |   |   | 228,253 |
| Office and miscellaneous         |   | 10,071                            |   |   | 118,248                         |   |   | 26,205 |   |   | 165,069 |
| Travel and entertainment         |   | -                                 |   |   | 31,477                          |   |   | - |   |   | 48,314 |
| **Total**                        |   | **565,517**                       |   |   | **1,287,897**                   |   |   | **6,148,277** |   |   | **2,488,184** |

Accounting and audit fees  

The decrease in accounting and audit fees for the three and six month periods ended August 31, 2009 as compared to the three and six month periods ended August 31, 2008 was primarily due to lower work volume. 

 

 

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|   | - 34 - |
|--------|--------|

 

Accretion of convertible note

The decrease in accretion of convertible note for the three and six month periods ended August 31, 2009 as compared to the three and six month periods ended August 31, 2008 was primarily due to the default by our company during the 2009 year end of repayments on notes resulting in an immediate accretion of the entire discount of the notes during the 2009 year end.

Advertising and public relations

The decrease in advertising and public relations expenses for the three and six month periods ended August 31, 2009 as compared to the three and six month periods ended August 31, 2008 was primarily due to lack of funding. 

Bank charges  

The decrease in bank charges for the three and six month periods ended August 31, 2009 as compared to the three and six month periods ended August 31, 2008 was primarily due to lower volume of transactions. 

Consulting fees  

The decrease in consulting fees for the three and six month periods ended August 31, 2009 as compared to the three and six month periods ended August 31, 2008 was primarily due to consultants resigning. 

Filing and transfer agent  

The decrease in filing and transfer agent fees for the three and six month periods ended August 31, 2009 as compared to the three and six month periods ended August 31, 2008 was primarily due to lower volume of transactions. 

Finance fees  

The decrease in finance fees for the three month period ended August 31, 2009 as compared to the three month period ended August 31, 2008 was primarily due to no additional financing being received. 

The increase in finance fees for the six month period ended August 31, 2009 as compared to the six month period ended August 31, 2008 was primarily due to our defaulting on repayment terms of the debentures, triggering a large one-time penalty payable in shares of our company. 

Foreign exchange  

The increase in foreign exchange expenses for the three and six month periods ended August 31, 2009 as compared to the three and six month periods ended August 31, 2008 was primarily due to our holding significant balances of unpaid salaries and trade payables denominated in British pounds, which have gone unpaid during the six month period ended August 31, 2009. 

 

 

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|   | - 35 - |
|--------|--------|

 

Insurance  

The decrease in insurance expenses for the three and six month periods ended August 31, 2009 as compared to the three and six month periods ended August 31, 2008 was primarily related to the fact that we did not have directors and officers insurance coverage for the three and six month periods ended August 31, 2009.

Interest on notes payable  

The decrease in interest on notes payable expenses for the three month period ended August 31, 2009 as compared to the three month period ended August 31, 2008 was not significant.

The increase in interest on notes payable expenses for the six month period ended August 31, 2009 as compared to the six month period ended August 31, 2008 was primarily due to convertible debentures being issued part way through the six month period ended August 31, 2008 and outstanding during the entire six month period ended August 31, 2009. 

Legal fees  

The decrease in legal fees for the three and six month periods ended August 31, 2009 as compared to the three and six month periods ended August 31, 2008 was primarily due to decrease in work volume. 

Management fees  

The decrease in management fees for the three month period ended August 31, 2009 as compared to the three month period ended August 31, 2008 was primarily due to resignation of management during the second and third quarters of 2009. 

The increase in management fees for the six month period ended August 31, 2009 as compared to the six month period ended August 31, 2008 was primarily due to increase in management numbers during second half of 2008 and first part of 2009. 

Office and miscellaneous  

The decrease in office and miscellaneous expenses for the three and six month periods ended August 31, 2009 as compared to the three and six month periods ended August 31, 2008 was a decrease in activity during the three and six month periods ended August 31, 2009. 

Travel and entertainment  

The decrease in travel and entertainment expenses for the three and six month periods ended August 31, 2009 as compared to the three and six month periods ended August 31, 2008 was due to a decrease in activity during the three and six month periods ended August 31, 2009. 

 

 

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|   | - 36 - |
|--------|--------|

 

***Liquidity and Capital Resources***

*Working Capital*

 

|                      |   | **At August 31,** |   |   | **At February 28,** |   |
|---------------------------|--------|-------------------|--------|--------|---------------------|--------|
|                      |   | **2009**          |   |   | **2009**            |   |
| Current Assets            | $      | 8,124             |   | $      | 163,923             |   |
| Current Liabilities       | $      | 22,500,835        |   | $      | 21,289,775          |   |
| Working Capital (Deficit) | $      | 22,492,711        |   | $      | (21,125,852         | )      |

As of August 31, 2009, we held a cash balance of $8,124 and a working capital deficit of $22,492,711, compared to a cash balance of $6,205 and a working capital deficit of $21,125,852 as of February 28, 2009. We have suffered recurring losses from inception. 

*Financing from Trafalgar Capital Specialized Investment Fund, Luxembourg*

We failed to make most payments due to Trafalgar Capital Specialized Investment Fund, Luxembourg under the various loan arrangements (approximately $196,000 in scheduled principal, premium and interest repayments at February 28, 2009). We later were not in a position to repay the $1,250,000 principal due at the end of April 2009 under a loan agreement with Trafalgar (which would have left $2,250,000            principal outstanding). 

We have also incurred trade creditor and direct salary related debt of over $1,000,000 to date for our operations in Kansas. Several of these key trade creditors have issued mechanical liens against our facilities in Kansas. 

Subsequently, Trafalgar and we have commenced negotiations to amend the various loan arrangements to avoid default notices and legal action having to be taken. In principle, we have been asked by Trafalgar to assign our leases in Kansas to Trafalgar in return for a loan rescheduling, Trafalgar’s realizing the 15,000,000 shares of our common stock pledged under an earlier loan document with            Trafalgar and a covenant not to sue by Trafalgar. 

As a result, in April 30, 2009, we and Trafalgar entered into amendment to the securities purchase agreement, secured debenture, registration rights agreement and security agreement, whereby Trafalgar agreed to extend the maturity date of a secured debenture in the principal amount of $1,250,000 until October 31, 2009 from April 30, 2009. In consideration for Trafalgar’s agreeing to extend the            maturity date of that secured debenture, we released 15,000,000 shares of our common stock from escrow to Trafalgar as payment of an extension fee. These shares were originally intended to serve as additional pledged property under the security agreement that we entered into with Trafalgar in connection with the sale of the debentures to Trafalgar and in fact were described by Trafalgar as likely to be made available for a CEF type arrangement to repay creditors. This was later not            consented to by Trafalgar.

We will not be able to repay Trafalgar $1,250,000 principal due under the secured debenture with the extended maturity date of October 31, 2009 by that maturity date.

 

 

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|   | - 37 - |
|--------|--------|

 

*Annual Rental Payments for Leases in Alaska*

On January 30, 2009, we entered into an agreement with Daniel Donkel and Samuel Cade regarding 12 oil and gas leases in the State of Alaska, which were sold by Messrs. Donkel and Cade to us.

Under the terms of the agreement, Messrs. Donkel and Cade agreed to use their best efforts to make, on our behalf, annual rental payments for the 12 leases totaling up to $64,980 on or before the due date of each payment. The payments were due on February 1, 2009 and were paid by Messrs. Donkel and Cade on February 1, 2009.

We agreed to repay to them by March 2, 2009 any portion of the payments made by them. The repayment amount is subject to an 18% interest rate per annum. We also granted them a security interest in our right, title, and interest in the 12 leases. We further agreed to transfer and assign 25% of our right, title, and interest in the 12 leases to Mr. Donkel and 75% of our right, title, and interest in the 12            leases to Mr. Cade in the event of our failure to pay the repayment amount in a timely manner.

To date we have not been in a position to reimburse Messrs. Donkel and Cade. Before the end of May 2009, we entered into a letter agreement with Messrs. Cade and Donkel extending repayment deadline to August 14, 2009 within which we have to repay the annual rental payments made by them on February 1, 2009 together with interest. In order to obtain the extension, we executed the lease assignments for all            of the above 12 oil and gas leases and delivered them into escrow with the attorney of Messrs. Cade and Donkel. 

We also had lease payments unpaid totaling $25,126 for five leases which were due by March 1, 2009. We also had to pay further $25,790 for Alaska lease payments for three leases by June 1, 2009. 

As of May 16, 2009 and May 29, 2009, we entered into agreements with Messrs. Donkel and Cade whereby they paid lease rental fees of $25,126 for five leases which were due by March 1, 2009 and lease rental fees of $25,790 for three leases which were due by June 1, 2009, respectively, on behalf of our company. Under the agreements we had until August 14, 2009 to repay them in full including any accrued            interest. The amount paid on our behalf is subject to an 18% interest rate per annum. 

We have failed to repay these amounts and as such, Messrs. Donkel and Cade are currently completing the legal formalities to have these leases automatically assigned to them under the lease assignment agreements signed by us and held in escrow by Messrs. Donkel and Cade. Furthermore, on October 1, 2009, the annual rentals on the remaining Alaskan leases fell payable and these were also paid by Messrs.            Donkel and Cade. We are now in the process of assigning the relevant leases to Messrs. Donkel and Cade. When all of this assignment work is complete, we will own no leases whatsoever in Alaska.

 

 

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|   | - 38 - |
|--------|--------|

 

***Future Financing***

We have no access to capital to repay our debt or fund our current or ongoing operations. We have not been able to meet our obligations as they become due and we have been forced to scale down our operations. Unless we can secure additional capital and renegotiate the terms of our outstanding debts, we may be required to discontinue our operations at any time. 

There are no assurances that we will be able to obtain funds required for our continued operations. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain additional financing required for our continued operations on a timely basis, we will be forced to cease our            operations. 

***Going Concern***

Because we are in the development stage, have not yet achieved profitable operations and are dependent on our ability to raise capital from stockholders or other sources to meet our obligations and repay our liabilities arising from normal business operations when they become due, in their report on our audited financial statements for the years ended February 28, 2009 and February 29, 2008, our            independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial statements contain additional note disclosure describing the circumstances that led to this disclosure by our independent auditors. 

***Off-Balance Sheet Arrangements***

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. 

**Item 3. Quantitative and Qualitative Disclosures about Market Risks.**

Not Applicable. 

**Item 4T. Controls and Procedures.**

***Disclosure Controls and Procedures***

As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report, being August 31, 2009. This evaluation was carried out under the supervision and with the participation of our management, including our President and Chief Executive Officer.            

 

 

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|   | - 39 - |
|--------|--------|

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include            controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our President and Chief Executive Officer, to allow timely decisions regarding required disclosure. 

Our management does not expect that our disclosure controls or our internal controls over financial reporting will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, but no absolute, assurance that the objectives of a control system are met. Further, any control system reflects limitations on resources, and the benefits of a control            system must be considered relative to its costs. These limitations also include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of a control. A design of a control system is also based upon certain assumptions about potential future conditions; over time,            controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. 

Based upon that evaluation, our President and Chief Executive Officer concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this quarterly report. 

Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and            SEC guidelines. 

We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above due to lack of funding and further staff resignations. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending            February 28, 2010: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out above are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely            affected in a material manner.

 

 

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|   | - 40 - |
|--------|--------|

 

***Changes in Internal Controls over Financial Reporting***

There were no changes in our internal control over financial reporting that occurred during our fiscal quarter ended August 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

**PART II – OTHER INFORMATION**

**Item 1. Legal Proceedings.**

Except for claims, if any, arising out of our letter of commitment with Senergy Limited (as disclosed in our annual report on Form 10-K filed on July 15, 2009) and trade creditor related debt for our operations in Kansas (as disclosed in our annual report on Form 10-K filed on July 15, 2009), we know of no material, existing or pending legal proceedings to which we are a party or of which any of our            property is the subject. 

There are no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, or any associate of such director, officer, affiliate, or stockholder, is a party adverse to us or has a material interest adverse to us. 

**Item 1A. Risk Factors.**

In addition to other information in this quarterly report, the following risk factors should be carefully considered in evaluating our business because such factors may have a significant impact on our business, operating results, liquidity and financial condition. As a result of the risk factors set forth below, actual results could differ materially from those projected in any forward looking            statements. Additional risks and uncertainties not presently known to us, or that we currently consider to be immaterial, may also impact our business, operating results, liquidity and financial condition. If any such risks occur, our business, operating results, liquidity and financial condition could be materially affected in an adverse manner. Under such circumstances, the trading price of our securities could decline, and you may lose all or part of your investment. 

***Risks Relating To Our Business and the Oil and Gas Industry***

*Our financial condition is precarious and we have no access to capital to repay our debt or fund our current or ongoing operations. Unless we can secure additional capital and renegotiate the terms of our outstanding debts, we may be required to discontinue our operations at any time.*

As of August 31, 2009, we had cash of $8,124 and had a working capital deficit of $22,492,711. We do not have any credit available to us nor have we identified other sources of capital and it is unlikely, given our current financial condition and the ongoing global financial crisis, that we will secure any additional credit or capital. Unless we can secure additional capital and renegotiate the terms of            our outstanding debts, we may be required to discontinue our operations at any time. If we discontinue our operations, our stockholders will lose the entire amount of their investments in our company. 

 

 

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|   | - 41 - |
|--------|--------|

 

*Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.*

We incurred net losses of $6,023,134 for the six month period ended August 31, 2009. At August 31, 2009, we had accumulated a deficit of $40,980,560 and had a working capital deficit of $22,492,711.

Because we are in the development stage, have not yet achieved profitable operations and are dependent on our ability to raise capital from stockholders or other sources to meet our obligations and repay our liabilities arising from normal business operations when they come due, in their report on our audited financial statements for the years ended February 28, 2009 and February 29, 2008, our            independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosure describing the circumstances that led to this disclosure by our independent auditors. 

*If we are required for any reason to repay our outstanding secured convertible debentures or any other indebtedness, we would be required to deplete our working capital, if available, or raise additional funds. Our failure to repay the convertible debentures or any other indebtedness, if required, could result in our having no or nominal assets in addition to legal action against our company.*

If we are required to repay the secured convertible debentures or any other indebtedness for any reason, we would be required to use our limited working capital and raise additional funds. Because we are unable to pay back Daniel Donkel and Samuel Cade for the Alaskan lease rental fees paid by them on our behalf, the process of assigning our Alaskan leases to Messrs. Donkel and Cade has already started.            When all of these leases are assigned, we will own no leases in Alaska. If we are unable to repay the secured convertible debentures or any other indebtedness when required, it may result in our having no or nominal assets and we may be forced to cease our operations. In addition, the lenders could commence legal action against our company and foreclose on all of our assets to recover the amounts due. Any such legal action would require our company to possibly cease our            operations.

*We have had a history of losses and no revenue to date, which trend may continue and may negatively impact our ability to achieve our business objectives.*

We have experienced net losses since inception, and expect to continue to incur substantial losses for the foreseeable future. To date, we have not generated any significant revenues from our operations. We will not be able to generate significant revenues in the immediate future. As a result, our management expects the business to continue to experience negative cash flow for the foreseeable future and            cannot predict when, if ever, our business might become profitable. We need to raise additional funds, and such funds may not be available on commercially acceptable terms, if at all. If we are unable to raise funds on acceptable terms, we may not be able to execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements. This may seriously harm our business, financial condition and results of operations.            

 

 

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|   | - 42 - |
|--------|--------|

 

*We are a development stage company with a limited operating history, which may hinder our ability to successfully meet our objectives.*

We are a development stage company with only a limited operating history upon which to base an evaluation of our current business and future prospects. We have only begun engaging in the oil and gas exploration and development business since February 2007 and our company does not have an established history of locating and developing properties that have oil and gas reserves. As a result, the revenue and            income potential of our business is unproven. In addition, because of our limited operating history, we have limited insight into trends that may emerge and affect our business. Errors may be made in predicting and reacting to relevant business trends and we will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets. We may not be able to successfully address any or all of these risks and uncertainties. Failure to            adequately do so could cause our business, results of operations and financial condition to suffer. 

*Market conditions or operation impediments may hinder our access to oil and gas markets or delay our potential production.*

The marketability of potential production from our properties depends in part upon the availability, proximity and capacity of pipelines, natural gas gathering systems and processing facilities. This dependence is heightened where this infrastructure is less developed. Therefore, even if drilling results are positive in certain areas of our oil and gas properties, a new gathering system may need to be            built to handle the potential volume of oil and gas produced. We might be required to shut in wells, at least temporarily, for lack of a market or because of the inadequacy or unavailability of transportation facilities. If that were to occur, we would be unable to realize revenue from those wells until arrangements were made to deliver production to market.

Even if we are able to establish any oil or gas reserves on our properties, our ability to produce and market oil and gas is affected and also may be harmed by: 

|   | **•** | inadequate pipeline transmission facilities or carrying capacity; |
|--------|------------|-------------------------------------------------------------------|

|   | **•** | government regulation of natural gas and oil production; |
|--------|------------|----------------------------------------------------------|

|   | **•** | government transportation, tax and energy policies; |
|--------|------------|-----------------------------------------------------|

|   | **•** | changes in supply and demand; and |
|--------|------------|-----------------------------------|

|   | **•** | general economic conditions. |
|--------|------------|------------------------------|

*Our future performance is dependent upon our ability to identify, acquire and develop oil and gas properties, the failure of which could result in under use of capital and losses.*

Our future performance depends upon our ability to identify, acquire and develop oil and gas reserves that are economically recoverable. Our success will depend upon our ability to acquire working and revenue interests in properties upon which oil and gas reserves are ultimately discovered in commercial quantities, and our ability to develop prospects that contain proven oil and gas reserves to the point            of production. Without successful acquisition and exploration activities, we will not be able to develop oil and gas reserves or generate revenues. We cannot provide you with any assurance that we will be able to identify and acquire oil and gas reserves on acceptable terms, or that oil and gas deposits will be discovered in sufficient quantities to enable us to recover our exploration and development costs or sustain our business. 

 

 

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|   | - 43 - |
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The successful acquisition and development of oil and gas properties requires an assessment of recoverable reserves, future oil and gas prices and operating costs, potential environmental and other liabilities, and other factors. Such assessments are necessarily inexact and their accuracy inherently uncertain. In addition, no assurance can be given that our exploration and development activities will            result in the discovery of any reserves.

*We have a very small management team and the loss of any member of our team may prevent us from implementing our business plan in a timely manner.*

We currently have two executive officers and no other full time employees. We do not maintain key person life insurance policies on our executive officers or consultants, the loss of which could seriously harm our business, financial condition and results of operations. In such an event, we may not be able to recruit personnel to replace our executive officers or consultants in a timely manner, or at            all, on acceptable terms. 

*If we are unable to successfully recruit qualified managerial and field personnel having experience in oil and gas exploration, we may not be able to continue our operations.*

In order to successfully implement and manage our business plan, we will depend upon, among other things, successfully recruiting qualified managerial and field personnel having experience in the oil and gas exploration business. Competition for qualified individuals is intense. We may not be able to find, attract and retain qualified personnel on acceptable terms. If we are unable to find, attract and            retain qualified personnel with technical expertise, our business operations could suffer. 

*We will have substantial capital requirements that, if not met, may hinder our growth and operations.*

Our future growth depends on our ability to make large capital expenditures for the exploration and development of our natural gas and oil properties. Future cash flows and the availability of financing will be subject to a number of variables, such as: 

|   | **•** | the success of our planned projects in Texas and in the UK; |
|--------|------------|-------------------------------------------------------------|

|   | **•** | success in locating and producing reserves; and |
|--------|------------|-------------------------------------------------|

|   | **•** | prices of natural gas and oil. |
|--------|------------|--------------------------------|

Financing might not be available in the future, or we might not be able to obtain necessary financing on acceptable terms, if at all. If sufficient capital resources are not available, we might be forced to curtail our drilling and other activities or be forced to sell some assets on an untimely or unfavorable basis, which would have an adverse affect on our business, financial condition and results of            operations. 

*If we obtain additional financing, our existing stockholders may suffer substantial dilution or we may not have sufficient funds to pay the interest on our current or future debt.*

Additional financing sources will be required in the future to fund developmental and exploratory drilling. Issuing equity securities to satisfy our financing requirements could cause substantial dilution to our existing stockholders.

 

 

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|   | - 44 - |
|--------|--------|

 

Additional debt financing could lead to: 

|   | **•** | a substantial portion of operating cash flow being dedicated to the payment of principal and interest; |
|--------|------------|--------------------------------------------------------------------------------------------------------|

|   | **•** | being more vulnerable to competitive pressures and economic downturns; and |
|--------|------------|----------------------------------------------------------------------------|

|   | **•** | restrictions on our operations. |
|--------|------------|---------------------------------|

If we incur indebtedness, our ability to meet our debt obligations and reduce our level of indebtedness depends on future performance. General economic conditions, oil and gas prices and financial, business and other factors affect our operations and future performance. Many of these factors are beyond our control. We cannot assure you that we will be able to generate sufficient cash flow to pay the            interest on our current or future debt or that future working capital, borrowings or equity financing will be available to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our capital stock or a refinancing of our debt include financial market conditions, the value of our assets and performance at the time we need capital. We cannot assure you that we will have sufficient funds to make such payments. If we do not have sufficient            funds and are otherwise unable to negotiate renewals of our borrowings or arrange additional financing, we might have to sell significant assets. Any such sale could have a material adverse effect on our business and financial results. 

*We may not be able to determine reserve potential or identify liabilities associated with our properties in Texas and the UK and/or other future properties. We may also not be able to obtain protection from vendors against possible liabilities, which could cause us to incur losses.*

Although we have reviewed and evaluated our properties in Texas and the UK, such review and evaluation might not necessarily reveal all existing or potential problems. This is also true for any future acquisitions made by us. Inspections may not always be performed on every well, and environmental problems, such as groundwater contamination, are not necessarily observable even when an inspection is            undertaken. Even when problems are identified, a vendor may be unwilling or unable to provide effective contractual protection against all or part of those problems, and we may assume environmental and other risks and liabilities in connection with the acquired properties.

*If we or our operators fail to maintain adequate insurance, our business could be materially and adversely affected.*

Our operations are subject to risks inherent in the oil and gas industry, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires, pollution, earthquakes and other environmental risks. These risks could result in substantial losses due to injury and loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage,            and suspension of operations. We could be liable for environmental damages caused by previous property owners. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could have a material adverse effect on our financial condition and results of operations. 

 

 

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|   | - 45 - |
|--------|--------|

 

We expect that any prospective drilling contractor or operator which we hire will be required to maintain insurance of various types to cover our operations with policy limits and retention liability customary in the industry. Therefore, we do not plan to acquire our own insurance coverage for such prospects. The occurrence of a significant adverse event on such prospects that is not fully covered by            insurance could result in the loss of all or part of our investment in a particular prospect which could have a material adverse effect on our financial condition and results of operations.

*The oil and gas industry is highly competitive, and we do not have sufficient resources to compete effectively.*

The oil and gas industry is highly competitive. We compete with oil and natural gas companies and other individual producers and operators, many of which have longer operating histories and substantially greater financial and other resources than we do, as well as companies in other industries supplying energy, fuel and other needs to consumers. Our larger competitors, by reason of their size and            relative financial strength, can more easily access capital markets than we can and may enjoy a competitive advantage in the recruitment of qualified personnel. They may be able to absorb the burden of any changes in laws and regulation in the jurisdictions in which we do business and handle longer periods of reduced prices for oil and gas more easily than we can. Our competitors may be able to pay more for oil and gas leases and properties and may be able to define, evaluate, bid            for and purchase a greater number of leases and properties than we can. Further, these companies may enjoy technological advantages and may be able to implement new technologies more rapidly than we can. Our ability to acquire additional properties in the future will depend upon our ability to conduct efficient operations, evaluate and select suitable properties, implement advanced technologies and consummate transactions in a highly competitive environment. 

*Exploration and production activities are subject to certain environmental regulations which may prevent or delay the commencement or continuance of our operations.*

In general, our exploration and production activities are subject to certain federal, state, local, and foreign laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation. Specifically, we are subject to legislation regarding emissions into the            environment, water discharges and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and any such changes may have material adverse effects on our activities. We are unable to predict the ultimate cost of compliance with such laws and regulations. Generally, environmental            requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry. To date we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in future and this may affect our ability to expand or maintain our operations. 

 

 

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|   | - 46 - |
|--------|--------|

 

*Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.*

The business of oil and gas exploration and development is subject to substantial regulation under federal, state, local and foreign laws relating to the exploration for, and the development, upgrading, marketing, pricing, taxation, and transportation of oil and gas and related products and other matters. Amendments to current laws and regulations governing operations and activities of oil and gas            exploration and development operations could have a material adverse impact on our business. In addition, there can be no assurance that income tax laws, royalty regulations and government incentive programs related to our oil and gas properties and the oil and gas industry generally, will not be changed in a manner which may adversely affect our progress and cause delays, inability to explore and develop or abandonment of these interests.

Permits, leases, licenses, and approvals are required from a variety of regulatory authorities at various stages of exploration and development. There can be no assurance that the various government permits, leases, licenses and approvals sought will be granted in respect of our activities or, if granted, will not be cancelled or will be renewed upon expiry. There is no assurance that such permits,            leases, licenses, and approvals will not contain terms and provisions which may adversely affect our exploration and development activities.

*Shortages of rigs, equipment, supplies and personnel could delay or otherwise adversely affect our cost of operations or our ability to operate according to our business plans.*

If drilling activity increases worldwide, a shortage of drilling and completion rigs, field equipment and qualified personnel could develop. These costs have recently increased sharply and could continue to do so. The demand for and wage rates of qualified drilling rig crews generally rise in response to the increasing number of active rigs in service and could increase sharply in the event of a            shortage. Shortages of drilling and completion rigs, field equipment or qualified personnel could delay, restrict or curtail our exploration and development operations, which could in turn harm our operating results.

*The geographic concentration of all of our properties in Texas and the UK subjects us to an increased risk of loss of revenue or curtailment of production from factors affecting those areas.*

The geographic concentration of our joint venture interests in Texas and our UK onshore license means that our properties could be affected by the same event should the regions experience: 

|   | **•** | severe weather; |
|--------|------------|-----------------|

|   | **•** | delays or decreases in production, the availability of equipment, facilities or services; |
|--------|------------|-------------------------------------------------------------------------------------------|

|   | **•** | delays or decreases in the availability of capacity to transport, gather or process production; or |
|--------|------------|----------------------------------------------------------------------------------------------------|

|   | **•** | changes in the regulatory environment. |
|--------|------------|----------------------------------------|

*The oil and gas exploration and production industry is historically a cyclical industry and market fluctuations in the prices of oil and gas could adversely affect our business.*

Prices for oil and gas tend to fluctuate significantly in response to factors beyond our control. These factors include: 

 

 

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|   | - 47 - |
|--------|--------|

 

|   | **•** | weather conditions in the United States and wherever our property interests are located; |
|--------|------------|------------------------------------------------------------------------------------------|

|   | **•** | economic conditions, including demand for petroleum-based products, in the United States and the rest of the world; |
|--------|------------|---------------------------------------------------------------------------------------------------------------------|

|   | **•** | actions by OPEC, the Organization of Petroleum Exporting Countries; |
|--------|------------|---------------------------------------------------------------------|

|   | **•** | political instability in the Middle East and other major oil and gas producing regions; |
|--------|------------|-----------------------------------------------------------------------------------------|

|   | **•** | governmental regulations, both domestic and foreign; |
|--------|------------|------------------------------------------------------|

|   | **•** | domestic and foreign tax policy; |
|--------|------------|----------------------------------|

|   | **•** | the pace adopted by foreign governments for the exploration, development, and production of their national reserves; |
|--------|------------|----------------------------------------------------------------------------------------------------------------------|

|   | **•** | the price of foreign imports of oil and gas; |
|--------|------------|----------------------------------------------|

|   | **•** | the cost of exploring for, producing and delivering oil and gas; |
|--------|------------|------------------------------------------------------------------|

|   | **•** | the discovery rate of new oil and gas reserves; |
|--------|------------|-------------------------------------------------|

|   | **•** | the rate of decline of existing and new oil and gas reserves; |
|--------|------------|---------------------------------------------------------------|

|   | **•** | available pipeline and other oil and gas transportation capacity; |
|--------|------------|-------------------------------------------------------------------|

|   | **•** | the ability of oil and gas companies to raise capital; |
|--------|------------|--------------------------------------------------------|

|   | **•** | the overall supply and demand for oil and gas; and |
|--------|------------|----------------------------------------------------|

|   | **•** | the availability of alternate fuel sources. |
|--------|------------|---------------------------------------------|

Changes in commodity prices may significantly affect our capital resources, liquidity and expected operating results. Price changes will directly affect revenues and can indirectly impact expected production by changing the amount of funds available to reinvest in exploration and development activities. Reductions in oil and gas prices not only reduce revenues and profits, but could also reduce the            quantities of reserves that are commercially recoverable. Significant declines in prices could result in non-cash charges to earnings due to impairment.

Changes in commodity prices may also significantly affect our ability to estimate the value of producing properties for acquisition and divestiture and often cause disruption in the market for oil and gas producing properties, as buyers and sellers have difficulty agreeing on the value of the properties. Price volatility also makes it difficult to budget for and project the return on acquisitions and the            development and exploitation of projects. We expect that commodity prices will continue to fluctuate significantly in the future. 

*Exploratory drilling involves many risks that are outside our control which may result in a material adverse effect on our business, financial condition or results of operations.*

The business of exploring for and producing oil and gas involves a substantial risk of investment loss. Drilling oil and gas wells involves the risk that the wells may be unproductive or that, although productive, the wells may not produce oil or gas in economic quantities. Other hazards, such as unusual or unexpected geological formations, pressures, fires, blowouts, power outages, sour gas leakage,            loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well. Adverse weather conditions can also hinder drilling operations. A productive well may become uneconomic if water or other deleterious substances are encountered that impair or prevent the production of oil or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. There can be no            assurance that oil and gas will be produced from the properties in which we have interests. 

 

 

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|   | - 48 - |
|--------|--------|

 

*We are dependent upon the efforts of various third parties that we do not control and, as a result, we may not be able to control the timing of development efforts, associated costs, or the rate of production of reserves (if any).*

The success of our business depends upon the efforts of various third parties that we do not control. We may need to contract many service providers such as rig and drilling contractors. As a result, we may have limited ability to exercise influence over the operations of the properties or their associated costs. Our dependence on the operator and, where applicable, other working interest owners for            these projects and our limited ability to influence operations and associated costs could prevent the realization of our targeted returns on capital in drilling or acquisition activities. The success and timing of development and exploitation activities on properties operated by others depend upon a number of factors that will be largely outside of our control, including: 

|   | **•** | the timing and amount of capital expenditures; |
|--------|------------|------------------------------------------------|

|   | **•** | the operator’s expertise and financial resources; |
|--------|------------|---------------------------------------------------------|

|   | **•** | approval of other participants in drilling wells; |
|--------|------------|---------------------------------------------------|

|   | **•** | selection of technology; |
|--------|------------|--------------------------|

|   | **•** | the rate of production of the reserves; and |
|--------|------------|---------------------------------------------|

|   | **•** | the availability of suitable drilling rigs, drilling equipment, production and transportation infrastructure, and qualified operating personnel. |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------|

We expect to rely upon various companies to provide us with technical assistance and services. We also expect to rely upon the services of geologists, geophysicists, chemists, engineers and other scientists to explore and analyze oil and gas prospects to determine a method in which the oil and gas prospects may be developed in a cost-effective manner. Although our management has relationships with a            number of third-party service providers, we cannot assure you that we will be able to continue to rely on such persons. If any of these relationships with third-party service providers are terminated or are unavailable on commercially acceptable terms, we may not be able to execute our business plan. 

*We may be unable to retain our leases or licenses and working interests in our leases or licenses, which would result in significant financial losses to our company.*

In general, our properties are held under oil and gas leases or licenses. If we fail to meet the specific requirements of each lease or license, such lease or license may terminate or expire. We cannot assure you that any of the obligations required to maintain each lease or license will be met. The termination or expiration of our leases or licenses will harm our business. Our property interests will            terminate unless we fulfill certain obligations under the terms of our leases or licenses and other agreements related to such properties. If we are unable to satisfy these conditions on a timely basis, we may lose our rights in these properties. The termination of our interests in these properties will harm our business. In addition, we will need significant funds to meet capital requirements for the exploration activities that we intend to conduct on our properties.

 

 

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|   | - 49 - |
|--------|--------|

 

*Title deficiencies could render our leases worthless which could have adverse effects on our financial condition or results of operations.*

The existence of a material title deficiency can render a lease worthless and can result in a large expense to our business. It is our practice in acquiring oil and gas leases or undivided interests in oil and gas leases to forgo the expense of retaining lawyers to examine the title to the oil or gas interest to be placed under lease or already placed under lease. Instead, we rely upon the judgment of            oil and gas landmen who perform the field work in examining records in the appropriate governmental office before attempting to place under lease a specific oil or gas interest. We do not anticipate that we, or the person or company acting as operator of the wells located on the properties that we lease or may lease in the future, will obtain counsel to examine title to the lease until the well is about to be drilled. As a result, we may be unaware of deficiencies in the            marketability of the title to the lease. Such deficiencies may render the lease worthless.

***Risks Relating to Our Common Stock***

*If we fail to file our required filings with the Securities and Exchange Commission in an accurate and timely manner, our common stock may be no longer quoted on the OTC Bulletin Board. If this happens, our stockholders would have difficulty in reselling any of their shares.*

If we fail to file our required filings with the Securities and Exchange Commission in an accurate and timely manner, the Financial Industry Regulatory Authority may determine that our common stock is no longer eligible for quotation on the OTC Bulletin Board and remove our common stock from the OTC Bulletin Board quotations. If this happens, then market makers would no longer be able to enter quotations            for our common stock through the OTC Bulletin Board and our stockholders would have difficulty in reselling any of their shares.

*A prolonged decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our ability to continue operations.*

A prolonged decline in the price of our common stock could reduce liquidity of our common stock and reduce our ability to raise capital. Because a significant portion of our operations have been and will be financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our operations. Such reductions may force us to            reallocate funds from other planned uses and may have a significant negative effect on our business plan and operations, including our ability to continue our current operations. If our stock price declines, we can offer no assurance that we will be able to raise additional capital or generate funds from operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our normal            operations. 

The market price for our common stock may also be affected by our ability to meet or exceed expectations of analysts or investors. Any failure to meet these expectations, even if minor, may have a material adverse effect on the market price of our common stock.

 

 

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|   | - 50 - |
|--------|--------|

 

*If we issue additional shares in the future, it will result in the dilution of our existing shareholders.*

Our articles of incorporation authorize the issuance of up to 90,000,000 shares of common stock with a par value of $0.001 per share. We plan to increase our authorized capital from 90,000,000 shares of common stock with a par value of $0.001 per share to 500,000,000 shares of common stock with a par value of $0.001 per share and 25,000,000 shares of preferred stock with a par value of $0.001 per share.            Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares will reduce the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our            corporation.

*Trading of our stock may be restricted by the Securities Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our common stock.*

The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers            who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized            risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s            account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny            stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the            marketability of our common stock. 

 

 

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|   | - 51 - |
|--------|--------|

 

*The FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.*

In addition to the “penny stock” rules described above, Financial Industry Regulatory Authority or FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers,            broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your            ability to buy and sell our stock and have an adverse effect on the market for our shares. 

*Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.*

Our common stock currently trades on a limited basis on the OTC Bulletin Board. Trading of our stock through the OTC Bulletin Board is frequently thin and highly volatile. There is no assurance that a sufficient market will develop in our stock, in which case it could be difficult for stockholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of            factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for            reasons unrelated to their operating performance and could have the same effect on our common stock. 

*Because of the early stage of development and the nature of our business, our securities are considered highly speculative.*

Our securities must be considered highly speculative, generally because of the nature of our business and the early stage of our development. We are engaged in the business of identifying, acquiring, exploring and, if warranted, developing commercial reserves of oil and gas. Our properties are in the exploration stage only and are without known reserves of oil and gas. Accordingly, we have not generated            any revenues nor have we realized a profit from our operations to date and there is little likelihood that we will generate any revenues or realize any profits in the short term. Any profitability in the future from our business will be dependent upon locating and developing economic reserves of oil and gas, which itself is subject to numerous risk factors as set forth herein. Since we have not generated any revenues, we will have to raise additional monies through the sale of our            equity securities or debt in order to continue our business operations. 

 

 

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|   | - 52 - |
|--------|--------|

 

*We do not intend to pay dividends on any investment in the shares of stock of our company.*

We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of a dividend. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the            stock’s price. This may never happen and investors may lose all of their investment in our company. 

*Carbon Energy and/or Trafalgar’s control may prevent our other stockholders from causing a change in the course of our operations and may affect the price of our common stock.*

As long as Carbon Energy and/or Trafalgar controls more than 50% of our common stock, they will be able to elect our entire board of directors, control all matters that require a shareholder vote (such as mergers, acquisitions and other business combinations, and the future issuance of our shares) and exercise a significant amount of influence over our management and operations. Therefore, the ability of            our other stockholders to cause a change in the course of our operation is eliminated. As such, the value attributable to the right to vote is limited. 

***Risks Related to Our Company***

*Our disclosure controls and procedures and internal control over financial reporting are not effective, which problem may cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.*

Our management evaluated our disclosure controls and procedures as of August 31, 2009 and concluded that as of that date, our disclosure controls and procedures were not effective. In addition, our management concluded that as of February 28, 2009, our internal control over financial reporting was not effective. If such ineffective controls are not promptly corrected in the future, our ability to report            quarterly and annual financial results or other information required to be disclosed on a timely and accurate basis may be adversely affected. Also such ineffective controls could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision. 

*Our by-laws contain provisions indemnifying our officers and directors.*

Our by-laws provide the indemnification of our directors and officers to the fullest extent legally permissible under the Nevada corporate law against all expenses, liability and loss reasonably incurred or suffered by him in connection with any action, suit or proceeding. Furthermore, our by-laws provide that our board of directors may cause our company to purchase and maintain insurance for our            directors and officers. 

 

 

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|   | - 53 - |
|--------|--------|

 

*Our by-laws do not contain anti-takeover provisions and thus our management and directors may change if there is a take-over of our company.*

We do not currently have a shareholder rights plan or any anti-takeover provisions in our by-laws. Without any anti-takeover provisions, there is no deterrent for a take-over of our company. If there is a take-over of our company, our management and directors may change. 

*Because most of our directors and officers are residents of other countries other than the United States, investors may find it difficult to enforce, within the United States, any judgments obtained against our directors and officers.*

Most of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against our officers or directors, including judgments predicated upon the civil liability            provisions of the securities laws of the United States or any state thereof. 

**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.**

None.

**Item 3. Defaults upon Senior Securities.**

Please see Item 2 of Part I - Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources - Annual Rental Payments for Leases in Alaska.

**Item 4. Submission of Matters to a Vote of Security Holders.**

Effective August 6, 2009, Trafalgar Capital Specialized Investment Fund, Carbon Energy Investments Limited, and Richard Moore, the holders of the majority of the outstanding shares of our common stock, gave us their written consents to the amendment and restatement of our articles of incorporation to:

|   | **•** | to authorize 25,000,000 shares of preferred stock with a par value of $0.001 per share, which may be divided into and issued in series, with such designations, rights, qualifications, preferences, limitations and terms as fixed and determined by our board of directors; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | to increase the number of authorized shares of our common stock from 90,000,000 to 500,000,000; |
|--------|------------|-------------------------------------------------------------------------------------------------|

 

|   | **•** | to add an indemnification of director or officer clause; |
|--------|------------|----------------------------------------------------------|

 

|   | **•** | to add a limitation of liabilities of director or officer clause; |
|--------|------------|-------------------------------------------------------------------|

 

|   | **•** | to add a clause opting out of the acquisition of controlling interest provisions of the Nevada Revised Statutes; |
|--------|------------|------------------------------------------------------------------------------------------------------------------|

 

 

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|   | - 54 - |
|--------|--------|

 

 

|   | **•** | to add a clause opting out of the combinations with interested stockholders provisions of the Nevada Revised Statutes; and |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | to update and remove certain outdated provisions. |
|--------|------------|---------------------------------------------------|

 

Effective the same day, our board of directors unanimously approved such amendment and restatement of our articles of incorporation. At least 20 days after the mailing of the information statement regarding such amendment and restatement, we intend to file a certificate to accompany restated articles or amended and restated articles with the Nevada Secretary of State for effecting the amendment and            restatement of our articles of incorporation as described above. We expect that such amendment and restatement will become effective when the certificate to accompany restated articles or amended and restated articles is filed with the Nevada Secretary of State.

**Item 5. Other Information.**

***Leases in Alaska***

Please see Item 2 of Part I - Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources - Annual Rental Payments for Leases in Alaska.

***Arrangements with Trafalgar Capital Specialized Investment Fund***

Trafalgar Capital Specialized Investment Fund informed Richard Moore, our President, Chief Executive Officer, Chairman, and one of our directors, that directly or through our company it will compensate him for his cooperation in providing information necessary for maintenance of our company and on getting the amendment and restatement of our articles of incorporation described in Item 4 of Part II.            “Submission of Matters to a Vote of Security Holders” effected. In addition, Trafalgar informed Mr. Moore that directly or through our company it intends to make arrangements for the back pay for him and other members of our management team and former directors in the form of shares of our common stock in compensation for their services along with a non-dilution arrangement for a reasonable period of time to safeguard the value of such shares.

**Item 6. Exhibits.**

| **Exhibit****No.** | **Description**                                                                                                                                                                                                                        |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **(3)**            | **(i) Articles of Incorporation and (ii) By-laws**                                                                                                                                                                                     |
| 3.1                | Articles of Incorporation (incorporated by reference to an exhibit to our registration statement on Form SB-2 filed on August 19, 2005)                                                                                                |
| 3.2                | Certificate of change filed with the Secretary of State of Nevada on January 2, 2007 and which is effective on January 11, 2007 (incorporated by reference to an exhibit to our current report on Form 8- K filed on January 12, 2007) |
| 3.3                | Article of Merger filed with the Secretary of State of Nevada on January 11, 2007 (incorporated by reference to an exhibit to our current report on Form 8-K filed on February 7, 2007)                                                |
| 3.4                | Certificate of Change filed with the Secretary of State of Nevada on April 4, 2008 (incorporated by reference to an exhibit to our current report on Form 8-K filed on April 21, 2008)                                                 |

 

 

 

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|   | - 55 - |
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| 3.5      | Amended and Restated Bylaws (incorporated by reference to an exhibit to our current report on Form 8- K filed on April 30, 2008)                                                                                                                            |
|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **(10)** | **Material Contracts**                                                                                                                                                                                                                                      |
| 10.1     | Private Placement Subscription Agreement dated February 23, 2007 (incorporated by reference to an exhibit to our current report on Form 8-K filed on June 1, 2007)                                                                                          |
| 10.2     | Lease Purchase and Sale Agreement dated May 29, 2007 (incorporated by reference to an exhibit to our current report on Form 8-K filed on May 31, 2007)                                                                                                      |
| 10.3     | Share Issuance Agreement dated May 17, 2007 (incorporated by reference to an exhibit to our current report on Form 8-K filed on June 1, 2007)                                                                                                               |
| 10.4     | Farm-In Agreement dated June 8, 2007 (incorporated by reference to an exhibit to our annual report on Form 10-KSB filed on June 13, 2007)                                                                                                                   |
| 10.5     | Employment Agreement dated June 11, 2007 (incorporated by reference to an exhibit to our annual report on Form 10-KSB filed on June 13, 2007)                                                                                                               |
| 10.6     | Escrow Agreement dated June 8, 2007 (incorporated by reference to an exhibit to our annual report on Form 10-KSB filed on June 13, 2007)                                                                                                                    |
| 10.7     | Consulting Agreement dated June 12, 2007 (incorporated by reference to an exhibit to our annual report on Form 10- KSB filed on June 13, 2007)                                                                                                              |
| 10.8     | Consulting Agreement dated June 12, 2007 (incorporated by reference to an exhibit to our annual report on Form 10- KSB filed on June 13, 2007)                                                                                                              |
| 10.9     | Subscription Agreement between Trius Energy, LLC and our company (incorporated by reference to an exhibit to our current report on Form 8-K filed on October 19, 2007)                                                                                      |
| 10.10    | Amendment to Employment Agreement dated October 19, 2007 (incorporated by reference to an exhibit to our quarterly report on Form 10-QSB filed on October 22, 2007)                                                                                         |
| 10.11    | Amendment to Consulting Agreement dated October 19, 2007 (incorporated by reference to an exhibit to our quarterly report on Form 10-QSB filed on October 22, 2007)                                                                                         |
| 10.12    | Farm-Out Agreement dated November 8, 2007 between Valiant North Sea Limited, Petrofac Energy Developments Limited and Fox Energy Exploration Limited (incorporated by reference to an exhibit to our current report on Form 8-K filed on November 23, 2007) |
| 10.13    | Purchase Agreement (North Slope Leases) dated October 10, 2007 (incorporated by reference to an exhibit to our current report on Form 8-K filed on November 28, 2007)                                                                                       |
| 10.14    | Amendment Agreement No. 1 to Purchase Agreement (North Slope Leases) dated November 2, 2007 (incorporated by reference to an exhibit to our current report on Form 8-K filed on November 28, 2007)                                                          |
| 10.15    | Purchase Agreement (Cook Inlet) dated October 10, 2007 (incorporated by reference to an exhibit to our current report on Form 8-K filed on November 28, 2007)                                                                                               |
| 10.16    | Finder Agreement with Partners Consulting, Inc. dated February 15, 2008 (incorporated by reference to an exhibit to our current report on Form 8-K filed on March 21, 2008)                                                                                 |
| 10.17    | Promissory Note dated April 1, 2008 to EuroEnergy Growth Capital S.A. (incorporated by reference to an exhibit to our current report on Form 8-K filed on May 9, 2008)                                                                                      |
| 10.18    | Letter of Commitment with Senergy Limited (incorporated by reference to an exhibit to our current report on Form 8-K filed on May 9, 2008)                                                                                                                  |
| 10.19    | Promissory Note dated May 1, 2008 to EuroEnergy Growth Capital S.A. (incorporated by reference to an exhibit to our current report on Form 8-K filed on May 21, 2008)                                                                                       |
| 10.20    | Bonus Agreement dated May 22, 2008 between Richard Moore and our company (incorporated by reference to an exhibit to our current report on Form 8-K filed on May 28, 2008)                                                                                  |

 

 

 

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| 10.21 | Agreement of Intention to Sell/Purchase the Geneseo-Edwards Program between Hodgden & Associates and our company (incorporated by reference to an exhibit to our current report on Form 8-K filed on May 29, 2008)                                                    |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.22 | Promissory Note dated May 23, 2008 to EuroEnergy Growth Capital S.A. (incorporated by reference to an exhibit to our current report on Form 8-K filed on June 6, 2008)                                                                                                    |
| 10.23 | Board of Advisors Agreement dated July 19, 2007 with Aimwell Energy Limited (incorporated by reference to an exhibit to our annual report on Form 10-KSB filed on June 13, 2008)                                                                                          |
| 10.24 | Board of Advisors Agreement dated July 19, 2007 with Black Gold Consulting Inc. (incorporated by reference to an exhibit to our annual report on Form 10-KSB filed on June 13, 2008)                                                                                      |
| 10.25 | Board of Advisors Agreement dated August 2007 with John Spence (incorporated by reference to an exhibit to our annual report on Form 10-KSB filed on June 13, 2008)                                                                                                       |
| 10.26 | Board of Advisors Agreement dated August 2007 with Jonathan Wood (incorporated by reference to an exhibit to our annual report on Form 10-KSB filed on June 13, 2008)                                                                                                     |
| 10.27 | Board of Advisors Termination Agreement dated June 10, 2008 with Aimwell Energy Limited (incorporated by reference to an exhibit to our annual report on Form 10-KSB filed on June 13, 2008)                                                                              |
| 10.28 | Board of Advisors Termination Agreement dated June 10, 2008 with Black Gold Consulting Inc.(incorporated by reference to an exhibit to our annual report on Form 10-KSB filed on June 13, 2008)                                                                           |
| 10.29 | Board of Advisors Termination Agreement dated June 10, 2008 with John Spence (incorporated by reference to an exhibit to our annual report on Form 10-KSB filed on June 13, 2008)                                                                                         |
| 10.30 | Board of Advisors Termination Agreement dated June 10, 2008 with Jonathan Wood (incorporated by reference to an exhibit to our annual report on Form 10-KSB filed on June 13, 2008)                                                                                       |
| 10.31 | Agreement dated January 24, 2008 with Aimwell Energy limited (incorporated by reference to an exhibit to our annual report on Form 10-KSB filed on June 13, 2008)                                                                                                         |
| 10.32 | Loan Agreement with EuroEnergy Growth Capital S.A. (incorporated by reference to an exhibit to our annual report on Form 10-KSB filed on June 13, 2008)                                                                                                                   |
| 10.33 | Senior Secured Convertible Redeemable Debenture dated June 24, 2008 issued by our company to Trafalgar Capital Specialized Investment Fund, Luxembourg (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on July 21, 2008)              |
| 10.34 | Warrant dated June 24, 2008 issued by our company to Trafalgar Capital Specialized Investment Fund, Luxembourg (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on July 21, 2008)                                                      |
| 10.35 | Securities Purchase Agreement dated June 24, 2008 between Trafalgar Capital Specialized Investment Fund, Luxembourg and our company (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on July 21, 2008)                                 |
| 10.36 | Registration Rights Agreement dated June 24, 2008 between Trafalgar Capital Specialized Investment Fund, Luxembourg and our company (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on July 21, 2008)                                 |
| 10.37 | Escrow Agreement dated June 24, 2008 between Trafalgar Capital Specialized Investment Fund, Luxembourg, The Law Office of James G. Dodrill II, P.A. and our company (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on July 21, 2008) |
| 10.38 | Security Agreement dated June 24, 2008 between Trafalgar Capital Specialized Investment Fund, Luxembourg and our company (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on July 21, 2008)                                            |

 

 

 

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| 10.39 | Irrevocable Transfer Agent Instructions dated June 18, 2008 between Empire Stock Transfer Inc. and our company (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on July 21, 2008)                                                   |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.40 | General Assignment of Contracts and Leases dated June 18, 2008 between Trafalgar Capital Specialized Investment Fund, FIS and our company (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on July 21, 2008)                        |
| 10.41 | Consulting Agreement with Partners Consulting, Inc. dated May 8, 2008 (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on July 21, 2008)                                                                                            |
| 10.42 | Letter of Commitment with Senergy Limited (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on July 21, 2008)                                                                                                                        |
| 10.43 | Investor Relations Consulting Service Agreement dated September 1, 2008 between our company and Benaterra Communications Inc. (incorporated by reference to an exhibit to our current report on Form 8- K filed on September 12, 2008)                                 |
| 10.44 | Investor Relations Consulting Service Agreement dated June 1, 2007 between our company and Senergy Communications Inc. (incorporated by reference to an exhibit to our current report on Form 8-K filed on September 12, 2008)                                         |
| 10.45 | Transaction Proposal and Exclusivity Agreement dated September 26, 2008 between Ballyliffin Capital Corp., Fox Energy Exploration Limited, and Fox Petroleum Inc. (incorporated by reference to an exhibit to our current report on Form 8-K filed on October 1, 2008) |
| 10.46 | Letter Agreement dated September 25, 2008 between Fox Energy Exploration Limited and Pollard Financial Ltd. (incorporated by reference to an exhibit to our current report on Form 8-K filed on October 1, 2008)                                                       |
| 10.47 | Amendment to June 24, 2008 Financing Documents between Fox Petroleum Inc. and Trafalgar Capital Specialized Investment Fund, Luxembourg (incorporated by reference to an exhibit to our current report on Form 8-K filed on November 21, 2008)                         |
| 10.48 | Amended Debenture No. 1 - $1.25 million principal amount (incorporated by reference to an exhibit to our current report on Form 8-K filed on November 21, 2008)                                                                                                        |
| 10.49 | Amended Debenture No. 2 - $1.25 million principal amount (incorporated by reference to an exhibit to our current report on Form 8-K filed on November 21, 2008)                                                                                                        |
| 10.50 | New Debenture - $1 million principal amount (incorporated by reference to an exhibit to our current report on Form 8-K filed on November 21, 2008)                                                                                                                     |
| 10.51 | Replacement Warrant (incorporated by reference to an exhibit to our current report on Form 8-K filed on November 21, 2008)                                                                                                                                             |
| 10.52 | Amended Security Agreement (incorporated by reference to an exhibit to our current report on Form 8-K filed on November 21, 2008)                                                                                                                                      |
| 10.53 | Pledge and Escrow Agreement (incorporated by reference to an exhibit to our current report on Form 8- K filed on November 21, 2008)                                                                                                                                    |
| 10.54 | Side Letter Agreement (incorporated by reference to an exhibit to our current report on Form 8-K filed on November 21, 2008)                                                                                                                                           |
| 10.55 | Irrevocable Transfer Agent Instructions (incorporated by reference to an exhibit to our current report on Form 8-K filed on November 21, 2008)                                                                                                                         |
| 10.56 | Subscription Agreement with Carbon Energy Investments Limited dated November 5, 2008 (incorporated by reference to an exhibit to our current report on Form 8-K filed on January 7, 2009)                                                                              |
| 10.57 | Agreement for the Purchase of Shares in Alaska Oil & Gas Resources Limited dated November 5, 2008 (incorporated by reference to an exhibit to our current report on Form 8-K filed on January 7, 2009)                                                             |

 

 

 

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| 10.58    | Amendment Agreement for the Purchase of Shares of Alaska Oil & Gas Resources Limited dated November 2008 (incorporated by reference to an exhibit to our current report on Form 8-K filed on January 7, 2009)                                                                                                          |
|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.59    | Letter Agreement with Carbon Energy Investments Limited dated December 10, 2008 (incorporated by reference to an exhibit to our current report on Form 8-K filed on January 7, 2009)                                                                                                                                       |
| 10.60    | Letter agreement between Fox Energy Exploration Limited and Aimwell Energy Limited dated September 5, 2008 (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on January 21, 2009)                                                                                                        |
| 10.61    | Letter agreement between Fox Energy Exploration Limited and Aimwell Energy Limited dated September 5, 2008 (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on January 21, 2009)                                                                                                        |
| 10.62    | Oil and Gas Lease Agreement dated October 14, 2008 (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on January 21, 2009)                                                                                                                                                                |
| 10.63    | Oil and Gas Lease Agreement dated October 14, 2008 (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on January 21, 2009)                                                                                                                                                                |
| 10.64    | Amendment to Securities Purchase Agreement, Secured Debenture, Registration Rights Agreement and Security Agreement dated April 2009 between our company and Trafalgar Capital Specialized Investment Fund, Luxembourg (incorporated by reference to an exhibit to our annual report on Form 10- K filed on July 15, 2009) |
| 10.65    | Bill of Sale and Assignment in Lieu of Foreclosure between our company and TCF Oil and Gas Corp. (incorporated by reference to an exhibit to our annual report on Form 10-K filed on July 15, 2009)                                                                                                                        |
| 10.66    | Certificate of Seller by our company (incorporated by reference to an exhibit to our annual report on Form 10-K filed on July 15, 2009)                                                                                                                                                                                    |
| 10.67    | Covenant Not To Sue dated April 6, 2009 between our company and Trafalgar Capital Specialized Investment Fund, FIS (incorporated by reference to an exhibit to our annual report on Form 10-K filed on July 15, 2009)                                                                                                      |
| 10.68    | Agreement relating to Alaska Oil and Gas Leases dated May 14, 2009 (incorporated by reference to an exhibit to our annual report on Form 10-K filed on July 15, 2009)                                                                                                                                                      |
| 10.69    | Agreement relating to Alaska Oil and Gas Leases dated May 16, 2009 (incorporated by reference to an exhibit to our annual report on Form 10-K filed on July 15, 2009)                                                                                                                                                      |
| 10.70    | Agreement relating to Alaska Oil and Gas Leases dated May 29, 2009 (incorporated by reference to an exhibit to our annual report on Form 10-K filed on July 15, 2009)                                                                                                                                                      |
| 10.71    | Agreement between our company and Trafalgar Capital Advisory Partners LLP relating to the appointment of Trafalgar Capital Advisory Partners LLP as Introducer/Advisor (incorporated by reference to an exhibit to our annual report on Form 10-K filed on July 15, 2009)                                                  |
| 14.1     | Code of Conduct and Ethics (incorporated by reference to an exhibit to our current report on Form 8-K filed on May 9, 2008)                                                                                                                                                                                                |
| **(21)** | **Subsidiaries**                                                                                                                                                                                                                                                                                                           |
| 21.1     | Fox Petroleum (Alaska) Inc., incorporated in Alaska                                                                                                                                                                                                                                                                        |
| 21.2     | Fox Energy Exploration Limited, incorporated in England and Wales                                                                                                                                                                                                                                                          |
| 21.3     | Fox Petroleum, Inc., incorporated in Kansas                                                                                                                                                                                                                                                                                |
| **(31)** | **Section 302 Certification**                                                                                                                                                                                                                                                                                              |

 

 

 

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| 31.1*    | Section 302 Certification of Richard Moore                                                                                                                                 |
|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **(32)** | **Section 906 Certification**                                                                                                                                              |
| 32.1*    | Section 906 Certification of Richard Moore                                                                                                                                 |
| **(99)** | **Additional Exhibits**                                                                                                                                                    |
| 99.1     | Audit Committee Charter (incorporated by reference to an exhibit to our current report on Form 8-K filed on May 9, 2008)                                                   |
| 99.2     | Compensation Committee Charter (incorporated by reference to an exhibit to our current report on Form 8-K filed on May 9, 2008)                                            |
| 99.3     | Nominating Committee Charter (incorporated by reference to an exhibit to our current report on Form 8-K filed on May 9, 2008)                                              |
| 99.4     | Letter from Blackhawk Investments Limited dated November 19, 2008 (incorporated by reference to an exhibit to our quarterly report on Form 10-Q filed on January 21, 2009) |

* Filed herewith.

 

 

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**SIGNATURES**

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

**FOX PETROLEUM INC.**

By:

/s/ Richard Moore

Richard Moore

President, Chief Executive Officer, Chairman, and Director 

(Principal Executive Officer, Principal Financial Officer, and 

Principal Accounting Officer)

Date: October 20, 2009