---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.
20549

FORM 20-F

[     ]     REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT
OF 1934

OR

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

For the fiscal year ended July 31, 2006 (with other information
to December, 29, 2006 except where noted)

OR

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

For the transition period from _______________ to
_______________

OR

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

Date of event requiring this shell company report
_______________

Commission file number 0-27668

TRANS-ORIENT PETROLEUM
LTD.(Exact name of Registrant specified in its charter)

TRANS-ORIENT PETROLEUM LTD.(Translation of
Registrants name into English)

BRITISH COLUMBIA, CANADA(Jurisdiction of
incorporation or organization)

999 Canada Place,World Trade Centre, Suite
404Vancouver, British Columbia, Canada, V6C 3E2(Address of
principal executive offices)

COMMON SHARES WITHOUT PAR VALUE(Title of
Class)

Securities registered or to be registered pursuant to Section
12(b) of the Act.

|Title of Each Class | Name of each exchange on which registered
|------------------- | -----------------------------------------
|None                | Not applicable                           

Securities registered or to be registered pursuant to Section
12(g) of the Act

Common Shares without Par Value(Title of Class)

---

-ii -

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.    None

Number of outstanding shares of Trans-Orients only class of
capital stock as of July 31, 2006. 17,618,083 Common Shares Without Par
Value

Indicate by check mark if the Registrant is a well-known
seasoned issuer as defined in Rule 405 of the Securities Act.Yes
[     ]      No [X]

If this report is an annual or transition report, indicate by
check mark if the Registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934Yes
[     ]     No [X]

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

Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer or non-accelerated filer. See definition
of accelerated filer and large accelerated filer in Rule 12b 2 of the
Exchange Act.[     ]Large Accelerated
Filer      [     ] Accelerated
Filer Non       [X]Accelerated Filer

Indicate by check mark which financial statement item Registrant
has elected to follow:Item 17 [X]     Item 18
[     ]

If this is an annual report, indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b 2 of the Exchange Act):
Yes [     ]     No [X]

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)

Indicate by check mark whether Registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934subsequent to the distribution of
securities under a plan confirmed by a court.

NOT APPLICABLE

(End of Cover Page)

---

|T A B L E O F C O N T E N T S                 
|----------------------------------------------
|of the Form 20F of Trans-Orient Petroleum Ltd.
|                                              

|                                                           |                                                                  | Page
|---------------------------------------------------------- | ---------------------------------------------------------------- | ----
|                                                           |                                                                  |     
|                                                           |                                                                  |     
|CURRENCY,
      MEASUREMENT AND GLOSSARY OF INDUSTRY TERMS | 1                                                               
|                                                           |                                                                  |     
|PART
      I                                               |                                                                  | 2   
|                                                           |                                                                  |     
|ITEM
      1.                                              | IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS      | 2   
|                                                           |                                                                  |     
|ITEM
      2.                                              | OFFER
      STATISTICS AND EXPECTED TIMETABLE                    | 2   
|                                                           |                                                                  |     
|ITEM
      3.                                              | KEY
      INFORMATION                                            | 2   
|                                                           |                                                                  |     
|A.                                                         | Selected
      financial data                                    | 2   
|B.                                                         | Capitalization
      and indebtedness                            | 4   
|C.                                                         | Reasons
      for the offer and use of proceeds                  | 4   
|D.                                                         | Risk
      Factors                                               | 4   
|                                                           |                                                                  |     
|ITEM
      4.                                              | INFORMATION
      ON THE REGISTRANT                              | 9   
|                                                           |                                                                  |     
|A.                                                         | History
      and Development of the Registrant                  | 9   
|B.                                                         | Business
      Overview                                          | 10  
|C.                                                         | Organizational
      Structure                                   | 11  
|D.                                                         | Property,
      Plant and Equipment                              | 11  
|                                                           |                                                                  |     
|ITEM
      5.                                              | OPERATING,
      FINANCIAL REVIEW AND PROSPECTS                  | 16  
|                                                           |                                                                  |     
|ITEM
      6.                                              | DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES                 | 21  
|                                                           |                                                                  |     
|A.                                                         | Directors
      and Senior Management                            | 21  
|B.                                                         | Compensation                                                     | 22  
|C.                                                         | Board
      Practices                                            | 23  
|D.                                                         | Employees                                                        | 24  
|                                                           |                                                                  |     
|ITEM
      7.                                              | MAJOR
      SHAREHOLDERS AND RELATED TRANSACTIONS                | 25  
|                                                           |                                                                  |     
|A.                                                         | Major
      shareholders                                         | 25  
|B.                                                         | Related
      Party Transactions                                 | 27  
|C.                                                         | Interests
      of experts and counsel                           | 27  
|                                                           |                                                                  |     
|ITEM
      8.                                              | FINANCIAL
      INFORMATION                                      | 28  
|                                                           |                                                                  |     
|ITEM
      9.                                              | THE
      OFFER AND LISTING                                      | 28  
|                                                           |                                                                  |     
|ITEM
      10.                                             | ADDITIONAL
      INFORMATION                                     | 30  
|                                                           |                                                                  |     
|A.                                                         | Share
      Capital                                              | 30  
|B.                                                         | Memorandum
      and Articles of Association                     | 30  
|C.                                                         | Material
      contracts                                         | 30  
|D.                                                         | Exchange
      Controls                                          | 31  
|E.                                                         | Taxation                                                         | 32  
|Canadian
      Tax Consequences                            | 32                                                              
|United
      States Tax Consequences                       | 33                                                              
|F.                                                         | Dividends
      and paying agents                                | 39  
|G.                                                         | Statement
      by experts                                       | 39  
|H.                                                         | Documents
      on display                                       | 39  
|I.                                                         | Subsidiary
      information                                     | 39  
|                                                           |                                                                  |     
|ITEM
      11.                                             | QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 39  
|                                                           |                                                                  |     
|ITEM
      12.                                             | DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES     | 39  

---

-2 -

|PART II                             |                                                                                              | 39    
|----------------------------------- | -------------------------------------------------------------------------------------------- | ------
|                                    |                                                                                              |       
|ITEM 13.                            | DEFAULTS,
      DIVIDEND ARREARAGES AND DELINQUENCIES                                        | 39    
|                                    |                                                                                              |       
|ITEM 14.                            | MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      **PROCEEDS** | **40**
|                                    |                                                                                              |       
|ITEM 15.                            | CONTROLS
      AND PROCEDURES                                                                | 40    
|                                    |                                                                                              |       
|ITEM 16.                            |                                                                                              | 40    
|A.                                  | Audit committee financial
      expert                                                       | 40    
|B.                                  | Code of
      Ethics                                                                         | 41    
|C.                                  | Principal Accountant Fees
      and Services                                                 | 41    
|D.                                  | Exemptions from the Listing Standards for Audit
      Committees                             | 42    
|E.                                  | Purchases of Equity
      Securities by the Issuer and Affiliated Purchasers                 | 42    
|                                    |                                                                                              |       
|PART III                            |                                                                                              | 42    
|                                    |                                                                                              |       
|ITEM 17.                            | FINANCIAL STATEMENTS                                                                         | 42    
|                                    |                                                                                              |       
|INDEX TO FINANCIAL
      STATEMENTS | 42                                                                                          
|                                    |                                                                                             
|ITEM 18.                            | FINANCIAL STATEMENTS                                                                         | 56    
|                                    |                                                                                              |       
|ITEM 19.                            | EXHIBITS                                                                                     | 56    
|                                    |                                                                                              |       
|SIGNATURE                           | 57                                                                                          

---

FORWARD-LOOKING STATEMENTS

The information in this annual report on Form 20-F contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements involve
risks and uncertainties, including statements regarding our capital needs,
business plans and expectations. Such forward-looking statements involve risks
and uncertainties regarding the availability of private placement financing, the
availability of suitable exploration permits, the liquidity of our investment in
Austral Pacific Energy Ltd., the potential applicability of the Investment
Company Act of 1940, and other factors. Forward-looking statements are made,
without limitation, in relation to availability of funds and our plan to invest
in directly into suitable new resource exploration projects. Any statements
contained herein that are not statements of historical facts may be deemed to be
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as may, will, should, expect, plan,
intend, anticipate, believe, estimate, predict, potential or
continue, the negative of such terms or other comparable terminology. Actual
events or results may differ materially. In evaluating these statements, you
should consider various factors, including the risks outlined below, and, from
time to time, in other reports we file with the SEC. These factors may cause our
actual results to differ materially from any forward-looking statement. Given
these uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements.

Currency, Measurement and Glossary of Industry Terms

All currency amounts are stated in U.S. dollars unless
otherwise indicated.

Conversion from metric into imperial units of measurement is as
follows:

|Metric Units   | Imperial Units          
|-------------- | ------------------------
|               |                         
|hectare        | 2.471 acres             
|metre (m)      | 3.281 feet              
|kilometre (km) | 0.621 miles (3,281 feet)

Industry Expressions

The following are industry expressions that may be used in this
Annual Report:

Trans-Orient, We, Our, CompanyorRegistrantrefers toTrans-Orient PetroleumLtd., a corporation organized
and registered under the laws of British Columbia, Canada, and unless the
context clearly requires, includes its subsidiaries.

Basin is a segment of the crust of the Earth which has
been downwarped and in which thick layers of sediments have accumulated over a
long period of time.

Exploration Well is a well drilled in a prospect without
knowledge of the underlying sedimentary rock or the contents of the underlying
rock.

Farm-In or Farm-Out refers to a common form of
agreement between petroleum companies where the holder of the petroleum interest
agrees to assign all or part of an interest in the ownership to another party
that is willing to fund agreed exploration activities which may be more or less
than the proportionate interest assigned to them.

Hydrocarbons is the general term for oil, gas,
condensate and other petroleum products.

Participating Interest or Working Interest is an
equity interest, compared with a royalty interest, in an oil and gas property
whereby the participating interest holder pays its proportionate percentage
share of development and operating costs and receives the equivalent share of
the proceeds of hydrocarbon sales after deduction of royalties or other imposts
due on gross income.

---

- 2 -

Permit or Licence is an area that is granted for
a prescribed period of time for exploration, development or production under
specific contractual or legislative conditions.

Prospect is a potential hydrocarbon trap which has been
confirmed by geological and geophysical studies to the degree that drilling of
an exploration well is warranted.

Royalty is the entitlement to a stated or determinable
percentage of the proceeds received from the sale of hydrocarbons calculated as
prescribed in applicable legislation or in the agreement reserving the royalty
to the owner of the royalty.

Seismic refers to a geophysical technique using low
frequency sound waves to determine the subsurface structure of sedimentary
rocks.

PART I

|ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
      ADVISERS
|------- | -----------------------------------------------------------

Not applicable.

|ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- | ---------------------------------------

Not applicable.

|ITEM 3. | KEY INFORMATION
|------- | ---------------

|A. | Selected financial data
|-- | -----------------------

The selected historical financial information presented in the
table below for each of the fiscal years ended July 31, 2006, 2005, 2004, 2003
and 2002, is derived from the audited consolidated financial statements of the
Registrant. The audited financial statements of the Registrant for the fiscal
years ended July 31, 2006, 2005 and 2004 are included in this Filing. The
selected historical financial information for the fiscal years ended July 31,
2003 and 2002 presented in the table below are derived from audited financial
statements of the Registrant that are not included in this Filing but were
included in previous filings. The selected financial information presented below
should be read in conjunction with the Registrants consolidated financial
statements and the notes thereto included in this annual report (Item 17), and
with the information appearing under the heading, Operating and Financial
Review and Prospects (Item 5).

The selected consolidated financial data has been prepared in
accordance with Canadian Generally Accepted Accounting Principles (Canadian
GAAP). The consolidated financial statements included in Item 17 in this filing
are also prepared under Canadian GAAP. Additional information is presented to
show the differences which would result from the application of United States
Generally Accepted Accounting Principles (US GAAP) to the Registrants
financial information. Refer to Note 11 of the consolidated financial statements
included herein for a discussion of the material differences between Canadian
GAAP and US GAAP and their effect on the Registrants financial position and
results of operations.

---

- 3 -

Under Canadian Generally Accepted Accounting Principles (in
US$)

|                       |  | Year Ended July 31 |  
|---------------------- |  | ------------------ | -
|                       |  | 2006               |  
|                       |  | $                  |  
|Balance Sheet Data     |  |                    |  
|Current Assets         |  | 484,749            |  
|Investments            |  | 2,304,811          |  
|Property and Equipment |  | 83,887             |  
|Oil and Gas Interests  |  | -                  |  
|Total Assets           |  | 2,915,621          |  
|Share Capital          |  | 13,175,075         |  
|Share Capital held by  |  |                    |  
|subsidiary             |  | -                  |  
|Deficit                |  | (10,271,860        | )
|                       |  |                    |  
|Operating Data         |  |                    |  
|Gross Revenue          |  | 13,848             |  
|Net Income (Loss)      |  | 381,606            |  
|Net Income (Loss)      |  |                    |  
|per Share              |  | 0.02               |  

Under U.S. Generally Accepted Accounting Principles (in
US$)

|                       |  | Year Ended July 31 |  
|---------------------- |  | ------------------ | -
|                       |  | 2006               |  
|                       |  | $                  |  
|Balance Sheet Data     |  |                    |  
|Current Assets         |  | 484,749            |  
|Investments            |  | 2,693,233          |  
|Property and Equipment |  | 83,887             |  
|Oil and Gas Interests  |  | -                  |  
|Total Assets           |  | 3,304,043          |  
|Share Capital          |  | 14,008,686         |  
|Deficit                |  | (11,105,471        | )
|Accumulated Other      |  |                    |  
|Comprehensive Income   |  |                    |  
|(Loss)                 |  | 388,422            |  
|                       |  |                    |  
|Operating Data         |  |                    |  
|Gross Revenue          |  | 13,848             |  
|Net Income (Loss)      |  | 381,606            |  
|Comprehensive Income   |  |                    |  
|(Loss)                 |  | (1,274,087         | )
|Net Income (Loss) per  |  | 0.02               |  
|Share                  |  |                    |  

Exchange Rates

The Registrants financial statements, as provided under Item 8
and 17 of this annual report, are presented in United States Dollars. On July
31, 2006 the closing rate for Canadian dollars was US $1.00 for CAD$1.1316. On
December 29, 2006 the closing rate for Canadian dollars was US$1.00 for
CAD$1.1654. Rates of exchange are obtained from the Bank of Canada and believed
by the Registrant to approximate the rates certified for customs purposes by the
Federal

---

- 4 -

Reserve Bank in New York. It should be noted, however, that
Bank of Canada exchange rates are nominal quotations - not buying or selling
rates - and are intended for statistical or analytical purposes. Rates available
from financial institutions will differ. Rates are expressed in Canadian
dollars, converted from U.S. dollars.

The following table sets out the high and low exchange rates
for Canadian dollars during each of the last six months:

|         | Jul 2006 | Aug 2006 | Sep 2006 | Oct 2006 | Nov 2006 | Dec 2006
|-------- | -------- | -------- | -------- | -------- | -------- | --------
|High (1) | 1.1459   | 1.1373   | 1.1289   | 1.1415   | 1.1495   | 1.1670  
|Low (1)  | 1.1052   | 1.1040   | 1.1035   | 1.1146   | 1.1256   | 1.1380  

|Notes: |                                                                                         
|------ | ----------------------------------------------------------------------------------------
|(1)    | The high and low buying rate figures are
      selected from daily high and low figures.

The following table sets out the year-end, average, and high
and low exchange rates for Canadian dollars for the last five fiscal years:

|             | 2006   | 2005   | 2004   | 2003   | 2002  
|------------ | ------ | ------ | ------ | ------ | ------
|             |        |        |        |        |       
|Year End (1) | 1.1316 | 1.2241 | 1.3295 | 1.4048 | 1.5776
|Average      | 1.1551 | 1.1789 | 1.3382 | 1.4959 | 1.5700
|High (2)     | 1.2185 | 1.2185 | 1.4072 | 1.6010 | 1.6125
|Low (2)      | 1.0983 | 1.1467 | 1.2712 | 1.3323 | 1.5122

|Notes: |                                                                                         
|------ | ----------------------------------------------------------------------------------------
|(1)    | Year end is July 31.                                                                    
|(2)    | The high and low buying rate figures are
      selected from daily high and low figures.

|B. | Capitalization and indebtedness
|-- | -------------------------------

Not applicable.

|C. | Reasons for the offer and use of
      proceeds
|-- | -----------------------------------------------

Not applicable.

|D. | Risk Factors
|-- | ------------

The common shares of the Registrant must be considered a
speculative investment due to a number of factors primarily related to the
nature of its business (resource exploration) and its early stage of development
and history of losses. An investment in the Registrants common shares should
only be made by persons who can afford to lose their entire investment and there
can be no assurance that the Registrants common shares will increase in value.
The purchase of the common shares involves a number of significant risk factors.
Purchasers of common shares should consider the following:

|1. | Lack of Petroleum Reserves
|-- | --------------------------

The Registrant has recently acquired two petroleum exploration
permits in New Zealand and is searching for possible new projects. However, it
has no properties on which any petroleum or other hydrocarbon are known to exist
in commercial quantities. Exploration for hydrocarbons is a speculative venture
necessarily involving substantial risk, and there is no certainty that any
exploration expenditures that the Registrant may incur will result in
discoveries of commercial quantities of hydrocarbons.

|2. | Geological and Geographic Risks
|-- | -------------------------------

Even if hydrocarbons are discovered, the costs of extracting
and delivering the hydrocarbons to market may render any deposit found
uneconomic. Geological conditions are variable and unpredictable. Even if a well
is drilled and

---

- 5 -

production is commenced, the quantity of hydrocarbons produced
will inevitably decline over time, and production may be adversely affected or
may have to be terminated altogether if the Registrant encounters geological
conditions that cannot be foreseen.

The Registrant will also be subject to uncertainties related to
the proximity of any reserves that it may discover to pipelines and processing
facilities. It expects that its operational costs will increase proportionally
to the remoteness of, and any restrictions on access to, the properties on which
any such reserves may be found. Adverse climatic conditions at such properties
may also hinder the Registrants ability to carry on exploration or production
activities continuously throughout any given year.

|3. | Market and Pricing Risks Pertaining to Oil
      and Natural Gas
|-- | ----------------------------------------------------------------

The marketability and price of any oil or natural gas that may
be discovered and extracted by the Registrant are subject to numerous factors
beyond the Registrants control, including market fluctuations in the prices of
oil and natural gas. The Registrants ability to operate at a profit will also
be affected by the grade of any oil that the Registrant discovers and produces,
as refiners will typically demand and pay higher prices for light, quality oil.
In addition, government regulation relating to prices of hydrocarbons, taxes,
royalties, land tenure, allowable production, the export of oil and natural gas,
and many other aspects of the oil and natural gas business will impact on the
Registrants future operations.

|4. | Limited Financial Resources
|-- | ---------------------------

The Registrant will require additional funding to search for
new projects and to resume exploration work on its existing prospects. However,
the Registrant has limited financial resources, and it may not be able to raise
sufficient funds to either sustain or expand its business. The Registrant
currently has no operating revenues and relies principally on the issuance of
common shares and the sale of its assets (primarily marketable common shares of
Austral Pacific Energy Ltd. (Austral), a public company) to finance its
business. There is no assurance that market conditions will continue to permit
the Registrant to raise funds on acceptable terms or at all.

|5. | Historyof Losses
|-- | ----------------

Excluding the last three fiscal years when the Company did not
have direct operations in oil and gas exploration, the Registrant has a history
of losses from operations from failed investments in oil and gas and the
internet. There is no assurance that the Registrant will enjoy success in any
future business activity.

|6. | Dilution
|-- | --------

Our Articles of Continuance authorize the issuance of an
unlimited number of shares of common stock. We have several types of dilutive
securities outstanding and our Board of Directors has the power to issue further
shares without stockholder approval. Our Board of Directors may issue some of
such shares to acquire further capital in order to carry out our intended
operations or expand our current operations, or to provide additional financing
in the future. The issuance of any such shares may result in a reduction of the
book value or market price of our outstanding common shares. If we issue any
such additional shares, such issuance will also cause a reduction in the
proportionate ownership and voting power of all other shareholders. Further, any
such issuance may result in a change of control.

|7. | Environmental Risks
|-- | -------------------

We are subject to laws and regulations that control the
discharge of materials into the environment, require removal and cleanup in
certain circumstances, require the proper handling and disposal of waste
materials or otherwise relate to the protection of the environment. In operating
and owning petroleum interests, we may be liable for damages and the costs of
removing hydrocarbon spills for which we are held responsible. Laws relating to
the protection of the environment have in many jurisdictions become more
stringent in recent years and may, in certain circumstances, impose strict
liability, rendering our Company liable for environmental damage without regard
to negligence or fault on the part of our Company. Such laws and regulations may
expose us to liability for the conduct of, or conditions caused by others or for
acts of our Company that were in compliance with all applicable law at the time
such acts were performed. The application of these requirements or the adoption
of new requirements could have a material adverse effect on our

---

- 6 -

business. We believe that we have conducted our business in
substantial compliance with all applicable environmental laws and regulations.

|8. | Indemnities may be Unenforceable or
      Uncollectible
|-- | -------------------------------------------------------

We may enter into operating agreements with other participants
in a property. Such operating agreements typically provide for the
indemnification of the operator. We are currently planning to directly operate
our exploration programs on our recently-acquired oil and gas prospects.
However, we may not always do so, and we may be requested to reimburse another
participant that is the operator for losses or damages caused or incurred in the
course of operations.

|9. | Consequences of Failure to Satisfy
      Prescribed Permit or Licence Terms and Conditions
|-- | ------------------------------------------------------------------------------------------

In all cases, the terms and conditions of the permit or licence
granting us, or the party from which we acquired, the right to explore for, and
develop, hydrocarbons, prescribe a work program and the date or dates before
which such work program must be done. We believe that we are in substantial
compliance with all such permits and licenses. However, varying circumstances,
including the financial resources available to us, rig availability and reliance
on third party operators of permits and licenses, or other circumstances beyond
our control or influence may result in the failure to satisfy the terms and
conditions of a permit or license and result in the complete loss of the
interest in the permit or license without compensation.

Such terms and conditions may be renegotiated with applicable
regulatory authorities, but there is no assurance that if a term or condition of
a license or permit that is required to be satisfied has not been met, that such
term or condition will be successfully renegotiated with the applicable
authority.

|10. | Consequences of Failure to Satisfy Joint
      Venture Obligations
|--- | ------------------------------------------------------------------

We may in the future participate in permits or licences with
industry partners with access to greater resources to meet their joint venture
capital commitments. If we are unable to meet our commitments, the other joint
venture participants may assume some or all of our deficiency and thereby assume
a pro-rata portion of our interest in any production from the joint venture
area.

Conversely, if a participant in a joint venture in which we are
interested is unable to meet its commitments, it may delay or veto exploration
or development plans which it cannot afford. This could, in turn, delay our
desired exploration and development program and lead to the assumption of all or
some of the share of the non-committing entitys interest by our Company and the
other participants (if any) in the joint venture. Although the joint venture
agreement would typically allow the contributing joint venture participants to
assume a pro-rata portion of the non-contributing participants interest in the
property, our Company may face financial hardship if it is unexpectedly required
to assume any portion of a non-contributing partys joint venture
obligations.

Furthermore, joint venture and other like agreements can give
rise to interpretive disputes with other parties who are financially interested
in the property.

|11. | No Title Insurance
|--- | ------------------

We do not maintain title insurance over our any of our
petroleum exploration permits. Accordingly, if a problem is discovered with
respect to the title of any of our prospects, we may be forced to forfeit our
interest without compensation.

|12. | Possible Lack of or Inadequacy of
      Insurance
|--- | -------------------------------------------------

The Company does not currently maintain insurance against
certain public liability, operational and environmental risks, but intends to do
so prior to exploration commences. However, even with insurance there is no
assurance that an event causing loss will be covered by such insurance, that
such insurance will continue to be available to our Company, or that the
benefits of such insurance will be adequate to cover our liability.

---

- 7 -

|13. | Foreign Currency Exchange Risk
|--- | ------------------------------

We hold cash reserves in Canadian and US dollars. In the
foreseeable future, we expect to incur the majority of our exploration
expenditures in New Zealand dollars. We do not currently hedge our exposure to
foreign currency exchange rate changes, although we may choose to selectively do
so in the future. A decrease in the value of the New Zealand dollar against the
value of the Canadian and US dollar will be a benefit to our Company. An
increase in value of the New Zealand dollar relative to the Canadian or US
dollar would have a detrimental effect on us as our operating expenses would, in
turn, increase in Canadian and US dollars.

|14. | Competition
|--- | -----------

Other companies with greater financial resources and/or
expertise are in competition with the Registrant for oil and gas prospect and
investment opportunities. The Registrant must compete with such companies in
bidding for the acquisition of petroleum interests from various state
authorities, in purchasing or leasing equipment necessary to explore for,
develop and produce hydrocarbons, and in obtaining the services of personnel in
the exploration for, and development and production of, hydrocarbons.

|15. | Thinly Traded Public Market
|--- | ---------------------------

The Registrants shares trade on the OTC Bulletin Board. The
Registrant has 463 registered shareholders as at December 29, 2006, and its
shares are relatively thinly traded. There can be no assurance that a stable
market for the Registrants common shares will ever develop or, if it should
develop, be sustained. It should be assumed that the market for the Registrants
common shares will continue to be highly illiquid, sporadic and volatile. The
Registrant is required to remain current in its reporting obligations under the
Securities Exchange Act of 1934, as amended (the Exchange Act), in
order for its common stock to remain eligible for quotation on the OTC Bulletin
Board. If the Registrant fails to meet its obligations as a reporting company
under the Exchange Act, the Registrants common stock will cease to be eligible
for quotation on the OTC Bulletin Board, and its shareholders may not be able to
sell their shares in the public market within the United States.

|16. | Dealings With Associated Companies
|--- | ----------------------------------

In previous fiscal years the Registrant has been associated
with other public junior resource companies through common directors, common
officers and common shareholdings, and may become associated with other public
junior resource companies in the future. The Registrant may continue to hold
equity investments in these other companies. The Registrant may also make
application for interests in petroleum properties with companies with which it
may become associated. Persons who are not willing to rely on the discretion and
judgment of management and the boards of directors of the Registrant and any
companies with which it may become associated should not consider a purchase of
its securities.

|17. | Value of Properties
|--- | -------------------

The amounts attributed to future properties in the Registrants
financial statements represent acquisition and exploration expenditures only,
and should not be taken to in any way reflect realizable value.

|18. | Investment Company Act
|--- | ----------------------

The Registrant may incur significant costs to avoid investment
company status and may suffer other adverse consequences if deemed to be an
investment company under the Investment Company Act of 1940 (Investment
Company Act). Some of the Registrants equity investments in other businesses
may constitute investment securities under the Investment Company Act. A company
may be deemed to be an investment company if it owns investment securities with
a value exceeding 40% of its total assets, subject to certain exclusions.
Investment companies are subject to registration under, and compliance with, the
Investment Company Act unless a particular exclusion or safe harbor provision
applies. If the Registrant were to be deemed an investment company, it would
become subject to the requirements of the Investment Company Act. As a
consequence, the Registrant would be prohibited from engaging in business or
issuing securities as it has in the past and might be subject to civil and
criminal penalties for non-

---

- 8 -

compliance. In addition, certain of the Registrants contracts
might be voidable, and a court-appointed receiver could take control of the
Registrant and liquidate the business. Unless an exclusion or safe harbor was
available to the Registrant, it would have to attempt to reduce its investment
securities as a percentage of its total assets. This reduction can be attempted
in a number of ways, including the disposition of investment securities and the
acquisition of non-investment security assets. If the Registrant were required
to sell investment securities, the Registrant may sell them sooner than it
otherwise would have based on economic factors solely. These sales would likely
be at depressed prices and the Registrant may never realize anticipated benefits
from, or may incur losses on, these investments. The Registrant may be unable to
sell some investments due to contractual or legal restrictions or the inability
to locate a suitable buyer. Moreover, the Registrant may incur tax liabilities
when it sells assets.

|19. | Penny Stock Regulation and Difficulties in
      Selling Shares
|--- | ---------------------------------------------------------------

The Securities and Exchange Commission (the SEC) has adopted
rules that regulate broker-dealer practices in connection with transactions in
penny stocks. Penny stocks generally are equity securities with a price of
less than $5.00 per share (other than securities registered on certain national
securities exchanges such as AMEX and the Nasdaq Stock Market, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system).

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 prepared by the SEC that 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 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. In addition,
the penny stock rules require that prior to a transaction in a penny stock not
otherwise exempt from such rules, the broker-dealer must make a special written
determination that a penny stock is a suitable investment for the purchaser and
receive the purchasers written agreement to the transaction. These disclosure
requirements often have the effect of reducing the level of trading activity in
any secondary market for a stock that becomes subject to the penny stock
rules.

The Registrants common stock is currently subject to the penny
stock rules. Accordingly, investors may find it difficult to sell their shares,
if at all.

|20. | Foreign Jurisdiction Risks; Governmental
      Laws and Local Conditions
|--- | ------------------------------------------------------------------------

Claims of aboriginal peoples in New Zealand or other potential
areas of operation may adversely affect the rights or operations of our Company
and there is no assurance that governmental regulation will not vary, including
regulations relating to prices, royalties, allowable production, environmental
matters, import and export of hydrocarbons and protection of water resources and
agricultural lands. Our exploration interests in New Zealand are subject to
regulations that relate directly and indirectly to our operations, including
title to the petroleum interests, production, marketing and sale of
hydrocarbons, taxation, environmental matters, restriction on the withdrawal of
capital from a country and other factors. There is no assurance that the laws
relating to the ownership of petroleum interests and the operation of our
business in New Zealand will not change in a manner that may materially and
adversely affect our business.

|21. | Legal Proceedings Against Foreign
      Directors
|--- | -------------------------------------------------

The Company is incorporated under the laws of the British
Columbia, Canada, and three of the Companys directors and officers are
residents of Canada and one is a resident of New Zealand. Consequently, it may
be difficult for United States investors to effect service of process within the
United States upon the Company or upon its directors or officers, or to realize
in the United States upon judgements of United States courts predicated upon
civil liabilities under the Exchange Act. Furthermore, it may be difficult for
investors to enforce judgements of the U.S. courts based on civil liability
provisions of the U.S. federal securities laws in a foreign court against the
Company or any of the Companys non-U.S. resident officers or directors.

---

- 9 -

|22. | Concentration of Ownership and Ineffective
      Voting Powers
|--- | --------------------------------------------------------------

The directors and principal shareholders of the Registrant
beneficially own a sufficient number of the outstanding common shares of the
Registrant to have substantial influence over matters which require a vote of
the Registrants shareholders, such as the election of members of the board of
directors as well as extraordinary matters which require shareholders approval.
Should the directors and the principal shareholders vote their shares in a like
manner on a matter requiring a simple, or special majority vote of the
Registrants shareholders, it is most likely that their position on the matter
would control or significantly affect the outcome of the vote. Additionally,
because the directors and principal shareholders possess substantial influence
over the Registrant through their shareholdings, the value attributable to the
right to vote held by other shareholders may be perceived to be reduced. This
could result in a reduced value for the shares owned by other shareholders who
do not have the same level of control over the Registrants affairs.

|23. | The Registrant expects to be a passive
      foreign investment company, or PFIC
|--- | --------------------------------------------------------------------------------

Shareholders who are U.S. taxpayers should be aware that the
Registrant will likely be a passive foreign investment company (PFIC) for the
current fiscal year, may also have been a PFIC in prior years and may also be a
PFIC in subsequent years. If the Registrant is a PFIC for any year during a U.S.
taxpayers holding period, then such U.S. taxpayer generally will be required to
treat any so-called excess distribution received on its common shares, or any
gain realized upon a disposition of common shares, as ordinary income and to pay
an interest charge on a portion of such distribution or gain, unless the
taxpayer makes a qualified electing fund (QEF) election or a mark-to-market
election with respect to the shares of Trans-Orient. In certain circumstances,
the sum of the tax and the interest charge may exceed the amount of the excess
distribution received, or the amount of proceeds of disposition realized, by the
taxpayer. A U.S. taxpayer who makes a QEF election generally must report on a
current basis its share of the Registrants net capital gain and ordinary
earnings for any year in which the Registrant is a PFIC, whether or not it
distributes any amounts to its shareholders. A U.S. taxpayer who makes the
mark-to-market election, generally, must include as ordinary income in each
year, the excess of the fair market value of the common shares over the
taxpayers tax basis therein.

|ITEM 4. | INFORMATION ON THE REGISTRANT
|------- | -----------------------------

|A. | History and Development of the
      Registrant
|-- | -----------------------------------------------

Corporate Actions:

The Registrant, Trans-Orient Petroleum Ltd., is a British
Columbia corporation based in Vancouver, British Columbia, Canada. The
Registrants registered office is located at 1500 Royal Centre, 1055 West
Georgia Street, P.O. Box 11117, Vancouver, B.C. V6E 4N7. The Registrants
principal business office is located at 999 Canada Place, World Trade Centre,
Suite 404, Vancouver, British Columbia, V6C 3E2.

The Registrant was incorporated on July 25, 1986 under the name
Palo Duro Exploration Ltd. by the registration of memorandum and articles under
the Company Act (British Columbia). The Registrant changed its name to
Stoney Creek Mines Ltd. on July 15, 1988. On June 30, 1992, the Registrant
consolidated its shares on a one new for three old basis and changed its name to
Cyn-Tech Ventures Ltd. On June 29, 1995, the Registrant consolidated its shares
on a one new for five old basis and changed its name to Consolidated Cyn-Tech
Ventures Ltd. On June 27, 1996 the Registrant subdivided its shares on a three
new for one old basis and changed its name to Trans-Orient Petroleum Ltd.

On September 26, 1997, the Registrant was re-domiciled in the
Yukon Territory, Canada, by way of continuance under the Business
Corporations Act (Yukon). On May 4, 1998 the Registrant subdivided its
shares on a two new for one old basis and increased its authorized capital to
200,000,000 common shares without par value. On January 17, 2001 the Registrant
consolidated its common shares on a one new for twelve old basis, and increased
its authorized capital from 200,000,000 to an unlimited number of common shares
without par value. The Registrant received shareholder approval at the Annual
and Special meeting on January 18, 2002 to further consolidate all of its common
shares on a one new for three old basis. The Registrant implemented this
consolidation on April 5, 2002. On March 30, 2006 the Registrant subdivided its
common shares on a seven new for one old basis.

---

- 10 -

All references to our outstanding common shares, issuances
of common shares, options and warrants and prices associated with the above
corporate actions and their effects on share capital have been shown on a
retroactive basis.

On January 16, 2006, the Registrant was re-domiciled in British
Columbia by way of continuance under the Business Corporations Act
(British Columbia) which replaced the Company Act (British Columbia) in
2004.

The Registrant became a public or reporting company in
British Columbia upon obtaining a receipt for the prospectus filed with the
British Columbia Securities Commission in connection with its initial public
securities offering in April, 1989. The Registrants common shares commenced
trading on the Vancouver Stock Exchange (VSE), the predecessor to the TSX
Venture Exchange, at about that time. On June 10, 1997, the Registrants common
shares commenced trading on the National Association of Securities Dealers OTC
Bulletin Board (the OTCBB) under the symbol TEPUF. On July 31, 1997, the
Registrant voluntarily delisted its common shares from the VSE. The Registrants
current trading symbol on the OTCBB is TOPLF.

Developments:

During the fiscal years ended July 31, 2006, 2005 and 2004, the
Registrant did not carry on any active oil and gas exploration activities.
During the 2005 fiscal year, the Registrant wrote off an oil and gas interest of
$1 which at that time represented its only remaining oil and gas interest.

Subsequent to the end of the 2006 fiscal year the Registrant
was awarded 100% interests in two onshore petroleum exploration permits in New
Zealand (discussed in more detail below under the heading Information on the
Registrant  Business Overview (Item 4.B).

The Registrant did not conduct any financing activities during
the 2006 and 2005 fiscal years. However, it realized certain gains from its
investment activities which are discussed under the heading Operating,
Financial Review And Prospects Investing Activities (Item 5). The Registrant
successfully completed two private placement financings subsequent to the 2006
fiscal year for total gross proceeds of $10,540,250, as described in more detail
under the heading Operating, Financial Review And Prospects Financing
Activities (Item 5).

During the 2006 fiscal year the Registrant sold a total of
7,373,569 common shares of AMG Oil Ltd. (AMG). These dispositions resulted in
the Registrants effective loss of control of AMG, the accounts of which were,
until that time, consolidated with those of the Registrant.

|B. | Business Overview
|-- | -----------------

Nature of Operations

We are an independent oil and gas exploration company,
incorporated in Canada. During the 2006 fiscal year, we have been focused on
identifying suitable international oil and gas prospects with the view to
resuming our oil and gas exploration activities. On November 8, 2006, the
Government of New Zealand awarded us 100% interests in two onshore petroleum
exploration permits, PEP 38348 and 38349, totalling 2,163,902 acres, located in
the East Coast Basin of New Zealand.

Since we are an exploration stage company we do not have any
revenues from operations. Accordingly, we are not directly affected by
fluctuations in the markets for hydrocarbon products, the seasonality of
hydrocarbon products, or marketing channels for such products. We also do not
rely on raw materials, and do not have any significant proprietary interests in
intellectual property, as we operate in an extractive industry.

We compete with other companies for bidding for the acquisition
of petroleum interests from various authorities, and in exploring for oil and
gas in the Australasia region. We are also subject to government regulations
applicable to the petroleum exploration permits that we hold, and to the
exploration activities that we plan to conduct on those permits. The effects of
these regulations are described in Item 4. Property, Plant and Equipment.

---

- 11 -

As of December 29, 2006, we also held 3,110,240 common shares
  (11.2%) of Austral. Austral is a public company whose common shares are listed
  on AMEX, the TSX Venture Exchange and the New Zealand Stock Exchange, with a
  market capitalization in the $52 million range.

In addition to our interest in Austral, we also currently own
826,431 common shares of AMG Oil Ltd. (AMG) with a current market bid price of
$0.50 per share as of January 15, 2007. AMG is a reporting company under the
Securities Exchange Act of 1934 whose shares have been quoted on the
OTCBB since January 15, 2003. Our present interest in AMG accounts for 3.66% of
the outstanding shares. We account for our investment in AMG using the cost
method. During the 2006 fiscal year we sold 7,373,569 common shares of AMG for
aggregate proceeds of $133,695. These dispositions resulted in the Companys
effective loss of control of AMG. The AMG market is highly illiquid, and we do
not consider the currently quoted prices realizable. Please refer to Item 17 for
additional information.

Our 100% owned subsidiary, DLJ Management Corp., provides
management, accounting and reporting services to three junior public natural
resource companies on a cost-recovery basis.

|C. | Organizational Structure
|-- | ------------------------

As of December 29, 2006 the Registrant has one wholly owned
subsidiary, being DLJ Management Corp. Unless indicated otherwise, the terms
Trans-Orient, we, our, the Company or the Registrant, or any reference
to the Registrants business and operations, mean Trans-Orient Petroleum Ltd.
inclusive of its wholly-owned subsidiary.

|D. | Property, Plant and Equipment
|-- | -----------------------------

We have been focused on identifying suitable international oil
and gas prospects with the view to resuming our oil and gas exploration
activities. On November 8, 2006, the Government of New Zealand awarded us
interests in two onshore petroleum exploration permits located in the East Coast
Basin of New Zealand. The following is a brief description of these permits. For
definitions of technical terms in the following description of properties, see
the Glossary of Industry Terms found at the beginning of this report. Apart from
our interests in the following hydrocarbon exploration properties and the
investments described above, we hold only minor office assets for the purpose of
operating our business.

The following table summarizes our two exploration permits:

|Property  | Location         | Working Interest | Gross Sq. Kms | Net Sq. Kms
|--------- | ---------------- | ---------------- | -------------- | ------------
|          |                  |                  |                |             
|PMP 38348 | East Coast Basin | 100%             | 2,147          | 2,147       
|PMP 38349 | East Coast Basin | 100%             | 6,610          | 6,610       

In order to keep our permits in good standing, we must expend
at least $230,000 under the mandated work programs (the Work Programs) before
November 8, 2007 (Year 1) as follows:

Property
    Location
    2007 Fiscal Year Work Program
      Details
    Expenditure Required by
      November 8, 0207PMP 38348
    East Coast Basin
    Seismic reprocessing, structural,
      stratigraphic, geochemical and reservoir sampling and analysis.
    $99,500PMP 38349
    East Coast Basin
    Seismic reprocessing, structural,
      stratigraphic, geochemical and reservoir sampling and analysis.
    $130,500


To maintain the permits in good standing after November 8, 2007
(Year 2), we need to commit in writing to the Ministry of Economic Development
prior to November 8, 2007, to complete the Year 2 work program on both
permits.

---

- 12 -

The Year 2 programs on both permits consist of acquiring,
processing and interpreting 20 kms and 30 kms of 2D seismic on PEP 38348 and
38349, respectively and to undertake additional geological, geochemical and
geophysical studies including interpretation of existing, reprocessed and new
seismic data.

To maintain the permits in good standing after November 8, 2008
(Year 3), we need to commit in writing to the Ministry of Economic Development
prior to November 8, 2008, to complete the Year 3 work program on both permits.
The year 3 programs on both permits consist of drilling one exploration well,
relinquishing 25% of the permit area and submitting a satisfactory work
programme proposal to the Ministry of Economic Development for the remaining two
years of the permit.

The permits are both situated onshore in New Zealand's East
Coast Basin, which covers the eastern onshore and offshore areas of the North
Island. The East Coast Basin is classified as an active fore-arc basin, situated
immediately west of the convergent plate boundary between the Australian and
Pacific plates. At an earlier stage in its evolution it was a passive margin
basin, prior to the initiation of convergence on the plate boundary, about 20
million years ago.

The Pacific plate is flexured downwards at the offshore
Hikurangi Trench which forms the eastern boundary of the East Coast Basin, and
is actively subducting beneath the Australian plate, deepening westwards beneath
the East Coast Basin. A consequence of this active tectonic environment has been
the deposition of enormous thicknesses of sedimentary rock, with sedimentary
thicknesses of up to 30,000 feet in parts of the Basin; together with east-west
compressional folding and faulting.

The entire sedimentary section can be examined at locations
where it is exposed in outcrop. Good potential oil and gas source rocks are
found in the Late Cretaceous / Early Tertiary section, particularly in the
organically very rich Waipawa Black Shale and the much thicker but lesser
richness Whangai Formation, both of which are extensively developed across the
Basin. Various laboratory geochemical studies of these rocks have demonstrated
that they are mature for oil/gas generation and expulsion over much of the
Basin's area., including within PEP's 38348 & 38349.

Numerous active oil and gas seeps are known within both permit
areas. The most prominent of these are the Waitangi Hill oil ponds in PEP 38348
and the Westcott oil seeps in PEP 38349. At Waitangi Hill a series of oil ponds
up to 20 feet in diameter, are continuously recharged with oil seeping up a
fault contact and running off along Petroleum Creek. The area has been the locus
of a number of historical shallow wells; a couple of which were claimed to
produce oil, but no commercial production has been established. At Westcott, oil
seeps continuously from Miocene sands in outcrop. These oils, and the various
gas seeps, are geochemically typed as being from the Waipawa and/or Whangai
source rocks.

Good reservoir rocks are extensively observed in outcrop, in a
variety of Miocene sandstones and Pliocene coquina limestones. In addition to
this, the Whangai and Waipawa mudstones are themselves extensively jointed and
fractured, and have potential to be effective oil or gas reservoirs in their own
right, while more conventional reservoir potential is also exhibited in
greensands of Late Cretaceous to Early Tertiary age.

The plate boundary compressional tectonics have given rise to
the formation of numerous potentially oil / gas trapping structures, which are
observed in outcrop and on 2D seismic (of which there is only limited amount in
both permits). However, the same compressional regime has resulted in a division
of the East Coast Basin into a series of sub-basins, with consequential
discontinuous and variable reservoir trends; and also has resulted in extensive
faulting and uplift which has led to the presence of the hydrocarbon seeps and
the potential for fault breaching of traps.

The above summary demonstrates that the Basin and the permits
have considerable discovery potential but also considerable exploration risk. At
present they can be classified as lightly explored frontier areas, with minimal
modern drilling in either permit based on modern seismic control.

In PEP 38348, there is only of order 150 miles of 2D seismic,
most of poor to moderate quality. The only well drilled on any degree of seismic
control was Waingaromia-2 in 2000. As with the majority of the historical wells,
this had hydrocarbon shows, but encountered no effective reservoir. An inventory
of some ten prospects and good leads is identified on the seismic and on surface
outcrop. The best defined of these at present are the Pauariki and Wharekak
Prospects, both being defined on several seismic lines. A prominent gas seep is
situated at the northern end of Pauariki,

---

- 13 -

which has potential to reservoir significant amounts of gas or
  oil. Geochemical surveying of the better ranked targets will commence in February
  2007, as the first step in high-grading the targets. Following this work, additional
  seismic will be acquired over the top ranked prospects, in order to select optimal
  locations for drilling.

In PEP 38349, there is of order 300 miles of 2D seismic, of
moderate to good quality. There have been four wells drilled on some degree of
modern seismic control since 1980; and three earlier wells in the 1970's based
on very limited seismic control. Again, most of these wells had significant
hydrocarbon shows, but as in PEP 38348, drilling problems associated with
swelling shales meant that some never reached their target, and none were flow
tested.

An inventory of some twenty prospects and leads are presently
indentified from 2D seismic and outcrop mapping. Boar Hill is a seismically
defined fractured Whangai shale target mapped on seismic, with a set of gas
seeps situated on its western side. Prospects Oporae, Conoor, Waewaepa and
Mangatoro are all Mio-Plio reservoir targets situated in the general vicinity of
the Westcott oil seeps, on the western flank of the Ellsthorpe Anticline, in the
core of which further hydrocarbon seeps are observed. Prospect Speedy was
drilled on a seismically defined target in 2000 by Speedy-1; yet despite
increasing levels of higher order hydrocarbons being observed with increasing
depth, it failed to reach its objective due to drilling problems. All these
targets are relatively shallow, being less than 6,000 feet. Recent drilling
practice, particularly in the use of synthetic oil based muds, now offers the
means to overcome the swelling shale problems which have hindered earlier
drilling.

The forward work program is to be carried out in parallel with
that in PEP 38348, namely geochemical sampling in First Quarter 2007, followed
by detail seismic on selected targets in 2008, to optimise drilling
locations.



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- 14 -

No Reserves

The Company did not have any hydrocarbon reserves or prospects
at July 31, 2006. Subsequent to the 2006 fiscal year the Company acquired the
two permits detailed above. The properties that are subject to the permits have
no known hydrocarbon reserves.

Petroleum Exploration Regime in New Zealand

Unless otherwise indicated and subject to the conditions of the
permit, a petroleum exploration permit granted in New Zealand provides for the
exclusive right to explore for petroleum in the land covered by the exploration
permit. Exploration permits have an initial term of five years, but are
renewable for a further term of up to five years over an area of land not
exceeding one-half of the original area (with a possible further short appraisal
extension where necessary).

An exploration permit holder may apply to the Minister of
Energy for amendments to an exploration permit, including changes to the
mandatory Work Program prescribed in relation to the permit to keep it in good
standing or the area covered by the exploration permit, if circumstances require
and the conditions of the exploration permit have been substantially complied
with. This remains, however, a matter for the Ministers discretion. Exploration
permit holders may exceed the requirement of the Work Program in relation to any
permit.

If an exploration permit holder does not satisfy the Minister
that it has complied with the obligations under the Work Program (or such
variation as may have been agreed with the Minister), the New Zealand government
has the power to revoke the exploration permit. A NZ$250,000 bond is now payable
with all applications for a new permit.

Unless an earlier date is specified in the permit, an
exploration permit holder has a right to be granted a petroleum mining permit
with a term of up to 40 years if the exploration permit holder satisfies the
Minister that, as a result of the activities authorised by the exploration
permit, a deposit of petroleum has been found in the land covered by the
exploration permit. An exploration permit or a mining permit operates as an
exclusive license to undertake exploration or mining activities, as the case may
be, on the land covered by it, but does not grant any ownership interest to the
permit holder in the land itself.

The annual royalties payable in relation to a permit depend on
when the relevant petroleum discovery in the permit was made, and whether an
exploration permit or a mining permit is held.

On deposits of petroleum known to exist before June 30, 2004 or
discovered after December 31, 2009, the New Zealand Government reserves:

| | (a) | where an exploration permit is held, a royalty equal to
      5% of the net sales revenue from all petroleum obtained from the
      exploration permit; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                             
| | (b) | where a mining permit is held, a royalty equal to the
      greater of:                                                                                     
| |     |                                                                                                                                                             
| |     | (i)                                                                                                                                                         
| |     |                                                                                                                                                             
| |     | (ii)                                                                                                                                                        

On deposits of petroleum discovered in the period June 30, 2004
to December 31, 2009, where an exploration permit is held, the New Zealand
Government reserves a royalty equal to:

| | (a) | 1% of the net sales revenue from the sale of all natural
      gas products obtained from the exploration permit; and
| | --- | ---------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                      
| | (b) | 5% of the net sales revenue from the sale of all oil
      products from the exploration permit.                     

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- 15 -

On deposits of petroleum discovered during the period June 30,
2004 to December 31, 2009 that are produced under a mining permit, the New
Zealand Government reserves a royalty that is the greater of:

| | (a) | 1% of the net sales revenue from the sale of all natural
      gas products obtained from the mining permit or 5% of the net sales
      revenue, from the sale of all oil products from the mining permit;
    and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                    
| | (b) | a percentage of accounting profits, calculated on the
      following basis:                                                                                                                                       
| |     |                                                                                                                                                                                                                    
| |     | (i)                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                    
| |     | (ii)                                                                                                                                                                                                               

In calculating the accounting profits on any petroleum produced
from a discovery made during the period June 30, 2004 to December 31, 2009, a
mining permit holder may deduct, amongst other things, its prospecting and
exploration costs that it has incurred in any permit in New Zealand between June
30, 2004 and December 31, 2009. For production from all other mining permits,
only prospecting and exploration costs associated with that specific permit can
be deducted for the calculation of accounting profits for that permit.

Detailed methods for calculating net sales revenue and
accounting profits are prescribed for the purpose of calculating royalties.
Royalties are assessed annually.

On August 22, 2006 new fees were implemented with an effective
date of September 22, 2006 for all permits. For the financial year from July 1,
2006 to June 30, 2007, an exploration permit holder must pay the New Zealand
Government an annual fee of NZ$9.47 per square kilometre for the first 1500
square kilometres and NZ$7.22 for each additional square kilometre of the land
of any exploration permit. In respect of the same period, a mining permit holder
must pay the New Zealand Government an annual fee of NZ$303.12 per square
kilometre of the land area of any mining permit. From July 1, 2007, or on any
permit granted or extended on or after September 22, 2006, the new annual fees
require an exploration permit holder to pay the New Zealand Government NZ$10.50
per square kilometre for any exploration permit. A mining permit holder must pay
the New Zealand Government an annual fee of NZ$100 per square kilometre of the
land area of any mining permit and a prospecting permit holder must pay an
annual fee of NZ$4.00 per square kilometre of the land area of any prospecting
permit.

Environmental Regulation in New Zealand

In New Zealand, on land and in waters within twelve miles of
the coast, the Resource Management Act 1991 controls users of natural and
physical resources, including petroleum explorers, with a view to managing
resource usage in ways that will not compromise future utilization. The
Resource Management Act 1991 places the emphasis on assessment of the
effect the proposed activity will, or might, have on the environment with a view
to promoting sustainable management. Under the Resource Management Act
1991, most of the responsibility for managing resources and their use is
given to local authorities. Regional and district councils must produce and
continuously update planning schemes for their jurisdictions which establish
procedures and standards for assessing and approving environmental standards in
accordance with the Resource Management Act 1991.

Corporate Office

The Registrant maintains corporate office space at 999 Canada
Place, World Trade Center Suite 404, Vancouver, BC, Canada and at 1407-1050
Burrard Street, Vancouver, B.C. V6Z 2S3. The Registrant also owns a 400 sq. foot
office condominium located at 1406-1050 Burrard Street, Vancouver B.C. The
office condominium was originally purchased for CAD $147,000 and is held for
investment purposes and as office space for the Registrants President and Chief
Executive Officer.

---

- 16 -

|ITEM 5. | OPERATING, FINANCIAL REVIEW AND
      PROSPECTS
|------- | -----------------------------------------------

The following discussion and analysis is managements opinion
of the Registrants historical financial and operating results and should be
read in conjunction with the audited consolidated financial statements of the
Registrant (See Item 17) for the years ended July 31, 2006, 2005, and 2004,
together with the notes related thereto. The financial statements have been
prepared in accordance with Canadian GAAP, and a reconciliation to US GAAP is
provided in the notes to the financial statements, under Item 17. All dollar
values are expressed in United States dollars, unless otherwise stated.

The consolidated financial statements include the accounts of
the Registrant and its wholly-owned subsidiary, DLJ Management Corp.

Operating Results

Summary

We are in the exploration stage with respect to all of our oil
and gas properties and therefore we do not generate any sales or revenue from
oil and gas operations. We have experienced losses in each of our fiscal years
since incorporation, with the exception of the 2006, 2005 and 2004 fiscal years
during which we earned net income of $381,606, $1,142,246 and $458,829,
respectively, principally from the sale of marketable securities in Austral and
TAG. We believe that such income is of a non-recurring nature. Total losses
incurred from incorporation to the fiscal period ending July 31, 2006 were
$10.27 million.

As we have just recently acquired our interests in the two oil
and gas exploration properties in New Zealand, our results from operations to
date may not provide a meaningful basis for evaluating our current prospects.
However, the level of future operations, if any, will be limited by the
availability of capital resources, the sources of which are not predictable. Our
only sources of capital currently are the issuance from time to time of
unregistered equity securities pursuant to private placement transactions that
are exempt from registration under the Securities Act of 1933, as
amended, and applicable state securities laws (which is dilutive to our
shareholders), and, to a lesser extent, the sale of assets consisting primarily
of marketable equity securities in Austral.

Management believes that the primary financial information of
current relevance to investors are the measures of liquidity and solvency.
However, as we begin to explore our oil and gas properties, we expect that
investors will begin to evaluate our results of operations largely by reference
to the results of our exploration programs, which will in turn depend on the
extent and quality of oil and gas (if any) that we discover.

Results of Operations -2006 Compared to 2005 and 2004

The Registrant spent the fiscal year ended July 31, 2006
preparing to re-establish itself as an international oil and gas exploration
company, and, subsequent to year end, was awarded two 100% petroleum exploration
permits in New Zealands East Coast Basin, identified as PEP 38348 and 38349,
consisting of 2,163,902 acres.

The Registrants objective for the 2007 fiscal year is to
review and reprocess existing seismic data on PEP 38348 and 38349, and to
conduct structural, stratigraphic and reservoir sampling analysis on these
prospects prior to committing to two dimensional (2D) seismic programs covering
20 square kms and 30 square kms, respectively, as contemplated under the Work
Programs. The Registrant intends to continue its ongoing efforts to identify
additional exploration and acquisition opportunities in Austral-Asia.

The Registrant has not received any revenue from oil and gas
operations during the 2006 fiscal year. The Registrants revenue for the year
was restricted to minor amounts received as interest income earned on cash
balances.

---

- 17 -

The Registrants net income for the twelve-month period ended
July 31, 2006 was $381,606 or $0.02 per share compared to net income for July
31, 2005 of $1,142,246 or $0.06 per share, and net income for July 31, 2004 of
$458,829 or $0.03 per share.

The Registrants net income of $381,606 resulted primarily from
gains on the sale of the Registrants holdings of common shares in TAG and AMG
totalling $641,581 and $136,842, respectively. Specifically, during the 2006
fiscal year the Registrant sold 1,000,000 shares of its investment in TAG for
proceeds of $1,141,581; these shares had a book value of $500,000. The
Registrant also sold 7,373,569 shares of AMG for aggregate proceeds of $133,695.
During the 2006 fiscal year the Registrant also sold 50,000 shares of Austral
with a book value of $78,000 for proceeds of $74,241.

In comparison, the Registrants net income in the fiscal year
ended July 31, 2005 was $1,142,246 which resulted primarily from a gain on the
sale of a portion of the Registrants holdings of common shares in Austral
totalling $1,218,319.

The Registrant used a significant portion of the proceeds
received from the sale of investments described above during the 2006 fiscal
year to acquire 200,000 units of Austral pursuant to a private placement, at a
cost of $500,000. Each unit of Austral consisted of one share and one-half of
one share purchase warrant. The warrants subsequently expired as they were not
exercised. The Registrant also acquired 500,000 shares of TAG, at a cost of
$300,000, by exercising share purchase warrants held by the Registrant.

For the year ended July 31, 2006, the general and
administrative (G&A) expenses totalled $305,173 which is considerably
higher for the year when compared with G&A costs totalling $168,957 for the
year ended July 31, 2005. The increase in G&A is attributable to work
undertaken by the Registrant during the 2006 fiscal year to identify and conduct
due diligence investigation of suitable prospects, with the veiw to
re-establishing its international oil and gas exploration operations. A
comparative summary of G&A costs for the last three fiscal years can be
found in the consolidated schedules of general and administrative expenses in
the accompanying audited consolidated financial statements located in Item 17
below.

The Registrant expects that G&A costs for the 2007 fiscal
year will likely increase as a result of its success in obtaining the two
petroleum exploration permits in New Zealand, and continuing to search for other
suitable exploration and acquisition opportunities in Austral-Asia.

Inflation

We are beginning to operate in New Zealand where inflation for
operational costs has historically been at low levels (2-5% range per annum).
However, operational costs world-wide have increased significantly and will
likely continue to do so. The affect on the Registrant of increased inflation at
this time is expected to be minimal but may become more significant as
exploration efforts increase.

Foreign Currency Fluctuations

The Registrant holds its cash reserves primarily in US dollars
and does not have significant obligations in other currencies. Accordingly,
management does not perceive that the Registrant is currently subject to
significant exchange risks.

Foreign Regulations

As discussed above under the heading Property, Plant and
Equipment - Petroleum Exploration Regime in New Zealand (Item 4.D), the
Registrants proposed operations on its two petroleum exploration permits in New
Zealand will be subject to extensive regulation by the Government of New
Zealand. Such regulation will govern not only the Registrants title to the
petroleum exploration permits, the mandated Work Programs for the prospects,
environmental matters and taxation, but, if petroleum reserves are discovered
and successfully developed (which cannot be assured), also the production,
marketing and sale of hydrocarbons, as well as other matters. The government of
any foreign

---

- 18 -

jurisdiction in which the Registrant operates may also
potentially impose restrictions on the withdrawal of capital from that
jurisdiction, or impose other foreign currency exchange controls.

There is no assurance that the laws relating to the ownership
of petroleum interests and the operation of the Registrants business in the
jurisdictions in which it currently operates, or in the jurisdictions in which
the Registrant may in the future operate, will not change or be applied in a
manner that may materially and adversely affect its business.

According to its public disclosure, Austral, a Canadian company
based in New Zealand, controls interests in more than 15 exploration and
production permits totalling over 4.5 million gross acres in New Zealand and
Papua New Guinea. As indicated elsewhere in this annual report, the Registrant
holds 3,110,240 shares of Austral and accordingly, the Registrants financial
position may be indirectly impacted by foreign laws and regulations that govern
Australs business and affairs.

Differences between Canadian and U.S. Generally Accepted
Accounting Principles

The Registrant is subject to changes in accounting standards.
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles (Canadian GAAP) that conform in all
material respects with United States generally accepted accounting principles
(U.S. GAAP) that affect the Registrant, with some exceptions that are detailed
below in Item 17, Note 11 Differences between Canadian and United States
Generally Accepted Accounting Principles.

New Accounting pronouncements

At the date of this report there have been no new accounting
pronouncements that have had a material affect on the Registrants financial
statements.

Liquidity and capital resources 2006 Compared to 2005 and
2004

Currently, the Registrant has sufficient capital to conduct its
planned exploration programs on the two New Zealand petroleum exploration
permits through the 2007 fiscal year. However, owing to the inherent risks of
oil and gas exploration, it is uncertain if the Registrant will be able to
generate income and/or secure outside sources of capital in amounts that are
sufficient for it to continue with its planned operations beyond the end of
2007. As discussed under the heading, Property, Plant and Equipment - Petroleum
Exploration Regime in New Zealand (Item 4.D), and Risk Factors - Consequences
of Failure to Satisfy Prescribed Permit or Licence Terms and Conditions (Item
3.D), the Registrant risks forfeiture of its interests in the New Zealand
prospects if it is unable to meet its obligations under the related Work
Programs on a timely basis. Due to the exploratory nature of its business,
traditional forms of debt financing may not be available to the Registrant, and
the Registrant may be required to look at opportunities to farm-out, reschedule
or defer some of its capital expenditures.

G&A expenses averaged $25,000 per month for the
administration, salaries, premises, professional fees and like costs and
expenses associated with being a public company. The Registrant did not receive
any revenue from its operations in 2006 and does not expect to receive any
operational revenue during the fiscal 2007 year. Overhead expenditure needs
after fiscal 2007 may require the Registrant to raise additional financing or to
sell its portfolio of investments. It is uncertain whether the Registrant will
be able to secure such financing on terms that are acceptable to it, or at all,
or to sell its investments in amounts that are sufficient for the Registrant to
continue with its planned operations.

Operating Activities:

At July 31, 2006, the Registrant had $472,343 in working
capital (July 31, 2005: $194,897, July 31, 2004: $104,304). Cash on hand was
$451,969, $190,617 and $69,022 at July 31, 2006, 2005 and 2004 respectively. The
Registrant had negative cash flow from operations of $266,648, $69,769 and
$74,480 for the years ending July 31, 2006, 2005 and 2004 respectively.

---

- 19 -

Financing Activities:

The Registrant did not conduct any financing activities during
the 2006 and 2005 fiscal year. During the 2004 fiscal year the Registrant
received $30,000 from the issuance of 100,000 common shares of the Registrant
upon the exercise of certain share purchase warrants.

Subsequent to our year ended July 31, 2006, the Registrant
completed two private placement financings as follows:

|a) | 12,972,142 units of the Registrant were issued at a
      purchase price of $0.35 per unit, for gross proceeds of $4,540,250. Each
      unit consisted of one common share and one share purchase warrant. Each
      warrant entitles the holder to acquire an additional common share of the
      Registrant at a price of $0.70 per share for two years from the closing
      date of August 30, 2006. At the Registrants option, and after the
      four-month hold period prescribed under British Columbia securities laws
      has expired, the expiry date of the warrants can be accelerated on 30 days
      notice, should the Registrants shares trade at or higher than $1.25 for
      ten consecutive trading days; and                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|b) | 5,905,000 units of the Registrant were issued at a
      purchase price of $1.00 per unit, for gross proceeds of $5,905,000. Each
      unit consisted of one common share and one-half of one share purchase
      warrant. Each full warrant entitles the holder to acquire an additional
      common share of the Registrant at a price of $1.35 per share for eighteen
      months from the closing date of January 17, 2007. At the Registrants
      option, and after the four-month hold period prescribed under British
      Columbia securities laws has expired, the expiry date of the warrants can
      be accelerated on 30 days notice, should the Registrants shares trade at
      or higher than $1.75 for ten consecutive trading
days.

Investing Activities:

Subsequent to the end of the 2006 fiscal year the Registrant:

|a) | purchased 1,395,000 common shares of Austral in a private
      placement effected by Austral at a purchase price of $1.30 per share;
      and
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                
|b) | purchased an additional 180,300 shares of Austral in the
      open market at market prices averaging $1.42 per
share.                         

As of December 29, 2006, the Registrant held a total of
3,110,240 common shares of Austral, representing 11.20% of Australs issued and
outstanding common shares.

During the 2006 fiscal year the Registrant:

|a) | sold 7,373,569 common shares of AMG for aggregate
      proceeds of $133,695. These dispositions resulted in the Companys
      effective loss of control of AMG, the accounts of which were, until that
      time, consolidated with those of the Company. Please refer to Item 17 for
      further information;                                                                                                                                                                                                                                                   
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|b) | sold 50,000 common shares of Austral with a book value of
      $78,000 for proceeds of $74,241 resulting in a loss of $3,759;                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|c) | purchased 200,000 units in a private placement effected
      by Austral at a purchase price of $2.50 per unit. Each unit consisted of
      one common share of Austral and one half of one share purchase warrant,
      with each warrant entitling the Company to purchase one common share of
      Austral at a price of $3.50 per share for one year subject to an
      accelerated expiry if a trigger price of $4.50 is reached in the first
      twelve months from the issue date. The warrants subsequently expired as
      they were not exercised; and
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|d) | sold 1,000,000 shares of TAG with a book value of
      $500,000 for proceeds of $1,141,581, for a gain over book value of
      $641,581. The Company acquired these shares in the 2005 fiscal year by
      participating in a private placement, purchasing 500,000 units from TAG at
      a purchase price of $0.40 per unit. Each unit consisted of
  one                                                                                                                                                                                                        

---

- 20 -

share and one share purchase warrant,
with each warrant entitling the Registrant to purchase one common share of TAG
at a price of $0.60 per share in the first year and $0.80 in the second year,
subject to accelerated expiry if a trigger price of $1.00 was reached in year
one or a trigger price of $1.20 was reached in year two. The Registrant
exercised the warrants during the 2006 fiscal year at a price of $0.60 per
share.

During the 2005 fiscal year the Registrant:

|a) | sold 788,800 shares of Austral, with a book value of
      $998,160 or $1.27 per share, for $2,216,479, or approximately $2.81 per
      share, resulting in a gain over carrying value of $1,218,319. The proceeds
      from the sale of this investment and additional working capital were used
      to exercise 836,845 Austral share purchase warrants at an exercise price
      of $1.50 per share. The Registrant also exercised 382,750 Austral share
      purchase warrants at an exercise price of NZ$2.10 per share;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|b) | through its then-subsidiary, AMG, sold a total of 100,000
      shares of Gondwana with a book value of $10,000, for proceeds of $6,000
      resulting in a loss of $4,000; and                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|c) | as described above, purchased 500,000 units of TAG in a
      private placement at a purchase price of $0.40 per
unit.                                                                                                                                                                                                                                                                                                                                                                                                             

Summary:

Our financing and investing activities during the twelve months
ended July 31, 2006 resulted in a net increase in cash of $261,352, compared to
a net increase in cash of $121,595 for the comparable period ended July 31, 2005
and a net decrease in cash of $157,448 for the comparable period ended July 31,
2004.

Management is of the view that conventional debt financing is
unavailable to exploration stage resource companies such as our Company.
Accordingly, we have depended largely on unregistered private placement
financing from investors who are either existing contacts of our management or
who have come to our attention through brokers, financial institutions and other
intermediaries. Our access to capital is always dependent upon general financial
market conditions. Our capital resources have not changed during our 2006 fiscal
year, nor are they anticipated to change during the 2007 fiscal year.

Anticipated Total Work Obligations Before July 31, 2007 (As
at July 31, 2006)

The anticipated total work obligations before July 31, 2007 as
at July 31, 2006 was nil.

Subsequent to the 2006 fiscal year-end, the Registrant acquired
a 100% interest in two petroleum exploration permits in New Zealand that have
work obligations for the year amounting to a total of $230,000. The work program
associated with both permits, as detailed above, consists of seismic
reprocessing and structural, stratigraphic and reservoir sampling and
analysis.

Our current working capital is sufficient to meet our
anticipated capital expenditures for the remainder of the 2007 fiscal year, as
estimated at the date of this annual report.

Research and Development, Patents and Licences

Not applicable.

Trend Information

Due to the Registrants significant investment in common shares
of Austral, the market price of Australs common shares, as well as the
volatility and liquidity of the markets on which the shares trade, are important
trends to the Registrant. Australs common shares are listed for trading on AMEX
under the symbol AEN, and on the New Zealand Stock Exchange and the TSX
Venture Exchange under the symbol APX. Trading of Australs common stock on
AMEX has been somewhat volatile and thin. During the period between January 1,
2006 and January 8, 2007, the closing prices of Australs common shares have
ranged from a high of US$3.02 on April 10, 2006 to a low of

---

- 21 -

US$1.11 on July 21, 2006; the closing price of Australs common
shares on January 8, 2007 was $1.67. Daily trading volumes on AMEX during this
same period have ranged from no shares to 285,000 shares.

Exchange rate fluctuation is expected to become more important
to the Registrant during the 2007 fiscal year as we hold our cash in CAD$ and
US$ and will be incurring our exploration expenditures in NZ$. During the period
between January 1, 2006 and January 8, 2007, the U.S. dollar equivalents of
NZ$1.00, based on the noon buying rate in New York, as certified by the New York
Federal Reserve Bank for customs purposes, ranged from US$0.5958 (on June 29,
2006) to US$0.7084 (on January 2, 2007). On January 8, 2007, U.S. dollar
equivalent of NZ$1.00 was US$0.6880, based on the noon buying rate in New York.

Off-Balance Sheet Arrangements

The Registrant does not have any 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.

Tabular Disclosure of Contractual Obligations

Payments due by periodContractual Obligations
    Total
    Less than 1 year
    1-3 years
    3-5 years
    More than 5 yearsLong-Term Debt Obligations
    -
    -
    -
    -
    -Capital finance/lease
    -
    -
    -
    -
    -Operating lease
    -
    -
    -
    -
    -Permit obligations
    230,000
    230,000
    -
    -
    -Purchase obligations
    -
    -
    -
    -
    -Other long-term liabilities reflected on
      the Registrants balance sheet under the GAAP of the primary
      financial statements
    -
    -
    -
    -
    -Total
    230,000
    230,000
    -
    -
    -


Commitments beyond the 2007 fiscal year are summarized above
under Item 4D. Property, Plan and Equipment and are subject to change as
exploration work continues and the Registrant acquires new information on its
exploration permits to determine whether the permits are sufficiently
prospective to commit to the Year 2 and Year 3 work programs specified for that
year, as detailed above.

|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND
      EMPLOYEES
|------- | ------------------------------------------------

|A. | Directors and Senior Management
|-- | -------------------------------

At December 29, 2006, the directors and officers of the
Registrant were:

|                                                |                                                                 | Office Held
|----------------------------------------------- | --------------------------------------------------------------- | -----------
|Name and Municipality of Residence              | Position Held                                                   | Since      
|                                                |                                                                 |            
|Mr. Peter Loretto, (1) Vancouver, B.C.          | President, Chief Executive
      Officer and Director           | 2003       
|                                                |                                                                 |            
|Mr. Barry MacNeil, Surrey, B.C.                 | Corporate Secretary, Chief
      Financial Officer and Director | 2004       
|                                                |                                                                 |            
|Mr. Michael Hart, (1) Roberts Creek,
      B.C. | Director                                                        | 1999       

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- 22 -

|                                                         |               | Office Held
|-------------------------------------------------------- | ------------- | -----------
|Name and Municipality of Residence                       | Position Held | Since      
|                                                         |               |            
|Dr. David Bennett, (1) (2) Wellington,
      New Zealand | Director      | 2006(3)    

|Notes: |                                                                                                                                 
|------ | --------------------------------------------------------------------------------------------------------------------------------
|(1)    | Member of audit committee.                                                                                                      
|(2)    | David Bennett was appointed as a Director of the
      Registrant on August 23, 2006.                                           
|(3)    | David Bennett previously served as a Director of
      the Registrant during the period from November 7, 1996 to April 20, 2001.

All nominated directors were re-elected on January 12, 2007 and
have a term of office expiring at the next annual meeting of the Registrant. On
August 23, 2006, David Bennett was appointed as a Director of the Registrant.
Subsequently, Douglas Lynes resigned as a Director of the Registrant on October
6, 2006. All officers have a term of office lasting until their removal or
replacement by the board of directors.

Mr. Peter Loretto obtained a Masters of Business Administration
from Gonzaga University, Spokane Washington in 1984 and has been the
Registrants President, Chief Executive Officer and a director since May 12,
2003. Mr. Loretto is also the principal shareholder of the Corporation. For the
last fifteen years, Mr. Loretto has worked as an independent businessman and
investor, within the securities sector as well as participating in other
business opportunities.

Mr. Barry MacNeilis an accountant who has over
fifteen years experience in public practice and is an independent businessman
and investor. Additionally, Mr. MacNeil has worked as a Corporate Accountant for
a group of companies involved in sales and services of mining equipment to the
international mining industry and a lumber company with export sales to Japan,
Europe and Australia. Mr. MacNeilhas been the Registrants
Corporate Secretary, Chief Financial Officer and a Director since October 27,
2004.

Mr. Michael Hart has been a director of the Registrant since
December 13, 1999. From April 1999 until present, Mr. Hart has held the position
of President of Hart-Byrne Enterprises Ltd. Hart-Byrne Enterprises Ltd. is a
private company formed by Mr. Hart and other investors, which is developing
specialized products for the music industry. Mr. Hart is also President of On
The Wing Productions Inc., a private company, which is also developing products
for the music industry. Mr. Hart the President, Corporate Secretary, Treasurer
and a director of AMG Oil Ltd., and is the Corporate Secretary and a director of
Entourage Mining Ltd.

Dr. David Bennett joined the board of directors on August 23,
2006. Dr. Bennett received a BA (Natural Sciences) from Cambridge University in
1968, an M SC in Exploration Geophysics from the University of Leeds and a
doctorate in Geophysics from the Australian National University with
post-doctoral work at the University of Texas in 1973. Dr. Bennett has over
thirty years of technical and operational experience in the oil and gas industry
and has played a major role in the discovery and development of several oil and
gas fields in the Australasian region. In addition, Dr. Bennett was a co-founder
and the Chief Executive Officer of Austral Pacific Energy Ltd.

The Registrant does not have liability insurance to cover its
directors and officers in the performance of their duties. To date, no
agreements to contractually provide indemnities have been executed or delivered.

|B. | Compensation
|-- | ------------

The following table sets forth the aggregate compensation paid
by our company for services rendered during the last full fiscal years
indicated:

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- 23 -

SUMMARY COMPENSATION TABLE

Named Executive Officer and Principal
      Position
    Year Ended
    Compensation
    Securities Under OptionSalary ($)
    Other Annual Compensation ($)
    Number of Options
    Exercise Price
    Expiry DatePeter Loretto, President, Chief Executive Officer,
      Director (1)
    2006 2005 2004
    60,000 20,000 -
    - - -
    - - -
    - - -
    - - -Barry MacNeil Secretary, Chief Financial Officer,
      Director(2)
    2006 2005 2004
    - - -
    900 (3)2,135 (3)-
    - - -
    - - -
    - - -Garth Johnson Secretary, Chief Financial Officer,
      Director (1)(2)
    2006 2005 2004
    - 4,454 9,056
    - - -
    - - -
    - - -
    - - -


| | (1) | Mr. Loretto became President and Chief Executive officer
      of the Registrant on May 12, 2003 replacing Mr. Johnson. Mr. Loretto also
      became a Director of the Registrant on May 12, 2003.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Mr. Johnson resigned as the Registrants Corporate
      Secretary, Chief Financial Officer and Director on October 27, 2004 and
      was replaced by Mr. MacNeil.                                
| | (3) | These funds represent fees for accounting services
      provided to the Registrant.                                                                                                               

The majority of the Registrants executive officers and
directors also serve as officers or directors of other companies or have other
occupations.

With the exception of Mr. Loretto, the Chief Executive Officer,
the Registrant did not pay regular remuneration to its executive officers during
the fiscal year ended July 31, 2006. The Registrant pays $5,000 per month to PCL
Holdings Ltd., a private company that is wholly owned by Mr. Loretto, in
consideration for Mr. Lorettos services as Chief Executive Officer on a
part-time basis and additionally as necessary.

During the year ended July 31, 2006, no other cash
compensation, including salaries, fees, commissions, and bonuses was paid to the
directors and officers for services rendered, nor was any remuneration paid to
directors. The Registrant currently does not offer profit sharing, pension or
retirement benefit plans to its officers or directors and none are presently
proposed. There are no arrangements for payments on termination for any officer
in the event of a change of control.

|C. | Board Practices
|-- | ---------------

All directors have a term of office expiring at our next annual
general meeting which is anticipated to take place in early 2008, unless
re-elected or unless a director's office is earlier vacated in accordance with
our Articles or the provisions of the Business Corporations Act(British
Columbia).

All officers have a term of office lasting until their removal
or replacement by the board of directors. As of December,29, 2006 the
following are the Registrants officers and directors.

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- 24 -

| | Name                                                                     | Period served in position
| | ------------------------------------------------------------------------ | -------------------------
| |                                                                          |                          
| | Peter Loretto (1), President, Chief
      Executive Officer and Director | 31 months                
| |                                                                          |                          
| | Barry MacNeil, Secretary, Chief Financial
      Officer and Director     | 26 months                
| |                                                                          |                          
| | David Bennett (1), Director                                              | 4 months                 
| |                                                                          |                          
| | Michael Hart (1), Director                                               | 72 months                

| | (1) | member of the audit committee
| | --- | -----------------------------

As indicated above, the Registrant pays $5,000 per month to PCL
Holdings, a private company that is wholly owned by Peter Loretto, in
consideration for Mr. Lorettos services as Chief Executive Officer. The Mr.
Loretto is entitled to 12 months notice on any change in responsibilities as
Chief Executive Officer.

Following Dr. Bennetts appointment as a Director on August 23,
2006, the Registrant verbally agreed with Dr. Bennett that he would provide
management services of a technical nature to the Registrant for a two-year
period in consideration of a monthly fee of $5,000 per month, a gross overriding
royalty of 0.5% on the Registrants two New Zealand petroleum exploration
permits, PEP 38348 and 38349 and he would be granted 200,000 options in the
Registrant that vest over two years and are exercisable at $1.00 per share for
five years from the date of grant. An additional 200,000 options can be earned
subject to certain criteria being met related to the Registrants performance.
As a result of Dr. Bennetts increasing involvement with the Registrant the
verbally agreed terms described above are being renegotiated to reflect the
increased involvement and time commitment required of Dr. Bennett by the
Registrant. A form 6-K filing will be made when the revised services agreement
is settled.

Audit and Remuneration Committees

List of Audit Committee members as at December29, 2006:

Peter Loretto David Bennett
Michael Hart

Audit Committee members do not have service contracts and are
not paid for their services as an audit committee member. The committee is
constituted to monitor the veracity of the financial and regulatory reports
produced by the Registrant, and the controls that are in place to ensure the
opportunities for fraud or material error in the financial statements of the
Registrant are minimized.

Our board of directors has determined that Mr. Hart and Dr.
Bennett are both independent according to the standards for audit committee
member independence prescribed by the American Stock Exchange.

Please refer to Exhibits for a copy of the Registrants Audit
Committee Charter.

The Registrant does not have a remuneration committee.
Currently any material commitments, inclusive of remuneration, are required to
be pre-approved by the board of directors.

|D. | Employees
|-- | ---------

The Registrant currently has no full-time employees. Mr.
Loretto provides his services to the Registrant as Chief Executive Officer on a
part-time basis through his wholly-owned private company, as described above. In
addition, three other persons provide substantial administrative services to the
Registrant and are employed through its wholly owned subsidiary DLJ Management
Corp.

---

- 25 -

Share ownership by officers and directors at December 29,
2006 are as follows:

Name
    Number of Shares
    Number of Warrants(1)
    Number of Options
    Exercise Price of
      Warrants/Options
    Expiry Date of
      Warrants/OptionsPeter Loretto
      8,645,143
      100,000
    -
      $1.35/$0.00
      July 18, 2008/-David Bennett
    71,000
    71,000
    200,000
    $0.70/$1.00
    Aug 30, 2008/Nov 1, 2011Barry MacNeil
    14,972
    10,000
    -
    $0.70/$0.00
    Aug 30, 2008/-Michael Hart
    -
    -
    -
    -
    -


(1) Subject to certain accelerated expiry provisions
as detailed above.

There were no directors and senior officers options granted
or exercised in the years ended July 31, 2006 or 2005 and there were no
outstanding stock options to management. Subsequent to July 31, 2006, Dr.
Bennett was granted 200,000 options exercisable at a price $1.00 per share,
vesting over two years.

The Registrant has no defined plan for involving employees in
the capital of the Registrant. The Registrant may, at the discretion of the
board of directors, grant incentive stock options to its officers, directors,
employees and consultants, for the purchase of shares in the Registrant. Stock
options are in consideration for services and are non-transferable. The Board of
Directors of the Registrant determines the exercise price.

Vesting of options may be made at the time of granting of the
options or over a period of up to five years as set out in each option
agreement. Once approved and vested, options are exercisable at any time until
expiry or termination as above.

|ITEM 7. | MAJOR SHAREHOLDERS AND RELATED
      TRANSACTIONS
|------- | -------------------------------------------------

|A. | Major shareholders
|-- | ------------------

Beneficial Holders of More Than Five Percent of Outstanding
Shares

The following schedule sets forth the common share ownership of
each person known by us to be the beneficial owner of 5% or more of the
Registrants common share.

Security Held by Certain Beneficial Owners

|Name and
      Address of Owner | Number of Shares | Percentage of Class
|------------------------------- | ---------------- | -------------------
|Alex Guidi Vancouver, B.C.      | 5,088,382 (1)    | 13.32%             
|Peter Loretto Vancouver, B.C.   | 8,745,143 (2)    | 23.62%             
|Lukas H. Lundin                 | 10,000,000 (3)   | 24.10%             

---

- 26 -

|Name and
      Address of Owner | Number of Shares | Percentage of Class
|------------------------------- | ---------------- | -------------------
|Vancouver, B.C.                 |                  |                    

(1)Includes 1,700,000 share purchase warrants that
can be exercised within 60 days.

(2)Includes 100,000 share purchase warrants that
can be exercised within 60 days.

(3)Includes 5,000,000 share purchase warrants that
can be exercised within 60 days.

To the knowledge of the Registrant, there have been no
significant changes in percentage share ownership held by any major
shareholders, during the last three years with the exception of Mr. Lorettos
purchase of 7,154,000 shares (pre-split 1,022,000 shares) of the Registrant from
the Registrants former principal shareholder, Mr. Guidi, in December of 2003,
and Mr. Lundins purchase of 5,000,000 units of the Registrant pursuant to a
private placement that was completed in September of 2006.

Insider Reporting

The Business Corporations Act (British Columbia) does
not prescribe any reporting requirements for insiders of our company. We are a
reporting issuer in British Columbia and insiders comply with the requirements
of Part 12 of the Securities Act (British Columbia). Insiders (generally
officers, directors and holders of more than ten percent of voting securities)
are required to file individual insider reports of changes in their ownership
within ten days after any trade in our securities occurs. Copies of the reports
and summaries of the insider activity as well as issuer activity are available
for public inspection at www.sedi.com, the Canadian regulatory website
for insider trading.

Major Shareholder Voting Right

There are no different voting rights, attributable to the major
shareholders and every shareholder has equal rights.

Host Country Shareholders

The proportion and number of shareholders in the host country
as at December 29, 2006, are as follows (based on a shareholders list provided
by the Registrants transfer agent):

| | Proportion of shares held in the U.S. | 4.5%     
| | ------------------------------------- | ---------
| | Number of shareholders                | 378      
| | Number of shares held                 | 1,377,802

Arrangements Affecting Shareholdings

There are no known arrangements, which would significantly
affect the control of the major shareholder.

Associated Company/Related Party Shareholdings

At December 29, 2006, Mr. Loretto was a significant shareholder
of Austral and personally held 667,950 common shares (2.41%) of that company. In
addition, Mr. Loretto beneficially owned, through his controlling interest in
the Registrant, 3,110,240 common shares (11.2%) of Austral. The combined total
of 3,778,190 represents a 13.61% ownership interest of Austral on an undiluted
basis, and is believed by the Registrant to be sufficient to allow Mr. Loretto
and the Registrant to have significant influence over Austral.

At the beginning of the 2006 fiscal year, the Registrant was a
controlling shareholder of AMG owning 8,200,000 common shares or 49.4% of AMG.
During the 2006 fiscal year the Registrant sold 7,373,589 shares of AMG for
aggregate proceeds of $133,695. The Registrant now owns 826,431 (3.66%) shares
of AMG and as a result the

---

- 27 -

Registrant no longer controls AMG. Mr. Michael Hart, a director
of the Registrant, is also the President, Corporate Secretary, Treasurer and a
director of AMG.

|B. | Related Party Transactions
|-- | --------------------------

The following are reported as Related Party Transactions. The
nature of the transaction, the affiliate(s) who had an interest in the
transaction and the nature of the interest are included in the description of
each of the transactions:

Subsequent events:a) Subsequent to our year end on July
31, 2006, and following Dr. Bennetts appointment as a Director on August 23,
2006, the Registrant verbally agreed with Dr. Bennett that he would provide
management services of a technical nature to the Registrant for a two-year
period in consideration of a monthly fee of $5,000 per month, a gross overriding
royalty of 0.5% on the Registrants two New Zealand petroleum exploration
permits, PEP 38348 and 38349 and he would be granted 200,000 options in the
Registrant that vest over two years and are exercisable at $1.00 per share for
five years from the date of grant. An additional 200,000 options can be earned
subject to certain criteria being met related to the Registrants performance.
As a result of Dr. Bennetts increasing involvement with the Registrant, the
verbally agreed terms described above are being renegotiated to reflect the
increased involvement and time commitment required of Dr. Bennett by the
Registrant. A form 6-K filing will be made when the revised services agreement
is settled.

b) On October 17, 2006, the Registrant participated in a
private placement financing in Austral, acquiring 1,395,000 shares of Austral
Pacific at a purchase price of US$1.30 per share.

c) On August 30, 2006 the Registrant completed a private
placement financing of 12,972,142 units of the Registrant as detailed above. Two
Directors of the Company at the time of the financing acquired a total of 20,000
of these units. Dr. Bennett, who was subsequently appointed to the board of the
Registrant acquired 71,000 units.

d) On January 17, 2007 the Registrant completed a private
placement financing of 5,905,000 units of the Registrant as detailed above. One
Director of the Company acquired a total of 200,000 of these units.

Fiscal Year Ended July 31, 2006:

a) The Registrant participated in a private placement financing
in Austral during the 2006 fiscal year by acquiring 200,000 units of Austral at
$2.50 per unit. Each unit consisted of one share and one half of one share
purchase warrant, with each warrant entitling the Registrant to purchase an
additional share at a price of $3.50 per share for one year subject to an
accelerated expiry if a trigger price of $4.50 was reached in the first twelve
months from the issue date. The warrants subsequently expired on October 13,
2006 as they were not exercised.

b) On April 1, 2006, the Registrant extended for one-year
consulting agreement entered into during the 2005 fiscal year with PCL Holdings
Ltd., a private company wholly-owned by Peter Loretto, the Chief Executive
Officer of the Registrant. Pursuant to this agreement, the Registrant pays PCL
Holdings a monthly fee of $5,000 in consideration of Mr. Lorettos services as
Chief Executive Officer on a part-time basis and additionally as necessary. This
agreement is extendable for another one year period if agreed to by both
parties. This contract provides for 12 months notice on any change in
responsibilities for the Chief Executive Officer.

c) During the 2006 fiscal year, the Registrant paid $900 (2005:
$2,135, 2004: Nil) for hourly consulting fees to a current director of the
Registrant.

d) Austral paid $1,500 per month to DLJ Management Corp., a
wholly owned subsidiary of the Registrant, for a portion of DLJs overhead in
relation to work performed by DLJ on Australs behalf. The arrangement was
terminated on January 1, 2006.

|C. | Interests of experts and counsel
|-- | --------------------------------

Not applicable.

---

- 28 -

|ITEM 8. | FINANCIAL INFORMATION
|------- | ---------------------

Consolidated Statements and Other Financial Information

Consolidated financial statements are provided under PART III.
Item 17. FINANCIAL STATEMENTS

There are no material legal proceedings to which the Registrant
is subject or which are anticipated or threatened.

The Registrant has never paid dividends to shareholders nor is
there a policy in place to do so. All cash flow derived by the Registrant is
re-invested in the Registrants operations.

Significant Changes since July 31, 2006:

The Registrant appointed David Bennett as a Director and to the
audit committee of the Registrant on August 23, 2006. In addition, the
Registrant entered into a verbal agreement with Dr. Bennett to provide services
of a technical nature to the Registrant as detailed above that, at the date of
this report, is being renegotiated.

On August 30, 2006, the Registrant completed a private
placement financing for 12,972,142 units of the Registrant at a purchase price
of $0.35 per unit, for proceeds of $4,540,250. Each unit consists of one common
share and one share purchase warrant. Each share purchase warrant allows the
holder to acquire an additional common share of the Registrant at a price of
$0.70 per share for two years from the closing date of August 30, 2006. At the
Registrants option, and after the applicable resale restricted period has
expired, the warrants expiry date can be accelerated on 30 days notice, should
the Registrants shares trade at or higher than $1.25 for ten consecutive
trading days.

On October 6, 2006, Douglas Lynes resigned as a Director of the
Registrant.

On October 17, 2006, the Registrant participated in a private
placement financing, acquiring 1,395,000 common shares of Austral at a purchase
price of US$1.30 per share.

The Company was awarded 100% interest in two onshore petroleum
exploration permits, PEP 38348 and 38349, located in the East Coast basin of New
Zealand.

On January 17, 2007 the Registrant completed a private
placement financing of. 5,905,000 units at a purchase price of $1.00 per unit,
for gross proceeds of $5,905,000. Each unit consists of one common share and one
half of one share purchase warrant. Each full share purchase warrant allows the
holder to acquire an additional common share of the Registrant at a price of
$1.35 per share for eighteen months from the closing date. At the Registrants
option, and after the applicable resale restricted period has expired, the
warrants expiry date can be accelerated on 30 days notice, should the
Registrants shares trade at or higher than $1.75 for ten consecutive trading
days.

No other significant changes material to the business of the
Registrant has occurred since the date of the annual financial statements.

|ITEM 9. | THE OFFER AND LISTING
|------- | ---------------------

Offer and Listing Details

There is no offering of stock hereunder. This is an annual
report only.

Price History of the stock

The Registrant voluntarily delisted its shares from the
Canadian Venture Exchange (CDNX) in Vancouver, British Columbia, Canada on
July 31, 1997. The Registrants shares commenced trading on the OTC Bulletin
Board (OTCBB) on June 10, 1997, under the symbol TEPUF. The trading symbol
was subsequently changed to TOPXF on March 1, 2001, concurrent with the 1 for
12 share consolidation approved by the Registrants shareholders on January 17,
2001. Concurrent with a further 1 for 3 share consolidation approved by
shareholders on January 18, 2002

---

- 29 -

the Registrants symbol was changed to TOPTF on the effective
date of the consolidation being April 4, 2002. On May 26, 2004 the Registrants
symbol was changed to TOPLF. On March 30, 2006 the Registrant subdivided its
common shares on a seven new for one old basis.

All values noted below are in US dollars per share:

Summary trading by year, for the five most recently competed
fiscal periods ending July 31, 2006.

|     | OTCBB      |          
|---- | ---------- | ---------
|     |            |          
|Year | High (1,2) | Low (1,2)
|2002 | 1.01       | 0.12     
|2003 | 1.52       | 0.35     
|2004 | 0.90       | 0.10     
|2005 | 6.00       | 0.44     
|2006 | 3.00       | 0.26     

Summary trading by quarter for the two most recently competed
fiscal periods ending July 31, 2006.

|                 | OTCBB      |          
|---------------- | ---------- | ---------
|Year and Quarter | High (1,2) | Low (1,2)
|                 |            |          
|2005             |            |          
|First Quarter    | 6.00       | 0.40     
|Second Quarter   | 2.00       | 1.16     
|Third Quarter    | 2.40       | 1.12     
|Fourth Quarter   | 2.00       | 1.10     
|                 |            |          
|2006             |            |          
|First Quarter    | 2.00       | 1.35     
|Second Quarter   | 2.00       | 1.05     
|Third Quarter    | 3.00       | 0.26     
|Fourth Quarter   | 0.74       | 0.27     

Summary trading by quarter for any full quarter subsequent to
the year end July 31, 2006.

|                 | OTCBB      |          
|---------------- | ---------- | ---------
|First Quarter    | High (1,2) | Low (1,2)
|Aug 1 to Oct 31, | 0.89       | 0.36     
|2006             |            |          

Summary trading by month for the six most recently completed
months ending October 31, 2006.

|          | OTCBB      |          
|--------- | ---------- | ---------
|          |            |          
|Month     | High (1,2) | Low (1,2)
|          |            |          
|May 2006  | 0.74       | 0.35     
|June 2006 | 0.50       | 0.30     
|July 2006 | 0.45       | 0.27     

---

- 30 -

|               | OTCBB      |          
|-------------- | ---------- | ---------
|               |            |          
|Month          | High (1,2) | Low (1,2)
|August 2006    | 0.68       | 0.36     
|September 2006 | 0.89       | 0.55     
|October 2006   | 0.85       | 0.60     

|(1) | OTCBB quotations may reflect interdealer prices, without
      retail Markup, mark-down or commission and may not necessarily reflect
      actual transactions.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | All quotations are from the Yahoo Finance website located
      at www.yahoo.com.                                                                               

Plan of Distribution

Not applicable.

Markets

The authorized capital of the Registrant consists of an
unlimited number of common shares without par value, of which 36,495,225 common
shares were issued and outstanding on January 17, 2007.

The Registrants shares trade on the OTC Bulletin Board
(OTCBB) under the symbol TOPLF.

|ITEM 10. | ADDITIONAL INFORMATION
|-------- | ----------------------

|A. | Share Capital
|-- | -------------

Not applicable.

|B. | Memorandum and Articles of Association
|-- | --------------------------------------

On January 16, 2006 the Registrant was continued out of the
jurisdiction of the Yukon Territory and into British Columbia. It is now a
company subsisting under Business Corporations Act (British Columbia)
(the New BC Act) which replaced the Company Act (British Columbia) in
2004. The Registrants Notice of Articles has been filed with the British
Columbia Registrar of Companies under the New BC Act, and constitutes the
primary charter document of the Registrant. The Registrant has also adopted the
new Articles in the form approved by the shareholders at the annual and special
meeting held on January 12, 2006, which replaced the Registrants former
by-laws. See also Item 4 of this Annual Report under the heading History and
Development of the Registrant.

Details of the Registrants Notice of Articles and Articles
were disclosed in the Registrants annual report on Form 20-F for the fiscal
year ended July 31, 2005, as filed with the US Securities and Exchange
Commission. A copy of each of the Notice of Articles and the Articles, as
approved by shareholders on January 12, 2006, was attached as an exhibit to the
Registrants annual report on 20-F for the fiscal year ended July 31, 2005.
There have been no changes to the Notice of Articles or Articles since then.

|C. | Material Contracts
|-- | ------------------

The following summary of our material agreements does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of those agreements. The agreements are filed
as exhibits to this annual report or have been filed as exhibits to annual
reports for prior fiscal years. There are no material contracts, other than
those contracts entered into in the ordinary course of business, currently in
place or to which we or any member of our group is a party, from the two years
immediately preceding the publication of this annual report, except as follows:

|1. | Pursuant to a private placement subscription agreement
      dated October 2005, we subscribed for 200,000 units of Austral at a
      purchase price of US$2.50 per unit. Each unit consisted of one share and
      one half of one share
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

- 31 -

|   | purchase warrant, with each warrant entitling us to
      purchase one common share at a price of US$3.50 per share for one year
      subject to an accelerated expiry if a trigger price of US$4.50 was reached
      in the first twelve months from the issue date. The warrants subsequently
      expired as they were not exercised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|2. | Pursuant to a private placement subscription agreement
      dated October 17, 2006, we purchased 1,395,000 common shares of Austral at
      a purchase price of US$1.30 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3. | We have entered into a consulting agreement dated April
      1, 2005 with PCL Holdings Ltd, a private company that is wholly-owned by
      Peter Loretto, our Chief Executive Officer. We pay $5,000 per month to PCL
      Holdings in consideration for Mr. Lorettos services as Chief Executive
      Officer on a part-time basis and additionally as necessary. The agreement
      was extended for a one year period effective April 1, 2006 and is
      extendable for another one year period if agreed to by both parties. This
      contract provides for 12 months notice on any change in Mr. Lorettos
      responsibilities. This agreement has been previously filed.                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4. | Pursuant to private placement subscription agreements
      entered into between our Company and various investors dated for reference
      August 10, 2006, we issued 12,972,142 units at a purchase price of $0.35
      per unit, for gross proceeds of $4,540,250. Each unit consisted of one
      common share and one share purchase warrant. Each warrant entitles the
      holder to acquire an additional common share of the Registrant at a price
      of $0.70 per share for two years from the closing date of August 30, 2006.
      At the Registrants option, and after the four- month hold period
      prescribed under British Columbia securities laws has expired, the expiry
      date of the warrants can be accelerated on 30 days notice, should the
      Registrants shares trade at or higher than $1.25 for ten consecutive
      trading days.                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|5. | Pursuant to private placement subscription agreements
      entered into between our Company and various investors dated for reference
      November 18, 2006, we issued 5,905,000 units at a purchase price of $1.00
      per unit, for gross proceeds of $5,905,000. Each unit consisted of one
      common share and one-half of one share purchase warrant. Each full warrant
      entitles the holder to acquire an additional common share of the
      Registrant at a price of $1.35 per share for eighteen months from the
      closing date of January 18, 2007. At the Registrants option, and after
      the four-month hold period prescribed under British Columbia securities
      laws has expired, the expiry date of the warrants can be accelerated on 30
      days notice, should the Registrants shares trade at or higher than $1.75
      for ten consecutive trading days.

|D. | Exchange Controls
|-- | -----------------

There is no law or governmental decree or regulation in Canada
that restricts the export or import of capital, or affects the remittance of
dividends, interest or other payments to a non-resident holder of common shares
of the Registrant, other than withholding tax requirements. See Taxation.

There is no limitation imposed by Canadian law or by the
charter or other constituent documents of the Registrant on the right of a
non-resident to hold or vote common shares of the Registrant, other than as
provided in the Investment Canada Act (Canada) (the Investment
Act).

The following discussion summarizes the principal features of
the Investment Act for a non-resident who proposes to acquire common shares of
the Registrant. It is general only, it is not a substitute for independent
advice from an investors own advisor, and it does not anticipate statutory or
regulatory amendments.

The Investment Act generally prohibits implementation of a
reviewable investment by an individual, government or agency thereof,
corporation, partnership, trust or joint venture (each an entity) that is not
a Canadian as defined in the Investment Act (a non-Canadian), unless after
review the Director of Investments appointed by the minister responsible for the
Investment Act is satisfied that the investment is likely to be of net benefit
to Canada. The size and nature of a proposed transaction may give rise to an
obligation to notify the Director and seek an advance ruling. An investment in
common shares of the Registrant by a non-Canadian other than a WTO Investor
(as defined in the Investment Act and which term includes entities which are
nationals of or are controlled by nationals of member states of the World Trade
Organization) when the Registrant was not controlled by a WTO Investor, would be
reviewable under the Investment Act if it was an investment to acquire control
of the Registrant and the value of the assets of the

---

- 32 -

Registrant, as determined in accordance with the regulations
promulgated under the Investment Act, was over a certain figure, or if an order
for review was made by the federal cabinet on the grounds that the investment
related to Canadas cultural heritage or national identity, regardless of the
value of the assets of the Registrant. An investment in common shares of the
Registrant by a WTO Investor, or by a non-Canadian when the Registrant was
controlled by a WTO Investor, would be reviewable under the Investment Act if it
was an investment to acquire control of the Registrant and the value of the
assets of the Registrant, as determined in accordance with the regulations
promulgated under the Investment Act, exceeds a specified amount, which in 2006
is CAD$265 million (2005: CAD$250 million; 2004: CAD$237 million). A
non-Canadian would acquire control of the Registrant for the purposes of the
Investment Act through acquisition of common shares if the non-Canadian acquired
a majority of the common shares of the Registrant. The acquisition of less than
a majority but one third or more of the common shares of the Registrant would be
presumed to be an acquisition of control of the Registrant unless it could be
established that, on the acquisition, the Registrant was not controlled in fact
by the acquirer through the ownership of common shares.

Certain transactions relating to common shares of the
Registrant would be exempt from the Investment Act, including

(a) acquisition of common shares of the Registrant by a person
in the ordinary course of that persons business as a trader or dealer in
securities,

(b) acquisition of control of the Registrant in connection with
the realization of security granted for a loan or other financial assistance and
not for a purpose related to the provisions on the Investment Act, and

(c) acquisition of control of the Registrant by reason of an
amalgamation, merger, consolidation or corporate reorganization following which
the ultimate direct or indirect control in fact of the Registrant, through the
ownership of common shares, remained unchanged.

|E. | Taxation
|-- | --------

Canadian Tax Consequences

The following summarizes the material Canadian federal income
tax consequences generally applicable to the holding and disposition of the
Registrants common shares by a holder (in this summary, a U.S. Holder) who,
(a) for the purposes of the Income Tax Act (Canada) (the Tax Act), is not
resident in Canada, deals at arms length with the Registrant, holds the common
shares as capital property and does not use or hold the common shares in the
course of carrying on, or otherwise in connection with, a business in Canada,
and (b) for the purposes of the Canada-United States Income Tax Convention, 1980
(the Treaty), is a resident solely of the United States, has never been a
resident of Canada, and has not held or used (and does not hold or use) common
shares in connection with a permanent establishment or fixed base in Canada.
This summary does not apply to traders or dealers in securities, limited
liability companies, tax-exempt entities, insurers, financial institutions
(including those to which the mark-to-market provisions of the Tax Act apply),
or any other U.S. Holder to which special considerations apply.

This summary is based on the current provisions of the Tax Act
including all regulations thereunder, the Treaty, all proposed amendments to the
Tax Act, the regulations and the Treaty publicly announced by the Government of
Canada to the date hereof, and the current administrative practices of the
Canada Revenue Agency. It has been assumed that all currently proposed
amendments will be enacted as proposed and that there will be no other relevant
change in any governing law or administrative practice, although no assurances
can be given in these respects. The immediately following summary does not take
into account Canadian provincial, U.S. federal (which follows further below),
state or other foreign income tax law or practice. The tax consequences to any
particular U.S. Holder will vary according to the status of that holder as an
individual, trust, corporation, partnership or other entity, the jurisdictions
in which that holder is subject to taxation, and generally according to that
holders particular circumstances. Accordingly, this summary is not, and is not
to be construed as, Canadian tax advice to any particular U.S. Holder.

Dividends

Dividends paid or deemed to be paid to a U.S. Holder by the
Registrant will be subject to Canadian withholding tax. Under the Treaty, the
rate of withholding tax on dividends paid to a U.S. Holder is generally limited
to 15% of the gross

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amount of the dividend (or 5% if the U.S. Holder is a
corporation and beneficially owns at least 10% of the Registrants voting
shares). the Registrant will be required to withhold the applicable withholding
tax from any such dividend and remit it to the Canadian government for the U.S.
Holders account.

Disposition

A U.S. Holder is not subject to tax under the Tax Act in
respect of a capital gain realized on the disposition of a Common Share in the
open market unless the share is taxable Canadian property to the holder
thereof and the U.S. Holder is not entitled to relief under the Treaty. A common
share will be taxable Canadian property to a U.S. Holder if, at any time during
the 60 months preceding the disposition, the U.S. Holder or persons with whom
the U.S. Holder did not deal at arms length alone or together owned, or had
rights to acquire, 25% or more of the Registrants issued shares of any class or
series.

A U.S. Holder whose common shares do constitute taxable
Canadian property, and who might therefore be liable for Canadian income tax
under the Tax Act, will generally be relieved from such liability under the
Treaty unless the value of such shares at the time of disposition is derived
principally from real property situated in Canada. The value of the Registrants
common shares is not currently derived principally from real property situated
in Canada.

United States Tax Consequences

United States Federal Income Tax Consequences

The following summarizes the material United States federal
income tax consequences, under current law, generally applicable to a U.S.
Holder (as hereinafter defined) of common shares of the Registrant. This
discussion does not address all potentially relevant federal income tax matters
and it does not address consequences peculiar to persons subject to special
provisions of federal income tax law, such as those described below as excluded
from the definition of a U.S. Holder. In addition, this discussion does not
cover any state, local or foreign tax consequences. (see Taxation  Canadian
Federal Income Tax Consequences above). Accordingly, holders and prospective
holders of common shares of the Registrant should consult their own tax advisors
about the specific federal, state, local, and foreign tax consequences to them
of purchasing, owning and disposing of common shares of the Registrant, based
upon their individual circumstances.

The following discussion is based upon the sections of the
Internal Revenue Code of 1986, as amended (the Code), Treasury
Regulations, published Internal Revenue Service (IRS) rulings, published
administrative positions of the IRS and court decisions that are currently
applicable, any or all of which could be materially and adversely changed,
possibly on a retroactive basis, at any time and which are subject to differing
interpretations. This discussion does not consider the potential effects, both
adverse and beneficial, of any proposed legislation which, if enacted, could be
applied, possibly on a retroactive basis, at any time.

U.S. Holders

As used herein, a U.S. Holder means a holder of common shares
of the Registrant who is a citizen or individual resident of the United States,
a corporation or partnership created or organized in or under the laws of the
United States or of any political subdivision thereof, an estate whose income is
taxable in the United States irrespective of source or a trust subject to the
primary supervision of a court within the United States and control of a United
States fiduciary as described Section 7701(a)(30) of the Code. This summary does
not address the tax consequences to, and U.S. Holder does not include, persons
subject to specific provisions of federal income tax law, such as tax-exempt
organizations, qualified retirement plans, individual retirement accounts and
other tax-deferred accounts, financial institutions, insurance companies, real
estate investment trusts, regulated investment companies, broker-dealers,
non-resident alien individuals, persons or entities that have a functional
currency other than the U.S. dollar, shareholders subject to the alternative
minimum tax, shareholders who hold common shares as part of a straddle, hedging
or conversion transaction, and shareholders who acquired their common shares
through the exercise of employee stock options or otherwise as compensation for
services. This summary is limited to U.S. Holders who own common shares as
capital assets and who own (directly and indirectly, pursuant to applicable
rules of constructive ownership) no more than 5% of the value of the total
outstanding stock of the Registrant. This summary does not address the
consequences to a person

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or entity holding an interest in a shareholder or the
consequences to a person of the ownership, exercise or disposition of any
options, warrants or other rights to acquire common shares. In addition, this
summary does not address special rules applicable to United States persons (as
defined in Section 7701(a)(30) of the Code) holding common shares through a
foreign partnership or to foreign persons holding common shares through a
domestic partnership.

Distribution on Common Shares

In general, U.S. Holders receiving dividend distributions
(including constructive dividends) with respect to common shares of the
Registrant are required to include in gross income for United States federal
income tax purposes the gross amount of such distributions, equal to the U.S.
dollar value of such distributions on the date of receipt (based on the exchange
rate on such date), to the extent that the Registrant has current or accumulated
earnings and profits, without reduction for any Canadian income tax withheld
from such distributions. Such Canadian tax withheld may be credited, subject to
certain limitations, against the U.S. Holders federal income tax liability or,
alternatively, may be deducted in computing the U.S. Holders federal taxable
income by those who itemize deductions. (See more detailed discussion at
Foreign Tax Credit below). To the extent that distributions exceed current or
accumulated earnings and profits of the Registrant, they will be treated first
as a return of capital up to the U.S. Holders adjusted basis in the common
shares and thereafter as gain from the sale or exchange of property.
Preferential tax rates for long-term capital gains are applicable to a U.S.
Holder which is an individual, estate or trust. There are currently no
preferential tax rates for long-term capital gains for a U.S. Holder which is a
corporation.

In the case of foreign currency received as a dividend that is
not converted by the recipient into U.S. dollars on the date of receipt, a U.S.
Holder will have a tax basis in the foreign currency equal to its U.S. dollar
value on the date of receipt. Generally any gain or loss recognized upon a
subsequent sale or other disposition of the foreign currency, including the
exchange for U.S. dollars, will be ordinary income or loss. However, an
individual whose realized gain does not exceed $200 will not recognize that
gain, provided that there are no expenses associated with the transaction that
meet the requirements for deductibility as a trade or business expense (other
than travel expenses in connection with a business trip) or as an expense for
the production of income.

Dividends paid on the common shares of the Registrant generally
will not be eligible for the dividends received deduction provided to
corporations receiving dividends from certain United States corporations. A U.S.
Holder which is a corporation and which owns shares representing at least 10% of
the voting power and value of the Registrant may, under certain circumstances,
be entitled to a 70% (or 80% if the U.S. Holder owns shares representing at
least 20% of the voting power and value of the Registrant) deduction of the
United States source portion of dividends received from the Registrant (unless
the Registrant qualifies as a foreign personal holding company or a passive
foreign investment company, as defined below). the Registrant does not
anticipate that it will earn any United States income, however, and therefore
does not anticipate that any U.S. Holder will be eligible for the dividends
received deduction.

Under current Treasury Regulations, dividends paid on the
Registrants common shares, if any, generally will not be subject to information
reporting and generally will not be subject to U.S. backup withholding tax.
However, dividends and the proceeds from a sale of the Registrants common
shares paid in the U.S. through a U.S. or U.S. related paying agent (including a
broker) will be subject to U.S. information reporting requirements and may also
be subject to the 31% U.S. backup withholding tax, unless the paying agent is
furnished with a duly completed and signed Form W-9. Any amounts withheld under
the U.S. backup withholding tax rules will be allowed as a refund or a credit
against the U.S. Holders U.S. federal income tax liability, provided the
required information is furnished to the IRS.

Foreign Tax Credit

A U.S. Holder who pays (or has withheld from distributions)
Canadian income tax with respect to the ownership of common shares of the
Registrant may be entitled, at the option of the U.S. Holder, to either receive
a deduction or a tax credit for such foreign tax paid or withheld. Generally, it
will be more advantageous to claim a credit because a credit reduces United
States federal income taxes on a dollar-for-dollar basis, while a deduction
merely reduces the taxpayers income subject to tax. This election is made on a
year-by-year basis and generally applies to all foreign taxes paid by (or
withheld from) the U.S. Holder during that year. There are significant and
complex limitations which apply to the credit, among which is the general
limitation that the credit cannot exceed the proportionate share of the U.S.
Holders United States income tax liability that the U.S. Holders foreign
source income bears to his or its worldwide taxable income. In the determination
of the application of this limitation, the various items of income and deduction
must be

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classified into foreign and domestic sources. Complex rules
govern this classification process. In addition, this limitation is calculated
separately with respect to specific classes of income such as passive income,
high withholding tax interest, financial services income, shipping income,
and certain other classifications of income. Dividends distributed by the
Registrant will generally constitute passive income or, in the case of certain
U.S. Holders, financial services income for these purposes. The availability
of the foreign tax credit and the application of the limitations on the credit
are fact specific, and U.S. Holders of common shares of the Registrant should
consult their own tax advisors regarding their individual circumstances.

Disposition of Common Shares of the Registrant

In general, U.S. Holders will recognize gain or loss upon the
sale of common shares of the Registrant equal to the difference, if any, between
(i) the amount of cash plus the fair market value of any property received, and
(ii) the shareholders tax basis in the common shares of the Registrant.
Preferential tax rates apply to long-term capital gains of U.S. Holders which
are individuals, estates or trusts. In general, gain or loss on the sale of
common shares of the Registrant will be long-term capital gain or loss if the
common shares are a capital asset in the hands of the U.S. Holder and are held
for more than one year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders which are not corporations, any unused
portion of such net capital loss may be carried over to be used in later tax
years until such net capital loss is thereby exhausted. For U.S. Holders that
are corporations (other than corporations subject to Subchapter S of the Code),
an unused net capital loss may be carried back three years and carried forward
five years from the loss year to be offset against capital gains until such net
capital loss is thereby exhausted. However the amount that can be carried back
is limited to an amount that does not cause or increase a net operating loss in
the carry back year.

Other Considerations

Set forth below are certain material exceptions to the
above-described general rules describing the United States federal income tax
consequences resulting from the holding and disposition of common shares:

Foreign Personal Holding Company

If at any time during a taxable year more than 50% of the total
combined voting power or the total value of the Registrants outstanding shares
is owned, directly or indirectly (pursuant to applicable rules of constructive
ownership), by five or fewer individuals who are citizens or residents of the
United States and 60% or more of the Registrants gross income for such year is
derived from certain passive sources (e.g., from certain interest and
dividends), the Registrant may be treated as a foreign personal holding
company. In that event, U.S. Holders that hold common shares would be required
to include in gross income for such year their allocable portions of such
passive income to the extent the Registrant does not actually distribute such
income. The Registrant does not believe that it currently qualifies as a foreign
personal holding company. However, there can be no assurance that the Registrant
will not be considered a foreign personal holding company for the current or any
future taxable year.

Foreign Investment Company

If 50% or more of the combined voting power or total value of
the Registrants outstanding shares is held, directly or indirectly, by citizens
or residents of the United States, United States domestic partnerships or
corporations, or estates or trusts other than foreign estates or trusts (as
defined by the Code Section 7701(a)(31)), and the Registrant is found to be
engaged primarily in the business of investing, reinvesting, or trading in
securities, commodities, or any interest therein, it is possible that the
Registrant may be treated as a foreign investment company as defined in
Section 1246 of the Code, causing all or part of any gain realized by a U.S.
Holder selling or exchanging common shares to be treated as ordinary income
rather than capital gain. The Registrant does not believe that it currently
qualifies as a foreign investment company. However, there can be no assurance
that the Registrant will not be considered a foreign investment company for the
current or any future taxable year.

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Passive Foreign Investment Company

United States income tax law contains rules governing passive
foreign investment companies (PFIC) which can have significant tax effects on
U.S. Holders of foreign corporations. These rules do not apply to non-U.S.
Holders. Section 1297 of the Code defines a PFIC as a corporation that is not
formed in the United States if, for any taxable year, either (i) 75% or more of
its gross income is passive income, which includes interest, dividends and
certain rents and royalties or (ii) the average percentage, by fair market value
(or, if the corporation is not publicly traded and either is a controlled
foreign corporation or makes an election, by adjusted tax basis), of its assets
that produce or are held for the production of passive income is 50% or more.
The Registrant appears to have been a PFIC for the fiscal year ended July 31,
2000, and at least certain prior fiscal years. In addition, the Registrant
expects to qualify as a PFIC for the fiscal year ending July 31, 2001 and may
also qualify as a PFIC in future fiscal years. Each U.S. Holder of the
Registrant is urged to consult a tax advisor with respect to how the PFIC rules
affect such U.S. Holders tax situation.

Each U.S. Holder who holds stock in a foreign corporation
during any year in which such corporation qualifies as a PFIC is subject to
United States federal income taxation under one of three alternative tax regimes
at the election of such U.S. Holder. The following is a discussion of such
alternative tax regimes applied to such U.S. Holders of the Registrant. In
addition, special rules apply if a foreign corporation qualifies as both a PFIC
and a controlled foreign corporation (as defined below) and a U.S. Holder
owns, actually or constructively, 10% or more of the total combined voting power
of all classes of stock entitled to vote of such foreign corporation (See more
detailed discussion at Controlled Foreign Corporation below).

A U.S. Holder who elects to treat the Registrant as a qualified
electing fund (QEF) will be subject, under Section 1293 of the Code, to
current federal income tax for any taxable year to which the election applies in
which the Registrant qualifies as a PFIC on his pro rata share of the
Registrants (i) net capital gain (the excess of net long-term capital gain
over net short-term capital loss), which will be taxed as long-term capital
gain, and (ii) ordinary earnings (the excess of earnings and profits over net
capital gain), which will be taxed as ordinary income, in each case, for the
shareholders taxable year in which (or with which) the Registrants taxable
year ends, regardless of whether such amounts are actually distributed. A U.S.
Holders tax basis in the common shares will be increased by any such amount
that is included in income but not distributed.

The procedure a U.S. Holder must comply with in making an
effective QEF election, and the consequences of such election, will depend on
whether the year of the election is the first year in the U.S. Holders holding
period in which the Registrant is a PFIC. If the U.S. Holder makes a QEF
election in such first year, i.e., a timely QEF election, then the U.S. Holder
may make the QEF election by simply filing the appropriate documents at the time
the U.S. Holder files his tax return for such first year. If, however, the
Registrant qualified as a PFIC in a prior year during the U.S. Holders holding
period, then, in order to avoid the Section 1291 rules discussed below, in
addition to filing documents, the U.S. Holder must elect to recognize under the
rules of Section 1291 of the Code (discussed herein), (i) any gain that he would
otherwise recognize if the U.S. Holder sold his stock on the qualification date
or (ii) if the Registrant is a controlled foreign corporation, the U.S. Holders
pro rata share of the Registrants post-1986 earnings and profits as of the
qualification date. The qualification date is the first day of the Registrants
first tax year in which the Registrant qualified as a QEF with respect to such
U.S. Holder. For purposes of this discussion, a U.S. Holder who makes (i) a
timely QEF election, or (ii) an untimely QEF election and either of the
above-described gain-recognition elections under Section 1291 is referred to
herein as an Electing U.S. Holder. A U.S. Holder who holds common shares at
any time during a year of the Registrant in which the Registrant is a PFIC and
who is not an Electing U.S. Holder (including a U.S. Holder who makes an
untimely QEF election and makes neither of the above-described gain-recognition
elections) is referred to herein as a Non-Electing U.S. Holder. An Electing
U.S. Holder (i) generally treats any gain realized on the disposition of his
Registrant common shares as capital gain; and (ii) may either avoid interest
charges resulting from PFIC status altogether, or make an annual election,
subject to certain limitations, to defer payment of current taxes on his share
of the Registrants annual realized net capital gain and ordinary earnings
subject, however, to an interest charge. If the U.S. Holder is not a
corporation, any interest charge imposed under the PFIC regime would be treated
as personal interest that is not deductible.

In order for a U.S. Holder to make (or maintain) a valid QEF
election, the Registrant must provide certain information regarding its net
capital gains and ordinary earnings and permit its books and records to be
examined to verify such information. the Registrant intends to make the
necessary information available to U.S. Holders to permit them to make

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(and maintain) QEF elections with respect to the Registrant.
the Registrant urges each U.S. Holder to consult a tax advisor regarding the
availability of, and procedure for making, the QEF election.

A QEF election, once made with respect to the Registrant,
applies to the tax year for which it was made and to all subsequent tax years,
unless the election is invalidated or terminated, or the IRS consents to
revocation of the election. If a QEF election is made by a U.S. Holder and the
Registrant ceases to qualify as a PFIC in a subsequent tax year, the QEF
election will remain in effect, although not applicable, during those tax years
in which the Registrant does not qualify as a PFIC. Therefore, if the Registrant
again qualifies as a PFIC in a subsequent tax year, the QEF election will be
effective and the U.S. Holder will be subject to the rules described above for
Electing U.S. Holders in such tax year and any subsequent tax years in which the
Registrant qualifies as a PFIC. In addition, the QEF election remains in effect,
although not applicable, with respect to an Electing U.S. Holder even after such
U.S. Holder disposes of all of his or its direct and indirect interest in the
shares of the Registrant. Therefore, if such U.S. Holder reacquires an interest
in the Registrant, that U.S. Holder will be subject to the rules described above
for Electing U.S. Holders for each tax year in which the Registrant qualifies as
a PFIC.

In the case of a Non-Electing U.S. Holder, special taxation
rules under Section 1291 of the Code will apply to (i) gains realized on the
disposition (or deemed to be realized by reasons of a pledge) of his Registrant
common shares and (ii) certain excess distributions, as defined in Section
1291(b), by the Registrant.

A Non-Electing U.S. Holder generally would be required to pro
rate all gains realized on the disposition of his Registrant common shares and
all excess distributions on his Registrant common shares over the entire holding
period for the common shares. All gains or excess distributions allocated to
prior years of the U.S. Holder (excluding any portion of the holders period
prior to the first day of the first year of the Registrant (i) which began after
December 31, 1986, and (ii) for which the Registrant was a PFIC) would be taxed
at the highest tax rate for each such prior year applicable to ordinary income.
The Non-Electing U.S. Holder also would be liable for interest on the foregoing
tax liability for each such prior year calculated as if such liability had been
due with respect to each such prior year. A Non-Electing U.S. Holder that is not
a corporation must treat this interest charge as personal interest which, as
discussed above, is wholly non-deductible. The balance, if any, of the gain or
the excess distribution will be treated as ordinary income in the year of the
disposition or distribution, and no interest charge will be incurred with
respect to such balance. In certain circumstances, the sum of the tax and the
PFIC interest charge may exceed the amount of the excess distribution received,
or the amount of proceeds of disposition realized, by the U.S. Holder.

If the Registrant is a PFIC for any taxable year during which a
Non-Electing U.S. Holder holds Registrant common shares, then the Registrant
will continue to be treated as a PFIC with respect to such Registrant common
shares, even if it is no longer definitionally a PFIC. A Non-Electing U.S.
Holder may terminate this deemed PFIC status by electing to recognize gain
(which will be taxed under the rules discussed above for Non-Electing U.S.
Holders) as if such Registrant common shares had been sold on the last day of
the last taxable year for which it was a PFIC.

Effective for tax years of U.S. Holders beginning after
December 31, 1997, U.S. Holders who hold (actually or constructively) marketable
stock of a foreign corporation that qualifies as a PFIC may elect to mark such
stock to the market annually (a mark-to-market election). If such an election
is made, such U.S. Holder will generally not be subject to the special taxation
rules of Section 1291 discussed above. However, if the mark-to-market election
is made by a Non-Electing U.S. Holder after the beginning of the holding period
for the PFIC stock, then the Section 1291 rules will apply to certain
dispositions of, distributions on and other amounts taxable with respect to the
Registrant common shares. A U.S. Holder who makes the mark-to-market election
will include in income for each taxable year for which the election is in effect
an amount equal to the excess, if any, of the fair market value of the common
shares of the Registrant as of the close of such tax year over such U.S.
Holders adjusted basis in such common shares. In addition, the U.S. Holder is
allowed a deduction for the lesser of (i) the excess, if any, of such U.S.
Holders adjusted tax basis in the common shares over the fair market value of
such shares as of the close of the tax year, or (ii) the excess, if any, of (A)
the mark-to-market gains for the common shares in the Registrant included by
such U.S. Holder for prior tax years, including any amount which would have been
treated as a mark-to-market gain for any prior tax year but for the Section 1291
rules discussed above with respect to Non-Electing U.S. Holders, over (B) the
mark-to-market losses for shares that were allowed as deductions for prior tax
years. A U.S. Holders adjusted tax basis in the common shares of the Registrant
will be adjusted to reflect the amount included in or deducted from income as a
result of a mark-to-market election. A mark-to-market election applies to the
taxable year in which the election is made and to each subsequent taxable year,
unless the Registrant common shares cease to be marketable, as specifically
defined, or the IRS consents

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to revocation of the election. Because the IRS has not
established procedures for making a mark-to-market election, U.S. Holders should
consult their tax advisor regarding the manner of making such an election. No
view is expressed regarding whether common shares of the Registrant are
marketable for these purposes or whether the election will be available.

Under Section 1291(f) of the Code, the IRS has issued Proposed
Treasury Regulations that, subject to certain exceptions, would treat as taxable
certain transfers of PFIC stock by Non-Electing U.S. Holders that are generally
not otherwise taxed, such as gifts, exchanges pursuant to corporate
reorganizations, and transfers at death. Generally, in such cases the basis of
the Registrant common shares in the hands of the transferee and the basis of any
property received in the exchange for those common shares would be increased by
the amount of gain recognized. Under the Proposed Treasury Regulations, an
Electing U.S. Holder would not be taxed on certain transfers of PFIC stock, such
as gifts, exchanges pursuant to corporate reorganizations, and transfers at
death. The transferees basis in this case will depend on the manner of the
transfer. In the case of a transfer by an Electing U.S. Holder upon death, for
example, the transferees basis is generally equal to the fair market value of
the Electing U.S. Holders common shares as of the date of death under Section
1014 of the Code. The specific tax effect to the U.S. Holder and the transferee
may vary based on the manner in which the common shares are transferred. Each
U.S. Holder of the Registrant is urged to consult a tax advisor with respect to
how the PFIC rules affect his or its tax situation.

Whether or not a U.S. Holder makes a timely QEF election with
respect to common shares of the Registrant, certain adverse rules may apply in
the event that both the Registrant and any foreign corporation in which the
Registrant directly or indirectly holds shares is a PFIC (a lower-tier PFIC).
Pursuant to certain Proposed Treasury Regulations, a U.S. Holder would be
treated as owning his or its proportionate amount of any lower-tier PFIC shares,
and generally would be subject to the PFIC rules with respect to such
indirectly-held PFIC shares unless such U.S. Holder makes a timely QEF election
with respect thereto. The Registrant intends to make the necessary information
available to U.S. Holders to permit them to make (and maintain) QEF elections
with respect to each subsidiary of the Registrant that is a PFIC.

Under the Proposed Treasury Regulations, a U.S. Holder who does
not make a timely QEF election with respect to a lower-tier PFIC generally would
be subject to tax (and the PFIC interest charge) on (i) any excess distribution
deemed to have been received with respect to his or its lower-tier PFIC shares
and (ii) any gain deemed to arise from a so-called indirect disposition of
such shares. For this purpose, an indirect disposition of lower-tier PFIC shares
would generally include (i) a disposition by the Registrant (or an intermediate
entity) of lower-tier PFIC shares, and (ii) any other transaction resulting in a
diminution of the U.S. Holders proportionate ownership of the lower-tier PFIC,
including an issuance of additional common shares by the Registrant (or an
intermediate entity). Accordingly, each prospective U.S. Holder should be aware
that he or it could be subject to tax even if such U.S. Holder receives no
distributions from the Registrant and does not dispose of its common shares.

Certain special, generally adverse, rules will apply with
respect to the Registrant common shares while the Registrant is a PFIC unless
the U.S. Holder makes a timely QEF election. For example under Section
1298(b)(6) of the Code, a U.S. Holder who uses PFIC stock as security for a loan
(including a margin loan) will, except as may be provided in regulations, be
treated as having made a taxable disposition of such shares.

Controlled Foreign Corporation

If more than 50% of the total combined voting power of all
classes of shares entitled to vote or the total value of the shares of the
Registrant is owned, actually or constructively, by citizens or residents of the
United States, United States domestic partnerships or corporation, or estates or
trusts other than foreign estates or trusts (as defined by the Code Section
7701(a)(31)), each of which own, actually or constructively, 10% or more of the
total combined voting power of all classes of shares entitled to vote of the
Registrant (United States Shareholder), the Registrant could be treated as a
controlled foreign corporation (CFC) under Subpart F of the Code. This
classification would affect many complex results, one of which is the inclusion
of certain income of a CFC which is subject to current U.S. tax. The United
States generally taxes United States Shareholders of a CFC currently on their
pro rata shares of the Subpart F income of the CFC. Such United States
Shareholders are generally treated as having received a current distribution out
of the CFCs Subpart F income and are also subject to current U.S. tax on their
pro rata shares of increases in the CFCs earnings invested in U.S. property.
The foreign tax credit described above may reduce the U.S. tax on these amounts.
In addition, under Section 1248 of the Code, gain from the sale or exchange of
shares by a U.S. Holder of common shares

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- 39 -

of the Registrant which is or was a United States Shareholder
at any time during the five-year period ending on the date of the sale or
exchange is treated as ordinary income to the extent of earnings and profits of
the Registrant attributable to the shares sold or exchanged. If a foreign
corporation is both a PFIC and a CFC, the foreign corporation generally will not
be treated as a PFIC with respect to United States Shareholders of the CFC. This
rule generally will be effective for taxable years of United States Shareholders
beginning after 1997 and for taxable years of foreign corporations ending with
or within such taxable years of United States Shareholders. Special rules apply
to United States Shareholders who are subject to the special taxation rules
under Section 1291 discussed above with respect to a PFIC. Because of the
complexity of Subpart F, a more detailed review of these rules is outside of the
scope of this discussion. the Registrant does not believe that it currently
qualifies as a CFC. However, there can be no assurance that the Registrant will
not be considered a CFC for the current or any future taxable year.

The Registrant strongly urges each prospective U.S. Holder
to consult a tax advisor with respect to the adverse rules applicable, under the
Proposed Treasury Regulations, to U.S. Holders of lower-tier PFIC shares.

|F. | Dividends and paying agents
|-- | ---------------------------

Not applicable.

|G. | Statement by experts
|-- | --------------------

Not applicable.

|H. | Documents on display
|-- | --------------------

Documents concerning the Registrant which are referred to in
this document may be inspected in the head office of the Registrant at 999
Canada Place, World Trade Centre, Suite 404, Vancouver, British Columbia, V6C
3E2 or at the registered office of the Registrant at Suite 1500-1055 West
Georgia Street, Vancouver B.C, Canada. Copies of the Registrants financial
statements and other continuous disclosure documents required under the British
Columbia Securities Act may be viewed at www.sedar.com and
documents referred to in this document are filed with the US Securities
Commission and can be viewed on the SEC website at www.sec.gov.

|I. | Subsidiary information
|-- | ----------------------

A list of subsidiaries of the Registrant as of December 29,
2006 is identified in Note 2 (b)in the notes to the consolidated
financial statements and in ITEM 4. ORGANIZATIONAL STRUCTURE.

|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES
      ABOUT MARKET **RISK**
|-------- | --------------------------------------------------------------------

Not required as the Registrant is a small business issuer, in
accordance with Section 12(b)-2 of the Act.

|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY
      SECURITIES
|-------- | ------------------------------------------------------------

Not applicable.

PART II

|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND
      DELINQUENCIES
|-------- | -----------------------------------------------------

|A. | There has been no material default in any indebtedness,
      as the Registrant has no debt.
|-- | --------------------------------------------------------------------------------------------
|   |                                                                                             
|B. | The Registrant has never paid nor declared a dividend, so
      there are no arrearages.    

---

- 40 -

|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF
      SECURITY **HOLDERS AND USE OF PROCEEDS**
|-------- | --------------------------------------------------------------------------------------

Not applicable.

|ITEM 15. | CONTROLS AND PROCEDURES
|-------- | -----------------------

As required by Rule 13a-15 under the Securities Exchange Act
of 1934 (the Exchange Act), the Registrant carried out an evaluation of
the effectiveness of the design and operation of the Registrants disclosure
controls and procedures as of July 31, 2006, the latest completed fiscal year.
This evaluation was carried out under the supervision and with the participation
of the Registrants Chief Executive Officer, Peter Loretto, and the Registrants
Chief Financial Officer, Barry MacNeil. Based upon that evaluation, the
Registrants Chief Executive Officer and Chief Financial Officer concluded that
the Registrants disclosure controls and procedures are effective in timely
alerting management to material information relating to the Registrant required
to be included in the Registrants periodic SEC filings. There have been no
significant changes in the Registrants internal controls or in other factors
that could significantly affect internal controls subsequent to the date the
Registrant carried out its evaluation.

Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be disclosed
in the Registrants reports that are filed or submitted under the Exchange Act
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, without limitation, controls and
procedures designed to ensure that information required to be disclosed in the
Registrants reports filed under the Exchange Act is accumulated and
communicated to management, including the Registrants Chief Executive Officer
and Chief Financial Officer, to allow timely decisions regarding required
disclosure.

During the Registrants most recently completed fiscal year
ended July 31, 2006, there were no changes in the Registrants internal control
over financial reporting that have materially affected, or are reasonably likely
to affect, its internal control over financial reporting.

The term internal control over financial reporting is defined
as a process designed by, or under the supervision of, the Registrant's
principal executive and principal financial officers, or persons performing
similar functions, and effected by the Registrant's board of directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:

(1) Pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of the
assets of the Registrant;

(2) Provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the Registrant are being made only in accordance with authorizations of
management and directors of the Registrant; and

(3) Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the Registrant's
assets that could have a material effect on the financial statements.

ITEM 16.

|A. | Audit Committee Financial Expert
|-- | --------------------------------

Our Board of Directors has determined that Dr. David Bennett, a
member of the audit committee, qualifies as a financial expert and that he is
independent according to the standards for audit committee member independence
prescribed by the American Stock Exchange. Dr. Bennett holds a BA (Natural
Sciences), an M SC in Exploration Geophysics and a doctorate in Geophysics. He
has over thirty years of financial, technical and operational experience in the
oil and gas industry, and was a co-founder and the Chief Executive Officer of
Austral. Dr. Bennett has experience in

---

- 41 -

corporate finance, planning, project control, supervision of
financial accounting, reporting analysis, and co-ordination with auditors.

|B. | Code of Ethics
|-- | --------------

We have adopted a code of ethics that applies to the Chief
Executive Officer and the Chief Financial Officer, as well as to all other
staff. A copy of our code of ethics is available, free of charge, from the head
office of the Registrant at 999 Canada Place, World Trade Centre, Suite 404,
Vancouver, British Columbia, V6C 3E2 and this can be requested in writing,
addressed to the Registrants Office Manager.

|C. | Principal Accountant Fees and Services
|-- | --------------------------------------

Principal Accountant Service(1)
    For the fiscal year ended July
      31, 2006
    For the fiscal year ended July
      31, 2005Audit Fees
    $13,500
    $11,000Audit Related Services
    -
    -Tax Fees
    $1,000
    $1,000All Other Fees
    -
    -


|(1) | De Visser Gray has been the Principal Accountant for the
      2006, 2005 and 2004 fiscal years reported above.
|--- | ---------------------------------------------------------------------------------------------------------------

The nature of the services provided by De Visser Gray under
each of the categories indicated in the table is described below.

Audit Fees

Audit fees were for professional services rendered by De Visser
Gray for the audit of our annual financial statements and services provided in
connection with statutory and regulatory filing or engagements.

Audit-Related fees

Audit related fees are normally for assurance and related
services reasonably related to the performance of the audit or review of the
annual statements or bi-annual statements that are not reported under Audit
Fees above. There were no audit-related fees for the current or previous year.

Tax Fees

Tax fees were for tax compliance, tax advice and tax planning
professional services. These services consisted of: tax compliance including the
review of tax returns, and tax planning and advisory services relating to common
forms of domestic and international taxation (ie: income tax, capital tax, goods
and services tax, payroll tax, and value added tax).

All Other Fees

There were no other fees incurred in the period covered in the
table above.

Pre-Approval Policies and Procedures

---

- 42 -

It is within the mandate of the Registrants Audit Committee to
approve all audit and non-audit related fees. The Audit Committee has
pre-approved specifically identified non-audit related services, including tax
compliance, review of tax returns, documentation of processes and controls as
submitted to the Audited Committee from time to time. The Auditors also present
the estimate for the annual audit related services to the committee for approval
prior to undertaking the annual audit of the financial statements.

|D. | Exemptions From the Listing Standards for
      Audit Committees
|-- | ----------------------------------------------------------------

Not applicable.

|E. | Purchases of Equity Securities by the Issuer
      and Affiliated Purchasers
|-- | ----------------------------------------------------------------------------

.Not applicable.

PART III

|ITEM 17. | FINANCIAL STATEMENTS
|-------- | --------------------

Financial Statements begin on page 41.

INDEX TO FINANCIAL STATEMENTS

PageAuditors Report
      43Consolidated Balance Sheets
      44Consolidated Statements
        of Operations and Deficit
      45Consolidated Schedules of General and
        Administrative Expenses
      46Consolidated Statements
        of Cash Flows
      47Notes to the Consolidated Financial Statements
      48


The financial statements and Report of the independent Auditors
are filed as part of the Registrants Annual Report.

---

- 43 -

DE VISSER GRAYCHARTERED
ACCOUNTANTS

401 - 905 West Pender StreetVancouver, BC Canada V6C 1L6

Tel: (604) 687-5447 Fax: (604) 687-6737

AUDITORS' REPORT

To the Shareholders of Trans-Orient Petroleum Ltd.

We have audited the consolidated balance sheets of Trans-Orient
Petroleum Ltd. as at July 31, 2006 and 2005 and the consolidated statements of
operations and deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the Company as at
July 31, 2006 and 2005 and the results of its operations and its cash flows for
each of the years in the three year period ended July 31, 2006 in accordance
with generally accepted accounting principles in Canada.

De Visser Gray

CHARTERED ACCOUNTANTSVancouver, British
ColumbiaCanadaOctober 25, 2006

COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA  U.S.
REPORTING DIFFERENCES

In the United States, reporting standards for auditors require
the addition of an explanatory paragraph (following the opinion paragraph) when
the financial statements are affected by significant uncertainties and
contingencies such as those referred to in note 1 to these consolidated
financial statements. Although we conducted our audits in accordance with both
Canadian and the standards of the PCAOB, our report to the shareholders dated
October 25, 2006 is expressed in accordance with Canadian reporting standards,
which do not require a reference to such matters when the uncertainties are
adequately disclosed in the financial statements.

De Visser Gray

CHARTERED ACCOUNTANTSVancouver, British
ColumbiaCanadaOctober 25, 2006

---

- 44 -

|                                               |   |             |   |   |             |  
|---------------------------------------------- | - | ----------- | - | - | ----------- | -
|Consolidated Balance Sheets                    |   |             |   |   |             |  
|(Expressed in
      United States Dollars)     |   |             |   |   |             |  
|As at July 31,                                 |   | 2006        |   |   | 2005        |  
|                                               |   |             |   |   |             |  
|Assets                                         |   |             |   |   |             |  
|                                               |   |             |   |   |             |  
|Current                                        |   |             |   |   |             |  
|                                               |   |             |   |   |             |  
|Cash                                           | $ | 451,969     |   | $ | 190,617     |  
|Accounts receivable                            |   | 27,809      |   |   | 10,815      |  
|Prepaid expenses                               |   | 4,971       |   |   | -           |  
|                                               |   | 484,749     |   |   | 201,432     |  
|                                               |   |             |   |   |             |  
|Restricted cash (Note 8)                       |   | 42,174      |   |   | 36,169      |  
|Investments (Note 3)                           |   | 2,304,811   |   |   | 2,219,072   |  
|Property and
      equipment (Note 4)          |   | 83,887      |   |   | 85,316      |  
|                                               |   |             |   |   |             |  
|Total
      Assets                             | $ | 2,915,621   |   | $ | 2,541,989   |  
|                                               |   |             |   |   |             |  
|Liabilities                                    |   |             |   |   |             |  
|                                               |   |             |   |   |             |  
|Current                                        |   |             |   |   |             |  
|                                               |   |             |   |   |             |  
|Accounts payable
      and accrued liabilities | $ | 12,406      |   | $ | 6,535       |  
|Total Liabilities                              |   | 12,406      |   |   | 6,535       |  
|                                               |   |             |   |   |             |  
|Non-Controlling Interest in AMG Oil Ltd.       |   | -           |   |   | 13,845      |  
|                                               |   |             |   |   |             |  
|Shareholders Equity                           |   |             |   |   |             |  
|                                               |   |             |   |   |             |  
|Share capital (Note 7)                         |   | 13,175,075  |   |   | 13,175,075  |  
|Deficit                                        |   | (10,271,860 | ) |   | (10,653,466 | )
|Total Shareholders Equity                     |   | 2,903,215   |   |   | 2,521,609   |  
|                                               |   |             |   |   |             |  
|                                               | $ | 2,915,621   |   | $ | 2,541,989   |  

Continuance of Operations (Note 1)

|Approved on behalf of the Board of Directors: |  |                        
|--------------------------------------------- |  | -----------------------
|                                              |  |                        
|/s/ Peter
      Loretto                       |  | /s/
      Barry MacNeil
|Director                                      |  | Director               

See accompanying notes to the consolidated financial statements

---

- 45 -

|                                                                  |   |             |   |   |             |   |   |             |  
|----------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|Consolidated Statements of Operations and Deficit                 |   |             |   |   |             |   |   |             |  
|(Expressed in
      United States Dollars)                        |   |             |   |   |             |   |   |             |  
|                                                                  |   |             |   |   |             |   |   |             |  
|For the years
      ended July 31,                                |   | 2006        |   |   | 2005        |   |   | 2004        |  
|                                                                  |   |             |   |   |             |   |   |             |  
|Expenses                                                          |   |             |   |   |             |   |   |             |  
|                                                                  |   |             |   |   |             |   |   |             |  
|General and administrative (Schedule)                             | $ | 305,173     |   | $ | 168,957     |   | $ | 116,322     |  
|Foreign exchange                                                  |   | (1,987      | ) |   | (67,560     | ) |   | (2,206      | )
|Amortization                                                      |   | 5,564       |   |   | 4,360       |   |   | 9,924       |  
|                                                                  |   |             |   |   |             |   |   |             |  
|Loss before other items                                           |   | (308,750    | ) |   | (105,757    | ) |   | (124,040    | )
|                                                                  |   |             |   |   |             |   |   |             |  
|Other Items:                                                      |   |             |   |   |             |   |   |             |  
|                                                                  |   |             |   |   |             |   |   |             |  
|Gain on sale of investments (Note 3)                              |   | 778,423     |   |   | 1,218,319   |   |   | 528,931     |  
|Interest income                                                   |   | 13,848      |   |   | 1,896       |   |   | 1,696       |  
|Loss on sale of investment (Note 3)                               |   | (3,759      | ) |   | (4,000      | ) |   | -           |  
|Loss on sale of common stock held by subsidiary                   |   | -           |   |   | (8,685      | ) |   | -           |  
|Recovery of loan receivable previously
      written-off (Note 6) |   | 32,324      |   |   | 29,004      |   |   | 24,660      |  
|Recovery of costs                                                 |   | -           |   |   | -           |   |   | 46,477      |  
|Write-down of investments                                         |   | (136,262    | ) |   | -           |   |   | -           |  
|Write-off of loan receivable                                      |   | -           |   |   | -           |   |   | (30,000     | )
|Write-off of oil and gas interest                                 |   | -           |   |   | (1          | ) |   | -           |  
|Write-off of
      property and equipment                         |   | -           |   |   | -           |   |   | (21,161     | )
|                                                                  |   |             |   |   |             |   |   |             |  
|Income from operations                                            |   | 375,824     |   |   | 1,130,776   |   |   | 426,563     |  
|Non-controlling interests portion of AMGs loss                  |   | 5,782       |   |   | 11,470      |   |   | 32,266      |  
|                                                                  |   |             |   |   |             |   |   |             |  
|Net income for the year                                           |   | 381,606     |   |   | 1,142,246   |   |   | 458,829     |  
|                                                                  |   |             |   |   |             |   |   |             |  
|Deficit  Beginning of year                                       |   | (10,653,466 | ) |   | (11,795,712 | ) |   | (12,254,541 | )
|                                                                  |   |             |   |   |             |   |   |             |  
|Deficit  End of year                                             | $ | (10,271,860 | ) | $ | (10,653,466 | ) | $ | (11,795,712 | )
|                                                                  |   |             |   |   |             |   |   |             |  
|Income per share - basic                                          | $ | 0.02        |   | $ | 0.06        |   | $ | 0.03        |  
|- diluted                                                         | $ | 0.02        |   | $ | 0.06        |   | $ | 0.02        |  
|                                                                  |   |             |   |   |             |   |   |             |  
|Weighted-average number of common shares outstanding              |   | 17,618,083  |   |   | 17,618,083  |   |   | 17,019,408  |  

See accompanying notes to the consolidated financial statements

---

- 46 -

|                                                                    |   |         |  |   |         |  |  
|------------------------------------------------------------------- | - | ------- |  | - | ------- |  | -
|Consolidated Schedules of General and
      Administrative Expenses |   |         |  |   |         |  |  
|(Expressed in
      United States Dollars)                          |   |         |  |   |         |  |  
|                                                                    |   |         |  |   |         |  |  
|For the years
      ended July 31,                                  |   | 2006    |  |   | 2005    |  |  
|                                                                    |   |         |  |   |         |  |  
|General and Administrative Expenses                                 |   |         |  |   |         |  |  
|                                                                    |   |         |  |   |         |  |  
|Accounting and audit                                                | $ | 18,773  |  | $ | 13,935  |  | $
|Consulting fees                                                     |   | 11,852  |  |   | -       |  |  
|Corporate relations and development                                 |   | 25,210  |  |   | -       |  |  
|Directors fees                                                      |   | 58,054  |  |   | 20,509  |  |  
|Filing and transfer agency fees                                     |   | 24,976  |  |   | 20,630  |  |  
|Legal                                                               |   | 31,110  |  |   | 12,387  |  |  
|Office, rent and miscellaneous                                      |   | 50,824  |  |   | 41,401  |  |  
|Printing                                                            |   | 12,415  |  |   | 5,913   |  |  
|Travel, promotion and accommodation                                 |   | 31,147  |  |   | 22,115  |  |  
|Wages and benefits                                                  |   | 40,812  |  |   | 32,067  |  |  
|                                                                    |   |         |  |   |         |  |  
|                                                                    | $ | 305,173 |  | $ | 168,957 |  | $

See accompanying notes to the consolidated financial statements

---

- 47 -

|                                                                |   |           |   |   |            |   |   |            |  
|--------------------------------------------------------------- | - | --------- | - | - | ---------- | - | - | ---------- | -
|Consolidated Statements of Cash Flows                           |   |           |   |   |            |   |   |            |  
|(Expressed in
      United States Dollars)                      |   |           |   |   |            |   |   |            |  
|                                                                |   |           |   |   |            |   |   |            |  
|For the years
      ended July 31,                              |   | 2006      |   |   | 2005       |   |   | 2004       |  
|                                                                |   |           |   |   |            |   |   |            |  
|Net increase (decrease) of cash related
      to the following: |   |           |   |   |            |   |   |            |  
|                                                                |   |           |   |   |            |   |   |            |  
|Operating Activities                                            |   |           |   |   |            |   |   |            |  
|Net income for the year                                         | $ | 381,606   |   | $ | 1,142,246  |   | $ | 458,829    |  
|Items not affecting cash:                                       |   |           |   |   |            |   |   |            |  
|Amortization                                                    |   | 5,564     |   |   | 4,360      |   |   | 9,924      |  
|Gain on sale of investment                                      |   | (778,423  | ) |   | (1,218,319 | ) |   | (528,931   | )
|Loss on sale of investment                                      |   | 3,759     |   |   | 4,000      |   |   | -          |  
|Loss on sale of common stock held by
      subsidiary           |   | -         |   |   | 8,685      |   |   | -          |  
|Non-controlling interest                                        |   | (5,782    | ) |   | (11,470    | ) |   | (32,266    | )
|Recovery of costs                                               |   | -         |   |   | -          |   |   | (46,477    | )
|Write-down of investment                                        |   | 136,261   |   |   | -          |   |   | -          |  
|Write-off of loan receivable                                    |   | -         |   |   | -          |   |   | 30,000     |  
|Write-off of oil and gas interest                               |   | 1         |   |   | 1          |   |   | -          |  
|Write-off of property and
      equipment                       |   | -         |   |   | -          |   |   | 21,161     |  
|Changes in non-cash working capital items:                      |   |           |   |   |            |   |   |            |  
|Accounts payable and accrued
      liabilities                  |   | 12,331    |   |   | 518        |   |   | 6,802      |  
|Accounts receivable                                             |   | (16,994   | ) |   | (2,488     | ) |   | 3,802      |  
|Prepaid expenses                                                |   | (4,971    | ) |   | 2,698      |   |   | 2,676      |  
|Net cash used for
      operating activities                    |   | (266,648  | ) |   | (69,769    | ) |   | (74,480    | )
|                                                                |   |           |   |   |            |   |   |            |  
|Financing Activities                                            |   |           |   |   |            |   |   |            |  
|Restricted cash                                                 |   | (6,005    | ) |   | (5,030     | ) |   | (1,669     | )
|Common stock
      issued for cash                              |   | -         |   |   | -          |   |   | 30,000     |  
|Net cash provided by financing activities                       |   | (6,005    | ) |   | (5,030     | ) |   | 28,331     |  
|                                                                |   |           |   |   |            |   |   |            |  
|Investing Activities                                            |   |           |   |   |            |   |   |            |  
|Proceeds from sales of investments                              |   | 1,349,517 |   |   | 2,222,479  |   |   | 1,084,951  |  
|Proceeds from sale of common stock held by
      subsidiary     |   | -         |   |   | 3,308      |   |   | -          |  
|Purchases of investments                                        |   | (800,000  | ) |   | (2,029,393 | ) |   | (1,196,250 | )
|Purchases of property and equipment                             |   | (4,135    | ) |   | -          |   |   | -          |  
|Net cash provided
      by (used for) investing activities      |   | 545,382   |   |   | 196,394    |   |   | (111,299   | )
|                                                                |   |           |   |   |            |   |   |            |  
|Cash of AMG Oil
      upon deconsolidation                      |   | (11,377   | ) |   | -          |   |   | -          |  
|                                                                |   |           |   |   |            |   |   |            |  
|Net increase (decrease) in cash                                 |   | 261,352   |   |   | 121,595    |   |   | (157,448   | )
|Cash - Beginning of year                                        |   | 190,617   |   |   | 69,022     |   |   | 226,470    |  
|Cash - End of
      year                                        | $ | 451,969   |   | $ | 190,617    |   | $ | 69,022     |  

See accompanying notes to the consolidated financial statements

---

- 48 -

|                                                
|------------------------------------------------
|Notes to the Consolidated Financial Statements  
|(Expressed in
      United States Dollars)      
|                                                
|For the Years
      Ended July 31, 2006 and 2005

NOTE 1 - NATURE AND CONTINUANCE OF OPERATIONS

Trans-Orient Petroleum Ltd. (the Company) is incorporated
under the Business Corporations Act (British Columbia) and is engaged in
identifying, financing, and providing business development services for
early-stage resource businesses. The Companys operating strategy is to invest
in exploration and production activities through the Companys existing
corporate investments, and to consider investing directly into suitable new
resource projects.

The Companys consolidated financial statements are presented
on a going concern basis, which assumes that the Company will continue to
realize its assets and discharge its liabilities in the normal course of
operations. However, the Company does not generate sufficient cash flow from
operations to adequately fund its activities and has therefore relied
principally upon the issuance of securities for financing. Future capital
requirements will depend on many factors including the Company's ability to
execute its business plan. The Company intends to continue relying upon the
issuance of securities to finance its future activities but there can be no
assurance that such financing will be available on a timely basis under terms
acceptable to the Company. Although these consolidated financial statements do
not include any adjustments that may result from the inability to secure future
financing, such a situation would have a material adverse effect on the
Companys business, results of operations and financial condition.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

|a) | Accounting principles and use of
  estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | These financial statements are prepared in conformity
      with Canadian generally accepted accounting principles (GAAP), which
      require the Companys management to make informed judgments and estimates
      that affect the reported amounts of assets and liabilities and disclosures
      of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      fiscal year. Significant estimates include, but are not limited to, the
      determination of the net recoverable value of assets and income taxes. The
      Companys investments are also items that, due to expected market volume
      and price fluctuation may yield net realizable values that are materially
      different from their current carrying values at any point in time. Actual
      results could differ from these estimates.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Material differences between Canadian and United States
      generally accepted accounting principles, applicable to the Companys
      financial statements, are described in note 11.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|b) | Basis of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | These consolidated financial statements include the
      accounts of the Company, and its wholly-owned subsidiary, DLJ Management
      Corp. All significant inter-company balances and transactions have been
      eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|c) | Principles of accounting for investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Companys investments are accounted for using either
      the equity method or cost method of accounting. The equity method is used
      when the Company, through its level of investment, exercises significant
      influence over the investee. The cost method of accounting is applied to
      investments in Companies over which the Company does not exercise
      significant influence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

---

- 49 -

|   | The Companys investments are recorded at cost and are
      adjusted to fair value, where determinable, only if there is an,
      other-than-temporary decline in value as the Company intends to hold them
      for a period of greater than one year.                                                                                                                                                                                                                                                           
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|d) | Translation of foreign currencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Transactions of the Company and its subsidiaries
      originating in foreign currencies are translated into U.S. dollars at the
      rates prevailing on the dates of the transactions. Monetary assets and
      liabilities are translated at the year-end rates of exchange and
      non-monetary items are translated at historical exchange rates applicable
      to the underlying transactions. The resulting net gain or loss is included
      in the consolidated statements of operations and deficit.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|e) | Fair value of financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company's financial instruments consist of current
      assets and current liabilities. The fair values of the current assets and
      liabilities approximate the carrying amounts due to the short-term nature
      of these instruments.                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|f) | Property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Property and equipment are stated at cost less
      accumulated amortization. Amortization is computed over the estimated
      useful lives of the assets as follows:                                                                                                                                                                                                                                                                                                                                              

| | Apartment:                      | 4% per annum on a declining balance basis         
| | ------------------------------- | --------------------------------------------------
| | Furniture and office equipment: | 20% per annum on the declining
      balance basis

|g) | Basic and diluted net income per common
    share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Basic net income per common share is calculated by
      dividing the net income by the weighted average number of common shares
      outstanding, during the year. In years where a net loss is incurred,
      diluted net loss per common share is not calculated as its effect on net
      loss per share is anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|h) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The Company accounts for and measures future tax assets
      and liabilities for future tax consequences attributable to differences
      between the financial statement carrying amounts of existing assets and
      liabilities and their respective tax bases. Future tax assets and
      liabilities are measured using the enacted or substantively-enacted tax
      rates expected to apply to taxable income in the years in which those
      temporary differences are expected to be recovered or settled. The effect
      on future tax assets and liabilities of a change in tax rates is
      recognized in income in the period that includes the date of the enactment
      or substantive enactment of the change. When the future realization of
      income tax assets does not meet the test of being more likely than not to
      occur, a valuation allowance in the amount of potential future benefit is
      taken and no asset is recognized. Such an allowance would apply fully to
      all potential future tax assets of the Company.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The Companys accounting policy for future income taxes
      currently has no effect on the financial statements of any of the fiscal
      years presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|i) | Share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Common shares issued for non-monetary consideration are
      recorded at their fair market value based upon the lower of the trading
      price of the Companys shares on the OTC Bulletin Board on the date of the
      agreement to issue shares and the date of share
issuance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

---

- 50 -

|j) | Asset Retirement Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Effective July 31, 2003, the Company has adopted
      retroactively the Canadian Institute of Chartered Accountants new
      standard on Asset Retirement Obligations. The Company recognizes the fair
      value of an Asset Retirement Obligation (ARO) in the period in which it
      is incurred when a reasonable estimate of the fair value can be made. The
      fair value is determined through a review of engineering studies, industry
      guidelines and managements estimate on a site-by-site basis. The fair
      value of the ARO is recorded as a liability, with a corresponding increase
      in the amount of the related asset. The capitalized amount is depleted on
      the unit-of-production method based on proven reserves. The liability
      amount of accretion is expensed in the period. Actual costs incurred upon
      the settlement of the ARO are charged against the liability. At July 31,
      2006 the Company does not have any asset retirement obligations.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|k) | Comparative figures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Certain of the prior years figures have been
      reclassified to conform with the current years financial statement
      presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

NOTE 3 - INVESTMENTS

At July 31, 2006, the Companys ownership interests in
investments are accounted for under the cost method of accounting as follows:

|                            |  |             |  |   | July 31,  |  |   | July 31,  |  |  |               | 
|--------------------------- |  | ----------- |  | - | --------- |  | - | --------- |  |  | ------------- | 
|                            |  | Number of   |  |   | 2006      |  |   | 2006      |  |  |               | 
|                            |  | Common      |  |   | Carrying  |  |   | Fair      |  |  | Percentage of | 
|                            |  | Shares Held |  |   | Value     |  |   | Value     |  |  | Ownership/    | 
|AMG Oil Ltd.                |  | 826,431     |  | $ | 1         |  | $ | 388,423   |  |  | 3.66%         | 
|Austral Pacific Energy Ltd. |  | 1,534,940   |  |   | 2,302,410 |  |   | 2,302,410 |  |  | 6.75%         | 
|Gondwana Energy, Ltd.       |  | 3,999       |  |   | 2,400     |  |   | 2,400     |  |  | 0.02%         | 
|TAG Oil Ltd.                |  | -           |  |   | -         |  |   | -         |  |  | -             | 
|Verida Internet Corp.       |  | -           |  |   | -         |  |   | -         |  |  | -             | 
|                            |  |             |  | $ | 2,304,811 |  | $ | 2,693,233 |  |  |               | 

At July 31, 2005, the Companys ownership interests in
investments are accounted for under the consolidation method or cost method of
accounting as follows:

|                            |  |             |  |   | July 31,  |  |   | July 31,  |  |  |               | 
|--------------------------- |  | ----------- |  | - | --------- |  | - | --------- |  |  | ------------- | 
|                            |  | Number of   |  |   | 2005      |  |   | 2005      |  |  |               | 
|                            |  | Common      |  |   | Carrying  |  |   | Fair      |  |  | Percentage of | 
|                            |  | Shares Held |  |   | Value     |  |   | Value     |  |  | Ownership/    | 
|Consolidation Method:       |  |             |  |   |           |  |   |           |  |  |               | 
|AMG Oil Ltd.                |  | 8,200,000   |  | $ | -         |  | $ | -         |  |  | 49.40%        | 
|Cost Method:                |  |             |  |   |           |  |   |           |  |  |               | 
|Austral Pacific Energy Ltd. |  | 1,384,940   |  |   | 1,979,071 |  |   | 3,753,186 |  |  | 7.42%         | 
|Gondwana Energy, Ltd.       |  | 399,999     |  |   | 40,000    |  |   | 40,000    |  |  | 12.43%        | 

---

- 51 -

|TAG Oil Ltd.          |   | 500,000 |  |  | 200,000   |  |   | 470,000   |  |  | 1.91% | 
|--------------------- | - | ------- |  |  | --------- |  | - | --------- |  |  | ----- | 
|Verida Internet Corp. |   | 844,642 |  |  | 1         |  |   | 1         |  |  | -     | 
|                      | $ |         |  |  | 2,219,072 |  | $ | 4,263,187 |  |  |       | 

During the 2006 fiscal year the Company:

|a) | Sold 7,373,569 common shares of AMG Oil Ltd. (AMG) for
      aggregate proceeds of $133,695. These dispositions resulted in the
      Companys effective loss of control of AMG, the accounts of which were,
      until that time, consolidated with those of the Company. At the date of
      loss of control, the Companys net investment in the accounts of AMG was
      comprised of a non-controlling interest in excess of net working capital
      in the amount of $3,147. Accordingly a net gain of $136,842 has been
      recognized currently and the Companys residual investment in common
      shares of AMG is carried at a cost of $1.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|b) | Sold 50,000 shares of Austral Pacific with a book value
      of $78,000 for proceeds of $74,241 resulting in a loss of
$3,759.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|c) | Participated in a private placement in Austral Pacific
      Energy Ltd. The Company purchased 200,000 units at US$2.50 per unit. Each
      unit consists of one share and one half of one share purchase warrant,
      with each warrant entitling the Company to purchase one common share at a
      price of US$3.50 per share for one year subject to an accelerated expiry
      if a trigger price of US$4.50 is reached in the first twelve months from
      the issue date. The warrants subsequently expired as they were not
      exercised.                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|d) | Sold 1,000,000 shares of TAG Oil with a book value of
      $500,000 for proceeds of $1,141,581, for a gain over book value of
      $641,581. The Company acquired these shares by participating in a private
      placement, purchasing 500,000 units, at $0.40 per unit in the 2005 fiscal
      year with each unit consisting of one share and one share purchase
      warrant. The warrants were then exercised during the 2006 fiscal year at a
      price of US$0.60 per share.                                                                                                                                                                       

During the 2005 fiscal year the Company:

|a) | Sold 788,800 shares of its investment in Austral Pacific
      Energy Ltd. (Austral Pacific), with a book value of $998,160 or $1.27
      per share, for $2,216,479, or approximately $2.81 per share, resulting in
      a gain over carrying value of $1,218,319. The proceeds from the sale of
      this investment and additional working capital were used to exercise
      836,845 Austral Pacific Energy Ltd. (Austral Pacific) share purchase
      warrants at an exercise price of US$1.50 per share. On December 21, 2004,
      the Company exercised 382,750 Austral Pacific share purchase warrants at
      an exercise price of NZ$2.10 per share.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|b) | During the 2005 fiscal year the Companys controlled
      subsidiary AMG Oil, sold a total of 100,000 shares of Gondwana Energy,
      Ltd. with a book value of $10,000, for proceeds of $6,000 resulting in a
      loss of $4,000.                                                                                                                                                                                                                                                                                                                                                                                                                                   

Refer to Note 10

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment are comprised as follows:

|                               |   | 2006     |   |   | 2005     |  
|------------------------------ | - | -------- | - | - | -------- | -
|                               |   |          |   |   |          |  
|Apartment                      | $ | 100,945  |   | $ | 100,945  |  
|Furniture and office equipment |   | 91,299   |   |   | 87,164   |  
|Leasehold improvements         |   | 2,337    |   |   | 2,337    |  
|                               |   | 194,581  |   |   | 190,446  |  
|Accumulated amortization       |   | (110,694 | ) |   | (105,130 | )
|                               | $ | 83,887   |   | $ | 85,316   |  

---

- 52 -

NOTE 5 - RELATED PARTY TRANSACTIONS

The Company is of the view that the amounts incurred for
services provided by related parties approximates what the Company would incur
to non-arms length parties for the same services.

Consulting Agreement

On April 1, 2006, the Company extended for one-year, the
Consulting Agreement entered into during the 2005 fiscal year with a private
company wholly-owned by the Companys President to provide executive services to
the Company. The agreement is extendable for another year if agreed to by both
parties and includes monthly compensation of $5,000.

Refer to Note 10

NOTE 6  LOAN RECEIVABLE

Subsequent to a write-off, in the 2001 fiscal year, of a loan
of $517,115 made to Verida Internet Corp. (Verida), the Company negotiated a
loan repayment schedule with Verida allowing the Company to receive monthly
payments of approximately CAD$15,170. This repayment schedule was revised with
an effective date of April 1, 2003 whereby the Company was entitled to receive
CAD$3,000 per month including annual interest of 12%, over a period of five
years unless paid in full including principle and accrued interest, prior to
April 1, 2008.

During the 2006 fiscal year, the Company received $32,324 (July
31, 2005  $29,004).

Refer to Note 10

NOTE 7 - SHARE CAPITAL

|a) | Authorized and Issued Share Capital
|-- | -----------------------------------

The authorized share capital of the Company consists of an
unlimited number of common shares without par value.

| |                                   |  | Number          |  |   |            | 
| | --------------------------------- |  | --------------- |  | - | ---------- | 
| | Issued and fully paid:            |  | of
      Shares |  |   | Amount     | 
| |                                   |  |                 |  |   |            | 
| | Balance at July 31, 2004 and 2005 |  | 2,516,869       |  | $ | 13,175,075 | 
| | Share Split (1:7)                 |  | 15,101,214      |  |   | -          | 
| | Balance at July 31, 2006          |  | 17,618,083      |  | $ | 13,175,075 | 

At the Companys AGM held on January
12, 2006 shareholders approved the creation of a new class of preferred shares
and the adoption of new corporate articles. To the date of this report there are
no agreements or intentions to issue any preferred shares. The new articles
allow the directors of the Company to authorize, without further shareholder
approval, name changes, share consolidations and share subdivisions.

On March 30, 2006, the Company
completed a forward split (sub-division) of the Companys common shares a seven
for one basis. The effect of the forward split has been applied on a retroactive
basis.

NOTE 8  RESTRICTED CASH

The Company is required, in accordance with the Companys
credit card agreements, to provide security against the credit facility in the
form of cash and cash equivalents. As at July 31, 2006, this security amounted
to $42,174 (2005: $36,169).

---

- 53 -

NOTE 9 - INCOME TAXES

A reconciliation of income taxes at statutory rates as follows:

|                                                                             |   | 2006     |   |   | 2005      |  
|---------------------------------------------------------------------------- | - | -------- | - | - | --------- | -
|                                                                             |   |          |   |   |           |  
|Net income for the year                                                      | $ | 381,606  |   | $ | 1,142,246 |  
|Expected income tax expense                                                  |   | 129,691  |   |   | 411,445   |  
|Net adjustment for amortization, deductible
      and non-deductible amounts |   | (456,089 | ) |   | (276,676  | )
|Unrecognized (recognized) benefit of current non-capital
      loss          |   | 326,398  |   |   | (134,769  | )
|Total income taxes                                                           |   | -        |   |   | -         |  

The significant components of the Companys future income tax
assets are as follows:

|                                                                      |  | 2006       |   |  | 2005       |  
|--------------------------------------------------------------------- |  | ---------- | - |  | ---------- | -
|Future income tax assets:                                             |  |            |   |  |            |  
|Net resource property carrying amounts (in excess) of tax
      pools |  | 3,167,582  |   |  | 2,928,222  |  
|Property and equipment tax pool in excess
      of carrying value     |  | 143,6667   |   |  | 121,000    |  
|Non-capital loss carryforwards                                        |  | 2,584,312  |   |  | 1,958,507  |  
|                                                                      |  | 5,895,562  |   |  | 5,007,729  |  
|Valuation allowance                                                   |  | (5,895,562 | ) |  | (5,007,729 | )
|Net future tax assets                                                 |  | -          |   |  | -          |  

The Company has non-capital losses of approximately CDN$2.9
million (2005 - CDN$2.4 million), which are available to reduce future taxable
income in Canada and which expire between 2007 and 2026. Subject to certain
restrictions the Company also has resource expenditures of approximately CDN$3.6
million (2005 - $3.6 million) available to reduce taxable income in future
years. Future tax benefits which may arise as a result of these losses and
resource deductions have not been recognized in these financial statements and
have been offset by a valuation allowance as noted above.

NOTE 10  SUBSEQUENT EVENTS

|a) | On August 23, 2006, the Company appointed David Bennett,
      Ph.D., as a Director and subsequently appointed Dr. Bennett to the audit
      committee. In addition, the Company entered into a consulting agreement
      with Dr. Bennett for one year with monthly compensation of
  $5,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|b) | On August 30, 2006, the Company completed a private
      placement financing for 12,972,142 units of the Company at a purchase
      price of $0.35 per unit, for proceeds of $4,540,250. Each unit consists of
      one common share and one share purchase warrant. Each share purchase
      warrant allows the holder to acquire an additional common share of the
      Company at a price of $0.70 per share for two years from the closing date
      of the financing. At the Companys option, and after the applicable resale
      restricted period has expired, the warrants expiry date can be
      accelerated on 30 days notice, should the Companys shares trade at or
      higher than $1.25 for ten consecutive trading days.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|c) | On September 30, 2006, the Company received CAD$109,800
      relating to the payment of the outstanding principal and interest owed to
      the Company relating to the Verida Internet Corp, loan repayment
      schedule                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|d) | The Company acquired 180,300 shares of Austral Pacific at
      market prices averaging approximately $1.42. On October 17, 2006, the
      Company participated in a private placement financing, acquiring an
      additional 1,395,000 shares of Austral Pacific at a purchase price of
      US$1.30 per share. As a result of these acquisitions the Company owns
      3,110,240 shares of Austral Pacific (8.68%).                                                                                                                                                                                                                                                                                                                            

NOTE 11 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles (Canadian
GAAP) which conform in all material respects with United States generally
accepted accounting principles (U.S. GAAP) except for the following
differences:

---

- 54 -

|a) | Assets
|-- | ------

Under Canadian GAAP, the Companys
investments accounted for under the cost method of accounting are valued at the
lower of cost or market value. Under U.S. GAAP, such investments are classified
as available-for-sale securities and reported at market value, with unrealized
gains and losses included as a component of comprehensive income.

| |                                           |   | July 31,   |   |   | July 31,  | 
| | ----------------------------------------- | - | ---------- | - | - | --------- | 
| |                                           |   | 2006       |   |   | 2005      | 
| | Investments under Canadian GAAP           | $ | 2,304,811  |   | $ | 2,219,072 | 
| | Adjustment required under U.S. GAAP       |   | (1,655,693 | ) |   | 1,140,541 | 
| | Cumulative historical adjustments to date |   | 2,044,115  |   |   | 903,574   | 
| |                                           |   |            |   |   |           | 
| | Investments under U.S. GAAP               | $ | 2,693,233  |   | $ | 4,263,187 | 

Total assets under U.S. GAAP as at July
31, 2006 and 2005 are $3,304,043 and $4,586,104, respectively.

|b) | Stockholders Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | i)        
      Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | During the 2006 fiscal year, the Company adopted, under
      Canadian GAAP, a policy to record the cost of stock options granted to
      employees and consultants utilizing a fair value measurement basis, a
      policy that is materially consistent with U.S. GAAP for stock-based
      compensation as described in Statement of Accounting Standards 123 (SFAS
      123). However, in previous fiscal years, prior to the adoption of the
      fair value measurement standard under Canadian GAAP, the Company was
      subject to the minimum disclosure standards of SFAS 123 under U.S. GAAP,
      which required it to report, on a pro-forma basis, the effect of following
      a fair value based method of measuring the value of stock options granted
      using the Black Scholes, or similar, option pricing model.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | In accordance with the mandatory disclosure standard, the
      following are the pro-forma figures for common stock had the Company used,
      from inception, a fair value-based method of accounting for stock based
      compensation as described in SFAS 123:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                                      |   | July 31,   |  |   | July 31,   | 
| | ---------------------------------------------------- | - | ---------- |  | - | ---------- | 
| |                                                      |   | 2006       |  |   | 2005       | 
| | Common stock under Canadian GAAP                     | $ | 13,175,075 |  | $ | 13,175,075 | 
| | Cumulative historical pro-forma adjustments to date  |   | 833,611    |  |   | 833,611    | 
| | Common stock under U.S. GAAP applying SFAS
      123 | $ | 14,008,686 |  | $ | 14,008,686 | 

No stock options were granted during
the 2006, 2005 or 2004 fiscal years.

There has been no difference to the
Companys net loss or loss per share as reported under Canadian GAAP when the
fair value based method of accounting defined in SFAS 123 had been applied, on a
pro-forma basis, to the 2006, 2005 or 2004 fiscal years.

| | ii) | Accumulated Deficit
| | --- | -------------------

The effects of Note 11(b)(i) on
accumulated deficit are as follows:

| |                                           |   | July 31,    |   |   | July 31,    |  
| | ----------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                           |   | 2005        |   |   | 2005        |  
| |                                           |   |             |   |   |             |  
| | Deficit under Canadian GAAP               | $ | (10,271,860 | ) | $ | (10,653,465 | )
| | Cumulative historical adjustments to date |   | (833,611    | ) |   | (833,611    | )

---

- 55 -

| | Accumulated deficit under U.S. GAAP | $ | (11,105,471 | ) | $ | (11,487,076 | )
| | ----------------------------------- | - | ----------- | - | - | ----------- | -

| | iii) | Accumulated Other Comprehensive Income
| | ---- | --------------------------------------

The effects of Note 11(a) on
accumulated other comprehensive income are as follows:

| |                                           |   | July 31,   |   |   | July 31,  | 
| | ----------------------------------------- | - | ---------- | - | - | --------- | 
| |                                           |   | 2006       |   |   | 2005      | 
| | Accumulated other comprehensive income    |   |            |   |   |           | 
| | under Canadian GAAP                       | $ | -          |   | $ | -         | 
| | Unrealized gain on investments            |   | (1,655,693 | ) |   | 1,140,541 | 
| | Cumulative historical adjustments to date |   | 2,044,115  |   |   | 903,574   | 
| | Accumulated other comprehensive income    |   |            |   |   |           | 
| | under U.S. GAAP                           | $ | 388,422    |   | $ | 2,044,115 | 

As a result of these adjustments under
U.S. GAAP, total stockholders equity as at July 31, 2006 and 2005 are
$3,332,959 and $4,565,725, respectively.

|c) | Net Income and Comprehensive Income (Loss)
      for the Year
|-- | -------------------------------------------------------------

The following are the effects of Notes
11(a) and (b) on net income and comprehensive income (loss) for the 2006, 2005
and 2004 fiscal years:

| |                                          |   | 2006       |   |   | 2005      |  |   | 2004      | 
| | ---------------------------------------- | - | ---------- | - | - | --------- |  | - | --------- | 
| |                                          |   |            |   |   |           |  |   |           | 
| | Net income for the year under            | $ | 381,606    |   | $ | 1,142,246 |  | $ | 458,829   | 
| | Canadian and US GAAP                     |   |            |   |   |           |  |   |           | 
| | Other comprehensive income (loss):       |   |            |   |   |           |  |   |           | 
| | Unrealized gain on investment            |   | (1,655,693 | ) |   | 1,140,541 |  |   | 703,859   | 
| | Comprehensive income (loss) for the year |   |            |   |   |           |  |   |           | 
| | under U.S. GAAP                          | $ | (1,274,087 | ) | $ | 2,282,787 |  | $ | 1,162,688 | 

---

- 56 -

|ITEM 18. | FINANCIAL STATEMENTS
|-------- | --------------------

Not applicable.

|ITEM 19. | EXHIBITS
|-------- | --------

Exhibit Reference
    Exhibition Description1.1
    Certificate of Continuance (4)1.2
    Notice of Articles (4)1.3
    Articles (4)4.1
    Form of Agreement dated August
          2005 between the Registrant and Austral Pacific Energy Ltd. for the
          purchase of 200,000 units of Austral Pacific at a price of US$2.50per
          unit. (1)4.2
    Form of Agreement dated October
          2006 between the Registrant and Austral Pacific Energy Ltd. for the
          purchase of 1,395,000 units of Austral Pacific at a price of US$1.30per
          unit. (1)4.3
    Consulting Agreement between the Registrant and
      PCL Holdings Ltd. dated April 1, 2005. (4)4.4  Form of
        Subscription Agreement for the 12,972,141 unit private placement dated
        August 2006. (1)4.5  Form of Subscription Agreement
        for the 5,905,000 unit private placement dated November 2006. (1)8.0
    List of Wholly-Owned
      Subsidiaries of Trans-Orient Petroleum Ltd. (4)11.1
    Code of Ethics (3)15.1
    Audit Committee Charter (4)15.2
    Auditors report for the fiscal years 2003 and
      2002 (2)15.3
    Change of auditor papers (3)31.1  Section 302(a) Certification
        of CEO (1)31.2  Section
        302(a) Certification of CFO (1)32.1  Section 906 Certifications
        of CEO and CFO (1)


|(1) | Filed herewith.                                                                            
|--- | -------------------------------------------------------------------------------------------
|    |                                                                                            
|(2) | Incorporated by reference as previously included in Form
      20-F filed January 30, 2004 
|    |                                                                                            
|(3) | Incorporated by reference as previously included in Form
      20-F filed January 31, 2005.
|    |                                                                                            
|(4) | Incorporated by reference as previously included in Form
      20-F filed January 31, 2006.

---

- 57 -

SIGNATURE

Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant certifies that it meets all of the
requirements for filing on Form 20-F at July 31, 2006 and has duly caused this
annual report to be signed on its behalf by the undersigned, thereunto duly
authorized.

January 26, 2007

TRANS-ORIENT PETROLEUM LTD.

|By: | /s/Barry MacNeil                           | 
|--- | ------------------------------------------ | 
|    | Barry MacNeil, Secretary, CFO and Director | 

---