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

                                   Form 10-QSB

|X|  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITITES
     EXCHANGE ACT OF 1934. For the quarter ended July 31, 2006

|_|  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934




                                VTEX ENERGY, INC.
                 (Name of small business issuer in its charter)

                                     Nevada
                         (State or other jurisdiction of
                         incorporation or organization)

                                   76-0582614
                                (I.R.S. Employer
                               Identification No.)

                        11811 North Freeway, Suite 200
                              Houston, Texas 77060
                     (Address of principal executive office)

                                 (713) 773-3284
                           (Issuer's telephone number)

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

        Yes  |X|  No  |_|

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

        Yes  |_|  No  |X|

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

          As of August 31, 2006,  there were 15,501,470  shares of common stock,
     $0.001 par value, outstanding.

Transitional Small Business Disclosure Format (Check one).

        Yes  |_|  No  |X|

<PAGE>


                                VTEX ENERGY, INC.
                                   FORM 10-QSB
                     FOR THE QUARTER ENDED JULY 31, 2006

                                     INDEX
                                                                        PAGE
 PAGE PART I.  FINANCIAL INFORMATION
     Item 1. Financial Statements
          Consolidated Balance Sheets
               as of July 31, 2006 and April 30, 2006                     3
          Consolidated Statements of Operations
               for the Three Months Ended July 31, 2006 and 2005          5
          Consolidatd Statement of Changes in Stockholders' Equity
               for the Three Months Ended July 31, 2006                   6
          Consolidated Statements of Cash Flows
               for the Three Months Ended July 31, 2006 and 2005          7
          Notes to Consolidated Financial Statements                      8

     Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations                            12

     Item 3. Procedures and Controls                                     17

PART II. OTHER INFORMATION

     Item 1. Legal Proceedings                                           18

     Item 2. Changes in Securities and Use of Proceeds                   18

     Item 3. Defaults Upon Senior Securities                             18

     Item 4. Submission of Matters to a Vote of Security Holders         18

     Item 5. Other Information                                           19

     Item 6. Exhibits                                                    19

SIGNATURES                                                               19

CERTIFICATIONS

     Certification - Chief Executive Officer
     Certification - Chief Financial Officer
     Certification pursuant to 18 U.S.C. Section 1350, as adopted
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     Certification pursuant to 18 U.S.C. Section 1350, as adopted
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



                                      -2-

<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                                VTEX ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS


                                                 July 31, 2006    April 30, 2006
                                                ----------------  --------------
                                                  (Unaudited)

    ASSETS

 CURRENT ASSETS
   Cash                                        $          955  $       38,536
   Certificates of deposit                            101,807         101,807
   Accounts receivable, oil and natural gas            14,979          52,239
   Joint interest billins receivable                   26,432          20,267
   Note receivable                                    537,000         537,000
   Other current assets                               154,168         248,112
                                               --------------  --------------

         Total current assets                         835,341         997,961
                                               --------------  --------------

OIL AND GAS PROPERTIES - Full cost method
   of accounting                                   16,890,310      16,977,310

   Less accumulated depletion, depreciation
      and amortization                          (   1,723,994)  (   1,723,720)
                                               --------------  --------------

         Oil and gas properties, net               15,166,316      15,253,590
                                               --------------  --------------

OTHER ASSETS
   Other property and equipment, net of
      accumulated depreciation of $138,962
      and $133,077 at July 31, 2006 and
      April 30, 2006, respectively                     63,412          69,297
      Deferred loan costs, net of accumulated
      amortization of $649,806 and $623,089
      at July 31, 2006 and April 30, 2006,
      respectively                                     34,205          37,152
   Investment in Viking Petroleum UK Limited,
      equity method                                 1,369,570       1,369,570
   Other assets                                       119,356         108,342
                                               --------------  --------------

         Total other assets                         1,586,543       1,584,361
                                               --------------  --------------

         TOTAL ASSETS                          $   17,588,200  $   17,835,912
                                               ==============  ==============




     The accompanying notes are an integral part of the financial statements

                                      -3-
<PAGE>

                                VTEX ENERGY, INC.
                     CONSOLIDATED BALANCE SHEETS (Continued)


                                                 July 31, 2006    April 30, 2006
                                                ----------------  --------------
                                                  (Unaudited)

    LIABILITIES AND STOCKHOLDERS' EQUITY

 CURRENT LIABILITIES
    Current portion of line of credit -
       related party                                1,585,809       1,359,265
    Revolving lines of credit - banks                 745,001         745,001
    Notes payable, net of debt discount of
       $265,492 and $87,397 at April 30, 2006
       and 2005, respectively                       3,095,637       2,795,999
    Production payments payable                       291,504         299,504
    Accounts payable, trade                    $    3,167,741  $    2,610,775
    Accrued salaies - officers                        277,500         217,500
    Royalties payable                                 584,759         771,793
    Working interest revenues payable                  65,807          63,768
    Taxes payable                                     172,463         172,463
    Advances from related parties                     216,000            -
    Accrued interest                                  691,729         540,418
                                               --------------  --------------

          Total current liabilities                10,893,950       9,576,486
                                               --------------  --------------

 NONCURRENT LIABILITIES
    Line of credit - related party                  2,038,898       2,265,442
    Asset retirement obligations                    1,352,239       1,327,351
                                               --------------  --------------

          Total noncurrent liabilities              3,391,137       3,592,793
                                               --------------  --------------

          TOTAL LIABILITIES                        14,285,087      13,169,279
                                               --------------  --------------

 COMMITMENTS AND CONTINGENCIES                           -              -

 STOCKHOLDERS' EQUITY
    Preferred stock class A-1, cumulative
       convertible; $1,000 par value per share
       3,000 shares authorized; no shares
       issued or outstanding                              -             -
    Preferred stock class AA-1, cumulative
       convertible; $0.01 par value per share,
       500,000 shares authorized; 395,879
       shares issued and outstanding                    3,959          3,959
    Preferred stock class B, noncumulative
       nonconvertible; $0.001 par value per
       share, 500,000 shares authorized;
       500,000 shares issued and outstanding              500            500
    Common stock, $0.001 par value per share;
       150,000,000 shares authorized; 15,087,689
       and 15,007,689 shares issued and
       outstanding at July 31, 2006 and
       April 30, 2006, respectively                    15,088         15,008
    Additional paid-in capital                     36,708,788     36,685,098
    Accumulated deficit                         (  33,369,942)  ( 32,002,436)
    Accumulated other comprehensive loss        (      55,280)  (     35,496)
                                               --------------  --------------

          Total stockholders' equity                3,303,113      4,666,633
                                               --------------  --------------

 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $   17,588,200  $  17,835,912
                                               ==============  ==============





     The accompanying notes are an integral part of the financial statements


                                      -4-
<PAGE>

                                VTEX ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)



                                                   Three Months Ended July 31,
                                                 -------------------------------
                                                      2006             2005
                                                      ----             ----

REVENUES
   Natural gas sales                           $        1,232  $      199,714
                                               --------------  --------------

         Total revenues                                 1,232         199,714
                                               --------------  --------------

OPERATING EXPENSES
   Lease operating expense                            177,284         105,511
   Production taxes                                    83,100          33,802
   Depreciation, depletion and
      amortization expense                              6,159          58,682
   General and administrative expense                 823,653       1,784,510
   Accretion expense                                   24,888          23,105
                                               --------------  --------------

         Total operating expenses                   1,115,084       2,005,610
                                               --------------  --------------

OPERATING LOSS                                  (   1,113,852)  (   1,805,896)
                                               --------------  --------------

OTHER INCOME (EXPENSE)
   Other income                                        42,877           3,296
   Interest expense                             (     296,531)  (     235,079)
                                               --------------  --------------

         Total other expense, net               (     253,654)  (     231,783)
                                               --------------  --------------

NET LOSS                                       $(   1,367,506) $(   2,037,679)
                                               ==============  ==============

NET LOSS PER SHARE - Basic and Diluted         $(        0.09) $(        0.20)
                                                ==============  ==============

WEIGHTED AVERAGE NUMBER OF
   SHARES OUTSTANDING                              15,277,119      10,433,609
                                               ==============  ==============




     The accompanying notes are an integral part of the financial statements


                                      -5-
<PAGE>
                                VTEX Energy, Inc.
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                        Three Months Ended July 31, 2006
                                   (Unaudited)
<TABLE>
<CAPTION>
                             Preferred Stock
                    -------------------------------                                                       Accumulated
                        Class AA-1      Class B           Common Stock        Additional                     Other       Total
                    ---------------- -------------- -----------------------     Paid-in    Accumulated   Comprehensive Shareholders'
                      Shares  Amount Shares  Amount    Shares       Amount      Capital      Deficit         Loss        Equity
                      ------  ------ ------  ------    ------       ------      -------      -------         ----        ------
<S>                 <C>       <C>    <C>     <C>    <C>          <C>         <C>            <C>           <C>           <C>
April 30, 2006       395,879  $3,959 500,000 $  500 15,007,689  $  15,008   $ 36,685,098  $(32,002,436) $ (  35,496)  $ 4,666,633

Common stock issued
 for prior year
 loan consideration     -       -       -       -      80,000           80   (        80)         -            -             -
Warrants granted
 for loan guarantee     -       -       -       -         -           -           23,770          -            -           23,770
Net loss                -       -       -       -         -           -             -      ( 1,367,506)        -       (1,367,506)
Foreign currency
 translation            -       -       -       -         -           -             -             -      (   19,784)   (   19,784)
                    --------- ------ ------- ------ ----------- ----------- ------------- ------------- ------------- ------------
Balance
April 30, 2006       395,879  $3,959 500,000 $  500 15,087,689  $  15,088   $ 36,708,788  $(33,369,942) $ (   55,280) $ 3,303,113
                    ========= ====== ======= ====== =========== =========== ============= ============= ============= ============
</table>

          The accompanying notes are an integral part of the consolidated
            financial statements






                                      -6-
<PAGE>

                                VTEX Energy, Inc.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


                                                   Three Months Ended July 31,
                                                 -------------------------------
                                                      2006             2005
                                                      ----             ----

 CASH FLOWS FROM OPERATING ACTIVITIES
    Net Loss                                     $(  1,367,506)   $(  2,037,679)
    Adjustments to reconcile net loss to net
       cash used in operating activities
          Depreciation, depletion and
             amortization expense                        6,159           58,682
          Amortization of deferred loan
             costs and loan discount                   122,522          108,116
          Accretion expense                             24,888           23,105
          Accrued salaries, officers                    60,000             -
          Common stock and warrants issued
             for services                                 -              21,494
          Stock based compensation                        -           1,280,000
    Changes in operating assets and liabilities
          Accounts receivable                           31,095     (    130,042)
          Other assets                                  82,930     (    115,401)
          Accounts payable - trade                     556,966     (     77,379)
          Royalties and working interest
             revenues payable                     (    184,995)    (     17,168)
          Other current liabilities                    151,311          114,096
                                                 --------------   --------------
Net cash (used in) provided by
   operating activities                           (    516,630)    (    772,176)
                                                 --------------   --------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Investment in certificates of deposit                 -        (      2,890)
    Oil and natural gas capital expenditures              -        (     24,571)
    Proceeds from sales of oil and
       natural gas properties                           87,000          270,000
    Acquisition of Viking International
       Petroleum, PLC, net of cash acquired               -        (    121,619)
                                                 --------------   --------------
Net cash provided by (used in)
   investing activities                                 87,000          120,920
                                                 --------------   --------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Borrowings on notes payable                        205,500          425,000
    Repayments of notes payable                   (      1,667)    (     67,529)
    Repayments of production payments             (      8,000)            -
    Borrowings on lines of credit                         -             350,000
    Advances from related parties                      216,000             -
    Repayments of advances from related
       parties                                            -        (     12,500)
                                                 --------------   --------------
Net cash provided by financing activities              411,833          694,971
                                                 --------------   --------------

Effect of foreign currency translation            (     19,784)           -
                                                 --------------    ------------


 NET CHANGE IN CASH
    AND CASH EQUIVALENTS                          (     37,581)          43,715

 CASH AND CASH EQUIVALENTS,
    BEGINNING OF PERIOD                                 38,536           37,582
                                                 --------------   --------------

 CASH AND CASH EQUIVALENTS,
    END OF PERIOD                                $         955    $      81,297
                                                 ==============   ==============



     The accompanying notes are an integral part of the financial statements
                                      -7-
<PAGE>
                                VTEX Energy, Inc.
              Notes to Unaudited Consolidated Financial Statements
                                   (Unaudited)


Note 1.  Basis of Presentation

The  accompanying  consolidated  financial  statements  have  been  prepared  by
management  of VTEX Energy,  Inc., a Nevada  corporation  and its  subsidiaries,
Vector Exploration,  Inc. and Viking  International  Petroleum,  PLC ("Viking"),
collectively  the "Company"  without audit pursuant to the rules and regulations
of the SEC. Certain  information and footnote  disclosures  normally included in
the financial  statements  prepared in accordance with U.S.  generally  accepted
accounting  principles  have been  condensed or omitted as allowed by such rules
and  regulations,  and management  believes that the disclosures are adequate to
make the  information  presented  not  misleading.  These  financial  statements
include all of the adjustments that, in the opinion of management, are necessary
for the fair presentation of the financial position and results of operations of
the Company.  These financial  statements should be read in conjunction with the
audited  consolidated  financial  statements  for the year ended April 30, 2006,
which are included in the Company's  annual report on Form 10-KSB filed with the
SEC on  September  20,  2006.  Notes to the  financial  statements  which  would
substantially  duplicate  the  disclosure  contained  in the  audited  financial
statements  for the most recent fiscal year 2006 as reported in Form 10-KSB have
been omitted.

Going Concern

As shown in the financial statements,  the Company has historically incurred net
losses from operations and has incurred net losses of  approximately  $1,368,000
and $2,038,000 for the three months ended July 31, 2006 and 2005,  respectively,
and losses are  expected  to  continue  in the near  term.  Current  liabilities
exceeded current assets by approximately  $10,059,000 and $8,579,000 at July 31,
2006  and  April  30,  2006,  respectively,   and  the  accumulated  deficit  is
approximately  $33,370,000 at July 31, 2006. Amounts  outstanding and payable to
creditors are in arrears and the Company is in  negotiations  with  creditors to
obtain extensions and settlements of outstanding amounts. Management anticipates
that  significant  additional  expenditures  will be  necessary  to develop  the
Company's  properties,  which  consist  primarily  of proved  reserves  that are
non-producing,   before  significant  positive  operating  cash  flows  will  be
achieved.  Without outside investment from the sale of equity securities or debt
financing,  our ability to execute  our  business  plan will be  limited.  These
factors  are an  indication  that the  Company  may be  unable  to  continue  in
existence.

Management's  plans to alleviate these conditions  include the  renegotiation of
certain  trade  payables,  settlements  of debt amounts with stock,  deferral of
certain  scheduled  payments,  and sales of non core  properties,  as considered
necessary by management. In addition, management is pursuing business partnering
arrangements  for the acquisition  and  development of additional  properties as
well as debt and equity funding through private placements.

The accompanying  consolidated  financial  statements are prepared  assuming the
Company will continue as a going concern. The consolidated  financial statements
do not  contain  adjustments,  including  adjustments  to  recorded  assets  and
liabilities,  which might be necessary if the Company were unable to continue as
a going concern.

Certain  reclassifications  have been made to prior period amounts to conform to
the current period presentation.

Note 2.  Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated  financial statements include the accounts of VTEX Energy, Inc.
and  its  wholly  owned  subsidiaries,   Vector  Exploration,  Inc.  and  Viking
International Petroleum, PLC ("Viking"),  herein collectively referred to as the
"Company".  All significant  intercompany  accounts and  transactions  have been
eliminated in consolidation.

The Company  owns an  approximate  24%  interest in Viking  Petroleum UK Limited
which is  accounted  for under  the cost  method  because  of the  inability  to
exercise significant  influence over its operations.  This investment is carried
at cost and  adjusted  only for other than  temporary  declines  in fair  value.
Profits  and  losses of the  investee  are not  recognized  in the  consolidated
financial  statements  of the Company.  No  impairment  of this  investment  was
considered necessary at July 31, 2006.

                                      -8-
<PAGE>
Oil and Natural Gas Properties

The Company  follows the full cost method of accounting  for its oil and natural
gas properties. All costs associated with property acquisition, exploration, and
development  activities  are  capitalized in a single cost center located within
the United  States.  Internal costs directly  identified  with the  acquisition,
exploration  and  development  activities  of the Company are also  capitalized.
Capitalized  costs are  amortized  on the  unit-of-production  basis using total
proved oil and natural gas reserves. Capitalized costs are subject to a "ceiling
test" and are limited to the present value of estimated future net revenues less
estimated  future  expenditures  using a discount factor of ten percent.  Should
capitalized  costs  exceed  the  present  value of  reserves  discounted  at ten
percent,  the excess is charged to operations.  Once incurred,  an impairment of
oil and natural gas properties  can not be reversed at a later date.  Impairment
of  oil  and  natural  gas  properties  is  assessed  on a  quarterly  basis  in
conjunction  with  our  quarterly  filings  with the SEC.  Sales of  proved  and
unproved  oil and  natural  gas  properties  are  treated as  reductions  of the
capitalized cost pool,  unless such adjustments  would  significantly  alter the
relationship between capitalized costs and proved reserves. At July 31, 2006 and
April 30, 2006, there were no costs of unproved  properties or major development
projects included in the capitalized cost pool. The depletion rates per Mcfe for
the  three   months  ended  July  31,  2006  and  2005  were  $1.32  and  $0.99,
respectively.

Loss Per Share

Loss per share has been calculated  using the weighted  average number of shares
outstanding. Outstanding warrants and other potentially dilutive securities have
been excluded from the  calculation of loss per share,  as their effect would be
anti-dilutive due to the Company incurring a net loss for all periods presented.
At July 31, 2006 and April 30,  2006,  there were  189,430  and 269,430  shares,
respectively,  that the Company was  obligated to issue.  The  weighted  average
effect of these  shares was 189,430 and 135,496 for the three  months ended July
31, 2006 and 2005, respectively.  At July 31, 2006 and April 30, 2006, there are
250,000  warrants  that are  potentially  dilutive  common shares that have been
excluded  from the  calculation  of earnings per share because their effects are
anti-dilutive.

Statement of Cash Flows

For purposes of the consolidated  statement of cash flows, the Company considers
all highly  liquid  investments  purchased  with an  original  maturity of three
months or less to be cash and cash equivalents.

The  following  is a summary of all payments  made for interest and  significant
noncash financing  activities for the three months ended July 31, 2006 and 2005,
respectively.

Supplemental Disclosures of Cash Flow Information:
                                                           Three Months Ended
                                                                July 31,
                                                           2006         2005
                                                           ----         ----

Cash Payments
   Interest                                           $    13,736   $    14,204

Noncash financing activities
   Accrued interest converted into note payable       $      -   $       26,466
   Common stock and warrants issued for services             -           21,494
   Common stock and warrants issued to note
      holders recorded as debt discounts                     -           79,761
   Common stock and warrants issued for debt
      extensions and a guarantee                           23,770       165,365
   Common stock options issued for stock
      based compensation                                     -        1,280,000
   Common stock issued as consideration
      for the acquisition of Viking International
      Petroleum, PLC                                         -          640,000
   Common stock issued for loan consideration                  80          -
   Net liabilities acquired in the acquisition
      of Viking International Petroleum, PLC
      (net of cash acquired)                                 -          607,951

Note 3.  Certificates of Deposit

At July 31, 2006 and April 30,  2006,  the Company had  certificates  of deposit
totaling $101,807. Such certificates bear interest at a rates ranging from 3.92%
to 4.07%  at July 31,  2006 and  from  2.81%  to 3.93% at April  30,  2006.  The
maturity  dates of the  certificates  ranged from  January 29, 2007 to March 20,
2007. The  certificates  of deposit are  collateral for letters of credit,  with
expiration dates corresponding to the maturity dates of the certificates, issued

                                      -9-
<PAGE>
in favor of governmental agencies in states in which the Company operates wells.
It is  anticipated  that such  certificates  of  deposit  and the  corresponding
letters of credit will be renewed at maturity.

Note 4.  Asset Retirement Obligations

The Company  recognizes an estimated  liability for the plugging and abandonment
of its oil and  natural  gas  wells and  associated  pipelines,  platforms,  and
equipment.  The  Company  records a  liability  in the period in which its asset
retirement  obligation  ("ARO") is  incurred.  Upon initial  recognition  of the
liability,  the Company must capitalize a corresponding  asset cost equal to the
amount of the liability.

The  estimated  liability  is based on  historical  experience  in plugging  and
abandoning wells and associated pipelines,  platforms, and equipment,  estimated
remaining lives of those wells based on reserve  estimates and federal and state
regulatory   requirements.   The  liability  is  discounted   using  an  assumed
credit-adjusted  risk-free rate of 7.5%.  Revisions to the liability could occur
due to changes in estimates of plugging and  abandonment  costs,  changes in the
risk-free  rate  or  remaining  lives  of the  wells,  or if  federal  or  state
regulators  enact new plugging  and  abandonment  requirements.  At the time the
abandonment  cost is incurred,  the Company will be required to recognize a gain
or loss if the actual  costs do not equal the  estimated  costs  included in the
ARO.

The following table describes all changes to the Company's ARO liability:

                                                  Three Months Ended July 31,
                                              ----------------------------------
                                                    2006              2005
                                                    ----              ----

Beginning asset retirement obligations        $   1,327,351     $     1,232,297
   Accretion expense                                 24,888              23,105
                                              --------------    ----------------
Ending asset retirement obligations           $   1,352,239     $     1,255,402
                                              ==============    ================

Note 5.  Commitments and Contingencies

The Texas Railroad  Commission declined a request by the Company for a reduction
in bonding  requirements  for asset retirement  obligations  which were recently
increased  by the State of Texas for  operators  of  certain  wells  located  in
offshore and bay State of Texas waters.  The Company's  bonding  requirement has
been $50,000,  but would increase to $1,500,000 under the new  regulations.  The
Company is seeking a bond at this increased level but does not have such bond in
place at this time.  There is no  assurance  that a bond can be obtained or that
such bond would be available on commercial terms acceptable to the Company.  The
Company  requested  reconsideration  by the Texas  Railroad  Commission  of this
decision  and such  request  was  declined  on March 27,  2006.  The Company has
appealed such decision to the district court.  Until a final decision is made in
this matter,  the Company will be allowed to continue its  operations  under its
current  bond.  Should  the  Company  not be  successful  in  reducing  the bond
requirement,  or alternatively  obtain a bond at the increased  requirement,  or
provide other  satisfactory  security the Company could be required to outsource
offshore   operations  of  the  property   provided  such  operator  provides  a
satisfactory bond. An arrangement to outsource operations would likely result in
the  reduction  of the  Company's  working  interests  or an  increase  in lease
operating expenses to fund such asset retirement obligations.

As a member of Mustang Island Gathering,  LLC, a Texas limited liability company
and pipeline  operator,  the Company has been required to guarantee a portion of
the LLC's bank debt, which is approximately  $1.1 million in the aggregate.  The
Company's  share of such  guarantee is  approximately  $40,000.  Due to positive
financial  performance of the pipeline,  management's  opinion of the likelihood
that the Company will be required to perform under this guarantee is remote thus
no amount is recorded to reflect the obligation under this guarantee.

ARCOA Energy Partners I, L.P. ("ARCOA") has the right to convert its net profits
interest  into  common  stock of the Company at a  conversion  rate of $1.25 per
share.  The value of the net profits  interest will be determined based upon the
net cash flows attributable to the reserves, discounted at 15%.

From time to time,  the  Company is party to certain  legal  actions  and claims
arising in the ordinary  course of  business.  While the outcome of these events
cannot be predicted with certainty,  management does not expect these matters to
have a materially adverse effect on the financial position of the Company.

                                      -10-
<PAGE>
Note 6.  Stockholder's Equity

Common Stock

The Company has 150,000,000  shares of authorized $0.001 par value common stock,
of which  15,087,689 and 15,007,689  shares were issued and  outstanding at July
31, 2006 and April 30, 2006, respectively.

During the three months ended July 31, 2006, the Company issued 80,000 shares of
its common stock under the terms of notes  payable for which the  obligation  of
issuance  arose  prior to April  30,  2006  and  whose  value  was  included  in
stockholders' equity at April 30, 2006.

Stock Options and Warrants

The Company has outstanding options granted to certain key employees to purchase
4,000,000  shares of the  Company's  common stock a purchase  price of $0.50 per
share.  These  options  expire on July 29,  2015 and are  non-transferable.  The
options,  which were issued at a price equal to or exceeding the market value of
the  underlying  stock on the date of the grant,  are not intended to qualify as
incentive stock options under Internal Revenue Code Section 422.

As of July 31, 2006, there were 5,329,376  warrants  outstanding and exercisable
at prices  ranging from $0.10 to $2.00.  Such  warrants  expire on dates ranging
from August 8, 2006 to March 10, 2010.

During the three  months  ended July 31, 2006,  the Company  issued  warrants to
purchase  100,000 shares of its common stock at $0.50 per share to an individual
in order to secure a  guarantee  of one of its  revolving  lines of credit.  The
warrants had a fair value of $23,770 and expire on June 20,  2008.  The warrants
have been recorded as deferred loan costs and will be amortized over the term of
the line of credit.

Note 7.  Related Party Transactions

From time to time, officers, directors and shareholders of the Company have made
unsecured advances to the Company.  During the three months ended July 31, 2006,
the Company received $216,000 in such advances. Advances are due upon demand.

The Company is obligated  under a line of credit to an entity  controlled by the
brother of the Company's president. See Note 4.

During July, 2005, the Company executed employment agreements with its officers.
Certain of the  officers  have  elected  to defer  payment of a portion of their
salary  under  such  agreements  until  such  time as the  Company's  cash  flow
improves. At July 31, 2006 and April 30, 2006, deferred compensation of $277,500
and  $217,500,  respectively,  has  been  accrued  and is  recorded  as  accrued
salaries, officers.

Note 8.  Subsequent Events

Office Lease

In June 2006,  the  Company  entered  into a long term  lease for  office  space
effective  September 1, 2006. Under the terms of the lease, rent expense will be
$4,330  per month for the first  year and  escalates  annually  to a maximum  of
$5,052 per month.  Future  minimum  lease  payments  under this lease will be as
follows:

       Fiscal Year Ended April 30,
                   2007                   $      25,980
                   2008                          53,403
                   2009                          55,568
                   2010                          57,733
                   2011                          59,898
                   2012                          30,310
                                          -------------
                  Total                   $     282,892
                                          =============

                                      -11-
<PAGE>
Exchange of Viking Interests to USEY

On August 11, 2006, VTEX  contributed all of the outstanding  stock of Viking to
US Energy Overseas Investments, LLC ("Overseas") in return for Class B ownership
units in Overseas  and warrants to purchase  common stock of US Energy  Systems,
Inc. ("USEY"). The Company,  through Viking owned an approximate 24% interest in
Viking  Petroleum UK Limited  ("Viking  Petroleum").  Viking Petroleum owned gas
licenses (the "Gas Licenses") for approximately 100,000 acres of onshore natural
gas properties and mineral rights in North Yorkshire,  England.  The transaction
between the Company and Overseas was combined with transactions  between several
other  entities  which  resulted in the Gas  Licenses,  the  Knapton  Generating
Station,  a 42 MW  gas-fired  power  plant  associated  with and  located in the
vicinity of the natural gas reserves in North  Yorkshire,  England,  and certain
related gas  gathering  and  processing  assets being  directly  and  indirectly
acquired by UK Energy  Systems  Limited ("UK  Energy").  UK Energy is an English
company which is a  wholly-owned  subsidiary of GBGH,  LLC ("GBGH"),  a Delaware
limited  liability  company.  GBGH is 79%  owned by  Overseas,  and 21% owned by
Marathon  Capital  Holdings  (UK),  LLC.  As  part of the  transaction,  a power
purchase  agreement  and  a gas  sales  agreement  with  Scottish  Power  Energy
Management  ("Scottish  Power") was entered into under which  Scottish  Power is
required to take all of the  electricity  generated  by the  Knapton  Generating
Station and all of the natural gas produced from the  associated  reserves up to
100 Bcf for a term of up to 12 years.

VTEX received 100 Class B Membership  Units of Overseas.  The Class B Membership
Units  participate in the cash flow of Overseas and are  convertible  into up to
1,900,000  shares of common stock of USEY.  The  investment  in Overseas will be
accounted for using the cost method. In addition,  the Company received warrants
to purchase 500,000 shares of common stock of USEY. The warrants are exercisable
at prices ranging from $8 to $10 per share and expire on August 7, 2011.

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

     The  following  is  management's  discussion  and  analysis of  significant
factors  that have  affected  certain  aspects  of our  financial  position  and
operating  results  during the periods  included in the  accompanying  unaudited
condensed consolidated  financial statements.  This discussion should be read in
conjunction with the accompanying  unaudited  condensed  consolidated  financial
statements  included  elsewhere  in  this  Form  10-QSB  and  with  Management's
Discussion and Analysis of Financial Condition and Results of Operations and our
audited consolidated  financial statements included in our annual report on Form
10-KSB for the year ended April 30, 2006.

Forward-Looking  Statements

     The statements contained in all parts of this document,  including, but not
limited to, those relating to our outlook,  including any expectations regarding
increases  in our  liquidity  or  available  credit,  our  ability to access the
capital  markets  to raise  additional  capital,  our  drilling  plans,  capital
expenditures,  future  capabilities,  the  sufficiency of capital  resources and
liquidity  to support  working  capital  and capital  expenditure  requirements,
reinvestment  of cash flows,  use of NOLs, tax rates,  the outcome of litigation
and audits,  and any other  statements  regarding future  operations,  financial
results,  business  plans,  sources  of  liquidity  and  cash  needs  and  other
statements that are not historical  facts are forward looking  statements.  When
used in this document,  the words  "anticipate,"  "estimate,"  "expect,"  "may,"
"project,"  "believe,"  "budgeted,"  "intend," "plan," "potential,"  "forecast,"
"might,"  "predict,"  "should" and similar  expressions are intended to be among
the statements that identify forward looking statements. Such statements involve
risks and  uncertainties,  including,  but not limited to, those relating to the
results  of and our  dependence  on our  exploratory  and  development  drilling
activities,  the  volatility of oil and natural gas prices,  the need to replace
reserves  depleted  by  production,  operating  risks  of oil  and  natural  gas
operations,  our  dependence  on key  personnel,  our reliance on  technological
development and possible  obsolescence  of the technology  currently used by us,
the  significant  capital  requirements  of our  exploration and development and
technology  development programs, the potential impact of government regulations
and  liability for  environmental  matters,  results of  litigation  and audits,
expansion of our capital  budgets,  our ability to manage our growth and achieve
our business  strategy,  competition  from larger oil and natural gas companies,
the  uncertainty  of  reserve  information  and future  net  revenue  estimates,
property  acquisition  risks and other factors  detailed in this Form 10-QSB for
the  quarterly  period  ended July 31,  2006 and in our Form 10-KSB for the year
ended April 30, 2006 and other filings with the SEC ("SEC").  Should one or more
of these risks or uncertainties  materialize,  or should underlying  assumptions
prove incorrect,  actual outcomes may vary materially from those indicated.  All
subsequent  written  and oral  forward-looking  statements  attributable  to the
Company or the persons  acting on its behalf are  expressly  qualified  in their
entirety by the reference to these risks and uncertainties.

                                      -12-
<PAGE>
General Overview

     VTEX Energy, Inc., a Nevada corporation (the "Company"),  is an independent
oil and natural gas company  engaged in acquiring,  exploiting,  developing  and
operating oil and natural gas  properties,  with a focus on Texas and Louisiana.
The Company has one wholly owned subsidiary,  Vector  Exploration,  Inc., and is
headquartered in Houston, Texas.

     The Company was  incorporated  under the laws of the State of Texas on June
18,  1998 as Vector  Energy  Corporation  ("Vector")  which  was a wholly  owned
subsidiary of Sunburst Acquisitions II, Inc. ("Sunburst"). Vector was formed for
the purpose of  completing  a reverse  merger  with  Sunburst in order to change
Sunburst's name to Vector Energy Corporation and its state of incorporation from
Colorado  to Texas.  This  merger  was  completed  on June 19,  1998.  Effective
November 15, 2002, the Company was reincorporated in Nevada. The reincorporation
was effected by the merger of Vector with and into a newly created, wholly owned
subsidiary, VTEX Energy, Inc., a Nevada Corporation,  which became the surviving
entity.

     From its inception through March 2000, the Company  consummated a series of
oil and natural gas property  acquisitions  in Texas,  Louisiana  and  Oklahoma.
These  acquisitions  were funded primarily through the issuance of the Company's
stock and the Company's assumption of debt and other liabilities. The properties
acquired were a combination of producing properties and properties considered to
have future development potential.

     A lack of working capital and the service  requirements of the debt assumed
by the Company in its  acquisitions  prevented the Company from fully developing
the properties it had acquired or funding  sufficient  capital  expenditures  on
certain existing  properties to sustain economic  production.  Accordingly,  the
Company  identified  those  properties  that had the most  potential  for future
development,  and in July 2002 began to actively market for sale the rest of its
non-strategic  producing oil and gas properties.  The proceeds from the property
sales allowed the Company to reduce and  restructure  its debt,  while retaining
enough capital to begin development of the properties retained.

     The  estimated  proved oil and natural gas reserves of the Company at April
30, 2006 were 108,000  barrels of crude oil and  condensate  and  10,277,000 Mcf
(thousand  cubic feet) of natural gas.  These  reserves  have an  estimated  $27
million  in future net cash  flow,  discounted  at 10%.  Of these  reserves,  an
estimated  76,000  barrels  of crude oil and  condensate  and  6,880,000  MCF of
natural gas with an estimated $16 million in future net cash flow, discounted at
10%, are considered to be proved developed.  Estimated  capital  expenditures to
develop these properties are $11,275,000.  The Company's reserves are located in
two fields, Bateman Lake and Mustang Island 818-L.

<TABLE>
<CAPTION>
                                                                Percent of          Percent of        Percent of
                                                              April 30, 2006          Revenue          Revenue
                                                             Estimated Future         Quarter          Quarter
                                                              Net Cash Flows           Ended            Ended
          Field                       Location               Discounted at 10%     July 31, 2006    July 31, 2005
          -----                       --------               -----------------     -------------    -------------
<S>                        <C>                               <C>                   <C>              <C>
Bateman Lake               St. Mary Parish, Louisiana             45.26%             100.00%             1.04%

Mustang Island 818-L       State Waters Offshore Texas            54.74%               0.00%            98.96%

</TABLE>

Results of Operations

Three Months Ended July 31, 2006 Compared to Three Months Ended July 31, 2005

     Revenues  are minimal due to  development  and repair  requirements  on our
principal  properties.  Production expenses exceeded revenue by $259,152 for the
three months ended July 31, 2006, principally due to the fact that the Company's
producing   oil  and  gas  wells  have  either  been  shut-in  or  produce  only
intermittently pending the completion of necessary repairs. Such repairs include
repairs  to the  main  tank  battery  and a new  natural  gas  supply  line  for
artificial  gas lift at Bateman Lake and repairs to the  production  platform at
Mustang Island.  The Company estimates that such repairs will cost approximately
$450,000.

     Oil and  natural  gas  revenues  for the three  months  ended July 31, 2006
decreased  99% to $1,232,  compared  to  $199,714  for the same  period in 2005.
Production  volumes for natural gas during the three  months ended July 31, 2006
decreased  99%, to 207 Mcf,  compared to 55,149 Mcf for the three  months  ended

                                      -13-
<PAGE>
July 31,  2006.  Average  natural gas prices for the three months ended July 31,
2006  increased  64% to $5.95  per Mcf,  compared  to $3.62 per Mcf for the same
period in 2005.  There was no oil  production  for either the three months ended
July 31, 2006 or 2005.

     The following table summarizes production volumes, average sales prices and
operating  revenues for the  Company's  oil and natural gas  operations  for the
three months ended July 31, 2006 and 2005.

 <TABLE>
<CAPTION>
                                                                         2006 Compared to 2005
                                  Three Months Ended July 31,      --------------------------------
                               --------------------------------       Increase         % Increase
                                    2006              2005            Decrease)        (Decrease)
                               --------------    --------------    --------------    --------------
<S>                            <C>               <C>               <C>               <C>
Production volumes -
   Oil (Bbls)                           -                 -                 -                 -
   Natural Gas (MCF)                     207            55,149      (     54,942)     (        99%)
Average sales prices -
   Natural gas (per MCF)       $        5.95     $        3.62     $        2.33               64%
Operating revenue
   Natural gas                 $       1,232     $     199,714     $(    198,482)     (        99%)
</TABLE>

     Production  expenses for the three months ended July 31, 2006 increased 22%
to $260,384  compared to $139,313 for the same period in 2005.  This increase in
production  expense is caused by the effect of fixed  lease  operating  expenses
combined with an increase in the minimum transportation charge at Mustang Island
and the cost of well control insurance.

     Depreciation, depletion and amortization expense decreased from $58,682 for
the three  months  ended July 31, 2005 to $6,159 for the three months ended July
31, 2006. This decrease was due to a 99% decrease in Mcfe production volumes.

     General and  administrative  expenses  for the three  months ended July 31,
2006  decreased  by $960,857 to $823,653  compared to  $1,784,510  for the three
months ended July 31,  2005.  The  decrease  was  primarily  due to common stock
warrants  issued for stock  based  compensation  whose value of  $1,280,000  was
expensed  in  the  first  quarter  of  fiscal  2005.  Included  in  general  and
administrative  expenses  for the three  months ended July 31, 2006 was $275,489
relating  to  Viking,  whose  expenses  have  been  included  in  the  Company's
operations since July 29, 2005.

     Accretion  expense for the three  months  ended July 31, 2006  increased by
$1,783 to $24,888  compared to $23,105 for the three months ended July 31, 2005.
This  increase  was due to the normal  compound  effect of the  discount  factor
attributable to the Company's asset retirement obligation.

     Interest  expense for the three months ended July 31, 2006 increased by 26%
to $296,531 from $235,079 for the same period in 2005.  The increase in interest
expense  was  due  primarily  to an  increase  in  weighted  average  debt  from
$5,843,660  for the three months ended July 31, 2005 to $7,494,186 for the three
months  ended July 31, 2006.  Amortization  of loan  discount and deferred  loan
costs included in interest expense  increased from $108,116 for the three months
ended July 31, 2005 to $122,522 for the three months ended July 31, 2006.

Financial Condition and Capital Resources

     Since its  inception,  the  Company  has  suffered  recurring  losses  from
operations and has been dependent on existing  stockholders and new investors to
provide the cash  resources to sustain its  operations.  During the three months
ended July 31,  2006 and 2005,  the  Company  reported  losses of  approximately
$1,368,000  and  $2,038,000,  respectively.  The Company's  continuing  negative
operating  results  have  produced a working  capital  deficit of  approximately
$10,059,000 at July 31, 2006.  These factors raise  substantial  doubt about the
Company's  ability to  continue  as a going  concern.  The  Company's  long-term
viability as a going concern is dependent  upon the Company's  ability to obtain
sources of outside  financing to support near term  operations  and to allow the
Company to make strategic investments in new oil and natural gas prospects which
will provide the Company the ability to attain  profitability and sustain a cash
flow level that will  ensure  support  for  continuing  operations.  The Company
estimates that an additional $1.2 million in capital will be required to sustain
operations for the next year.

     For the past three months the Company has funded its oil and gas  operating
expenses and general and  administrative  expenses through the issuance of short
term investor notes and advances from related parties. Additional equity funding
will be required in the near term to meet the capital needs of the Company.  The

                                      -14-
<PAGE>
Company is evaluating  various  financing  alternatives  such as the issuance of
debt,  private  placements of its common and preferred stock, sales of undivided
interests in some of its oil and natural gas  properties and joint ventures with
industry partners.  There is no guarantee that the Company will be successful in
obtaining such financing, or that the terms of any financing obtained will be on
terms favorable to the Company. Any inability of the Company to raise additional
capital will limit the development of most of its oil and natural gas properties
and may prevent the Company  from  meeting its cash  requirements.  If the wells
which are  currently  being  brought into  production  through  development  and
workovers perform as expected  additional cash flows may be available;  however,
there is no assurance that such cash flows will in fact be available or that the
wells  will,  in  fact,  perform  as  expected.  In the  absence  of  such  well
performance  or  financing,  the company will not be able to meet its  financial
obligations.

     The Texas  Railroad  Commission  declined  a request by the  Company  for a
reduction in bonding  requirements which were recently increased by the State of
Texas for  operators of certain wells located in offshore and bay State of Texas
waters. The Company's bonding  requirement has been $50,000,  but would increase
to $1,500,000 under the new  regulations.  The Company is seeking a bond at this
increased  level but does not have such bond in place at this time.  There is no
assurance  that a bond can be obtained or that such bond would be  available  on
commercial   terms   acceptable   to  the   Company.   The   Company   requested
reconsideration  by the Texas  Railroad  Commission  of this  decision  and such
request was declined on March 27, 2006.  The Company has appealed  such decision
to the  district  court.  Until a final  decision  is made in this  matter,  the
Company  will be allowed to continue  its  operations  under its  current  bond.
Should the  Company  not be  successful  in reducing  the bond  requirement,  or
alternatively  obtain a bond at the  increased  requirement,  or  provide  other
satisfactory  security  the  Company  could be required  to  outsource  offshore
operations of the property provided such operator provides a satisfactory  bond.
An arrangement to outsource  operations  would likely result in the reduction of
the Company's  working  interests or an increase in lease operating  expenses to
fund such asset retirement obligations.

Financing Arrangements

     The  Company  has a $10  million  revolving  credit  line  with  an  entity
controlled by the brother of the Company's president. The credit line is subject
to a borrowing base formula. At July 31, 2006, the Company had drawn the maximum
available  under the borrowing base on the revolving  credit line of $3,624,707.
Additional  borrowings are not available without the consent of the lender.  The
line of credit is secured by all of the Company's oil and natural gas properties
and bears interest at the rate of 7.5%.  Accrued and unpaid interest on the line
of credit totaled $340,375 at July 31, 2006. Under its terms, the line of credit
was to accrue  interest  through October 31, 2005, at which time interest was to
be due monthly.  Beginning in November 2006, the principal  balance  outstanding
under the line of credit  was to  convert  to a term  note  payable  in 48 equal
monthly  installments along with current interest.  The Company has not made any
payments  under  the terms of the  converted  note and  interest  on the line of
credit is  continuing  to accrue.  The note is currently in default,  however no
demand for payment has been received pending ongoing discussions with the lender
to modify the terms of the note. No definitive agreement has yet been reached.

     The Company also has a $250,000 line of credit with a bank. The outstanding
balance under this line of credit is $245,001 at April 30, 2006, and is due upon
demand.

     On June 21,  2005,  the Company  entered into a $500,000  revolving  credit
agreement with Bank of Texas.  The note was guaranteed by a private investor who
is to receive  200,000  shares of the  Company's  common  stock and  warrants to
purchase 100,000 shares of the Company's common stock at $0.50. Interest on this
note is payable  quarterly at the prime rate. The outstanding  balance under the
note is due December 31, 2006.

     The Company has outstanding  production  payments in the amount of $291,504
at July 31, 2006. One of the holders of such production payments has agreed to a
temporary  forbearance of the Company's  obligation until December 31, 2006. The
Company  is  currently  holding  discussions  with the  holder of the  remaining
production payments in order to obtain his forbearance,  however there can be no
assurance that such  forbearance  will be obtained or will be on terms favorable
to the Company.  If such  forbearance is not obtained or continued,  the Company
will be  required  to  remit  the  revenue  from a  substantial  portion  of the
Company's production.

     From time to time, the Company  issues notes payable to settle  outstanding
accounts  payable  and other  liabilities,  finance  expenditures  and  generate
working  capital.  The  balances  of such  notes  payable  were  $3,095,637  and

$2,795,999  at July 31, 2006 and April 30,  2006,  respectively.  Notes  payable
totaling $1,420,342 have reached maturity and are currently in default,  however
no demand for payment has been received  pending  ongoing  discussions  with the
lenders to modify the terms of the notes.

                                      -15-
<PAGE>
Off Balance Sheet Financing Arrangements

     As a member of Mustang Island  Gathering,  LLC (the "LLC"), a Texas limited
liability  company and  pipeline  operator,  the  Company  has been  required to
guarantee a portion of the LLC's bank debt, which is approximately  $1.1 million
in the  aggregate.  The  Company's  share  of such  guarantee  is  approximately
$40,000. Due to the financial  performance of the pipeline,  the likelihood that
the Company will be required to perform  under this  guarantee is remote thus no
amount is recorded to reflect the obligation under this guarantee.

Net Cash Used in Operating Activities

     Cash flows used in operating activities decreased to $516,630 for the three
months  ended July 31, 2006 as compared to $772,176  for the three  months ended
July 31, 2005.  This  decrease was  primarily  due to a decrease in the net loss
incurred by the Company from $2,037,679 in 2005 to $1,367,506 in 2006.

Net Cash Provided by Investing Activities

     Cash flows  provided by investing  activities  decreased to $87,000 for the
three months  ended July 31, 2006 from  $120,920 for the three months ended July
31, 2005.  The decrease  from the prior year was due  primarily to a decrease in
proceeds from the sale of non-strategic properties.

Net Cash Provided by Financing Activities

     Net cash flows provided by financing  activities  totaled  $411,833 for the
three months ended July 31, 2006 primarily from  borrowings  under notes payable
to  investors  totaling  $205,500 and advances  from  related  parties  totaling
$216,000.

Critical Accounting Policies

     The following summarizes several of our critical accounting policies:

Use of Estimates

     The preparation of financial  statements in conformity with U.S.  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting periods. Actual results could differ from these estimates.  The use of
these  estimates  significantly  affects oil and natural gas properties  through
depletion and the full cost ceiling test, as discussed in more detail below.

Oil and Natural Gas Properties

     We account for  investments  in oil and natural  gas  properties  using the
full-cost  method  of  accounting.   All  costs  directly  associated  with  the
acquisition,  exploration  and development of oil and natural gas properties are
capitalized.  These costs  include  lease  acquisitions,  seismic  surveys,  and
drilling and completion  equipment.  We expense  maintenance and repairs as they
are incurred.

     We amortize oil and natural gas properties based on the  unit-of-production
method using  estimates  of proved  reserve  quantities.  The  amortizable  base
includes   estimated   future   development   costs  and,   where   significant,
dismantlement,  restoration  and  abandonment  costs,  net of estimated  salvage
values. The depletion rate per Mcfe for the three months ended July 31, 2006 and
2005 was $1.32 and $0.99, respectively.

     We  account  for   dispositions  of  oil  and  natural  gas  properties  as
adjustments to capitalized  costs with no gain or loss  recognized,  unless such
adjustments would significantly alter the relationship between capitalized costs
and proved reserves.  We have not had any transactions that significantly  alter
that relationship.

     The net  capitalized  costs of proved oil and  natural gas  properties  are
subject to a "ceiling  test" which  limits such costs to the  estimated  present
value,  discounted  at a 10% interest  rate,  of future net revenues from proved
reserves, based on current economic and operating conditions. If net capitalized

                                      -16-
<PAGE>
costs exceed this limit, the excess is charged to operations  through depletion,
depreciation and amortization.  No ceiling test write downs were required during
the three months ended July 31, 2006 or 2005.

Oil and Natural Gas Reserve Estimates

     The reserve  data  included in this  document  for the year ended April 30,
2006 are estimates prepared internally by the Company. The reserve data included
in this document for the year ended April 30, 2005 are estimates  prepared by D.
Raymond Perry, Jr., an independent petroleum engineer.  Reserve engineering is a
subjective process of estimating underground  accumulations of hydrocarbons that
cannot be measured in an exact manner.  The process relies on  interpretation of
available  geologic,  geophysical,  engineering and production data. The extent,
quality and reliability of this data can vary. The process also requires certain
economic   assumptions   regarding  drilling  and  operating  expense,   capital
expenditures,  taxes and  availability of funds.  The SEC mandates some of these
assumptions  such as oil and natural gas prices and the present  value  discount
rate.

     You should not assume  that the  present  value of future net cash flows is
the current market value of our estimated  proved  reserves.  In accordance with
SEC requirements,  we based the estimated  discounted future net cash flows from
proved reserves on prices and costs on the date of the estimate.

     Our rate of recording depreciation,  depletion and amortization expense for
proved properties  depends on our estimate of proved reserves.  If these reserve
estimates decline, the rate at which we record these expenses will increase.

Asset Retirement Obligations

     The Company records a liability for legal  obligations  associated with the
retirement  of  tangible  long-lived  assets  in the  period  in which  they are
incurred in  accordance  with SFAS No.  143,  "Accounting  for Asset  Retirement
Obligations."  The Company  adopted this policy  effective May 1, 2003,  using a
cumulative effect approach to recognize  transition amounts for asset retirement
obligations,  asset  retirement  costs and accumulated  accretion and depletion.
Under this method,  when liabilities for  dismantlement  and abandonment  costs,
excluding  salvage values,  are initially  recorded,  the carrying amount of the
related oil and natural gas properties are increased. Accretion of the liability
is  recognized  each period using the  interest  method of  allocation,  and the
capitalized cost is depleted over the useful life of the related asset.

Contingencies

     Liabilities and other contingencies are recognized upon determination of an
exposure,  which when analyzed  indicates that it is both probable that an asset
has been  impaired or that a liability  has been incurred and that the amount of
such loss is reasonably estimable.

Volatility of Oil and Natural Gas Prices

     Our  revenues,  future  rate of growth,  results of  operations,  financial
condition and ability to borrow funds or obtain additional  capital,  as well as
the  carrying  value  of  our  properties,   are  substantially  dependent  upon
prevailing prices of oil and natural gas.

Item 3.     Controls and Procedures

     Disclosure  controls and procedures are controls and other  procedures that
are  designed to ensure that  information  required to be  disclosed  in Company
reports  filed or submitted  under the  Security and Exchange Act are  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 Company reports filed under
the Securities and Exchange Act is accumulated  and  communicated to management,
including the  Company's  President  and Chief  Executive  Officer and the Chief
Financial Officer, as appropriate,  to allow timely decisions regarding required
disclosure.

     The  Company's  Chief  Executive   Officer  and  Chief  Financial   Officer
(collectively,  the "Certifying  Officers") are responsible for establishing and
maintaining  disclosure  controls  and  procedures  (as  defined  in  Securities
Exchange Act  Rule 13a-15(e))  for the Company.  Such  officers  have  concluded

                                      -17-
<PAGE>
(based upon their  evaluation  of these  controls  and  procedures  as of a date
within  90 days of the  filing of this  report)  that the  Company's  disclosure
controls  and  procedures  are  not  adequate  and  effective  for  purposes  of
Rule 13a-14(c) in timely alerting them to material  information  relating to the
Company required to be included in the Company's  filings with the SEC under the
Securities  Exchange  Act of 1934.  The reasons for our  determination  that our
internal controls and procedures are not effective are detailed below.

     The Company currently employs one person in the accounting  department (the
Chief  Financial  Officer) who is responsible  for the day to day accounting and
SEC reporting  function of the Company.  Daily  transactions  are accounted for,
reconciled and processed to our accounting  records solely by this person.  This
is   considered   a   material   weakness   due  to  lack  of   segregation   of
responsibilities. The lack of resources in the accounting and reporting function
of our internal controls also resulted in the Company not being able to file its
annual  financial  statements  for the year  ended  April  30,  2006 and for the
quarterly  period ended July 31, 2006 on a timely basis.  As of the date of this
filing the Company is compliant in all of its filings.

     As a result  of the items  mentioned  above,  the  Company  has a  material
weakness in its internal  control over the financial  reporting  and  disclosure
function due to the lack accounting resources available for the daily processing
of transactions and account  reconciliations  and the reporting of our financial
statements  within the  appropriate  filings in the time required.  This void in
available accounting resources increases the likelihood to more than remote that
a material  misstatement of the Company's annual or interim financial statements
will not be prevented or detected in a timely manner.

     Executive  management of the Company is currently evaluating its accounting
resource needs and anticipates  employing further  accounting  assistance in the
near term. Management believes that additional accounting assistance,  including
increased  technical  resources,  will  mitigate  the  circumstances  that  have
resulted  in our  evaluation  of  internal  controls  and  procedures  as having
material weaknesses.

     There has been no change in our internal controls over financial  reporting
that  occurred  during the three months ended July 31, 2006 that has  materially
affected,  or is reasonably likely to materially  affect,  our internal controls
over financial reporting.

                           PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

     The Company is involved from time to time in various  claims,  lawsuits and
administrative  proceedings  incidental  to  its  business.  In the  opinion  of
management,  the ultimate liability,  if any, will not have a materially adverse
effect on the financial condition or results of operations of the Company

Item 2.   Changes in Securities and Use of Proceeds

     In May 2005,  the  Company  issued  40,000  shares of its  common  stock to
Michael R. Seeley as consideration under the terms of a loan agreement.

     In May 2005,  the Company  issued  40,000  shares of its common stock to HK
Realty as consideration under the terms of a loan agreement.

     In each of the  aforementioned  cases, the Company issued the shares of its
common stock in reliance upon the exemption from registration under Section 4(2)
of the  Securities  Act of 1933,  as  amended.  The  Company  did not engage any
underwriters in connection with their issuances.

Item 3.   Defaults Upon Senior Securities

         None


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

         None

                                      -18-
<PAGE>
Item 5.   Other Information

         None

Item 6.   Exhibits

    (a)   Additional Exhibits

          Exhibit 31.1 CEO Certification pursuant to Section 302 of the
                       Sarbanes-Oxley Act of 2002.

          Exhibit 31.2 CFO Certification pursuant to Section 302 of the
                       Sarbanes-Oxley Act of 2002.

          Exhibit 32.1 CEO Certification pursuant to Section 906 of the
                       Sarbanes-Oxley Act of 2002.

          Exhibit 32.2 CFO Certification pursuant to Section 906 of the
                       Sarbanes-Oxley Act of 2002.

                                   SIGNATURES

     In accordance  with the Exchange Act, the registrant  caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                         VTEX Energy, Inc.
                         (Registrant)

                         By       /S/ Stephen F. Noser
                                  --------------------------
                                  Stephen F. Noser
                                  President
                                  Principal Executive Officer
                                  Date:    October 5, 2006

                         By       /S/ Randal B. McDonald, Jr.
                                  ---------------------------
                                  Randal B. McDonald, Jr.
                                  Chief Financial Officer
                                  Principal Financial and Accounting Officer
                                  Date:    October 5, 2006


                                      -19-