United
States
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 **FORM
10-KSB**
 
 **[X]
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)**
 **OF
THE SECURITIES EXCHANGE ACT OF 1934**
 
 For the
Year ended 12/31/04
 
 Commission
File Number: 000-30565
 
 **Austin
Chalk Oil and Gas, Ltd.**
 
 Nevada 91-2014670
 (Jurisdiction
of Incorporation) (I.R.S.
Employer Identification No.)
 
 5868
Westheimer, Suite 233, Houston TX 77057
 (Address of
principal executive offices)      (Zip
Code)
  
 Registrant's
telephone number, including area code:  (713)
780-7633
 
 Securities
registered pursuant to Section 12(b) of the Act: None
 
 Securities
registered pursuant to Section 12(g) of the Act: Common
Stock
 
 As of December
31, 2004 Common
shares issued and outstanding: 96,460,736
 
 As of December
31, 2004, 38,460,734 (39.87%) shares
of shares of Common Stock were held by non-affiliates, with a market value
calculated at $4,999,895 , based
on closing low bid of $0.13 per
share. Bid prices for thinly traded issues may be unreliable and subject to
considerable volitivity on very modest volume.
 
 Yes[X]
No[  ] (Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.)
 
 [ 
] (Indicate by check mark whether if disclosure of delinquent filers (§ 229.405)
is not and will not to the best of Registrant's knowledge be contained herein,
in definitive proxy or information statements incorporated herein by reference
or any amendment hereto.)
 
 Transitional
Small Business Disclosure Format (check one): yes [  ] no [X]
 Exhibit
Index is found on page 11
 
   ***Page
- 1***
   
 INTRODUCTION
 
 PART
I
 
 ITEM 1.
Description of Business
 (a)
Historical Information
 (b)
Business
 (c)
Financing Plans
 (d)
Planned Acquisitions
 (e)
Employees
 
 ITEM 2.
Description of Property
 
 ITEM 3.
Legal Proceedings
 
 ITEM 4.
Submission of Matters to a Vote of Security Holders
 
 PART
II
 
 ITEM 5.
Market for Common Equity and Stockholder Matters
 (a)
Market Information
 (b)
Holders
 (c)
Dividends
 (d) Sales
of Unregistered Common Stock 2004
 
 ITEM 6. Management's Discussion and Analysis or Plan of
Operation
 (a) Plan
of Operation for the next twelve months
 (b)
Discussion and Analysis of Financial Condition and Results of
Operations
 
 ITEM 7.
Financial Statements
 (a) Audit
Committee
 (b)
Financial Statements
 
 ITEM 8. Changes In and Disagreements With Accountants
 on
Accounting and Financial Disclosure
 
 PART III
 
 ITEM 9. Directors and Executive Officers, Promoters and Control
Persons;
 Compliance
with Section 16(a) of the Exchange Act
 
 ITEM 10.
Executive Compensation
 
 ITEM 11. Security Ownership of Certain Beneficial Owners and
Management
 
 ITEM 12. Certain Relationships and Related
Transactions
 
 ITEM 13.
Controls and Procedures
 (a)
Attachments.
 (b)
Exhibits
 (c) Form
8-K Reports
 
  ***Page
- 2***
  ****
 **INTRODUCTION**
 
 This
Registrant (Reporting Company) has elected to refer to itself, whenever
possible, by normal English pronouns, such as "We", "Us" and "Our". This Form
10-KSB Annual Report contains forward-looking statements. Such statements
include statements concerning plans, objectives, goals, strategies, future
events, results or performances, and underlying assumptions that are not
statements of historical fact. This document and any other written or oral
statements made by us or on our behalf may include forward-looking statements
which reflect our current views, with respect to future events or results and
future financial performance. Certain words indicate forward-looking statements,
words like "believe", "expect", "anticipate", "intends", "estimates",
"forecast", "projects", and similar expressions.
 
 
 **PART I**
 
 **ITEM****1****.
Description of Business.**
 
 **(** **a** **)
Historical Information.**
 
 **(** **1** **)
Form and Year of Organization.**  *Knowledge
Networks, Inc.* ,
(" the
Registrant" )("we,
"us," or "our") was incorporated in the State of Nevada on December 23, 1998. On
or about October 15, 2002, we changes our name from *Knowledge
Networks, Inc* . to *KNW
Networks, Inc.* About
June 3, 2004, our shareholders authorized and we effected a change of our
corporate name to *Austin
Chalk Oil and Gas, Ltd.* , as
reported in our last previous Quarterly Report.
 
 **(** **2** **)
Issuances Shares.** §4(2) refers to the Securities Act of 1933. S-8 refers to the form of
registration pursuant to the Act.
 
 Narrative
      Description
    12/31/03
      Share
      Amounts
    12/31/04
      Share Amounts12/31/02
      Total Issued and Outstanding
    2,844,254ISSUE
      cash: $2,500, January 7, 2003
    20,000,0002/12/04,authorize
      a Reverse Split of this corporation's common stock Fifteen shares to
      become one share, then one share to become three shares
    5/04
    22,844,254
    4,568,848Servives
      @ $0.50: Registered S-8
    2,550,000Servives
      @ $0.10: Registered S-8
    35,291,688Cash
      @ $0.01: §4(2):
      12 Investors
    54,000,000Options
      exercised @ 0.05: §4(2)
    50,000Total:
      December 31, 2004:
    
    96,460,536
 
 **(** **b** **)
Business.** Our
Business Plan has substantially changed from our annual report for the year
ended December 31, 2003, and our previous quarterly report for the period ending
September 30, 2004, as indicated in our last previous Quarterly
Report.
 
 *Austin
Chalk Oil and Gas, Ltd.* is
actively pursuing that new business plan to engage in the oil and gas
development of existing wells and new properties.
 
 ***Page
- 3***
 
 On or
about July 8, 2004, the Company entered into agreement to acquire a working
interest in a horizontally drilled oil and gas well in the Giddings Field of the
Austin Chalk Trend in South Central Texas. The well is being drilled by
Holifield Oil Company which is owned and operated by Ray Holifield. Mr.
Holifield is not an officer, director, affiliate or shareholder of this
reporting corporation. Our relationship with Holifield, as driller and operator
is contractual and entered into at arms length.
 
 Since
1976, Ray Holifield has drilled 2,000 wells in the Austin Chalk, many of those
utilizing the technique of horizontal drilling, which wells hae produced more
than 200 million barrels of oil equivalent. Mr. Holifield had pioneered most of
the techniques used in horizontal drilling. In fact, more than half the
horizontal drain wells in the world have been drilled in the Austin Chalk. Many
of Holifield's wells in the Giddings Field are re-entries, which lowers up-front
costs by about 50% compared with drilling a new well. Existing wells normally
have casing, pumping equipment, tank batteries, and gas pipeline connections,
all greatly reducing capital costs. Where the pipelind is already in place, oil
and gas can often start very soon after the rig is released.
 
 In
addition to the foregoing, Ray Holifield has developede a new technology --the
“Hybrid Lift System” --which he says can produce an additional 10,000 to 30,000
barrels of oil from horizontal wells along with additional gas as
well.
 
 Over the
past three decades, Ray Holifield has drilled almost 25% of the 9,000 wells in
the five-county areas that Giddings Field encompasses. He has collected an
extensive database of geological and engineering records on Giddings Field at a
cost of approximately 10 million dollars ($10,000,000).
 
 Ray
Holifield and Austin Chalk Oil & Gas estimate that there is at least one
billion dollars of oil and gas reserves waiting to be recovered in the Giddings
Field. They also estimate that about 60% of the anticipated revenues will come
from gas and 40% from oil.
 
 In the
early 1970's, Mr. Holifield was associated with D.R. McCord and Associates, a
pioneer in using computers for oil field modeling and simulation. While working
for McCord in the Middle East, Mr. Holifield developed innovative techniques in
Giddings Field, which enabled him to quickly identify fractures and faults
containing hydrocarbons. In Lee County Texas alone, he has used this seismic
data to drill 647 vertical wells. Many began production at more than a thousand
barrels of oil per day. Overall, these 647 wells averaged 147,902 barrels of
oil, equivalent to a production rate that of 4.7 times greater than the average
of all other operators in the same area.
 
 We have
obtained an option to participate in the next five wells to be drilled by
Holifield Oil. We have recently announced that our Edgmon-Cameron H12 well has
begun producing oil, water and gas at low rates of recovery due to low bottom
pressure. We regard this as normal for the area. The well has approximately
1,000 barrels of oil in its storage tanks.
 
 We have
established our website: http://www.austinchalkoil.com. Our trading symbol is
OTC:ACKO.
 
 **(** **c** **)
Financing Plans.** None
presently. For more information, please see Item 6 of Part II, Management's
Discussion and Analysis.
 
 **(** **d** **)
Planned Acquisitions.** None.
 
 **(** **e** **)
Employees.** We have
two Officer/Directors. See Part III, Item 9 and following for more
information.
 
 
 ***Page
- 4***
 ****
 **ITEM****2****.
Description of Property.**
 
 We have
no significant property other than that described in Item 1 above.
 
 **ITEM****3****.
Legal Proceedings.**
 
 An finder
has claimed and is claiming what management considers an exorbitant and
unjustified finders fee, greater than 10%. The finder was paid and having
received a 10% commission for raising $67,727.70, or $6,772.77. The finder
claims entitlement to a total fee of $20,000.00 before the payment of the normal
10% of $6,772.77. He continues to demand the balance of $13,227.33. Management
has concluded that the demand is unreasonable and out of line with industry
practice. Management will continue to resist this claim, by such normal means as
are necessary and proper. Management expects an ultimately favorable
resolution.
 
 **ITEM****4****.
Submission of Matters to a Vote of Security Holders.**
 
 On
February 12, 2004, an absolute majority of all shares issued and outstanding,
and which would be entitled to vote at meeting of shareholders empowered and
directed a Reverse Split of our common stock, fifteen shares to become one
share. Later, on May 4, 2004, those shareholders approved a three for one
forward split.
 
 ****
 **PART II**
 
 **ITEM****5****.
Market for Common Equity and Stockholder Matters.**
 
 **(** **a** **)
Market Information.** We have
one class of securities, Common Voting Equity Shares (“Common Stock”). Our
Company's Securities may be quoted in the over-the-counter market, but there is
a young, sporadic and potentially volatile trading market for them. Quotations
for, and transactions in the Securities, and transactions are capable of rapid
fluctuations, resulting from the influence of supply and demand on relatively
thin volume. There may be buyers at a time when there are no sellers, and
sellers when there are no buyers, resulting in significant variations of bid and
ask quotations by market-making dealers, attempting to adjust changes in demand
and supply. A young market is also particularly vulnerable to short selling,
sell orders by persons owning no shares of stock, but intending to drive down
the market price so as to purchase the shares to be delivered at a price below
the price at which the shares were sold short. Based upon standard reporting
sources, the following information is provided:
 
 Austin
Chalk
 quarter
    high
      bid
    low
      bid
    volume1st
      2003
    3.00
    1.10
    168,1002nd
      2003
    2.00
    1.01
    92,6203rd
      2003
    1.05
    0.51
    725,1004th
      2003
    0.55
    0.45
    15,142,7401st
      2004
    1.01
    0.16
    15,656,9402nd
      2004
    0.40
    0.04
    1,850,2803rd
      2004
    0.25
    0.09
    624,6604th
      2004
    0.21
    0.13
    3,981,580
 
 The
foregoing price information is based upon inter-dealer prices without retail
mark-up, mark-down or commissions and may not reflect actual transactions.
SOURCE: Yahoo Finance.
 
 **(** **b** **)
Holders.** Management calculates that the approximate number of shareholders of record of
the Company's Common Stock, as of December 31, 2004 and currently, was believed
to be over 100, taking into account shares held in Broker's
accounts.
 
 ***Page
- 5***
 ****
 **(** **c** **)
Dividends.** We have
not paid any cash dividends on our Common Stock, and do not anticipate paying
cash dividends on its Common Stock in the next year. We anticipate that any
income generated in the foreseeable future will be retained for the development
and expansion of our business. Future dividend policy is subject to the
discretion of the Board of Directors and will depend upon a number of factors,
including future earnings, debt service, capital requirements, business
conditions, the financial condition of the Company and other factors that the
Board of Directors may deem relevant.
 
 **(** **d** **)
Sales of Unregistered Common Stock 2004.** Section
4(2) refers to the Securities Act of 1933.
 
 Cash @ $0.01: 4(2): 12 Investors with preexisting relationships with
      management.
    54,000,000Options
      exercised @ 0.05: §;4(2):
      by an Officer
    50,000
 
 
 **ITEM****6****.
Management's Discussion and Analysis or Plan of
Operation.**
 
 Management's
discussion and analysis is intended to be read in conjunction with our audited
financial statements and the notes attached to them. The following statements
may be forward looking in nature and actual results may differ from forward
looking statements.
 
 **(** **a** **)
Plan of Operation for the next twelve months** **.** Our plan
of operation is for the next twelve moths follows from our discussion in Item 1
of Part I. We will continue existing drilling and extraction operation with the
goal of attaining profitability, of the operation and of this corporation for
the benefit of our shareholders.
 
 **(** **1** **)
Cash Requirements and of Need for additional funds, twelve
months.** None.
 
 **(** **2** **)
Summary of Product Research and Development.** None.
 
 **(** **3** **)
Expected purchase or sale of plant and significant
equipment.** None.
 
 **(** **4** **)
Expected significant change in the number of employees.** None.
 
 **(** **b** **)
Discussion and Analysis of Financial Condition and Results of Operations.** This
discussion is intended to be read along with our annual audited financial
statements, found as Attachment FKA-04, and incorporated herein by this
reference.
 
 We have
enjoyed no revenues during the periods covered by this report or corresponding
periods during the previous fiscal year.
 
 **Cuationary
Statements/Risks of Failure.** There
can be no assurance that we will be successful at any time in the future. There
is no assurance that any drilling and extracting program will prove profitable.
Even in the event that one operation many proceed successfully, that success may
be offset by any one or combination of a number of forseeable contingencies. We
will not attempt to provide an exhaustive list of every thing which could go
wrong, but the most obvious ones include equipment breakdown, labor or
administrative difficulties, and changes in the world market price for oil.
 
 There are
also risks inherent in a barely capitalized company, with a short history of
operations. Our business plan includes expanding operations in future. One would
expect some capital requirements for such expansion/acquisition of other working
or holding interests. There can be no assurance of our success, in raising
capital through private placements or otherwise. Even if we are successful in
raising capital through the sources specified, there can be no assurances that
any such financing would be available in a timely manner or on terms acceptable
to us and our current shareholders. Additional equity financing could be
dilutive to our then existing shareholders, and any debt financing could involve
restrictive covenants with respect to future capital raising activities and
other financial and operational matters.
 
 ***Page
- 6***
 
 ****
 **ITEM****7****.
Financial Statements.**
 
 **(** **a** **)
Audit Committee.** The Audit
Committee of this Corporation for this fiscal year consists of the our Board of
Directors. Management is responsible for our internal controls and the financial
reporting process. Our independent auditors are responsible for performing an
independent audit of our financial statements in accordance with generally
accepted accounting standards and to issue a report thereon. It is the
responsibility of our Board of Directors to monitor and oversee these processes.
In this context the Committee has met and held discussions with management and
the independent accountants. Management recommended to the Committee that our
financial statements were prepared in accordance with generally accepted
accounting principles, and the Committee has reviewed and discussed the
financial statements with Management and such independent accountants, matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees). Our independent accountants also provided
to the Committee the written disclosures required by Independence Board Standard
No. 1 (Independence Discussions with Audit Committees), and the Committee
discussed with the independent accountants that firm's
independence.
 
 Based
upon the Committee's discussions, and review, of the foregoing, the Committee
recommended that our audited financial statements in our Annual Report on Form
10-KSB for the year ended December 31, 2004 be included and filed with the
Securities and Exchange Commission.
 
 **(** **b** **)
Financial Statements.** Audited
Financial Statements for
years ended December 31, 2004 are provided as Attachment FKA-04, attached
hereto, filed herewith and incorporated herein by this reference as though fully
set forth herein.
 
 
 ****
 **ITEM****8****.
Changes In and Disagreements With Accountants****on
Accounting and Financial Disclosure.**
 
 None.
 
 The Remainder of this Page is Intentionally left
Blank
   ***Page
- 7***
 **PART III**
 
 
 ****
 **ITEM****9****.
Directors and Executive Officers, Promoters and Control Persons;**
 **Compliance
with Section 16(a) of the Exchange Act.**
 
 April 4,
2002 Marlen L. Roepke was appointed as the sole director and elected President
and Treasurer respectively. On July 1, 2004, Darrel Figg was appointed as an
additional Director. On July 8, 2004, Mr. Figg was elected president, and our
previous president/director Marlen Roepke was elected
secretary/treasurer.
 
 **Darrell
Figg** - President and Chief Operating Officer. Darrell Figg is one of
the Company’s two founders.  Darrell Figg has spent the majority of his
life in the oil industry, beginning at Dresser Industries, a Gulf Coast-based
company, in 1971, as a senior engineer.  His achievements in this industry
have earned him the respect and admiration of his peers and colleagues. 
With experiences in the Northern and Southern hemispheres, his career has given
ample opportunity to understand what makes the oil business tick.  Most
recently, he was the president of Drilling Fluids Engineering & Consulting,
Mr. Figg provided assistance to the industry’s strongest worldwide market
leaders.  His vast knowledge of all aspects of the business, conduct,
procurement and procedural elements of the oil business, Mr. Figg is a
well-qualified man to lead Austin Chalk Oil & Gas, Inc.  Darrell Figg
received his Bachelor’s Degree from Southern Methodist
University.
 **Marlen
L. Roepke** (58) was
Director, Customer Account Management, Thinktanks Worldwide.com, Houston, Texas
(4/00-8/01); Director Service Delivery, Sprint Enterprise Network Services,
Houston, Texas (5/98-4/00); Director, Systems Integration, MCI Systemhouse
Corporation, Houston, Texas (5/94-5/98); Manager, Product Support, Oracle
Corporation, Houston, Texas (5/93-5/94); Vice President, Systems Integration,
The Technology Group, Inc., Houston Texas (4/87-5/93); Director, Information
Resources, Texas Municipal Power Agency, Bryan Texas (8/85-4/87); Manager,
Information Services, Skytop Brewster, Houston Texas (5/77-6/79); Manager Data
Administration, Cameron Iron Works, Houston Texas (4/75-5/77); and he earned his
BA, Business Administration, University of Minnesota, in accounting, in
1965.
 
 The
Remainder of this Page is Intentionally left Blank
  ***Page
- 8***
  
 
 ITEM 10 .
Executive Compensation.
 
 Long
      Term CompensationAnnual
      Compensation
    Awards
    Payoutsa
      
      
      
      Name
      and
      Principal
      Position
    b
      
      
      
      
      
      
      Year
    c
      
      
      
      
      
      Salary
      ($)
    d
      
      
      
      
      
      Bonus
      ($)
    e
      
      
      Other
      Annual
      Compen-sation
      ($)
    f
      
      
      Restric-ted
      Stock
      Awards
      ($)
    g
      
      Securi-ties
      Under-
      lying
      Options
      SARs
      (#)
    h
      
      
      
      
      LTIP
      Payouts
      ($)
    i
      
      
      All
      Other
      Compen-sation
      ($)**Darrel
      Figg**
      President/CEO
      Apr.
      23, 2001 - Feb. 7, 2002
    2004
    0
    0
    0
    0
    100,000
    0
    02003
    0
    0
    0
    0
    0
    0
    02002
    0
    0
    0
    0
    0
    0
    02001
    0
    0
    0
    0
    0
    0
    0Marlen
      L. Roepke
      Sole
      Officer/ Director
      Feb.
      7, 2002
    2004
    0
    0
    0
    0
    100,000
    0
    02003
    0
    0
    0
    0
    666,666
    0
    02002
    0
    0
    0
    0
    0
    0
    02001
    0
    0
    0
    0
    0
    0
    0
 
 1. Darrel
Figg was
granted an option to acquire 100,000 shares of common stock, exercisable at
$0.05, at any time after October 10, 2004.
 
 2. Marlen L.
Roepke was
granted an option to acquire 100,000 shares of common stock, exercisable at
$0.05, at any time. Mr. Roepke exercised his option for 50,000 shares. Mr.
Roepke previously was granted 666,666 shares.
 
 
 **ITEM****11****.
Security Ownership of Certain Beneficial Owners and
Management.**
 
 To the
best of our knowledge and belief the following disclosure presents the total
beneficial security ownership of all Directors and Nominees, naming them, and by
all Officers and Directors as a group, without naming them, and of all persons,
entities and groups, known to or discoverable by us, to be the beneficial owner
or owners of more than five percent of any voting class of Registrant's stock.,
known to or discoverable by Registrant. More than one person, entity or group
could be beneficially interested in the same securities, so that the total of
all percentages may accordingly exceed one hundred percent of some or any
classes. Please refer to explanatory notes if any, for clarification or
additional information.
  ***Page
- 9***
  
 **Certain
Beneficial Owners and Owners of 5% or more**
 
 Name
      and Address of Beneficial Owner
      Common
      Stock
    Share
      Ownership
    %
      of TotalDarrel
      Figg
      1914
      Agusta #8
      Houston
      TX 77054
    0
    0.00Marlen
      L. Roepke
      1914
      Agusta #8
      Houston
      TX 77054
    63,335
    0.07Officers
      and Directors as Group
    63,335
    0.07Eradio
      Diaz
      Sun
      Tower # 5
      Avenida
      Ricardo J. Alfaro
      Panama
      5 Panama
    58,000,002
    60.13Total
      other 5% Owners
    58,000,002
    60.13Total
      all affiliates and 5% owners.
    58,063,337
    60.19Total
      Issued and Outstanding (for reference)
    96,460,736
    100.00Less
      All affiliates
    58,000,002
    60.13Total
      Non-Affiliate Shares
    38,460,734
    39.87
 
 
 
 **ITEM****12****.
Certain Relationships and Related Transactions.**
 
 None.
 
 **ITEM****13****.
Controls and Procedures.**
 
 **Evaluation
of Disclosure Controls and Procedures.** Based
upon an evaluation under supervision and with the participation of our
management, as of a date within 90 days of the filing date of this Annual Report
on form 10-KSB, our principal executive officer and principal financial officer
have concluded that our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c)) under the Securities Exchange Act of 1934, are
effective to ensure that information required to be disclosed (in reports that
we file or submit under that Exchange Act) is recorded, processed, summarized
and reported within the time periods specified in SEC rules and
forms.
 
 **Changes
in Internal Accounting.** There
were no significant changes in our internal controls or other factors that could
significantly affect these controls subsequent to the date of their evaluation.
There wee no significant deficiencies or material weaknesses, and therefore
there were no corrective actions taken. However, the design of any system of
controls is based in part upon the assumptions about the likelihood of future
events, and there is no certainty that any design will succeed in achieving its
stated goal under all potential future considerations, regardless of how
remote.
  ***Page
- 10***
  **(** **a** **)
Attachments.**
 
 (31) Certification
pursuant to 302 .
 
 (32) Certification
pursuant to 1350 .
 
 (A 99.1) Audit
Committee Report
 
 (AFK-02) Audited
Financial Statements for the
years ended December 31, 2004, 2003 and from Inception.
 
 **(** **b** **)
Exhibits.** Please
see our Previous Annual Report on Form 10-KSB, for the year ended December 31,
2001, for Exhibits: (3.1) Articles
of Incorporation ; (3.2) By-Laws ,
incorporated herein by this reference.
 
 **(** **c** **)
Form 8-K Reports.** None.
 
 ******
 ***Pursuant
to the requirements*** of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and individually and in the capacities
and on the date indicated.
 
 ******
 ***Austin
Chalk Oil and Gas, Ltd.***
 
 Dated:
March 31, 2005  by
 /s/
      Darrel Figg
      Darrel
      Figg
      President
    /s/
      Marlen L. Roepke
      Marlen
      L. Roepke
      Secretary
 
 
   ***Page
- 11***
   
 **Exhibit
31**
 
 **Section
302 Certification**
 
 
 ***Page
- 12***
   **CERTIFICATIONS
PURSUANT TO SECTION 302**
 
 We,Darrel
      FiggandMarlen
      L. Roepke,
      each certify that:
 
 1. I have
reviewed this annual report on Form 10-KSB of *Austin
Chalk Oil and Gas, Ltd.* ;
 
 2. Based
on my knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
 
 3. Based
on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this annual report;
 
 4. The
registrant's other certifying officers and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
 a)
      designed such disclosure controls and procedures to ensure that material
      information relating to the registrant, including its consolidated
      subsidiaries, is made known to us by others within those entities,
      particularly during the period in which this annual report is being
      prepared;
 b)
      evaluated the effectiveness of the registrant's disclosure controls and
      procedures as of a date within 90 days prior to the filing date of this
      annual report (the "Evaluation Date"); and
 c)
      presented in this annual report our conclusions about the effectiveness of
      the disclosure controls and procedures based on our evaluation as of the
      Evaluation Date;
 
 5. The
registrant's other certifying officers and I have disclosed, based on our most
recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
 a)
      all significant deficiencies in the design or operation of internal
      controls which could adversely affect the registrant's ability to record,
      process, summarize and report financial data and have identified for the
      registrant's auditors any material weaknesses in internal controls;
      and
 b)
      any fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant's internal
      controls; and
 
 6. The
registrant's other certifying officers and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
 
 Dated:
March 31, 2005
 
 /s/
      Darrel Figg
      Darrel
      Figg
      President
    /s/
      Marlen L. Roepke
      Marlen
      L. Roepke
      Secretary
   
   ***Page
- 13***
   
 
 **Exhibit
32**
 
 **CERITIFICATION
PURSUANT TO 18 USC SECTION 1350**
 
 
 ***Page
- 14***
   **CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,**
 **AS
ADOPTED PURSUANT TO SECTION 906 OF THE**
 **SARBANES-OXLEY
ACT OF 2002**
 
 
 CERTIFICATION
OF CUSTODIAN
 
 In
connection with the Annual Report of *Austin
Chalk Oil and Gas, Ltd.* a Nevada
corporation (the "Company"), on 10-KSB for the December 31, 2004 as filed with
the Securities and Exchange Commission (the "Report"),
 
 We, Darrel
Figg and Marlen L.
Roepke ,
Officers/Directors of the Company, each certify, pursuant to 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), that to my knowledge:
 
 (1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
 
 (2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
 
 
 Dated:
March 31, 2005
 
 /s/
      Darrel Figg
      Darrel
      Figg
      President
    /s/
      Marlen L. Roepke
      Marlen
      L. Roepke
      Secretary
 
   ***Page
- 15***
   
 **Exhibit
Attachment AC-99.1**
 
 **Audit
Committee Report**
 
 
 ***Page
- 16***
   *Austin
Chalk Oil and Gas, Ltd.*
 5868
Westheimer, Suite 233
 Houston
TX, 77057
 Form
Type: 10-KSB
 AUDIT
COMMITTEE REPORT
 
 The Audit
Committee of *Austin
Chalk Oil and Gas, Ltd* .
("AustinChalk") is composed of the Corporation's Board of Directors. The members
of the Committee are the Board of Directors. The Committee recommended, subject
to stockholder ratification, the selection of the Corporation's independent
accountants.
 
 Management
is responsible for the Corporation's internal controls and the financial
reporting process. The independent accountants are responsible for performing an
independent audit of the Corporation's consolidated financial statements in
accordance with the generally accepted auditing standards and to issue a report
thereon. The Committee's responsibility is to monitor and oversee these
processes.
 
 In this
context, the Committee has met and held discussions with management and the
independent accountants. Management represented to the Committee that the
Corporation's financial statements were prepared in accordance with generally
accepted accounting principles, and the Committee has reviewed and discussed the
consolidated financial statements with management and the independent
accountants. The Committee discussed with the independent accountants matters
required to be discussed by the Statement on Auditing Standards No.
61.
 
 The
Corporation's independent accountants also provided to the Committee the written
disclosures required by Independence Standards Board Standard No. 1, and the
Committee discussed with the independent accountant that firms
independence.
 
 Based
upon Committee's discussion with management and the independent accountants and
the Committee's review of the representation of management and the report of the
independent accountants to the Committee, the Committee recommended that the
audited consolidated financial statements be included in the Corporation's
Annual Report on Form 10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission.
 
 Dated:
March 31, 2005
  /s/
      Darrel Figg
      Darrel
      Figg
      President
    /s/
      Marlen L. Roepke
      Marlen
      L. Roepke
      Secretary
   ***Page
- 17***
   
 
 **Attachment
AFK-04**
 
 **Audited
Financial Statements**
 **of**
 ***Austin
Chalk Oil and Gas, Ltd.***
 
 **for
the years ended**
 **December
31, 2004, 2003**
 **and
from inception**






***Page
- 18***




**Austin
Chalk Oil & Gas, LTD.**
 (formerly
KNW NETWORKS, INC.)
 (A
Development Stage Company)
 
 FINANCIAL
STATEMENTS
 
 December
31, 2004 and 2003
 
 
 **C
O N T E N T S**
 
 
 Independent
Auditor’s Report
 
 Balance
Sheets
 
 Statements
of Operations
 
 Statements
of Stockholders’ Equity
 
 Statements
of Cash Flows
 
 Notes to
the Financial Statements
 
   
 
 
 ***Page
- 19***
 
 
 
 INDEPENDENT AUDITOR’S REPORT
 
 
 To the
Board of Directors and Stockholders of
 Austin
Chalk Oil & Gas, LTD
 (formerly
KNW Networks, Inc.)
 (A
Development Stage Company)
 
 We have
audited the accompanying balance sheets of Austin Chalk Oil & Gas, LTD.
(formerly KNW Networks, Inc.) (a development stage company) as of December 31,
2004 and 2003 and the related statements of operations, stockholders’ equity and
cash flows for the years ended December 31, 2004 and 2003 and from inception on
December 16, 1998 through December 31, 2004. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
 We
conducted our audits in accordance with auditing standards generally accepted by
the Public Company Accounting Oversight Board in the United States of America.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about 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.
We believe that our audits provide a reasonable basis for our
opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Austin Chalk Oil & Gas, LTD.
(formerly KNW Networks, Inc.) (a development stage company) as of December 31,
2004 and 2003 and the results of its operations and cash flows for the years
ended December 31, 2004 and 2003 and from inception on December 16, 1998 through
December 31, 2004 in conformity with accounting principles generally accepted in
the United States of America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has minimal assets and all revenues are from a
shareholder. These factors raise substantial doubt about its ability to continue
as a going concern. Management’s plans in regard to these matters are also
described in the Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
 
 
 
 Chisholm,
Bierwolf & Nilson
 Bountiful,
Utah
 March 24,
2005
 
 ***Page
- 20***
   **Austin
Chalk Oil & Gas, LTD.**
 (formerly KNW NETWORKS, INC.)
 Balance Sheets
 
 
 December 312004
    
    
    2003ASSETSCURRENT ASSETSCash
    
    $
    44,909
    
    $
    26Total Current Assets
    
    
    44,909
    
    
    26OTHER ASSETSInvestment in Oil Properties
    
    
    74,500
    
    
    -Total Other Assets
    
    
    74,500
    
    
    -TOTAL ASSETS
    
    $
    119,409
    
    $
    26LIABILITIES AND STOCKHOLDERS’
      EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    195
    
    $
    6,223Accounts payable - related party (Note
      4)
    
    
    19,287
    
    
    112,245Notes payable (Note 5)
    
    
    24,970
    
    
    35,000Total Current Liabilities
    
    
    44,452
    
    
    153,468STOCKHOLDERS’ EQUITYCommon stock, authorized100,000,000 shares of $0.001 par
      value,issued and outstanding and
      96,460,5354,568,848 shares,
respectively
    
    
    96,460
    
    
    4,569Additional paid-in capital
    
    
    1,262,501
    
    
    899,224Subscription Receivable
    
    
    (2,500)
    
    
    -Retained earnings (deficit)
    
    
    (1,281,504)
    
    
    (1,057,235)Total Stockholders’ Equity
    
    
    74,957
    
    
    (153,442)TOTAL LIABILITIES AND STOCKHOLDERS’
      EQUITY
    
    $
    119,409
    
    $
    26
 
 The accompanying notes are an integral part of these
financial statements.
   ***Page
- 21***
   **Austin
Chalk Oil & Gas, LTD.**
 (formerly KNW NETWORKS, INC.)
 (A
Development Stage Company)
 Statements of Operations
 
 
 FromInception onDecember 16,For the Year Ended
    
    
    1998 ThroughDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004REVENUES
    
    $
    -
    
    $
    -
    
    $
    -EXPENSESGeneral and administrative
    
    
    224,269
    
    
    453,635
    
    
    971,765Total Expenses
    
    
    224,269
    
    
    453,635
    
    
    971,765INCOME (LOSS) FROM OPERATIONS:
    
    
    (224,269)
    
    
    (453,635)
    
    
    (971,765)DISCONTINUED OPERATIONS:Income (loss) from discontinued operations
    
    
    -
    
    
    -
    
    
    (443,238)Gain (loss) on disposal of operations
    
    
    -
    
    
    -
    
    
    133,499Income (Loss) from Discontinued Operation
    
    
    -
    
    
    -
    
    
    (309,739)NET (LOSS)
    
    $
    (224,269)
    
    $
    (453,635)
    
    $
    (1,281,504)NET LOSS PER SHARE:(Loss) from continuing operations
    
    $
    (0.00)
    
    $
    (0.02)
    
    $
    (0.08)(Loss) from discontinued operations
    
    
    -
    
    
    -
    
    
    (0.03)Loss Per Share
    
    $
    (0.00)
    
    $
    (0.02)
    
    $
    (0.11)Weighted average shares outstanding
    
    
    63,609,621
    
    
    21,145,624
    
    
    11,289,299
 
  
   The
accompanying notes are an integral part of these financial
statements.
 ***Page
- 22***
   **Austin
Chalk Oil & Gas, LTD.**
 (formerly KNW NETWORKS, INC.)
 (A
Development Stage Company)
 Statements of Stockholders’ Equity
  Additional
    
    
    RetainedCommon Stock
    
    
    Paid
    
    
    EarningsShares
    
    
    Amount
    
    
    In Capital
    
    
    (Deficit)Balance at inception -December 16, 1998
    
    
    1,425
    
    $
    1
    
    $
    8,019
    
    $
    -Shares issued forsubscriptions receivable at $11.25 per
      share
    
    
    174
    
    
    0
    
    
    9,800
    
    
    -Spin off adjustment (Note 1)
    
    
    -
    
    
    -
    
    
    6,844
    
    
    -Net loss for the period ended December 31, 1998
    
    
    -
    
    
    -
    
    
    -
    
    
    (11,209)Balance, December 31, 1998
    
    
    1,599
    
    
    1
    
    
    24,663
    
    
    (11,209)Shares issued for cash at$112.50 per share
    
    
    184
    
    
    0
    
    
    103,500
    
    
    -Shares issued for services at $112.79
      per share
    
    
    44
    
    
    0
    
    
    24,926
    
    
    -Shares issued for services at $1.15 per
      share
    
    
    13
    
    
    0
    
    
    78
    
    
    -Net loss for the year ended December 31, 1999
    
    
    -
    
    
    -
    
    
    -
    
    
    (72,381)Balance, December 31, 1999
    
    
    1,840
    
    
    1
    
    
    153,167
    
    
    (83,590)Shares issued for servicesat $1.13 per
      share
    
    
    4,503
    
    
    5
    
    
    25,333
    
    
    -Cancellation of shares
    
    
    (1,778)
    
    
    (2 )
    
    
    2
    
    
    -Net loss for the year ended December 31, 2000
    
    
    -
    
    
    -
    
    
    -
    
    
    (44,771 )Balance, December 31, 2000
    
    
    4,565
    
    
    4
    
    
    178,502
    
    
    (128,361 )
 
 
 
   The
accompanying notes are an integral part of these financial
statements.
 ***Page
- 23***
   **Austin
Chalk Oil & Gas, LTD.**
 (formerly KNW NETWORKS, INC.)
 (A
Development Stage Company)
 Statements
of Stockholders’ Equity (Continued)
 
 Additional
    
    
    RetainedCommon Stock
    
    
    Paid
    
    
    EarningsShares
    
    
    Amount
    
    
    In Capital
    
    
    (Deficit)Balance, December 31, 2000
    
    
    4,565
    
    $
    4
    
    $
    178,502
    
    $
    (128,361)Shares issued for services at $0.15 per
      share
    
    
    26,666
    
    
    27
    
    
    19,973
    
    
    -Shares issued for services at $0.15 per
      share
    
    
    66,666
    
    
    67
    
    
    49,933
    
    
    -Cancellation of shares
    
    
    (2,334 )
    
    
    (3)
    
    
    3
    
    
    -Shares issued in round-up
    
    
    1
    
    
    -
    
    
    -
    
    
    -Net loss for the year ended December 31, 2001
    
    
    -
    
    
    -
    
    
    -
    
    
    (181,378 )Balance, December 31, 2001
    
    
    95,564
    
    
    95
    
    
    248,411
    
    
    (309,739 )Shares issued in round up
    
    
    3,950
    
    
    4
    
    
    283
    
    
    -Shares issued for reduction of debt at
      $0.44 per share
    
    
    22,667
    
    
    23
    
    
    49,977
    
    
    -Shares issued for reduction of debt at
      $0.75 per share
    
    
    26,667
    
    
    27
    
    
    99,973
    
    
    -Shares issued for services at $0.05 per
      share
    
    
    420,000
    
    
    420
    
    
    104,580
    
    
    -Net loss for the year ended December 31, 2002
    
    
    -
    
    
    -
    
    
    -
    
    
    (293,861)Balance, December 31, 2002
    
    $
    568,848
    
    $
    569
    
    $
    503,224
    
    $
    (603,600)Shares issued for services at $0.02 per
      share
    
    
    4,000,000
    
    $
    4,000
    
    $
    396,000
    
    $
    -Net loss for the year ended December 31, 2003
    
    
    -
    
    
    -
    
    
    -
    
    
    (453,635)Balance, December 31, 2003
    
    $
    4,568,848
    
    $
    4,569
    
    $
    899,224
    
    $
    (1,057,235)
 
 
 The
accompanying notes are an integral part of these financial
statements.
 ***Page
- 24***
   **Austin
Chalk Oil & Gas, LTD.**
 (formerly KNW NETWORKS, INC.)
 (A
Development Stage Company)
 Statements
of Stockholders’ Equity (Continued)
 
 Additional
    
    
    RetainedCommon Stock
    
    
    Paid
    
    
    EarningsShares
    
    
    Amount
    
    
    In Capital
    
    
    (Deficit)Balance, December 31, 2003
    
    
    4,568,848
    
    $
    4,569
    
    $
    899,224
    
    $
    (1,057,235)Shares issued for reduction of debt at
      $0.50 per share
    
    
    300,000
    
    
    300
    
    
    49,700
    
    
    -Shares issued for services at $0.50 per
      share
    
    
    2,250,000
    
    
    2,250
    
    
    72,750Shares issued for reduction of debt at
      $0.01 per share
    
    
    35,291,688
    
    
    35,292
    
    
    82,377
    
    
    -Shares issued for cash at $0.01 per
      share
    
    
    54,000,000
    
    
    54,000
    
    
    126,000
    
    
    -Stock options granted for
      services
    
    
    -
    
    
    -
    
    
    30,000
    
    
    -Stock options exercised at $0.05 per
      share
    
    
    50,000
    
    
    50
    
    
    2,450
    
    
    -Net loss for the year ended December
      31, 2004
    
    
    -
    
    
    -
    
    
    -
    
    
    (224,269)Balance, December 31, 2004
    
    
    96,460,536
    
    $
    96,461
    
    $
    1,262,501
    
    $
    (1,281,504)
   The
accompanying notes are an integral part of these financial
statements.
 ***Page
- 25***
  **Austin
Chalk Oil & Gas, LTD.**
 (formerly KNW NETWORKS, INC.)
 (A
Development Stage Company)
 Statements of Cash Flows
 
  FromInception onDecember 16,For the Year Ended
    
    
    1998 throughDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004CASH FLOWS FROM OPERATING
      ACTIVITIESNet loss
    
    $
    (224,269 )
    
    $
    (453,635 )
    
    $
    (1,281,504 )Adjustments to reconcile net loss to
      net cash provided by operations:Stock issued for services
    
    
    75,000
    
    
    400,000
    
    
    700,629Stock issued for satisfaction of
      payables
    
    
    167,668
    
    
    -
    
    
    367,652Stock options issued for
    services
    
    
    30,000
    
    
    -
    
    
    30,000Bad debt
    
    
    -
    
    
    -
    
    
    11,154Decrease in accounts payable
    
    
    (6,028)
    
    
    245
    
    
    14,204Decrease in accounts payable - related party
    
    
    (92,958)
    
    
    53,272
    
    
    19,287Net Cash Flows Used in Operating Activities
    
    
    (50,587)
    
    
    (118)
    
    
    (138,578 )CASH FLOWS USED IN INVESTMENT
      ACTIVITIESCash payments for notes
      receivable
    
    
    -
    
    
    -
    
    
    (63,993 )Cash payments for oil properties
    
    
    (74,500)
    
    
    -
    
    
    (74,500 )Net Cash Used in Investment Activities
    
    
    (74,500)
    
    
    -
    
    
    (138,493 )CASH FLOWS FROM FINANCING
      ACTIVITIESCash received from notes
    payable
    
    
    -
    
    
    -
    
    
    35,000Payments on notes payable
    
    
    (10,030)
    
    
    -
    
    
    (10,030)Cash received from subscriptions
      receivable
    
    
    -
    
    
    -
    
    
    9,800Cash received from spin-off (Note
      1)
    
    
    -
    
    
    -
    
    
    3,710Issuance of stock for cash
    
    
    180,000
    
    
    -
    
    
    283,500Net Cash Flows from Financing Activities
    
    
    169,970
    
    
    -
    
    
    321,980NET INCREASE (DECREASE) IN
    CASH
    
    
    44,883
    
    
    (118)
    
    
    44,909CASH, BEGINNING OF YEAR
    
    
    26
    
    
    114
    
    
    -CASH, END OF YEAR
    
    $
    44,909
    
    $
    26
    
    $
    44,909
 
   The
accompanying notes are an integral part of these financial
statements.
 ***Page
- 26***
   **Austin
Chalk Oil & Gas, LTD.**
 (formerly KNW NETWORKS, INC.)
 (A
Development Stage Company)
 Staments
of Cash Flows (Continued)
 
 
 FromInception
  onDecember
  16,For the Year Ended
    
    1998
  ThroughDecember 31,
    
    December
  31,2004
    
    
    2003
    
    
    2004SUPPLEMENTAL CASH FLOW
      INFORMATIONCash Paid for:Interest
    
    $
    -
    
    $
    -
    
    $
    -Taxes
    
    $
    -
    
    $
    -
    
    $
    -
 
 
 SUPPLEMENTAL
NON-CASH INFORMATION
 
 During
June 2002, the Company issued 22,667 shares of common stock for satisfaction of
payables  in the
amount of $50,000.
 
 During
September 2002, the Company issued 26,667 shares of common satisfaction of
payables
 in the
amount of $100,000.
 
 During
October 2002, the Company issued 420,000 shares of common stock for services
valued at
 $105,000.
 
 Fraction
shares in the amount of 3,950 were issued as a result of a 10:1, 3:1, and 5:1
reverse stock splits during the year ended December 31, 2002.
 
 During
January 2003, the Company issued 4,000,000 shares of common stock for services
valued at $400,000, to an officer of the Company.
 
 During
March 2004, the Company issued 300,000 shares of common stock for satisfaction
of payables in the amount of $50,000.
 
 During
March 2004, the Company issued 2,250,000 shares of common stock for services
valued at $75,000, to an officer of the Company.
 
 During
May 2004, the Company issued 35,291,688 shares of common stock for satisfaction
of payables in the amount of $117,669.
 
 During
July 2004, the Company issued 50,000 shares of common stock upon the exercise of
options  granted
at $0.05 per share or $2,500.
 
 During
July 2004, the Company granted options to purchase 200,000 shares of common
stock for services valued at $30,000.
 
   ***Page
- 27***
   **Austin
Chalk Oil & Gas, LTD.**
 (formerly KNW NETWORKS, INC.)
 (A
Development Stage Company)
 Notes to the Financial Statements
 December
31, 2004 and 2003
 
 NOTE
      1 -
    SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
 
 a.
Organization
 
 Austin
Chalk Oil & Gas, LTD., (“the Company”) is a Nevada corporation organized on
December 16, 1998. The Company was created on this date through a spin off of
the operations and assets to the shareholders of Knowledge Networks
Acquisitions, Inc. The Company specialized in Microsoft consulting and training
as well as telecommunications consulting, training and outsourcing.
 
 b.
Accounting Method
 
 The
Company recognizes income and expenses on the accrual basis of
accounting.
 
 c.
Earnings (Loss) Per Share
 
 The
computation of earnings per share of common stock is based on the weighted
average number of shares outstanding at the date of the financial
statements.
 
 FromInception onDecember 16,For the Years Ended
    
    
    1998 ThroughDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004Numerator - loss fromcontinuing operations
    
    $
    (224,269)
    
    $
    (453,635)
    
    $
    (971,765)Numerator - loss fromdiscontinued operations
    
    
    -
    
    
    -
    
    
    (309,739 )Denominator - weightedaverage number of shares outstanding
    
    
    63,609,621
    
    
    21,145,624
    
    
    11,289,299Loss per share:Loss from continuing
    operations
    
    $
    (0.00
    
    $
    (0.02)
    
    $
    (0.08)Loss from discontinued
    operations
    
    
    -
    
    
    -
    
    
    (0.03 )Loss per share
    
    $
    (0.00 )
    
    $
    (0.02)
    
    $
    (0.11 )
  
   ***Page
- 28***
   **Austin
Chalk Oil & Gas, LTD.**
 (formerly
KNW NETWORKS, INC.)
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2004 and 2003
 
 NOTE
      1 -
    SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
 
 d. Cash
and Cash Equivalents
 
 The
Company considers all highly liquid investments with maturities of three months
or less to be cash equivalents.
 
 e.
Provision for Income Taxes
 
 No
provision for income taxes has been recorded due to net operating loss
carryforwards totaling approximately $1,281,504 that will be offset against
future taxable income. These NOL carryforwards begin to expire in the year 2019.
No tax benefit has been reported in the financial statements because the Company
believes there is a 50% or greater chance the carryforward will expire
unused.
 
 Accordingly,
per FASB 109, the potential tax benefits of the loss carryforwards are offset by
the valuation of the same amount.
 
 Deferred
tax assets and the valuation account is as follows at December 31, 2004 and
2003.
 
 
 December 31,2004
    
    
    2003Deferred tax asset:NOL carryforward
    
    $
    435,711
    
    $
    359,460Valuation allowance
    
    
    (435,711)
    
    
    (359,460)Total
    
    
    -
    
    
    -
 
 
 f. Use of
Estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimated and assumptions that
affect reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
 
 g.
Recently Enacted Accounting Standards
 
 Statement
of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs - an
amendment of ARB No. 43, Chapter 4”, SFAS No. 152, “Accounting for Real Estate
Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67”, SFAS
No. 153, “Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29”,
and SFAS No. 123 (revised 2004), “Share-Based Payment”, were recently issued.
SFAS No. 151, 152, 153 and 123 (revised 2004) have no current applicability to
the Company or their effect on the financial statements would not have been
significant.
 
 
   ***Page
- 29***
   **Austin
Chalk Oil & Gas, LTD.**
 (formerly
KNW NETWORKS, INC.)
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2004 and 2003
 
 NOTE 2
-GOING CONCERN
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company is dependent upon raising capital
to continue operations. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty. It is management’s plan
to remain in the development stage until a profitable opportunity is found. The
Company has minimal expenses and will be funded by shareholders during the
coming year.
 
 NOTE
      3 -
    COMMON
      STOCK
 
 During
February 2001, the Company canceled 11,667 shares of common stock.
 
 During
June 2001, the Company authorized a 10 for 1 reverse split. The financial
statements have been retroactively restated to reflect the reverse
split.
 
 During
July 2001, the Company issued 133,333 shares of common stock for services valued
at $20,000 of which 46,666 shares were issued to an officer of the
Company.
 
 During
July 2001, the Company issued 333,333 shares of common stock for services valued
at $50,000 to an officer of the Company
 
 During
June 2002, the Company issued 113,334 shares of common stock for forgiveness of
debt in the amount of $50,000.
 
 During
September 2002, the Company issued 133,333 shares of common stock for
forgiveness of debt in the amount of $100,000.
 
 During
October 2002, the Company issued 2,100,000 shares of common stock for services
valued at $105,000.
 
 Fraction
shares in the amount of 19,748 were issued as a result of a 10:1, 3:1, and 5:1
reverse stock splits during the year ended December 31, 2002.
 
 During
February 2002, the Company authorized a 10 for 1 reverse split. The financial
statements have been retroactively restated to reflect the reverse
split.
 
 During
September 2002, the Company authorized a 3 for 1 reverse split. The financial
statements have been retroactively restated to reflect the reverse
split.
 
 During
October 2002, the Company authorized a 5 for 1 reverse split. The financial
statements have been retroactively restated to reflect the reverse split.
 
 
   ***Page
- 30***
   **Austin
Chalk Oil & Gas, LTD.**
 (formerly KNW NETWORKS, INC.)
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2004 and 2003
 
 NOTE 3 -
COMMON STOCK (Continued)
 
 During
January 2003, the Company issued 4,000,000 shares of common stock for services
valued at $400,000.
 
 During
February 2004, the Company authorized a 15 for 1 reverse split. The financial
statements have been retroactively restated to reflect the reverse
split.
 
 During
March 2004, the Company issued 300,000 shares of common stock for satisfaction
of payables in the amount of $50,000.
 
 During
March 2004, the Company issued 2,250,000 shares of common stock for services
valued at $75,000, to an officer of the Company.
 
 During
May 2004, the Company issued 35,291,688 shares of common stock for satisfaction
of payables in the amount of $117,669.
 
 During
May 2004, the Company authorized a 3 for 1 forward split. The financial
statements have been retroactively restated to reflect the forward
split.
 
 During
July 2004, the Company issued 50,000 shares of common stock upon the exercise of
options granted at $0.05 per share or $2,500.
 
 During
July 2004, the Company granted options to purchase 200,000 shares of common
stock for services valued at $30,000.
 
 NOTE 4 -
RELATED PARTY TRANSACTIONS
 
 During
1999, $63,993 was paid to an officer the Company. The note is payable upon
demand with no provision for interest.
 
 During
2000, sales of $55,000 were to a shareholder.
 
 During
2000, 22,517 shares of common stock were issued to officers and shareholders for
consulting services of $25,338.
 
 During
2000, services were performed by a shareholder. The balance payable at December
31, 2000 is $14,009
 
 During
January 2001, the Company forgave an officer, of a $63,993 note
receivable
 
 During
July 2001, the Company issued 333,333 and 133,333 shares of common stock valued
at $50,000 and $20,000 to two officers of the Company.
 
 
 NOTE 5 -
NOTES PAYABLE
 
 On
December 14, 2001, the Company entered into a note payable agreement with
Patagonia Commercial.S.A. in the amount of $35,000. The note bears no interest
and is due December 2002. As of December 31,2004, the balance on the note is
$24,970.
 
   ***Page
- 31***
   **Austin
Chalk Oil & Gas, LTD.**
 (formerly
KNW NETWORKS, INC.)
 (A
Development Stage Company)
 Notes to
the Financial Statements
 December
31, 2004 and 2003
  NOTE 6 -
OPTIONS FOR PURCHASE OF COMMON STOCK
 
 In July
2004, the Company established two agreements with individuals to purchase common
stock options. The Company granted a total of 200,000 options with an exercise
price of $.05. these options expire 10 years from the grant date. The following
tables summarize the information regarding options outstanding at December 31,
2004.
 
 Stock
      Option Agreement
    
    2004WeightedNumber
    
    
    Averageof
      Shares
    
    
    Exercise
      PriceOutstanding
      at beginning of year
    
    
    -
    
    $
    -Granted
    
    
    200,000
    
    
    .05Exercised
    
    
    -
    
    
    -Canceled
    
    
    -
    
    
    -Outstanding
      at Quarter end
    
    
    200,000
    
    $
    .05Exercisable
      at end of year
    
    
    200,000
    
    $
    .05
 In
accordance with SFAS 123, "Accounting for Stock-Based Compensation" an option
expense has been recognized for the quarter ended December 31, 2004 in the
amount of $30,000.
 2004Risk-free
      interest rate
    4.25
      %Dividend
      yield
    0
      %Volatility
    288
      %Average
      expected term (years to exercise date)
    1/12
 
 Officer
stock options outstanding and exercisable under this agreement as of December
31, 2004 are:
 WeightedWeighted
    Average
    
    WeightedRange
    Number
      of
    Average
    Remaining
    Number
      of
    AverageOf
      Exercise
    Options
    of
      Exercise
    Contractual
    Options
    of
      ExercisePrice
    Granted
    Price
    Life
      (years)
    Vested
    Price$
      .05
    200,000
    $
      .05
    9.4
    200,000
    $
      .05
  
 ***Page
- 32***