UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-QSB

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                             
For the quarterly period endedAugust 31,
2006

[ ] TRANSITION REPORT UNDER SECTION 13 OR
15(d) OF THE EXCHANGE
ACTFor the transition period from __________to
__________

Commission file number333-115637

|CASCADE ENERGY, INC.                                                                    
|----------------------------------------------------------------------------------------
|(Exact name of small business issuer
      as specified in its charter)                 
|Nevada                                                                                  
|(State or other jurisdiction of                                                         
|incorporation or organization)                                                          
|9595 Wilshire Boulevard, Suite 900, Beverly
      Hills, CA 90212                       
|(Address of principal executive
      offices)                                          
|310.300.4063                                                                            
|(Issuers telephone
      number)                                                       
|5151 E. Broadway, Suite 1600, Tucson, AZ
      85711                                    
|(Former name, former address and
      former fiscal year, if changed since last report)

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 [ ]

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

95,250,840 shares of common stock, par
value of $0.001 issued and outstanding as of August 31, 2006.

Transitional Small Business Disclosure
Format (Check one): Yes [ ] No[X]

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
(Check one): Yes [ ] No[X]

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2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B, and, therefore, do not include all information and footnotes necessary
for a complete presentation of financial position, results of operations, cash flows, and stockholders equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a
fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the six and three months ended August 31, 2006 are not necessarily indicative
of the results than can be expected for the year ended February 28, 2007.

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3

|CASCADE ENERGY INC.                                |            
|-------------------------------------------------- | -----------
|(An Exploration Stage Company)                     |            
|Audited Financial Statements                       |            
|(Expressed in U.S. Dollars)                        |            
|August 31,
      2006                              |            
|Index                                              | Page Number
|Balance Sheet                                      | F-1        
|Statements of
      Operations                     | F-2        
|Statements of Cash
      Flows                     | F-3        
|Statement of Changes in
      Stockholders Equity | F-4        
|Notes to Financial
      Statements                | F-5-21     

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|4 CASCADE
      ENERGY, INC. (AN
      EXPLORATION STAGE COMPANY) BALANCE SHEET (Stated in US Dollars)
|------------------------------------------------------------------------------------------------------
|
|
|
|
|                                                                                                      
|                                                                                                      
|ASSETS                                                                                                
|Current                                                                                               
|Cash                                                                                                  
|Accounts
      receivable                                                                             
|Advance                                                                                               
|Prepaids                                                                                              
|Due from
      related parties                                                                        
|Total current
      assets                                                                            
|Fixed
      Assets                                                                                    
|Loan                                                                                                  
|Oil and Gas
      Properties                                                                          
|Total assets                                                                                          
|LIABILITIES AND STOCKHOLDERS
      DEFICIENCY                                                        
|Current                                                                                               
|Accounts
      payable and accrued liabilities                                                        
|Due to related
      parties                                                                          
|Total current liabilities                                                                             
|Non-Current                                                                                           
|Convertible
      debenture payable                                                                   
|Interest
      payable                                                                                
|Beneficial
      conversion liability                                                                 
|                                                                                                      
|Total
      liabilities                                                                               
|STOCKHOLDERS DEFICIENCY                                                                              
|Capital stock                                                                                         
|Preferred
      stock, $0.001 par value, 5,000,000 shares authorized                                  
|Common stock,
      $0.001 par value, 200,000,000 shares authorized                                   
|95,250,840
      common shares issued, 49,150,000 outstanding (February                               
|28, 2006: 93,150,000)                                                                                 
|Treasury stock
      issued (2006 - 44,000,000; 2005  Nil)                                           
|Additional paid-in
      capital                                                                      
|Accumulated
      deficit                                                                             
|Accumulated deficit during
      the exploration stage                                                
|Total
      stockholders deficiency                                                                  
|Total liabilities and stockholders
      deficiency                                                  

The accompanying notes are an integral
part of these financial statements

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|5CASCADE ENERGY, INC. (AN EXPLORATION STAGE
      COMPANY)STATEMENTS OF OPERATIONSfor the Three Months and Six Months Ended
      August 31, 2006 and 2005and for the period from June 1, 2005
      (inception) through August 31, 2006(Stated in US Dollars)
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|                                                                                                                                                                                                                                                              
|Revenue                                                                                                                                                                                                                                                       
|Production
      Costs                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                              
|Expenses                                                                                                                                                                                                                                                      
|Accounting and
      audit fees                                                                                                                                                                                                                               
|Advertising
      and promotion                                                                                                                                                                                                                               
|Amortization                                                                                                                                                                                                                                                  
|Bad
      debts                                                                                                                                                                                                                                               
|Bank charges
      and interest                                                                                                                                                                                                                               
|Corporate
      Finance Fees                                                                                                                                                                                                                                  
|Consulting
      fees                                                                                                                                                                                                                                         
|Filing and
      listing fees                                                                                                                                                                                                                                 
|Foreign
      exchange (gain) loss                                                                                                                                                                                                                            
|Investor
      relations                                                                                                                                                                                                                                      
|Legal
      fees                                                                                                                                                                                                                                              
|Meals and
      entertainment                                                                                                                                                                                                                                 
|Office and
      general                                                                                                                                                                                                                                      
|Rent                                                                                                                                                                                                                                                          
|Transfer agent
      fees                                                                                                                                                                                                                                     
|Travel                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                              
|Loss before
      other items                                                                                                                                                                                                                                 
|Other items                                                                                                                                                                                                                                                   
|Beneficial
      conversion expense                                                                                                                                                                                                                           
|Exploration
      costs                                                                                                                                                                                                                                       
|Interest
      expense and Finance                                                                                                                                                                                                                            
|Interest
      income                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                              
|Net Income (Loss)
      from                                                                                                                                                                                                                                  
|continuing
      operations                                                                                                                                                                                                                                   
|Gain (loss) from
      discontinued                                                                                                                                                                                                                           
|operations 
      Note 8                                                                                                                                                                                                                                     
|Net income
      (loss)                                                                                                                                                                                                                                       
|Basic and diluted loss per
      share                                                                                                                                                                                                                       
|continuing
      operations                                                                                                                                                                                                                                   
|Basic and diluted loss per
      share                                                                                                                                                                                                                       
|discontinued
      operations                                                                                                                                                                                                                                 
|Weighted average number
      of                                                                                                                                                                                                                              
|common shares
      outstanding                                                                                                                                                                                                                               

The weighted average number of shares
used excludes common stock equivalents since such amounts would cause an
antidilutive effect.

The accompanying notes are an integral
part of these financial statements

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|6   CASCADE ENERGY,
      INC. (AN EXPLORATION STAGE COMPANY)STATEMENTS OF CASH
      FLOWSfor
      the Six Months Ended August 31, 2006 and 2005and for the period from June 1, 2005
      (inception) through August 31, 2006(Stated in US
      Dollars)
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|                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                            
|Operating
      Activities                                                                                                                                                                                                                                  
|Net loss for
      the period                                                                                                                                                                                                                               
|Net loss from
      continuing operations                                                                                                                                                                                                                   
|Non-cash
      items:                                                                                                                                                                                                                                       
|Amortization                                                                                                                                                                                                                                                
|Depreciation                                                                                                                                                                                                                                                
|Change in
      non-cash working capital items                                                                                                                                                                                                              
|related to operations:                                                                                                                                                                                                                                      
|Accounts receivable                                                                                                                                                                                                                                         
|Beneficial conversion liability                                                                                                                                                                                                                             
|Discount to
      convertible debenture                                                                                                                                                                                                                     
|Increase in
      interest payable                                                                                                                                                                                                                          
|Prepaid expenses and deposits                                                                                                                                                                                                                               
|Advance receivable                                                                                                                                                                                                                                          
|Shares issued for corporate finance fees                                                                                                                                                                                                                    
|Accounts payable and accrued liabilities                                                                                                                                                                                                                    
|Loan receivable                                                                                                                                                                                                                                             
|Decrease in due to related parties                                                                                                                                                                                                                          
|Cash flows used in
      operating activities                                                                                                                                                                                                               
|Financing
      Activities                                                                                                                                                                                                                                  
|Increase in
      due from related parties                                                                                                                                                                                                                  
|Proceeds from
      convertible debenture payable                                                                                                                                                                                                           
|Proceeds from
      share issuance                                                                                                                                                                                                                          
|Cash flows provided by
      (used in) financing                                                                                                                                                                                                            
|activities                                                                                                                                                                                                                                                  
|Investing
      Activities                                                                                                                                                                                                                                  
|Purchase of
      fixed assets                                                                                                                                                                                                                              
|Purchase of
      oil and gas properties                                                                                                                                                                                                                    
|Cash flows provided by
      investing activities                                                                                                                                                                                                           
|Decrease in cash from
      discontinued operations                                                                                                                                                                                                         
|Increase (decrease) in
      cash during the period                                                                                                                                                                                                         
|Cash, beginning of the
      period                                                                                                                                                                                                                         
|Cash, end of the
      period                                                                                                                                                                                                                               
|Supplemental cash flow
      information                                                                                                                                                                                                                    
|Cash paid
      for:                                                                                                                                                                                                                                        
|Interest                                                                                                                                                                                                                                                    
|Income taxes                                                                                                                                                                                                                                                

The accompanying notes are an integral
part of these financial statements

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|7CASCADE ENERGY, INC. (AN EXPLORATION STAGE
      COMPANY)STATEMENT OF STOCKHOLDERS EQUITY
      (DEFICIENCY)For the period December 23, 2003 to February 28,
      2006And
      for the period from June 1, 2005 (inception) through August 31,
      2006(Stated in US Dollars)
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|                                                                                                                                                                                                                                                                                   
|Balance,
      February 29, 2004                                                                                                                                                                                                                                                   
|Other
      comprehensive loss for the year                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                   
|Net loss for the year                                                                                                                                                                                                                                                              
|Balance,
      February 28, 2005                                                                                                                                                                                                                                                   
|Cancellation of common
      stock issued from                                                                                                                                                                                                                                     
|acquisition of Power Grow
      System Ltd. at                                                                                                                                                                                                                                    
|$0.001 June 30,
      2005                                                                                                                                                                                                                                                         
|Issuance of common stock
      for cash                                                                                                                                                                                                                                            
| at $0.30 net of issuance
      cost                                                                                                                                                                                                                                              
|Issuance of treasury stock
       at $0.215                                                                                                                                                                                                                                       
|Net loss from continuing
      operations                                                                                                                                                                                                                                          
|Net loss from discontinued operations                                                                                                                                                                                                                                              
|Balance, February 28, 2006                                                                                                                                                                                                                                                         
|Net loss
      from continuing operations                                                                                                                                                                                                                                          
|Balance May
      31, 2006                                                                                                                                                                                                                                                         

|* | The common stock issued, par
      value of common stock, and additional paid-in capital have been
      retroactively restated to reflect a forward split of 8 new shares for 1
      old share effective on April 28, 2005.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 

The accompanying notes are an integral
part of these financial statements

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|8                 CASCADE
      ENERGY, INC. (AN EXPLORATION STAGE
      COMPANY)   STATEMENT OF STOCKHOLDERS EQUITY
      (DEFICIENCY) For the period December 23, 2003 to February 28,
      2006And
      for the period from June 1, 2005 (inception) through August 31,
      2006            (Stated in US
      Dollars)
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|Number*                                                                                                                                                                                                                                                                                                                         
|Balance, May
      31, 2006                                                                                                                                                                                                                                                                                                     
|Shares issued to Cornell
      Capital at $0.357 per                                                                                                                                                                                                                                                                            
|share on July 17,
      2006                                                                                                                                                                                                                                                                                                    
|Net gain from continuing
      operations                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                
|Balance August 31,
      2006                                                                                                                                                                                                                                                                                                   

|* | The common stock issued, par
      value of common stock, and additional paid-in capital have been
      retroactively restated to reflect a forward split of 8 new shares for 1
      old share effective on April 28, 2005.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 

The accompanying notes are an integral
part of these financial statements

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9

CASCADE ENERGY, INC.(AN EXPLORATION STAGE COMPANY)NOTES TO THE FINANCIAL STATEMENTSAugust 31, 2006(Stated in US Dollars)

Note 1Nature and Continuance of Operations

The Company is in the business of exploring and developing oil and gas properties in Alberta, Canada and in Kansas and California, United States of America.

At August 31, 2006, the Company has working capital of $67,643, but has incurred losses since inception totalling $3,917,270 and has yet to achieve profitable operations. The Companys ability to continue as a
going concern is dependent on raising additional capital to fund future operations and ultimately to attain profitable operations. Accordingly, these factors raise substantial doubt as to the Companys ability to continue as a going concern.
These financial statements do not give affect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.

The Company was incorporated on December 23, 2003 in the State of Nevada and has adopted February 28 as its fiscal year end.

Note 2Summary of Significant Accounting Policies

Cash

For purposes of the statement of cash flows, the Company considers all investment instrument purchased with a maturity of three months or less to be cash equivalents.

Change in Reporting Entity

On May 31, 2005 the Company sold its Power Growth System Ltd. (PGS) which it had acquired in February 29, 2004. The sale resulted in the discontinuance of the hydroponics operations of the Company and the
effects are recorded as discontinued operations in the financial statements. As a result of such sale the Company ceased to have any subsidiaries and no longer reports as a consolidated group.

Accounting Estimates

These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgement. Actual results may differ from these estimates.

The financial statements, in managements opinion, have been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below:

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10

Cascade Energy, Inc.(An Exploration Stage Company)Notes to the Financial StatementsAugust 31, 2006(Stated in US Dollars)Financial
Instruments

The carrying values of the Companys
financial instruments, consisting of cash, accounts receivable, due from related
parties, accounts payable and note payable approximate their fair value due to
the short maturity of such instruments. Unless otherwise noted, it is
managements opinion that the Company is not exposed to significant interest,
currency or credit risks arising from these financial instruments.

|a) | Credit Risk:                                                                                                                                                                                                                                                                                                           
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | The Company maintains the
      majority of its cash balances with one financial institution, in the form
      of demand deposits. For accounts receivable, the Company estimates, on a
      continuing basis, the probable losses and provides a provision for losses
      based on the estimated realizable value.
|  
|b) | Foreign Currency Risk:                                                                                                                                                                                                                                                                                                 
|  
|   | The Company is exposed to
      fluctuations in foreign currencies through its operations in the United
      States. The Company monitors this exposure, but has no hedge positions. As
      at August 31, 2006, the Company had cash totalling $28,778 (2005: $3,949)
      held in US dollars.                     

Fixed Assets

Fixed Assets are stated at cost.
Amortization is calculated on a declining-balance basis at the following
rates:

| | Asset             | Rate
| | ----------------- | ----
| | Computer hardware | 45% 

Maintenance and repairs are charged to
operations; betterments are capitalized. The cost of fixed assets sold or
otherwise disposed of and the accumulated amortization thereon is eliminated
from the fixed asset and related accumulated amortization accounts, and any
resulting gain or loss is credited or charged to income.

Amortization expense for the period ended
August 31, 2006 and 2005 was $4,258 and $Nil, respectively.

Income Taxes

The Company follows Statement of Financial
Accounting Standards (FAS) No. 109, Accounting for Income Taxes which
requires the use of the asset and liability method of accounting of income
taxes. Under the assets and liability method of FAS 109, deferred tax assets and
liabilities are recognized for future tax consequences attributable to temporary
differences between the financial statements carrying amounts of existing assets
and liabilities and loss carry forwards and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which those temporary differences are
expected to be recovered or settled.

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11

Cascade Energy, Inc.(An Exploration Stage Company)Notes to the Financial StatementsAugust 31, 2006(Stated in US Dollars)

Note 2Summary of Significant Accounting Policies (contd)

Basic and Diluted Loss Per Share

The Company reports basic loss per share in accordance with the FAS No. 128, Earnings Per Share. Basic loss per share is computed using the weighted average number of shares outstanding during the period.
Instruments that can be converted to common stock have not been included in the fully diluted computations since the result would be antidilutive.

Oil and Gas Activities - Successful Efforts Method of Accounting

On April 4, 2005, the FASB adopted FASB Staff Position FSP FAS 19-1 that amends Statement of Financial Accounting Standards No. 19 (FAS 19), Financial Accounting and Reporting by Oil and Gas Producing Companies, to permit
the continued capitalization of exploratory well costs beyond one year if (a) the well found a sufficient quantity of reserves to justify its completion as a producing well and (b) the entity is making sufficient progress assessing the reserves and
the economic and operating viability of the project.

The Company accounts for its crude oil exploration and natural gas development activities utilizing the successful efforts method of accounting. Under this method, costs of productive exploratory wells, development dry
holes and productive wells and undeveloped leases are capitalized. Oil and gas lease acquisition costs are also capitalized. Exploration costs, including personnel costs, certain geological and geophysical expenses and delay rentals for oil and gas
leases, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial quantities. The sale of a partial interest in a
proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production amortization rate. A gain or loss is recognized for all other sales of producing
properties.

The application of the successful efforts method of accounting requires managerial judgment to determine that proper classification of wells designated as developmental or exploratory which will ultimately determine the
proper accounting treatment of the costs incurred. The results from a drilling operation can take considerable time to analyze and the determination that commercial reserves have been discovered requires both judgment and industry experience. Wells
may be completed that are assumed to be productive and actually deliver oil and gas in quantities insufficient to be economic, which may result in the abandonment of the wells at a later date. Wells are drilled that have targeted geologic structures
that are both developmental and exploratory in nature and an allocation of costs is required to properly account for the results. Delineation seismic incurred to select development locations within an oil and gas field is typically considered a
development cost and capitalized, but often these seismic programs extend beyond the reserve area considered proved and management must estimate the portion of the seismic costs to expense. The evaluation of oil and gas leasehold acquisition costs
requires managerial judgment to estimate the fair value of these costs with reference to drilling activity in a given area. Drilling activities in an area by other companies may also effectively condemn leasehold positions.

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12

Cascade Energy, Inc.(An Exploration Stage Company)Notes to the Financial StatementsAugust 31, 2006(Stated in US Dollars)

Note 2Summary of Significant Accounting Policies (contd)

Oil and Gas Activities - Successful
Efforts Method of Accounting
(contd)

The successful efforts method of
accounting can have a significant impact on the operational results reported
when the Company is entering a new exploratory area in hopes of finding an oil
and gas field that will be the focus of future development drilling activity.
The initial exploratory wells may be unsuccessful and will be expensed. Seismic
costs can be substantial which will result in additional exploration expenses
when incurred.

Revenues

The Company recognizes oil and gas revenue
from its interests in producing wells as oil and gas is produced and sold from
those wells. Oil and gas sold is not significantly different from the Companys
share of production. Revenues from the purchase, sale and transportation of
natural gas are recognized upon completion of the sale and when transported
volumes are delivered. Shipping and handling costs in connection with such
deliveries are included in production costs. Revenue under carried interest
agreements is recorded in the period when the net proceeds become receivable,
measurable and collection is reasonably assured. The time the net revenues
become receivable and collection is reasonably assured and depends on the terms
and conditions of the relevant agreements and the practices followed by the
operator. As a result, net revenues may lag the production month by one or more
months.

New Accounting
Standards

Management does not believe that any
recently issued but not effective accounting standards if currently adapted
could have a material affect on the accompanying financial
statements.

Note 3Oil and Gas PropertiesThe
Company entered into agreements to acquire interests in various unproven oil and
gas properties as follows:

Coyote Creek Prospect, California,
USA

On May 6, 2005, by an assignment
agreement, the Company acquired a 33.075% working interest in certain mineral
leases situated in Tehama County, California, referred to as the Coyote Creek
Prospect. As consideration for this assignment, the Company assumed complete
responsibility for the performance of all obligations of the assignor with
respect to the farm-out agreement in which the assignor purchased its 67.5%
working interest in the Coyote Creek Prospect. These obligations included
$510,175 in geologic, geophysical, administration, land fee, dry hole drilling
costs, and plugging and abandonment costs. Drilling completed in August 2005
proved that the well was uneconomical, and the entire $510,175 was allocated to
exploration costs. Consequently, no amounts have been capitalized by the Company
with respect to the Coyote Creek Prospect as at August 31, 2006.

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13

Cascade Energy, Inc.(An Exploration Stage Company)Notes to the Financial StatementsAugust 31, 2006(Stated in US Dollars)Note 3Oil and Gas Properties- (contd)Strand Fiord Coal Project, Canada

On June 15, 2005, the Company executed an acquisition proposal (the Agreement) with James Bay Energy Inc (James Bay), a private company, whereby James Bay, with the subsequent ratification of First
Nephi International, Inc. (FNI) as appropriate, agreed to grant to the Company an option to acquire an undivided 10% ownership interest in five coal exploration licenses (the Licenses) to explore and develop certain coal
properties (collectively the Property) located on Axel Hieberg Island in the Canadian Arctic. Pursuant to an agreement (the Underlying Agreement) dated April 20, 2005, between James Bay and FNI, James Bay and FNI agreed to
form a Nova Scotia company (Novaco) for the purposes of the joint-venture exploration and development of the Property. In the Underlying Agreement it was agreed that the ownership of Novaco would be FNI 90% and James Bay 10%, reflecting
the respective interest of those parties in the Licenses.

Due to the failure of James Bay and FNI to form Novaco, the Company elected not to exercise the Option and during the quarter ended November 30, 2005, the Company and James Bay mutually agreed to terminate the Agreement
(Note 9). As at August 31, 2006, no amounts have been paid or capitalized by the Company with respect to the Strand Fiord Coal Project.

Empress Project, Alberta, Canada

Option Lands (Sections 5, 6 and 7), Empress Project, Alberta, Canada

On May 19, 2005, the Company executed a farm-in agreement (the Agreement) with Blue Scorpion Energy Inc. (Blue Scorpion, formerly 1048136 Alberta Ltd.), a private Alberta company, to
acquire a 49% working interest in the Crown P&NG rights of Sections 5, 6, and 7 (the Option Lands) of the Empress Project, located in eastern Alberta, Canada. Under the terms of the Agreement, the Company will earn the 49% working
interest in each of three sections of the project by drilling, casing and completing one exploratory gas well in each section.

The Company elected not to commence with the drilling of the Option Lands, thereby forfeiting its right to a 49% working interest in these properties. As at May 31, 2006, no amounts have been paid or capitalized by the
Company with respect to the Option Lands of the Empress Project.

Farmout Lands (Sections 16, 9, 17, and 21), Empress Project, Alberta, Canada

On June 30, 2005, the Company executed a farm-in agreement (the Agreement) with Blue Scorpion Energy Inc. (Blue Scorpion, formerly 1048136 Alberta Ltd.), a private Alberta company, to
acquire a 21% working interest in Section 16 of the Empress Project, located in eastern Alberta, Canada, including the 11-16-24-2W4M well (11-16). Under the terms of the Agreement, the Company will earn the 21% working interest by
agreeing to pay the Grantors portion (51%) of all additional costs and expenses whatsoever relating to all development on Section 16 from the date of the Agreement forward. The interests earned by the Company under the agreement are subject to
a 15% over-riding royalty interest for the original farmor of the property and an additional 3% over-riding royalty interest stipulated in an underlying agreement.

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14

Cascade Energy, Inc.(An Exploration Stage Company)Notes to the Financial StatementsAugust 31, 2006(Stated in US Dollars)Note 3Oil and Gas Properties- (contd)

In November, 2005, the Company advanced $146,798 and capitalized such amounts ($174,264 Canadian funds) to the Operator of the 11-16. This represents the Companys 51% pro-rata portion of the cost to connect
the 11-16 to the Altagas gathering system. On December 6, 2005, the Company announced the completion of the construction of the pipeline, and the 11-16 commenced commercial production on December 7, 2005.

An amendment to the Agreement signed during the quarter ended November 30, 2005, confirms that the Company has also earned a 49% working interest in three other sections of the Farmout Lands (sections 9, 17, and 21) as a
result of the Grantor having completed one well on Section 16 (Note 9).

Farmout Lands (Sections 16, 9, 17, and 21) Empress Project, Alberta, Canada- (contd)

In the event the Company elects to drill an Option Well, the Company will earn 21% of the Grantors Working Interest if the Option Well is on Section 16 and 49% of the Grantors Working Interest if the Option Well
is on any of the other three Sections, subject to the Overriding Royalty and rights of conversion reserved by the original farmor.

Section 15, Empress Project, Alberta, Canada

On July 22, 2005, the Company executed a farm-in agreement (the Agreement) with Blue Scorpion Energy Inc. (Blue Scorpion, formerly 1048136 Alberta Ltd.), a private Alberta company, to
acquire a 49% working interest in Section 15 of the Empress Project, located in eastern Alberta, Canada. Under the terms of the Agreement, the Company will earn the 49% working interest by drilling one Earning Well on Section 15 and spudding the
Earning Well not later than 30-days after the full execution of the Agreement. The Company elected not to commence with the drilling of the well, thereby forfeiting its right to a 49% working interest. As at August 31, 2006, $3,715USD has been
paid and capitalized by the Company with respect to Section 15 of the Empress Project.

Kansas Prospect Database Participation Rights, Kansas, USA

On August 10, 2005, the Company executed a data sharing agreement (the Agreement) with Blue Scorpion Energy Inc. (Blue Scorpion, formerly 1048136 Alberta Ltd.), a private Alberta company,
to acquire a 25% working interest in certain proprietary oil and gas engineering data respecting several prospective areas in the State of Kansas. The data includes, among other things, certain magnetic data acquired by airborne surveys over lands
(the Lands) in the State of Kansas that cover an area of approximately 1,000,000 acres, as well as interpretations of such data (including scaled digital plots defining potential prospects, maps and other related data). A five (5%)
percent gross overriding royalty (the Royalty) has been reserved in an underlying agreement.

Blue Scorpion will be carried through the drilling and completion of the first two exploratory wells. The 70% joint venture working interest partners will pay 100% of the costs of drilling and completing the initial two
wells. Subsequent to those first two wells, all participants in the play will contribute on a straight up working interest basis.

During the period ended August 31, 2006, $320,000 of exploration costs have been incurred by the Company with respect to the Kansas Prospect Data Sharing Agreement. On July 17 The Company determined that the 20% working
interest or 16% Net Revenue Interest in the project does not warrant the capital required for a short return on investment. Cascade believes that a production asset acquisition with existing cash flow, or a project with a larger working interest,
would be better suited for the Company at this time.

---

15

Cascade Energy, Inc.(An Exploration Stage Company)Notes to the Financial StatementsAugust 31, 2006(Stated in US Dollars)Note 3Oil and Gas Properties-
(contd)Bolloque Prospect, Alberta,
Canada

On August 26, 2005, the Company executed a
farm-in agreement (the Agreement) with a private company (the Grantor) to
acquire the right to earn 49% of the interests that the Grantor can otherwise
earn in the Farmout Lands, six sections of the Bolloque Project located 60
miles due north of Edmonton, Alberta, Canada.

Under the terms of the Agreement, the
Company will earn the 49% working interest by drilling one Test Well. In August,
2005, the Company advanced $374,704 ($450,000 Canadian funds) to the Operator of
the property to finance the drilling of the Test Well. In December, 2005, the
Company advanced $118,000 ($135,830 Canadian funds) to the Operator of the 7-1
for the completion of the well, and during the quarter ended February 28, 2006,
the Company paid an additional $7,412 of exploration costs with respect to this
well. The well was determined to be uneconomical and an accrual of $50,637 was
recorded at February 28, 2006, for the abandonment of the well. Total cost of
the well of $550,753 was allocated to exploration costs. Consequently, no
amounts have been capitalized by the Company with respect to the Bolloque
Prospect as at August 31, 2006.

Note 4Related Party Transactions

During the year period ended August 31,
2006 the Company incurred consulting fees of $232,582 (2005 - $15,400) paid or
accrued to directors of the Company.

Due from related parties at August 31,
2006, is $672 (August 31, 2005 - $10,263) comprised of $306 owing to directors
for out-of-pocket expenses paid on behalf of the Company and $978 advanced to a
director of the Company for travel expenses.

The amounts due to related parties
represent advances and unpaid charges due to directors of the Company or to
companies with directors in common with the Company and such advances are
unsecured, non-interest bearing and have no specific terms of
repayment.

Note 5Income TaxAs at August 31,
2006 and 2005 the Company has non-capital losses and undepreciated capital cost
of approximately $ 4,001,820 and $ 668,476, respectively, which can be carried
forward for tax purposes and are available to reduce taxable income of future
years. The non-capital losses expire commencing in 2006 through 2010.

---

16

Cascade Energy, Inc.(An Exploration Stage Company)Notes to the Financial StatementsAugust 31, 2006(Stated in US Dollars)Note 5 Income Taxes
(continued)

|(a) | The tax effect of temporary
      differences that give rise to the Companys deferred tax assets are as
      follows:
|--- | -----------------------------------------------------------------------------------------------------------------------
|   

| |                                                                                       |  | 2006          |  | 2005       
| | ------------------------------------------------------------------------------------- |  | ------------- |  | -----------
| | Undepreciated capital cost
      of capital assets                                    |  |               |  |            
| | Over their net book
      value                                                       |  | $   3,917,270 |  | $   668,476
| | Estimated tax loss
      carryforward                                                 |  | 1,331,872     |  | 227,282    
| | Less: valuation
      allowance                                                       |  | (1,331,872)   |  | (227,282)  
| |                                                                                       |  | -             |  | -          
| | The valuation allowance
      reflects the realization of the tax assets is unlikely. |  |               |  |            
| |                                                                                       |  |               |  |            

On June 15, 2005, the Company executed
three secured convertible debentures for a total of $3,000,000. The debentures
bear interest at 5% per annum and the principle and interest is convertible, at
the holders discretion, into shares of common stock of the Company at $0.50 per
share. The debentures are due and payable in full on or before June 15, 2006. As
at November 30, 2005, $508,336 has been advanced directly to the operator of the
Coyote Creek Prospect (Note 3), $374,704 has been advanced directly to the
operator of the Bolloque Project (Note 3), and $70,000 has been advanced for
sundry amounts, for a total advanced of $953,040. This debenture was closed
during the quarter ended November 30, 2005, and interest of $20,402 accrued as
at November 30, 2005. The other two debentures were cancelled during the quarter
ended November 30, 2005, as the Company has elected to pursue alternative
sources of financing.

On November 30, 2005, we entered into a
securities purchase agreement with Cornell Capital for an aggregate purchase
price of $3,500,000, of which we have issued (i) on November 30, 2005, a
$1,750,000 secured convertible debenture, convertible into shares of our common
stock, par value $0.001, (ii) on January 10, 2006, another $1,750,000 secured
convertible debenture, convertible into shares of our common stock, par value
$0.001, and (iii) a warrant to purchase an aggregate of 12,000,000 additional
shares of our common stock at an exercise price of $0.2902 per share exercisable
until November 30, 2010.

The secured convertible debenture is
convertible into shares of our common stock at any time by dividing the dollar
amount being converted by the lower of $0.2902 or 80% of the lowest volume
weighted average trading price per share of our common stock for five trading
days immediately preceding the conversion date. The interest on the convertible
debenture shall accrue on the outstanding principal balance at a rate of 5% per
annum. As at August 31, 2006 $86,568 has been charged as an interest expense,
$150,895 has been accreted as interest expense on the debenture discount and
$280,000 has been recorded as interest penalty as liquidated damages, for a
total of $517,463 for the period ended August 31, 2006.

---

17

Cascade Energy, Inc.(An Exploration Stage Company)Notes to the Financial StatementsAugust 31, 2006(Stated in US Dollars)Note 6Convertible Debentures(continued)

In the registration rights agreement with the investor (Cornell Capital Partners LLP.) in the November 30, 2005 private placement, we agreed to file this registration statement on or before December 30, 2005. As amended by
an informal agreement between the parties, we subsequently agreed to file this registration statement on or before January 12, 2006.  After filing this registration statement, we are required to use our best efforts to cause this registration
statement to become effective by April 30, 2006. We will be required to keep the registration statement effective for a period of two (2) years from the date it becomes effective.

In the event that:

- we fail to file this registration statement by January 12, 2006; or
- we fail to have this registration statement declared effective by April 30, 2006;

(each of these is deemed to be a registration default) then our company will pay liquidated damages to each of the investors equal to 2% of the aggregate purchase price paid by each holder for the first 30 days after the
date of default and 2% of the aggregate purchase price paid by each holder for the debentures for every 30 day period thereafter. The foregoing events are also events of default under the secured convertible debentures. An additional event of
default under the debentures is if this prospectus is unavailable for more than five consecutive trading days or more than eight trading days.

As of the date of this report we are in default of having the registration statement declared effective as at April 30, 2006 and are subject to liquidated damages of 2% of the outstanding amount of the debenture every 30
days beginning April 30, 2006.

The Warrants to purchase 12,000,000 of the Companys common stock will expire on November 30, 2010. The exercise price of the warrant is $0.2902 and an exercise period of five years. The Company accounts for the
fair value of these outstanding warrants to purchase common stock and the conversion feature of its convertible notes in accordance with SFAS No. 133 Accounting For Derivative

Instruments And Hedging Activities and EITF Issue No. 00-19 Accounting For Derivative Financial Instruments Indexed To And Potentially Settled In A Companys Own Stock which requires the Company to
bifurcate and separately account for the conversion feature and warrants as embedded derivatives contained in the Companys convertible notes.

Pursuant to SFAS No. 133, the Company bifurcated the fair value of the conversion feature from the convertible notes, since the conversion feature was determined to not be clearly and closely related to the debt host. In
addition, since the effective registration of the securities underlying the conversion feature is an event outside of the control of the Company, pursuant to EITF Issue No. 00-19, the Company recorded the fair value of the conversion feature as a
long-term liability as it was assumed that the Company would be required to net-cash settle the underlying securities.

The value of the warrants have been calculated using the BlackScholes method as of the date of grant based on the following assumptions: an average risk free rate of 3.25; a dividend yield of 0.00%; an average
volatility factor of the expected market price of the Companys common stock of (939)% for 2005; and an expected life of 5 years.

---

18

Cascade Energy, Inc.(An Exploration Stage Company)Notes to the Financial StatementsAugust 31, 2006(Stated in US Dollars)Note 6Convertible Debentures(continued)

In addition, 4,812,130 warrants have been
issued (2,406,065 each to H.C. Wainwright & Co., Inc. and 1st SB Partners,
Ltd.), and, 12,000,000 warrants have been issuer to Cornel Capital Partners,
LP., each exercisable at $0.2902 with terms of 5 years from November 30, 2005.
The value of these warrants have also been calculated using the BlackScholes
method as of the date of grant based on the following assumptions: an average
risk free rate of 3.25; a dividend yield of 0.00%; an average volatility factor
of the expected market price of the Companys common stock of (939)%; and an
expected life of 5 years.

The Company is required to carry these
embedded derivatives on its balance sheet at fair value and unrealized changes
in the values of these embedded derivatives are reflected in the consolidated
statement of operation as Gain (loss) on value of warrants and conversion
feature.

The Company bifurcated the debenture and
based on a 12% discount to maturity is amortizing a discount of $958,466 in
interest expense to maturity.

Beneficial conversion expense of the
debenture was calculated by the Company based upon the difference between the
market price of shares of the Companys stock as of the date of issuance and the
conversion price applicable to the convertible debentures. As the warrants are
significantly out of the money the beneficial conversion liability of
$4,341,094.88 was recaptured.

| |                              | WARRANTS
| | ---------------------------- | --------
| | Cornell Capital Partners, LP | $ (0.00)
| | H.C. Wainwright              | $ (0.00)
| | 1stSB Partners Ltd.          | $ (0.00)
| | TOTAL BENEFICIAL             |         
| | CONVERSION EXPENSE           | $ (0.00)
| |                              |         

On June 1, 2005, the Company executed an
Acquisition/Disposition Agreement (the Agreement) whereby the Company agreed
to dispose of 100% of the issued and outstanding shares in the common stock of
its wholly-owned subsidiary, Power Grow Systems Ltd., to its two original
shareholders in consideration of all the liabilities being assumed by the two
original; shareholders. Accordingly with the closing of the agreement on June 1,
2005, Power Grow Systems Ltd. will assume all current and future liabilities,
tangible and intangible assets, intellectual and proprietary information
relating to the hydroponics plant growing equipment operation.

---

|19                                                       
|---------------------------------------------------------
|Cascade Energy,
      Inc.                               
|(An Exploration Stage
      Company)                     
|Notes to the Financial
      Statements                  
|August 31,
      2006                                    
|(Stated in US
      Dollars)                             
|Note 7  Discontinued Operations (continued)              
|The net loss on
      disposal was determined as follows:
|Proceeds on disposal of subsidiary                       
|Net assets of subsidiary:                                
|Cash                                                     
|Accounts receivable                                      
|Inventory                                                
|Accounts payable                                         
|Due to related parties                                   
|Due to Cascade Energy, Inc.                              
|Loan payable                                             
|                                                         
|Net gain on disposal of subsidiary                       

The August 31, 2006 comparative statements
do not include the following amounts related to the discontinued operations of
the subsidiary.

|Note 7Discontinued Operations                                |  |                        |  |                                
|------------------------------------------------------------ |  | ---------------------- |  | -------------------------------
|                                                             |  | August 31,             |  | August 31,                     
|                                                             |  | 2006                   |  | 2005                           
|Cash                                                         |  | $             
      - |  | $   
              555         
|Accounts
      receivable                                    |  | -                      |  | 18,385                         
|Inventory                                                    |  | -                      |  | 15,801                         
|Current assets
      of discontinued operations              |  | $             
      - |  | $   
         34,741           
|Bank
      overdraft                                         |  | $             
      - |  | $   
                  
      -
|Accounts
      payable                                       |  | -                      |  | 123,395                        
|Due to related
      parties                                 |  | -                      |  | 70,190                         
|Due to Cascade Energy,
      Inc.                            |  | -                      |  | 5,998                          
|Loan payable                                                 |  | -                      |  | 18,670                         
|Current
      liabilities of discontinued operations         |  | $           
      -   |  | $   218,253                    
|Accumulated
      other comprehensive loss from discontinued |  |                        |  |                                
|operations                                                   |  | $           
      -   |  | $      19,414                  

---

20

Cascade Energy, Inc.(An Exploration Stage Company)Notes to the Financial StatementsAugust 31, 2006(Stated in US Dollars)

Note 8Statement of Cash Flows and Operations from Discontinued Operations of
Power Grow System Ltd.

Cash flows from discontinued operations
are as follows:

|                                                    |  | August 31  2006   |  | August 31   
         2005
|--------------------------------------------------- |  | ----------------- |  | --------------------------
|                                                    | 
|Cash flows used in
      operating activities       |  |                   |  |                           
|Gain (Loss)
      from discontinued operations      |  | $        
      - |  | $    (4,117)              
|Accounts receivable                                 |  | -                 |  | (7,817)                   
|Prepaid                                             |  | -                 |  |                           
|Inventory                                           |  | -                 |  | (8,992)                   
|Loan payable                                        |  |                   |  | 1,860                     
|Accounts payable                                    |  | -                 |  | 18,620                    
|Cash used in
      operating activities             |  | -                 |  | (446)                     
|Cash flows used
      by financing activities       |  |                   |  |                           
|Due to related
      parties                        |  |                   |  | 7,385                     
|Cash provided by financing
      activities         |  | -                 |  | 7,385                     
|Increase
      (decrease) in cash from discontinued |  |                   |  |                           
|operations prior to
      disposal                  |  | -                 |  | 6,939                     
|Foreign
      exchange gain (loss)                  |  | -                 |  | 3,117                     
|Cash, beginning
      of period                     |  |                   |  | (9,501)                   
|Increase
      (decrease) in cash from discontinued |  |                   |  |                           
|operations during the
      period                  |  | $       
       - |  | $       555               

---

21

Cascade Energy, Inc.(An Exploration Stage Company) Notes to the Financial
Statements August 31, 2006 (Stated in US
Dollars)

STATEMENTS OF OPERATIONSFROM DISCONTINUED OPERATIONS OF POWER GROW SYSTEM LTD. for
the period ended August 31, 2005 and February 28, 2005 (Stated in US
Dollars)

|                                               | For the Period  Ended August
      31  2005 |  | For the Year  Ended February
      282005
|---------------------------------------------- | ------------------------------------------- |  | -----------------------------------------
|                                               |                                            
|                                               |                                            
|                                               |                                             |  |                                          
|Sales                                          | $    70,077                                 |  | $   189,139                              
|Cost of sales                                  | 54,063                                      |  | 128,614                                  
|Gross profit                                   | 16,014                                      |  | 60,526                                   
|Expenses                                       |                                             |  |                                          
|Accounting and audit
      fees                | 1,610                                       |  | 3,299                                    
|Advertising                                    | 6,315                                       |  | 16,172                                   
|Auto expenses                                  | 1,899                                       |  | 12,789                                   
|Bad debt
      (recovery)                      | (11,402)                                    |  | 16,115                                   
|Bank charges and
      interest                | 1,609                                       |  | 6,697                                    
|Consulting
      fees                          | 3,585                                       |  | 48,732                                   
|Investor
      relations                       | -                                           |  | 2,358                                    
|Legal fees                                     | 1,084                                       |  | 736                                      
|Office and
      general                       | 1,702                                       |  | 8,525                                    
|Rent  NOTE 4                                  | 1,695                                       |  | 15,956                                   
|Salaries and
      benefits                    | 237                                         |  | 3,107                                    
|Telephone                                      | 3,354                                       |  | 8,577                                    
|Travel                                         |                                             |  | 2,150                                    
|                                               | (23,794)                                    |  | (145,213)                                
|Loss before the
      following                | (7,780)                                     |  | (84,687)                                 
|Write off of
      Goodwill                    |                                             |  | (90,152)                                 
|Foreign currency
      translation adjustment  | (2,280)                                     |  | -                                        
|Gain on disposal of
      subsidiary  Note 7  | 195,573                                     |  | -                                        
|Gain (loss) from
      discontinued operations | $  
      185,513                           |  | $ (174,839)                              

---

22

Cascade Energy, Inc.(An Exploration Stage Company)Notes to the Financial StatementsAugust 31, 2006(Stated in US Dollars)

Note 9Capital StockOn April 28,
2005, the Company approved a forward split of its common stock on the basis of 8
new shares for 1 old share and increased its authorized capital stock to
200,000,000 common shares. The number of shares referred to in these financial
statements have been restated wherever applicable to give retroactive effect to
the forward stock split. The par value of common stock and additional paid-in
capital has also been restated.

The Companys capitalization is
200,000,000 common shares, with a par value of $0.001 per share and 5,000,000
preferred shares with a par value of $0.001 per share.

On June 1, 2005, the Company disposed of
100% of the issued and outstanding shares in the common stock of its
wholly-owned subsidiary, Power Grow Systems Ltd., in consideration of the debts
and liabilities being assumed.

During the quarter ended September 30,
2005, the Company returned to treasury and cancelled 24,000,000 (post-forward
split) common shares in its capital stock.

On November 22, 2005, the Company closed a
private placement consisting of 350,000 units at a price of $0.30 per unit for
gross proceeds of $105,000. Each unit consists of one common share and one
non-transferable common share purchase warrant exercisable for a period of
twenty-four months from the date of closing at an exercise price of $0.60. The
Company issued the securities to thirteen non U.S. persons (as that term is
defined in Regulation S of the Securities Act of 1933) in an offshore
transaction relying on Regulation S and/or Section 4(2) of the Securities Act of
1933.received $105,000 in share subscription proceeds for 350,000 units of a
private placement financing. A finders fee of $5,000 was paid to a senior
officer and director of the Company with respect to this private
placement.

On November 29, 2005, the Company issued
44,000,000 common shares as treasury stock held as collateral on the convertible
debenture. The shares were recorded at the market value of the stock on the date
of issuance, which was $0.215 per share.

On July 17, the Company issued 2,100,840
common shares to Cornell Capital LLP.

Note 10Commitments and ContingenciesOn February 1, 2006, the Company entered into consulting agreements
with three independent consultants to consult with the Company with respect to
the Companys business and strategic planning and to assist the Companys
President and Board of Directors on an as-requested basis. In consideration for
their services, each consultant will be issued 2,000,000 common shares of the
Company. The agreements are for a one-year term ending on February 1, 2007,
subject to termination as provided in the agreements. All of the 6,000,000
common shares will be registered under a registration statement on Form S-8,
filed in March, 2006, at an estimated price of $0.30 per common share. None of
the shares under these agreements have been issued as at August 31,
2006.

---

23

Cascade Energy, Inc.(An Exploration Stage Company)Notes to the Financial StatementsAugust 31, 2006(Stated in US Dollars)

Note 11Oil and Gas ActivitiesAs of
August 31, 2006, the Company had net revenues of $2,120 from the Empress
property.

In December of 2005, the Company completed
the tie-in of the pipeline for the first Empress Gas Well in Alberta, Canada.
The Well has been in production for six months now.

|             |          |                |              | Capitalized |                      
|------------ | -------- | -------------- | ------------ | ----------- | ---------------------
|Property     | Reserve  | Revenue        | Amortization | Costs       | Dry Hole             
|Empress      | Proved   | $ 
      4,820 | $    9,816   | $ 150,514   | $            
      -
|Kansas       | Expensed | -              | -            | -           | 387,857              
|Bolloque     | Expensed | -              | -            | -           | 591,751              
|Coyote Creek | Expensed | -              | -            | -           | 510,175              
|             |          | $   4,820      | $    9,816   | $ 150,514   | $  1,489,783         

The reserve information presented below is
based on reports prepared by independent petroleum engineers, Chapman Petroleum
Engineering Ltd., for the proved property, Empress.

The information is presented in accordance
with regulations prescribed by the Securities and Exchange Commission and based
on Reserve definitions found in Rule 4-10(a) of Regulation S-X. Reserve
estimates are inherently imprecise.

Proved oil and gas reserves are the
estimated quantities of crude oil, natural gas and gas liquids which geological
and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions, ie., prices and costs as of the date the estimate is made. Prices
include consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future conditions.

Reservoirs are considered proved if
economic producibilty is supported by either actual production or conclusive
formation test. The area of a reservoir considered proved includes (A) that
portion delineated by drilling and defined by gas-oil and/or oil-water contacts,
if any; and (B) the immediately adjoining portions not yet drilled, but which
can be reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls the
lower proved limit of the reservoir.

---

|24                                           
|---------------------------------------------
|Cascade Energy,
      Inc.                   
|(An Exploration Stage
      Company)         
|Notes to the Financial
      Statements      
|August 31,
      2006                        
|(Stated
      in US Dollars)                 
|Note
      11  Oil and Gas Activities(contd)
|                                             
|                                             
|Proved Developed                             
|                                             
|Empress Detrital                             
|Empress Viking                               
|                                             

The standardized measure of discounted
future net cash flows, related to the above oil and gas reserves, is calculated
in accordance with the requirements of SFAS No 69. Estimated future cash inflows
from production are computed by applying year-end prices for oil and gas to
year-end quantities of estimated proved reserves. Adjustment in this calculation
for future price changes is limited to those required by contractual
arrangements in existence at the end of each reporting period. Future
development and production costs are those estimated future expenditures
necessary to develop and produce year-end proved reserves based on year-end cost
indices, assuming continuation of year end economic conditions. Estimated future
income taxes are calculated by applying appropriate year-end statutory tax
rates. These rates reflect allowable deductions and tax credits and are applied
to estimated future pre-tax cash flows, less the tax bases of related assets.
Discounted future net cash flows have been calculated using a 10% discount
factor. Discounting requires a year-by-year estimate of when future expenditures
will be incurred and when reserves will be produced.

The information provided in tables set out
below does not represent managements estimate of the Companys expected future
cash flows or of the value Companys proved oil and gas reserves. Estimates of
proved reserves quantities are imprecise and change over time, as new
information becomes available. Moreover, probable and possible reserves, which
may become proved in the future, are excluded from the calculations. The
arbitrary valuation prescribed under SFAS No.69 requires assumptions as to the
timing and the amount of future development and production costs. The
calculations should not be relied upon as an indication of the Companys future
cash flows or of the value of its oil and gas reserves.

---

|25                                                                                                   
|-----------------------------------------------------------------------------------------------------
|Cascade Energy,
      Inc.                                                                           
|(An Exploration Stage
      Company)                                                                 
|Notes to the Financial
      Statements                                                              
|August 31,
      2006                                                                                
|(Stated
      in US Dollars)                                                                         
|Note
      11  Oil and Gas Activities(contd)                                                        
|                                                                                                     
|                                                                                                     
|Future cash
      inflows                                                                            
|Future production and development costs                                                              
|Future income tax expenses                                                                           
|Future net cash flows                                                                                
|Less effect of a 10%
      discount factor                                                           
|Discounted future net cash flows                                                                     
|Principal
      sources of changes in standardized measure of discounted future net cash
      flows:
|                                                                                                     
|                                                                                                     
|Discounted present value as at
      beginning of year                                               
|                                                                                                     
|Sales and transfers of oil and gas, net of
      production                                          
|costs                                                                                                
|Changes in future development costs                                                                  
|Extensions and discoveries and revisions, net
      of                                               
|future production and development
      costs                                                        
|Accretion of
      discount                                                                          
|Standardized measure, end of period                                                                  
|Costs
      incurred in Oil and Gas Acquisition, Exploration and
      Development:                  
|                                                                                                     
|                                                                                                     
|Development costs                                                                                    
|Exploration costs                                                                                    
|Acquisition costs                                                                                    
|Proved                                                                                               
|Unproved                                                                                             
|                                                                                                     
|                                                                                                     

During the year ended February 28, 2006,
the Company recognized a beneficial conversion expense of $5,356,916 related to
a convertible debenture (see Note 6) issued to Cornell Capital Partners, LP and
the associated warrants issued. This was recalculated at August 31, 2006 and
$4,341,216 was recaptured as the associated warrants are significantly out of
the money.

Note 13Subsequent EventsOn
July 13, 2006 the Company announced that it had abandoned further work and cost
on the Kansas project.

---

26

Item 2. Plan of Operation.

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In
some cases, you can identify forward-looking statements by terminology such as may, should, expects, plans, anticipates, believes, estimates, predicts,
potential or continue or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the
section entitled Risk Factors, that may cause our or our industrys actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements.

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

Our financial statements are stated in United States dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. In this quarterly report, unless otherwise specified, all dollar
amounts are expressed in United States dollars. All references to common shares refer to the common shares in our capital stock.

As used in this quarterly report, the terms we, us, our company, and Cascade mean Cascade Energy, Inc., a Nevada corporation, unless otherwise indicated.

Corporate History

Cascade Energy, Inc. (formerly Pro-Tech Holdings Ltd.) was incorporated under the laws of the State of Nevada on December 23, 2003. After the Company effected the acquisition of Power Grow System Ltd. (Power
Grow), a private British Columbia company, on February 29, 2004, its focus was on identifying and securing business opportunities in the hydroponics plant growing equipment manufacturing industry.

Power Grow was incorporated pursuant to the laws of British Columbia on August 20, 2001 for the purpose of designing, manufacturing and marketing sophisticated hydroponics plant growing equipment to be marketed in Canada
and the United States to nurseries, garden centers, specialized hydroponics equipment shops, gardeners and home hobbyists who wish to grow their own fresh fruits, flowers, herbs and vegetables, year round, faster than conventional gardening,
organically and free of outdoor pollutants, pests and weeds.

On February 2, 2004, Cascade entered into a share purchase agreement with Power Grow, Jason Bleuler and Nick Brusatore to acquire 100% of the issued and outstanding shares of voting stock of Power Grow. In consideration of
the transfer of all of the outstanding shares of Power Grow, Cascade issued a total of 3,000,000 shares of common stock to the two Power Grow shareholders of which 1,500,000 were issued to Jason Bleuler and 1,500,000 to Nick Brusatore. Mr. Bleuler
was appointed to the board of directors of Cascade. Messrs. Bleuler and Brusatore remained on the board of directors of Power Grow. On February 29, 2004, Cascade acquired Power Grow, and Power Grow became its wholly-owned subsidiary.

On April 28, 2005, we changed our name from Pro-Tech Holdings Ltd. to Cascade Energy, Inc. to better reflect the change of direction of our business operations. On May 5, 2005, we effected a forward
split of our issued and outstanding shares of common stock on a one-for-eight basis. This forward split resulted in the increase of our authorized capital stock to 200,000,000 shares of common stock at a par value of $0.001 per share and our
shares of preferred stock remained unchanged at 5,000,000 shares of preferred stock at a par value of $0.001 per share. The name change was recorded by the Nevada Secretary of State on April 27, 2005 and took effect with the Over-the-Counter
Bulletin Board at the opening for trading on May 5, 2005 under the new stock symbol, CSCE.

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On June 1, 2005, we disposed of our wholly owned subsidiary, Power Grow Systems Ltd., to Jason Bleuler and Nick Brusatore in consideration of Jason Bleuler and Nick Brusatore assuming all debts and liabilities of the
company Power Grow Systems Ltd.

Effective July 31, 2005, Messrs. Robert Hoegler and Jason Bleuler resigned from the Board of Directors.

Current Business

We are an exploration stage company engaged in the exploration and development of natural gas and oil properties in the province of Alberta, Canada, and in the States of California and Kansas, U.S.A. Our primary objective
is to acquire, discover, upgrade and expand North American energy reserves towards near-term production and cash flow, together with identifying and participating in exploration opportunities

Coyote Creek Prospect

On May 6, 2005, by an assignment agreement, the Company acquired a 33.075% working interest in certain mineral leases (comprising sections 14, 15, 16, 22, 23, 24, 25, 26, 35 and 36 in Township 26 North Range 3 West and
sections 1 and 2 in Township 25 North Range 3 West) situated in Tehama County, California, referred to as the Coyote Creek Prospect. As consideration for this assignment, the Company assumed complete responsibility for the performance of all
obligations of the assignor with respect to the farm-out agreement in which the assignor purchased its 67.5% working interest in the Coyote Creek Prospect.  These obligations included $510,175 in geologic, geophysical, administration, land fee,
dry hole drilling costs, and plugging and abandonment costs. Drilling was completed in August 2005 and the well proved to be uneconomical, accordingly the entire $510,175 was charged to exploration costs. As at May 31, 2006, no amounts have been
capitalized by the Company with respect to the Coyote Creek Prospect.

The Coyote Creek natural gas prospect is located at the northern end of Sacramento Valley in Tehama County, California. It is north of the Corning Gas Field; approximately 8 Bcf is produced from the post-Eocene, non-marine,
Tehama Formation. The Upper Cretaceous Forbes Formation was the primary objective of this prospect, with over 1,000 feet of continuous and discontinuous sand/silt units present locally.

The Coyote Creek prospect was based on 2D seismic and well control. The seismic data and well tops constrain the location of key faults and structural closure. The nearby 1956 Shell Cox #1 well established the presence of
gas and reservoir quality sands with a 1000 MCF/D DST test at 4100. Potential closure size in the main fault block is 390 acres. Estimated recoverable gas reserves ranged from a low-end case with one well of about 2 Bcf (25 of net pay,
100 acre closure, 750 Mcf/Ac.Ft recovery) to a high-end case, with multiple wells/pay zones, of about 28 Bcf (75 of net pay, 500 acre closure, 750 Mcf/D recovery).

The Coyote Creek prospect is a NW  SE trending faulted anticline with three-way dip closure and fault closure to the southwest. The prospect is situated on the eastern, up-thrown block of the Corning reverse fault,
which is also a key structural element at the Corning Gas Field. The upthrown block (hanging wall) is associated with gently undulating fault-parallel folding and also northerly trending splay faults, which do not apparently penetrate
the shallower, post-Forbes, section. The combination of the Corning Fault and associated folding and splay faults sets up the structural trap at the Coyote Creek prospect.

The Corning Fault is part of a system of en echelon reverse faults that are key controlling structural features in the Malton-Black Butte Gas Field (~140 Bcf), the Willows-Beehive Bend Gas Field (~420 Bcf) and the Arbuckle
Gas Field (~80 Bcf), all located south of Coyote Creek.

Empress Prospect

Empress Prospect: Sections 5, 6, and 7

On June 1, 2005, the Company executed a farm-in agreement with Blue Scorpion Energy Inc. (Blue Scorpion, formerly 1048136 Alberta Ltd.), a private Alberta company, to acquire a 49% working interest
in Sections 5, 6,

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and 7 of the Empress Project, Alberta Canada. Under the terms of the Agreement, the Company will earn a 49% working interest in each of the three (3) sections by drilling, casing and completing one exploratory gas well in
each section. Well spacing in Alberta allows only one well per section. Blue Scorpion has a director in common with the Company.

The Company elected not to commence with the drilling of the well, thereby forfeiting its right to a 49% working interest.

Empress Prospect: Sections 16, 19, 17, and 21

On June 30, 2005, the Company entered into an agreement with Blue Scorpion to acquire a 21% working interest in Section 16 of the Empress Project, including the 11-16-24-2W4M well (the 11-16).  Under the terms
of the agreement, the Company will earn the 21% working interest by agreeing to pay Blue Scorpions portion (51%) of all additional costs and expenses whatsoever relating to all development on Section 16 from the date of the agreement forward.
The interests earned by us under the agreement are subject to a 15% over-riding royalty interest for the Province of Alberta and an additional 3% over-riding royalty interest stipulated in an underlying agreement.

The 11-16 was drilled and cased on June 20, 2005 after intersecting three potential hydrocarbon pay zones, and the well was completed in late July, 2005. Following the testing program, third-party engineers reported that
the well was projected to produce 500 to 600 Mcf (thousand cubic feet) gas per day as a stable production rate.

In October 2005 the pipeline route survey was completed and in November 2005 the Company advanced $146,799 (CAD $174,264) to the Operator of the 11-16 for the Companys 51% pro-rata portion of the estimated
cost to connect the 11-16 to the Altagas gathering system. On December 6, 2005, the Company announced the completion of the construction of the pipeline, and the 11-16 commenced commercial production on December 7, 2005. The Company advanced a
further $3,716 during the period ended August 31, 2006 and the Companys pro-rata portion of net income (after royalties and operating expenses) from the 11-16 totalled ($964) for the period ended August 31, 2006 and $4,820 since
inception of June 1, 2005.

On October 17, 2005, an amendment to the Section 16 agreement was signed confirming that the Company has also earned a 49% working interest in three other sections (sections 9, 17, and 21) of the farmout lands near to
Section 16 as a result of Blue Scorpion having completed the 11-16 well. The Company has the right and option, for thirty (30) days from rig release of the last earning well drilled on the farmout lands in which to elect in writing to the original
farmor to drill an option well at a location of its choice on four pre-selected unearned sections of the farmout lands, which option well must be spudded by the Company no later than forty five (45) days after its election, subject to surface
access, rig availability and regulatory approvals. The Company would be required to continuously and diligently drill the option well to contract depth and complete, cap or abandon same at our sole cost, risk and expense. Failure by the Company to
elect to drill an option well shall be deemed to be an election to surrender our rights to drill an option well and to earn an interest in the unearned farmout lands.

In the event the Company elects to drill an option well, the Company will earn 21% of Blue Scorpions working interest if the option well is on Section 16 and 49% of Blue Scorpions working interest if the option
well is on any of the other three sections, subject to the overriding royalty and rights of conversion reserved by the original farmor.

Empress Prospect: Section 15

On July 22, 2005, the Company executed a farm-in agreement with Blue Scorpion to acquire a 49% working interest in Section 15 of the Empress Project. Under the terms of the agreement, the Company will earn the 49% working
interest by drilling one earning well on Section 15 and spudding the earning well not later than 30-days after the full execution of the agreement. The Company elected not to commence with the drilling of the well, thereby forfeiting its right to a
49% working interest.

The Empress natural gas exploration project is located in eastern Alberta, Canada approximately 160 miles east of the City of Calgary.  The surface consists of gently rolling farm and ranch land with year round access and
an established production and equipment infrastructure.

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The Bakken zone of the project has oil shows in Drill Stem Tests (D.S.T.) offsetting the land. Seismic indicates a Bakken high under the project. Seismic indicates a Banff limestone high under the license, overlying the
Bakken high. This zone does not produce in the area but produces oil in other areas. The Colony sand has tested gas in the area. The Colony sand is above the Banff.

The Viking zone, 85 meters above the Colony, contains natural gas in wells contiguous to both southwest and north sides of the project. Mapping indicates that the reservoir continues under the project land. Pressure
analysis of producing gas wells shows that 16 billion cubic feet (Bcf) of natural gas were originally in place in the Viking reservoir contiguous to the project on the north side. Over 2 Bcf of that gas has been produced from 6 gas wells leaving
over 13 Bcf in the reservoir. Gas is present in two wells immediately south of the leases.

Initial production rates from the existing wells have been just under 1 Mmcf per day. Absolute Open Flow Rates (A.O.F.) are in the order of 3 to 5 Mmcf per day with one as high as 14 Mmcf per day. Production is held back to
minimize condensate production. Three wells have a cumulative of over 0.4 Bcf each, with one of these having produced 0.9 Bcf.

Strand Fiord Coal Project

On June 15, 2005, the Company executed an acquisition proposal (the Agreement) with James Bay Energy Inc. (James Bay), a private company, whereby James Bay, with the subsequent ratification of First
Nephi International, Inc. (FNI) as appropriate, agreed to grant to the Company an option to acquire an undivided 10% ownership interest in five coal exploration licenses (the Licenses) to explore and develop certain coal
properties (collectively the Property) located on Axel Hieberg Island in the Canadian Arctic. Pursuant to an agreement (the Underlying Agreement) dated April 20, 2005, between James Bay and FNI, James Bay and FNI agreed to
form a Nova Scotia company (Novaco) for the purposes of the joint-venture exploration and development of the Property. In the Underlying Agreement it was agreed that the ownership of Novaco would be FNI 90% and James Bay 10%, reflecting
the respective interest of those parties in the Licenses.

Due to the failure of James Bay and FNI to form Novaco, the Company elected not to exercise the Option and on October 3, 2005, the Company and James Bay signed a Mutual Release to terminate the Agreement.

Bolloque Prospect

The Bolloque project is located 60 miles north of Edmonton, Alberta and is approximately 40% of the way to Lesser Slave Lake, Alberta.

On August 26, 2005, the Company entered into a farmout agreement with Salida Capital, Inc. (Salida), a private Nevada Corporation, to acquire the right to earn 49% of the interests that Salida can otherwise earn
in six sections of the Bolloque Project located 60 miles due north of Edmonton, Alberta, Canada. Salida acquired its interest in the lands under a participation agreement, dated March 14, 2005, with Vega Resources Ltd. (Vega). Pursuant
to the participation agreement, Salida can earn 100% of the interests that Vega has a right to earn in the lands, subject to a 3% gross overriding royalty reserved for Vega in the participation agreement.

Under the terms of the farmout agreement, the Company will earn the 49% working interest by drilling one test well on one of the sections comprising the farmout lands. If the Company fulfills its obligations with respect to
the test well, the Company shall have the right to drill a like well (first option well) on any undrilled section of the farmout lands provided that written election is made to the original farmor within 45 days after the rig release date of the
test well. If the Company elects to drill the first option well, drilling shall commence within 45 days of the written election to the original farmor to drill, subject to rig availability, regulatory approval and suitable surface access. In like
manner, the Company shall have the continuing rolling option to elect to drill further option wells and earn on any undrilled section of the Farmout Lands on the same timing and earning basis as the first option well utilizing the rig release date
of the then most immediately preceding earning well.

In August, 2005, the Company advanced $374,704 ($450,000 CAD) to the operator of the Bolloque oil play for the drilling and casing of the test well on Section 1 (the 7-1 well). In September, 2005, the
7-1 well was spudded and

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cased. The well reached a total depth of 1,055 metres (3,462 feet) and a suite of electronic logs was run. In December, 2005, the Company advanced $118,000 ($135,830 CAD) to the Operator of the 7-1 for the
completion of the well, and during the same quarter the Company paid an additional $7,412 of exploration costs with respect to the 7-1. A completion rig subsequently perforated and swab tested two zones, these being oil in the Leduc, and gas in
the Wabamun Formations. The well was determined to be uneconomical, and the decision has been made to plug and abandon the well.  Subsequent to the year ended February 18, 2006, the Company received a cash call for $50,637 ($58,112 CAD) from
the Operator for the cost of abandoning the well. Total exploration costs of $591,751 have been written off.

The project consists of a Leduc (Devonian) reef target underlying three sections of petroleum and natural gas (P&NG) leases. Three other P&NG leases are included in the project area. The project lands consist of six
sections of P&NG rights leased from the Crown, and three sections are thought to overlie a Leduc reef build-up on the edge of the Cooking Lake platform. Oil well spacing is normally 4 wells per section. Wells in the area that have penetrated the
flanks of the reef have tested water, showing that there is porosity and permeability within the Leduc zone. The play is predicated on there being oil trapped in the top of the reef.

Most wells in the area were drilled for Mannville sands and natural gas. Gas production is occurring from these sands under the project lands. These gas rights are excluded from the project farm-in lands, as other oil
companies own them but show the presence of economic hydrocarbons. Mapping of the shallower zones indicate that there is structural drape over an underlying reef, the Leduc target horizon. A seismic line has been purchased and is being reprocessed
to confirm that the reef is present.

The Wabamun Formation, about 200 meters shallower than the Leduc, is often productive where there is an underlying Leduc reef. The Wabamun tends to be more uniform in thickness but drape across the underlying reef creates a
trap and a reservoir if porosity has been developed in the zone. The Wabamun thus is a secondary target in this project. The Nisku Formation, about 100 meters shallower than the Leduc also forms reservoirs in the same way.

The Leduc D-3 field is situated in the Western Canadian Sedimentary Basin and is named after the central Alberta town of Leduc (1991 pop. 13,970). Located amongst Canadas largest region of sedimentary rocks, and the
largest source of current oil and gas production the Province of Alberta it makes up the majority of this Basin. The Leduc pool dates to the Devonian period and its principal lithology is Dolomite.

The discovery of the Leduc oil field in 1947 fostered the revelation that oil could be recovered from the Plains of Alberta. This discovery became the base upon which Alberta and Canada built its oil industry, and the
nation would ultimately become an exporter of oil. By the time Imperial Oil completed its exploitation program of the Leduc oil field in 1984, it had produced in excess of 240 million barrels. With the advent of new tools such as seismic imaging
along with the increased cost of oil, the field continues to return significant revenues for many mid-size exploration and development companies.

Kansas Prospects Data Sharing Agreement

On August 10, 2005, the Company entered into a data sharing agreement with Silver Star Energy, Inc. and Fidelis Energy, Inc., as purchasers, and Blue Scorpion Energy Inc. (Blue Scorpion, formerly 1048136 Alberta
Ltd.), a private Alberta company, as vendor, wherein the Company acquired an interest in data and the interpretation of that data and a 25% working interest in the use of the data to develop the lands about which the data was compiled. Blue Scorpion
has a director in common with the Company.

Blue Scorpion purchased the data pursuant to an agreement with Wildes Exploration LLC dated June 5, 2005. The data was gathered by airborne surveys over lands in the State of Kansas that cover approximately 1,000,000 acres.
The lands are located in central Kansas, covering parts of Ellsworth, Salina, McPherson, Reno, Harvey, Kingman, and Sedgwick counties.

The Company received a 25% interest and the other purchasers received their interests in consideration for the conduct and completion of development programs of the lands and payment for the following two expenses
in

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proportion to each partys interests in the data: 1) the costs of the acquisition, by way of leases or otherwise, of up to two sections of the lands selected by Blue Scorpion for drilling two initial wells; and 2) the
costs of drilling and completing the initial two wells. The working interests of the initial two wells will be as follows: Cascade Energy, Inc.  25%, Fidelis Energy, Inc.  25%, Silver Star Energy, Inc. - 20%, and Blue Scorpion 
30%.

As at August 31, 2006, exploration costs totalling $387,857 have been incurred by the Company with respect to the Kansas Prospect Data Sharing Agreement.

The data sharing agreement includes participation rights in a large data base that includes a geophysical survey covering approximately one million acres, located in central Kansas, covering parts of Ellsworth, Salina,
McPherson, Reno, Harvey, Kingman, and Sedgwick counties. Total cumulative oil production through 1999 from these counties is more than 978 million barrels of oil.

The geophysical survey utilized RAM technology, owned by Paramount Energy Corp., which is a geophysical methodology used to highlight oil and gas deposits.  Unlike 2-D and 3-D seismic methods, which gather information based
upon artificially induced sonic responses recorded at the surface, RAM technology identifies unique bright spots using its proprietary software to process certain aspects of the earths magnetic field data. Data is collected by a
low flying aircraft equipped with specialized equipment and then analyzed by RAM software. These unique bright spot anomalies can be correlated to near-surface alterations caused by the slow geochemical processes that occur over both oil
and gas deposits.

The RAM technology is an indirect hydrocarbon indicator independent of structure so it a good tool in areas where seismic is not. Since RAM data is collected from an aircraft, large acreage surveys can be acquired many
times faster and many times less costly than traditional seismic. That makes RAM an ideal first reconnaissance tool.

Several identified RAM anomalies interpreted within the survey area are believed to have hydrocarbon potential over multi-sections of lands that have never been tested with a drill bit. Most nearby production within this
region of the Central Kansas Platform produces from Mississippian age and older limestone rocks above the Arbuckle dolomite formation. Some of the accumulations of hydrocarbons are stratagraphically trapped and unrelated to structure and therefore
not easily identifiable by traditional seismic. The magnetic survey and interpretation of the region is of excellent quality.

The Central Kansas Platform covered by the survey and interpretation contains some of the most prolific production from shallow depths in that part of the country. There are many established oil fields within the boundaries
of the survey area. The survey indicates bright spots that could be hydrocarbon accumulations not yet discovered by traditional seismic or other older exploration technologies. Multiple prospects are expected to be generated after more
extensive field tests. Cascade and partners are proceeding to further evaluate the most prospective oil and gas targets for drilling utilizing complimentary geochemical and geophysical methodologies in their field-testing. The operator will then
recommend leases for acquisition and the exploration program will commence.

Oil wells will be drilled to test the most promising prospects to the deepest known petroleum formation, the Arbuckle, generally less than 4000 in depth in the Central Kansas Platform. Drilling costs have been
estimated to be in the order of $200,000 for a cased and completed well.

On July 13, 2006 the Company announced that it was abandoning further work on the Kansas project believing the costs did not warrant the working interest obtained. As at July 13, 2006 the capitalized costs of $387,857
were expensed.

Plan of Operation and Cash Requirements

We anticipate that we will expend approximately $2,125,000 during the twelve-month period ending February 28, 2007 to develop our current portfolio of properties, and for working capital. Our priorities are the
identification of additional drill targets of the Empress Prospect and the analysis of the Kansas data for identification of potential lease acquisitions and subsequent drill targets. These expenditures are broken down as follows:

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Major expenditures expected for the next
12 months include the following:

|Exploration and drilling:             | $1,000,000
|------------------------------------- | ----------
|Leasing:                              | 125,000   
|Operating expenses:                   |           
|General and administrative:           | 750,000   
|General working capital:              | 250,000   
|Total:                                | $2,125,000
|Liquidity and
      Capital Resources |           

Cash and cash equivalents from inception
have been insufficient to provide the operating capital necessary to operate the
Company. The necessary capital to operate the Company was initially provided by
the principals and founders of the Company in the form of both debt and capital
stock issuances as set forth in the financial statements incorporated herein.
The working capital necessary to operate the Company and provide for acquisition
capital came from the proceeds of convertible debentures as previously
disclosed.

As at August 31, 2006, we had working
capital of $67,643 and our cash on hand was $28,778 as at August 31, 2006.

During the year period ended August 31,
2006, we capitalized exploration costs of $3,715 and expensed $387,857 on our
Empress and Kansas prospects.

In November 2005, the Company closed a
private placement financing for gross proceeds of $105,000 from the sale of
350,000 units at $0.30 per unit. Each unit consists of one common share in the
capital of the Company and one common share purchase warrant which shall entitle
the holder to purchase one common share of the Company at a price of $0.60 for a
period of twenty-four months commencing from the closing of the private
placement. All of the subscribers are Canadian citizens and are close personal
friends of either a director or senior officer of the Company.

During the year ended February 28, 2005,
the Company was advanced $953,241 pursuant to a convertible debenture. The
debenture bears interest at 5% per annum and the principle and interest was
convertible, at the holders discretion, into shares of common stock of the
Company at $0.50 per share. The debenture was due and payable in full on or
before June 15, 2006. On December 14, 2005, the Company extinguished this
debenture by the payment of $974,968, including interest of $21,727.

On November 30, 2005, the Company executed
two secured convertible debentures totaling $3,500,000. The debentures bear
interest at 5% per annum and the principle and interest is convertible, at the
holders discretion, into shares of common stock of the Company at the lower of
$0.2902 per share or 80% of the lowest daily volume weighted average trading
price per share for the five trading days prior to conversion, subject to
adjustment pursuant to the anti-dilution provisions as set forth in the
convertible debentures. The debentures will mature on November 30, 2008 and
January 10, 2009 ($1,750,000 on each date, respectively). The Company has the
right to redeem a portion or all amounts outstanding under this debenture prior
to the maturity date provided that the closing bid price of the Companys common
shares is less than the fixed conversion price at the time of the redemption
notice. The Company shall pay an amount equal to the principal amount being
redeemed plus a redemption premium equal to 20% of the principal amount being
redeemed and accrued interest. The purchaser of the convertible debentures also
received 12,000,000 common share purchase warrants exercisable at $0.2902 per
share until November 30, 2010. The first $1,750,000 debenture closed on November
30, 2005 wherein the Company received net proceeds of $1,435,000 on December 2,
2005. The remaining $1,750,000 debenture closed on January 10, 2006 wherein the
Company received net proceeds of $1,575,000. The Company also entered in a
pledge and escrow agreement dated November 30, 2005, whereby the Company agreed
to irrevocably pledge 44,000,000 common shares of the Companys security. These
shares were issued into escrow in the Companys name and will not be released
unless the Company defaults on the debentures.

At August 31, 2006, no value has been
recorded for the shares, as they have not been released from escrow.
..

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The receipt of net proceeds of $3,010,000 from the two secured convertible debentures totaling $3,500,000 provides the capital required to meet our immediate short-term needs, but does not provide the balance of our
estimated funding requirements for the next twelve months. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to
obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.

Results of Operations

For the Year Period Ended August 31, 2006 Compared to the Period Ended August 31, 2005

Net Loss for the Period.

The Company has had only limited operations, and hasnt yet realized any significant revenues from the sale of oil or gas from any of its prospective lands. The Company has realized a net loss from operations of
$3,917,270 since inception.  The majority of this loss is due to the recognition of a non-cash beneficial conversion expense of $1,015,700 and finance fees of $480,688 related to the convertible debenture issued to Cornell Capital
Partners, LP, dry hole costs of $591,751 and $510,175 associated with the Companys Bolloque and Coyote Creek prospects, respectively.

Operating Expenses. Operating expenses for the period ended August 31, 2006, totalled $680,073. Operating expenses consist primarily of investor relations, legal fees, corporate
finance fees and consulting fees. These three items total 76% of total operating expenses

Risks Relating to Our Business:

We have a history of losses which may continue, which may negatively impact our ability to achieve our business objectives.

We incurred net losses of $3,917,270 for the period from June 1, 2005 (inception) to August 31, 2006, and $6,683,038 for the year ended February 28, 2006. We cannot be assured that we can achieve or sustain
profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. We may
not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.

If we are unable to obtain additional funding our business operations will be harmed and if we do obtain additional financing our then existing shareholders may suffer substantial dilution.

We will require additional funds to sustain and expand our oil and gas exploration activities. We anticipate that we will require up to approximately $2,125,000 to fund our continued operations for the twelve month
period ending August 31, 2007, well in excess of the cash on hand of $28,778 as at August 31, 2006.  Historically, we have financed these expenditures primarily with proceeds from the sale of debt and equity securities. In order to meet these
obligations or acquire any additional business interest, we will have to raise additional funds. We also make offers to acquire oil and natural gas properties in the ordinary course of our business. If these offers are accepted, our capital needs
may increase substantially.

We have arrangements for limited financing and we can provide no assurance that we will be able to obtain the additional required financing when needed. Obtaining additional financing will be subject to a number of factors,
including:

|1. | market conditions;                                    
|-- | ------------------------------------------------------
|  
|2. | investor acceptance of potential business assets; and,
|  
|3. | investor sentiment.                                   
|  

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These factors may make the timing, amount,
terms and conditions of additional financing unattractive or unavailable to us.
If we are not successful in achieving financing in the amount necessary to meet
our present obligations in connection with the oil and gas interests that we
have acquired or business interests that we may acquire, implementation of our
business plan may fail or be delayed.

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

In their report dated March 27, 2006, our
independent auditors stated that our financial statements for the fiscal year
ended February 28, 2006 were prepared assuming that we would continue as a going
concern. Our ability to continue as a going concern is an issue raised as a
result of recurring losses from operations. We continue to experience net
operating losses. Our ability to continue as a going concern is subject to our
ability to obtain necessary funding from outside sources, including obtaining
additional funding from the sale of our securities. Our continued net operating
losses increase the difficulty in meeting such goals and there can be no
assurances that such methods will prove successful.

We have a limited operating history and
if we are not successful in continuing to grow our business, then we may have to
scale back or even cease our ongoing business operations.

We have yet to generate positive earnings
and there can be no assurance that we will ever operate profitably. Our company
has a limited operating history in the business of oil and gas exploration and
must be considered in the development stage. Our success is significantly
dependent on a successful acquisition, drilling, completion and production
program. Our operations will be subject to all the risks inherent in the
establishment of a developing enterprise and the uncertainties arising from the
absence of a significant operating history. We may be unable to locate
recoverable reserves or operate on a profitable basis. We are in the development
stage and potential investors should be aware of the difficulties normally
encountered by enterprises in the development stage. If our business plan is not
successful, and we are not able to operate profitably, investors may lose some
or all of their investment in our company.

We do not control all of our
operations.

We do not operate any of our properties
and we therefore have limited influence over the testing, drilling and
production operations of our properties. Our lack of control could result in the
following:

|1. | the operator might initiate
      exploration or development on a faster or slower pace than we
      prefer;                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | the operator might propose to
      drill more wells or build more facilities on a project than we have funds
      for or that we deem appropriate, which could mean that we are unable to
      participate in the project or share in the revenues generated by the
      project even though we paid our share of exploration costs, and we could
      have our working interest ownership in the related lands and petroleum
      reserves reduced as a result of our failure to participate in development
      expenditures; and,
|  
|3. | if an operator refuses to
      initiate a project, we might be unable to pursue the project.                                                                                                                                                                                                                                                                                                                                                                                                                                              

Any of these events could materially
reduce the value of our properties.

We may not be able to finance future
needs or adapt our business plan to changes because of restrictions placed on us
by the instruments governing our debt.

Our agreements with the selling
stockholders who purchased our senior secured convertible promissory notes
contain various covenants that limit our ability to, among other
things:

|1. | pay dividends on our common
      stock, redeem or repurchase our common stock or other equity
      security;
|-- | --------------------------------------------------------------------------------------------------------------
|  

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35

|2. | sell assets; and,                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. | issue any securities that rank
      pari passu or senior to the senior secured convertible promissory notes
      that we issued to the selling stockholders.

Our ability to comply with such covenants
may be affected by events beyond our control, including prevailing economic,
financial and industry conditions. Additionally, our agreements with the selling
stockholders contain numerous affirmative covenants, including covenants
regarding reporting requirements and compliance with applicable laws and
regulations. Additional debt we incur in the future may subject us to future
covenants.

Our failure to comply with these covenants
could result in a default under the agreements governing the relevant debt. In
addition, if any such default is not cured or waived, the default could result
in an acceleration of debt under other debt instruments that contain cross
acceleration or cross-default provisions, which could require us to repay or
repurchase debt, together with accrued interest, prior to the date it otherwise
is due and that could adversely affect our financial condition. If a default
occurs under the notes, the selling stockholders could cause all of the
outstanding debt obligations under the notes to become due and payable. Upon a
default or cross-default, the selling stockholders could proceed against the
collateral. Even if we are able to comply with all of the applicable covenants,
the restrictions on our ability to manage our business in our sole discretion
could adversely affect our business by, among other things, limiting our ability
to take advantage of financings, mergers, acquisitions and other corporate
opportunities that we believe would be beneficial to us.

If we are unable to access our
properties or conduct our operations due to surface conditions, our business
will be adversely affected.

Our exploitation and development of oil
and natural gas reserves depends upon access to the areas where our operations
are to be conducted. We conduct a portion of our operations in northern regions
where we are only able to do so on a seasonal basis. Unless the surface is
sufficiently frozen, we are unable to access our properties, drill or otherwise
conduct our operations as planned. In addition, if the surface thaws earlier
than expected, we must cease our operations for the season earlier than planned.
Our operations are affected by road bans imposed from time to time during the
break-up and thaw period in the spring. Road bans are also imposed due to snow,
mud and rock slides and periods of high water, which can restrict access to our
well sites and production facility sites. In recent years, winters in our
northern operating areas have been warmer than normally experienced and, as a
result, our operating seasons have been shorter than in the past. Our inability
to access our properties or to conduct our operations as planned will result in
a shutdown or slow down of our operations, which will adversely affect our
business.

If we are not able to effectively
manage our anticipated expansion and growth, our business and financial
condition will be negatively affected.

We have recently expanded our business
operations. Any future growth in our business may place significant strain on
our limited managerial and operational resources. We cannot assure you that we
will be able to implement adequate controls over the risks associated with our
planned expansion. If we are unable to effectively manage expanded operations,
our revenues may not concurrently increase with rising costs of operations and
our business will be negatively affected.

Our compliance with the Sarbanes-Oxley
Act and SEC rules concerning internal controls may be time-consuming, difficult
and costly for us.

It may be time consuming, difficult and
costly for us to develop and implement the internal controls and reporting
procedures required by the Sarbanes-Oxley Act. We may need to hire additional
financial reporting, internal controls and other finance staff in order to
develop and implement appropriate internal controls and reporting procedures. If
we are unable to comply with the internal controls requirements of the
Sarbanes-Oxley Act, we may not be able to obtain the independent accountant
certifications that the Sarbanes-Oxley Act requires publicly-traded companies to
obtain.

---

36

If we are unable to retain the services of William Scott Marshall or if we are unable to successfully recruit qualified managerial and field personnel having experience in oil and gas exploration, we may not be able to
continue our operations.

Our success depends to a significant extent upon the continued service of William Scott Marshall, our president. Loss of the services of Mr. Marshall could have a material adverse effect on our growth, revenues, and
prospective business. We do not maintain key-man insurance on the life of Mr. Marshall. In addition, in order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified
managerial and field personnel having experience in the oil and gas exploration business. Competition for qualified individuals is intense. There can be no assurance that we will be able to find, attract and retain existing employees or that we will
be able to find, attract and retain qualified personnel on acceptable terms.

Risks Relating to Our Industry:

As our properties are in the exploration stage, there can be no assurance that we will establish commercial discoveries on our properties.

Exploration for economic reserves of oil and gas is subject to a number of risk factors. Few properties that are explored are ultimately developed into producing oil and/or gas wells. Our properties are in the exploration
stage only and are without proven reserves of oil and gas. We may not establish commercial discoveries on any of our properties.

Even if we are able to, the potential profitability of oil and gas ventures depends upon factors beyond the control of our company.

The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to
governmental fixing, pegging, controls or any combination of these and other factors, and respond to changes in domestic, international, political, social and economic environments. Additionally, due to worldwide economic uncertainty, the
availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. In addition, adverse weather conditions can also hinder drilling operations. These changes and events may materially
affect our future financial performance. These factors cannot be accurately predicted and the combination of these factors may result in our company not receiving an adequate return on invested capital.

Even if we are able to discover and generate a gas or oil well, there can be no assurance the well will become profitable.

We have not yet made a discovery of economically recoverable reserves. Even if we are able to, a productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or
prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. In addition, the marketability of oil and gas which may be acquired or
discovered will be affected by numerous factors, including the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection,
all of which could result in greater expenses than revenue generated by the well.

Competition in the oil and gas industry is highly competitive and there is no assurance that we will be successful in acquiring the leases.

The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and gas companies which have substantially greater technical, financial and operational
resources and staffs. Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds. We cannot predict if the
necessary funds can be raised or that any projected work will be completed. Our budget anticipates our acquisition of additional acreage of lease in the Coos Bay basin. This acreage may not become available or if it is available for leasing, that we
may not be successful in acquiring the leases.

---

37

The marketability of natural resources will be affected by numerous factors beyond our control which may result in us not receiving an adequate return on invested capital to be profitable or viable.

The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include market fluctuations in oil and gas pricing and demand, the
proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of oil and gas and environmental protection regulations. The exact effect
of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.

Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our company.

Oil and gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into
the environment. Oil and gas operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from
government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal, provincial, or local authorities may be changed and any such changes
may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to
liability for pollution or other environmental damages. To date, we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in the future and this may affect our ability
to expand or maintain our operations.

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

In general, our exploration and production activities are subject to certain federal, state and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the
costs of these activities and may prevent or delay the commencement or continuation of a given operation. Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date. Specifically, we are
subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the
satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any
greater or lesser extent than other companies in the industry. We believe that our operations comply, in all material respects, with all applicable environmental regulations. Our operating partners maintain insurance coverage customary to the
industry; however, we are not fully insured against all possible environmental risks.

Exploratory drilling involves many risks and we may become liable for pollution or other liabilities which may have an adverse effect on our financial position.

Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labour disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or
adequate machinery, equipment or labour, and other risks are involved. We may become subject to liability for pollution or hazards against which it cannot adequately insure or which it may elect not to insure. Incurring any such liability may have a
material adverse effect on our financial position and operations.

---

38

Risks Relating to Our Shares of Common
Stock:

If we fail to remain current in our
reporting requirements, we could be removed from the OTC Bulletin Board which
would limit the ability of broker-dealers to sell our securities and the ability
of stockholders to sell their securities in the secondary market.

Companies trading on the OTC Bulletin
Board, such as us, must be reporting issuers under Section 12 of the Securities
Exchange Act of 1934, as amended, and must be current in their reports under
Section 13, in order to maintain price quotation privileges on the OTC Bulletin
Board. If we fail to remain current on our reporting requirements, we could be
removed from the OTC Bulletin Board. As a result, the market liquidity for our
securities could be severely adversely affected by limiting the ability of
broker-dealers to sell our securities and the ability of stockholders to sell
their securities in the secondary market.

Our shares of common stock is subject
to the penny stock rules of the Securities and Exchange Commission and the
trading market in our securities is limited, which makes transactions in our
shares of common stock cumbersome and may reduce the value of an investment in
our shares of common stock.

The Securities and Exchange Commission has
adopted Rule 15g-9 which establishes the definition of a penny stock, for the
purposes relevant to us, as any equity security that has a market price of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require:

- that a broker or dealer approve a persons account
  for transactions in penny stocks; and
- the broker or dealer receive from the investor a
  written agreement to the transaction, setting forth the

identity and quantity of the penny stock
to be purchased.

In order to approve a persons account for
transactions in penny stocks, the broker or dealer must:

- obtain financial information and investment
  experience objectives of the person; and
- make a reasonable determination that the
  transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial
  matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver,
prior to any transaction in a penny stock, a disclosure schedule prescribed by
the Securities and Exchange Commission relating to the penny stock market,
which, in highlight form:

- sets forth the basis on which the broker or dealer
  made the suitability determination; and
- that the broker or dealer received a signed,
  written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to
execute transactions in securities subject to the penny stock rules. This may
make it more difficult for investors to dispose of our shares of common stock
and cause a decline in the market value of our shares of common stock.

Disclosure also has to be made about the
risks of investing in penny stocks in both public offerings and in secondary
trading and about the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities and the rights
and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.

---

39

National Association of Securities Dealers Inc. sales practice requirements may also limit a stockholders ability to buy and sell our shares of common stock.

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

Item 3. Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, being August 31, 2006, we have carried out an evaluation of the effectiveness of the design and
operation of our companys disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our companys management, including our companys president and our chief financial
officer. Based upon that evaluation, our companys president and our chief financial officer concluded that our companys disclosure controls and procedures are effective as at the end of the period covered by this report. There have been
no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time period 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 our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our president and our chief financial officer as appropriate, to allow timely decisions
regarding required disclosure.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors,
officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest. The outcome of open unresolved legal proceedings is presently indeterminable.  Any settlement resulting from
resolution of these contingencies will be accounted for in the period of settlement. We do not believe the potential outcome from these legal proceedings will significantly impact our financial position, operations or cash flows.

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

On November 22, 2005, we closed a private placement consisting of 350,000 units at a price of $0.30 per unit for gross proceeds of $105,000.  Each unit consists of one common share and one non-transferable common
share purchase warrant exercisable for a period of twenty-four months from the date of closing at an exercise price of $0.60. We issued the securities to thirteen non U.S. persons (as that term is defined in Regulation S of the Securities Act of
1933) in an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933.

On November 30, 2005, we entered into a securities purchase agreement with Cornell Capital Partners, LP (Cornell) for an aggregate purchase price of $3,500,000, of which we have issued (i) on November 30,
2005, a

---

40

$1,750,000 secured convertible debenture, convertible into shares of our common stock, par value $0.001, (ii) on January 10, 2006, another $1,750,000 secured convertible debenture, convertible into shares of our
common stock, par value $0.001, and (iii) a warrant to purchase an aggregate of 12,000,000 additional shares of our common stock at an exercise price of $0.2902 per share exercisable until November 30, 2010. Pursuant to the registration
rights agreement entered into between our company and the investor, we agreed to file a registration statement registering the shares of our common stock issuable upon conversion of the convertible debentures and liquidated damages, and the shares
of our common stock issuable upon the exercise of the warrants. The proceeds of the private placement will be used for general corporate purposes.  We issued the securities to an accredited investor pursuant to exemptions from registration as set
out in Rule 506 of Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities.

On November 29, 2005, the Company issued 44,000,000 common shares as treasury stock that is being held as collateral as part of the convertible debenture with Cornell pending clearance of the SB-2 registration statement
filed January 12, 2006. The shares were recorded at the market value of the stock on the date of issuance, which was $0.215 per share.

On November 30, 2005, we also issued to each of H.C. Wainwright & Co., Inc. and 1st SB Partners, Ltd., both broker dealers registered pursuant to section 15 of the Securities Exchange Act of 1934, 2,406,065 warrants to
purchase up to 2,406,065 shares of our common stock, exercisable to November 30, 2010, at an exercise price of $0.2902 per share. We issued these warrants pursuant to Rule 506 of Regulation D under the Securities Act of 1933, in payment of
placement fees in connection with the sale of our convertible debentures to the other selling stockholders.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information.

None

Item 6. Exhibits.

The following documents are filed herewith or have been included as exhibits to previous filings with the Commission and are incorporated herein by this reference:

Exhibits

(2) Plan of Purchase, Sale, Reorganization, Arrangement, Liquidation or Succession

|2.1 | Share Purchase Agreement dated February 2, 2004 among Pro-Tech Holdings Ltd. Power Grow System Ltd., Jason Bleuler and Nick Brusatore (incorporated by reference from our Registration Statement on Form SB-2 filed on May 19,
2004).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|2.2 | Acquisition/Disposition Agreement dated June 30, 2005 among Pro-Tech Holdings Ltd., Power Grow System Ltd., Jason Bleuler and Nick Brusatore (incorporated by reference from our Current Report on Form 8-K filed on July 22,
2005). 
|   

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41

(3) Articles of Incorporation and Bylaws

|3.1 | Articles of Incorporation (incorporated by reference from our Registration Statement on Form SB-2 filed on May 19, 2004).
|--- | -------------------------------------------------------------------------------------------------------------------------
|   
|3.2 | By-laws (incorporated by reference from our Registration Statement on Form SB-2 filed on May 19, 2004).                  
|   
|3.3 | Articles of Amendment (incorporated by reference from our Quarterly Report on Form 10-QSB filed on October 25, 2005).    
|   

(10) Material Contracts

|10.1  | Assignment of Interest Agreement dated May 6, 2005 between Cascade Energy, Inc. and Calcor Energy Partners, LLC (incorporated by reference from our Current Report on Form 8-K filed on May 12, 2005).                                                                            
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|10.2  | Farm-in Agreement dated June 1, 2005 between Cascade Energy, Inc. and Blue Scorpion Energy Inc. (formerly 1048136 Alberta Ltd.) (incorporated by reference from our Current Report on Form 8-K filed on June 20,
2005).                                                         
|     
|10.3  | Farmout Agreement dated June 30, 2005 between Cascade Energy, Inc. and Blue Scorpion Energy Inc. (formerly 1048136 Alberta Ltd.) (incorporated by reference from our Current Report on Form 8-K filed on September
30, 2005).                                                   
|     
|10.4  | Farmout Proposal - Empress Prospect, Section 15, dated July 22, 2005 between Cascade Energy, Inc. and Blue Scorpion Energy Inc. (formerly 1048136 Alberta Ltd.) (incorporated by reference from our Quarterly
Report on Form 10-QSB filed on October 25, 2005).                 
|     
|10.5  | Amendment to Farmout Agreement originally dated June 30, 2005, dated October 17, 2005 between Cascade Energy, Inc. and Blue Scorpion Energy Inc. (formerly 1048136 Alberta Ltd.) (incorporated by reference from
our Quarterly Report on Form 10-QSB filed on October 25, 2005).
|     
|10.6  | Data Sharing Agreement dated August 10, 2005 among Cascade Energy, Inc., Silver Star Energy Inc., Fidelis Energy Inc. and Blue Scorpion Energy Inc. (formerly 1048136 Alberta Ltd.) (incorporated by reference from
our Current Report on Form 8-K filed on September 30, 2005).
|     
|10.7  | Farmout Agreement dated August 26, 2005 between Cascade Energy, Inc. and Salida Capital, Inc. (incorporated by reference from our Current Report on Form 8-K filed on October 18, 2005).                                                                                          
|     
|10.8  | Acquisition Proposal  Strand Fiord Coal Project, Canadian Arctic, dated June 15, 2005 between Cascade Energy, Inc. and James Bay Energy Inc. (incorporated by reference from our Quarterly Report on Form 10- QSB filed
on October 25, 2005).                                    
|     
|10.9  | Mutual Release  Strand Fiord Coal Project, Canadian Arctic, dated October 3, 2005 between Cascade Energy, Inc. and James Bay Energy Inc. (incorporated by reference from our Quarterly Report on Form 10- QSB filed on
October 25, 2005).                                        
|     
|10.10 | 5% Secured Debenture dated June 15, 2005 between Cascade Energy, Inc. and Salifolia Invest and Trade Inc. (incorporated by reference from our Quarterly Report on Form 10-QSB filed on October 25, 2005).                                                                         
|     
|10.11 | 5% Secured Debenture dated June 15, 2005 between Cascade Energy, Inc. and Ratan Consulting Inc. (incorporated by reference from our Quarterly Report on Form 10-QSB filed on October 25, 2005).                                                                                   
|     
|10.12 | 5% Secured Debenture dated June 15, 2005 between Cascade Energy, Inc. and Perosa Management S.A. (incorporated by reference from our Quarterly Report on Form 10-QSB filed on October 25, 2005).                                                                                  
|     

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42

|10.13 | Investor Relations Agreement dated June 1, 2005 between Cascade Energy, Inc. and The Catalyst Shareholder Services Company (incorporated by reference from our Quarterly Report on Form 10-QSB filed on October 25,
2005).
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|10.14 | Form of Securities Purchase Agreement dated November 30, 2005 (incorporated by reference from our Annual Report or Form 8-K filed on December 21, 2005)                                                                   
|     
|10.15 | Form of Secured Convertible Debenture dated November 30, 2005 (incorporated by reference from our Annual Report or Form 8-K filed on December 21, 2005).                                                                  
|     
|10.16 | Form of Registration Rights Agreement dated November 30, 2005 (incorporated by reference from our Annual Report or Form 8-K filed on December 21, 2005).                                                                  
|     
|10.17 | Form of Common Stock Purchase Warrant dated November 30, 2005 (incorporated by reference from our Annual Report or Form 8-K filed on December 21, 2005).                                                                  
|     
|10.18 | Form of Securities Agreement dated November 30, 2005 (incorporated by reference from our Annual Report or Form 8-K filed on December 21, 2005).                                                                           
|     
|10.19 | Form of Pledge and Escrow Agreement dated November 30, 2005 (incorporated by reference from our Annual Report or Form 8-K filed on December 21, 2005).                                                                    
|     
|10.20 | Form of Escrow Agreement dated November 30, 2005 (incorporated by reference from our Annual Report or Form 8-K filed on December 21, 2005).                                                                               
|     
|10.21 | Consulting Agreement dated January 1, 2006 between Cascade Energy, Inc. and Dane Brown (incorporated by reference from our Form 8-K filed on January 23, 2006).                                                           
|     
|10.22 | Consulting Agreement dated January 1, 2006 between Cascade Energy, Inc. and Scott Marshall (incorporated by reference from our Form 8-K filed on January 23, 2006).                                                       
|     
|10.23 | Consulting Agreement dated January 1, 2006 between Cascade Energy, Inc. and Chris Foster (incorporated by reference from our Form 8-K filed on January 23, 2006).                                                         
|     
|10.24 | Consulting Agreement dated January 1, 2006 between Cascade Energy, Inc. and Gord Samson (incorporated by reference from our Form 8-K filed on February 17, 2006).                                                         
|     
|10.25 | Form of Secured Convertible Debenture dated January 10, 2006 (incorporated by reference from our Registration Statement on Form SB-2 filed on October16, 2004).                                                           
|     
|10.26 | Consulting Agreement dated February 1, 2006 between Cascade Energy, Inc. and Sterling Klein (incorporated by reference from our Form S-8 filed on March 7, 2006).                                                         
|     
|10.27 | Consulting Agreement dated February 1, 2006 between Cascade Energy, Inc. and Glen D. Harder (incorporated by reference from our Form S-8 filed on March 7, 2006).                                                         
|     
|10.28 | Consulting Agreement dated February 1, 2006 between Cascade Energy, Inc. and Coleen Seguin (incorporated by reference from our Form S-8 filed on March 7, 2006).                                                          
|     
|10.29 | Consulting Agreement dated September 1, 2006 between Cascade Energy, Inc. and Faisal Saleh (incorporated by reference from our Form 8-K filed on September 22, 2006).                                                     
|     

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|43              
|----------------
|(14)            
|14.1            
|                
|(31)            
|31.1*           
|31.2*           
|(32)            
|32.1*           
|32.2*           
|*filed herewith.

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44

SIGNATURES

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

CASCADE ENERGY, INC.

|By: | /s/ Scott Marshall                                       
|--- | ---------------------------------------------------------
|    | Scott
      Marshall,                                    
|    | President and
      Director                             
|    | (Principal Executive
      Officer)                      
|    | Date: October 23,
      2006                             
|By: | /s/ Faisal Saleh                                         
|    | Faisal Saleh,                                            
|    | Chief Financial Officer
      and Director               
|    | Date: October 23,
      2006                             
|By: | /s/ Chris Foster                                         
|    | Chris Foster,                                            
|    | Director                                                 
|    | Date: October 23,
      2006                             
|By: | /s/ Dane Brown                                           
|    | Dane Brown,                                              
|    | Vice President, Corporate
      Development, and Director
|    | Director                                                 
|    | Date: October 23,
      2006                             

---