**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**Form 10-KSB**

(Mark One)
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|--------------------------------------------------------------------------------------|

For the fiscal year ended  **December 31, 2006**
| [      | ]                                     | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|---------------------------------------|------------------------------------------------------------------------------------|
|   | For the transition period from [ | ] to [                                                                        | ] |  
Commission file number  **000-26907**

**CHEETAH OIL & GAS LTD.**

(Name of small business issuer in its charter)

 

**Nevada**

 

**93-1118938**

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

**400-601 West Broadway, Vancouver,  B.C.**

 

**V5Z 4C2**

(Address of principal executive offices)

 

(Zip Code)

Issuer's telephone number (**604) 871-4163**

Securities registered pursuant to Section 12(b) of the Act:

Title of each class**Nil**

 

Name of each exchange on which registered**Nil**

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

**Common Stock, par value $0.001**

(Title of class)

 
Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  

 
 
(Check one):  

Yes [  

]  

No x

 
**Note:**  Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange act from their obligations under those Sections.

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

Yes x  

No [  

]

 

 

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

 

 

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Yes o  

No [X ]

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  [   ]

State issuer's revenues for its most recent fiscal year.  $ Nil

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within 60 days.  (See definition of affiliate in Rule 12b-2 of the Exchange Act.)

Note:  If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated.

**12,067,596 common shares @ $.25 (1) = $3,016,899**

(1)  Average of bid and ask closing prices on March 1, 2007.

**(APPLICABLE ONLY TO CORPORATE REGISTRANTS)**

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

**36,679,481 common shares issued and outstanding as of April 10, 2007.**

Transitional Small Business Disclosure Format (Check one):  

Yes [  

];  

No x.

 

 

 

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**PART I**

**Item 1.**

**Description of Business.**

This annual report contains forward-looking statements as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.    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 company's 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 (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to "common shares" refer to the common shares in our capital stock.

As used in this annual report, the terms "we", "us", "our", and "Cheetah" mean Cheetah Oil and Gas Ltd. and our subsidiaries, unless otherwise indicated.

*General Overview*

We are a Nevada corporation incorporated on May 5, 1992.  We are an exploration stage oil and gas company engaged in the exploration for petroleum and natural gas in the country of Papua New Guinea. We were previously intending to enter into the businesses of a technology venture finance company to organize, capitalize, acquire and finance technology companies, and subsequent to that attempted to acquire certain resource leases in the Raton Basin.  Due to the inability to run these businesses with a profit, the default on the obligations of certain parties and the difficulty in attracting additional capital on terms favourable to existing shareholders, our previous management ceased operation of all prior businesses in 2002.

We currently hold five petroleum prospecting licenses and one petroleum retention licence in Papua New Guinea directly and through our majority controlled subsidiary, Scotia Petroleum Inc., which in total are petroleum prospecting licenses in Papua New Guinea covering approximately 8.3 million acres.  PRL 13, PPL 246 and PPL 250 are located in South-Central of Papua New Guinea and PPL 245, PPL 249 and PPL 252 are located along the Northern Coast.    We are now evaluating and exploring the oil and gas prospects over approximately 8.3 million acres in our five license areas in Papua New Guinea.

*Corporate History*

We were incorporated under the laws of the State of Nevada on May 5, 1992 under the name “Bio-American Capital Corporation”.

On March 5, 2004 we acquired all of the issued and outstanding shares of Cheetah Oil & Gas Ltd., a private British Columbia company, in exchange for 25,000,000 shares of our common stock.  Therefore, for accounting purposes, Cheetah Oil & Gas Ltd. was deemed to have acquired Bio American Capital Corporation.  We changed our name to “Cheetah Oil & Gas Ltd.” by a Certificate of Amendment filed on May 25, 2004 with the Nevada Secretary of State.  Immediately prior to the Cheetah acquisition we had 62 shareholders of record.

 

 

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On March 1, 2007, our board of directors unanimously approved, subject to receiving the approval of a majority of the shareholders of our common stock, an amendment to our Articles to increase our authorized shares of common stock to 500,000,000 shares, and authorize the issuance of up to 100,000,000 shares of preferred stock in the capital of our corporation, for which the board of directors may fix and determine the designations, rights, preferences or other variations of each class or series within each class of the shares of preferred stock.

Subsequent to our Board of Directors’ approval of the Amendments, the holders of the majority of the outstanding shares of our corporation gave us their written consent to the Amendments to our Articles of Incorporation on March 1, 2007.  Therefore, our corporation will file Articles of Amendment to amend our Articles of Incorporation to give effect to the foregoing amendments.  The Articles of Amendment will become effective when they are filed with the Nevada Secretary of State.

The general purpose and effect of the amendment to our corporation’s Articles is to increase our authorized share capital and authorize the preferred shares, which will enhance our company’s ability to finance the development and operation of our business.

Our common shares were quoted for trading on the OTCBB on December 8, 1998 under the symbol “BIAN”.  In October 1999, due to the change in Rule 15c2-11, we were reduced to trading in the “Pink Sheets” because we did not have an effective Form 10-SB.  In August 1999 our Form 10-SB became effective.  A Form 211 application was accepted by the NASD Regulations, Inc. and our shares of common stock were quoted for trading on the OTCBB in June 2002.  On May 25, 2004 our symbol changed to “COGL”.

We have not been involved in any bankruptcy, receivership or similar proceeding.  All dollar amounts referred to herein are U.S. dollars, unless otherwise noted.

 

*Our Current Business*

On March 5, 2004, we entered into an acquisition agreement with Georgina Martin, the sole shareholder of Cheetah Oil & Gas Ltd., a British Columbia company, for the acquisition of all the outstanding equity securities of Cheetah, being 100 shares of common stock, in exchange for 25,000,000 shares of our common stock.  As a result of this transaction, Cheetah has become our wholly owned subsidiary.  The principal assets of Cheetah were three petroleum prospecting licenses: PPL #249, PPL #250 and PPL #252 issued by the Minister of Petroleum and Energy for Papua New Guinea. The licenses require Cheetah to engage in exploratory and developmental activities by certain dates as specified in the respective licenses, including obtaining seismic data, drilling an exploratory well, drilling an appraisal well and conducting related activities.  PPL #249 covers a total of 1,501,050 acres, PPL #250 covers a total of2,001,400 acres and PPL #252 covers a total of 1,841,288 acres.

As a result of the above acquisition, we changed our name to “Cheetah Oil & Gas Ltd.” by a Certificate of Amendment filed on May 25, 2004 with the Nevada Secretary of State.

On June 24, 2004, our wholly owned subsidiary Cheetah Oil & Gas Ltd. (B.C.) entered into an acquisition agreement with the controlling shareholders of Scotia Petroleum Inc. (“Scotia”) to acquire 31,518,829 Scotia common shares or an 85.14% controlling interest (of a total of 37,018,829 Scotia shares issued and outstanding).  As consideration, we paid the sum of $301,887 US dollars to the selling Scotia shareholders.  In addition, one of our shareholders (who was not an affiliate of our company) who was also a Scotia shareholder contributed 256,315 shares of restricted stock of our company valued at $1,817,273 to the other Scotia shareholders. The share value of $7.09 was based on the average market price of our company’s common stock over the five-day period before and after May 13, 2004, the date of agreement to purchase our company. Cheetah Oil & Gas Ltd. (B.C.) has also acquired anoption to purchase an additional 13.51%, or 5,000,000 shares, of the issued shares of Scotia for a period of two years for $1,000,000.  On March 10, 2005 we exercised our option to acquire the additional Scotia shares, and as consideration for which we issued 142,000 restricted shares of common stock on March 17, 2005 of our company at $7.04 per share.  The share value of $7.04 was based on the average market price of our company’s common stock over the five-day period before and after March 10, 2005.  As a result, Scotia has become our majority controlled subsidiary as we now hold 98.65% of the issued and outstanding shares of Scotia.

 

 

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The principal assets of Scotia are two Petroleum Prospecting Licenses (PPL) - PPL #245 and PPL #246 - issued by the Minister of Petroleum Energy for Papua New Guinea.  The licenses require Scotia to engage in exploratory and developmental activities by certain dates, including obtaining seismic data, drilling an exploratory well, drilling an appraisal well and conducting related activities.  Scotia will be required to expend certain minimum amounts in respect of the licenses.

The management of Cheetah was undecided on whether it was going to exercise the option to purchase the further 13.51% of Scotia on the initial purchase of the 85.14% interest in Scotia.  Subsequent to the purchase of the initial Scotia shares, we engaged in further investigation to assist in making the decision to exercise the option and acquire the additional Scotia shares.

The initial purchase of Scotia occurred June 2004.  During the month of June 2004, Mr. Braun our former chief executive officer visited Papua New Guinea and began a detailed review of the assets of Scotia Petroleum licenses 245 and 246.  Mr. Braun carried out a visual inspection of the licenses with our company’s chief geologist and a review of historical data on the licenses.

From his review he determined that both licenses had significant potential and PPL #246 offered significant opportunity to Cheetah.  Mr. Braun learned the following from his visit to Papua New Guinea in June of 2004:

1.

PPL # 246 was adjacent to existing infrastructure, being the oil pipeline to the Kumul Terminal and the proposed Natural Gas Pipeline to Australia;

2.

On review of the historical drilling activity on the license three wells had been drilled in the north east section of the license;

3.

Two of the wells drilled on the license in the 1950’s had intersected a significant gas bearing structure.  The Kuru-1 well was a gas discovery, which blew out on the 10th of January 1956.  Records indicated that the well blew out for approximately 4 months at a rate of 50 to 100 thousand cubic feet (MCF) of gas per day; and

4.

The Kuru-2 well was drilled and experienced significant pressure as drilling proceeded.

In addition to the foregoing investigations and findings, subsequent to Cheetah acquiring Scotia Petroleum, Mr. Braun hired, Tayfun Babadagli, PhD to prepare a reservoir study on the Kuru structure.  The results of the study were received during November 2004.  Under PPL #246 Cheetah then applied for a petroleum retention license (PRL) on the Kuru structure on November 12, 2004 and was granted PRL #13 on January 27, 2005, covering 40,000 acres.  PRL #13 is the only PRL that we have been granted to date.

A PRL is required given that if we are to proceed with exploration and drilling and hopefully production, we must obtain a PRL as part of this process to allow us to commence drilling operations.

Subject to the Oil and Gas Act of Papua New Guinea and to any condition in the licence, a PRL remains in force:

 

a)

for a period of five years commencing on the day on which the licence takes effect; and 

 

b)

where the licence is extended, for a further period of five years at each extension.

The next step that follows the granting of a PRL is to put the gas field into production and a company then must apply for Petroleum Development Licence.

In June 2004, we also hired 3D-GEO Inc. of Melbourne, Australia to prepare a Hydrocarbon Prospectivity Report of PPL #246.  The report was received during November of 2004.

Based on the reports received and the granting of PRL #13, it became clear to management that PPL #246 and PRL #13 were representative of a significant asset to our company.  As Cheetah was planning on raising further capital in the spring of 2005, a greater percentage ownership of Scotia would further assist in the valuation of Cheetah Oil & 

 

 

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Gas.  In addition it became clear that PPL #246 was becoming the cornerstone of Cheetah’s license portfolio and management determined it to be in the best interest of our company to acquire the interest to ensure that there would not be any potential disputes in the future as to the right to acquire the interest.

PPL #245 covers a total of 2,501,750 acres and is located along the Northern coast of Papua New Guinea, adjacent to Cheetah’s existing PPL #249.  It straddles both the East and West Sepik sub-basins.  Preliminary evaluation by our former President and our Chief Geologist indicated both oil and gas seeps in parts of PPL #245.  The oil and gas seeps were identified by our former President and our Chief Geologist when they visited PPL#245 in June of 2004.  Their physical inspection identified two locations with visible seeps in the Foruk and Matapan locations.  Seeps are areas where the hydrocarbons are reaching the surface and "seeping" out of the ground.  PPL #245 was originally issued on September 17, 2003 and will remain valid until September 17, 2009 subject to minimum work expenditures and accomplishments being made.  The minimum forecasted expenditures to retain this license in good standing for the6 year period will be $18,900,000 should the further development of PPL #245 be warranted as our exploration program proceeds.

PPL #246 covers 540,378 acres located in the south-central region of Papua New Guinea, located south of Cheetah’s existing PPL #250.  The property is within the Papuan Basin.  The western part of PPL #246 is rated to be prospective with potential for petroleum systems.  Based upon our review of all available data, we believe that there is potential for gas accumulations in the western part of PPL #246, as also stated in the report of 3D-GEO Inc.  PPL #246 was originally issued on October 15, 2003 and will remain valid until October 15, 2009 subject to minimum work expenditures and accomplishments being made.  The minimum forecasted expenditures to retain this license in good standing for the 6 year period will be $19,900,000 should the further development of PPL #246 be warranted as our exploration program proceeds.

We have commissioned and received a resource and risk assessment of PPL #246 from 3D-GEO Inc. of Melbourne, Australia.  As noted above, PPL #246 is held by our majority controlled subsidiary, Scotia Petroleum Inc.  3D Geo is a Melbourne, Australia based seismic-structural geology consulting firm.  3D Geo provides seismic/structural and tectonic interpretation, modeling, restoration and data collection services to the oil and gas industry worldwide.  3D-GEO’s particular geographic area of expertise is Australia and Southeast Asia.  For the two reports that we have received from 3D GEO, one cost $45,399 and one cost $42,564.

In late October of 2004 we entered into an agreement with Grey Creek Petroleum Inc. pursuant to which we had the option to acquire a 97.5% interest in two further Petroleum Prospecting Licenses in Papua New Guinea, being PPL #257 and PPL #258.  After review, we elected not to proceed with the agreement with Grey Creek.

As a result of the above acquisitions, we currently hold five petroleum prospecting licenses in Papua New Guinea directly and through our majority controlled subsidiary, Scotia Petroleum Inc., which in total are petroleum prospecting licenses in Papua New Guinea covering approximately 8.3 million acres.  PRL 13, PPL 246 and PPL 250 are located in South-Central of Papua New Guinea and PPL 245, PPL 249 and PPL 252 are located along the Northern Coast.  We are now evaluating and exploring the oil and gas prospects over approximately 8.3 million acres in our five license areas in Papua New Guinea.  Our consultants produced an evaluation based on available existing survey and seismic data from historical operations on the licenses.  In addition, we have gathered extensive information from the reports that we have commissioned on the licenses and have reviewed information and valuations regarding competitors whohave acquired similar licenses in the region.

We have established an office in Papua New Guinea which houses administrative and technical persons to carry on the exploration activities and to further liaison with Papua New Guinea Government Officials and other oil and gas industry participants.  Our central management is carried on in British Columbia, Canada.  As a result, we do not currently maintain a permanent place of business within the United States.  In addition, a majority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons' assets are located outside the United States.  As a result, it may be difficult for investors to enforce within the United States any judgments obtained against our company or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.

 

 

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We have not discovered any oil or gas reserves on the properties over which we hold our licenses nor have we generated any revenue from operations.   

*License Development Program and Expenses*

We will be required to expend certain minimum amounts in respect of our licenses.  The initial term of the licenses is six years.  To maintain these assets, we will have to raise substantial additional capital.  The failure to have the required capital at the times needed, and the ability to modify the agreements or extend the time periods, could result in their termination and the loss of their benefits to us.

To maintain our licenses in good standing we must commence drilling during the second two-year term of the licenses (the third and fourth years).  There are no specific or mandatory expenditure requirements for our licenses (other than in regards to PPL#245), but we must conduct certain exploration related activities within the time periods stipulated in the respective licenses.  In contrast, PPL #245 contained the additional provision that the listed exploration activities be accomplished at a cost of not less than $3,000,000 within the first two-year term of the license.  We have completed the work required under PPL #245 requirements, however at a cost substantially less than the $3,000,000 that was mandated.  However, we have been provided assurances by the Ministry of Petroleum Energy in writing that PPL #245 remains in good standing.  In addition, if necessary we have the right to apply to the Ministryfor an extension or variance in regards to any of our licenses to extend the times for the deadlines described in a licence or amend the expenditures required.  In this regard we received a letter from the Department of Petroleum and Energy dated January 23, 2007 which reconfirms that our licenses are in good standing.  In addition the letter confirms that we have been granted an extension for our licenses such that any work commitment or expenditure requirements that has been due or may be due or required in the year 2007, be extended to year 2008. We have incurred, or anticipate incurring the following costs and conducting the following activities within the next twenty-four months to prepare the licenses for drilling, if warranted:

**Licence**

**Minimum Work Program**

**PPL#245**

Conducted the following at cost of $200,000:

(a)    Scan and reprocess existing seismic data.

(b)    Interpret seismic and integrate into regional geological and geophysical review of the license.

(c)    Acquire SAR imagery over license.

(d)    Social Mapping.

(e)    Data compilation.

(f)     Sample collection and analysis to mature prospective leads.

(g)    Plan year 3 seismic program.

The above work hasbeen completed.  As much of the work was undertaken by our own consultants, the cost of the work was much less than anticipated, and less than mandated by the terms of PPL#245

 

**PPL#246**

Conduct following at of up to $2.0MM:

(a)    Scan and reprocess existing seismic data and interpret seismic and integrate into regional geological and geophysical review of the license. (Completed at a cost of $200,000)

(b)    Sample collection and analysis, structural modeling.

(c)    Seismic program for Middletown geologicalstructure.

(d)    Well commitment.

 

 

 

 

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**PPL #249**

Conduct the following at cost of up to $200,000:

(a)    Scan and reprocess existing seismic data. (Completed at a cost of $3,000)

(b)    Conduct subsurface review of the license. (Completed at a cost of $25,000)

(c)    Interpret seismic & integrate into regional geological and geophysical review of the license. (Completed at a costof $25,000)

(d)    Identify optimum drilling locations using sample collection and analysis.

(e)    Plan Year-3 seismic program.

 

**PPL #250**

Conduct the following at cost of up to $200,000:

(b)    Conduct regional geological and geophysical review of the license.

(c)    Sample collection and analysis to identify optimum drilling locations.

 

**PPL #252**

Conduct the following at cost of up to $150,000:

(a)    Reprocess selected existing seismic data.

(b)    Interpret seismic and integrate into regional geological and geophysical review of the license.

(c)    Compile preliminary prospectus and leads inventory.

(d)    Undertake field geological survey over prospective parts of license.

 

**PRL #13**

Conduct the following at a cost of up to $1,220,000:

(1)    Conduct sample collection and analysis and revise structural model.

(2)    Undertake a re-entry into Kuru-2 gas well.

(3)    Contingent on success of re-entry well acquire seismic to optimize location of new Kuru appraisal well.

(4)    Complete reservoir engineering studies to confirm reserves and evaluate recovery methods.

 

We entered into an oilfield services agreement, with an effective date of July 14, 2005, with Halliburton Overseas Limited for the provision of oilfield services on our oil and gas licenses in Papua New Guinea.  The services under the agreement are commenced in September of 2005.  The agreement with Halliburton remains current and in effect.  The services to be provided are for drilling and drilling support and testing activities.  In addition, we have entered into an agreement with Simmons Drilling (Overseas) Limited for the provision of a Challenger model 150-64 drilling rig, associated equipment and personnel, for the re-entry of the Kuru #2 well.  The costs that we will be paying under the agreements with Halliburton and Simmons are factored into our budgeted expenses.

*Competition*

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 licenses, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds.  There are other competitors that have operations in Papua New Guinea and the presence of these competitors could adversely affect our ability to acquire additional licenses.  Specifically, Interoil Corp. (Amex : IOC) has a substantial number of licenses in Papua New Guinea as well and so is a direct competitor in the region.

 

 

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*Governmental Regulations*

In the United States we are subject to federal, state and local governmental regulation that affects businesses generally, and the specific regulations that pertain to companies with a class of securities registered under the United States *Securities and Exchange Act of 1934*, as amended.

As a result of maintaining an executive office in British Columbia, Canada, we are required to register as an extra-provincial corporation in British Columbia, as we are deemed to be carrying on business in British Columbia under the British Columbia *Business Corporations Act*.  In order to carry on business in British Columbia, Canada, a corporation incorporated in a jurisdiction other than British Columbia must extra-provincially register in British Columbia.  Registering as an extra-provincial corporation in British Columbia does not affect our shareholders in any adverse manner and allows us to carry on business in British Columbia.

Our oil and gas operations are subject to various federal and local governmental regulations of Papua New Guinea.  Matters subject to regulation include discharge permits for drilling operations, drilling and abandonment bonds, reports concerning operations, the spacing of wells, and pooling of properties and taxation.  From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve supplies of oil and gas.  The production, handling, storage, transportation and disposal of oil and gas, by-products thereof, and other substances and materials produced or used in connection with oil and gas operations are also subject to regulation under federal and local laws and regulations relating primarily to the protection of human health and the environment.  To date, expendituresrelated to complying with these laws, and for remediation of existing environmental contamination, have not been incurred in relation to the results of operations of our company, although we anticipate incurring such expenses as our drilling operations proceed.  The requirements imposed by such laws and regulations are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations.

The properties over which we hold our licenses are subject to a 22.5% back-in participation right in favour of the government, which the government may exercise upon payment of 22.5% of the expenses incurred in the development of the property.  This back–in interest includes a 2% of revenue royalty payment to indigenous groups, which is only payable if the government exercises its back-in right.

*Withholding Tax and Currency Exchange Controls in Papua New Guinea*

The current rate of dividend withholding tax stipulated by the Income Tax Act 1959 (Papua New Guinea) is 17%. The Central Banking (Foreign Exchange & Gold) Regulation (Ch138) (Papua New Guinea) regulates the flow of currency into and out of Papua New Guinea.  A Papua New Guinea company can only send Papua New Guinea Kina or a foreign currency (other than that which was the subject of a previously approved exchange) out of Papua New Guinea with the Central Bank's prior approval.  These authorities or approvals are delegated to certain commercial banks as authorised dealers up to certain limits.  The limits to exchanging and remitting foreign currency overseas from Papua New Guinea are K50,000 per transaction without further tax clearance from the Internal Revenue Commission and K500,000 in aggregate per annum without further Central Bank approval.

*Research and Development*

Our business plan is focused on a strategy for maximizing the long-term exploration and development of our petroleum prospecting licenses in Papua New Guinea.  To date, execution of our business plan has largely focused on acquiring petroleum prospecting licenses in Papua New Guinea.  We intend to establish a going forward exploration and development plan.

*Employees*

In addition to our directors and officers who conduct the day-to-day operations of our company, we also have 4 full-time employees in Papua New Guinea.  As a result, including our directors and officers, we have a total of 8 

 

 

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employees.  We do not expect any material changes in the number of employees over the next 12 month period.  We do and will continue to outsource contract employment as needed.  

**RISK FACTORS**

Much of the information included in this annual report includes or is based upon estimates, projections or other "forward looking statements".  Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations.  While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.

Such estimates, projections or other "forward looking statements" involve various risks and uncertainties as outlined below.  We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other "forward looking statements".

Our common shares are considered speculative during the development of our new business operations. Prospective investors should consider carefully the risk factors set out below.

**Risks Related to our Business**

*We have yet to attain profitable operations and because we will need additional financing to fund our extensive exploration activities, there is substantial doubt about our ability to continue as a going concern.*

Our company has a limited operating history and is considered in the development stage. The success of our company is significantly dependent on a successful drilling, completion and production program. Our company’s 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. No assurance can be given that we may be able to 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. There can be no assurance that our business plan will prove successful, and no assurance that we may be able to operate profitably, if at all.

In their report on our annual consolidated financial statements for the year ended December 31, 2006, our independent auditors included explanatory paragraphs regarding their substantial doubts about our ability to continue as a going concern.  This was due to the uncertainty of our ability at the time to meet our current operating and capital expenses.  Even with the completion of the private placement in May 2005 for gross proceeds of $6,000,000 and in March 2006 we closed on a financing by the issuance of a $ 5,000,000 senior secured convertible note due March 14, 2007, we will have to raise additional funds to satisfy our estimated minimum cash requirements for the period ending December 31, 2007 and/or we may be required to minimize certain expenses.  We estimate our minimum cash requirements for that period to be $15,000,000.  However, there is no assurance that actual cash requirements will not exceedour estimates, in which case we will require additional financing to further explore and if warranted bring our properties into commercial operation, finance working capital and pay for operating expenses and capital requirements until we achieve a positive cash flow.  The Company is currently in default with respect to the $ 5,000,000 senior secured convertible note.

 

 

 

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

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

*All or a portion of our interest in our properties may be lost if we are unable to obtain significant additional financing, as we are required to make significant expenditures on the exploration and development of our properties.*

Our ability to continue exploration and, if warranted, development of our properties will be dependent upon our ability to raise significant additional financing. If we are unable to obtain such financing, a portion of our interest in our properties may be lost or our properties may be lost entirely and revert back to the government of Papua New Guinea. We have limited financial resources and no material cash flow from operations and we are dependent for funds on our ability to sell our common shares, primarily on a private placement basis. There can be no assurance that we will be able to obtain financing on that basis in light of factors such as the market demand for our securities, the state of financial markets generally and other relevant factors.

We anticipate that we may need to obtain additional bank financing or sell additional debt or equity securities in future public or private offerings. There can be no assurance that additional funding will be available to us for exploration and development of our projects or to fulfill our obligations under the applicable petroleum prospecting licenses. Although historically we have announced additional financings to proceed with the development of some of our properties, there can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of our projects with the possible loss of our petroleum prospecting licenses.

*Due to the losses incurred since inception, our stockholders’ deficiencies and not having generated any revenues to date nor currently generating any revenues, there is substantial doubt about our ability to continue as a going concern.*

There is substantial doubt about our ability to continue as a going concern due to the losses incurred since inception, our accumulated deficit, and lack of revenues.

There can be no assurance that, if required, any such financing will be available upon terms and conditions acceptable to us, if at all. Our inability to obtain additional financing in a sufficient amount when needed and upon terms and conditions acceptable to us could have a materially adverse effect upon our company. The Company will need funds sufficient to meet our immediate needs and will require further funds to finance the development of our company. There can be no assurance that such funds will be available or available on terms satisfactory to us. If additional funds are raised by issuing equity securities, further dilution to existing or future shareholders is likely to result. If adequate funds are not available on acceptable terms when needed, we may be required to delay, scale back or eliminate the development of our company. Inadequate funding could also impair our ability to compete in themarketplace, which may result in the dissolution of our company.

 

 

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*We will require substantial funds to enable us to decide whether our properties contain commercial oil and gas deposits and whether they should be brought into production, and if we cannot raise the necessary funds we may never be able to realize the potential of our properties.*

Our decision as to whether our properties contain commercial oil and gas deposits and should be brought into production will require substantial funds and depend upon the results of exploration programs and feasibility studies and the recommendations of duly qualified engineers, geologists, or both. This decision will involve consideration and evaluation of several significant factors including but not limited to: (1) costs of bringing a property into production, including exploration and development work, preparation of production feasibility studies, and construction of production facilities; (2) availability and costs of financing; (3) ongoing costs of production; (4) market prices for the oil and gas to be produced; (5) environmental compliance regulations and restraints; and (6) political climate, governmental regulation and control.  If we are unable to raise the funds necessary to properly evaluate ourproperties, then we may not be able to realize any potential of our properties.

*We have licenses in respect of our properties, but our properties may be subject to prior unregistered agreements, or transfers which have not been recorded or detected through title searches, and are subject to a governmental right of participation, resulting in a possible claim against any future revenues generated by such properties.*

We have licenses with respect to our oil and gas properties and we believe our interests are valid and enforceable given that they have been granted directly by the government of Papua New Guinea, although we have not obtained an opinion of counsel or any similar form of title opinion to that effect.  However, these licenses do not guarantee title against all possible claims.  The properties may be subject to prior unregistered agreements, or transfers which have not been recorded or detected through title research.  Further, the properties are subject to a 22.5% back-in participation right in favour of the government, which the government may exercise upon payment of 22.5% of the expenses incurred in the development of the property.  This back–in interest includes a 2% of revenue royalty payment to indigenous groups, which is only payable if the government exercises its back-in right. If the interestsin our properties are challenged, we may have to expend funds defending any such claims and may ultimately lose some or all of any revenues generated from the properties if we lose our interest in such properties.

*All of our projects are located in Papua New Guinea where oil and gas exploration activities may be affected in varying degrees by political and government regulations which could have a negative impact on our ability to continue our operations.*

Certain projects in which we have interests are located in Papua New Guinea.  Exploration activities in Papua New Guinea may be affected in varying degrees by political instabilities and government regulations relating to the oil and gas industry.  Any changes in regulations or shifts in political conditions are beyond our control and may adversely affect our business.  Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriations of property, environmental legislation and safety.  The status of Papua New Guinea as a developing country may make it more difficult for us to obtain any required financing for our projects.  The effect of all these factors cannot be accurately predicted.  Notwithstanding the progress achieved in restructuring Papua New Guinea political institutions and revitalizingits economy, the present administration, or any successor government, may not be able to sustain the progress achieved.  While the Papua New Guinea economy has experienced growth in recent years, such growth may not continue in the future at similar rates or at all.  If the economy of Papua New Guinea fails to continue its growth or suffers a recession, we may not be able to continue our operations in that country.  We do not carry political risk insurance.

 

 

- 13 -

 

 

*Our accounts are subject to currency fluctuations which may periodically affect our financial position and results.*

We maintain our accounts in US and Canadian currencies and make certain payments in the currency of Papua New Guinea and are therefore subject to currency fluctuations and such fluctuations may periodically affect our financial position and results. We do not engage in currency hedging activities.

*The loss of any of our key management personnel would have an adverse impact on future development and could impair our ability to succeed.*

We are dependent on our ability to hire and retain highly skilled and qualified personnel, including Mr. Ian McKinnon and Isaac Moss, who are also our director and officers of the company. We face competition for qualified personnel from numerous industry sources, and there can be no assurance that we will be able to attract and retain qualified personnel on acceptable terms. We do not have key man insurance on any of our employees.  The loss of service of any of our key personnel could have a material adverse effect on our operations or financial condition.

*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 of the 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. There can be no assurance that we will establish commercial discoveries on any of our properties.

*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 world-wide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our financial performance.

Adverse weather conditions can also hinder drilling operations. 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. The marketability of oil and gas which may be acquired or discovered will be affected by numerous factors beyond our control. These factors include 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. The extent of these factors cannot be accurately predicted but the combination of these factors may result in our company not receiving an adequate return on invested capital.

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

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 properties for drilling operations and necessary drilling equipment, as well as for access to funds. There can be no assurance that the necessary funds can be raised or that any projected work will be completed.  There are other competitors that have operations in the properties in Papua New Guinea and the presence of these competitors could adversely affect our ability to acquire additional property interests.

 

 

- 14 -

 

 

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

Oil and gas operations in Papua New Guinea are subject to federal 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 in Papua New Guinea are also subject to federal 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.  No assurance can be given that environmental standards imposed by federal or local authorities will not be changed or that any such changes would not have material adverse effects on our activities.  Moreover, compliance with such laws may cause substantial delays or require capital outlaysin excess of those anticipated, thus causing an adverse effect on us.  Additionally, we may be subject to liability for pollution or other environmental damages which we may elect not to insure against due to prohibitive premium costs and other reasons.  Our current exploration and drilling activities are subject to the aforementioned environment regulations.  We do not currently have any identified oil or gas reserves.  When and if we establish reserves or enter into production we will become subject to additional regulations which do not currently pertain to us or affect our current operations.

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.

Based upon our review of the environmental regulations that we are currently subject to, we believe that our operations comply, in all material respects, with all applicable environmental regulations.

*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, labor 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 we cannot adequately insure or which we may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.

*Any change to government regulation/administrative practices in regards to conducting business generally in Papua New Guinea may have a negative impact on our ability to operate and our profitability.*

There is no assurance that the laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in Papua New Guinea or any other jurisdiction, will not be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business in Papua New Guinea.

The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us.  Any or all of these situations may have a negative impact on our ability to operate and/or our profitability in Papua New Guinea.

 

 

- 15 -

 

 

*A majority of our directors and officers are located outside the United States, with the result that it may be difficult for investors to enforce within the United States any judgments obtained against us or any of our directors or officers.*

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

**Risks Related to our Common Stock**

*Additional authorized common shares issued in the future will decrease the existing shareholders’ percentage equity ownership and, depending upon the price at which they are issued, could be dilutive to the existing shareholders.*

Our constating documents authorize the issuance of 50,000,000 shares of common stock, each with a par value of $0.001.  The amendment to our corporation’s Articles to increase our authorized share capital and authorize the Preferred Shares will not have any immediate effect on the rights of existing shareholders. However, our board of directors will have the authority to issue authorized common stock and the Preferred Shares without requiring future shareholders approval of such issuances, except as may be required by applicable law or exchange regulations. To the extent that additional authorized common shares are issued in the future, they will decrease the existing shareholders’ percentage equity ownership and, depending upon the price at which they are issued, could be dilutive to the existing shareholders.

The increase in the authorized number of shares of our common stock and the subsequent issuance of such shares could have the effect of delaying or preventing a change in control of our company without further action by the shareholders. Shares of authorized and unissued common stock could be issued (within limits imposed by applicable law) in one or more transactions. Any such issuance of additional stock could have the effect of diluting the earnings per share and book value per share of outstanding shares of common stock, and such additional shares could be used to dilute the stock ownership or voting rights of a person seeking to obtain control of our company.

**Item 2.**

**Description of Property.**

In North America we operate from our offices at 400-601 West Broadway Street, Vancouver, B.C. V5Z 4C2,  Canada and in Papua New Guinea we operate from our offices at Ground Floor, Unit 5, Pacific View Apartments, Perth Street, Korobosea, NCD, Port Moresby, Papua New Guinea. We currently hold five petroleum prospecting licenses in Papua New Guinea directly and through our majority controlled subsidiary, Scotia Petroleum Inc., which in total cover approximately 8.3 million acres in Papua New Guinea.  PRL 13, PPL 246 and PPL 250 are located in South-Central of Papua New Guinea and PPL 245, PPL 249 and PPL 252 are located along the Northern Coast.

**Item 3.**

**Legal Proceedings.**

Other than as disclosed below, 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 shareholder, is an adverse party or has a material interest adverse to our interest.

On April 19, 2006, we were named as a defendant in an action commenced by Gryphon Master Fund L.P. and GSSF Master Fund L.P. (the “Plaintiffs”) in the U.S. District Court, Northern District of Texas.  The Plaintiffs were investors in our private placement that closed on May 26, 2005.  Pursuant to the terms of that private placement, the investors were granted a bonus warrant to acquire additional shares of common stock if certain conditions were satisfied.  The Plaintiffs are alleging that they are owed additional shares of common stock pursuant to the bonus warrant provisions and that they are owed certain amounts as a result of registration rights penalties.  

 

 

- 16 -

 

We have taken the position that the bonus warrant provisions are not applicable in the circumstances alleged by the Plaintiffs and as such, are defending the action.

**Item 4.**

**Submissions of Matters to a Vote of Security Holders.**

There were no matters submitted to a vote of our security holders either through solicitation of proxies or otherwise in the fourth quarter of the fiscal year ended December 31, 2006.

**PART II**

**Item 5.**

**Market for Common Equity and Related Stockholder Matters.**

Our common shares were quoted for trading on the OTCBB on December 8, 1998 under the symbol "BIAN".  In October 1999, due to the change in Rule 15c2-11, we were reduced to trading in the “Pink Sheets” because we did not have an effective Form 10-SB.  In August 1999 our Form 10-SB became effective.  A Form 211 application was accepted by the NASD Regulations, Inc. and our shares of common stock were quoted for trading on the OTCBB in June 2002 under the symbol “BIAN”.  On May 25, 2004 our symbol changed to “COGL”.  The following quotations obtained from yahoo.com reflect the highs and low bids for our common stock based on inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

The high and low bid prices of our common stock for the periods indicated below are as follows:

**National Association of Securities Dealers  OTC Bulletin Board(1)**

**Quarter Ended**

**High**

**Low**

December 31, 2006

$0.78

$0.32

September 30, 2006

$2.78

$0.35

June 30, 2006

$3.55

$2.11

March 31, 2006

$4.49

$2.45

December 31, 2005

$7.80

$2.01

September 30, 2005

$7.70

$5.68

June 30, 2005

$8.95

$5.45

March 31, 2005

$8.15

$6.70

(1)  Over-the-counter market quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.

Our common shares are issued in registered form.  Atlas Stock Transfer, 5899 South State Street, Salt Lake City, Utah  8410, (Telephone:  801.266.7151; Facsimile:  801.262.0907) is the registrar and transfer agent for our common shares.  On March 1, 2007, the shareholders' list of our common shares showed 143 registered shareholders and 36,798,231 shares outstanding.

*Recent Sales of Unregistered Securities*

On March 14, 2006, we closed the first tranche of a financing by the issuance of a $5,000,000 senior secured convertible note and 3,000,000 share purchase warrants to one accredited investor.  The note, due March 14, 2007 may be converted, at the option of the note holder, into shares of common stock or other equity-linked securities issued in any equity offering by our company. 2,000,000 of the warrants are exercisable into shares of common stock at an exercise price of $3.25 per share, commencing after June 1, 2006 until March 14, 2009 and 1,000,000 of the warrants are exercisable into shares of common stock at an exercise price of $3.75 per share, commencing after the later of June 1, 2006 and the time we achieve the conditions for the issue of the second tranche of notes.  All of 

 

 

- 17 -

 

these securities were issued pursuant to the exemption from registration under the United States Securities Act of 1933 provided by Section 4(2) and/or Rule 506 of Regulation D promulgated under the 1933 Act.  No advertising or general solicitation was employed in offering the securities.

*Equity Compensation Plan Information*

As at December 31, 2006 we have one compensation plan in place, entitled 2005 Stock Option Plan.  The 2005 Stock Option Plan has not been approved by our security holders.  This is not required unless granting options to U.S. residents.

 

**Name of  Plan**

**Number of  Securities that have been issued under the Plan**

**Weighted-Average  exercise price**

**Number of securities remaining  available for further issuance**

2005 Stock Option Plan

 

1,650,000

$5.00

1,350,000

 

On June 6, 2005, our Board of Directors approved our 2005 Stock Option Plan pursuant to which we may grant an aggregate of up to 3,500,000 common shares or options to purchase common shares to employees, consultants or directors of our company or of any of our subsidiaries.  The purpose of the 2005 Stock Option Plan is to give our company the ability to motivate participants to contribute to our growth and profitability.  The 2005 Stock Option Plan is administered by our Board of Directors.  It will continue in effect until the earlier of the (a) date that we have granted all of the securities that can be issued pursuant to its terms or (b) June 6, 2015.

Awards under our 2005 Stock Option Plan will vest as determined by our Board of Directors and as established in stock option agreements to be entered into between our company and each participant receiving an award.  Options granted under the 2005 Stock Option Plan will have a term of 5 years from the date of grant but are subject to earlier termination in the event of death, disability or the termination of the employment or consulting relationship.  During the year a total of  825,000 options granted under the 2005 stock option plan vested. 

125,000 options for one director were cancelled at year-end without a replacement award.  Previously unrecognized compensation cost has been recognized at the cancellation date. During the year the 450,000 options granted to three  consultants have been forfeited due to termination of employment.   Another 250,000 unvested options granted to another director  were forfeited due to termination of employment.

The exercise price of options granted under our 2005 Stock Option Plan were determined by our board of directors and were less than the fair market value of our company’s common stock on the grant date.

Stock options became exercisable at dates determined by the Board of Directors at the time of granting the option.

*Purchases of Equity Securities by the Issuer and Affiliated Purchasers*

We did not purchase any of our shares of common stock or other securities during the year ended December 31, 2006.

**Item 6.**

**Management's Discussion and Analysis or Plan of Operation.**

The following discussion should be read in conjunction with our consolidated audited financial statements and the related notes that appear elsewhere in this annual report.  The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.  Our actual results could differ materially from those discussed in the forward looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this registration statement, particularly in the section entitled "Risk Factors" beginning on page 10 of this annual report.

 

 

- 18 -

 

 

Our consolidated audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

*Overview*

We are a Nevada corporation incorporated on May 5, 1992.  We are an exploration stage oil and gas company engaged in the exploration for petroleum and natural gas in the country of Papua New Guinea. We were previously intending to enter into the businesses of a technology venture finance company to organize, capitalize, acquire and finance technology companies, and subsequent to that attempted to acquire certain resources leases in the Raton Basin.  Due to the inability to run these businesses with a profit, the default on the obligations of certain parties and the difficulty in attracting additional capital on terms favorable to existing shareholders, we ceased operation of these businesses in prior years.

PLAN OF OPERATIONS AND CASH REQUIREMENTS

*Cash Requirements*

For the next 12 months we plan to continue to explore for petroleum and natural gas in the country of Papua New Guinea.  Currently we hold five petroleum prospecting licences in Papua New Guinea directly and through our majority controlled subsidiary, Scotia Petroleum Inc., which in total are petroleum prospecting licenses in Papua New Guinea covering approximately 8.3 million acres.

The licenses held by us require us to engage in drilling operations by certain dates, which will involve obtaining seismic data, drilling exploratory wells, drilling appraisal wells and conducting related activities.  We will be required to expend certain minimum amounts in respect of all of the licenses in order to ascertain where and if drilling will be warranted.  These licenses have an initial term of six years and will remain valid until the expiry date (between September 17, 2009 and April 8, 2010) subject to minimum accomplishments being made.

We will require additional funds to implement our growth strategy in our oil and gas exploration operations.  These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares.  There is still no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock.  Further, we may continue to be unprofitable.

Our net cash provided by financing activities during the year ended December 31, 2006 was $5,927,571.

In order to proceed with our plans we raised funds by way of private placements of equity securities in our company.  In April 2004 we completed a private placement of 150,000 shares of common stock and 150,000 stock purchase warrants for total proceeds of $750,288.  Subsequently, we received a further $416,000 on the exercise of 55,467 of the stock purchase warrants.  The net proceeds received were used as working capital to allow us to finance our commitments under our licences.  On May 26, 2005 we completed a private placement of 1,200,000 shares of common stock and 1,200,000 stock purchase warrants for total gross proceeds of $6,000,000, with net proceeds of $5,922,500 after deduction of placement agent fees and expenses. 

In January and February 2006 the Company received advances totalling $ 450,000 for a term of one year due on demand.

On March 14, 2006, we closed the first tranche of a financing by the issuance of a $5,000,000 senior secured convertible note and 3,000,000 share purchase warrants to one investor.  The note, due March 14, 2007 may be converted, at the option of the note holder, into shares of common stock or other equity-linked securities issued in any equity offering by our company.  Upon the satisfaction of certain conditions, we will be entitled to have the note holder invest a further $5,000,000 for another convertible note on the same terms as that acquired in the first tranche.

 

 

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On June 23, 2006 the Company received a capital loan in the amount of $ 750,000 due June 23, 2008.  The loan shall bear interest at a rate of 8% per annum calculated annually and not in advance payable on the Maturity Date of June 23, 2008.

In November 2006 the Company received advances totalling $ 200,000 for a term of 6 months due on demand with interest at 15% per annum calculated monthly. At any time after May 31, 2007 the Lender has the right to demand payment of the principal and any interest outstanding at the time.

Over the next twelve months we intend to use all available funds to expand on the exploration and development of our licenses, as follows: 

Estimated Funding Required During the Next Twelve Months

Prospect Development & Seismic

$   3,000,000

to

$  6,000,000

Drilling & Development

Nil   

to

Nil

Offering Costs & Expenses

$   1,000,000

to

$  2,000,000

General Corporate Expenses

$3,000,000

to

$3,000,000

Working Capital

$   8,000,000

to

$  9,000,000

**Total**

**$ 15,000,000**

**to**

**$20,000,000**

The minimum expenditures noted above will allow us to maintain our licenses in good standing and will provide us with sufficient funds to significantly advance the exploration and development of the properties and commence drilling operations.  Our focus has been and will continue to be the exploration and development of PPL #246 and PRL #13.  As our minimum estimated funding for the next twelve months is expected to be $15,000,000 and our cash on hand as at December 31, 2006 was $82,688 we will be required to raise additional funds within the next three months.  Subsequent to year end the company secured additional financing in the amount of $900,000 from certain shareholders.  This amount is unsecured, non-interest bearing and has no specific terms of repayment.. In the event that we are able to raise further funds, we will primarily expend such funds on further prospect development and seismic studies andthen to fund further drilling operations.  See “Milestones” below for further information.

As at December 31, 2006, we had $11,381,475 in current liabilities.  Our financial statements report a net loss of $6,373,779 for the cumulative period from January 28, 2003 to December 31, 2006 compared to a net loss of $2,781,335 for the period from January 28, 2003 to December 31, 2005.  Our losses increased in part as a result of an overall increase in all expense categories during the twelve month period ended December 31, 2006 as compared to the twelve month period ended December 31, 2005 due to extensive drilling and explorations programs and associated expenses.

Our total liabilities as of December 31, 2006 were $13,489,420, as compared to total liabilities of $2,844,390 as at December 31, 2005.  The increase was primarily due to the convertible note financing that took place on March 14, 2006 of which $5,067,497 has been recorded in current liabilities, a 1 year advance payable note for $ 450,000 recorded in current liabilities, 6 month advance payable note for $ 200,000 and a two year capital loan plus interest totalling $ 781,397 recorded in long term debt.  The Company also has increased account payable due to a drill program on the Kuru structure for which costs had been incurred but not yet paid. 

During the cumulative period from January 28, 2003 to December 31, 2006 we spent $20,880,423 on exploration and acquisition of our oil and gas properties.  Of this amount, $4,905,026 was attributable to acquisitions costs and $15,975,397 was attributable to exploration costs.

We have suffered recurring losses from operations.  The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital.  In this regard we have raised additional capital through the equity offerings noted above.  

The continuation of our business is dependent upon obtaining further financing, a successful program of acquisition and exploration, and, finally, achieving a profitable level of operations.  The issuance of additional equity securities 

 

 

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by us could result in a significant dilution in the equity interests of our current stockholders.  Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to obtain further funds required for our continued operations.  As noted herein, we are pursuing various financing alternatives to meet our immediate and long-term financial requirements.  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, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due.  In such event, we will be forced to scale down or perhaps even cease our operations.

*Milestones*

Subject to the availability of sufficient funds, we hope to achieve the following milestones in the exploration and development of our licenses over the next twelve months:

 

**•**

Geological and seismic activity in PPL #246 and PRL #13 at an estimated cost of $5 million.  This information will be used to identify drilling prospects and targets.

 

**•**

Geological surveys on PPL #250, PPL#245, PPL#249 and PPL#252 at an estimated cost of $1 million.

 

**•**

Spot surveys comprising selective geological sampling consisting of a review of all available seismic and geological data accumulated, will be conducted on PPL#249, PPL#250 and PPL#245.  The costs associated herewith are included in the estimated budget for seismic programs.

*Product Research and Development*

Our business plan is focused on a strategy for maximizing the long-term exploration and development of our petroleum prospecting licenses in Papua New Guinea.  To date, execution of our business plan has largely focused on acquiring petroleum prospecting licenses in Papua New Guinea.  We intend to establish a going forward exploration and development plan.

*Purchase of Significant Equipment*

We do not intend to purchase any significant equipment (excluding oil and gas activities) over the twelve months ending December 31, 2007.

*Employees*

In addition to our directors and officers we also have 4 full-time employees in Papua New Guinea.  We anticipate contracting the services of a Senior Engineer and Geologist upon completion of further equity financing. We will continue however to outsource any additional contracts as needed.  If we are successful in our initial and any subsequent drilling programs we may retain additional employees. 

*Going Concern*

We have suffered recurring losses from operations.  The continuation of our company as a going concern is dependent upon our company attaining and maintaining profitable operations and raising additional capital.  The consolidated financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our company discontinue operations.   The company is currently in default for the $ 5,000,000 senior secured convertible note.

Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above, in their report on the annual consolidated financial statements for the period ended December 31, 2006, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going 

 

 

- 21 -

 

concern.  Our consolidated financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

The continuation of our business is dependent upon us raising additional financial support.  The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders.  Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to obtain further funds required for our continued operations.  As noted herein, we are pursuing various financing alternatives to meet our immediate and long-term financial requirements.  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, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due.  In such event, we will be forced to scale down or perhaps even cease our operations.

*Recently Issued Accounting Standards*

In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 155, *Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140* (“SFAS 155”).  SFAS 155 amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities and FASB Statements No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.  SFAS 155 resolves issues addressed in Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.  More specifically, SFAS 155:

 

Permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. Clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133 which establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives. Amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument.

 

SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006.   The Company is currently evaluating the impact of adopting SFAS 155 but does not expect that it will have a material effect on its financial statements.

 

In March 2006, the FASB issued SFAS No. 156, "*Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities*". This statement requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits for subsequent measurement using either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of SFAS 140. The subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value eliminates the necessity for entities that manage the risks inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge accounting treatment and eliminates thecharacterization of declines in fair value as impairments or direct write-downs. SFAS 156 is effective for an entity's first fiscal year beginning after September 15, 2006. The adoption of this statement is not expected to have a material effect on the Company’s future consolidated financial position or results of operations.

 

In July 2006, FASB issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109* (“FIN 48”).  This interpretation clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, *Accounting for Income Taxes.*FIN 48 will require companies to determine whether it is more-likely-than-not that a tax position taken or expected to be taken in a tax return will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If a tax position meets the more-likely-than-not recognition 

 

 

- 22 -

 

threshold, it is measured to determine the amount of benefit to recognize in the financial statements based on guidance in the interpretation.  FIN 48 is effective for fiscal years beginning after December 15, 2006.  The adoption of this statement is not expected to have a material effect on the Company’s future consolidated financial position or results of operations.

 

In September 2006, the FASB issued SFAS No. 157, “*Fair Value Measurements*”. The objective of SFAS 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements.  SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007.  The Company is currently evaluating the impact of adopting SFAS No. 157 but does not expect that it will have a material effect on its financial statements.

 

In September 2006, the FASB issued SFAS No. 158, “*Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)*”. This statement requires employers to recognize the over funded or under funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization.  This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The provisions of SFAS 158 are effective for employerswith publicly traded equity securities as of the end of the fiscal year ending after December 15, 2006. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.

 

In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, *“Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.”* SAB No. 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB No. 108 requires companies to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative an qualitative factors. SAB No. 108 is effective for periods ending after November 15, 2006.  The adoption of this statement did not have a material effect on the Company’s consolidated financial position or results of operations.

 

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, “*The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115*”.  This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 “*Accounting for Certain Investments in Debt and Equity Securities*” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that beginson or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, “*Fair Value Measurements”.* The Company is currently evaluating the impact of adopting SFAS No. 159 but does not expect that it will have a material effect on its financial statements.

*Application of Critical Accounting Policies*

Our audited financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States.  Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies.  We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our consolidated financial statements is critical to an understanding of our financials.

 

 

- 23 -

 

 

*Oil and Gas Properties*

We follow the full cost method of accounting for our oil and gas operations.  Under this method, all cost incurred in the acquisition, exploration and development of oil and gas properties are capitalized in one cost center, including certain internal costs directly associated with such activities.  Proceeds from sales of oil and gas properties are credited to the cost center with no gain or loss recognized unless such adjustments would significantly alter the relationship between capitalized costs and proved oil and gas reverses.

If capitalized costs, less related accumulated amortization and deferred income taxes, exceed the “full cost ceiling”, the excess is expensed in the period such excess occurs.  The “full cost ceiling” is determined based on the present value of estimated future net revenues attributable to proved reserves, using current product prices and operating costs at the balance sheet date plus the lower of cost and fair value of unproved properties within the cost center.  

Costs of oil and gas properties are amortized using the unit-of-production method based upon estimated proven oil and gas reserves upon the commencement of production.  The significant unproven properties are excluded from the costs subject to depletion.

As at December 31, 2006, we do not have any proved reserves.

*Stock Based Compensation*

During the first quarter of 2006, we implemented the following new critical accounting policy related to our stock-based compensation.  Beginning January 1, 2006, we began accounting for Stock options under the provisions of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (FAS 123 (R)), which requires the recognition of the fair value of stock-based compensation.  Under the fair value recognition provisions for FAS 123 (R ), stock-based compensation cost is estimated at the grant date based on the fair value of the awards expected to vest and recognized as expense ratably over the requisite service period of the award.  We were already using the fair value method under SFAS 123 and the main difference is the estimation of forfeitures in order to estimate the awards not expected to vest.  We have used the Black-Scholes valuation model to estimate fair value of ourstock-based awards which requires various judgmental assumptions including estimating stock price volatility and expected life.  Our computation of expected volatility is based upon historical volatility.  In Addition, we consider many factors when estimating expected life, including types of awards and historical experience.

We adopted FAS 123 (R ) using the modified-prospective method which requires the application of the accounting standard as of January 1, 2006.  Our consolidated financial statements as of and for the second quarter of 2006 reflect the impact of FAS 123 ( R ).  In accordance with the modified-prospective method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of FAS 123 ( R ).  

Under SFAS No. 123, the Company recognized compensation cost assuming all awards would vest and reversed recognized compensation cost for forfeited awards when the awards were actually forfeited. SFAS No. 123(R) requires that stock-based compensation expense be based on awards that are ultimately expected to vest, and that forfeitures are estimated when recognizing compensation cost. Accordingly, the Company estimated a forfeiture rate of 0% when originally recognizing compensation cost.

*Convertible Notes*

The host contract itself does not embody a claim to the residual interest in the Company and thus the economic characteristics and risks of the host contract should be considered that of a debt instrument and classified under the liability section of the consolidated balance sheet.

 

The warrants are detachable from the Convertible Notes and have been accounted for separately in accordance with APB 14 “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants”.  There are liquidated damages or cash penalty payable to the warrant holder if the Company cannot register the shares underlying the warrants.  The Company must file the SB-2 to register the warrant shares within 90 days from the closing date and have the SB-2 declared effective within 150 days.  If the Company fails to file by the 90th day, there is a 1% penalty 

 

 

- 24 -

 

payable as of that date.  Then on the 30th day thereafter there is another 1% penalty, prorated if the default is cured during the 30 day period.  If the SB-2 is not declared effective by the 150th day, then on the 30th day after that day there is a 1% penalty and on each 30th day after that another 1% penalty, again prorated.  The penalties commence June 14, 2006 at 1% of $5,000,000 and continue at 1% per month for each month thereafter until the Convertible Notes mature in March 2007. The maximum penalty payable is $500,000.  At December 31, 2006 the Company has recorded $328,333 in accounts payable for the 1% penalties that have accrued from June 14, 2006 – December 31, 2006.

 

The conversion option of the Convertible Notes allows the holder to convert the Convertible Notes into equity shares at any time within a specified period at a specified conversion price.  The conversion option is equivalent to a call option granted by the Company to the note holders to purchase the shares of the Company at a specified price within a specified time.  The total number of shares to be issued in satisfaction of the conversion option is indeterminable and the registration of such shares is out of the control of the Company.  Therefore, the conversion option and the contingent put option are classified as a liability in accordance with the provisions of EITF issue 00-19 and measured at fair value with changes in fair value recorded in the consolidated statements of operations.  Furthermore, the Company is also unable to conclude that it would have a sufficient number of authorized and unissuedshares to satisfy outstanding warrants, after considering other commitments that may require the issuance of shares during the life of the warrants, in particular those with respect to the conversion option discussed above.  In addition, the shares underlying the warrants are also subject to registration rights.  As a result, the warrants are also classified as a liability at fair value with changes in fair value recorded in the consolidated statements of operations.

 

The contingent put option allows the holder to force repayment of the principal (puttable at par) if the Company completes an offering.  Therefore, the contingent put option would be classified as a liability in accordance with the provisions of EITF issue 00-19 and measured at fair value with changes in fair value recorded in the consolidated statements of operations, if any.

*Going Concern*

Our annual consolidated financial statements have been prepared on the going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of operations.  The consolidated financial statements have been prepared assuming we will continue as a going concern.  However, certain conditions exist which raise doubt about our ability to continue as a going concern.  We have suffered recurring losses from operations and have accumulated losses of $6,373,779 since inception through December 31, 2006.

**Item 7.**

**Financial Statements.**

Our consolidated audited financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

The following consolidated audited financial statements are filed as part of this annual report:

Report of Independent Registered Public Accounting Firm dated April 9, 2007

Report of Independent Registered Public Accounting Firm dated March 18, 2005

Consolidated Balance Sheets as at December 31, 2006, December 31, 2005 and December 31, 2004

Consolidated Statements of Operations from January 28, 2003 (inception) to December 31, 2006

Consolidated Statements of Cash Flows from January 28, 2003 (inception) to December 31, 2006 

Consolidated Statements of Stockholders’ Equity for period from January 28, 2003 (inception) to December 31, 2006

 

 

- 25 -

 

 

Notes to the Consolidated Financial Statements

 

 

- 26 -

 

 

Consolidated Financial Statements

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

December 31, 2006, 2005 & 2004

 

 

- 27 -

 

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

 

To the Board of Directors and Stockholders of 

**Cheetah Oil & Gas Ltd.**

(formerly Bio-American Capital Corporation)

(An exploration stage enterprise)

 

We have audited the accompanying consolidated balance sheets of Cheetah Oil & Gas Ltd. (formerly Bio-American Capital Corporation) (the “Company”) (an exploration stage enterprise) as at December 31, 2006, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2006, December 31, 2005 and the eleven months ended December 31, 2004 and for the cumulative period from January 28, 2003 to December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements as at January 31, 2004 and the period from January 28, 2003 (inception) to January 31, 2004 were audited by other auditors whose report dated March 18, 2005 expressed an unqualified opinion onthose statements.  The financial statements for the period January 28, 2003 (inception) through January 31, 2004 include total revenues and net loss of $0 and $812 respectively.  Our opinion on the consolidated statements of operations, stockholders’ equity, and cash flows for the period January 28, 2003 (inception) through December 31, 2006, insofar as it relates to amounts for prior periods through January 31, 2004, is based solely on the report of other auditors.  

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

 

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cheetah Oil & Gas Ltd at December 31, 2006, 2005 and 2004, and the consolidated results of its operations and its cash flows for the years ended December 31, 2006 December 31, 2005, the eleven months ended December 31, 2004 and for the cumulative period from January 28, 2003 to December 31, 2006, in conformity with U.S. generally accepted accounting principles.

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has not generated any revenues from operations, has substantial accumulated deficit and working capital deficiency and this raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The 2006, 2005 and 2004 financial statements do not include any adjustments that might result from the outcome of this uncertainty.  Also discussed in Note 2, the Company has restated its consolidated financial statements for the year ended December 31, 2005 and for the eleven months ended December 31, 2004.  We therefore withdraw our previous opinion dated March 31, 2006.

 

/s/ Ernst & Young LLP

Vancouver, Canada,

April 9, 2007.

Chartered Accountants

 

 

 

- 28 -

 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

**To the Board of Directors and Stockholders of**

 

CHEETAH OIL & GAS LTD.

(Formerly Bio-American Capital Corporation)

(An exploration stage enterprise)

 

We have audited the consolidated statements of stockholders’ equity, operations and cash flows of Cheetah Oil & Gas Ltd. (formerly Bio-American Capital Corporation, an exploration stage enterprise) (“the Company”) for the period from January 28, 2003 (inception) to January 31, 2004.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

 

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

 

In our opinion, these financial statements present fairly, in all material respects, the change in the Company’s stockholders’ equity, the results of its operations and its cash flows for the cumulative period from January 28, 2003 (inception) to January 31, 2004 in conformity with generally accepted accounting principles in the United States of America.  

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has not generated any revenue from operations that raise substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

Vancouver, Canada

/s/ Moore Stephens Ellis Foster Ltd.

March 18, 2005

Chartered Accountants

 
 

 

 

- 29 -

 

 

**Cheetah Oil & Gas Ltd.**

 

 

 

(an exploration stage enterprise)

 

 

 

 

 

 

 

**CONSOLIDATED BALANCE SHEETS**

(expressed in U.S. dollars)

[Basis of Presentation and Going Concern Uncertainty – See Note 2]

As at December 31 

 

 

 

 

**2006**

**2005**

**2004**

 

$

$

$ 

 

 

*Restated***

*Restated***

**ASSETS**

 

*[Note 2]***

*[Note 2]***

Cash and cash equivalents

82,688 

631,586 

151,076 

Accounts receivable *[note 4]*

16,063 

134,821 

-   

Deferred financing costs *[note 5]*

50,147 

-   

-   

Prepaids and deposits

75,734 

162,921 

11,006 

 

224,632 

929,328 

162,082 

Long term deposit

-   

4,290 

-   

Refundable deposits for petroleum prospecting licences

227,092 

204,063 

162,544 

Equipment *[note 7]*

90,124 

126,987 

91,052 

Oil and gas properties, unproven *[note 8]*

20,880,423 

11,520,322 

4,695,206 

Goodwill *[note 6]*

497,000   

497,000 

-   

 

21,919,271

13,281,990 

5,110,884 

 

 

 

 

**LIABILITIES AND STOCKHOLDERS’ EQUITY**

 

 

 

**Current**

 

 

 

Accounts payable and accrued liabilities

5,654,200 

1,366,230 

79,590 

Advances payable *[note 9]*

650,000 

-   

-   

Advances payable - related parties**

-   

1,174 

70,471 

Convertible notes payable *[note 5]*

4,986,456 

-   

-   

Fair value of warrants *[note 5]*

81,041 

-   

-   

Current portion of capital lease obligations *[note 19]*

9,778 

8,347 

-   

 

11,381,475 

1,375,751 

150,061 

Long term portion of capital lease obligations *[note 19]*

19,584 

27,942 

-   

Long term debt – Capital Loan *[note 14]*

781,397 

-   

-   

Deferred income taxes *[notes 6  and 18]*

1,304,267 

1,438,000 

1,189,000 

Non-controlling interest

2,697 

2,697 

29,683 

 

13,489,420 

2,844,390 

1,368,744 

 

 

 

 

Commitments and Contingencies *[notes 15 and 19]*

 

 

 

 

 

 

 

**Stockholders’ equity**

 

 

 

Common stock *[note 10]*

 

 

 

Common stock, $0.001 par value, authorized 50,000,000 shares

 

 

 

issued and outstanding: 36,679,481 shares

 

 

 

[2005 - 36,679,481 shares, 2004 – 35,019,082 shares]

36,680 

36,680 

35,020 

Additional paid in capital 

14,766,950 

13,182,255 

3,353,473 

Subscriptions received

-   

-   

958,828 

Deficit accumulated during the exploration stage

(6,373,779)

(2,781,335)

(605,181)

 

8,429,851 

10,437,600 

3,742,140 

 

21,919,271

13,281,990 

5,110,884 

*See accompanying notes***

 

 

 

 

 

 

- 30 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

(expressed in U.S. dollars)

[Basis of Presentation and Going Concern Uncertainty – See Note 2]

 

 

 

**Twelve  months**

**ended**

**December 31,**

**2006**

$

**Twelve  months**

**ended**

**December 31,**

**2005**

$

 

 

**Eleven  months**

**ended**

**December 31,**

**2004**

$

**Cumulative from**

**January 28,**

**2003 to**

**December 31,**

**2006**

$

 

 

 

 

 

 

 **

*Restated***

*Restated***

*Restated***

**General and administrative expenses**

 **

*[Note 2]***

*[Note 2]***

*[Note 2]***

Liquidated damages fees

**500,333**

188,000

—

688,333

Accounting, audit and legal

**482,735**

225,291

122,662

831,500

Amortization of deferred charges

**414,180**

—

—

414,180

Depreciation

**26,803**

23,393

9,646

59,842

Interest

**528,495**

1,652

—

530,147

Interest - long-term debt

**31,397**

—

—

31,397

Application fees and permits

**3,355**

2,143

47,298

52,796

Accretion of debt discount on convertible notes *[note 5]*

**2,286,456**

—

—

2,286,456

Consulting fees *[note 12]*

**266,030**

221,634

35,042

522,706

Office and miscellaneous

**30,527**

69,505

29,156

129,188

Investor relations and shareholder information

**81,386**

161,969

110,048

353,403

Insurance

**125,770**

58,501

—

184,271

Rental and communication

**100,797**

77,135

40,888

218,820

Salaries and benefits

**39,575**

23,952

15,717

79,244

Travel

**109,297**

226,667

60,848

396,812

Stock-based compensation *[note 10]*

**988,476**

896,114

22,064

1,906,654

 

**6,015,612**

2,175,956

493,369

8,685,749

 

 

 

 

 

**Loss before other loss**

**(6,015,612)**

(2,175,956)

(493,369)

(8,685,749)

Foreign exchange gain (loss)

**36,745**

(105,310)

(111,000)

(179,565)

Other income

**14,464**

55,112

-

69,576

Unrealized gains on warrants*[Note 5]*

**2,218,959**

-

—

2,218,959

Loss before income taxes

**(3,745,444)**

(2,226,154)                              

(604,369)

(6,576,779)

Income taxes recovery – deferred *[note 18]*

(153,000)

(50,000)

—

(203,000)

**Net loss and comprehensive loss for the year**

**(3,592,444)**

(2,176,154)

(604,369)

(6,373,779)

 

 

 

 

 

**Loss per share - basic and diluted**

**(0.10)**

(0.06)

(0.02)

 

 

 

 

 

 

**Weighted average number of common stock outstanding - basic and diluted**

**36,679,481**

 

36,065,122

33,015,047

 

 

*See accompanying notes*

 

 

 

 

 

- 31 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

(expressed in U.S. dollars)

[Basis of Presentation and Going Concern Uncertainty – See Note 2]

 

 

**Twelve**

**months**

**ended**

**December 31,**

**2006**

$

**Twelve  months**

**ended**

**December 31,**

**2005**

**$**

**Eleven****months**

**ended**

**December 31,**

**2004**

**$**

**Cumulative from**

**January 28,**

**2003 to**

**December 31,**

**2006**

$

**OPERATING ACTIVITIES**

 

 

*Restated*

*[Note 2]***

*Restated*

*[Note 2]***

 

*Restated*

*[Note 2]***

Net loss for  the period

**(3,592,444)**

(2,176,154)

(604,369)

(6,373,779)

Items not involving cash

 

 

 

 

Amortization of deferred charges

**414,180**

—

—

414,180

Depreciation

**26,803**

23,393

9,646

59,842

Unrealized gains on warrants

**(2,218,959)**

—

—

(2,218,959)

Foreign exchange

**19,267**

52,000

111,000

182,267

Deferred income taxes

**(153,000)**

(50,000)

—

(203,000)

Stock-based compensation

**988,476**

896,114

22,064

1,906,654

Gain on disposal

**(4,311)**

—

—

(4,311)

Accretion of debt discount on convertible notes

**2,286,456**

—

—

2,286,456

Change in other assets and liabilities (net of effect of acquisition of subsidiaries):

 

 

 

 

Prepaids and deposits

**87,187**

(151,915)

215,445

150,717

Accounts receivable

**118,758**

(134,821)

—

(16,063)

Long term deposits

**4,290**

(4,290)

—

—

Refundable licences deposits

**(23,029)**

(41,520)

(33,399)

(97,948)

Accounts payable and accrued liabilities

**1,291,971**

1,286,640

49,880

2,629,303

**Net cash used in operating activities**

**(754,355)**

(300,553)

(229,733)

(1,284,641)

 

 

 

 

 

**FINANCING ACTIVITIES**

 

 

 

 

Proceeds on issuance of common shares, net of share issuance costs

—

5,922,500

—

5,922,500

Proceeds on exercise of warrants

—

—

416,000

416,000

Proceeds from convertible note financing

**5,000,000**

—

—

5,000,000

Net issuance costs paid relating tonote financing *[Note 5]*

**(464,328)**

—

—

(464,328)

Proceeds from capital loan

**750,000**

—

—

750,000

Subscriptions received

**—**

—

750,288

750,288

Repayment of capital lease

**(6,927)**

(8,733)

—

(15,660)

Repayment of advances payable torelated parties

**(1,174)**

—

—

(1,174)

Advances payable

**650,000**

(69,297)

130,118

710,821

**Net cash from financing activities**

**5,927,571**

5,844,470

1,296,406

13,068,,447

 

 

 

 

 

**INVESTING ACTIVITIES**

 

 

 

 

Purchase of equipment

**(3,766)**

(14,306)

(100,698)

(118,770)

Proceeds on disposal of equipment

**17,415**

—

—

17,415

Oil and gas properties *[Note 8]*

**(5,735,763)**

(5,049,101)

(513,195)

(11,298,059)

Cash paid in connection with acquisition of Scotia, net of cash received

**—**

—

(301,780)

(301,780)

**Net cash used in investing activities**

**(5,722,114)**

(5,063,407)

(915,673)

(11,701,194)

 

 

 

 

 

**Increase (Decrease) in cash and cash equivalents**

**(548,898)**

480,510

151,000

82,612

Cash and cash equivalents, beginning of period

**631,586**

151,076

76

76

**Cash and cash equivalents, end of period**

**82,688**

631,586

151,076

82,688

 

 

 

 

 
See accompanying notes

 

 

- 32 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

 (expressed in U.S. dollars)

 

 

 

**Common stock**

**Additional paid in capital**

**Subscriptions****received**

**Deficit accumulated during exploration stage**

**Total stock-holders’ equity**

 

**Shares**

$

$

$

$

$

 

 

 

 

 

 

 

Shares issued by Cheetah BC

100

76

—

—

—

76 

10,000,000 shares allotted for services in connection with the application for petroleum prospecting licences

—

—

1,000,000

—

—

1,000,000

Net loss for the period

—

—

—

—

 (812)

(812)

**Balance, January 31, 2004**

100

76

1,000,000

—

 (812)

999,264

Initial capitalization as a result of reverse acquisition *[note 1]*

25,000,000

25,000

 (24,924)

—

—

76

Elimination of Cheetah BC common stock in recognition of reverse takeover *[note 1]*

 (100)

 (76)

—

—

—

 (76)

Recapitalization to effect the acquisition of Cheetah Nevada *[note 1]*

19,682

20

 (15,778)

—

—

 (15,758)

Shares issued for services in connection with the application for petroleum prospecting licences

10,000,000

10,000

 (10,000)

—

—

—

Contribution received from a shareholder of the company in connection with the acquisition of Scotia *[note 6]*

—

—

1,817,273

—

—

1,817,273

Debt settlement

—

—

357,378

—

—

357,378

Subscriptions received for April 2004 private placement

—

—

207,460

542,828

—

750,288

Proceeds received upon exercise of April 2004 stock warrants

—

—

—

416,000

—

416,000

Stock-based compensation

—

—

22,064

—

—

22,064

Net loss for the year

—

—

—

—

 (604,369)

(604,369)

**Balance, December 31, 2004****

35,019,682

35,020

3,353,473

958,828

(605,181)

3,742,140

 

*See accompanying notes*

 

 

- 33 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (cont’d.)**

 (expressed in U.S. dollars)

 

 

**Common stock**

**Additional paid in capital**

**Subscriptions****received**

**Deficit accumulated during exploration stage**

**Total stock-holders’ equity**

 

**Shares**

$

$

$

$

$

 

 

 

 

 

 

 

**Balance, December 31, 2004****

35,019,682

35,020

3,353,473

958,828

 (605,181)

3,742,140

Shares issued for debt settlement

55,165

55

 (55)

—

—

—

Purchased minority interest of Scotia *[note 6]*

142,000

142

999,858

—

—

1,000,000

Shares issued for subscriptions received from April 2004 private placement

150,000

150

542,678

 (542,828)

—

—

Shares issued for the exercise of April 2004 stock purchase warrants

55,467

55

415,945

 (416,000)

—

—

Issuance of common stock pursuant to a private placement at $5.00 per share, net of share issuance costs of $450,000 in June 2005

1,200,000

1,200

5,548,800

—

—

5,550,000

Share issue costs

7,500

8

 (8)

—

—

—

Shares issued for subscriptions received

49,667

50

372,450

—

—

372,500

Stock-based compensation

—

—

1,949,114

—

—

1,949,114

Net loss for the year

—

—

—

—

 (2,176,154)

 (2,176,154)

**Balance, December 31, 2005 as restated***[note 2]***

36,679,481

36,680

13,182,255

—

(2,781,335)

10,437,600

Stock-based compensation 

—

—

2,717,914

—

—

2,717,914

Stock-based compensation forfeited or cancelled *[note 3]*

—

—

(1,133,219)

—

—

(1,133,219)

Net loss for the year

—

—

—

—

 (3,592,444)

(3,592,444)

**Balance, December 31, 2006**

36,679,481

36,680

14,766,950

—

(6,373,779)

8,429,851

 

See accompanying notes

 

 

 

- 34 -

 

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**1.**

**Incorporation and Nature of Operations**

Cheetah Oil and Gas Ltd. (“Cheetah Nevada”) was incorporated in May 1992 under the laws of the State of Nevada, U.S.A. It has not conducted any business operations since May 2000 and changed its name from Bio-American Capital Corporation to Cheetah Oil & Gas Ltd. effective May 26, 2004.

On February 24, 2004, the stockholder owning a majority of the outstanding voting securities of Cheetah Nevada approved a reverse split of common stock at the rate of one share for every 200 shares outstanding and thereafter increased the number of authorized shares of common stock to 50,000,000. Immediately prior to the Acquisition Agreement noted below, it had 19,682 (post-consolidation) shares of common stock issued and outstanding.

On March 5, 2004, Cheetah Nevada entered into an Acquisition Agreement (“Agreement”), whereby Cheetah Nevada issued 25,000,000 common stock in exchange for all of the issued and outstanding common stock of Cheetah Oil and Gas Ltd. (“Cheetah BC”), a Canadian company. In connection with this transaction, $130,000 debt owed by Cheetah Nevada was assumed and settled. For accounting purposes, the share exchange was considered a reverse takeover under applicable accounting rules, whereby Cheetah BC was considered the acquiring entity as the shareholders of Cheetah BC acquired more than 50% of the outstanding shares of Cheetah Nevada. Cheetah Nevada was the surviving entity for legal purposes. The combined company is considered to be a continuation of the operations of Cheetah BC. 

Cheetah BC was incorporated on January 28, 2003 in British Columbia, Canada under the name of Universal Data Corp. and changed its name to Cheetah Oil & Gas Ltd. effective December 11, 2003. Cheetah BC, an exploration stage enterprise, is in the business of acquiring and exploring oil and gas properties in Papua New Guinea (“PNG”). 

**2.**

**Basis of presentation AND GOING CONCERN UNCERTAINTY**

These consolidated financial statements presented are those of Cheetah Oil & Gas Ltd. (“Cheetah Nevada”) and its wholly-owned subsidiaries, Cheetah Oil & Gas Ltd. (“Cheetah BC”), Cheetah Oil & Gas Limited (“Cheetah PNG”), and 98.65% owned Scotia Petroleum Inc. (“Scotia”, see Note 5). Collectively, they are referred to herein as “the Company”. All significant intercompany balances and transactions have been eliminated.

These accompanying year end consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States. The Company has not produced any revenues from its principal business and is an exploration stage company as defined by Statement of Financial Accounting Standard (“SFAS”) No. 7 “*Accounting and Reporting by Development Stage Enterprises*”.

 

 

 

 

- 35 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

 

**2.**

**Basis of presentation AND GOING CONCERN UNCERTAINTY (cont'd)**

The comparative figures contained in the statements of operations and cash flows are for the eleven months ended December 31, 2004 since the Company previously had a year-end of January 31, 2004. 

**Prior period restatement**

The Company has restated its financial statements as at and for the eleven month period ended December 31, 2004. The effect of these adjustments on the Company’s consolidated balance sheet and statement of operations is as follows:

 

 

**Previously**

**As**

**Increase /**

 

 

**Reported**

**Restated**

**(decrease)**

 

 

$

$

$

 

 

 

 

 

 

**Consolidated balance sheet**

 

 

 

 

 

 

 

 

 

Oil and gas properties acquired *[i]*

2,404,046

4,695,206

2,291,160

 

Total assets

2,819,724

5,110,884

2,291,160

 

 

 

 

 

 

Non-controlling interest (balance sheet) *[ii]*

—

(29,683)

(29,683)

 

Deferred income tax liability*[i]* and*[iv]*

—

(1,189,000)

(1,189,000)

 

Total liabilities

(150,061)

(1,368,744)

(1,218,683)

 

 

 

 

 

 

Deficit accumulated during **

 **

 **

 **

 **

the exploration stage *[ii]*

464,498

605,181

140,683

 

Subscriptions received *[iii]***

(1,166,288)

(958,828)

207,460

 

Additional paid in capital *[i]* and*[iii]*

(1,932,853)

(3,353,473)

(1,420,620)

 

Stockholders’ equity, end of year

(2,669,663)

(3,742,140)

(1,072,477)

 

 

 

 

 

- 36 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**2.**

**Basis of presentation AND GOING CONCERN UNCERTAINTY (cont’d)**

**Consolidated statement of operations**

 

 

**Previously**

**As**

**Increase /**

 

**Reported**

**Restated**

**(decrease)**

 

$

$

$

 

 

 

 

Foreign exchange loss  *[iv]*

—

111,000

111,000

Non-controlling interest *[ii]*

(29,683)

—

29,683

**Net loss**

**463,686**

**604,369**

**140,683**

**Loss per share – basic and diluted**

**(0.01)**

**(0.02)**

**(0.01)**

 

[i]     The Company revised the purchase equation for the 85% acquisition of Scotia in order to reflect the consideration of shares contributed at their fair value at the date of acquisition. The effect was to increase the additional paid in capital and to increase the value of the oil and gas properties acquired by $1,213,160, and to recognize a deferred tax liability in the amount of $1,078,000 on the timing difference created.

[ii]    The Company restated the purchase equation of Scotia to reflect on the balance sheet the non-controlling interest element which had previously been recognized within the statement of operations.

[iii]   The Company has restated the value of subscriptions receivable at December 31, 2004 to recognize the warrant element of the private placement subscription in the amount of $207,460 within additional paid in capital on the balance sheet.

[iv]   The Company has restated the deferred income taxes on the balance sheet by $111,000 to reflect the foreign exchange loss incurred from the change in US/Canada exchange rates as at December 31, 2004.

**Correction of errors**

The Company’s previously issued financial statements as at and for the year ended December 31, 2005 have been restated as follows:

a)

Stock-based Compensation for Consultants

The Company has capitalized the stock-based compensation cost relating to field consultants for the three months ended June 30, 2005, September 30, 2005 and December 31, 2005 as these are costs that are directly identified with the exploration activities in the Company’s Papua New Guinea cost center.  These costs were previously expensed.  The financial statements for prior periods have been restated.  The effect is to reduce the loss by $1,053,000 for the year ended December 31, 2005.

 

 

 

- 37 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**2.**

**Basis of presentation AND GOING CONCERN UNCERTAINTY (cont’d)**

**Correction of errors – cont’d**

**Liquidated Damages**

The Company has expensed the accrued liquidation damages fees relating to the Company failing to have a registration statement with regards to the private placement financing for 1,200,000 units declared effective on September 26, 2005.  Since the Company failed to have a registration statement declared effective by that date the Company must pay liquidated damages at a rate of $60,000 per month to a maximum of $360,000.  These costs were previously recorded as a charge to additional paid-in capital.  The effect is to increase the loss by $188,000 for the year ended December 31, 2005.

The impact of the adjustments described above under a) and b) on the consolidated financial statements as at December 31, 2005 and for the year ended December 31, 2005 have been quantified below:

 

 

**Previously****Reported**

**As****Restated**

**Increase/****(Decrease)**

**Consolidated balance sheets**

**$**

**$**

**$**

Oil and gas properties, unproven  [a]

10,467,322

11,520,322

1,053,000 

**Total assets**

**12,228,990**

**13,281,990**

**1,053,000**

 

 

 

 

**Stockholders’ equity**

 

 

 

Additional paid-in capital  [b]

12,994,255

13,182,255

188,000 

Deficit accumulated during the exploration  stage [a] and [b]

 

 

3,646,335

 

 

2,781,335

(865,000)

**Stockholders’ equity, end of year**

**9,384,600**

**10,437,600**

**1,053,000**

 

**Consolidated statements of operations**

 

 

 

Liquidated damages fees [b]

-

188,000

188,000 

Stock-based compensation [a]

1,949,114

896,114

(1,053,000)

**Net loss**

**(3,041,154)**

**(2,176,154)**

**(865,000)**

**Loss per share - basic and diluted**

**(0.08)**

**(0.06)**

**(0.02)**

 

Since the Company continued to record a net loss after the correction, no tax adjustment, other than disclosure on the rate reconciliation included in note 18, was recorded.

 

 

 

- 38 -

 

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**2.**

**BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY (cont’d)**

**Going concern uncertainty**

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred a net loss of $3,592,444 for the year ended December 31, 2006 [2005 - $2,176,154 and 2004 - $604,369] and at December 31, 2006 had a deficit accumulated during the exploration stage of $6,373,779 [2005 – $2,781,335 and 2004 - $605,181]. The Company has not generated any revenue, has a substantial accumulated deficit and working capital deficiency and requires additional funds to maintain its exploration operations.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in this regard are to raise equity anddebt financing as required, but there is no certainty that such financing would be available or that it would be available at acceptable terms. The Company is of the opinion that it is at a critical point and that in order to maintain its licenses in good standing, it will need to be successful in raising debt or equity financing.  At this time the Company is in good standing with the Department of Petroleum and Energy in PNG on all of its licenses. Furthermore, the Company also has a letter from the Department of Energy and Mines in PNG granting the Company an extension to 2008 on expenditures on its licenses. In addition to maintaining its licenses, the debt or equity financing is imperative for the Company to meet its current operating expenses and debt servicing obligations on the convertible notes that came to maturity on March 14, 2007 (note 5). The Company is currently in default on the repayment obligations on these convertible notes. Should the Company be unsuccessful inobtaining further debt or equity financing in the near future it may have to sell off a portion of its assets to allow the Company to continue its operations. The outcome of these matters cannot be predicted at this time. Subsequent to December 31, 2006, the Company received loan advances of $900,000 from certain shareholders to provide working capital to enable the new management to implement its turn around strategy [note 20]. Funds on hand at December 31, 2006, and funds arising from the loans received subsequent to December 31, 2006, will not be sufficient to allow the Company to execute its business plan beyond the end of April 2007.

These consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

**3.**

**Significant Accounting Policies**

**Principles of consolidation**

The consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America and include the accounts of the Company and its subsidiaries Cheetah BC, Cheetah PNG and Scotia.  All significant inter-company balances and transactions have been eliminated.

 

 

 

- 39 -

 

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**3.**

**Significant Accounting Policies - (cont'd)**

**Accounting estimates**

The preparation of consolidated financial statements in conformity with generally accepted accounting principles of the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates and assumptions.

**Cash and cash equivalents**

Cash equivalents comprise certain highly liquid instruments with a maturity of three months or less when purchased.

**Oil and gas properties**

The Company follows the full cost method of accounting for its oil and gas operations. Under this method, costs incurred in the acquisition, exploration and development of oil and gas properties are capitalized in one cost center, including certain internal costs directly associated with such activities. Proceeds from the sale of oil and gas properties are credited to the cost center with no gain or loss recognized unless such sale would significantly alter the relationship between capitalized costs and proved oil and gas reserves.

If capitalized costs, less related accumulated amortization and deferred income taxes, exceed the “full cost ceiling” the excess is expensed in the period such excess occurs. The “full cost ceiling” is determined based on the present value of estimated future net revenues attributable to proved reserves, using current product prices and operating costs at the balance sheet date plus the lower of cost and fair value of unproved properties within the cost center.

Costs of oil and gas properties are amortized using the unit-of-production method based upon estimated proven oil and gas reserves starting when proved reserves have been established. The significant unproven properties are excluded from the costs subject to depletion. 

As at December 31, 2006, the Company did not have any proven reserves. Due to the inherent uncertainties of the Company’s exploration activities, the measurement of the oil and gas properties is uncertain and could change significantly. 

**Equipment**

Depreciation is based on the estimated useful lives of the assets and is computed using the declining-balance method.  Equipment is recorded at cost.  Depreciation is provided using the following rates:

 

Office furniture and equipment

15%

Vehicles

30%

 

 

 

 

- 40 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**3.**

**SIGNIFICANT ACCOUNTING POLICIES (cont’d)**

**Leases**

Leases are classified as capital or operating leases.  Leases which transfer substantially all benefits and risks incidental to ownership of property are accounted for as capital leases.  All other leases are accounted for as operating leases and the related lease payments are charged to expense as incurred.

**Stock-based compensation**

At December 31, 2006, the Company has one stock-based employee compensation plan.  The stock option plan is for its directors, officers, employees and consultants.  Under the terms of the plan, options become exercisable immediately upon grant.  All stock options granted to date have been pursuant to separate agreements which override the terms of the standard plan.

Prior to December 31, 2005, the Company accounted for the plan using the fair value method as permitted by SFAS No 123, “*Accounting for Stock-Based Compensation*”. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), “*Share-Based Payment*”, using the modified-prospective-transition method. There was no effect of the change from applying the original provisions of SFAS No. 123 on net loss, cash flow from operations, cash flow from financing activities, and basic and diluted loss per share. Under the fair value method, compensation cost is measured at fair value using the Black-Scholes option pricing model, at the date of grant and is expensed over the award’s vesting period. Expected volatility is based on the historical volatility of thecompany’s common stock.

Under SFAS No. 123, the Company recognized compensation cost assuming all awards would vest and reversed recognized compensation cost for forfeited awards when the awards were actually forfeited. SFAS No. 123(R) requires that stock-based compensation expense be based on awards that are ultimately expected to vest, and that forfeitures are estimated when recognizing compensation cost. Accordingly, the Company estimated a forfeiture rate of 0% when originally recognizing compensation cost. When estimating forfeitures, voluntary termination behavior is considered as well as trends of actual option forfeitures. For the cumulative period from January 28, 2003 to December 31, 2006 there have been forfeitures and cancellations in the amount of $1,133,219 [2005 – $Nil and 2004 – $Nil].  

**Goodwill**

Management is of the opinion that the future cash flows from the properties acquired and giving rise to the goodwill support the carrying value of the goodwill. Due to the inherent uncertainties of the Company’s exploration activities, the measurement of the goodwill is uncertain and could change significantly.

 

 

 

- 41 -

 

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**3.**

**SIGNIFICANT ACCOUNTING POLICIES (cont’d)**

**Asset retirement obligations**

The Company recognizes the fair value of a liability for future asset retirement obligations associated with the Company’s oil and gas properties in the period in which it is incurred.  The estimated fair value of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted rate.  This cost of the asset retirement obligation is capitalized as part of the cost of the related asset and amortized over its productive life.  The liability accretes until the Company settles the obligation. As of December 31, 2006 December 31, 2005 and December 31, 2004, the Company was unable to estimate the asset retirement obligations.

**Earnings (loss) per share**

Basic earnings (loss) per share is computed using the weighted average number of shares outstanding during the period.  The treasury stock method is used to determine the diluted effect of stock options and warrants.  Diluted loss per share is equal to the basic loss per share for the year ended December 31, 2006 and the year ended December 31, 2005 and for the eleven month period ended December 31, 2004, because common stock equivalents consisting of stock purchase warrants of 4,221,429 [2005 – 1,266,295 and 2004 – 94,533] and stock options of 1,125,000 [2005 – 1,700,000 and 2004 – 50,000] that were outstanding at December 31, 2006 were anti-dilutive, however they may be dilutive in the future.

**Long-Lived Assets**

In accordance with SFAS No. 144, “*Accounting for the Impairment or Disposal of Long-Lived Assets*”, the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.

**Foreign currency translation and its subsidiaries**

Cheetah Nevada and its subsidiaries, all of which are considered to be integrated, use the United States Dollar as its functional currency.

The Company accounts for foreign currency transactions in accordance with SFAS No. 52, “Foreign Currency Translation”.  Monetary assets and liabilities denominated in foreign currencies are translated into United States Dollars at the period-end exchange rates.  Non-monetary assets and liabilities are translated at the historical rates in effect when the assets were acquired or obligations incurred.  Transactions occurring during the period are translated at rates in effect at the time of the transaction.  The resulting foreign exchange gains and losses are included in operations.

 

 

 

- 42 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**3.**

**SIGNIFICANT ACCOUNTING POLICIES (cont’d)**

**Fair Value of financial instruments**

Fair value estimates of financial instruments are made at the period end based on relevant information about financial markets and specific financial instruments.  As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision.  Changes in assumptions can significantly affect estimated fair value.

The carrying value of cash and cash equivalents, accounts receivable, refundable deposits, accounts payable, accrued liabilities, convertible note payable and advances payable approximate their fair value.  Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.

The Company operates outside of the United States of America and is exposed to foreign currency risk due to the fluctuation between the currency in which the Company operates and the United States Dollar.

**Income taxes**

The Company follows the liability method of tax allocation.  Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of asset and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

**Comparative figures**

The Company has reclassified certain of the figures presented for comparative purposes to conform to the financial statement presentation adopted in the current year.

 

4.  ACCOUNTS RECEIVABLE

 

 

 

 

 

 

 

 

 

 

**December 31**,

**December 31,**

**December 31,**

 

 

**2006**

**2005**

**2004**

 

 

$

$

$

 

 

 

 

 

 

 

 

 

 

 

Exploration Costs - Recoverable

**472**

127,473

**—**

 

GST Receivable

**14,238**

1,281

**—**

 

Interest Receivable

**1,353**

6,067

**—**

 

 

 

 

 

 

 

**16,063**

134,821

**—**

 

 

 

 

 

 

 

 

 

 

- 43 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**4.**

**ACCOUNTS RECEIVABLE (cont’d)**

The accounts receivable balance totalling $ 127,000 at December 31, 2005 was generated for helicopter usage by a third party for subletting out the helicopter at an hourly rate.  The Company was committed to purchase a certain number of helicopter flight hours and since the Company did not utilize the helicopter for the full hours under the agreement, it sublet the helicopter for the hours un-used.  The amount was considered collectible since the cash was collected subsequent to the year end.  

**5.**

**CONVERTIBLE NOTES**

**Convertible Notes Issued on March 14, 2006**

On March 14, 2006, the Company issued convertible notes (“Convertible Notes”) to purchase shares of the Company's common stock for total gross proceeds of $5,000,000. The Convertible Notes are a liability that may be converted into shares of the Company prior to payout by the Company, as outlined below.  The Company may, prior to any conversion, redeem the Convertible Notes for the amount of the principal and any interest and penalties.  The Convertible Notes also have a contingent put option that allows the holder to demand payment if the Company completes an offering.  The Convertible Notes are due on March 14, 2007, and bear interest at 10% per annum compounded quarterly until August 31, 2006. Thereafter the interest compounds at a rate which increases by 2% on the last day of each calendar month.  The total amount of interest payable on the maturity date is $735,496.  The Convertible Notes areconvertible at the option of the holder at any time into common stock or other equity-linked securities issued in any offering by the Company.  The number of shares to be issued upon conversion is determined by the following formula:

 

a)

Conversion Rate – The number of share of Common stock or other Equity Securities issuable upon conversion of any Conversion Amount shall be determined by dividing (x) the product of multiplying such Conversion Amount times 1.10, by (y) the Conversion Price.  

 

b)

Conversion Amount - means the sum of (A) the portion of the Principal to be converted, redeemed or otherwise with respect to which this determination is being made, (B) accrued and unpaid interest with respect to such Principal and (C) accrued and unpaid late charges with respect to such Principal and interest.  

 

c)

Conversion Price – means the price per share or unit of common stock and other equity securities at which such common stock and other equity securities are sold to the other investors in an offering.

In conjunction with the Convertible Notes, the Company issued 3,000,000 share purchase warrants, of which 2,000,000 warrants are exercisable into common stock at an exercise price of $3.25 per share, commencing after June 1, 2006, and expire on March 14, 2009, while 1,000,000 warrants are exercisable into common stock at an exercise price of $3.75 per share, commencing after June 1, 2006, and expire on March 14, 2009.  There are no conditions attached to the warrant holders’ ability to exercise the warrants in accordance with the terms noted above.

 

 

 

- 44 -

 

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**5.**

**CONVERTIBLE NOTES (cont’d)**

**Accounting for the Conversion Option and the Warrants Issued as Part of the Convertible Note Financing**

The host contract itself does not embody a claim to the residual interest in the Company and thus the economic characteristics and risks of the host contract should be considered that of a debt instrument and classified as a liability.

The warrants are detachable from the Convertible Notes and have been accounted for separately in accordance with APB 14 *“Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants”*.  There are liquidated damages or cash penalty payable to the warrant holder if the Company cannot register the shares underlying the warrants.  The Company must file an SB-2 to register the warrant shares within 90 days from the closing date and have the SB-2 declared effective within 150 days.  If the Company fails to file by the 90th day, there is a 1% penalty payable as of that date.  Then on the 30th day thereafter there is another 1% penalty, prorated if the default is cured during the 30 day period.  If the SB-2 is not declared effective by the 150th day, then on the 30th day after that day there is a 1%penalty and on each 30th day after that another 1% penalty, again prorated.  The penalties commence June 14, 2006 at 1% of $5,000,000 and continue at 1% per month for each month thereafter until the Convertible Notes mature in March 2007. The maximum penalty payable is $500,000.  At December 31, 2006 the Company has recorded $328,333 in accounts payable for the 1% penalties that have accrued from June 14, 2006 to December 31, 2006.

 

The conversion option of the Convertible Notes allows the holder to convert the Convertible Notes into equity shares at any time within a specified period at a specified conversion price.  The conversion option is equivalent to a call option granted by the Company to the note holders to purchase the shares of the Company at a specified price within a specified time.  The total number of shares to be issued in satisfaction of the conversion option is indeterminable and the registration of such shares is out of the control of the Company.  Therefore, the conversion option and the contingent put option are classified as a liability in accordance with the provisions of EITF Issue 00-19 “*Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock*” and measured at fair value with changes in fair valuerecorded in the consolidated statements of operations.  Furthermore, the Company is also unable to conclude that it would have a sufficient number of authorized and unissued shares to satisfy outstanding warrants, after considering other commitments that may require the issuance of shares during the life of the warrants, in particular those with respect to the conversion option discussed above.  In addition, the shares underlying the warrants are also subject to registration rights.  As a result, the warrants are also classified as a liability at fair value with changes in fair value recorded in the consolidated statements of operations.

 

The contingent put option allows the holder to force repayment of the principal (puttable at par) if the Company completes an offering.  Therefore, the contingent put option would be classified as a liability in accordance with the provisions of EITF Issue 00-19 and measured at fair value with changes in fair value recorded in the consolidated statements of operations, if any.

 

 

 

 

- 45 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

 

**5.**

**CONVERTIBLE NOTES (cont’d)**

 

**Accounting for the Conversion Option and the Warrants Issued as Part of the Convertible Note Financing (cont’d)**

 

The fair value of the warrants is estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

 

 

Dec 31, 2006

Risk free interest rate

4.00%

Expected life

2.2 years

Expected volatility

109%

Dividen per share

$Nil

The fair value of the warrants as at December 31, 2006, was $81,041 [fair value upon issuance of convertible note on March 14, 2006 was $2,300,000.]

The Company incurred financing costs of $464,328 in connection with the issuance of the Convertible Notes and warrants. Of this, $250,737 relates to the Convertible Notes and is being deferred and amortized over the term of the Convertible Notes.  At December 31, 2006, $200,590 has been amortized.  The balance of $213,590 has been assigned as relating to the warrants and was included in net loss for the year ended December 31, 2006.

For the year ended December 31, 2006, the Company recorded $2,286,456 as the accretion of interest expense on the convertible notes and $2,218,959 as unrealized gains arising from the change in the fair value of the warrants.

As collateral for the Convertible Notes, the Company signed a general security agreement on all assets of the Company (including the oil and gas properties prospecting licenses).

**6.**

**Acquisition of Scotia Petroleum Inc. ("Scotia")**

On June 24, 2004, the Company completed the acquisition of 85.14% of the issued and outstanding common stock of Scotia, a company incorporated in British Columbia, Canada. The total consideration was $2,119,160 consisting of $301,887 of cash and 256,315 shares of restricted common stock of the Company valued at $1,817,273. The share value of $7.09 was based on the average market price of the Company’s common stock over a period before and after May 13, 2004, the date of agreement to purchase the Company.

The total fair value of net assets acquired on June 24, 2004 is summarized as follows:

 

 

 

 

 

$

Cash

 

107

Refundable deposits for petroleum prospecting licenses

 

67,144

Oil and gas properties

 

3,172,712

Current liabilities assumed

 

(13,120)

Deferred income taxes

 

(1,078,000)

Non controlling interest

 

(29,683)

 

 

2,119,160

 

 

 

 

- 46 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**6.**

**Acquisition of Scotia Petroleum Inc. ("Scotia") (cont'd.)**

**Financed by:**

 

 

$

 

 

 

Contribution of common shares

 

1,817,273

Cash consideration

 

301,887

 

 

2,119,160

The Company also acquired the option to purchase an additional 5,000,000 shares of common stock of Scotia for $1,000,000. On March 10, 2005, the Company completed the acquisition of an additional 13.51% of the issued and outstanding common stock of Scotia for $1,000,000 paid by the issuance of 142,000 restricted common stock of the Company at $7.04 per share. The share value of $7.04 was based on the average market price of the Company’s common stock over the five-day period before and after March 10, 2005.

The total fair value of net assets acquired on March 10, 2005 is summarized as follows:

 

 

$

 

 

 

Oil and gas properties

 

723,014

Goodwill

 

497,000

Deferred income taxes

 

(247,000)

Non-controlling interest

 

26,986 

Issuance of shares

 

1,000,000

Financed by:

 

 

$

 

 

 

Issuance of common shares

 

1,000,000

 

 

1,000,000

The acquisition of Scotia is accounted for at market value. The primary reasons for the acquisition of Scotia are as follows:

 

a)

Scotia owned strategic prospecting licences in Papua New Guinea;

 

b)

The acquisition of Scotia is critical with respect to the assembling of licences in Papua New Guinea; and

 

c)

Petroleum Prospecting Licences held by Scotia had previous geological and drilling information that was necessary to the Company’s operations.

The operating results of Scotia from June 24, 2004 to December 31, 2006 are included in the consolidated statements of operations.

 

 

 

 

- 47 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**7.**

**Equipment**

 

 

 

**Cost**

**Accumulated**

**depreciation**

**Net book**

**value**

 

$

$

$

 

 

 

 

**2006**

 

 

 

Office equipment

**88,015**

**28,540**

**59,475**

Motor vehicles

**65,867**

**35,218**

**30,649**

 

**153,882**

**63,758**

**90,124**

 

 

 

 

 

**2005**

 

 

 

Office equipment

84,172

16,448

67,724

Motor vehicles

79,771

20,508

59,263

 

163,943

36,956

126,987

 

 

 

 

 

**2004**

 

 

 

Office equipment

65,540

5,515

60,025

Motor vehicles

38,374

7,347

31,027

 

103,914

12,862

91,052

Included within Motor vehicles at December 31, 2006, is an asset under capital lease with a cost of $45,022 [2005 - $45,022 and 2004 - $Nil] and accumulated amortization of $18,448 [2005 - $6,753 and 2004 - $Nil]. Amortization charged on the vehicle under capital lease was $11,695 for the year ended December 31, 2006 [2005 - $6,753 and 2004 - $Nil].

**8.**

**Oil and Gas Properties**

The Company, through its subsidiaries, obtained five Petroleum Prospecting Licences (PPL) in Papua New Guinea: PPL#245, PPL#246, PPL#249, PPL#250 and PPL 252. These licences have an initial term of six years and will remain valid until the expiry dates (between September 17, 2009 and April 8, 2010) and are subject to minimum work expenditures and accomplishments being made. The estimated exploration expenditures required are summarized as follows:

 

 

$

 

 

 

Year 2006 - 2008

 

34,600,000

Year 2009 - 2010

 

43,700,000

Total

 

78,300,000

 

 

 

 

- 48 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**8.**

**Oil and Gas Properties (cont'd.)**

Provided that the licences are in good standing according to the Oil and Gas Act of Papua New Guinea, the Company may extend the term of the licences beyond the original term of six years, and the Company is able to 

apply for changes to the required expenditures. Upon discovery of oil or gas, a Petroleum Retention Licence can be obtained under the Oil and Gas Act of Papua New Guinea.

On January 26, 2005, the Company was granted a Petroleum Retention Licence (PRL) #13 in Papua New Guinea. PRL #13 covers two blocks within PPL #246. The term of the licence is five years. The Company has to incur $4,450,000 of exploration expenditures on the two blocks over the term of PRL #13.

As at December 31, 2006 the Company held leases for approximately 8,385,866 gross undeveloped acreage and approximately 8,344,797 net undeveloped acreage. The Company had approximate gross acreage concentrations of 40,028 in PRL #13 and 500,350 in PPL #246. One Exploration Re-Entry Well was drilled in the fall of 2005 in PRL. The Company currently has no net productive exploratory or development wells drilled. The Company currently has no net dry exploratory or development wells drilled. 

The properties over which the Company holds licenses are subject to a 22.5% back-in participation right in favour of the government, which the government may exercise upon payment of 22.5% of the expenses incurred in the development of the property. This back-in interest includes a 2% revenue royalty payment to indigenous groups, which is only payable if the government exercises its back-in right.

Acquisition and exploration costs incurred are as follows:

 

 

 

 

 

**December 31,****2006**

**December 31,****2005**

**December 31,****2004**

 

 

***Restated [Note 2]***

***Restated [Note 2]***

 

$

$

$

 

 

 

 

Capitalized cost - beginning of period - unproven

**11,520,322**

4,695,206

1,009,300

 

 

 

 

Property acquisition cost, unproven 

—

723,014

3,172,712

Exploration cost

9,360,101

6,102,102

513,194

Total cost capitalized during the period

9,360,101

6,825,116

3,685,906

Capitalized cost – end of period – unproven      

**20,880,423**

11,520,322

4,695,206

 

 

 

 

- 49 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**8.**

**OIL AND GAS PROPERTIES (cont’d)**

Summary of the exploration costs are as follows:

 

 

Twelve months

ended

December 31,

2006

Twelve months

ended

December 31,

2005

Twelve months

ended

December 31,

2004

 

 

*Restated [Note 2]***

*Restated [Note 2]***

 

$

$

$

 

 

 

 

Stock based compensation

596,219

1,053,000

—

Communication

17,963

11,470

12,165

Consulting, engineering, geology and contracts

8,316,452

4,401,475

158,377

Depreciation

—

5,343

3,200

Mapping and office expenses

6,366

69,403

4,077

Registration, license fees and permits

50,574

132,597

105,539

Salaries and wages

112,259

107,521

87,434

Staff allowance and accommodations

62,982

82,888

63,116

Travel

14,010

64,179

79,286

Insurance

183,276

174,226

—

 

**9,360,101**

6,102,102

513,194

 
**9.**

**Advances Payable**

 
a)

Advances payable consist of advances made in January and February 2006 by four unrelated parties totaling $450,000. The advances are due on demand for a term of one year with an interest rate of 4% per annum compounded semi annually.

b)

A further advance payable totaling $200,000 consists of advances made in October and November 2006 by four unrelated parties.  The advances are for a term of 6 months with an interest rate of 15% per annum compounded monthly.  At any time after May 31, 2007 the Lender has the right to demand payment of the principal and any interest outstanding.

**10.**

**COMMON STOCK**

**Stock Options**

The Company has a stock option plan for its directors, officers, employees and consultants. Under the terms of the plan options become exercisable immediately upon grant. All stock options granted to date have been pursuant to separate agreements which override the terms of the standard plan.  The vesting period of the stock options is 50% over the first twelve months and 50% over the remaining twelve months.  

 

 

 

- 50 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**10. COMMON STOCK – (cont’d)**

A summary of the status of the Company’s stock option plan as of December 31, 2006, 2005 and 2004 changes during the periods ending on those dates is presented below:

 

 

**2006**

**2005**

**2004**

 

**Number of shares**

**Weighted average exercise price**

**Number of shares**

**Weighted average exercise price**

**Number of shares**

**Weighted average exercise price**

 

#

$

#

$

#

$

 

 

 

 

 

 

 

Outstanding at beginning of year

1,700,000

4.93

50,000

2.50

—

—

Granted

—

 

1,650,000

5.00

50,000

2.50

Exercised

—

—

—

—

—

—

Forfeited or cancelled

(835,000)

4.97

—

—

—

—

Outstanding at end of year

**865,000**

**4.88**

**1,700,000**

4.93

**50,000**

**2.50**

Vested or expected to vest

**(865,000)**

**4.88**

**1,700,000**

4.93

**50,000**

**2.50**

Excercisable

**(865,000)**

**4.88**

**20,000**

2.50

—

—

During the twelve month period ended December 31, 2006, the Company recorded total stock-based compensation for directors of $988,476 (2005 - $896,114 and 2004 - $22,064) and for consultants $596,219 (2005 - $1,053,000 and 2004 - $Nil) related to stock options granted in 2005 and 2004. The estimated fair value of stock options issued during the periods ended December 31, 2005 and 2004 were determined using the Black-Scholes options pricing model using the following weighted average assumptions: annualized volatility of 50% [2004 - 50%], risk free interest rate of 4% [2004 - 3.42%], expected life of 5 years [2004 - 3 years] and a dividend yield of 0% [2004 - 0%]. The resulting weighted-average fair value per option issued during the period ended December 31, 2005 was $3.12 [December 31, 2004 - $4.41].

A summary of the Company’s unvested stock option activity and related information for the year ended December 31, 2006 is as follows:

 

 

 

**Weighted Average**

**Unvested Stock Options**

**Options**

**Grant-Date Fair Value**

 

 

 

Unvested at January 1, 2006

1,680,000

$3.14

Granted

—

—

Vested

(845,000)

$3.14

Forfeited or cancelled

(835,000)

$3.12

Unvested at December 31, 2006

—

$3.16

 

The aggregate intrinsic value of the vested and exercisable stock options at December 31, 2006 was $Nil.

 

 

 

- 51 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**10.**

**COMMON STOCK (cont’d)**

**Warrants**

The following summarizes the stock purchase warrant transactions for the eleven months ended December 31, 2004 and the twelve months ended December 31, 2006 and 2005:

 

 

**Weighted average**

 

**Number**

**exercise price**

 

**of warrants**

$

Outstanding, January 31, 2004

—

—

Warrants issued

150,000

7.50

Warrants exercised

(55,467)

7.50

Warrants forfeited/expired/cancelled

—

—

Outstanding, December 31, 2004

94,533

7.50

Warrants issued

1,221,429

7.00

Warrants exercised

(49,667)

7.50

Warrants forfeited/expired/cancelled

—

—

Outstanding, December 31, 2005

1,266,295

7.02

Warrants issued *[note 5]*

3,000,000

3.42

Warrants exercised

—

—

Warrants forfeited/expired/cancelled

(44,866)

 (7.50)

Outstanding, December 31, 2006

4,221,429

4.46

 

**11.**

**Segmented Information**

The Company’s business is considered as operating in one segment based upon the Company’s organizational structure, the way in which the operation is managed and evaluated, the availability of separate financial results and materiality considerations. The Company’s assets by geographical location are as follows:

 

 

**December 31,****2006****$**

**December 31,****2005****$**

**December 31,****2004****$**

**Assets**

 

 

 

North America (corporate)

**241,769**

917,575

107,440

Papua New Guinea

**21,677,502**

12,364,415

5,003,444

Total 

**21,919,271**

13,281,990 

5,110,884

 
**12.**

**Related Party Transactions**

 
Related party transactions are measured at the exchange amount which is the amount of consideration established and agreed to by the related parties.

For the year ended December 31, 2006, the Company incurred consulting fees to an officer who was also a director of the Company in the amount of $135,000 [2005 - $100,000 and 2004 - $Nil]. In October 2006, the director and officer resigned. The amount of $126,075 that remained unpaid as at December 31, 2006 is included in accounts payable and accrued liabilities. 

 

 

 

- 52 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

 
**13.**

**Supplemental Disclosure of Cash Flow Information**

 
 

**December 31,****2006**

**December 31,****2005**

**December 31,****2004**

**Cumulative from January 28, 2003 to December 31,2006**

 

**$**

**$**

**$**

$

 

 

 

 

 

**Cash paid during the period:**

 

 

 

 

Interest

**12,857**

1,652

**—**

14,509

 

 

 

 

 

**Non-cash transactions:**

 

 

 

 

Shares issued for acquisition of Scotia

**—**

1,000,000

**—**

1,000,000

Purchase of capital lease assets

**—**

45,022

**—**

45,022

Share and warrants issued as share issue costs

**—**

71,429

**—**

71,429

Contribution received from a shareholder of the    Company in connection with the acquisition of Scotia

**—**

—

1,817,273

1,817,273

Debt settled for shares

**—**

—

357,378

357,378

Shares issued for services

**—**

—

1,000,000

1,000,000

Oil and gas property costs not paid yet

3,027,396

946,467

—

3,973,863

 
**14.**

**Long Term Debt - Capital Loan**

 
On June 23, 2006 the Company received a capital loan in the amount $750,000 due June 23, 2008.  The loan bears interest at a rate of 8% per annum calculated annually and not in advance, payable on the Maturity Date of June 23, 2008. In the event of any partial repayments made by the Company on the Principal Sum before the due date, such repayments shall be applied firstly towards accrued interest and then towards the Principal Sum.  The capital loan shall be subordinated to all amounts currently due and owing by the Company to the holder of the Convertible Notes [note 5].  This debt is non-secured.

 

 

 

 

- 53 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

December 31, 2006

**15.**

**CONTINGENCIES**

On April 19, 2006 the Company was named as a defendant in an action taken by two investors in a private placement that closed on May 26, 2005. Pursuant to the terms of that private placement, the investors were granted a bonus warrant to acquire additional shares of common stock if certain conditions were satisfied. The Plaintiffs are alleging that they are owed additional shares of common stock pursuant to the bonus warrant provisions. The Company has taken the position that the bonus warrant provisions are not applicable in the circumstances and accordingly intends to defend it. The nature of the claim is for common stock, and there is no monetary impact of this claim. If the Plaintiffs are successful, they will receive bonus warrants to purchase 138,597 shares of common stock of the Company.  The Company cannot determine the outcome of this action at this time.

**16.**

**RECENT ACCOUNTING PRONOUNCEMENTS**

In February 2006, the FASB issued SFAS No. 155, *Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140* (“SFAS 155”).  SFAS 155 amends FASB Statements No. 133, *Accounting for Derivative Instruments and Hedging Activities* and FASB Statements No. 140, *Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.*  SFAS 155 resolves issues addressed in Statement 133 Implementation Issue No. D1, *Application of Statement 133 to Beneficial Interests in Securitized Financial Assets*.  More specifically, SFAS 155:

 

**•**

Permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. 

 

**•**

Clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133 which establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. 

 

**•**

Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives. 

 

**•**

Amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument.

SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006.   The Company is currently evaluating the impact of adopting SFAS 155 but does not expect that it will have a material effect on its financial statements.

In March 2006, the FASB issued SFAS No. 156, "*Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities*". This statement requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits for subsequent measurement using either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of SFAS 140. The subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value eliminates the necessity for entities that manage the risks inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge accounting treatment and eliminates thecharacterization of declines in fair value as impairments or direct write-downs. SFAS 156 is effective for an entity's first fiscal year beginning after September 15, 2006.   The adoption of this statement is not expected to have a material effect on the Company’s future consolidated financial position or results of operations.

 

 

 

 

- 54 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

December 31, 2006

**16.**

**RECENT ACCOUNTING PRONOUNCEMENTS (cont’d.)**

In July 2006, FASB issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109* (“FIN 48”).  This interpretation clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, *Accounting for Income Taxes.*FIN 48 will require companies to determine whether it is more-likely-than-not that a tax position taken or expected to be taken in a tax return will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If a tax position meets the more-likely-than-not recognition threshold, it is measured to determine the amount of benefit to recognize in the financial statements based on guidance inthe interpretation.  FIN 48 is effective for fiscal years beginning after December 15, 2006.   The adoption of this statement is not expected to have a material effect on the Company’s future consolidated financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, “*Fair Value Measurements*”. The objective of SFAS 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements.  SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS No. 157 but does not expect that it will have a material effect on its financial statements. 

In September 2006, the FASB issued SFAS No. 158, “*Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)*”. This statement requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization.  This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The provisions of SFAS 158 are effective for employers withpublicly traded equity securities as of the end of the fiscal year ending after December 15, 2006. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.

In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, *“Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.”* SAB No. 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB No. 108 requires companies to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative an qualitative factors. SAB No. 108 is effective for periods ending after November 15, 2006.  The adoption of this statement did not have a material effect on the Company’s consolidated financial position or results of operations.

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, “*The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115*”.  This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 “*Accounting for Certain Investments in Debt and Equity Securities*” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s 

 

 

 

- 55 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**16.**

**RECENT ACCOUNTING PRONOUNCEMENTS (cont’d.)**

first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, “*Fair Value Measurements”.* The Company is currently evaluating the impact of adopting SFAS No. 159 but does not expect that it will have a material effect on its financial statements.

**17.**

**Risks**

Ownership in oil and gas properties involves certain inherent risks as they may be subject to prior unregistered agreements, or transfers which have not been recorded or detected through title research. Licenses do not guarantee title against possible claims.  The Company believes that their ownership of licenses with respect to their oil and gas properties are valid and enforceable given that they have been granted directly by the government of Papua New Guinea.

Oil and gas exploration activities in Papua New Guinea may be affected in varying degrees by political instabilities and government regulations relating to the oil and gas industry.  Any changes in regulations or shift in political conditions are beyond the Company’s control and may adversely affect their business as a significant portion of the Company’s assets are located in Papua New Guinea.  The Company believes that the present government administration has achieved progress in restructuring Papua New Guinea’s political institutions and revitalizing its economy.

**18.**

**Income Taxes**

The Company accounts for income taxes under FASB Statement No. 109, "*Accounting for Income Taxes*." Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. 

Income tax expense differs from the amount that would result from applying the U.S federal and state income tax rates to earnings before income taxes. 

Pursuant to SFAS 109, the potential benefit of net operating loss carry forwards has not been recognized in the financial statements since the Company cannot be assured that it is more likely than not that such benefit will be utilized in future years.

The Company is subject to United States federal and state income taxes at an approximate rate of 35%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:

 

 

 

- 56 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**18.**

**INCOME TAXES (cont’d.)**

 

 

 

**Twelve Months Ended**

**December 31,****2006**

**Twelve Months Ended**

**December 31,****2005**

**Eleven Months Ended**

**December 31,****2004**

 

**$000**

 

**$000**

***Restated [Note 2]*****

**$000**

***Restated [Note 2]*****

Loss before income taxes per financial statements

**(3,745)**

(2,226)

(604)

Income tax rate

**35%**

35%

35%

Income tax recovery

**(1,310)**

(779)

(211)

Permanent differences

**1,271**

30

100

Exchange rate change

**20**

(17)

(2)

Income tax rate difference

**10**

19

12

Income tax rate changes

**(153)**

(50)

—

Valuation allowance change

**9**

747

101

Deferred income tax recovery

**(153)**

(50)

—

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

 

Future income taxes arise from temporary differences in the recognition of income and expenses for financial reporting and tax purposes. The significant components of future income tax assets and liabilities at December 31 are as follows:

 

 

**2006**

**2005**

**2004**

 

**$000**

**$000**

***Restated***

***[Note 2]***

**$000**

***Restated***

***[Note 2]***

 

 

 

 

Net operating loss carryforwards

428

535

101

Warrants

 (777)

—

—

Stock based compensation

660

314

—

Other

547

—

—

Total deferred tax assets

858

849

101

Valuation allowance

(858)

 (849)

(101)

Net deferred tax assets

—

—

—

 

 

 

 

Deferred income tax (liability)

(1,304)

(1,438)

(1,189**)**

 

The Company has recognized a valuation allowance for the deferred tax assets for which it is more likely than not that realization will not occur. The valuation  allowance is reviewed periodically. When circumstance change and this  causes a change in  management's  judgment  about the realizeability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in current income.

 

 

 

- 57 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

 

**18.**

**INCOME TAXES (cont’d.)**

 

The net operating loss carryforwards expire as follows:

 

$

 

 

**Canada**

 

2014

9,779

2015

501,796

2026

110,776

 

622,351

 

 

**U.S.**

 

2024

71,547

2025

305,876

2026

294,101

 

671,524

 

 

**Papua New Guinea**

 

2024

—

2025

—

2026

—

 

—

 

 

**Total**

1,293,875

 

 

Pursuant to Section 382 of the Internal Revenue Code, use of the Company’s net operating loss carryforwards may be limited if the Company experiences a cumulative change in ownership of greater than 50% in a moving three year period. Ownership changes could impact the Company’s ability to utilize net operating losses and credit carryforwards remaining at the ownership change date. The limitation will be determined by the fair market value of common stock outstanding prior to the ownership change, multiplied by the applicable federal rate. The Canadian non-capital loss carryforwards may also be limited by a change in Company ownership.

 

 

 

 

- 58 -

 

 

**Cheetah Oil & Gas Ltd.**

(an exploration stage enterprise)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(expressed in U.S. dollars)

 

December 31, 2006

**19.**

**OBLIGATIONS UNDER CAPITAL LEASES**

During the year ended December 31, 2005 the Company entered into a capital lease. The Company is obligated under the capital lease to future minimum annual lease payments that are due as follows:

 

 

 

$

 

 

 

2007

 

12,609

2008

 

12,609

2009

 

8,012

 

 

33,230

Less amount representing interest at 13.75%

 

3,868

Present value of future minimum lease obligations

 

29,362

Less current portion

 

9,778

 

 

19,584

 
**20.**

**Subsequent Events**

 
Subsequent to December 31, 2006, the Company secured additional funding in the amount of $900,000 from certain shareholders.  This amount is unsecured, non-interest bearing and has no specific terms of repayment. 

On March 1, 2007, an amendment to the Company’s Articles was made allowing the Company to increase its authorized shares of common stock to 500,000,000 shares. The amendment also authorized the issuance of up to 100,000,000 shares of preferred stock in the capital of the Company, for which the board of directors may fix and determine the designations, rights, preferences or other variations of each class or series within each class of the shares of preferred stock.

 

 

 

- 59 -

 

 

 

**Item 8.**

**Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.**

None.

**Item 8A.**

**Controls and Procedures**

 

As required by Rule 13a-15 under the Exchange Act, as of the end of the period covered by this report, being December 31st 2006, we evaluated the effectiveness of the design and operation of our disclosure control and procedures. We are responsible for establishing and maintaining adequate internal controls and procedures for the financial reporting of the Company. Disclosure control and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner, the information we must disclose in reports that we file with or submit to the SEC. It should be notedthat in the fourth financial quarter of 2006 we appointed a new Chief Executive Officer and Chief Financial Officer. Our Chief Executive Officer and Chief Financial Officer concluded that the internalcontrols and procedures as implemented by prior Management were inadequate. Since their appointment in October 2006, our Chief Executive Officer and Chief Financial Officer have implemented measures to revise and improve our internal controls and procedures to increase our effectiveness. In addition, further changes will be implemented over the ensuing year to insure compliance with internal policies and to evaluate on an ongoing basis the effectiveness of our policies and improved disclosure control and procedures as they relate to Section 404 of the Sarbanes-Oxley Act of 2003. In particular, as part of this program we have engaged an independent accounting firm experienced in GAAP to review and to advise in respect to the preparation of our financial statements, and to provide accounting counsel on various matters relating thereto on an ongoing basis. Further, we have also engaged   independent accounting counsel with experience in matters relating to taxation on amulti-jurisdictional level, to advise and ensure the adequacy and accuracy of our tax reporting and disclosure and that we are in compliance in this regard. In addition to the foregoing we plan to implement further improvements to our internal controls and in particular, to segregate accounting and financial reporting duties. There have been no changes in our internal control over financial reporting other than the changes disclosed above that occurred during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

**PART III**

**Item 9.**    **Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.**

All directors of our company hold office until the next annual general meeting of the shareholders or until their successors are elected and qualified.  The officers of our company are appointed by our Board of Directors and hold office until their earlier death, retirement, resignation or removal.

Our directors, executive officers and other significant employees, their ages, positions held and duration each person has held that position, are as follows:

 

**Name**

**Position Held with the****Company**

**Age**

**Date First  Elected****or  Appointed**

*Ian McKinnon***

President, Chief Executive Officer, Chairman and Director

57

October 16, 2006

*Isaac Moss***

Senior Vice President, Chief Financial Officer 

54

October 30, 2006

*Georgina Martin***

Secretary, Treasurer and Director

58

March 5, 2004

*Dean Swanberg***

Director

45

January 16, 2007

 

 

 

 

- 60 -

 

 

*Business Experience*

The following is a brief account of the education and business experience of each director, executive officer and key employee during at least the past five years, indicating each person’s principal occupation during the period, and the name and principal business of the organization by which he or she was employed.

*Ian McKinnon – President, Chief Executive Officer, Chairman and Director*

Ian McKinnon has been our President, Chief Executive Officer, Chairman and a director of our company since October 16, 2006.

Mr. McKinnon has over thirty years of experience primarily focused in the energy sector ranging from oil field trucking to energy exploration and production. He was a director and shareholder of Norscot Ltd. from September 1973 to May 2004.  Norscot Ltd. is a diversified holding company with interests in the energy sector. He also held senior executive positions in oil and gas exploration companies, oil well drilling and energy transportation companies. During September 1993 to June 1999 he was Contracts Manager for Command Drilling and from May 2000 to April 2004 Mr. McKinnon was Vice President of Redwood Energy.

*Isaac Moss – Senior Vice President, Chief Financial Officer*

Mr. Moss has been the Senior Vice President, Chief Financial Officer of our company since October 30, 2006.

During the 1990’s through 2002 Isaac Moss was associated with a mid market investment banking company based in Geneva, where he provided corporate, strategic and investment banking advisory services to micro and small cap client companies in the energy and resource, telecommunications, chemicals and industrial minerals, entertainment, forest products and hospitality industries.   From February 1991 to July 1994 he was the Director and Vice President for Cycomm International Inc.  From 1994 to 1997 Mr. Moss was President of Calcitech Inc., a specialty chemical company headquartered in France.  In May 1991 to December 2006 Mr. Moss was a Director and Chief Financial Officer for Resource Finance and Investment Inc. and from 2005 to May 2006 he was Chief Financial Officer of Cirond Corporation.  He currently remains an independent director of that Company.

*Georgina Martin – Secretary, Treasurer and Director*

Ms. Martin the Secretary, Treasurer and Director of our company since March 5, 2004.  Ms. Martin has been in the private sector for over 35 years starting in the insurance field and then soon changed for a brief period of time to work in public practice.

Ms. Martin took a position with Mutual Life Insurance as an underwriter assistant from 1965 to 1966.  She then went to work for Regmil Industries as a bookkeeper until 1971.  Between 1971 to 1975, she worked as an assistant to the accountant for Westcoast Plywood.  In 1975 Ms. Martin was hired by Bartell Bros. Construction as an accountant.  From 1978 to 1988, she was employed by Brink Remanufacturing Industries Ltd. as a Comptroller, a lumber re-manufacturing company specializing in added value timber products.  Ms. Martin left Brink Remanufacturing Industries Ltd. in 1988 and joined the Jemi Group of Companies and holds the position of Comptroller/Chief Financial Officer to the present date, which is a group of private companies engaged in the logging and land development industry.  Ms. Martin is also a director of KOKO Petroleum Inc., having been appointed on October 21, 2004.

In 1986 Ms. Martin obtained her designation as a Certified General Accountant with a focus on finance.  In 1988 Ms. Martin and a business partner incorporated a private corporation.  This served as a base towards her comptrollership of the many companies that followed over the next 16 years.

KOKO Petroleum Inc. is a company engaged in exploration and drilling for oil and natural gas in the State of Texas.  Given that our operations are in Papua, New Guinea, and will remain so for the foreseeable future, we do not view the affiliation of Ms.  Martin to KOKO Petroleum Inc. as creating any potential for conflicts of interest with our company.  

 

 

 

- 61 -

 

 

*Dean Swanberg – Director*

Mr. Dean Swanberg was appointed as a new board director on January 16, 2007.  Dean Swanberg is President of Swanberg Bros. Trucking LP, an Alberta based drilling rig transportation company which is part of the Mullen Group Income Fund, a large Canadian service company focused on the oil and gas industry and distribution of freight.  Mr. Swanberg is also a director of Horizon North Logistics Inc., an oil field services company which is listed on the Toronto Stock Exchange.

*Family Relationships*

There are no family relationships among our directors or officers.

*Board and Committee Meetings*

The Board of Directors of our company held no formal meetings during the year ended December 31, 2006.  All proceedings of the Board of Directors were conducted by resolutions consented to in writing by all the directors and filed with the minutes of the proceedings of the directors.  Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the Nevada General Corporate Law and the By-laws of our company, as valid and effective as if they had been passed at a meeting of the directors duly called and held.

For the year ended December 31, 2006 our only standing committee of the Board of Directors was our audit committee.

*Audit Committee*

Currently our audit committee consists of our entire Board of Directors.  We currently do not have nominating, compensation committees or committees performing similar functions.  There has not been any defined policy or procedure requirements for shareholders to submit recommendations or nomination for directors.

During fiscal 2006, there were no meetings held by this Committee.  The business of the Audit Committee was conducted by resolutions consented to in writing by all the members and filed with the minutes of the proceedings of the Audit Committee.

*Audit Committee Financial Expert*

Our board of directors has determined that it does not have a member of its audit committee that qualifies as an "audit committee financial expert" as defined in Item 401(e) of Regulation S-B, and is "independent" as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.

We believe that the members of our Board of Directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting.  In addition, we believe that retaining an independent director who would qualify as an "audit committee financial expert" would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated any material revenues to date.

*Involvement in Certain Legal Proceedings*

Our directors, executive officers and control persons have not been involved in any of the following events during the past five years:

1.

any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

 

 

 

- 62 -

 

 

2.

any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

3.

being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

4.

being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

*Section 16(a) Beneficial Ownership Compliance*

Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings.  Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended December 31, 2006, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with, with the exception of the following:

**Name**

**Number of Late Reports**

**Number of Transactions Not****Reported on a Timely Basis**

**Failure to File****Requested Forms**

Ted Kozub

2(2)

3(2)

Nil

Georgina Martin

1(2)

1(2)

Nil

Ian McKinnon

1(1)

0

Nil

Isaac Moss

1(1)

0

1(1)

Dean Swanberg

1(1)

0

1(1)
 
(1)

The named officer, director or greater than 10% stockholder, as applicable, filed a late Form 3 – Initial Statement of Beneficial Ownership of Securities
  
(2)

The named officer, director or greater than 10% stockholder, as applicable, filed a late Form 4 - Statement of Changes in Beneficial Ownership of Securities.
 
*Code of Ethics*

Effective April 6, 2005, our company's Board of Directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, our company's President, Chief Executive Officer and Chief Financial Officer (being our principal executive officer, principal financial officer and principal accounting officer) and Secretary, as well as persons performing similar functions.  As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:

1.

honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

2.

full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us;

3.

compliance with applicable governmental laws, rules and regulations;

4.

the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and

 

 

 

- 63 -

 

 

5.

accountability for adherence to the Code of Business Conduct and Ethics.

Our Code of Business Conduct and Ethics requires, among other things, that all of our company's senior officers commit to timely, accurate and consistent disclosure of information; that they maintain confidential information; and that they act with honesty and integrity.

In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly senior officers, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal and state securities laws.  Any senior officer, who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to our company.  Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter.  It is against our company policy to retaliate against any individual who reports in good faith the violation or potential violation of our company's Code of Business Conduct and Ethics by another.

Our Code of Business Conduct and Ethics was filed with the Securities and Exchange Commission on April 8, 2005 as Exhibit 14.1 to our annual report.  We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request.  Requests can be sent to:  Cheetah Oil & as Ltd., Second Floor, 400-601 West Broadway, Vancouver, B.C. V5Z 4C2.

**Item 10.**

**Executive Compensation.**

The particulars of compensation paid to the following persons:

**•**

our principal executive officer;

**•**

each of our two most highly compensated executive officers who were serving as executive officers at the end of the year ended December 31, 2006; and

**•**

up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the most recently completed financial year,

who we will collectively refer to as the named executive officers, of our year ended December 31, 2006 are set out in the following summary compensation table: 

 

**SUMMARY COMPENSATION TABLE**

**Name****and Principal Position**

**Year**

**Salary****($)**

**Bonus****($)**

**Stock Awards****($)**

**Option Awards****($)**

**Non-Equity Incentive Plan Compensa-tion****($)**

**Change in Pension****Value and Nonqualified Deferred Compensation Earnings****($)**

**All****Other Compensa-tion****($)**

**Total****($)**

Ian McKinnon(1)Chairman, President, Chief Executive Officer and Director

2006

21,000

N/A

N/A

N/A

N/A

N/A

N/A

21,000

Isaac Moss(2)Senior Vice President, Chief Financial Officer 

2006

21,000

N/A

N/A

N/A

N/A

N/A

N/A

21,000

 

 

 

 

- 64 -

 

 

 

Garth Braun(3)Former President, Chief Executive Officer, Chairman and Director

2006

 

135,000

 

N/A

N/A

500,000

N/A

N/A

N/A

135,000

 

Ted Kozub(4)Former Chief Financial Officer and Director

2006

10,000

N/A

N/A

N/A

N/A

N/A

N/A

10,000

Georgina Martin(5)Secretary and Director

2006

10,500

 

N/A

N/A

N/A

N/A

N/A

N/A

10,500

 
(1)

Mr. McKinnon became our President, Chief Executive Officer, Chairman and a director of our company on October 16, 2006.

 
 
(2)

Mr. Moss became are Senior Vice President, Chief Financial Officer of our company on October 30, 2006.

 
 
(3)

Mr. Braun was the President, Chief Executive Officer, Chairman and a director of our company from July 19, 2004 until October 16, 2006.

 
 
(4)

Mr. Kozub was the Chief Financial Officer and a director of our company from December 15, 2003 until October 4, 2006.

 
 
(5)

Ms. Martin became our Secretary, Treasurer and a director of our company on March 5, 2004.

 
We entered into a management agreement dated May 1, 2005 with Garth Braun, our former President, Chairman, Chief Executive Officer and director.  Under the terms of the agreement, commencing June 1, 2005, Mr. Braun received $15,000 per month for the services he provided to our company.  In addition, Mr. Braun was granted 500,000 stock options at an exercise price of $5.00 per share for a period of five years, of which 250,000 options have vested and 250,000 options will vest in 2007.   ****The options have been granted pursuant to our 2005 Stock Option Plan.  The management agreement expires on April 1, 2008.  During the year ended December 31, 2006, we paid Mr. Braun $135,000 and of that amount $ 126,075 remained unpaid as at December 31, 2006.  The amount is included in the balance of accounts payable and accrued liabilities.  These amounts are non-interestbearing and unsecured.  There are no specific repayment terms but the amounts accrued are payable on demand. The management agreement terminated October 16, 2006, being the date that Mr. Braun resigned as our President, Chief Executive Officer, Chairman and director.  The 250,000 options that have not vested were forfeited due to the resignation of Mr. Braun on October 16, 2006.

The Company agreed to enter into consulting agreements with Mr. McKinnon, Mr. Moss and Georgina Martin respectively, in consideration for which each of McKinnon and Moss are to receive USD$7,000 per month and Martin to receive USD$3,500 per month effective October 1, 2006.

Our company has no plans or arrangements in respect of remuneration received or that may be received by named executive officers of our company in fiscal 2007 to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.

*Outstanding Equity Awards at Fiscal Year-End*

The particulars of unexercised options, stock that has not vested and equity incentive plan awards for our named executive officers are set out in the following table:

 

 

 

- 65 -

 

 

 

**Options Awards**

**Stock Awards**

**Name**

**Number****of****Securities Underlying Unexercised Options****(#)****Exercisable**

**Number****of****Securities Underlying Unexercised Options****(#) Unexercisable**

**Equity Incentive Plan Awards: Number****of****Securities Underlying Unexercised Unearned Options****(#)**

**Option Exercise Price****($)**

**Option Expiration Date**

**Number****of****Shares****or****Units****of****Stock****That****Have****Not Vested (#)**

**Market Value****of****Shares****or****Units****of****Stock That Have Not Vested****($)**

**Equity Incentive Plan****Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested****(#)**

**Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)**

Ian McKinnon(1)Chairman, President, Chief Executive Officer and Director

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Isaac Moss(2)Senior Vice President, Chief Financial Officer and Director

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Garth Braun(3)Former President, Chief Executive Officer, Chairman and Director

250,000

250,000

N/A

$ 5.00

Jan 16, 2007

N/A

N/A

N/A

N/A

Ted Kozub(4)Former Chief Financial Officer and Director

40,000

10,000

N/A

$ 2.50

Jan 4, 2007

N/A

N/A

N/A

N/A

Georgina Martin(5)Secretary and Director

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

 
(1)

Mr. McKinnon became our President, Chief Executive Officer, Chairman and a director of our company on October 16, 2006.

 
 
(2)

Mr. Moss became are Senior Vice President, Chief Financial Officer of our company on October 30, 2006.

 
 

 

 

 

- 66 -

 

 

(3)        Mr. Braun was the President, Chief Executive Officer, Chairman and a director of our company from July 19, 2004 until October 16, 2006.

(4)

Mr. Kozub was the Chief Financial Officer and a director of our company from December 15, 2003 until October 4, 2006.

(5)

Ms. Martin became our Secretary, Treasurer and a director of our company on March 5, 2004.

 
*Director and officer Compensation*

The particulars of compensation paid to our directors for our year ended December 31, 2006 are set out in the summary compensation table above. 

Our Directors and officers do receive consulting fees on a monthly basis for serving as directors,  for attending meetings of the board of directors and for serving on committees of the board of directors.  We did pay director’s fees but no other cash compensation for services rendered as a director in the year ended December 31, 2006.  Directors are entitled to reimbursement of expenses incurred in attending meetings.  In addition, our directors are entitled to participate in our stock option plan.

Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors.  Our board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.  No director received and/or accrued any compensation for their services in committee participation and/or special assignments.

We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.  We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the board of directors or a committee thereof.

**Item 11.**            **Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.**

The following table sets forth, as of March 1, 2007, certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and executive officers.  Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated.  Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.

 

**Name and  Address of Beneficial Owner**

**Amount and Nature of****Beneficial  Ownership**

**Percentage****of Class(1)**

*Ian McKinnon**3183 West 16th Avenue**Vancouver, BC  V6K 3C9***

Nil

0%

*Isaac Moss**1122 West 27th Avenue**Vancouver, BC  V6H 2B8***

Nil

0%

*Georgina Martin**Box 172, Station A**Nanaimo, BC  V9R 5K9***

24,611,885(2)

66.88%

 

 

 

 

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*Dean Swanberg***

Nil

0%

Directors and Executive Officersas a Group

24,611,885

66.88%

 (1)      Based on 36,798,231 shares of common stock issued and outstanding as of March 1, 2007.  Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.  Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. 

(2)       Georgina Martin is the trustee with respect to 24,611,885 shares of our common stock which are subject to a voting trust. As trustee, Georgina Martin has discretion to exercise voting authority with respect to the shares that are subject to the voting trust arrangement.  Georgina Martin is the beneficial owner of 1,312,500 shares of the 24,611,885 shares that are subject to the voting trust arrangement.  There are 33 shareholders who beneficially hold their shares through the voting trust. There are two shareholders in the voting trust who are the beneficial owners of more than 5% of our common stock.  The trust is administered bythree committee members – Georgina Martin, Hari Sharma and Michael Jenks, who collectively exercise control and discretionof the shares held in the trust.  Gerald R. Tuskey, Barrister & Solicitor is the Escrow Holder.  No one committee member shall have control or discretion over any of the shares in the agreement.

*Changes in Control*

We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change in control of our company.

**Item 12.**

**Certain Relationships and Related Transactions.**

Other than as listed below, we have not been a party to any transaction, proposed transaction, or series of transactions in which the amount involved exceeds $60,000, and in which, to our knowledge, any of our directors, officers, five percent beneficial security holder, or any member of the immediate family of the foregoing persons has had or will have a direct or indirect material interest.

During the year ended December 31, 2006, our company paid $10,000 in consulting fees to Ted Kozub, our former Chief Financial Officer and director of our company for consulting services he provided to our company.

We entered into a management agreement dated May 1, 2005 with Garth Braun, our former President, Chairman, Chief Executive Officer and director.  Under the terms of the agreement, commencing June 1, 2005, Mr. Braun received $15,000 per month for the services he provided to our company.  In addition, Mr. Braun was granted 500,000 stock options at an exercise price of $5.00 per share for a period of five years, of which 250,000 options have vested and 250,000 options will vest in 2007.   ****The options have been granted pursuant to our 2005 Stock Option Plan.  The management agreement expires on April 1, 2008.  During the year ended December 31, 2006, we paid Mr. Braun $135,000 and of that amount $ 126,075 remained unpaid as at December 31, 2006.  The amount is included in the balance of  accounts payable and accrued liabilities.  These amounts are non-interestbearing and unsecured.  There are no specific repayment terms but the amounts accrued are payable on demand. The management agreement terminated October 16, 2006, being the date that Mr. Braun resigned as our President, Chief Executive Officer, Chairman and director.  The 250,000 options that have not vested were forfeited due to the resignation of Mr. Braun on October 16, 2006.

 

 

 

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**Item 13.**    **Exhibits.**

***Exhibits required by Item 601 of Regulation S-B***

ExhibitNumber

Description

**(3)**

**(i) Articles of Incorporation; and (ii) Bylaws**

3.1

Articles of Incorporation (incorporated by reference from our Form 10-SB filed on August 2, 1999)

3.2

Certificate of Amendment (incorporated by reference from our Form 10-SB filed on August 2, 1999)

3.3

Certificate of Amendment dated February 19, 2004 (incorporated by reference from our Registration Statement on Form SB-2/A filed on August 15, 2005)

3.4

Certificate of Amendment dated May 25, 2004 (incorporated by reference from our Registration Statement on Form SB-2/A filed on August 15, 2005)

3.5

Bylaws (incorporated by reference from our Form 10-SB filed on August 2, 1999)

**(4)**

**Instruments Defining the Rights of Security Holders**

4.1

2004 Equity Performance Plan  (incorporated by reference from our Registration Statement on Form S-8 filed on February 25, 2004)

4.2

2005 Stock Option Plan (incorporated by reference from our Registration Statement on Form S-8 filed on June 10, 2005)

**(10)**

**Material Contracts**

10.1

Acquisition Agreement with Georgina Martin dated March 5, 2004 (incorporated by reference from our Current Report on Form 8-K filed on March 18, 2004)

10.2

Form of Share Purchase Agreement dated May 13, 2004 (incorporated by reference from our Current Report on Form 8-K filed on July 8, 2004)

10.3

Engagement Letter with CK Cooper & Co. dated February 10, 2005 (incorporated by reference from our Current Report on Form 8-K filed on February 16, 2005)

10.4

Managing Dealer Agreement with CK Cooper & Co. dated March 31, 2005 (incorporated by reference from our Form 10-KSB filed on April 8, 2005)

 

 

 

 

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10.5

Form of Subscription Agreement with the following subscribers, in connection with the private placement on May 26, 2005 (incorporated by reference from our Current Report on Form 8-K filed on June 2, 2005):

Gary Brennglass

B&E Apartments, LP

HEM Properties

Frey Living Trust

EdwardAjootian

Bruce E. O’Brien Living Trust Dated 12/17/91

Kent Seymour & Maskaria Seymour

GSSF Master Fund, LP

Gryphon Master Fund, L.P.

Colonial Fund, LLC

Enable Opportunity Partners L.P.

Enable Growth Partners L.P.

Cranshire Capital, L.P.

Bushido Capital Master Fund, LP

Gamma Opportunity Capital Partners, LP Class C

Gamma Opportunity Capital Partners, LP Class A

Renata Kalweit

10.6

Management Agreement with Garth Braun dated for reference May 1, 2005. (incorporated by reference from our Registration Statement on Form SB-2 filed on June 23, 2005)

10.7

Agreement dated effective July 14, 2005 between Cheetah Oil and Gas (PNG) Limited and Halliburton Overseas Limited. (incorporated by reference from our Current Report on Form 8-K filed on August 12, 2005)

10.8

Securities Purchase Agreement dated March 14, 2006 with Macquarie Holdings (USA) Inc. (incorporated by reference from our Current Report on Form 8-K filed on March 17, 2006)

10.9

Registration Rights Agreement dated March 14, 2006 with Macquarie Holdings (USA) Inc. (incorporated by reference from our Current Report on Form 8-K filed on March 17, 2006)

10.10

Senior Secured Convertible Note dated March 14, 2006 with Macquarie Holdings (USA) Inc. (incorporated by reference from our Current Report on Form 8-K filed on March 17, 2006)

10.11

Pledge and Security Agreement dated March 14, 2006 with Scotia Petroleum Inc. in favour of Macquarie Holdings (USA) Inc. (incorporated by reference from our Current Report on Form 8-K filed on March 17, 2006)

10.12

Guaranty dated March 14, 2006 with Scotia Petroleum Inc. in favour of Macquarie Holdings (USA) Inc. (incorporated by reference from our Current Report on Form 8-K filed on March 17, 2006)

10.13

A-1 Warrant with Macquarie Holdings (USA) Inc. (incorporated by reference from our Current Report on Form 8-K filed on March 17, 2006)

10.14

A-2 Warrant with Macquarie Holdings (USA) Inc. (incorporated by reference from our Current Report on Form 8-K filed on March 17, 2006)

 

 

 

 

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10.15

B-1 Warrant with Macquarie Holdings (USA) Inc. (incorporated by reference from our Current Report on Form 8-K filed on March 17, 2006)

10.16

B-2 Warrant with Macquarie Holdings (USA) Inc. (incorporated by reference from our Current Report on Form 8-K filed on March 17, 2006)

**(14)**

**Code of Ethics**

14.1

Code of Business Conduct and Ethics (incorporated by reference from our Form 10-KSB filed on April 8, 2005)

**(21)**

**Subsidiaries of the Registrant**

21.1

Cheetah Oil and Gas Ltd., a company incorporated pursuant to the laws of British Columbia

Scotia Petroleum Inc., a company incorporated pursuant to the laws of British Columbia

**(23)**

**Consents**

23.1*

Consent of Ernst & Young LLP

23.2*

Consent of Moore Stephens Ellis Foster Ltd.

**(31)**

**Rule 13a-14(a)/15d-14(a) Certifications**

31.1*

Section 302 Certification under Sarbanes-Oxley Act of 2002 of Ian McKinnon

31.2*

Section 302 Certification under Sarbanes-Oxley Act of 2002 of Isaac Moss

**(32)**

**Section 1350 Certifications**

32.1*

Section 906 Certification under Sarbanes-Oxley Act of 2002

**(99)**

**Additional Exhibits**

99.1

Petroleum Prospecting Licence #245 (incorporated by reference from our Registration Statement on Form SB-2/A filed on December 1, 2005)

99.2

Petroleum Prospecting Licence #246 (incorporated by reference from our Registration Statement on Form SB-2/A filed on December 1, 2005)

99.3

Petroleum Prospecting Licence #249 (incorporated by reference from our Registration Statement on Form SB-2/A filed on December 1, 2005)

99.4

Petroleum Prospecting Licence #250 (incorporated by reference from our Registration Statement on Form SB-2/A filed on December 1, 2005)

99.5

Petroleum Prospecting Licence #252 (incorporated by reference from our Registration Statement on Form SB-2/A filed on December 1, 2005)

99.6

Petroleum Retention Licence #13 (incorporated by reference from our Registration Statement on Form SB-2/A filed on December 1, 2005)

* Filed herewith.

 

 

 

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**Item 14.**

**Principal Accountants Fees and Services**

*Audit Fees*

For the period ended December 31, 2006 and 2005, the aggregate fees billed by Ernst & Young LLP for professional services rendered for the audit of our annual consolidated financial statements included in our annual report on Form 10-KSB were $225,000 and $92,590 respectively. 

*Audit Related Fees*

For the period ended December 31, 2006 and December 31, 2005, the aggregate fees billed for assurance and related services by Ernst & Young LLP relating to the performance of the audit of our financial statements which are not reported under the caption "Audit Fees" above, was $Nil and $16,371, respectively.  

*Tax Fees*

For the period ended December 31, 2006 and December 31, 2005, the aggregate fees billed by Ernst & Young LLP for other non-audit professional services, other than those services listed above, totalled $nil and $nil, respectively. 

We do not use Ernst & Young LLP for financial information system design and implementation.  These services, which include designing or implementing a system that aggregates source data underlying the financial statements or generates information that is significant to our financial statements, are provided internally or by other service providers.  We do not engage Ernst & Young LLP to provide compliance outsourcing services.

Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before Ernst & Young LLP is engaged by us to render any auditing or permitted non-audit related service, the engagement be:

 

**•**

approved by our audit committee (which consists of our entire board of directors); or

 

**•**

entered into pursuant to pre-approval policies and procedures established by the board of directors, provided the policies and procedures are detailed as to the particular service, the board of directors is informed of each service, and such policies and procedures do not include delegation of the board of directors' responsibilities to management.

The board of directors pre-approves all services provided by our independent auditors.  All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.

The board of directors has considered the nature and amount of fees billed by Ernst & Young LLP and believes that the provision of services for activities unrelated to the audit is compatible with maintaining Ernst & Young LLP’s independence.

 

 

 

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**SIGNATURES**

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

**CHEETAH OIL & GAS LTD.**

By: /s/ Ian McKinnon

Ian McKinnnon

President, Chief Executive Officer, Chairman and Director (Principal Executive Officer)

Date: April 16, 2007

By:  /s/ Isaac Moss

Isaac Moss

Senior Vice President, Chief Financial Officer and Director (Principal Financial Officer

and Principal Accounting Officer)

Date: April 16, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 

By:  

/s/ Ian McKinnon

Ian McKinnnon

President, Chief Executive Officer, Chairman and Director (Principal Executive Officer)

Date: April 16, 2007

By:  /s/ Isaac Moss

Isaac Moss

Senior Vice President, Chief Financial Officer and Director (Principal Financial Officer

and Principal Accounting Officer)

Date: April 16, 2007

By:  

/s/ Georgina Martin

Georgina Martin, Secretary, Treasurer and Director

Date: April 16, 2007

By:  

/s/ Dean Swanberg

Dean Swanberg, Director

Date: April 16, 2007

 

 

CW1091898.1

 

 

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