----

----

**UNITED        STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**Washington,        D.C. 20549**

**FORM          10-KSB/A**

**AMENDMENT        NO. 1**

**0-28627**

**Patch        International Inc.**

| **Nevada**                                                                      | **87-0393257**                                        |
|---------------------------------------------------------------------------------|-------------------------------------------------------|
| (State                  or other jurisdiction of incorporation or organization) | (I.R.S.                  Employer Identification No.) |

| **Suite                  300, 441 – 5th                  Avenue,                  Calgary, Alberta, Canada** | **T2P                  2V1** |
|--------------------------------------------------------------------------------------------------------------------|------------------------------|
| (Address                  of principal executive offices)                                                          | (Zip                  Code)  |

| Issuer’s                  telephone number: | **(403)                  441-4390** |
|---------------------------------------------------|-------------------------------------|

| Securities                  registered under Section 12(b) of the Exchange Act: | **None**                                           |
|---------------------------------------------------------------------------------|----------------------------------------------------|
| Securities                  registered under Section 12(g) of the Exchange Act: | **Common                  Stock, $.001 par value** |
|                                                                            | (Title                  of class)                  |

**$15,581        (excludes revenue of $99,722 from discontinued operations)**

**$27,504,902 as of        August 17, 2007**

**20,239,774 shares of        common stock as of August 17, 2007**

----

**PATCH        INTERNATIONAL INC.**

**FORM        10-KSB/A**

**FOR        THE FISCAL YEAR ENDED**

**MAY        31, 2007**

**INDEX**

|                          |                                                                                                                                                                    | **Page** |
|-------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| **PART                  I**   |
| Item                  1.      | Description                  of Business                                                                                                                                | 2        |
| Item                  2.      | Description                  of Property                                                                                                                                | 2        |
| Item                  3.      | Legal                  Proceedings                                                                                                                                      | 2        |
| Item                  4.      | Submission                  of Matters to a Vote of Security Holders                                                                                                    | 2        |
|                          |                                                                                                                                                                    |     |
| **PART                  II**  |
| Item                  5.      | Market                  for Common Equity and Related Stockholder Matters and Small Business                  Issuer Purchases of Equity Securities                     | 2        |
| Item                  6.      | Management’s                  Discussion and Analysis or Plan of Operation                                                                                        | 2        |
| Item                  7.      | Financial                  Statements                                                                                                                                   | 2        |
| Item                  8.      | Changes                  In and Disagreements With Accountants on Accounting and Financial                  Disclosure                                                  | 2        |
| Item                  8A.     | Controls                  and Procedures                                                                                                                                | 2        |
| Item                  8B.     | Other                  Information                                                                                                                                      | 3        |
|                          |                                                                                                                                                                    |     |
| **PART                  III** |
| Item                  9.      | Directors,                  Executive Officers, Promoters, Control Persons and Corporate Governance;                  Compliance with Section 16(a) of the Exchange Act | 3        |
| Item                  10.     | Executive                  Compensation                                                                                                                                 | 3        |
| Item                  11.     | Security                  Ownership of Certain Beneficial Owners and Management and Related                  Stockholder Matters                                        | 3        |
| Item                  12.     | Certain                  Relationships and Related Transactions, and Director                  Independence                                                             | 3        |
| Item                  13.     | Exhibits                                                                                                                                                                | 3        |
| Item                  14.     | Principal                  Accountant Fees and Services                                                                                                                 | 5        |

----

**Explanatory          Note**

**PART        I.**

**ITEM        1.        DESCRIPTION OF        BUSINESS.**

**ITEM        2.        DESCRIPTION OF        PROPERTY.**

**ITEM        3.        LEGAL        PROCEEDINGS.**

**ITEM        4.        SUBMISSION OF MATTERS TO A VOTE OF        SECURITY HOLDERS.**

**PART        II**

| **ITEM 5.** | **MARKET                  FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS                  ISSUER PURCHASES OF EQUITY                  SECURITIES.** |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM        6.        MANAGEMENT’S DISCUSSION AND        ANALYSIS OR PLAN OF OPERATION.**

**ITEM        7.        FINANCIAL        STATEMENTS.**

| **ITEM 8.** | **CHANGES                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL                  DISCLOSURE.** |
|-------------|-----------------------------------------------------------------------------------------------------------------------------|

**ITEM        8A.     CONTROLS AND PROCEDURES.**

----

**ITEM        8B.     OTHER INFORMATION.**

**PART        III**

| **ITEM                  9.** | **DIRECTORS,                  EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;                  COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE                  ACT.** |
|------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM        10.      EXECUTIVE        COMPENSATION.**

| **ITEM 11.** | **SECURITY                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED                  STOCKHOLDER MATTERS.** |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------|

| **ITEM 12.** | **CERTAIN                  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR                  INDEPENDENCE.** |
|--------------|------------------------------------------------------------------------------------------------------------------|

**ITEM        13.      EXHIBITS.**

| **Regulation****S-B                  Number** | **Exhibit**                                                                                                                                                                                                                                                     |
|-----------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                          |                                                                                                                                                                                                                                                            |
| 2.1                                           | Arrangement                  Agreement made among Praxis Pharmaceuticals Inc. and Patch Energy                  Inc.                  dated as of October 20, 2003 (1)                                                                                          |
|                                          |                                                                                                                                                                                                                                                            |
| 2.2                                           | Articles                  of Merger Merging Praxis Pharmaceuticals Inc., a Utah Corporation,                  into                  Patch International Inc., a Nevada Corporation (2)                                                                          |
|                                          |                                                                                                                                                                                                                                                            |
| 2.3                                           | Share                  Exchange Agreement among the shareholders of Damascus Energy Inc.,                  Patch                  Energy Inc., Patch International Inc., and Damascus Energy Inc.                  dated                  December 15, 2006 (3) |
|                                          |                                                                                                                                                                                                                                                            |
| 2.4                                           | Share                  Exchange Agreement among the shareholders of 1289307 Alberta Ltd.,                  Patch                  Energy Inc., Patch International Inc., and 1289307 Alberta Ltd.                  dated                  January 16, 2007 (4)  |
|                                          |                                                                                                                                                                                                                                                            |
| 3.1                                           | Articles                  of Incorporation, as amended (5)                                                                                                                                                                                                      |
|                                          |                                                                                                                                                                                                                                                            |
| 3.2                                           | Bylaws                  (5)                                                                                                                                                                                                                                     |
|                                          |                                                                                                                                                                                                                                                            |
| 3.3                                           | Certificate                  of Change Pursuant to NRS 78.209 (6)                                                                                                                                                                                               |
|                                          |                                                                                                                                                                                                                                                            |
| 3.4                                           | Certificate                  of Change Pursuant to NRS 78.209 (7)                                                                                                                                                                                               |
|                                          |                                                                                                                                                                                                                                                            |
| 3.5                                           | Certificate                  of Amendment to Articles of Incorporation (8)                                                                                                                                                                                      |
|                                          |                                                                                                                                                                                                                                                            |
| 4.1                                           | Certificate                  of Designation of Class A Preferred Voting Stock                  (3)                                                                                                                                                              |

----

| **Regulation****S-B                  Number** | **Exhibit**                                                                                                                                                                                                                                                                |
|-----------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                          |                                                                                                                                                                                                                                                                       |
| 4.2                                           | Certificate                  of Designation of Class B Preferred Voting Stock (4)                                                                                                                                                                                          |
|                                          |                                                                                                                                                                                                                                                                       |
| 4.3                                           | Form                  of Non-Flow-Through Special Warrant Certificate (9)                                                                                                                                                                                                  |
|                                          |                                                                                                                                                                                                                                                                       |
| 4.4                                           | Form                  of Flow-Through Special Warrant Certificate (9)                                                                                                                                                                                                      |
|                                          |                                                                                                                                                                                                                                                                       |
| 4.5                                           | Form                  of Bonus Warrant Certificate (9)                                                                                                                                                                                                                     |
|                                          |                                                                                                                                                                                                                                                                       |
| 4.6                                           | Form                  of Agent Warrant Certificate (9)                                                                                                                                                                                                                     |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.1                                          | Management                  services agreement with David Stadnyk dated May 1, 2005                  (5)                                                                                                                                                                   |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.2                                          | Change                  of Control Agreement with David Stadnyk dated May 1, 2005                  (5)                                                                                                                                                                     |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.3                                          | 2006                  Stock Option Plan (10)                                                                                                                                                                                                                               |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.4                                          | Exchange                  and Voting Trust Agreement among Patch International Inc., Patch                  Energy                  Inc., 1286664 Alberta Ltd., and the shareholders of Damascus Energy                  Inc.                  dated December 15, 2006 (3) |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.5                                          | Support                  Agreement among Patch International Inc., Patch Energy Inc., and                  1286664                  Alberta Ltd. dated December 15, 2006 (3)                                                                                               |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.6                                          | Farmout                  Agreement Between Damascus Energy Inc. and Bounty Developments                  Ltd. dated                  November 30, 2006 (11)                                                                                                                |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.7                                          | Exchange                  and Voting Trust Agreement among Patch International Inc., Patch                  Energy                  Inc., 1286664 Alberta Ltd., and the shareholders of 1289307 Alberta                  Ltd.                  dated January 16, 2007 (4)  |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.8                                          | Support                  Agreement among Patch International Inc., Patch Energy Inc., and                  1286664                  Alberta Ltd. dated January 16, 2007 (4)                                                                                                |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.9                                          | Farmout                  Agreement dated December 12, 2006 (4)                                                                                                                                                                                                             |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.10                                         | Conveyance                  Agreement among 1289307 Alberta Ltd and 1286664 Alberta Ltd. dated                  December 21, 2006 (4)                                                                                                                                      |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.11                                         | Demand                  Promissory Note issued by 1289307 Alberta Ltd to 1286664 Alberta                  Ltd.                  dated December 21, 2006 (4)                                                                                                                |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.12                                         | Amending                  Agreement between Bounty Developments Ltd., 1286664 Alberta Ltd.,                  and                  Damascus Energy Inc. dated January 22, 2007 (4)                                                                                          |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.13                                         | Agency                  Agreement among Patch International Inc., Canaccord Capital Corporation                  and Wellington West Capital Markets Inc. dated February 27, 2007                  (9)                                                                     |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.14                                         | Amending                  Agreement between Bounty Developments Ltd., 1286664 Alberta Ltd.,                  and                  Damascus Energy Inc. dated February 20, 2007 (11)                                                                                        |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.15                                         | Amending                  Agreement between Bounty Developments Ltd. and 1286664 Alberta                  Ltd., dated                  April 16, 2007 (11)                                                                                                                 |
|                                          |                                                                                                                                                                                                                                                                       |
| 10.16                                         | Confirmation                  of Earning between Damascus Energy Inc. and Bounty Developments                  Ltd. dated                  April 16, 2007 (11)                                                                                                             |

----

| **Regulation****S-B                  Number** | **Exhibit**                                                                                                                                                                                               |
|-----------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                          |                                                                                                                                                                                                      |
| 16                                            | Letter                  from Morgan & Company dated March 8, 2007 (12)                                                                                                                                |
|                                          |                                                                                                                                                                                                      |
| 21                                            | Subsidiaries                  of the registrant (13)                                                                                                                                                      |
|                                          |                                                                                                                                                                                                      |
| 31.1                                          | Certification                  of Principal Executive Officer pursuant to Section 302 of Sarbanes-Oxley                  Act of 2002 (“Sarbanes-Oxley”).                                      |
|                                          |                                                                                                                                                                                                      |
| 31.2                                          | Certification                  of Principal Financial Officer pursuant to Section 302 of                  Sarbanes-Oxley                                                                                  |
|                                          |                                                                                                                                                                                                      |
| 32.1                                          | Certification                  of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,                  as                  adopted pursuant to Section 906 of Sarbanes-Oxley.                 |
|                                          |                                                                                                                                                                                                      |
| 32.2                                          | Certification                  of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,                  as                  adopted pursuant to Section 906 of                  Sarbanes-Oxley |

| (1)          | Incorporated                  by reference to the exhibits filed with the registrant’s current report on                  Form 8-K dated March 15, 2004, filed March 19,                  2004. |
|-----------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)                           | Incorporated                  by reference to the exhibit filed with the registrant’s current report on                  Form 8-K dated June 15, 2004, filed June 15,                  2004. |
|-----------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)                           | Incorporated                  by reference to the exhibits filed with the registrant’s current report on                  Form 8-K dated December 15, 2006, filed December 26,                  2006. |
|-----------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)                           | Incorporated                  by reference to the exhibits filed with the registrant’s current report on                  Form 8-K dated January 16, 2007, filed February 6,                  2007. |
|-----------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5)                           | Incorporated                  by reference to the exhibits filed with the registrant’s annual report on                  Form 10-KSB for the fiscal year ended May 31, 2005, filed September                  14,                  2005. |
|-----------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6)                           | Incorporated                  by reference to the exhibits filed with the registrant’s current report on                  Form 8-K dated July 8, 2005, filed July 19,                  2005. |
|-----------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7)                           | Incorporated                  by reference to the exhibits filed with the registrant’s current report on                  Form 8-K dated March 14, 2006, filed March 14,                  2006. |
|-----------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8)                           | Incorporated                  by reference to the exhibit filed with the registrant’s current report on                  Form 8-K dated September 14, 2007, filed September 17,                  2007. |
|-----------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9)                           | Incorporated                  by reference to the exhibits filed with the registrant’s current report on                  Form 8-K dated February 27, 2007, filed March 1,                  2007. |
|-----------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (10)                         | Incorporated                  by reference to the exhibits filed with the registrant’s annual report on                  Form 10-KSB for the fiscal year ended May 31, 2006, filed August                  24,                  2006. |
|------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (11)                         | Incorporated                  by reference to the exhibits filed with the registrant’s quarterly report                  on Form 10-QSB for the quarter ended February 28, 2007, filed April                  30,                  2007. |
|------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (12)                         | Incorporated                  by reference to the exhibits filed with the registrant’s current report on                  Form 8-K dated March 3, 2007, filed March 9,                  2007. |
|------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (13)                         | Incorporated                  by reference to the exhibits filed with the registrant’s registration                  statement on Form SB-2 filed May 9,                  2007. |
|------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM        14.      PRINCIPAL ACCOUNTANT FEES AND        SERVICES.**

----

**SIGNATURES**

|                                               | **PATCH                  INTERNATIONAL INC.**                                |
|----------------------------------------------------|------------------------------------------------------------------------------|
|                                               |                                                                         |
| Date:  October                  11, 2007 | /s/                  Jason G. Dagenais                                       |
|                                               | Jason                  G. Dagenais, Chief Operating                  Officer |

| **Signature**                            | **Title**                                             | **Date**                          |
|------------------------------------------|-------------------------------------------------------|-----------------------------------|
| /s/                  Jason G. Dagenais   |                    Chief Operating Officer       | October                  11, 2007 |
| Jason                  G. Dagenais       |                    (Principal Executive Officer) |                              |
|                                     |                                                  |                              |
| /s/                  Thomas K. Rouse     |                    Chief Financial Officer       | October                  11, 2007 |
| Thomas                  K. Rouse         |                    (Principal Financial Officer) |                              |
|                                     |                                                  |                              |
| /s/                  Michael S. Vandale  |                    Director                      | October                  11, 2007 |
| Michael                  S. Vandale      |                                                  |                              |
|                                     |                                                  |                              |
| /s/                  Mark L. Bentsen     |                    Director                      | October                  11, 2007 |
| Mark                  L. Bentsen         |                                                  |                              |
|                                     |                                                  |                              |
| /s/                  Roderick D. Maxwell |                    Director                      | October                  11, 2007 |
| Roderick                  D. Maxwell     |                                                  |                              |
|                                     |                                                  |                              |
| /s/                  Greg L. Belzberg    |                    Director                      | October                  16, 2007 |
| Greg                  L. Belzberg        |                                                  |                              |

----

**PATCH      INTERNATIONAL INC.**

**CONSOLIDATED      FINANCIAL STATEMENTS**

----

| **Patch                International Inc.**                                    |   |
|--------------------------------------------------------------------------------|--------|
| May                31, 2007                                                    |   |
|                                                                           |   |
|                                                                           | Index  |
|                                                                           |   |
| Reports                of Independent Registered Public Accounting Firms       | F-1    |
|                                                                           |   |
| Consolidated                Balance Sheets                                     | F-3    |
|                                                                           |   |
| Consolidated                Statements of Operations                           | F-4    |
|                                                                           |   |
| Consolidated                Statements of Cash Flows                           | F-5    |
|                                                                           |   |
| Consolidated                Statements of Stockholders’ Equity (Deficit) | F-6    |
|                                                                           |   |
| Notes                to the Consolidated Financial Statements                  | F-7    |
|                                                                           |   |

----

*Share-Based Payment*

----

**[LETTERHEAD OF MORGAN & COMPANY]**

----

**PATCH        INTERNATIONAL INC.**

**CONSOLIDATED        BALANCE SHEETS**

|                                                                                                                                                                                                                                                                                                                   |   | **May                  31,****2007** |        |   |   |   |   | **May                  31,****2006** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-------------|--------|--------|--------|--------|--------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                   |   |  $                              |        |   |   |   |   |                                 |   | $ |   |
| **ASSETS**                                                                                                                                                                                                                                                                                                             |   |                                 |        |   |   |   |   |                                 |   |   |   |
| Current                  Assets                                                                                                                                                                                                                                                                                        |   |                                 |        |   |   |   |   |                                 |   |   |   |
| Cash                  and cash equivalents                                                                                                                                                                                                                                                                             |   |                                 | 6,590,466   |   |   |   |   |                                 |   |   | 4,473,444 |   |
| Accounts                  receivable                                                                                                                                                                                                                                                                                   |   |                                 | 18,966      |   |   |   |   |                                 |   |   | 29,260 |   |
| Due                  from related parties (Note                  5)                                                                                                                                                                                                                                                    |   |                                 | 1,009,697   |   |   |   |   |                                 |   |   | - |   |
| Prepaid                  expenses and                  other                                                                                                                                                                                                                                                           |   |                                 | 71,480      |   |   |   |   |                                 |   |   | 70,603 |   |
|                                                                                                                                                                                                                                                                                                                   |   |                                 |        |   |   |   |   |                                 |   |   |   |   |
| Total                  Current Assets                                                                                                                                                                                                                                                                                  |   |                                 | 7,690,609   |   |   |   |   |                                 |   |   | 4,573,307 |   |
| Marketable                  securities (Note 6)                                                                                                                                                                                                                                                                        |   |                                 | 850,000     |   |   |   |   |                                 |   |   | 7,241,000 |   |
| Joint                  venture receivable (Note 7)                                                                                                                                                                                                                                                                     |   |                                 | 323,394     |   |   |   |   |                                 |   |   | - |   |
| Property                  and equipment                                                                                                                                                                                                                                                                                |   |                                 | 98,916      |   |   |   |   |                                 |   |   | 1,452 |   |
| Oil                  and gas interests (successful efforts method) (Note 8)                                                                                                                                                                                                                                            |   |                                 | 37,658,925  |   |   |   |   |                                 |   |   | 2,964,017 |   |
|                                                                                                                                                                                                                                                                                                                   |   |                                 |        |   |   |   |   |                                 |   |   |   |   |
| Total                  Assets                                                                                                                                                                                                                                                                                          |   |                                 | 46,621,844  |   |   |   |   |                                 |   |   | 14,779,776 |   |
|                                                                                                                                                                                                                                                                                                                   |   |                                 |        |   |   |   |   |                                 |   |   |   |   |
| **LIABILITIES                  & STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                                      |   |                                 |        |   |   |   |   |                                 |   |   |   |   |
| Current                  Liabilities                                                                                                                                                                                                                                                                                   |   |                                 |        |   |   |   |   |                                 |   |   |   |   |
| Accounts                  payable and accrued liabilities                                                                                                                                                                                                                                                              |   |                                 | 2,756,345   |   |   |   |   |                                 |   |   | 215,694 |   |
| Income                  taxes payable (Note 15)                                                                                                                                                                                                                                                                        |   |                                 | 2,785,763   |   |   |   |   |                                 |   |   | 2,181,000 |   |
| Due                  to related parties (Note 5)                                                                                                                                                                                                                                                                       |   |                                 | 1,000,000   |   |   |   |   |                                 |   |   | 86,878 |   |
|                                                                                                                                                                                                                                                                                                                   |   |                                 |        |   |   |   |   |                                 |   |   |   |   |
| Total                  Current Liabilities                                                                                                                                                                                                                                                                             |   |                                 | 6,542,108   |   |   |   |   |                                 |   |   | 2,483,572 |   |
| Exchangeable                  shares (Note 9)                                                                                                                                                                                                                                                                          |   |                                 | 20,150,772  |   |   |   |   |                                 |   |   | - |   |
| Special                  warrants (Note 10)                                                                                                                                                                                                                                                                            |   |                                 | 26,505,862  |   |   |   |   |                                 |   |   | - |   |
| Asset                  retirement obligations (Note 11)                                                                                                                                                                                                                                                                |   |                                 | 129,959     |   |   |   |   |                                 |   |   | 34,379 |   |
|                                                                                                                                                                                                                                                                                                                   |   |                                 |        |   |   |   |   |                                 |   |   |   |   |
| Total                  Liabilities                                                                                                                                                                                                                                                                                     |   |                                 | 53,328,701  |   |   |   |   |                                 |   |   | 2,517,951 |   |
|                                                                                                                                                                                                                                                                                                                   |   |                                 |        |   |   |   |   |                                 |   |   |   |   |
| Non-controlling                  Interest                                                                                                                                                                                                                                                                              |   |                                 | -           |   |   |   |   |                                 |   |   | 570,862 |   |
|                                                                                                                                                                                                                                                                                                                   |   |                                 |        |   |   |   |   |                                 |   |   |   |   |
| STOCKHOLDERS’                  EQUITY                                                                                                                                                                                                                                                                            |   |                                 |        |   |   |   |   |                                 |   |   |   |   |
| Class                  A Preferred Voting Stock (Note 12):1                  share authorized with par value of $0.01 per share;1                  share issued and outstanding                                                                                                                                        |   |                                 | -           |   |   |   |   |                                 |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                   |   |                                 |        |   |   |   |   |                                 |   |   |   |   |
| Class                  B Preferred Voting Stock (Note 12):10,000                  shares authorized with par value of $0.01 per share;1                  share issued and outstanding                                                                                                                                  |   |                                 | -           |   |   |   |   |                                 |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                   |   |                                 |        |   |   |   |   |                                 |   |   |   |   |
| Common                  Stock:25,000,000                  common shares authorized with par value of $0.001 per share (Note                  20)20,239,774                  shares issued and outstanding (May 31, 2006 – 15,163,112 shares) (excludes                  2,000 shares held in treasury (Note 13)) |   |                                 | 20,240      |   |   |   |   |                                 |   |   | 15,163 |   |
| Additional                  paid-in capital                                                                                                                                                                                                                                                                            |   |                                 | 10,111,507  |   |   |   |   |                                 |   |   | 3,335,380 |   |
| Stock                  subscriptions receivable                                                                                                                                                                                                                                                                        |   |                                 | (38,500     | )      |   |   |   |                                 |   |   | - |   |
| Accumulated                  other comprehensive (loss) income                                                                                                                                                                                                                                                         |   |                                 | 837,870     |   |   |   |   |                                 |   |   | 7,352,558 |   |
| Retained                  earnings (deficit)                                                                                                                                                                                                                                                                           |   |                                 | (17,637,974 | )      |   |   |   |                                 |   |   | 987,862 |   |
|                                                                                                                                                                                                                                                                                                                   |   |                                 |        |   |   |   |   |                                 |   |   |   |   |
| Total                  Stockholders’ Equity                                                                                                                                                                                                                                                                      |   |                                 | (6,706,857  | )      |   |   |   |                                 |   |   | 11,690,963 |   |
|                                                                                                                                                                                                                                                                                                                   |   |                                 |        |   |   |   |   |                                 |   |   |   |   |
| Total                  Liabilities and Stockholders’ Equity                                                                                                                                                                                                                                                      |   |                                 | 46,621,844  |   |   |   |   |                                 |   |   | 14,779,776 |   |

----

**PATCH      INTERNATIONAL INC.**

**CONSOLIDATED      STATEMENTS OF OPERATIONS**

|                                                                                                      |   | **For                the Year Ended May 31** |
|-----------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|
|                                                                                                      |   |                                         | **2007** | **2006** |
|                                                                                                      |   |                                         | $ | $ |
| Revenue                                                                                                   |   |                                         |   |   |
| Oil                and gas                                                                                |   |                                         | 15,581 | 43,668  |
|                                                                                                      |   |                                         |   |   |
| Expenses                                                                                                  |   |                                         |   |   |
| Oil                and gas production and royalties                                                       |   |                                         | 30,179 | 19,476  |
| General                and administrative                                                                 |   |                                         | 6,621,338 | 1,967,210  |
| Interest                                                                                                  |   |                                         | 53,038 | -  |
| Depletion,                depreciation, accretion and impairment of oil and gas                property   |   |                                         | 5,087,858 | 196,646  |
| Dry                hole costs                                                                             |   |                                         | 5,664,773 | -  |
| Geological                and geophysical costs                                                           |   |                                         | 2,468,056 | -  |
|                                                                                                      |   |                                         |   |   |
| Total                operating expenses                                                                   |   |                                         | 19,925,242 | 2,183,332  |
|                                                                                                      |   |                                         |   |   |
| Other                income (expenses)                                                                    |   |                                         |   |   |
|                                                                                                      |   |                                         |   |   |
| Interest                and other                                                                         |   |                                         | 206,749 | 83,557  |
| Gain                on dilution                                                                           |   |                                         | - | 101,664  |
| Financing                costs (Note 10)                                                                  |   |                                         | (633,263) | -  |
| Holding                loss on exchangeable shares and special warrants (Notes 9 &                10) |   |                                         | (14,161,373) | -  |
| Holding                loss on marketable securities (Note 6)                                             |   |                                         | (1,045,921) | -  |
| Gain                on foreign exchange                                                                   |   |                                         | 2,620,571 | 42,820  |
| Gain                on sale of marketable securities                                                      |   |                                         | 13,684,318 | 6,962,937  |
|                                                                                                      |   |                                         |   |   |
| Total                other income (loss)                                                                  |   |                                         | 671,081 | 7,190,978  |
|                                                                                                      |   |                                         |   |   |
| Net                income (loss) before discontinued operations                                           |   |                                         | (19,238,580) | 5,051,314  |
|                                                                                                      |   |                                         |   |   |
| Discontinued                operations (Note 14)                                                          |   |                                         | (424,379) | 42,041  |
| Gain                on sale of investment and oil and gas assets (Note 14)                                |   |                                         | 612,937 | -  |
|                                                                                                      |   |                                         |   |   |
| Income                (loss) before income taxes                                                          |   |                                         | (19,050,022) | 5,093,355  |
|                                                                                                      |   |                                         |   |   |
| Provision                for income taxes (Note 15)                                                       |   |                                         |   |   |
| Current                                                                                                   |   |                                         | 2,785,763 | 2,406,243  |
| Deferred                (reduction)                                                                       |   |                                         | (3,213,573) | -  |
|                                                                                                      |   |                                         | (427,810) | 2,406,243  |
| Net                income (loss)                                                                          |   |                                         | (18,622,212) | 2,687,112  |
|                                                                                                      |   |                                         |   |   |
| Other                comprehensive income (loss) (Note 16)                                                |   |                                         |   |   |
|                                                                                                      |   |                                         |   |   |
| Marketable                securities:                                                                     |   |                                         |   |   |
| Reclassification                to realized gain                                                          |   |                                         | (7,240,999) | (2,364,217) |
| Holding                gain (loss)                                                                        |   |                                         | - | 3,598,217  |
| Increase                (decrease) in unrealized gain on marketable securities                            |   |                                         | (7,240,999) | 1,234,000  |
|                                                                                                      |   |                                         |   |   |
| Foreign                currency translation adjustment                                                    |   |                                         | 726,311 | 111,560  |
|                                                                                                      |   |                                         |   |   |
| Other                comprehensive income (loss)                                                          |   |                                         | (6,514,688) | 1,345,560  |
|                                                                                                      |   |                                         |   |   |
| Comprehensive                income (loss)                                                                |   |                                         | (25,136,900) | 4,032,672  |
|                                                                                                      |   |                                         |   |   |
|                                                                                                      |   |                                         |   |   |
| Net                income (loss) per share                                                                |   |                                         |   |   |
| Basic                                                                                                     |   |                                         | $(1.05) | $0.19 |
| Diluted                                                                                                   |   |                                         | $(1.05) | $0.19 |
| Weighted                average number of common shares outstanding                                       |   |                                         |   |   |
| Basic                                                                                                     |   |                                         | 17,698,000 | 13,854,000  |
| Diluted                                                                                                   |   |                                         | 17,698,000 | 14,508,000  |

----

**PATCH      INTERNATIONAL INC.**

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

|                                                                                                      |   | **For                the Year Ended May 31** |        |
|-----------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|-------------|
|                                                                                                      |   |  **2007**                               |        |   |   |   |   |   |   | **2006**  |   |
|                                                                                                      |   | $                                       |        |   |   |   |   |   |   | $ |   |
| Operating                Activities                                                                       |   |                                         |        |   |   |   |   |   |   |   |   |
| Net                income (loss)                                                                          |   |                                         | (18,622,212 | ) |   |   |   |   |   |   | 2,687,112 |   |
| Adjustments                for items not involving cash:                                                  |   |                                         |        |   |   |   |   |   |   |   |   |   |
| Depletion,                depreciation, accretion and impairment of oil and gas                property   |   |                                         | 5,087,858   |   |   |   |   |   |   |   | 265,756 |   |
| General                and administrative                                                                 |   |                                         | 660,000     |   |   |   |   |   |   |   |   |   |
| Stock-based                compensation                                                                   |   |                                         | 3,136,343   |   |   |   |   |   |   |   | 787,310 |   |
| Financing                costs                                                                            |   |                                         | 633,263     |   |   |   |   |   |   |   | - |   |
| Holding                loss on exchangeable shares and special warrants                                   |   |                                         | 14,161,373  |   |   |   |   |   |   |   | - |   |
| Gain                on sale of marketable securities                                                      |   |                                         | (13,684,318 | ) |   |   |   |   |   |   | (6,962,937 | ) |
| Holding                loss on marketable securities                                                      |   |                                         | 1,045,921   |   |   |   |   |   |   |   |   |   |
| Gain                on sale of investment in  oil and gas assets                                |   |                                         | (612,937    | ) |   |   |   |   |   |   | - |   |
| Gain                on foreign exchange                                                                   |   |                                         | (2,620,571  | ) |   |   |   |   |   |   | - |   |
| Deferred                taxes                                                                             |   |                                         | (3,213,573  | ) |   |   |   |   |   |   | - |   |
| Gain                on dilution                                                                           |   |                                         | -           |   |   |   |   |   |   |   | (101,664 | ) |
| Non-controlling                interest in net loss                                                       |   |                                         | -           |   |   |   |   |   |   |   | (13,600 | ) |
| Increase                in accounts receivable                                                            |   |                                         | (5,087      | ) |   |   |   |   |   |   | (7,506 | ) |
| (Increase)                decrease in prepaid expenses and other                                          |   |                                         | 2,671       |   |   |   |   |   |   |   | (69,373 | ) |
| Increase                in due to related parties                                                         |   |                                         | (95,379     | ) |   |   |   |   |   |   | (255,935 | ) |
| Increase                in accounts payable and accrued liabilities                                       |   |                                         | (10,762,151 | ) |   |   |   |   |   |   | (82,313 | ) |
| Increase                in income taxes payable                                                           |   |                                         | 604,763     |   |   |   |   |   |   |   | 2,181,000 |   |
| Net                cash used in continuing operations                                                     |   |                                         | (24,284,036 | ) |   |   |   |   |   |   | (1,572,149 | ) |
| Discontinued                operations                                                                    |   |                                         | (6,888      | ) |   |   |   |   |   |   | 45,953 |   |
| Net                cash used in operating activities                                                      |   |                                         | (24,290,924 | ) |   |   |   |   |   |   | (1,526,196 | ) |
| Investing                Activities                                                                       |   |                                         |        |   |   |   |   |   |   |   |   |   |
| Capital                contribution to limited                partnership                                 |   |                                         | (306,901    | ) |   |   |   |   |   |   | - |   |
| Purchase                of                equipment                                                       |   |                                         | (88,619     | ) |   |   |   |   |   |   | - |   |
| Net                proceeds on sale of                subsidiary and limited partnership                  |   |                                         | 771,742     |   |   |   |   |   |   |   | - |   |
| Oil                and gas interests, net of                dispositions                                  |   |                                         | (10,123,071 | ) |   |   |   |   |   |   | (2,436,705 | ) |
| Proceeds                on sale of marketable                securities                                   |   |                                         | 13,684,319  |   |   |   |   |   |   |   | 6,962,937 |   |
| Net                cash provided by investing activities                                                  |   |                                         | 3,937,470   |   |   |   |   |   |   |   | 4,526,232 |   |
| Financing                Activities                                                                       |   |                                         |        |   |   |   |   |   |   |   |   |   |
| Third                party contribution to limited partnership                                            |   |                                         | -           |   |   |   |   |   |   |   | 666,996 |   |
| Proceeds                from special warrants                                                             |   |                                         | 18,759,033  |   |   |   |   |   |   |   | - |   |
| Proceeds                from common stock                                                                 |   |                                         | 3,609,047   |   |   |   |   |   |   |   | 743,750 |   |
| Acquisition                of treasury stock                                                              |   |                                         | (6,309      | ) |   |   |   |   |   |   | (111,077 | ) |
| Net                cash provided by financing activities                                                  |   |                                         | 22,361,771  |   |   |   |   |   |   |   | 1,299,669 |   |
| Effect                of exchange rate changes on cash                                                    |   |                                         | 108,705     |   |   |   |   |   |   |   | 44,867 |   |
| Change                in cash and cash equivalents for the period                                         |   |                                         | 2,117,022   |   |   |   |   |   |   |   | 4,344,572 |   |
| Cash                and cash equivalents, beginning of period                                             |   |                                         | 4,473,444   |   |   |   |   |   |   |   | 128,872 |   |
|                                                                                                      |   |                                         |        |   |   |   |   |   |   |   |   |   |
| Cash                and cash equivalents, end of period                                                   |   |                                         | 6,590,466   |   |   |   |   |   |   |   | 4,473,444 |   |
|                                                                                                      |   |                                         |        |   |   |   |   |   |   |   |   |   |
| **CASH                AND CASH EQUIVALENTS CONSIST OF:**                                                  |   |                                         |        |   |   |   |   |   |   |   |   |   |
| Cash                in bank                                                                               |   |                                         | 304,821     |   |   |   |   |   |   |   | 1,183,931 |   |
| Term                deposits                                                                              |   |                                         | 6,285,645   |   |   |   |   |   |   |   | 3,289,513 |   |
|                                                                                                      |   |                                         | 6,590,466   |   |   |   |   |   |   |   | 4,473,444 |   |
| **NON-CASH                ITEMS**                                                                         |   |                                         |        |   |   |   |   |   |   |   |   |   |
| Shares                received for sale of assets                                                         |   |                                         | 1,956,990   |   |   |   |   |   |   |   | - |   |
| Common                stock issued for working interest in oil sands property                             |   |                                         | -           |   |   |   |   |   |   |   | 472,500 |   |
| Common                shares issued on the acquisition of Damascus Energy Inc. (Note                9(a)) |   |                                         | 12,442,965  |   |   |   |   |   |   |   | - |   |
|                                                                                                      |   |                                         |        |   |   |   |   |   |   |   |   |   |
| **SUPPLEMENTAL                CASH FLOW INFORMATION**                                                     |   |                                         |        |   |   |   |   |   |   |   |   |   |
| Taxes                paid                                                                                 |   |                                         | 2,256,649   |   |   |   |   |   |   |   | 225,243 |   |
| Interest                paid                                                                              |   |                                         | 49,525      |   |   |   |   |   |   |   | 36,560 |   |

----

**PATCH      INTERNATIONAL INC.**

**CONSOLIDATED      STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)**

|                                                                                             |   |                               |   |   |                            |   |   |        |   |   |              |   |   |              |   |   |           |   |       | **Accumulated**                  |   |   |          |   |   |       |       |
|--------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|--------|---------------------------------|--------|--------|-------------|--------|--------|-------------------|--------|--------|-------------------|--------|--------|----------------|--------|------------|----------------------------------|--------|--------|---------------|--------|--------|------------|------------|
|                                                                                             |   |                               |   |   |                            |   |   |        |   |   |              |   |   | **Additional**    |   |   | **Stock**      |   |       | **Other**                        |   |   | **Retained**  |   |   | **Total**  |       |
|                                                                                             |   | **Preferred                Stock** |   |   | **Common                Stock** |   |   | **Paid-in** |   |   | **Subscriptions** |   |   | **Comprehensive** |   |   | **Earnings**   |   |       | **Stockholders’**          |   |
|                                                                                             |   | **Shares**                         |   |   | **Amount**                      |   |   | **Shares**  |   |   | **Amount**        |   |   | **Capital**       |   |   | **Receivable** |   |       | **Income                (Loss)** |   |   | **(Deficit)** |   |   | **Equity** |       |
|                                                                                             |   |                               |   |   |                            |   |   |        |   |   |              |   |   |              |   |   |           |   |       |                             |   |   |          |   |   |       |       |
| Balance,                May 31, 2005                                                             |   |                               | -      |   |                            | $      | -      |        |   |   | 12,753,410        |   |   | $                 | 12,753 |   |           | $      | 1,410,837  |                             |   | $      | (4,000        | )      |   | $          | 6,006,999  |   |   | $ | (1,660,780 | ) |   | $ | 5,765,809 |   |
| Stock                adjustments due to reverse and forward stock splits                         |   |                               | -      |   |                            |   | -      |        |   |   | 653               |   |   |              | -      |   |           |   | -          |                             |   |   | -             |   |   |       | -          |   |   |   | - |   |   |   | - |   |
| Stock                options exercised for cash                                                  |   |                               | -      |   |                            |   | -      |        |   |   | 1,832,500         |   |   |              | 1,833  |   |           |   | 737,917    |                             |   |   | -             |   |   |       | -          |   |   |   | - |   |   |   | 739,750 |   |
| Common                stock issued for working interest in oil sands property                    |   |                               | -      |   |                            |   | -      |        |   |   | 437,500           |   |   |              | 438    |   |           |   | 472,062    |                             |   |   | -             |   |   |       | -          |   |   |   | - |   |   |   | 472,500 |   |
| Common                stock issued for consulting and investor relations                services |   |                               | -      |   |                            |   | -      |        |   |   | 337,799           |   |   |              | 338    |   |           |   | 266,162    |                             |   |   | -             |   |   |       | -          |   |   |   | - |   |   |   | 266,500 |   |
| Stock                options issued for consulting services                                      |   |                               | -      |   |                            |   | -      |        |   |   | -                 |   |   |              | -      |   |           |   | 520,810    |                             |   |   | -             |   |   |       | -          |   |   |   | - |   |   |   | 520,810 |   |
| Stock                subscriptions received                                                      |   |                               | -      |   |                            |   | -      |        |   |   | -                 |   |   |              | -      |   |           |   | -          |                             |   |   | 4,000         |   |   |       | -          |   |   |   | - |   |   |   | 4,000 |   |
| Acquisition                of treasury stock                                                     |   |                               | -      |   |                            |   | -      |        |   |   | (198,750          | )      |   |              | (199   | )      |           |   | (72,408    | )                                |   |   | -             |   |   |       | -          |   |   |   | (38,470 | ) |   |   | (111,077 | ) |
| Accumulated                other comprehensive income                                            |   |                               | -      |   |                            |   | -      |        |   |   | -                 |   |   |              | -      |   |           |   | -          |                             |   |   | -             |   |   |       | 1,345,559  |   |   |   | - |   |   |   | 1,345,559 |   |
| Net                income for the year                                                           |   |                               | -      |   |                            |   | -      |        |   |   | -                 |   |   |              | -      |   |           |   | -          |                             |   |   | -             |   |   |       | -          |   |   |   | 2,687,112 |   |   |   | 2,687,112 |   |
| Balance,                May 31, 2006                                                             |   |                               | -      |   |                            | $      | -      |        |   |   | 15,163,112        |   |   | $                 | 15,163 |   |           | $      | 3,335,380  |                             |   | $      | -             |   |   | $          | 7,352,558  |   |   | $ | 987,862 |   |   | $ | 11,690,963 |   |
| Stock                options exercised for cash                                                  |   |                               | -      |   |                            |   | -      |        |   |   | 1,590,000         |   |   |              | 1,590  |   |           |   | 1,144,410  |                             |   |   | (38,500       | )      |   |       | -          |   |   |   | - |   |   |   | 1,107,500 |   |
| Common                stock issued by private placement                                          |   |                               | -      |   |                            |   | -      |        |   |   | 3,240,000         |   |   |              | 3,240  |   |           |   | 2,601,229  |                             |   |   | -             |   |   |       | -          |   |   |   | - |   |   |   | 2,604,469 |   |
| Acquisition                of treasury stock and cancelled                                       |   |                               | -      |   |                            |   | -      |        |   |   | (3,588            | )      |   |              | (3     | )      |           |   | (1,127     | )                                |   |   | -             |   |   |       | -          |   |   |   | (3,624 | ) |   |   | (4,754 | ) |
| Acquisition                of treasury stock                                                     |   |                               |   |   |                            |   |   |        |   |   | (2,000            | )      |   |              | (2     | )      |           |   | (1,553     | )                                |   |   | -             |   |   |       | -          |   |   |   | - |   |   |   | (1,555 | ) |
| Acquisition                of Damascus Energy Inc.                                               |   |                               | 1      |   |                            |   | -      |        |   |   | -                 |   |   |              | -      |   |           |   | -          |                             |   |   | -             |   |   |       | -          |   |   |   | - |   |   |   | - |   |
| Acquisition                of 1289307 Alberta Ltd.                                               |   |                               | 1      |   |                            |   | -      |        |   |   | -                 |   |   |              | -      |   |           |   | -          |                             |   |   | -             |   |   |       | -          |   |   |   | - |   |   |   | - |   |
| Share                issuance costs                                                              |   |                               |   |   |                            |   |   |        |   |   |              |   |   |              |   |   |           |   | (102,922   | )                                |   |   |          |   |   |       |       |   |   |   |   |   |   |   | (102,922 | ) |
| Stock-based                compensation                                                          |   |                               | -      |   |                            |   | -      |        |   |   | 252,250           |   |   |              | 252    |   |           |   | 3,136,090  |                             |   |   | -             |   |   |       | -          |   |   |   | - |   |   |   | 3,136,342 |   |
| Accumulated                other comprehensive income                                            |   |                               | -      |   |                            |   | -      |        |   |   | -                 |   |   |              | -      |   |           |   | -          |                             |   |   | -             |   |   |       | (6,514,688 | ) |   |   | - |   |   |   | (6,514,688 | ) |
| Net                loss for the year                                                             |   |                               | -      |   |                            |   | -      |        |   |   | -                 |   |   |              | -      |   |           |   | -          |                             |   |   | -             |   |   |       | -          |   |   |   | (18,622,212 | ) |   |   | (18,622,212 | ) |
| Balance,                May 31, 2007                                                             |   |                               | 2      |   |                            | $      | -      |        |   |   | 20,239,774        |   |   | $                 | 20,240 |   |           | $      | 10,111,507 |                             |   | $      | (38,500       | )      |   | $          | 837,870    |   |   | $ | (17,637,974 | ) |   | $ | (6,706,857 | ) |

----

| **1.** | **ORGANIZATION                AND NATURE OF OPERATIONS** |
|--------|----------------------------------------------------------|

**2.       FUTURE      OPERATIONS**

**3.         SIGNIFICANT      ACCOUNTING POLICIES**

| a)         | Basis                of Presentation |
|----------------------------------------------------|--------------------------------------|

----

| **3.** |   | **SIGNIFICANT                ACCOUNTING POLICIES                (Continued)** |
|--------|--------|-------------------------------------------------------------------------------|

|   | b) | Use                of Estimates |
|--------|----|---------------------------------|

|   | c) | Financial                Instruments |
|--------|----|--------------------------------------|

|   | d) | Marketable                Securities |
|--------|----|--------------------------------------|

| e)                            | Property                and Equipment |
|--------------------------------------------------------------------------------------|---------------------------------------|

| f)                            | Oil                and Gas Interests |
|--------------------------------------------------------------------------------------|--------------------------------------|

----

| **3.                   ** | **SIGNIFICANT                ACCOUNTING POLICIES                (Continued)** |
|------------------------------------------|-------------------------------------------------------------------------------|

|                           g) | Flow-through                Shares |
|--------------------------------------------------------------------------------|------------------------------------|

| A                portion of the Company’s exploration activities have been financed through                the issue of flow-through common shares and flow-through Special                Warrants.  Under the terms of these issuances, the related                resource expenditure deductions are renounced to the shareholder                in                accordance with income tax legislation in Canada.  Upon issue of                the flow-through shares/warrants, the proceeds are allocated between                the                offering of shares and the sale of tax benefits to                investors.  The allocation is made based on the difference                between the quoted price of the Company’s shares and the amount received                for the flow-through shares, with a liability being recognized for                the                difference.  The liability is reversed when tax benefits are                renounced and a deferred tax liability is recognized at that                time.  Income tax expense is recognized for the difference                between the amount of the deferred tax liability recognized on                issuance. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Accounting for Asset Retirement Obligations*

*Accounting for the Impairment or Disposal of      Long-Lived Assets*

|                             j) | Foreign                Currency Translation |
|--------------------------------------------------------------------------------------------|---------------------------------------------|

*Foreign Currency Translation*
*.*

|                            k) | Comprehensive                Income |
|--------------------------------------------------------------------------------------|-------------------------------------|

*Reporting Comprehensive Income*

|   | l) | Minority                Interest |
|--------|----|----------------------------------|

|   | m) | Revenue                Recognition |
|--------|----|------------------------------------|

----

| **3.** |   | **SIGNIFICANT                ACCOUNTING POLICIES                (Continued)** |
|--------|--------|-------------------------------------------------------------------------------|

|   | n) | Income                Taxes |
|--------|----|-----------------------------|

|   | o) | Stock-Based                Compensation |
|--------|----|-----------------------------------------|

*“Accounting for Stock Issued to Employees”*
*“Share Based Payments”*

|   | p) | Basic                and Diluted Income (Loss) Per Share |
|--------|----|----------------------------------------------------------|

*Earnings Per Share*

| **4.** | **RECENT                PRONOUNCEMENTS** |
|--------|------------------------------------------|

*“The Fair Value Option for Financial Assets and Financial      Liabilities—Including an Amendment of FASB Statement No. 115.”*

*“Employers’ Accounting for      Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB      Statements No. 87, 88, 106, and 132(R)”*

----

| **4.                      ** | **RECENT                PRONOUNCEMENTS (Continued)** |
|------------------------------------------------------------|------------------------------------------------------|

*Fair Value      Measurements*

*“Accounting for      Uncertainty in Income Taxes, an interpretation of FASB Statements No.      109.”*

*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*

*Accounting for Certain Hybrid      Financial Instruments-an amendment of FASB Statements No. 133 and 140,”*
*Accounting for      Derivative Instruments and Hedging Activities*
*Accounting for the Impairment or Disposal of Long-Lived Assets*

**5.         DUE      TO/FROM RELATED PARTIES**

|                            a) | Related                parties include former and current directors and officers and companies                with common management and directorships.  Related party                accounts are unsecured with no fixed terms of interest or                repayment.  At May 31, 2007, $1,009,697 (May 31, 2006 - $86,878                owing to related parties) was due from related parties, of which                $1,005,729 is due from a current director of the                Company. |
|--------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                            b) | At                the time of acquisition of Damascus Energy Inc. the president of                Damascus                was also a director of Patch Energy Inc.  In conjunction with                this acquisition (as disclosed in Note 9(a)) a director of the Company                received $244,840 (CAD$283,019). |
|--------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                           c) | An                officer and the then sole director of the Company earned a fee of                $1,000,000 for the facilitation of the acquisition of the Firebag                Oil                Sands Project contained in 1289307 Alberta Ltd. (as disclosed in                Note                9(b)) by the Company.  These properties were previously owned by                a company controlled by this officer who was at the time the sole                director                of the Company.  The timing of this  payment is                subject to certain conditions as set out in an agreement between                the                parties. |
|--------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                           d) | During                the year ended May 31, 2007, the Company paid $525,298 (2006 - $198,677)                in management fees to former directors and officers of the Company,                of                which $415,000 related to severance pay to former directors and                officers. |
|--------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                           e) | A                finders’ fee of $114,428 (CAD$132,300) was paid to an officer and the then                sole director of the Company in connection with the flow-through                private                placement as described in Note 13. The above transactions have been                measured                in these financial statements at the exchange amount which is the                amount                of consideration established and agreed to by the related                parties. |
|--------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **6.** | **MARKETABLE                SECURITIES** |
|--------|------------------------------------------|

|                                                                           |   |  Market                Value      |
|--------------------------------------------------------------------------------|--------|----------------------------------------|
|                                                                           |   | May                31, 2007            |
|                                                                           |   |                                   |
| 50,000,000                ordinary shares – Great Northern Oilsands Inc. |   |  $    850,000 |

|                                                            |   | Market                Value  |
|-----------------------------------------------------------------|--------|------------------------------|
|                                                            |   | May                31, 2006  |
|                                                            |   |                         |
| 6,791,937                ordinary shares – Pharmaxis Ltd. |   | $   7,241,000 |
|                                                            |   |                         |

| **7.** | **JOINT                VENTURE RECEIVABLE** |
|--------|---------------------------------------------|

| **8.** | **OIL                AND GAS INTERESTS** |
|--------|------------------------------------------|

|                                                                          |   | May                31,2007 |       |   | May                31,2006 |   |
|-------------------------------------------------------------------------------|--------|----------------------------|------------|--------|----------------------------|--------|
|                                                                          |   |                       |       |   |                       |   |
| OIL                AND GAS INTERESTS – SUCCESSFUL EFFORTS METHOD        |   |                       |       |   |                       |   |
|                                                                          |   |                       |       |   |                       |   |
| Balance                beginning of the year                                  |   | $                          | 2,964,017  |   |                       | $      | 198,284 |   |
| Expenditures                and acquisitions                                  |   |                       | 50,566,872 |   |                       |   | 3,029,321 |   |
| Dispositions                                                                  |   |                       | (2,651,277 | )      |                       |   | - |   |
| Depletion,                depreciation and impairment of oil and gas property |   |                       | (5,087,858 | )      |                       |   | (193,888 | ) |
| Dry                well and abandoned interests                               |   |                       | (5,664,773 | )      |                       |   | (69,700 | ) |
| Geological                and geophysical costs                               |   |                       | (2,468,056 | )      |                       |   | - |   |
|                                                                          |   |                       |       |   |                       |   |   |   |
| Balance                end of the year                                        |   | $                          | 37,658,925 |   |                       | $      | 2,964,017 |   |

| Effective                December 15, 2006 the Company acquired Damascus Energy Inc. (Note                9(a))                for total share consideration of $12,442,965.  The Oil and Gas                Interests acquired in this transaction were valued at $23,475,628                with the                majority of this value attributable to the Dover Oil Sands                Project.  Additional drilling and seismic activity, which earned                the Company an 80% working interest on the Dover lands during the                period                from December 15, 2006 to May 31, 2007 totalled approximately $11.8                million.  Effective January 16, 2007 the Company acquired                1289307 Alberta Ltd. (Note 9(b)).  The Oil and Gas Interests                acquired in this transaction were valued at $5,417,197, all attributable                to the Firebag Oil Sands Project. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **8.** | **OIL                AND GAS INTERESTS                (Continued)** |
|--------|---------------------------------------------------------------------|

|   | Additional                drilling and seismic activity, which earned the Company a 75% working                interest, on the Firebag lands during the period from January 16,                2007 to                May 31, 2007 totalled approximately $5.5 million. The remainder of                the                expenditures and acquisitions during the year relate primarily to                drilling                activity on the Company’s non-core conventional asset base, of which the                majority was disposed of in the transaction with Great Northern Oilsands                Inc. (Note 14).  All properties are classified as unproved                properties as no proven reserves exist.  All activity relating                to Oil and Gas Interests by the Company is located in                Canada. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In                accordance with successful efforts accounting for oil and gas interests                the Company has expensed all geological and geophysical costs                incurred.  The drilling costs associated with the Firebag                properties have been expensed in the year as the drilling results                on the                property did not support recoverability of these costs.  In                addition, the Company has charged to earnings approximately $5.0                million                of the carrying value of its costs in acquiring its interests in                the                Firebag property. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **9.** | **ACQUISITIONS** |
|--------|------------------|

| a)   | The                Company entered into a Share Exchange Agreement dated December 1,                2006                with Damascus Energy Inc. (“Damascus”), whereby the Company would acquire                100% of the issued and outstanding share capital of                Damascus.  The transaction closed on December 15, 2006, and is                accounted for using the purchase method.  By acquiring Damascus                the Company received the right to earn up to an 80% working interest                in                the Dover Oil Sands Project.  The consolidated statements of                operations for the Company includes the operating results of Damascus                from                the date the transaction closed to May 31, 2007.  Under the                terms of the Share Exchange Agreement, because the Company did not                have                enough authorized shares to effect the transaction, Energy acquired                all of                the issued and outstanding common shares of Damascus (18,852,978                common                shares) in consideration for one share of Class A Preferred Voting                Stock                of the Company and 9,426,489 shares of Series A Preferred Stock of                Energy                (the “Exchangeable Shares”) that are exchangeable for 9,426,489 shares of                the Company’s common stock. Refer to Note 12.  The Exchangeable                Shares will be exchanged when the Company has increased its authorized                common stock, however no recourse exists should approval not be received                by the Company allowing for the conversion of the Exchangeable Shares                into                the Company’s common stock.  The shares were valued at $1.32,                based upon the market price of the Company’s common shares at the closing                date of the transaction.  During the next fiscal year                adjustments may be made to finalize the purchase price                equation.  The president of Damascus, who was also a director of                Energy prior to the acquisition, was appointed to serve as a director                of                the Company.  A director of Energy received $244,840                (CAD$283,019) in connection with the                acquisition. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Accounts                receivable                                                                                                                                                                            |   | $      | 279,368    |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|
| Oil                and gas                interests                                                                                                                                                           |   |   | 23,475,628 |   |
| Accounts                payable and accrued                liabilities                                                                                                                                        |   |   | (7,597,054 | )      |
| Other                current                liabilities                                                                                                                                                       |   |   | (427,871   | )      |
| Asset                retirement                obligation                                                                                                                                                     |   |   | (73,534    | )      |
| Deferred                income taxes                                                                                                                                                                          |   |   | (3,213,572 | )      |
|                                                                                                                                                                                                          |   |   |       |   |
| Paid                by issuance of 9,426,489 shares of Series A preferred stock of Patch                Energy Inc., and 1 share of Class A preferred voting stock of Patch                International Inc. |   | $      | 12,442,965 |   |

----

**9.       ACQUISITIONS      (Continued)**

|                                                                           |   | June                1, 2006 to May                31, |        |   | June                1, 2005 to May                31, |   |
|--------------------------------------------------------------------------------|--------|-------------------------------------------------------|-------------|--------|------------------------------------------------------------|--------|
|                                                                           |   | 2007                                                  |        |   | 2006                                                       |   |
|                                                                           |   |                                                  | $           |   |                                                       |   | $ |   |
|                                                                           |   |                                                  |        |   |                                                       |   |   |   |
| Pro                Forma Revenue                                               |   |                                                  | 24,644      |   |                                                       |   | 43,668 |   |
|                                                                           |   |                                                  |        |   |                                                       |   |   |   |
| Pro                Forma Net Income (Loss)                                     |   |                                                  | (19,367,854 | )      |                                                       |   | 2,679,581 |   |
|                                                                           |   |                                                  |        |   |                                                       |   |   |   |
| Pro                Forma Net Income (Loss) Per Share – Basic and Diluted |   |                                                  | (1.09       | )      |                                                       |   | 0.19 |   |
|                                                                           |   |                                                  |        |   |                                                       |   |   |   |

| b)   | The                Company entered into a Share Exchange Agreement dated December 21,                2006                with 1289307 Alberta Ltd. (“1289307”), whereby the Company would acquire                100% of the issued and outstanding share capital of                1289307.  The transaction closed on January 16, 2007, and is                accounted for using the purchase method.  By acquiring 1289307                the Company received the right to earn up to a 75% working interest                in the                Firebag Oil Sands Project.  The consolidated statements of                operations for the Company includes the operating results of 1289307                from                the date the transaction closed to May 31, 2007.  Under the                terms of the Share Exchange Agreement, because the Company did not                have                enough authorized shares to effect the transaction, Energy acquired                all of                the issued and outstanding common shares of 1289307 (500,000 common                shares) in consideration for one share of Class B Preferred Voting                Stock                of the Company and 500,000 shares of Energy that are exchangeable                for                500,000 shares of the Company’s common stock. Refer to Note                12.  The Exchangeable Shares will be exchanged when the Company                has increased its authorized common stock, however no recourse exists                should approval not be received by the Company allowing for the conversion                of the Exchangeable Shares into the Company’s common stock.  The                shares were valued at $1.32, based upon the market price of the Company’s                common shares at the closing date of the transaction.  During                the next fiscal year adjustments may be made to finalize the purchase                price equation.  A private Alberta company controlled by an                officer of the Company was repaid $1,000,000 for a promissory note                in                connection with the acquisition. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Accounts                receivable                                      |   | $      | 1          |   |
|-------------------------------------------------------------------------|--------|--------|------------|--------|
| Oil                and gas                interests                     |   |   | 5,417,197  |   |
| Other                current                liabilities                 |   |   | (4,417,197 | )      |
| Promissory                note payable – Note                4(c) |   |   | (1,000,000 | )      |
|                                                                    |   |   |       |   |
| Purchase                price                                           |   | $      | 1          |   |

| i)   | Under                the terms of the Firebag Oil Sands Project agreement, dated December                21,                2006, 1289307 assumed an obligation of $4,393,140                (CAD$5,100,000).  At February 28, 2007 this cash payment was                recorded by the Company as a capital expenditure subsequent to the                acquisition of 1289307.  However, since 1289307 had an                obligation for this payment prior to its acquisition by the Company                the                costs have been reclassified and included as part of the initial                purchase                price of 1289307. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ii)**  ** | At                February 28, 2007, the 500,000 Exchangeable Shares which were issued                by                the Company in conjunction with the acquisition of 1289307 was included                in                the purchase price.  These Exchangeable Shares, with a value of                $660,000 based upon the market price of the Company’s common stock at the                closing date of the transaction, have now been excluded from the                purchase                price of 1289307.  The $660,000 has been charged to net income                in the current year as a fee paid by the Company to two individuals                who                were the shareholders of 1289307 and subsequently became directors                of the                Company. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**9.             ACQUISITIONS (Continued)**

|                                                                             | Issued    | Issue                Price | $          |
|----------------------------------------------------------------------------------|-----------|----------------------------|------------|
|                                                                             |      |                       |       |
| Exchangeable                Shares:                                              |      |                       |       |
| Issued                on acquisition of Damascus (Note 9(a))                     | 9,426,489 | $1.32                      | 12,442,965 |
| Issued                in conjunction with the acquisition of 1289307 (Note 9(b)) | 500,000   | $1.32                      | 660,000    |
|                                                                             | 9,926,489 |                       | 13,102,965 |
| Fair                value adjustment – Exchangeable Shares                 | -         |                       | 7,047,807  |
|                                                                             | 9,926,489 |                       | 20,150,772 |

| **10.** | **SPECIAL                WARRANTS AND FLOW-THROUGH SPECIAL                WARRANTS** |
|---------|--------------------------------------------------------------------------------------|

| The                Company paid $1,183,646 in cash commissions to the agents and issued                non-transferable agents’ warrants to purchase up to 762,645 shares of the                Company’s common stock at an exercise price of $1.50 per share on the                later of: (i) February 27, 2008; and (ii) six months from the date                the                securities issued under the private placement are free from trading                restrictions in the United States and Canada, but no later than February                27, 2009.  The fair value of the Agents’ warrants of $1,281,244                was estimated using the Black-Scholes option pricing model using                the                following weighted-average assumptions: a dividend yield of 0.0%;                expected                volatility of 138%; risk free interest rate of 4.54%; and expected                life of                2 years.  For the year ended May 31, 2007, $334,391 has been                determined to be the fair value representing the vested portion of                the                Agents’ warrants and has been included in financing                costs. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The                Company has accounted for the net proceeds received from the sale                of the                Special Warrants and the Flow-through Special Warrants and the value                of                the Bonus Warrants as a liability on the face of the balance                sheet.  In accordance with EITF – 00-19, the Company determined                that share settlement of the Special Warrants, Flow-through Special                Warrants and Bonus Warrants is not within the control of the Company,                as                shareholder approval is required, and therefore, the value of these                instruments is classified as a liability and is fair valued at May                31,                2007, using a price of $2.03 per share.  The balance will be                reclassified to stockholder’s equity once the Company has increased it                authorized number of shares (Note                20). |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **10.** | **SPECIAL                WARRANTS AND FLOW-THROUGH SPECIAL WARRANTS                (Continued)** |
|---------|--------------------------------------------------------------------------------------------------|

|                                                              | Issued     | Issue                Price | $                |
|-------------------------------------------------------------------|------------|----------------------------|------------------|
|                                                              |       |                       |             |
| Special                Warrants                                   | 8,302,000  | $1.50                      | 12,453,000  |
| Flow-through                Special Warrants                      | 4,653,750  | $1.65                      | 7,678,687   |
|                                                              |       |                       | 20,131,687  |
| Less:                Commissions and professional fees            |       |                       | (1,372,654)      |
| Net                proceeds                                       |       |                       | 18,759,033  |
| Agent’s                Warrants                             | 762,645    |                       | 334,391     |
| Bonus                warrants                                     | 166,040    |                       | 298,872     |
|                                                              | 13,884,435 |                       | 19,392,296  |
| Fair                value adjustments:                            |       |                       |             |
| Special                Warrants and Flow-through Special Warrants |       |                       | 7,113,196   |
| Agent’s                Warrants                             |       |                       | (37,819)         |
| Bonus                Warrants                                     |       |                       | 38,189      |
|                                                              | 13,884,435 |                       | 26,505,862  |

| **11.** | **ASSET                RETIREMENT OBLIGATIONS** |
|---------|-------------------------------------------------|

|                                                  |   | For                the Year Ended May 31          |
|-------------------------------------------------------|--------|---------------------------------------------------|
|                                                  |   | 2007                                              | 2006 |
|                                                  |   |                                              |   |
| Beginning                asset retirement obligations |   | $       34,379 | $                 - |
| Liabilities                incurred                   |   | -                                                 | 32,834 |
| Liabilities                acquired                   |   | 73,534                                            | - |
| Revisions                                             |   | 20,858                                            | - |
| Accretion                                             |   | 1,188                                             | 1,545 |
|                                                  |   |                                              |   |
| Total                asset retirement obligations     |   | $    129,959                  | $       34,379 |

| **12.** | **PREFERRED                STOCK** |
|---------|------------------------------------|

----

| **12.** | **PREFERRED                STOCK (Continued)** |
|---------|------------------------------------------------|

| **13.** | **COMMON                STOCK** |
|---------|---------------------------------|

|                                                               |   | May                31, 2007 |       |   |          |   |       | May                31, 2006 |   |
|--------------------------------------------------------------------|--------|-----------------------------|------------|--------|---------------|--------|------------|-----------------------------|--------|
|                                                               |   | Number                      |       |   |          |   |       |                        |   |   | Number |   |   |   |   |
|                                                               |   | ofShares                    |       |   | Amount$  |   |       |                        |   |   |   | ofShares |   |   |   | Amount$ |   |
|                                                               |   |                        |       |   |          |   |       |                        |   |   |   |   |   |   |   |   |   |
| Issued                and outstanding common shares:               |   |                        |       |   |          |   |       |                        |   |   |   |   |   |   |   |   |   |
| Balance,                beginning of year                          |   |                        | 15,163,112 |   |          |   | 15,163     |                        |   |   |   |   |   |   | 12,753,410 |   |   |   | 1,423,590 |   |
| Flow-through                shares issued                          |   |                        | 3,240,000  |   |          |   | 2,604,469  |                        |   |   |   |   |   |   | - |   |   |   | - |   |
| Private                placement                                   |   |                        | -          |   |          |   | -          |                        |   |   |   |   |   |   | 437,500 |   |   |   | 472,500 |   |
| Stock                options exercised                             |   |                        | 1,590,000  |   |          |   | 1,184,500  |                        |   |   |   |   |   |   | 1,832,500 |   |   |   | 739,750 |   |
| Shares                issued for services                          |   |                        | 252,250    |   |          |   | 300,913    |                        |   |   |   |   |   |   | 337,799 |   |   |   | 266,500 |   |
| Stock                adjustment due to forward split               |   |                        | -          |   |          |   | -          |                        |   |   |   |   |   |   | 653 |   |   |   | - |   |
| Repurchase                of shares                                |   |                        | (5,588     | )      |          |   | (6,309     | )                           |   |   |   |   |   |   | (198,750 | ) |   |   | (72,607 | ) |
|                                                               |   |                        |       |   |          |   |       |                        |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                               |   |                        | 20,239,774 |   |          |   | 4,098,736  |                        |   |   |   |   |   |   | 15,163,112 |   |   |   | 2,829,733 |   |
| Less:                Stock subscriptions receivable                |   |                        | -          |   |          |   | (38,500    | )                           |   |   |   |   |   |   | - |   |   |   | - |   |
| Less:                Amount included in additional paid-in capital |   |                        | -          |   |          |   | (4,043,620 | )                           |   |   |   |   |   |   | - |   |   |   | (2,814,570 | ) |
| Add:                Amount charged to retained earnings            |   |                        | -          |   |          |   | 3,624      |                        |   |   |   |   |   |   | - |   |   |   | - |   |
| Balance,                end of year                                |   |                        | 20,239,774 |   |          |   | 20,240     |                        |   |   |   |   |   |   | 15,163,112 |   |   |   | 15,163 |   |

----

| **13.** | **COMMON                STOCK (Continued)** |
|---------|---------------------------------------------|

|                                      |   | May                31, 2007 |       |   | May                31, 2006 |   |
|-------------------------------------------|--------|-----------------------------|------------|--------|-----------------------------|--------|
|                                      |   | Number                      |       |   | WeightedAverage             |   |   | Number |   |   | WeightedAverage |   |
|                                      |   | of                          |       |   | Exercise                    |   |   | of |   |   | Exercise |   |
|                                      |   | Options                     |       |   | Price                       |   |   | Options |   |   | Price |   |
|                                      |   |                        |       |   |                        |   |   |   |   |   |   |   |
| Balance,                beginning of year |   |                        | 2,272,500  |   |                        | $      | 0.75 |   |   |   | 1,370,000 |   |   | $ | 0.28 |   |
| Granted                                   |   |                        | 4,265,000  |   |                        |   | 1.33 |   |   |   | 2,735,000 |   |   | $ | 0.75 |   |
| Expired                                   |   |                        | (300,000   | )      |                        |   | 0.39 |   |   |   | - |   |   |   | - |   |
| Forfeited                                 |   |                        | (672,500   | )      |                        |   | 0.60 |   |   |   | - |   |   |   | - |   |
| Cancelled                                 |   |                        | (750,000   | )      |                        |   | 1.20 |   |   |   | - |   |   |   | - |   |
| Exercised                                 |   |                        | (1,590,000 | )      |                        |   | 0.72 |   |   |   | (1,832,500 | ) |   | $ | 0.40 |   |
|                                      |   |                        |       |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                end of year       |   |                        | 3,225,000  |   |                        | $      | 1.40 |   |   |   | 2,272,500 |   |   | $ | 0.75 |   |

|   | As                  at May 31, 2007, the weighted average remaining contractual life                  of the                  outstanding options is 4.7 years, and the aggregate intrinsic value                  of the                  options is $5,438,500. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A                      summary of the status of the Company's nonvested options as                      of May 31,                      2007, and changes during the year ended May 31, 2007, is presented                      below: |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                     |   |                                                              |      |
|------------------------------------------|--------|-------------------------------------------------------------------|-----------|
| Nonvested                options:        |   | Number                of Shares Underlying                Options |      |   | Weighted-AverageGrant-Date Fair                Value |   |
|                                     |   |                                                              |      |   |   |   |
| Nonvested                at June 1, 2006 |   |                                                              | 485,000   |   |   | $ | 0.61 |   |
| Granted                                  |   |                                                              | 4,265,000 |   |   |   | 1.52 |   |
| Cancelled/forfeited                      |   |                                                              | (800,000  | ) |   |   | (1.17 | ) |
| Vested                                   |   |                                                              | (725,000  | ) |   |   | 0.65 |   |
|                                     |   |                                                              |      |   |   |   |   |   |
| Nonvested                at May 31, 2007 |   |                                                              | 3,225,000 |   |   | $ | 1.73 |   |

*“Accounting for Stock Issued to Employees”*
*“Share Based Payments”*

----

**13.      COMMON      STOCK (Continued)**

| Net                income (loss) - as reported                                                            |   | $      | 2,687,112  |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|
| Add:                Stock-based compensation expense included in net income - as                reported  |   |   | 787,310    |   |
| Deduct:                Stock-based compensation expense determined under fair value                method |   |   | (1,063,128 | )      |
|                                                                                                      |   |   |       |   |
| Net                income (loss) – pro forma                                                        |   | $      | 2,411,294  |   |

| Basic                net income per share – as reported   |   | $      | 0.19   |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|
| Basic                net income per share – pro forma     |   | $      | 0.17   |   |
|                                                            |   |   |   |   |
| Diluted                net income per share – as reported |   | $      | 0.19   |   |
| Diluted                net income per share – pro forma   |   | $      | 0.17   |   |

| **14.** | **DISCONTINUED                OPERATIONS** |
|---------|--------------------------------------------|

|                                                                      |   | For                  the Year Ended May 31 |     |
|---------------------------------------------------------------------------|--------|--------------------------------------------|----------|
|                                                                      |   | 2007                                       |     |   | 2006 |   |
|                                                                      |   |                                       | $        |   |   |   | $ |   |
| Revenue:                                                                  |   |                                       |     |   |   |   |   |   |
|    Oil                  and gas                            |   |                                       | 99,722   |   |   |   | 134,926 |   |
|                                                                      |   |                                       |     |   |   |   |   |   |
| Expenses                                                                  |   |                                       | 524,101  |   |   |   | 92,885 |   |
| Net                  operating income (loss) from discontinued operations |   |                                       | (424,379 | ) |   |   | 42,041 |   |
| Gain                  on sale of investment and oil and gas assets        |   |                                       | 612,937  |   |   |   | - |   |

| **15.** | **INCOME                TAX** |
|---------|-------------------------------|

*Accounting for Income Taxes*

----

**15.**
**INCOME      TAX (Continued)**

|                                                  |   | For                  the Year Ended May 31 |       |
|-------------------------------------------------------|--------|--------------------------------------------|------------|
|                                                  |   | 2007                                       |       |   | 2006 |   |
|                                                  |   |                                       | $          |   |   |   | $ |   |
| Current                                               |   |                                       |       |   |   |   |   |   |
|    Foreign                             |   |                                       | 2,785,763  |   |   |   | 2,181,000 |   |
|    United                  States      |   |                                       | -          |   |   |   | 225,243 |   |
|                                                  |   |                                       |       |   |   |   |   |   |
| Deferred:                                             |   |                                       |       |   |   |   |   |   |
|    Foreign                             |   |                                       | (3,213,573 | ) |   |   | - |   |
|    United                  States      |   |                                       | -          |   |   |   | - |   |
| Total                  income tax expense (reduction) |   |                                       | (427,810   | ) |   |   | 2,406,243 |   |

|                                                                         |   | For                  the Year Ended May 31 |       |
|------------------------------------------------------------------------------|--------|--------------------------------------------|------------|
|                                                                         |   | 2007                                       |       |   | 2006 |   |
|                                                                         |   |                                       | $          |   |   |   | $ |   |
| Income                  tax (reduction) expense at statutory rate            |   |                                       | (6,158,038 | ) |   |   | 1,731,740 |   |
| Nonresident                  capital gains tax                               |   |                                       | 2,785,763  |   |   |   | 2,181,000 |   |
| Flow-through                  shares                                         |   |                                       | 1,053,947  |   |   |   | - |   |
| Resource                  allowance and other                                |   |                                       | 30,231     |   |   |   | - |   |
| Unrealized                  loss on exchangeable shares and special warrants |   |                                       | 4,814,867  |   |   |   | - |   |
| Foreign                  tax credits                                         |   |                                       | (3,760,350 | ) |   |   | (1,731,740 | ) |
| Change                  in tax rates                                         |   |                                       | 282,543    |   |   |   | - |   |
| Federal                  tax                                                 |   |                                       | -          |   |   |   | 225,243 |   |
| Total                  income tax expense (reduction)                        |   |                                       | (427,810   | ) |   |   | 2,406,243 |   |
| Effective                  tax rate                                          |   |                                       | 2.2        | % |   |   | 47.2 | % |

|                                                                                            |   | For                  the Year Ended May 31 |     |
|-------------------------------------------------------------------------------------------------|--------|--------------------------------------------|----------|
|                                                                                            |   | 2007                                       |     |   | 2006 |   |
|                                                                                            |   |                                       | $        |   |   |   | $ |   |
| Deferred                  tax assets/(liabilities)                                              |   |                                       |     |   |   |   |   |   |
| -                  Non-capital loss carryforwards                                               |   |                                       | 842,184  |   |   |   | 166,000 |   |
| -                  Excess tax basis over book basis for oil and gas                  properties |   |                                       | (286,704 | ) |   |   | 50,000 |   |
| -                  Writedown of marketable securities                                           |   |                                       | 157,746  |   |   |   | - |   |
| -                  Share issue costs                                                            |   |                                       | 26,000   |   |   |   | - |   |
| -                  Less valuation allowance                                                     |   |                                       | (739,226 | ) |   |   | (216,000 | ) |
| Net                  deferred tax liability                                                     |   |                                       | -        |   |   |   | - |   |

----

| **16.** | **OTHER                COMPREHENSIVE                INCOME/(LOSS)** |
|---------|---------------------------------------------------------------------|

|                                                                |   | For                the Year Ended |        |
|---------------------------------------------------------------------|--------|-----------------------------------|-------------|
|                                                                |   | May                31, 2007       |        |
|                                                                |   | Before-Tax                        |        |   | Tax                (Expense) |   |   | Net-of-Tax |   |
|                                                                |   | Amount                            |        |   | Or                Benefit |   |   | Amount |   |
| Marketable                securities:                               |   |                              |        |   |   |   |   |   |   |
| Decrease                in unrealized gain on marketable securities |   | $                                 | (10,344,284 | ) |   | $ | 3,103,285 |   |   | $ | (7,240,999 | ) |
| Foreign                currency translation adjustment              |   |                              | 726,311     |   |   |   | - |   |   |   | 726,311 |   |
| Other                comprehensive income (loss)                    |   | $                                 | (9,617,973  | ) |   | $ | 3,103,285 |   |   | $ | (6,514,688 | ) |

|                                                                                                     |   | For                the Year Ended |       |
|----------------------------------------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                                                     |   | May                31, 2006       |       |
|                                                                                                     |   | Before-Tax                        |       |   | Tax                (Expense) |   |   | Net-of-Tax |   |
|                                                                                                     |   | Amount                            |       |   | Or                Benefit |   |   | Amount |   |
| Marketable                securities:                                                                    |   |                              |       |   |   |   |   |   |   |
| Reclassification                adjustment - realized gain                                               |   | $                                 | (3,582,147 | ) |   | $ | 1,217,930 |   |   | $ | (2,364,217 | ) |
| Holding                gain                                                                              |   |                              | 5,451,844  |   |   |   | (1,853,627 | ) |   |   | 3,598,217 |   |
| Net                gain on marketable securities recognized in other comprehensive                income |   |                              | 1,869,697  |   |   |   | (635,697 | ) |   |   | 1,234,000 |   |
| Foreign                currency translation adjustment                                                   |   |                              | 111,560    |   |   |   | − |   |   |   | 111,560 |   |
| Other                comprehensive income (loss)                                                         |   | $                                 | 1,981,257  |   |   | $ | (635,697 | ) |   | $ | 1,345,560 |   |

| **17.** | **COMMITMENTS** |
|---------|-----------------|

| **18.** | **GEOGRAPHIC                AND SEGMENTED INFORMATION** |
|---------|---------------------------------------------------------|

**Geographic:**

| Long-lived                assets:                     | May                31,2007 |   | May                31,2006 |   |
|-------------------------------------------------------|----------------------------|--------|----------------------------|--------|
| Canada                                                |                       | $      | 38,607,841                 |   |   | $ | 2,937,326 |   |
| Australia                                             |                       |   | -                          |   |   |   | 7,241,000 |   |
| Total                long-lived assets                |                       | $      | 38,607,841                 |   |   | $ | 10,178,326 |   |
|                                                  |                       |   |
|                                                  |                       |   |                       |   |
| Revenues                from external customers:      | May                31,2007 |   | May                31,2006 |   |
| United                States                          |                       | $      | -                          |   |   | $ | - |   |
| Canada                                                |                       |   | 15,581                     |   |   |   | 43,668 |   |
| Total                revenues from external customers |                       | $      | 15,581                     |   |   | $ | 43,668 |   |

----

| **19.** | **CONTINGENT                LIABILITIES** |
|---------|-------------------------------------------|

| The                8,302,000 Special Warrants (Note 10) that were issued by the Company                in                February 2007 entitled the holder to acquire, for no additional                consideration one Unit of the Company.  Each Unit consists of                one share of the Company’s common stock, subject to the Company increasing                its authorized number of shares of common stock and one common stock                Bonus                Warrant.  Each Bonus Warrant entitles the holder to receive up                to 0.10 (830,200 common shares) of the Company’s common stock, without                additional consideration, should the Company fail to meet a number                of                conditions (as outlined in Note 10) prior to September 25,                2007.  To date the Bonus Warrants can be converted into 166,040                shares of the Company’s common stock, without additional consideration,                with a further conversion of 664,160 Bonus Warrants into shares of                the                Company should the September 25, 2007 deadline not be                met. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**20.      SUBSEQUENT      EVENT**

| **21.** | **SCHEDULE                OF SUPPLEMENTARY INFORMATION ON OIL AND GAS OPERATIONS                (Unaudited)** |
|---------|---------------------------------------------------------------------------------------------------------------|

**RESERVE      QUANTITY INFORMATION**

| **STANDARDIZED                MEASURE OF DISCOUNTED FUTURE****NET                CASH FLOWS RELATING TO PROVED OIL****AND                GAS RESERVES** |   |                                  |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                                                                                                    |   | May                31,2007(Unaudited) |   |   | May                31,2006(Unaudited) |   |
|                                                                                                                                                    |   | Oil(bbls)                             |   |   | Oil(bbls) |   |
| Proved,                developed and undeveloped reserves (Canada)                                                                                      |   |                                  |   |   |   |   |
| Balance                beginning of the year                                                                                                            |   |                                  | 5,000  |   |   |   | 11,000 |   |
| Discoveries                                                                                                                                             |   |                                  | -      |   |   |   | 1,000 |   |
| Revision                to estimates                                                                                                                    |   |                                  | -      |   |   |   | (4,000 | ) |
| Dispositions                                                                                                                                            |   |                                  | (2,725 | ) |   |   | - |   |
| Production                                                                                                                                              |   |                                  | (2,275 | ) |   |   | (3,000 | ) |
| Balance                end of the year                                                                                                                  |   |                                  | -      |   |   |   | 5,000 |   |

----

|    Standardized                Measure of Discounted Future Net Cash Flows (Canada) |   |   |   |   |   |   |     |   |
|----------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|----------|--------|
| Future                cash flows                                                                   |   | $      | -      |   |   | $      | 353,964  |   |
| Future                operating expenses                                                           |   |   | -      |   |   |   | (199,672 | )      |
|                                                                                               |   |   | -      |   |   |   | 154,292  |   |
| 10%                annual discount for estimated timing of cash flows                              |   |   | -      |   |   |   | (19,060  | )      |
| Standardized                measure of discounted future net cash flows                            |   | $      | -      |   |   | $      | 135,232  |   |

| **22.     ** | **QUARTERLY                FINANCIAL DATA (Unaudited)** |
|---------------------------------------|---------------------------------------------------------|

| **a)                   ** | **Acquisition                of 1289307 Alberta Ltd. (Note                9(b))** |
|------------------------------------------|-----------------------------------------------------------------------------------|

| i)                           | Under                the terms of the Firebag Oil Sands Project agreement, dated December                21,                2006, 1289307 assumed an obligation of $4,393,140                (CAD$5,100,000).  At February 28, 2007 this cash payment was                recorded by the Company as a capital expenditure subsequent to the                acquisition of 1289307.  However, since 1289307 had an                obligation for this payment prior to its acquisition by the Company                the                costs have been reclassified and included as part of the initial                purchase                price of 1289307. |
|--------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ii)                          | At                February 28, 2007, the 500,000 Exchangeable Shares which were issued                by                the Company in conjunction with the acquisition of 1289307 was included                in                the purchase price.  These Exchangeable Shares, with a value of                $660,000 based upon the market price of the Company’s common stock at the                closing date of the transaction, have now been excluded from the                purchase                price of 1289307.  The $660,000 has been charged to net income                in the current year as a fee paid by the Company to two individuals                who                were the shareholders of 1289307 and subsequently became directors                of the                Company. |
|---------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                              |   | As                Reported |       |   | Adjustments |   |     | Restated |   |
|-------------------------------------------------------------------------------------------------------------------|--------|----------------------------|------------|--------|-------------|--------|----------|----------|--------|
|                                                                                                              |   |                       |       |   |        |   |     |     |   |
| Consolidated                Balance Sheets as of February 28, 2007:                                               |   |
| Oil                and gas interests                                                                              |   |                       | 42,604,389 |   |        |   | (970,588 | )        |   |   | 41,633,801 |   |
| Deferred                income taxes                                                                              |   |                       | 3,720,926  |   |        |   | (310,588 | )        |   |   | 3,410,338 |   |
| Retained                earnings                                                                                  |   |                       | 6,268,273  |   |        |   | (660,000 | )        |   |   | 5,608,273 |   |
|                                                                                                              |   |                       |       |   |        |   |     |     |   |   |   |   |
|                                                                                                              |   |                       |       |   |        |   |     |     |   |   |   |   |
| Consolidated                Statements of Operations – Three Months Ended February 28,                2007: |   |
| General                and administrative                                                                         |   |                       | 2,761,088  |   |        |   | 660,000  |     |   |   | 3,421,088 |   |
| Net                income (loss)                                                                                  |   |                       | 1,412,929  |   |        |   | (660,000 | )        |   |   | 752,929 |   |
|                                                                                                              |   |                       |       |   |        |   |     |     |   |   |   |   |
|                                                                                                              |   |                       |       |   |        |   |     |     |   |   |   |   |
| Consolidated                Statements of Operations – Nine Months Ended February 28,                2007:  |   |
| General                and administrative                                                                         |   |                       | 4,387,829  |   |        |   | 660,000  |     |   |   | 5,047,829 |   |
| Net                income (loss)                                                                                  |   |                       | 5,284,034  |   |        |   | (660,000 | )        |   |   | 4,624,034 |   |

----

| **b)                    ** | **Discontinued                Operations (Note 14)** |
|------------------------------------------------|------------------------------------------------------|

| On                January 16, 2007, the Company entered into a letter agreement to                dispose                of the properties described above to Great Northern Oilsands                Inc.  The impact on the consolidated financial statements                presented for the nine months ended February 28, 2007 had these properties                been classified as “Assets Held for Sale” and the revenue and expenses                generated by these properties classified as “Discontinued Operations” is                as follows: |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                              |   | As                Reported |       |   | Adjustments |   |       | Restated |   |
|-------------------------------------------------------------------------------------------------------------------|--------|----------------------------|------------|--------|-------------|--------|------------|----------|--------|
|                                                                                                              |   |                       |       |   |        |   |       |     |   |
| Consolidated                Balance Sheets as of February 28, 2007:                                               |   |
| Oil                and gas interests                                                                              |   |                       | 42,604,389 |   |        |   | (2,335,609 | )        |   |   | 40,268,780 |   |
| Assets                held for sale                                                                               |   |                       | -          |   |        |   | 2,335,609  |     |   |   | 2,335,609 |   |
|                                                                                                              |   |                       |       |   |        |   |       |     |   |   |   |   |
| Consolidated                Balance Sheets as of February 28, 2006:                                               |   |
| Oil                and gas interests                                                                              |   |                       | 2,964,017  |   |        |   | (813,655   | )        |   |   | 2,150,362 |   |
| Assets                held for sale                                                                               |   |                       | -          |   |        |   | 813,655    |     |   |   | 813,655 |   |
|                                                                                                              |   |                       |       |   |        |   |       |     |   |   |   |   |
| Consolidated                Statements of Operations – Three Months Ended February 28,                2007: |   |
| Oil                and gas revenue                                                                                |   |                       | 34,710     |   |        |   | (34,147    | )        |   |   | 563 |   |
| Depletion,                depreciation, impairment and accretion                                                  |   |                       | 7,584      |   |        |   | (4,696     | )        |   |   | 2,888 |   |
| Oil                and gas production, royalties and other                                                        |   |                       | 12,628     |   |        |   | (6,090     | )        |   |   | 6,538 |   |
| Net                income (loss) before discontinued operations                                                   |   |                       | 2,002,455  |   |        |   | (23,361    | )        |   |   | 1,979,094 |   |
| Discontinued                operations                                                                            |   |                       | -          |   |        |   | 23,361     |     |   |   | 23,361 |   |
|                                                                                                              |   |
| Consolidated                Statements of Operations – Nine Months Ended February 28,                2007:  |   |
| Oil                and gas revenue                                                                                |   |                       | 100,319    |   |        |   | (91,713    | )        |   |   | 8,606 |   |
| Depletion,                depreciation, impairment and accretion                                                  |   |                       | 48,123     |   |        |   | (19,634    | )        |   |   | 28,489 |   |
| Oil                and gas production, royalties and other                                                        |   |                       | 41,461     |   |        |   | (30,083    | )        |   |   | 11,378 |   |
| Net                income (loss) before discontinued operations                                                   |   |                       | 8,152,061  |   |        |   | (41,996    | )        |   |   | 8,110,065 |   |
| Discontinued                operations                                                                            |   |                       | -          |   |        |   | 41,996     |     |   |   | 41,996 |   |
|                                                                                                              |   |                       |       |   |        |   |       |     |   |   |   |   |
| Consolidated                Statements of Operations – Three Months Ended February 28,                2006: |   |
| Oil                and gas revenue                                                                                |   |                       | 58,345     |   |        |   | (28,746    | )        |   |   | 29,599 |   |
| Depletion,                depreciation, impairment and accretion                                                  |   |                       | 55,640     |   |        |   | (3,972     | )        |   |   | 51,668 |   |
| Oil                and gas production, royalties and other                                                        |   |                       | 118,663    |   |        |   | (4,707     | )        |   |   | 113,956 |   |
| Net                income (loss) before discontinued operations                                                   |   |                       | (432,884   | )      |        |   | (20,067    | )        |   |   | (452,951 | ) |
| Discontinued                operations                                                                            |   |                       | -          |   |        |   | 20,067     |     |   |   | 20,067 |   |
|                                                                                                              |   |                       |       |   |        |   |       |     |   |   |   |   |
| Consolidated                Statements of Operations – Nine Months Ended February 28,                2006:  |   |
| Oil                and gas revenue                                                                                |   |                       | 142,427    |   |        |   | (102,610   | )        |   |   | 39,817 |   |
| Depletion,                depreciation, impairment and accretion                                                  |   |                       | 90,265     |   |        |   | (15,415    | )        |   |   | 74,850 |   |
| Oil                and gas production, royalties and other                                                        |   |                       | 156,081    |   |        |   | (25,519    | )        |   |   | 130,562 |   |
| Net                income (loss) before discontinued operations                                                   |   |                       | 4,747,819  |   |        |   | (61,676    | )        |   |   | 4,686,143 |   |
| Discontinued                operations                                                                            |   |                       | -          |   |        |   | 61,676     |     |   |   | 61,676 |   |

----

----