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

                                    FORM 10-K

(Mark One)
[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934
       For the fiscal year ended November 30, 2004

       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
       For the transition period from _________________ to ________________

                         Commission file number: 0-32237

                            GALAXY ENERGY CORPORATION
                (Name of registrant as specified in its charter)

                 COLORADO                            98-0347827
     (State or other jurisdiction of              (I.R.S. Employer
      incorporation or organization)             Identification No.)

              1331 - 17TH STREET, SUITE 730, DENVER, COLORADO 80202
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (303) 293-2300

        Securities registered pursuant to Section 12(b) of the Act: NONE

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

                         COMMON STOCK, $0.001 PAR VALUE
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. [X] Yes     No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained,  to the best of registrant's knowledge, in definitive proxy or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]

State issuer's revenues for its most recent fiscal year:  $122,455

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). [ ] Yes   [X] No

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average bid and asked price of such common  equity,  as of the
last  business day of the  registrant's  most recently  completed  second fiscal
quarter: $60,520,966 AS OF MAY 28, 2004

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 61,186,374 AS OF MARCH 8, 2005

Documents incorporated by reference:  NONE




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                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

         This report includes "forward-looking statements." All statements other
than statements of historical facts included or incorporated by reference in
this report, including, without limitation, statements regarding our future
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations, are forward-looking statements.
In addition, forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may," "will," "expect," "intend,"
"project," "estimate," "anticipate," "believe," or "continue" or the negative
thereof or variations thereon or similar terminology. Although we believe that
the expectations reflected in such forward-looking statements are reasonable, we
cannot give any assurance that such expectations will prove to have been
correct. Important factors that could cause actual results to differ materially
from our expectations ("Cautionary Statements") include, but are not limited to,
our assumptions about energy markets, production levels, reserve levels,
operating results, competitive conditions, technology, the availability of
capital resources, capital expenditure obligations, the supply and demand for
oil and natural gas, the price of oil and natural gas, currency exchange rates,
the weather, inflation, the availability of goods and services, drilling risks,
future processing volumes and pipeline throughput, general economic conditions
(either internationally or nationally or in the jurisdictions in which we are
doing business), legislative or regulatory changes (including changes in
environmental regulation, environmental risks and liability under federal, state
and foreign environmental laws and regulations), the securities or capital
markets and other factors disclosed under "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operation," "Item 2. Properties"
and elsewhere in this report. All subsequent written and oral forward-looking
statements attributable to us, or persons acting on our behalf, are expressly
qualified in their entirety by the Cautionary Statements. We assume no duty to
update or revise our forward-looking statements based on changes in internal
estimates or expectations or otherwise.


                                    GLOSSARY

         The following is a description of the meanings of some of the natural
gas and oil industry terms used in this report.

         AFE (AUTHORIZATION FOR EXPENDITURE). An estimate of the costs of
drilling and completing a proposed well, which the operator provides to each
working interest owner before the well is commenced.

         CASING. Steel pipe that screws together and is lowered into the hole
after drilling is complete. It is used to seal off fluids and keeps the hole
from caving in.

         COMPLETION. The installation of permanent equipment for the production
of natural gas or oil, or in the case of a dry hole, the reporting of
abandonment to the appropriate agency.

         DEVELOPMENT WELL. A well drilled in to a proved natural gas or oil
reservoir to the depth of a stratigraphic horizon known to be productive.

         DOWNHOLE. Refers to equipment or operations that take place down inside
a borehole.

         DRY HOLE. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production exceed
production expenses and taxes.

         EXPLORATORY WELL. A well drilled to find and produce natural gas or oil
reserves not classified as proved, to find a new reservoir in a field previously
found to be productive of natural gas or oil in another reservoir or to extend a
known reservoir.

         FARM-IN OR FARM-OUT. An agreement under which the owner of a working
interest in a natural gas and oil lease assigns the working interest or a
portion of the working interest to another party who desires to drill on the
leased acreage. Generally, the assignee is required to drill one or more wells
in order to earn its interest in the acreage. The assignor usually retains a
royalty or reversionary interest in the lease. The interest received by an
assignee is a "farm-in" while the interest transferred by the assignor is a
"farm-out."


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<PAGE>

         GROSS ACRES OR GROSS WELLS. The total acres or wells, as the case may
be, in which a working interest is owned.

         MCF. Thousand cubic feet.

         NET ACRES OR NET WELLS. The sum of the fractional working interest
owned in gross acres or wells, as the case may be.

         OPERATOR. The individual or company responsible for the exploration,
development, and production of an oil or gas well or lease.

         OVERRIDING ROYALTY. A revenue interest in oil and gas, created out of a
working interest. Like the lessor's royalty, it entitles the owner to a share of
the proceeds from gross production, free of any operating or production costs.

         PRODUCTIVE WELL. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of the
production exceed production expenses and taxes.

         PROSPECT. A specific geographic area which, based on supporting
geological, geophysical or other data and also preliminary economic analysis
using reasonably anticipated prices and costs, is deemed to have potential for
the discovery of commercial hydrocarbons.

         RESERVOIR. A porous and permeable underground formation containing a
natural accumulation of producible natural gas and/or oil that is confined by
impermeable rock or water barriers and is separate from other reservoirs.

         SURFACE CASING. Pipe that is set with cement through the shallow water
sands to avoid polluting the water and keep the same from caving in while
drilling a well.

         UNDEVELOPED ACREAGE. Lease acreage on which wells have not been drilled
or completed to a point that would permit the production of commercial
quantities of natural gas and oil regardless of whether such acreage contains
proved reserves.

         WORKING INTEREST. The operating interest that gives the owner the right
to drill, produce and conduct operating activities on the property and receive a
share of production and requires the owner to pay a share of the costs of
drilling and production operations. The share of production to which a working
interest owner is entitled will always be smaller than the share of costs that
the working interest owner is required to bear, with the balance of the
production accruing to the owners of royalties.


                                     PART I

ITEM 1.  BUSINESS.

         We are in the business of oil and gas exploration and production and
are currently acquiring and conducting exploration activities on coal bed
methane ("CBM") and other unconventional and conventional natural gas properties
in Wyoming, Colorado, Montana, Texas, and Europe in areas that offer attractive
exploitation opportunities for natural gas. To date, we have focused our
exploration efforts on coal bed methane prospects in the Powder River Basin of
Wyoming and Montana, where we had interests in 160 completed wells and 69 wells
in various stages of completion as of March 4, 2005.

         We conduct exploration activities to locate natural gas and crude
petroleum through two wholly-owned subsidiaries, Dolphin Energy Corporation and
Pannonian International, Ltd. As we commence production of these products, they
will be sold to purchasers in the immediate area where the products are
produced.


                                       3

<PAGE>


CORPORATE BACKGROUND

         We were incorporated in the State of Colorado on December 17, 1999
under the name "Galaxy Investments, Inc." On November 1, 2002, we entered into
an agreement and plan of reorganization to acquire all of the issued and
outstanding capital stock of Dolphin Energy Corporation, a Nevada corporation
("Dolphin"), for approximately 70% of our outstanding common stock. The
acquisition of Dolphin was completed as of November 13, 2002. Upon completion of
the transaction, Dolphin became our wholly owned subsidiary. However, since this
transaction resulted in the existing stockholders of Dolphin acquiring control
of Galaxy Investments, Inc., for financial reporting purposes the business
combination was accounted for as a reverse acquisition with Dolphin as the
acquirer. Accordingly, all financial information presented in this report for
periods prior to November 13, 2002 represents the historical information of
Dolphin. We changed our name to "Galaxy Energy Corporation" on May 15, 2003.

          On May 7, 2003, we entered into a share exchange agreement with
Pannonian International, Ltd., a Colorado corporation, whereby we agreed acquire
that company solely for shares of our common stock. We completed the acquisition
as of June 2, 2003 and issued 1,951,241 shares of our common stock, making
Pannonian International a wholly-owned subsidiary.

COAL BED METHANE

         Methane is the clean-burning primary component of natural gas. While
conventional natural gas is often comprised of a mixture of methane and other
gases, coal bed methane (CBM) is attractive because it usually has very high
percentage of methane - up to 96%. Coal bed methane in the Powder River Basin
was generated not by heat and pressure, but by bacterial activity within the
coal itself. These anaerobic bacteria are classified as methanogens for their
ability to generate large quantities of methane. As methane is generated it is
trapped (adsorbed) onto microscopic surfaces within the coal by water pressure.

         In recent years, coal bed methane has attracted attention from the
energy sector. Methane is generally considered a cleaner form of energy than
traditional coal and oil. Since CBM in this area is found at relatively shallow
predictable depths, exploration and development costs are generally much lower
than for deeper, more geologically complex oil and gas exploration projects. The
wells drilled and completed to extract CBM from these shallower coal seams are
therefore much more cost effective to construct. Operating costs, however, for
these wells are usually higher than for conventional free flowing gas wells due
to the need for pumping and disposing of water during the producing life.

         The extraction of coal bed methane involves pumping water from the coal
seam aquifer in order to release the water pressure that is trapping the gas in
the coal. Methane travels with the ground water being pumped from the coal by a
well drilled and equipped with a water pump that is completed in a coal seam
that contains methane. Since methane has very low solubility in water, it
separates from the water in the well before the water enters the pump. Instead
of dewatering the coal seam, the goal is to decrease the hydrostatic pressure
above the coal seam. Water moving from the coal seam to the well bore encourages
gas migration toward the producing well. As this water pressure is released, the
gas will rise and is separated from the water and can be piped away.

         In the Rocky Mountain region, significant resources of CBM exist in the
Powder River Basin of Wyoming and Montana, the Greater Green River Basin of
Wyoming, Colorado, and Utah, the Uinta-Piceance Basin of Colorado and Utah, and
the Raton and San Juan Basins of Colorado and New Mexico.

EXPLORATION AND ACQUISITION CAPITAL EXPENDITURES

         During the fiscal years ended November 30, 2004, 2003, and 2002, we
incurred $34,029,772, $2,306,409 and $873,797, respectively, in identifying and
acquiring petroleum and natural gas leases and prospect rights, and for
exploration costs.


                                       4
<PAGE>


PRINCIPAL PRODUCTS

         We conduct exploration activities to locate natural gas and crude
petroleum. As we commence production of these products, we anticipate that
generally they will be sold to purchasers in the immediate area where the
products are produced. We expect that the principal markets for oil and gas will
be refineries and transmission companies that have facilities near our producing
properties.

COMPETITION

         Oil and gas exploration and acquisition of undeveloped properties is a
highly competitive and speculative business. We compete with a number of other
companies, including major oil companies and other independent operators which
are more experienced and which have greater financial resources. We do not hold
a significant competitive position in the oil and gas industry.

COMPLIANCE WITH GOVERNMENTAL REGULATIONS

         Our operations are subject to various levels of government controls and
regulations in the United States and internationally.

         UNITED STATES REGULATION. In the United States, legislation affecting
the oil and gas industry has been pervasive and is under constant review for
amendment or expansion. Pursuant to such legislation, numerous federal, state
and local departments and agencies have issued extensive rules and regulations
binding on the oil and gas industry and its individual members, some of which
carry substantial penalties for failure to comply. Such laws and regulations
have a significant impact on oil and gas drilling, gas processing plants and
production activities, increase the cost of doing business and, consequently,
affect profitability. Inasmuch as new legislation affecting the oil and gas
industry is commonplace and existing laws and regulations are frequently amended
or reinterpreted, we are unable to predict the future cost or impact of
complying with such laws and regulations.

         We consider the cost of environmental protection a necessary and
manageable part of our business. We believe we will be able to plan for and
comply with new environmental initiatives without materially altering our
operating strategies.

         EXPLORATION AND PRODUCTION. Our United States operations are or will be
subject to various types of regulation at the federal, state and local levels.
Such regulation includes requiring permits for the drilling of wells;
maintaining bonding requirements in order to drill or operate wells;
implementing spill prevention plans; submitting notification and receiving
permits relating to the presence, use and release of certain materials
incidental to oil and gas operations; and regulating the location of wells, the
method of drilling and casing wells, the use, transportation, storage and
disposal of fluids and materials used in connection with drilling and production
activities, surface usage and the restoration of properties upon which wells
have been drilled, the plugging and abandoning of wells and the transporting of
production. Our operations are or will be also subject to various conservation
matters, including the regulation of the size of drilling and spacing units or
proration units, the number of wells which may be drilled in a unit, and the
unitization or pooling of oil and gas properties. In addition, state
conservation laws establish maximum rates of production from oil and gas wells,
generally limit the venting or flaring of gas, and impose certain requirements
regarding the ratable purchase of production. The effect of these regulations is
to limit the amounts of oil and gas we may be able to produce from our wells and
to limit the number of wells or the locations at which we may be able to drill.

         ENVIRONMENTAL AND OCCUPATIONAL REGULATIONS. Various federal, state and
local laws and regulations concerning the discharge of incidental materials into
the environment, the generation, storage, transportation and disposal of
contaminants or otherwise relating to the protection of public health, natural
resources, wildlife and the environment, affect our existing and proposed
exploration, development, processing, and production operations and the costs
attendant thereto. These laws and regulations increase our overall operating
expenses. We plan to maintain levels of insurance customary in the industry to
limit our financial exposure in the event of a substantial environmental claim
resulting from sudden, unanticipated and accidental discharges of oil, salt
water or other substances. However, we do not intend to maintain 100% coverage
concerning any environmental claim, and we do not intend to maintain any
coverage with respect to any penalty or fine required to be paid by us because
of our


                                       5

<PAGE>

violation of any federal, state or local law. We are committed to meeting our
responsibilities to protect the environment wherever we operate and anticipate
making increased expenditures of both a capital and expense nature as a result
of the increasingly stringent laws relating to the protection of the
environment. We cannot predict with any reasonable degree of certainty our
future exposure concerning such matters. We consider the cost of environmental
protection a necessary and manageable part of our business. We believe we will
be able to plan for and comply with new environmental initiatives without
materially altering our operating strategies.

         We are also subject to laws and regulations concerning occupational
safety and health. Due to the continued changes in these laws and regulations,
and the judicial construction of same, we are unable to predict with any
reasonable degree of certainty our future costs of complying with these laws and
regulations. We consider the cost of occupational safety and health a necessary
and manageable part of our business. We believe we will be able to plan for and
comply with new occupational safety and health initiatives without materially
altering our operating strategies.

         INTERNATIONAL REGULATION. The oil and gas industry is subject to
various types of regulation throughout the world. Legislation affecting the oil
and gas industry has been pervasive and is under constant review for amendment
or expansion. Pursuant to such legislation, government agencies have issued
extensive rules and regulations binding on the oil and gas industry and its
individual members, some of which carry substantial penalties for failure to
comply. Such laws and regulations have a significant impact on oil and gas
drilling and production activities, increase the cost of doing business and,
consequently, affect profitability. Inasmuch as new legislation affecting the
oil and gas industry is commonplace and existing laws and regulations are
frequently amended or reinterpreted, we are unable to predict the future cost or
impact of complying with such laws and regulations. The following are
significant areas of regulation.

         EXPLORATION AND PRODUCTION. Pannonian's oil and gas concessions and
permits are granted by host governments and administered by various foreign
government agencies. Such foreign governments require compliance with detailed
regulations and orders which regulate, among other matters, drilling and
operations on areas covered by concessions and permits and calculation and
disbursement of royalty payments, taxes and minimum investments to the
government.

         Regulation includes requiring permits for the drilling of wells;
maintaining bonding requirements in order to drill or operate wells;
implementing spill prevention plans; submitting notification and receiving
permits relating to the presence, use and release of certain materials
incidental to oil and gas operations; and regulating the location of wells, the
method of drilling and casing wells, the use, transportation, storage and
disposal of fluids and materials used in connection with drilling and production
activities, surface usage and the restoration of properties upon which wells
have been drilled, the plugging and abandoning of wells and the transporting of
production. Pannonian's operations are also subject to regulations, which may
limit the number of wells or the locations at which Pannonian can drill.

         ENVIRONMENTAL REGULATIONS. Various government laws and regulations
concerning the discharge of incidental materials into the environment, the
generation, storage, transportation and disposal of contaminants or otherwise
relating to the protection of public health, natural resources, wildlife and the
environment, affect Pannonian's exploration, development, processing and
production operations and the costs attendant thereto. In general, this consists
of preparing Environmental Impact Assessments in order to receive required
environmental permits to conduct drilling or construction activities. Such
regulations also typically include requirements to develop emergency response
plans, waste management plans, and spill contingency plans. In some countries,
the application of worldwide standards, such as ISO 14000 governing
Environmental Management Systems, are required to be implemented for
international oil and gas operations.

EMPLOYEES

         As of November 30, 2004, we had a total of 10 full time employees and
no part-time employees. None of our employees is covered by a collective
bargaining agreement.


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<PAGE>

ITEM 2.  PROPERTIES.

OIL AND GAS ASSETS

         Our oil and gas activities have focused on the acquisition of
unevaluated oil and gas properties and the drilling of exploratory wells in the
Powder River Basin of Wyoming and Montana. In addition, exploration projects are
underway in Texas and Europe.

         POWDER RIVER BASIN - WYOMING (LEITER FIELD). Effective September 30,
2002, we entered into a lease acquisition and drilling agreement with Pioneer
Oil, a Montana limited liability company ("Pioneer"), which entitled us to earn
a 100% working interest and an 80% net revenue interest in leases covering
15,657 acres in the Powder River Basin, near Leiter, Wyoming. The project area
is 20 to 30 miles west of the main north-south CBM fairway in Campbell County,
Wyoming, and is approximately 9 miles west of the nearest established CBM
production. Most of our acreage is positioned along roads and pipelines. There
is 20-inch gas transmission line crossing our leased property, and U.S. Highway
14 runs through the project area and provides year-round access.

         Ten producible coal seams have been identified throughout the lease
area, which range from 10 feet to 35 feet in thickness and with depths of 600 to
2,500 feet below the surface. The primary targets are coal beds in the Fort
Union Formation. Drilling depths range from 1,700 to 2,600 feet. The Fort Union
Formation is expected to have about 130 feet of aggregate coal separated into 8
to 10 widely spaced beds. The coals are widespread and have a nearly continuous
distribution. The successful implementation of multi-seam well completion
technology and cost effective produced water management in accordance with
existing established practices and requirements will greatly enhance results.
Mud logs from the five existing wells on this property indicate the presence of
gas in these coal seams. The mud log gas shows are consistent with other Fort
Union coals in the western portion of the Powder River Basin. Based on
historical production from other similar areas within this basin, which are
producing gas from the same Fort Union Formation coals in approximately 11,000
active wells, we are optimistic that economically recoverable amounts of gas
will be present here. However, we do not yet have any production tests from
these wells on this property that substantiate the amount of gas, and we
recognize that analogies drawn from available data from other wells or producing
fields may not be applicable to our drilling prospects.

         We have started a continuous drilling program into the potential
productive seams and intend to maintain and develop the Leiter area as long as
it produces marketable quantities of gas. We have determined that the initial
target seams will be the Cook, Wall, and Pawnee seams at depths of 1,700 to
1,800 feet. These zones have exhibited the highest consistent gas shows in the
area and comprise 35 to 40 feet of total coal across an interval of
approximately 100 feet. Depending on pricing and water disposal capacity, an
additional 70 to 80 feet of shallower prospective coal could be accessed through
future perforations or by drilling additional wells to accelerate gas
production.

         To acquire the leases covering this acreage, we were required to pay
and did pay $100,000 by January 31, 2003. We were required to pay $1,650,000 by
October 1, 2003, deposit the estimated costs to drill and complete 30 pilot
wells into an escrow account by October 1, 2003, and drill at least 25 pilot
wells by March 1, 2004. The agreement also provided for the acquisition of a
100% interest in 5 natural gas wells, for $500,000, by October 1, 2003. Pioneer
extended the obligations due October 1, 2003 to October 31, 2003, to allow for
negotiation of a new agreement.

         On December 22, 2003, we purchased Pioneer's position for $1,000,000
cash and 2,000,000 shares of our common stock, valued at $1.40 per share. By
purchasing Pioneer's position, we are now the lessee under the leases and the
owner of the 5 natural gas wells. These wells were drilled in late 2001, have
been equipped with downhole production pumps, and one coal zone is partially
dewatered. We expect to commence production from these 5 completed wells and
several additional wells during the first calendar quarter of 2005. We do not
have any estimates as to reserves attributed to these wells.

         In October 2004, we acquired an additional 360 acres of oil and gas
leases in the area adjacent to the existing lease holdings from the lessors for
$150,000. We are now obligated to drill a total of 125 wells on the leased
acreage by December 31, 2005 under the terms of an amended lease. If we fail to
meet the 125-well drilling


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commitment and are unable to negotiate a different outcome, we will retain our
interest in only the 80 acres surrounding each well drilled as of December 31,
2005 and all remaining acreage will be forfeited.

         In summary, through March 5, 2005, we purchased five existing
non-producing natural gas wells, drilled 44 new wells and set seven-inch
production casing in those wells, completed downhole work in most wells,
installed gathering system and infrastructure to several wells, and commenced
location surveying, permit procedures, and obtained surface use agreement
approval for an additional portion of these leases.

         On November 2, 2004, Dolphin executed a Coal Bed Methane Participation
Agreement with Horizon Gas, Inc., a Colorado corporation ("Horizon"). Horizon
Gas, Inc. is also the general partner of two U.S. limited liability limited
partnerships, Horizon Natural Gas, LP (Fund LP) and Horizon Natural Gas
Investment LP (Investment LP). Another entity, Horizon Funds GmbH in Cologne,
Germany coordinates the marketing in Germany and is in charge of handling the
fund management and investor relations in Germany. The agreement is intended to
provide funding for future projects in an area of mutual interest in the Powder
River Basin located in Wyoming. Under the terms of the agreement, Horizon is
given the right to participate, subject to funding, in an initial drilling
program on identified oil and gas leases and a subsequent drilling program on
currently unidentified oil and gas leases. Horizon will bear 90% of the costs to
drill, complete, and connect each well in which it elects to participate in
return for a 67.5% share of Dolphin's working interest in such wells. As of
March 9, 2005, we do not know whether Horizon will participate.

         POWDER RIVER BASIN - WYOMING (BUFFALO RUN, PIPELINE RIDGE, HORSE HILL
AND DUTCH CREEK). In January 2004, we acquired an operating interest in 61
non-producing CBM wells and approximately 12,000 gross acres in the Powder River
Basin in Wyoming (the "Continental acreage") from DAR, LLC, in consideration for
3,000,000 restricted shares of our common stock, valued at $1.80 per share,
$163,655, and a note for $2,600,000 in future payments, which bears interest at
the rate of 6% per annum. The original note called for $1,000,000 in principal
to be paid on January 14, 2005 and the remaining $1,600,000 in principal to be
paid on June 24, 2005. On January 14, 2005, we agreed with DAR, LLC that the
payments due on January 14, 2005 and June 24, 2005 would be deferred. In return
for $100,000 in consideration for such deferral, which was paid on January 21,
2005, we paid DAR, LLC $500,000 in accrued interest and principal on March 3,
2005, and will now pay $1,600,000 in principal on August 19, 2005 and all
remaining accrued interest and principal on January 13, 2006.

         In March 2004, we acquired the remaining 35% working interest in the
Buffalo Run project for $592,464. In April 2004, we acquired the remaining 50%
working interest in the Dutch Creek project for $300,000 and 360,000 restricted
shares of our common stock, valued at $2.63 per share. As a result of these
acquisitions, we have a 100% working interest in the Buffalo Run and Dutch Creek
projects.

         This property is located approximately 12 miles southeast of Sheridan,
Wyoming, and is divided into four CBM exploration projects: Buffalo Run,
Pipeline Ridge, Horse Hill, and Dutch Creek. The project area contains up to
eight separate coals, ranging in depth from 150 feet to 1,800 feet. Coal
thickness ranges from 20 feet to 70 feet, generally thinning with depth. We
estimate that full development of this project area would include the drilling
of up to 280 wells, with up to four coal zone completions per well.

         The four projects are in the early implementation stages with 101 wells
drilled to various depths as of March 4, 2005. Of these 67 have been completed
and approximately three-fourths of those exhibit shut-in gas pressures at the
wellhead while the remaining wells have all had significant gas shows during
drilling and completion operations. While these outcomes indicate that these
wells will be productive, only a portion of these wells has been stimulated and
placed on production. Contracts for electrical power supply have been executed
with two utilities, Powder River Energy and Montana Dakota Utilities, and
construction is nearly complete in the Pipeline Ridge area. A gas gathering
agreement for pipeline access was executed to serve the Pipeline Ridge area, and
the associated compression facility is expected to be operational approximately
March 31, 2005. The gathering infrastructure has been completed in the Pipeline
Ridge area, and 31 production wells have been connected and are awaiting the
compressor.

         We propose to accomplish water disposal in these areas without surface
discharge through re-injection, use of high volume evaporators, and off-channel
storage ponds. Injectivity tests have been performed to confirm that certain
water sands will accommodate a significant volume of water injection. This
method of water disposal has


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been implemented in several CBM projects, and has been approved by the
regulatory authorities for injection wells on our projects.

         POWDER RIVER BASIN - WYOMING (BEAVER CREEK). In April 2004, we acquired
various working interests in approximately 27,000 net acres adjacent to, and in
the vicinity of, the Leiter and Continental acreage. The acquisition price for
these new interests was $739,550. This project is also in the early
implementation stage with 23 wells drilled to various depths as of March 4,
2005. Of these, 7 have been completed, but are not yet connected to a gathering
system. We are developing plans to include these 23 wells in expanded production
pilot projects, which are then expected to be followed by full development of
the related areas.

         POWDER RIVER BASIN - WYOMING (GLASGOW AND WEST RECLUSE). In June 2004,
we entered into a letter of intent to acquire approximately 4,400 net acres of
oil and gas leases in Campbell and Converse Counties. Under the terms of the
agreement, we committed to pay 100% of the cost to drill 12 wells on the
acreage, to earn a 50% interest in those wells along with a 50% working interest
in 9 existing wells, 7 of which have been completed. We paid the seller $100,000
and obtained an option to acquire, for an additional $1,900,000, a 90% working
interest in the entire leasehold acreage including all wells on the property. On
September 30, 2004, having drilled 16 wells on the acquired acreage and
completed our drilling obligation, we exercised our option to acquire the
additional working interest in the wells and a 90% working interest in the
leasehold acreage in the prospects, and paid approximately $1,886,000 for these
interests after closing adjustments. As of March 4, 2005, a total of 40 wells
have been drilled on the acreage, 37 of which have been completed. Of these
wells, 17 were producing gas at various levels of production as they continue to
dewater.

         OUTSOURCED WYOMING OPERATOR. We executed a contract with Continental
Industries, LC, an affiliate of DAR, LLC, to act as contract operator on our
Wyoming Powder River Basin leases. Continental, a privately-held exploration and
production company based in Casper, Wyoming, was among the first CBM
participants in the Powder River Basin and has extensive CBM experience. Since
1999, Continental has implemented 10 CBM projects with over 340 wells. We are
compensating Continental under the terms and provisions of a contract operator
agreement with normal industry standard rates for personnel and expenses.

         POWDER RIVER BASIN - MONTANA. On August 5, 2003, we entered into a
Lease Option and Acquisition Agreement with Quaneco, L.L.C. ("Quaneco"), a
privately-held oil and gas company operating primarily in the Rocky Mountain
region. Under the terms of the agreement, we had an option to acquire up to 50%
of Quaneco's 50% working interest in certain oil and gas leases covering
approximately 214,000 gross acres in the Powder River Basin area of Montana. In
2003 and 2004, we made payments totaling $3,387,500, thereby acquiring a 12.5%
working interest. On September 1, 2005, we determined not to increase our
working interest position beyond our existing 12.5% and no further payments are
due under the agreement.

         The primary geologic target associated in the acreage is natural gas
from shallow coal beds located at depths of 200 feet to 2,500 feet. Multiple
coal seams are present in this prospect area, with a total coal thickness of
approximately 100 feet. There are several surface structures and faults in the
prospect area that were mapped by the U.S. Geological Survey and the Montana
Bureau of Mines. We believe that these structural features are expected to
enhance the CBM gas production. Data used in defining the prospect area was
taken from these agencies, as well as information from abandoned deeper oil and
gas wells drilled in the area. CBM gas production has been established
approximately 6 miles south of the area where cumulative production to date is
about 20 billion cubic feet of natural gas.

         This acreage is divided into two projects: the Kirby prospect and the
Castle Rock prospect. Galaxy is currently participating in the first phase of a
planned exploration for the Kirby Area. Operations are underway for an initial
18 well pilot and field facilities construction have begun. A second pilot
project is scheduled to begin this year in the Castle Rock project. Negotiations
are underway for construction of gas sales pipeline projects to both of these
areas.

         PICEANCE BASIN - COLORADO. On March 2, 2005, Dolphin deposited
$7,000,000 in escrow as a condition precedent to an agreement to acquire an
initial 58-1/3% working interest in 4,000 net undeveloped mineral acres in the
Piceance Basin in Colorado. The terms of the acquisition are set forth in a
Lease Acquisition and Development Agreement with Apollo Energy LLC and ATEC
Energy Ventures, LLC, the Sellers. The Sellers were not willing to

                                       9
<PAGE>

enter into the Agreement with Dolphin without having some agreement regarding
the remaining 41-2/3% working interest in the subject properties. Since our
management and advisers had previously decided that our maximum commitment
should not exceed that provided in the Agreement, it was necessary to find a
third party to take the remaining working interest, and Marc A. Bruner, a
related party (see Item 13.), was willing to provide a guaranteed payment of
$2,000,000 to the Sellers and enter into an agreement with the Sellers to
acquire a 16-1/3% working interest for such $2,000,000 with the option to
acquire up to all of the then remaining 25% working interest in the subject
properties by investing an additional $3,000,000. If Mr. Bruner invests the
entire $5,000,000, his total working interest in the properties will be 41-2/3%.
Mr. Bruner and Dolphin entered into a Participation Agreement to address certain
rights and obligations as between them, pertaining to their acquisition
agreements with the Sellers. Marc A. Bruner is a significant shareholder of
Galaxy Energy Corporation, Chairman of Galaxy's Advisory Committee, and the
father of Marc E. Bruner, the president and a director of Galaxy.

         Under the Participation Agreement, Marc A. Bruner has the right, but
not the obligation to deposit up to an additional $25,000,000 into escrow on or
before August 1, 2005, while Dolphin has the right, but not the obligation, to
deposit up to an additional $3,000,000 into escrow on or before December 1,
2005. Dolphin and Mr. Bruner have agreed that their respective ownership
interests shall be based upon the amounts deposited into escrow and used to
acquire the leases. Therefore, if both Dolphin and Mr. Bruner contribute their
maximum amounts, their ownership interests in the leases will be Dolphin 25% and
Bruner 75%.

         Under the acquisition agreements with the Sellers, Dolphin and Mr.
Bruner are obligated to drill one well by November 1, 2005 and 9 additional
wells by August 22, 2006. If they should fail to drill any of the 9 wells, they
are obligated to pay Sellers $500,000 for each well as liquidated damages or
they are to reassign to Sellers any of the acreage covered by the leases that
remains undrilled.

         Dolphin and Mr. Bruner have agreed that each shall be responsible for
its/his respective share of the cost of operations in accordance with the terms
of the operating agreement, with such share based on the ownership interest at
the time the cost is incurred.

         Dolphin and Mr. Bruner have also agreed that for the first 36 months of
operations under the operating agreement, Bruner shall assign all of his rights
and obligations as operator, such that Dolphin shall be the contract operator or
sub-operator under the operating agreement, and that Dolphin shall be entitled
to a management fee of 10% of its costs as operator.

         Sellers will reserve in the assignment of the leases either a reserved
production payment or a reserved overriding royalty interest, each equal to the
difference between 20% and existing burdens, but never less than 2%. At project
payout, Sellers are vested with an undivided 12 1/2% of our interest in the
leases.

         EAST TEXAS. We have paid-up leases covering approximately 2,780 acres
in the vicinity of the Trawick Field, located in Rusk and Nacogdoches Counties,
Texas. Leases covering approximately 1,118 acres are for a three-year term
expiring in late 2005 and early 2006, while the leases covering the remaining
approximately 1,662 acres are for a five-year term expiring in 2007.

         All of the leases were originally held by Harbor Petroleum, LLC or
Florida Energy, Inc. on behalf of Dolphin, but have been assigned to Dolphin.
Both Harbor Petroleum, LLC and Florida Energy, Inc. are related parties. See
"Item 13. Certain Relationships and Related Transactions." In March 2004,
Dolphin paid Florida Energy a bonus of $50,000 for identifying this lease play.

         In 2005, we propose to drill a vertical wellbore through the deepest
potential Travis Peak sandstone in the first specific prospect area we are
targeting.

         JIU VALLEY - ROMANIA. Pannonian International has a concession
agreement covering 21,538 gross acres for a term of 30 years in the Jiu Valley
Coal Basin, Romania. Of this area, only 13,715 acres that are underlain by total
coalbed thicknesses greater than 5 meters are considered to be prospective for
coalbed methane production at this time. This acreage contains up to 18 coal
seams with a cumulative thickness up to 170 feet at depths of 985 to 3,280 feet.
The main target seam averages 22 meters in thickness in the concession area. The
concession from the Romanian government was issued October 22, 2002. During the
first five years of the concession, the concession


                                       10
<PAGE>

holder is required to expend a specified amount for exploratory work. If that
specified amount is not spent, the concession holder must pay that amount to the
Romanian government. If no payment is made, the concession is cancelled.
Pannonian's minimum exploration expenditure commitments are as follows:
         o        $252,000 by October 21, 2005
         o        $182,000 by October 21, 2006
         o        $182,000 by October 21, 2007

Pannonian has satisfied its requirements through November 30, 2004.

         Pannonian proposes to drill two wells in 2005, as Pannonian management
believes that it has two drill sites in close proximity to where earlier wells
have blown out methane. These drill sites are approximately 1.5 miles from a
20-inch gas trunk pipeline, and is approximately the same distance from an
electrical generation plant that uses both natural gas and coal as fuel.
Pannonian estimates that it would cost approximately $475,000 to test and
complete each well as a producing well.

         Pannonian has applied for a concession on an additional 120,000 acres
in Romania and has identified further European license areas for which it is in
the application process.

         NEUES BERGLAND - GERMANY. In December 2003, the 149,435-acre Neues
Bergland Exploration Permit was granted for a three-year term to Pannonian
International (50%) and two co-permittees (each with 25%). Both of the
co-permittees are privately-held oil and gas companies that are not affiliated
with us. Under the terms of the permit, we and our co-permittees have the
exclusive right to explore for natural resources within the permit area, subject
to the obtaining the approval from third-party landowners. Permit holders must
pay field taxes by May 31 of each year for the previous calendar year. Permit
holders can deduct from field taxes those expenditures incurred by the permit
holder that were necessary to obtain geophysical, geochemical, petrological or
reservoir data, such as geophysical work with processing, drilling operations,
reprocessing work, and fracturing with the goal of transforming a non-producing
into a producing reservoir. The field taxes for 2003 and 2004 have been paid.

         The permit requires the drilling of an initial exploration test
borehole during 2005. The estimated cost of phase one of this work program,
which consists of building the drillsite, drilling and testing the first
exploration test borehole, evaluating the borehole with a long-term flow-test
program, evaluating the test results, and re-evaluating the economic,
environmental, regulatory, and technical issues is $2,200,000. Our current plan
is to proceed with phase one only if we can obtain the necessary funding through
a farm-out arrangement. The costs incurred in connection with phase one would
offset all of the field taxes for 2005.

         The initial drill site is approximately two miles from a local gas
distribution grid (8" pipeline) and about 7 miles from a 38", 1000 pounds per
square inch, international trunk pipeline.

PRODUCTIVE GAS WELLS

         The following summarizes our productive and shut-in gas wells as of
November 30, 2004. Productive wells are producing wells and wells capable of
production. Shut-in wells are wells that are capable of production but are
currently not producing. Gross wells are the total number of wells in which we
have a working interest. Net wells are the sum of our fractional working
interests owned in the gross wells.

                                             PRODUCTIVE GAS WELLS
                                           GROSS                NET
     Producing gas wells                      29               23.3
     Shut-in gas wells                       147              136.2
                                             ---            -------
          Total                              176              159.5
                                             ===            =======


                                       11
<PAGE>


OIL AND GAS ACREAGE

         The following table sets forth the undeveloped and developed leasehold
acreage, by area, held by us as of November 30, 2004. Undeveloped acres are
acres on which wells have not been drilled or completed to a point that would
permit the production of commercial quantities of oil and gas, regardless of
whether or not such acreage contains proved reserves. Developed acres are acres,
which are spaced or assignable to productive wells. Gross acres are the total
number of acres in which we have a working interest. Net acreage is obtained by
multiplying gross acreage by our working interest percentage in the properties.
The table does not include acreage in which we have a contractual right to
acquire or to earn through drilling projects, or any other acreage for which we
have not yet received leasehold assignments.

                              UNDEVELOPED ACRES           DEVELOPED ACRES
                           GROSS             NET       GROSS              NET
   Wyoming                 87,825           59,115         0                0
   Montana                222,694           32,577         0                0
   East Texas               2,780            2,780         0                0
   Romania                 21,538           21,538         0                0
                         --------          -------     -----            -----
        Total             334,837          116,010         0                0
                         ========          =======     =====            =====

DRILLING ACTIVITY

         The following table sets forth our drilling activity during the year
ended November 30, 2004. We had no drilling activity during the years ended
November 30, 2002 and 2003.

          ---------------------------------------------------------------
                                          YEAR ENDED NOVEMBER 30, 2004
          ---------------------------------------------------------------
                                            GROSS               NET
          ---------------------------------------------------------------
          Exploratory wells:
          ---------------------------------------------------------------
             Productive                      135               119.4
          ---------------------------------------------------------------
             Dry                             -0-                -0-
          ---------------------------------------------------------------

          ---------------------------------------------------------------
                Total wells                  -0-                -0-
          ---------------------------------------------------------------

          ---------------------------------------------------------------
          Development wells:
          ---------------------------------------------------------------
             Productive                      -0-                -0-
          ---------------------------------------------------------------
             Dry                             -0-                -0-
          ---------------------------------------------------------------

          ---------------------------------------------------------------
                Total wells                  135               119.4
          ---------------------------------------------------------------

PRESENT ACTIVITIES

         POWDER RIVER BASIN - WYOMING (GLASGOW AND WEST RECLUSE). Eight of the
15 new wells in the Glasgow area that commenced dewatering in early November
2004 started producing gas very quickly, and production rates have continued to
increase. As of March 4, 2005, the remaining 7 wells which are completed as
lower zone Wyodak producers continue to dewater.

         Nine wells are producing gas to the sales pipeline in the West Recluse
area. Construction of the gathering system and required infrastructure required
to hook the 15 additional completed wells into the sales pipeline is expected to
be completed by March 31, 2005. All of the new wells will begin dewatering
before the end of April 2005.

         As of March 4, 2005, gas production from these two areas was
approximately 600 mcf per day. Gas production levels are expected to increase as
dewatering operations continue.

         POWDER RIVER BASIN - WYOMING (PIPELINE RIDGE). As of March 4, 2005, 31
production wells and 5 water disposal wells have been drilled and completed in
this area southeast of Sheridan, Wyoming. Five additional wells


                                       12

<PAGE>

have been started with only surface casing in place. Although winter operating
conditions have slowed work in this area, gathering system and infrastructure
facilities have been completed to all of these new wells over the last few
months. Six of these wells have commenced testing and dewatering operations, and
all remaining wells are expected to do the same before the end of March 2005.
Installation of a compressor station to handle gas sales into the adjacent
Bighorn pipeline is nearing completion.

         POWDER RIVER BASIN - WYOMING (LEITER FIELD). As of March 4, 2005, these
two areas contained 49 completed wells. Construction of gathering systems and
field facilities for both areas are in various stages of completion. The first
3wells in the Leiter area have begun testing and dewatering. All other
production wells are expected to begin testing and dewatering before the end of
June 2005.

         POWDER RIVER BASIN - WYOMING (BUFFALO RUN, BEAVER CREEK, HORSE HILL AND
DUTCH CREEK). As of March 4, 2005, these 4 areas now contain 38 completed wells
and 45 additional wells in various stages of completion. Negotiations are
underway for the necessary pipeline extension to access 60 of these wells, which
will then allow the construction of gathering system infrastructure and the
drilling of additional new wells in 2005 to develop multiple deeper coal zones.
We are also developing plans to include 23 previously drilled wells in expanded
pilot projects, which are then expected to be followed by full development of
the related properties.

         POWDER RIVER BASIN - MONTANA. In the southern Montana portion of the
Powder River Basin, Galaxy is participating in the first phase of a planned
exploration for the Kirby Area. Operations are underway on an initial eighteen
well pilot program. Sixteen of these wells have been drilled and field
facilities construction has begun. A second pilot project is scheduled to begin
this year in the Castle Rock area of southern Montana. Negotiations are underway
for construction of gas sales pipeline projects to both of these areas.

         The following table summarizes the status of completed wells as of
March 4, 2005:

   ----------------------------------------------------------------------------
                                                            WATER     PRODUCING
                                             SHUT IN       DISPOSAL      GAS
   ----------------------------------------------------------------------------
   Glasgow/West Recluse                         22            --          17
   ----------------------------------------------------------------------------
   Pipeline Ridge                               31             5          --
   ----------------------------------------------------------------------------
   Leiter                                       49            --          --
   ----------------------------------------------------------------------------
   Buffalo Run, Beaver Creek, Horse Hill,       38            --          --
   Dutch Creek
   ----------------------------------------------------------------------------
   Montana                                      16            --          --
   ----------------------------------------------------------------------------
   TOTAL                                       156             5          17
   ----------------------------------------------------------------------------

OFFICE SPACE

         Our principal executive offices are located at 1331 - 17th Street,
Suite 730, Denver, Colorado, where we lease approximately 2,580 square feet of
office space under a lease expiring February 28, 2007.

         We also have an office at 1001 Brickell Bay Drive, Suite 2202, Miami,
Florida, where we lease approximately 1,300 square feet of office space under a
lease expiring June 30, 2005. We intend to close the Miami office and relocate
certain staff members to Denver upon the expiration of the office lease.


ITEM 3.  LEGAL PROCEEDINGS.

         None.


                                       13

<PAGE>


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

         We held a special meeting of our shareholders on October 21, 2004, at
which the following matters were voted upon:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                      FOR            AGAINST          ABSTAINED     BROKER NON-VOTES
--------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                <C>               <C>             <C>
Proposal to amend our Stock Option Plan to        32,541,906         891,070           64,684          15,103,614
increase from 3,500,000 to 6,500,000 the
aggregate number of shares of common stock
authorized for issuance under the Plan
--------------------------------------------------------------------------------------------------------------------
Proposal to approve the issuance of shares of     32,824,922         597,364           75,374          15,103,614
common stock upon conversion of our
outstanding convertible notes, in lieu of
cash payments on the convertible notes, and
upon the exercise of our outstanding
warrants, to the extent that such issuance
would require shareholder approval under the
rules of the American Stock Exchange
--------------------------------------------------------------------------------------------------------------------
Proposal to amend our Articles of                 47,857,730         700,200           43,344             -0-
Incorporation to increase from 100,000,000 to
400,000,000 the number of authorized shares
of common stock
--------------------------------------------------------------------------------------------------------------------
</TABLE>








                                       14

<PAGE>


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
         ISSUER PURCHASES OF EQUITY SECURITIES.

         Our common stock has been trading on the over-the-counter bulletin
board ("OTCBB") under the symbol "GAXI" since December 10, 2001. The trading
symbol often appears as "GAXI.OB" in quotation requests on the Internet. The
following table sets forth the range of high and low bid quotations for each
fiscal quarter for the last two fiscal years. These quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commissions and may
not necessarily represent actual transactions.

         FISCAL QUARTER ENDING                       HIGH BID         LOW BID

         February 28, 2003....................      $   1.47         $   1.03
         May 31, 2003.........................      $   1.25         $   0.87
         August 31, 2003......................      $   0.90         $   0.63
         November 30, 2003....................      $   2.57         $   0.60
         February 29, 2004....................      $   3.78         $   1.95
         May 31, 2004.........................      $   3.60         $   1.00
         August 31, 2004......................      $   1.66         $   1.19
         November 30, 2004....................      $   1.86         $   1.10
         February 28, 2005....................      $   1.79         $   1.22

         On March 8, 2005, the closing price for the common stock was $1.93.

         As of March 8, 2005, there were 124 record holders of our common stock.

         Since our inception, no cash dividends have been declared on our common
stock. We do not anticipate paying dividends on our common stock at any time in
the foreseeable future. Our board of directors plans to retain earnings for the
development and expansion of our business. Our directors also plan to regularly
review our dividend policy. Any future determination as to the payment of
dividends will be at the discretion of our directors and will depend on a number
of factors, including future earnings, capital requirements, financial condition
and other factors as the board may deem relevant. We are not restricted by any
contractual agreement from paying dividends.


ITEM 6.  SELECTED FINANCIAL DATA.

         The table sets forth selected financial data, derived from the
consolidated financial statements, regarding our financial position and results
of operations as of the dates indicated. All information for periods prior to
November 13, 2004 represents the historical information of Dolphin Energy
Corporation because Dolphin was considered the acquiring entity for accounting
purposes.

<TABLE>
<CAPTION>
                                                                      AS OF AND FOR THE YEAR ENDED NOVEMBER 30,
                                                                       2004             2003              2002
<S>                                                                <C>               <C>             <C>
Summary of Operations:
   Revenue                                                         $     122,455     $      --       $       --
   Lease operating costs                                                  59,247            --               --
   General & administrative expense                                    3,517,218         2,095,495        1,140,066
   Depreciation, depletion and amortization                               76,390            66,454           --
   Net loss                                                           (8,524,496)       (2,579,595)      (1,140,066)
   Net loss per share                                                      (0.16)            (0.08)           (0.04)

</TABLE>


                                       15
<PAGE>


<TABLE>
<CAPTION>
                                                                      AS OF AND FOR THE YEAR ENDED NOVEMBER 30,
                                                                       2004             2003              2002
<S>                                                                <C>               <C>              <C>
Balance Sheet:
   Working capital (deficiency)                                    $    (626,108)    $   1,756,776    $  (1,012,916)
   Cash and cash equivalents                                          10,513,847         2,239,520           41,320
   Oil and gas properties, net                                        37,491,529         2,799,720          873,797
   Total assets                                                       49,648,165         5,655,433          954,339
   Long-term debt                                                     11,629,001                --               --
   Stockholders' equity  (deficit)                                    26,681,207         2,634,559         (149,897)
</TABLE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION.

OVERVIEW

         Management believes the completion of its fiscal quarter ended February
29, 2004 marked the completion of its first phase of its business plan. The
goals of the first phase were to obtain promising oil and gas properties in the
Powder River Basin of Wyoming and Montana and adequate funding to pay for those
properties and commence drilling operations. To accomplish those goals, we
needed to build our corporate infrastructure and make the investing public aware
of our presence. We believed that by so doing, we could raise the capital we
needed from the sale of our securities and use shares of our common stock to pay
for property acquisitions.

         Our goal for the second phase of our business plan, which commenced
March 1, 2004, was to determine the potential of our properties. We believed
that by so doing, we could develop a plan to secure additional funding for what
is hoped to be development drilling projects. During the second half of the
fiscal year ended November 30, 2004, we raised additional funding to coal bed
methane development program in the Powder River Basin of Wyoming. We raised
additional funds to diversify our property position and acquire oil and gas
properties in the Piceance Basin of Colorado in March 2005.

         Our tasks now are to establish reserves on our properties and to place
our properties into production. We had interests in 160 completed wells and 69
wells in various stages of completion as of March 4, 2005. While we recorded our
first revenues from natural gas sales during the fiscal year ended November 30,
2004, we expect to generate significantly more revenues during the current
fiscal year. We anticipate that these revenues, while significantly larger than
in fiscal 2004, will not be sufficient to fund completely our planned operations
and commitments. Accordingly, we will continue to raise funds from external
sources, such as the sale of equity and/or debt securities. We believe, however,
that our recent property acquisition in the Piceance Basin, as well as the
results from our drilling operations in the Powder River Basin, will enhance our
ability to obtain such financing on suitable terms.

RESULTS OF OPERATIONS

         YEAR ENDED NOVEMBER 30, 2004 COMPARED TO YEAR ENDED NOVEMBER 30, 2003.
During the year ended November 30 2004 we recorded our first revenues from
natural gas sales from initial production from 5 wells acquired in June 2004 and
from 10 additional wells drilled and completed during the year. We recorded
$122,455 of natural gas sales and $59,247 of lease operating and production tax
expense on net sales volumes of 26,247 mcf. Depreciation, depletion and
amortization ("DD&A") expenses associated with the gas sales were $47,944 or
$1.83 per mcf. Because the production history of the producing wells is not
sufficient to enable us to recognize proved reserves, we calculated DD&A on the
basis of costs incurred on producing wells and the estimated productive life of
the wells.

         We recorded interest income earned on cash deposits in commercial banks
of $51,396 in 2004 compared to $-0- in 2003. The cash deposits resulted from our
financing and fund raising activities during the year.


                                       16
<PAGE>

         For the year ended November 30, 2004 and 2003, we recorded general and
administrative costs of $3,517,218 and $$2,095,495, respectively. Significant
expenses in 2004 included: salaries and benefits of $569,454; professional and
consulting fees of $638,485; travel and entertainment, primarily related to
financing activities, of $447,200; legal expenses of $581,393; investor
relations of $537,090; office lease and expenses of $266,040 and directors fees
of $180,000. Comparative amounts for 2003 were: salaries and benefits of
$258,686; professional and consulting fees of $446,724; travel and entertainment
primarily related to financing activities of $321,463; legal expenses of
$381,166; investor relations of $380,243; office lease and expenses of $116,070
and directors fees of $27,500. The 2004 increases reflect our significantly
higher level of operational activity, including the oil and gas property
acquisitions and the drilling of 120 wells during the year. During fiscal 2004,
we relocated our headquarters to Denver from Miami, entered into an office lease
to accommodate the larger number of staff, and completed five registration
statements for the resale of our equity securities. These activities required
significant increases in legal, accounting and consulting fees to accomplish
successfully.

         We recorded $76,390 of DD&A expenses in 2004 compared to $685 in 2003.
The increase reflects depreciation of furniture and equipment of $20,683 in 2004
versus $685 in 2003, DD&A and abandonment of oil and gas properties of $52,944
in 2004 compared to $-0- in 2003, and depreciation and accretion of the asset
retirement obligation of $2,763 in 2004 compared to $-0- in 2003.

         We recorded interest and financing costs of $5,045,492 in 2004 compared
to $417,646 in 2003. The 2004 expense is comprised of interest on 7% convertible
debentures, the convertible notes and other notes payable of $848,157,
liquidated damages related to the Securities Purchase Agreements for the
convertible debentures and the December 2003 private placement of common stock
in the amounts of $404,000 and $35,050 respectively, the amortization of the
discount on the convertible debentures and convertible notes of $1,645,431,
amortization of deferred financing costs of $442,817, and the recognition of the
Beneficial Conversion Feature discount on the convertible debentures in the
amount of $1,670,038. The liquidated damages were assessed in accordance with
the terms of the respective Securities Purchase Agreements and reflect the fact
we were unable meet the deadline for registration of the common stock to become
effective as required by such agreements. See Note 5 and Note 6 to the financial
statements for a complete discussion of the discount and the beneficial
conversion feature on the convertible debentures and convertible notes payable.
The 2003 expense is comprised of interest on 7% convertible debentures and other
notes payable of $75,967, the amortization of the discount on the convertible
debentures of $292,682, and $48,997 of amortization of deferred financing costs.

         Our loss for the year ended November 30, 2004 of $8,524,496 increased
the accumulated deficit as of that date to $12,244,157.

         YEAR ENDED NOVEMBER 30, 2003 COMPARED TO PERIOD FROM INCEPTION (JUNE
18, 2002) TO NOVEMBER 30, 2002. For the year ended November 30, 2003, we
incurred operating expenses of $2,161,949, primarily for legal expenses
($381,166), investor relations ($374,275), interest expense ($368,649), travel
and entertainment ($321,463), management fees to Resource Venture Management
($320,000), and payroll salaries and taxes ($258,686). These expenses were
incurred in the effort to acquire the oil and gas properties described above and
secure the funding necessary to carry out the acquisitions. Included in investor
relations expenses were amounts incurred with public relations firms for website
development and hosting, writing and disseminating press releases and company
profile pieces, and responding to investor and shareholder inquiries. In
addition, we expensed $65,769 as a result of our decision not to exercise an
option to acquire additional leases in Wyoming and Pannonian's decision to
abandon a property in Australia.

         For the period from inception to November 30, 2002, we incurred
operating expenses of $1,140,066, primarily for contract services - Resource
Venture Management ($692,500), consulting fees and payroll ($125,265), legal
fees ($103,314), and travel and entertainment ($102,479).

LIQUIDITY AND CAPITAL RESOURCES

         FINANCING ACTIVITIES. Since inception, we have funded our operating and
investing activities through the sale of our debt and equity securities, raising
net proceeds of $850,500 through the period ended November 30, 2002, net
proceeds of $6,151,278 for the year ended November 30, 2003, and net proceeds of
$32,946,190 for the fiscal year ended November 30, 2004.


                                       17

<PAGE>

         From December 2002 through May 2003, we sold 1,602,000 shares of common
stock for gross proceeds of $1,602,000. In October 2003, we completed a
$5,640,000 private placement of 7% secured convertible debentures and warrants,
due two years from date of issue and secured by substantially all of our assets.
Debentures purchasers received five-year warrants to purchase 2,867,797 shares
of common stock at an exercise price of $0.71 per share and 2,867,797 shares of
common stock at an exercise price of $0.83 per share. We filed a registration
statement covering the shares underlying the debentures and warrants, but did
not meet the deadline associated with this filing obligation. We paid a penalty
of $404,000 to the holders of the debentures. During the year ended November 30,
2004, all of the debentures were converted at $0.59 per share into 9,559,322
shares of common stock.

         In December 2003, we completed a private placement of 2,503,571 shares
of our common stock and warrants to purchase 500,715 common shares, resulting in
gross proceeds of $3,505,000. The warrants were exercisable for a four-year
period at an original price of $2.71 per share. In accordance with the terms of
the warrants, the exercise price has been reset and these warrants are currently
exercisable at $1.54 per share. We granted registration rights to the purchasers
in this private placement.

         We completed a second private placement of 6,637,671 shares of our
common stock and warrants to purchase 1,327,535 common shares in January 2004,
resulting in gross proceeds of $11,947,800. The warrants were exercisable for a
five-year period at an original price of $4.05 per share. In accordance with the
terms of the warrants, the exercise price has been reset and these warrants are
currently exercisable at $1.54 per share. We granted registration rights to the
purchasers in this private placement as well.

         In August and October 2004, we completed two tranches of a private
placement of senior secured convertible notes and warrants. Gross proceeds from
the initial tranche were $15,000,000, while gross proceeds from the second
tranche were $5,000,000. The notes pay interest at the prime rate plus 7.25% per
annum, mature two years from the date of issue, are collateralized by
substantially all of our assets, and are convertible into 10,695,187 shares of
our common stock based on a conversion price of $1.87 per share. We paid accrued
interest on the principal amount of the notes on January 14, 2005 and became
obligated to pay monthly principal installments of $833,333 plus accrued
interest as of March 1, 2005. At our option, and assuming the satisfaction of
certain conditions, we may pay the monthly installments in cash or through a
partial conversion of the notes into shares of our common stock at a conversion
rate equal to the lesser of $1.87 or 93% of the then current market price. Note
purchasers received three-year warrants to purchase 5,194,806 shares of common
stock at $1.54 per share.

         OPERATING AND INVESTING ACTIVITIES. Our financing activities described
above have provided sufficient cash for our operating and investing activities.
For the 2004 fiscal year, we used $24,671,863 for operating and investing
activities, as compared to $3,953,078 for fiscal 2003. We expended $34,737,437
on oil and gas property acquisition, drilling, completion and construction of
facilities in 2004, and had $10,513,847 of cash at November 30, 2004. In
comparison, we expended $2,306,409 on property acquisition costs during the
fiscal year ended November 30, 2003, and had $2,239,520 of cash at November 30,
2003.

         WORKING CAPITAL DEFICIENCY. At November 30, 2004, we had a working
capital deficiency of $626,108, compared to a working capital position of
$1,756,776 at November 30, 2003. Included in the working capital deficiency at
November 30, 2004 was accrued interest payable on convertible notes of $565,684
due on January 14, 2005, and $6,249,557 of convertible note payments due in the
next twelve months. In order to maximize the cash we have available for our
drilling operations, we elected to pay such accrued interest through the
conversion of shares under the terms of the notes rather than with cash. The
total of such accrued interest amount was converted into 722,567 common shares
at various conversion rates based upon the trading price of our common stock as
required under the terms of the notes. A total of $1,148,401.83 was due under
the notes on March 1, 2005. This included a principal repayment of $833,333 plus
interest at 12.5% for the period from January 14, 2005 to March 1, 2005. We
elected to pay such amount with $474,217.13 in cash and the remainder in
converted stock. Such conversion was made by the noteholders on March 1, 2005
and a total of 433,671 shares of common stock were issued to the noteholders on
that date.

         We may, subject to certain conditions, continue to make payment of
these amounts due on the convertible notes in shares of common stock rather than
cash. We intend to closely monitor the trading volume and price of our common
stock throughout the life of the convertible debentures to determine the optimum
repayment mix of cash


                                       18

<PAGE>

and common stock. At November 30, 2004, we had initial production from 15 wells.
We plan to utilize our available cash to complete and connect to pipelines up to
140 additional wells during the first part of the current fiscal year.
Management believes that natural gas production from these wells will generate
revenues sufficient to service the cash portion of the debt repayment schedule,
if any.

         We are addressing our working capital deficiency through the sale of
our common stock and debt securities. In December 2004, we received $451,272
from the exercise of 635,594 warrants at a price of $.71 per share. Under the
terms of securities purchase agreements dated March 1, 2005, we sold $7,695,000
of senior subordinated convertible notes and three year warrants to purchase
1,637,234 shares of common stock at $1.88 per share.

         Management believes these transactions are an indication of our ability
to generate additional capital to meet our obligations during the next year.
However, our drilling program for the coming year will require additional
capital and will require us to raise additional funds by selling equity
securities, issuing debt, selling assets, or engaging in farm-outs or similar
types of arrangements. Any financing obtained through the sale of our equity
will likely result in additional dilution to our stockholders. If we are forced
to sell assets to meet our operating and capital requirements, we may not
realize the full market value of the assets and the sales price could be less
than our carrying value of the assets.

SCHEDULE OF CONTRACTUAL OBLIGATIONS

         The following table summarizes our obligations and commitments to make
future payments under our notes payable, operating leases, employment contracts
and consulting agreement for the periods specified as of November 30, 2004.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                          PAYMENTS DUE BY PERIOD
                                                    -----------------------------------------------------------------
                                                                                                              MORE
                                                                    LESS THAN 1                     3-5      THAN 5
       CONTRACTUAL OBLIGATIONS (1)<F1>                   TOTAL          YEAR        1-3 YEARS      YEARS      YEARS
---------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>           <C>            <C>               <C>        <C>
Convertible Notes Payable (2)<F2>
   Principal                                           $20,000,000   $ 7,500,000    $12,500,000       --         --
   Interest                                              3,575,777     2,536,108      1,039,669       --         --
Notes payable and accrued interest                       2,876,443     2,118,492        757,951       --         --
---------------------------------------------------------------------------------------------------------------------
Office Leases                                              117,622        50,541         67,081       --         --
---------------------------------------------------------------------------------------------------------------------
TOTAL                                                  $26,569,842   $12,205,141    $14,364,701
---------------------------------------------------------------------------------------------------------------------
----------------
<FN>
(1)<F1>  This table excludes the costs of drilling obligations in our European
         permits, as we have not determined that we will conduct those
         operations. In the event we do not fulfill those drilling obligations,
         we will forfeit the permit. We have excluded asset retirement
         obligations because we are not able to precisely predict the timing for
         these amounts.

(2)<F2>  Under certain conditions, as described elsewhere in this report, we
         have the option to pay the principal and interest with shares of common
         stock instead of cash. Interest payments were calculated using an
         interest rate of 11.75% from August 19, 2004 through October 4, 2004;
         12% from October 4, 2004 through January 4, 2005 and 12.5% thereafter.

</FN>
</TABLE>

PLAN OF OPERATION

         In addition to the above obligations, at November 30, 2004, we intended
to utilize our available cash for the following capital expenditures on our oil
and gas projects:

         (1)      $6,380,000 for operations to complete existing wells, to
                  construct necessary production and gathering facilities and
                  infrastructure to commence gas production in the Leiter,
                  Buffalo Run, Pipeline Ridge, Horse Hill, Dutch Creek, Glasgow
                  and West Recluse areas of Wyoming; and

         (2)      $235,000 to participate in a 16 well pilot program including
                  related permitting costs, in Montana.

                                       19

<PAGE>

         As of March 15, 2005, we have made most of the expenditures identified
in paragraph 1 above and approximately half of the expenditures identified in
paragraph 2 above, leaving less than $2,000,000 to be spent as described.

         As described in Item 2. Properties, we entered into an agreement to
acquire a working interest in the Piceance Basin in Colorado. Funding for our
share of acquisition and project costs was financed through a private placement
of $7,695,000 in senior subordinated convertible notes and warrants. The
unsecured notes are due June 1, 2007 and may be converted by the holders into
shares of common stock at a price of $1.88 per share. The note holders also
received three-year warrants to purchase 1,637,234 shares of common stock at
$1.88 per share. We have agreed to register the shares underlying the notes and
warrants.

         Our ability to complete all the drilling activities described above and
to meet our commitments and obligations is dependent upon the success of the
drilling program and the amount of cash flow generated from the sale of oil and
gas from the wells drilled. We continue to pursue funding and industry
participation alternatives to ensure our ability to continue to acquire
additional acreage and complete additional drilling activity. In addition, we
believe our ability to fund our activities and meet our commitments is dependent
upon the trading volume and price of our common stock. If our stock trades at
prices above the exercise prices of outstanding warrants and conversion prices
of outstanding debt securities, we may be able to obtain cash through the
exercise of warrants and pay our debt obligations with the issuance of our
stock.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         Our discussion and analysis of our financial condition and results of
operations are based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an ongoing basis, we evaluate our
estimates, including those related to impairment of long-lived assets. We base
our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions; however, we believe
that our estimates, including those for the above-described items, are
reasonable.

OIL AND GAS PROPERTIES

         We follow the full cost method of accounting for oil and gas
operations. Under this method, all costs related to the exploration for and
development of oil and gas reserves are capitalized on a country-by-country
basis. Costs include lease acquisition costs, geological and geophysical
expenses, overhead directly related to exploration and development activities
and costs of drilling both productive and non-productive wells. Proceeds from
the sale of properties are applied against capitalized costs, without any gain
or loss being recognized, unless such a sale would significantly alter the rate
of depletion and depreciation.

         Depletion of exploration and development costs and depreciation of
production equipment is provided using the unit-of-production method based upon
estimated proven oil and gas reserves. The costs of significant unevaluated
properties are excluded from costs subject to depletion. For depletion and
depreciation purposes, relative volumes of oil and gas production and reserves
are converted at the equivalent conversion based upon relative energy content.

         In applying the full cost method, we perform a ceiling test whereby the
carrying value of oil and gas properties and production equipment, net of
recorded future income taxes and the accumulated provision for site restoration
and abandonment costs, is compared annually to an estimate of future net cash
flow from the production of proven reserves. Costs related to undeveloped oil
and gas properties are excluded from the ceiling tests. Discounted net cash
flow, utilizing a 10% discount rate, is estimated using year end prices, less
estimated future general and administrative expenses, financing costs and income
taxes. Should this comparison indicate an excess carrying value, the excess is
charged against earnings. At November 30, 2004, 2003 and 2002, there were no
proved reserves. Costs of oil and gas properties are considered unevaluated at
November 30, 2004, 2003 and 2002.


                                       20
<PAGE>

ASSET RETIREMENT OBLIGATION

         In 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement requires companies to record
the present value of obligations associated with the retirement of tangible
long-lived assets in the period in which it is incurred. The liability is
capitalized as part of the related long-lived asset's carrying amount. Over
time, accretion of the liability is recognized as an operating expense and the
capitalized cost is depreciated over the expected useful life of the related
asset. Our asset retirement obligations ("ARO") relate primarily to the
plugging, dismantlement, removal, site reclamation and similar activities of our
oil and gas properties. Prior to adoption of this statement, such obligations
were accrued ratably over the productive lives of the assets through its
depreciation, depletion and amortization for oil and gas properties without
recording a separate liability for such amounts.

         During the year ended November 30, 2004, we, through acquisition and
drilling, acquired working interests in 176 natural gas wells. A limited number
of these wells had initial gas production during the period, and the others are
in various stages of completion and hook up at November 30, 2004. We adopted the
provisions of SFAS 143 to record the ARO associated with all wells in which we
own an interest on the date such obligation arose. Depreciation of the related
asset, and accretion of the ARO on wells from which production has commenced,
has been calculated using our estimate of the life of the wells, based upon the
lives of comparable wells in the area. The amounts recognized upon adoption are
based upon numerous estimates and assumptions, including future retirement
costs, future recoverable quantities of oil and gas, future inflation rates and
the credit-adjusted risk-free interest rate.

IMPAIRMENT OF LONG-LIVED ASSETS

         Our long-lived assets include property and equipment. We assess
impairment of long-lived assets whenever changes or events indicate that the
carrying value may not be recoverable. In performing our assessment we must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets. If these estimates change in the future
we may be required to record impairment charges against these respective assets.

STOCK BASED COMPENSATION

         Options that we may grant to employees under our stock option plan are
accounted for by using the intrinsic method under APB Opinion 25, Accounting for
Stock Issued to Employees (APB 25). In October 1995, the Financial Accounting
Standards Board (FASB) issued Statement No.123, Accounting for Stock-Based
Compensation (SFAS123), which defines a fair value based method of accounting
for stock options. The accounting standards prescribed by SFAS 123 are optional
and we have continued to account for stock options under the intrinsic value
method specified in APB 25.

RECENT ACCOUNTING PRONOUNCEMENTS

         In December 2004, the FASB issued SFAS 123(R), "Share-Based Payment,"
which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation.
SFAS 123(R) is effective for public companies for interim or annual periods
beginning after June 15, 2005, supersedes APB Opinion 25, Accounting for Stock
Issued to Employees, and amends SFAS 95, Statement of Cash Flows.

         SFAS 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement based
on their fair values. Pro-forma disclosure is no longer an alternative. The new
standard will be effective for us, beginning August 1, 2005. We have not yet
completed our evaluation but expect the adoption to have an effect on the
financial statements similar to the pro-forma effects reported above.

         In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary
Assets, which changes the guidance in APB 29, Accounting for Nonmonetary
Transactions. This Statement amends APB 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange.


                                       21
<PAGE>

SFAS 153 is effective during fiscal years beginning after June 15, 2005. We do
not believe the adoption of SFAS 153 will have a material impact on our
financial statements.

         The Securities and Exchange Commission has issued Staff Accounting
Bulletin (SAB) No. 106 regarding the application of SFAS 143, "Accounting for
Asset Retirement Obligations," on oil and gas producing entities that use the
full cost accounting method. It states that after adoption of SFAS 143, the
future cash outflows associated with settling asset retirement obligations that
have been accrued on the balance sheet should be excluded from the present value
of estimated future net cash flows used for the full cost ceiling test
calculation. SAB No. 106 will be effective for us once we have proved reserves
and will exclude the future cash flows from settling asset retirement
obligations in our ceiling test computation upon having proved reserves


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Our primary market risk relates to changes in the pricing applicable to
the sales of gas production in the Powder River Basin in Wyoming and Montana.
This risk will become more significant to us as our production increases in
these areas. Although we are not using derivatives at this time to mitigate the
risk of adverse changes in commodity prices, we may consider using them in the
future.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         See pages beginning with page F-1.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         On October 22, 2004, we dismissed Wheeler Wasoff, P.C. ("WW-PC") as our
independent public accountants. WW-PC had audited our financial statements for
the fiscal years ended November 30, 2002 and 2003. On October 23, 2004, we
engaged Hein + Associates LLP ("Hein") to serve as our independent public
accountants for the fiscal year ending November 30, 2004. The audit committee of
our board of directors approved both actions. We plan to continue to use WW-PC
for our tax work and ongoing consulting needs.

         During the two most recent fiscal years and the subsequent interim
period through October 22, 2004, there were no disagreements with WW-PC on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved to the satisfaction of WW-PC,
would have caused it to make reference to the subject matter of the disagreement
in connection with its report.

         There were no other "reportable events" as that term is described in
Item 304(a)(1)(iv) of Regulation S-B occurring within our two most recent fiscal
years and the subsequent interim period ending October 22, 2004.

         During our two most recent fiscal years and through October 22, 2004,
the date prior to the engagement of Hein, neither we nor anyone on our behalf
consulted Hein regarding the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on our consolidated financial statements.


ITEM 9A. CONTROLS AND PROCEDURES.

         As required by SEC rules, we have evaluated the effectiveness of the
design and operation of our disclosure controls and procedures at the end of the
period covered by this report. This evaluation was carried out under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer. Based on this
evaluation, these officers have concluded that the design and operation of our
disclosure controls and procedures are effective. There were no changes in our
internal control over financial

                                       22
<PAGE>

reporting or in other factors that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.

         Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
























                                       23

<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Our executive officers and directors are:

      NAME                             AGE     POSITION
      Marc E. Bruner                    31     President and Director
      Carmen Lotito                     60     Executive Vice President, Chief
                                               Financial Officer, Treasurer and
                                               Director
      Cecil D. Gritz                    61     Chief Operating Officer and
                                               Director
      Richard E. Kurtenbach             49     Vice President - Administration
                                               and Controller
      Gerri Baratz                      54     Secretary
      Nathan C. Collins                 69     Director
      Dr. James M. Edwards              58     Director
      Robert Thomas Fetters, Jr.        64     Director
      Thomas W. Rollins                 72     Director

         Our shareholders elect our directors annually and our board of
directors appoints our officers annually. Vacancies in our board are filled by
the board itself. Set forth below are brief descriptions of the recent
employment and business experience of our executive officers and directors.

MARC E. BRUNER, PRESIDENT AND DIRECTOR

         Marc E. Bruner became our President and director upon the acquisition
of Dolphin in November 2002. He has served as president of Dolphin since June
2002. From September 1999 to June 2002], he worked as an investment banker and
analyst for Resource Venture Management AG, a Swiss-based energy sector
consulting firm. From January 1999 to September 1999, Mr. Bruner did
miscellaneous consulting work. He was a senior account executive for J.B. Oxford
& Co., a national securities firm, from February 1997 to January 1999; and an
account executive for GKN Securities, Boca Raton, Florida, from June 1996 to
November 1996. Mr. Bruner holds a B.S. degree in accounting from the University
of Notre Dame. Mr. Bruner devotes all of his working time to the business of the
company.

CARMEN LOTITO, EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER, TREASURER AND
DIRECTOR

         Carmen Lotito became our Chief Financial Officer, Treasurer and
director upon the acquisition of Dolphin in November 2002. He became our
Executive Vice President in August 2004. He has been a director and the chairman
of the audit and compensation committees of Gasco Energy, Inc., a
publicly-traded natural gas and petroleum exploitation and development company
based in Englewood, Colorado, since April 2001. He served as vice president,
chief financial officer and director of Coriko Corporation, a private business
development company, from November 2000 to August 2002. From July 1998 to
October 1999, Mr. Lotito served as director of marketing and business
development for Impact Web Development, Salt Lake City, Utah. Prior to joining
Coriko, Mr. Lotito was self-employed as a financial consultant. In 1988, Mr.
Lotito joined ConAgra, Inc., in San Antonio, Texas as a brand manager. In 1966,
Mr. Lotito joined the firm of Pannell, Kerr Forester & Co. as a senior
accountant in management and audit services for the company's Los Angeles and
San Diego, California offices. Mr. Lotito holds a BS degree in Accounting from
the University of Southern California. Mr. Lotito is the stepfather of Marc E.
Bruner. Mr. Lotito devotes all of his working time to the business of the
company.

CECIL D. GRITZ, CHIEF OPERATING OFFICER AND DIRECTOR

         Cecil D. Gritz became a director upon the acquisition of Dolphin in
November 2002 and became our chief operating officer in October 2003. He has
worked in the oil and gas industry for more than three decades and holds an
advanced degree in petroleum engineering and is a graduate of the Colorado
School of Mines. Mr. Gritz worked as an engineer in various capacities for Shell
Oil Company from June 1966 to August 1973. After leaving Shell Oil Company, he
worked as a drilling and production manager, president of a drilling company,
and petroleum engineer for companies in Denver, Colorado. He was the vice
president of engineering and operations for Vista Resources,


                                       24

<PAGE>

Inc., Denver, Colorado, from July 1977 to September 1982, and the drilling and
production manager for Trend Exploration Limited, Denver, Colorado, from
September 1982 to September 1986. As an in-house full-time consultant, he
provided services as a petroleum engineer and project manager for David
Schlachter Oil & Gas, an independent oil and gas company based in Dallas, Texas,
from September 1986 to March 1988. He was vice president of operations for
Dantex Oil & Gas, Inc., Dallas, Texas, from March 1988 to August 1993. Mr. Gritz
has been a manager and consulting petroleum engineer for Harbor Petroleum, LLC
in Granbury, Texas, since August 1993. He is a 50% owner of that company. Mr.
Gritz devotes all of his working time to the business of the company.

RICHARD E. KURTENBACH, VICE PRESIDENT - ADMINISTRATION AND CONTROLLER

         Richard E. Kurtenbach became our Vice President - Administration and
Controller in April 2004, after having worked for us on a part-time basis since
January 2004. He has over 25 years of experience in domestic and international
oil and gas operations and auditing. From May 2003 to January 2004, he was an
accounting supervisor with respect to the Powder River business unit for
Marathon Oil Company, with responsibility for the preparation and analytical
review of monthly and quarterly financial statements for local management and
corporate consolidation purposes. He was the finance and administration manager
for Hilton Petroleum, Inc./STB Energy, Inc. from March 1998 to January 2001. He
provided management of all financial, administrative and accounting functions
for these companies that were U.S. subsidiaries of a Canadian publicly traded
company. Between his employment with Marathon Oil and Hilton/STB, he was
self-employed as a financial, accounting, auditing, tax, and administrative
consultant. Mr. Kurtenbach received a bachelor of science degree in accounting
from Illinois State University and is licensed as a certified public accountant
in Illinois and Colorado (inactive status).

GERRI BARATZ, SECRETARY

         Gerri Baratz became our Secretary in January 2004. She joined Dolphin
as an administrative assistant in August 2003. From February 1992 to September
2002, she served as an administrative assistant and office manager for VALIC, a
company in Miami, Florida, that provided school, hospital, and government
employees with a range of financial services, including various savings plans,
IRAs, mutual funds, life insurance, long-term care insurance, and short-term
disability insurance. After leaving VALIC, Ms. Baratz took a few months off. She
then worked for two temporary services agencies in Miami, Florida, from December
2002 to August 2003. Ms. Baratz devotes all of her working time to the business
of the company.

NATHAN C. COLLINS, DIRECTOR

         Nathan C. Collins became a director in April 2004. He has served as a
director of First State Bank of Flagstaff, Arizona, since September 1998. Mr.
Collins retired in 2003 after a long career in banking. Most recently, he served
as president and CEO of Bank of the Southwest from February 2002 to September
2003, a community bank in Tempe, Arizona. From September 1999 to February 2002,
he was the president of Nordstrom fsb in Scottsdale, Arizona. Nordstrom fsb, a
wholly-owned subsidiary of Nordstrom, Inc., issues Nordstrom branded credit and
debit cards, offers checking account and other financial services to Nordstrom
customers, and provides related services and support for a number of other
Nordstrom activities. His banking career spans 39 years, including serving as
executive vice president, chief lending officer, and chief audit officer of
Valley National Bank of Arizona, where he served from August 1964 to September
1987.

DR. JAMES M. EDWARDS, DIRECTOR

         Dr. James M. Edwards became a director upon the acquisition of Dolphin
in November 2002. He has been actively involved in international oil and gas
exploration and exploitation for more than 27 years. He has participated in oil
and gas discoveries in Australia, Columbia, Equatorial Guinea, France, Norway,
Trinidad, Thailand, the United Kingdom, and the United States. Dr. Edwards
previously worked as chief geologist for Triton Energy Corporation. While with
Triton, he participated in the discovery efforts of the Cusiana/Cupiagua Field
Complex, Columbia. Since June 1991, he has been the president of Equinox Energy
Corp., an oil and gas consulting company located in Dallas, Texas. Dr. Edwards
holds advanced degrees in geology, including a Master of Science from the
University of Georgia and a Ph.D. from Rice University. Mr. Edwards devotes
approximately 25 hours per month to the business of the company.


                                       25
<PAGE>

ROBERT THOMAS FETTERS, JR., DIRECTOR

         Robert Thomas Fetters, Jr. became a director in March 2004. He began
his career in the oil and gas industry in 1966 when he joined Exxon, USA (then
known as Humble Oil and Refining). He served in various capacities including
exploration, production, and research management and as exploration planning
manager. Internationally, he held positions as chief geologist for Esso
Production Malaysia and exploration manager for Esso Australia. In 1983, Mr.
Fetters joined Consolidated Natural Gas, serving as the president and CEO of its
subsidiary, CNG Producing Company, from 1984 to 1989. From 1990 to 1995, he was
the president of exploration and production for the Exploration Company of
Louisiana, and from 1995 to 1997, he was the senior vice president of operations
for National Energy Group in Dallas, Texas. In 1997, Mr. Fetters co-founded Beta
Oil and Gas, Inc., based in Houston, Texas, and served as its managing director
of exploration to September 2002. He continued to act as a consultant to Beta
Oil and Gas after leaving his position to December 2002. In January 2003, he
co-found Delta Resources, LLC, Houston, Texas, which was formed specifically to
utilize leading edge technology in oil and gas exploration. He continues to
serve as Delta's CEO and a director. In January 2003, he also co-founded
Alliance Oil & Gas Company, LLC, Houston, Texas, which is principally involved
in oil and gas acquisitions. He continues to serve as Alliance's chairman and a
director. Since January 2004, Mr. Fetters has served as the president of
Waveland Energy Partners, LLC, of Irvine, California. He holds both a bachelor's
and master's degree in geology from the University of Tennessee.

THOMAS W. ROLLINS, DIRECTOR

         Thomas W. Rollins became a director in March 2004. He has been the
chief executive officer of Rollins Resources, his natural gas and oil consulting
firm in Houston, Texas, since 1985. He has also been a director of Remington Oil
and Gas Corporation, a publicly-traded company headquartered in Dallas, Texas,
since July 1996 and a member of the executive committee of its board of
directors. Mr. Rollins previously held executive positions and/or directorships
with Shell Oil Company, Pennzoil Company, Florida Gas Transmission Company, Pogo
Producing Company, Magma Copper Company, and Felmont Oil Corporation. In 1953,
he received his degree in geological engineering and is a distinguished graduate
medallist from the Colorado School of Mines. He is a member of the American
Association of Petroleum Geologists and the American Petroleum Institute.

ADVISORY COMMITTEE

         We established an Advisory Committee to obtain advice and
recommendations from persons with significant experience in capitalizing and
operating unconventional natural gas exploration and development companies.
These persons did not want and do not have any authority to make decisions on
our behalf or to bind us. However, they have committed to provide consulting
services to us as requested in the following areas: identification of properties
for acquisition, negotiation of deal terms, assistance in making presentations
about our operations, and assistance in structuring financing arrangements.
While members of the Advisory Committee have full access to our proprietary
information that is relevant to particular tasks assigned to them, they are
obligated to maintain the confidentiality of that information. Currently, the
Advisory Committee meets informally with our officers through telephone
conference calls or in person on average at least once a week, and our officers
also speak with each member of the committee at least twice a week for input on
various projects. Members of the Advisory Committee also participate at times
during meetings of our board of directors when requested by the board and attend
only those portions of the meeting relevant to assigned tasks. We pay each of
our Advisory Committee members according to individually-negotiated consulting
agreements. There is no set rate of compensation or benefits for service as an
Advisory Committee member.

         Marc A. Bruner serves as Chairman of our Advisory Committee. He has
served as the Chairman of the Board of Directors of Gasco Energy, Inc., a
publicly-held oil and gas exploration company, since February 2001. From January
1996 to January 1999, Mr. Bruner was founding Chairman of the Board of Ultra
Petroleum. Both Gasco and Ultra are listed on the American Stock Exchange.
Ultra's business is focused on tight sand development in the Green River Basin
of Wyoming. In late 1997, Mr. Bruner co-founded Pennaco Energy, Inc., a coal bed
methane company that had land holdings in the Powder River Basin. Pennaco was
acquired in March 2001 by Marathon Oil Company. In 1996, Mr. Bruner co-founded
RIS Resources International, a natural gas company, and served as a director
until late 1997. Marc A. Bruner is the father of Marc E. Bruner. Mr. Bruner
currently devotes


                                       26
<PAGE>

approximately 20 hours per week to the business of the company. We pay for his
services through a consulting agreement with his company, Resource Venture
Management.

         Brian Hughes joined our Advisory Committee in March 2004. He started
his career in the oil and gas industry in 1985, as a production engineer for
Shell Oil Company. While employed by Shell through 1988, he was responsible for
hydraulic fracturing operations for Shell's operated units in West Texas. Mr.
Hughes then worked as a consultant from 1989 to 1996. During that period, he
planned and supervised exploration and production operations in the Rocky
Mountains and West Texas, including coal bed methane exploration programs in the
Sand Wash Basin, Piceance Basin, and San Juan Basin. His research into tight gas
sand and coal bed methane plays resulted in his involvement with Ultra Petroleum
and RIS Resources International from 1996 to 1998, where he served as vice
president exploration and production for those companies. Mr. Hughes briefly
served as vice president exploration and production for Pennaco Energy, Inc. in
1998. Mr. Hughes has been a consultant since 1998, focusing on coal bed methane
opportunities in the Powder River Basin, Forest City Basin, Arkoma Basin, Uinta
Basin, Green River Basin, Bellingham Basin, Vancouver Island, Hat Creek, Western
Alberta, Southeast Alberta, Alaska, and Zimbabwe. Mr. Hughes has been the
manager of Crusader Resources, LLC, since that entity's inception in May 2002.
Crusader Resources is wholly-owned by Mr. Hughes and is engaged in providing oil
and gas contractor services, as well as making oil and gas investments.

CONFLICTS OF INTEREST

         Members of our management are associated with other firms involved in a
range of business activities. Consequently, there are potential inherent
conflicts of interest in their acting as officers and directors of our company.
While the officers and directors are engaged in other business activities, we
anticipate that such activities will not interfere in any significant fashion
with the affairs of our business.

         Our officers and directors are now and may in the future become
shareholders, officers or directors of other companies, which may be formed for
the purpose of engaging in business activities similar to us. Accordingly,
additional direct conflicts of interest may arise in the future with respect to
such individuals acting on behalf of us or other entities. Moreover, additional
conflicts of interest may arise with respect to opportunities which come to the
attention of such individuals in the performance of their duties or otherwise.
Currently, we do not have a right of first refusal pertaining to opportunities
that come to their attention and may relate to our business operations.

         Our officers and directors are, so long as they are our officers or
directors, subject to the restriction that all opportunities contemplated by our
plan of operation which come to their attention, either in the performance of
their duties or in any other manner, will be considered opportunities of, and be
made available to us and the companies that they are affiliated with on an equal
basis. A breach of this requirement will be a breach of the fiduciary duties of
the officer or director. If we or the companies with which the officers and
directors are affiliated both desire to take advantage of an opportunity, then
said officers and directors would abstain from negotiating and voting upon the
opportunity. However, all directors may still individually take advantage of
opportunities if we should decline to do so. Except as set forth above, we have
not adopted any other conflict of interest policy with respect to such
transactions.

COMMITTEES OF THE BOARD OF DIRECTORS

         Our board of directors has formed an Audit Committee, a Compensation
Committee, and an Executive Committee.

         The Audit Committee currently consists of Messrs. Collins, Edwards and
Fetters, all of whom are independent under the definition of independence used
in the NASD listing standards. Mr. Collins serves as the chairman of the Audit
Committee. The board of directors has determined that Mr. Collins is an audit
committee financial expert with the meaning set forth in the rules and
regulations under the Securities Exchange Act of 1934.

         The Compensation Committee currently consists of Messrs., Edwards,
Rollins, and Collins. The Compensation Committee is responsible for
administering and granting awards under all equity incentive plans; reviewing
the compensation of the our chief executive officer and recommendations of the
chief executive officer as


                                       27

<PAGE>

to appropriate compensation for the other executive officers and key personnel;
and examining periodically the company's general compensation structure.

         The Nominating Committee currently consists of Messrs. Edwards,
Rollins, and Fetters. This Committee assists the board in identifying qualified
individuals to become directors, recommends to the board qualified director
nominees for election at the stockholders' annual meeting, determines membership
on the board committees, recommends a set of Corporate Governance Guidelines,
oversees annual self-evaluations by the board and self-evaluates itself
annually, and reports annually to the board on the chief executive officer
succession plan.

         The Executive Committee currently consists of Messrs. Bruner, Edwards,
and Fetters. The principal responsibility of the Executive Committee is to aid
and assist our management in the day-to-day operations of the company. The
purpose of the Executive Committee in particular, is to act on behalf of the
board of directors, subject to certain limitations, when it is not feasible to
call and convene a full board meeting.

DIRECTOR NOMINATION PROCESS

         Security holders may recommend nominees to our board of directors by
submitting such recommendations no later than 120 days before the one-year
anniversary of the date on which the proxy statement related to the most recent
annual meeting was first mailed to security holders, to the attention of our
chief executive officer at our corporate headquarters. The Nominating Committee
charter specifies that it shall treat recommendations for director that are
received from the company's security holders equally with recommendations
received from any other source, so long as such recommendations are submitted as
described in this paragraph.

CODE OF ETHICS

         We have adopted a Code of Business Conduct and Ethics that applies to
our principal executive officer, principal financial officer, principal
accounting officer, and persons performing similar functions. The text of this
code is posted on our Internet website at WWW.GALAXYENERGY.COM. In the event
that an amendment to, or a waiver from, a provision of this code is necessary,
we intend to post such information on its website.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.

         Section 16(a) of the Securities Exchange Act of 1934 requires our
officers, directors, and persons who beneficially own more than 10% of our
common stock to file reports of securities ownership and changes in such
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than 10% beneficial owners are also required by rules
promulgated by the SEC to furnish us with copies of all Section 16(a) forms they
file.

         Based solely upon a review of the copies of such forms furnished to us,
or written representations that no Form 5 filings were required, we believe that
during the fiscal year ended November 30, 2004, there was compliance with all
Section 16(a) filing requirements applicable to our officers, directors and
greater than 10% beneficial owners except as follows:

--------------------------------------------------------------------------------
REPORTING PERSON                   DATE REPORT DUE            DATE REPORT FILED
--------------------------------------------------------------------------------
James Edwards                         03/02/2004                 03/22/2004
--------------------------------------------------------------------------------
Gerri Baratz                          04/08/2004                 04/20/2004
--------------------------------------------------------------------------------
Carmen Lotito                         04/08/2004                 04/20/2004
--------------------------------------------------------------------------------
Cecil Gritz                           04/08/2004                 04/20/2004
--------------------------------------------------------------------------------
Marc E. Bruner                        04/08/2004                 04/21/2004
--------------------------------------------------------------------------------
Richard Kurtenbach                    04/08/2004                 04/23/2004
--------------------------------------------------------------------------------
Marc A. Bruner                        05/28/2004                 02/03/2005
--------------------------------------------------------------------------------
James Edwards                         08/16/2004                 08/17/2004
--------------------------------------------------------------------------------


                                       28

<PAGE>


ITEM 11. EXECUTIVE COMPENSATION.

         The following table sets forth information about the remuneration of
our chief executive officers and each of our next highly compensated executive
officers whose total annual salary and bonus exceeded $100,000, for services
rendered during the years ended November 30, 2004, 2003, and 2002.

<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------------------------------
                                                                          LONG TERM COMPENSATION
                                                                   ------------------------------------
                            ANNUAL COMPENASTION                             AWARDS             PAYOUTS
                   ---------------------------------------------   ------------------------------------
                                                        OTHER      RESTRICTED   SECURITIES
    NAME AND                                            ANNUAL        STOCK     UNDERLYING      LTIP     ALL OTHER
    PRINCIPAL                                          COMPENSA-     AWARD(S)     OPTIONS/      PAYOUTS   COMPENSA-
    POSITION        YEAR    SALARY ($)    BONUS ($)     TION($)        ($)       SARS (#)        ($)       TION($)
--------------------------------------------------------------------------------------------------------------------
<S>                 <C>      <C>             <C>          <C>          <C>      <C>              <C>          <C>
 Marc E. Bruner     2004     $108,000        -0-          -0-          -0-      750,000 (2)<F2>  -0-          -0-
 President (1)<F1>  2003      $72,000        -0-          -0-          -0-          -0-          -0-          -0
                    2002      $47,000        -0-          -0-          -0-          -0-          -0-          -0-
--------------------------------------------------------------------------------------------------------------
  Cecil Gritz,      2004     $104,450        -0-          -0-          -0-      625,000 (2)<F2>  -0-          -0-
 Chief Operating
     Officer
--------------------------------------------------------------------------------------------------------------
   Gregory C.       2002        -0-          -0-          -0-          -0-          -0-          -0-          -0-
     Burnett
  President (3)<F3>
--------------------------------------------------------------------------------------------------------------
----------------
<FN>
(1)<F1>  Mr. Bruner has been the President since November 13, 2002. The salary
         shown above includes consulting fees paid to Mr. Bruner.
(2)<F2>  These stock options vest in equal amounts quarterly over a five-year
         period.
(3)<F3>  Mr. Burnett was the President from December 17, 1999 to November 13,
         2002.
</FN>
</TABLE>


         The following table sets forth information with respect to all stock
options granted during the year ended November 30, 2004 to the named executive
officers.

<TABLE>
<CAPTION>
                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
---------------------------------------------------------------------------------------------------------------------
                                                                                       POTENTIAL REALIZABLE VALUE AT
                                                                                       ASSUMED ANNUAL RATES OF STOCK
                                                                                       PRICE APPRECIATION FOR OPTION
                                                                                                 TERM (1)<F1>
---------------------------------------------------------------------------------------------------------------------
                                    PERCENTAGE OF
                      NUMBER OF         TOTAL
                     SECURITIES      OPTIONS/SARS
                     UNDERLYING       GRANTED TO      EXERCISE OR
                    OPTIONS/SARS     EMPLOYEES IN     BASE PRICE
      NAME           GRANTED (#)     FISCAL YEAR        ($/SH)       EXPIRATION DATE      5% ($)          10% ($)
---------------------------------------------------------------------------------------------------------------------
<S>                    <C>              <C>              <C>            <C>           <C>              <C>
 Marc E. Bruner        750,000          25.3%            $2.64          4/6/2014      $1,245,211.36    $3,155,610.07
---------------------------------------------------------------------------------------------------------------------
   Cecil Gritz         625,000          21.1%            $2.64          4/6/2014       $707,676.13     $2,299,675.06
---------------------------------------------------------------------------------------------------------------------
<FN>
(1)<F1>  Securities and Exchange Commission Rules require calculation of
         potential realizable value assuming that the market price of the common
         stock appreciates in value at 5% and 10% annualized rates from the date
         of grant to the expiration date of the option. No gain to an executive
         officer is possible without an appreciation in common stock value,
         which will benefit all holders of common stock. The actual value an
         executive officer may receive depends on market prices for the common
         stock, and there can be no assurance that the amounts reflected will
         actually be realized.
</FN>
</TABLE>

         No options have been exercised by any of our executive officers.

<TABLE>
<CAPTION>
                 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
--------------------------------------------------------------------------------------------------------------------------
                                                                        NUMBER OF SECURITIES      VALUE OF UNEXERCISED
                                                                       UNDERLYING UNEXERCISED         IN-THE-MONEY
                                                                       OPTIONS/SARS AT FY-END        OPTIONS/SARS AT
                          SHARES ACQUIRED ON                                     (#)                     FY-END ($)
         NAME                EXERCISE ($)        VALUE REALIZED ($)   EXERCISABLE/UNEXERCISABLE  EXERCISABLE/UNEXERCISABLE
--------------------------------------------------------------------------------------------------------------------------
<S>                               <C>                   <C>               <C>                         <C>
    Marc E. Bruner                -0-                   -0-               112,500/637,500             -0-/-0-
--------------------------------------------------------------------------------------------------------------------------
      Cecil Gritz                 -0-                   -0-               93,750/531,250              -0-/-0-
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

         We reimburse our officers and directors for reasonable expenses
incurred during the course of their performance.

                                       29
<PAGE>

         From April 1, 2003 through February 29, 2004, we paid our two outside
directors a stipend of $1,500 per month. On May 15, 2003, we also granted each
of them options to purchase 60,000 shares at $1.00 per share, exercisable
through May 15, 2013. One-third of these options vests each year beginning May
15, 2004.

         Beginning March 1, 2004, we pay our outside directors $2,500 per month,
plus an additional $500 per month for each committee on which they serve.
Outside directors were also granted 60,000 stock options, which vested
immediately and are exercisable through March 2, 2014 at $3.51 per share. Each
January 1, beginning January 1, 2005, we will grant our outside directors
options to purchase 60,000 shares of common stock, which shall vest immediately
and be exercisable for ten years at the market price as of date of grant.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         During the last fiscal year, the Compensation Committee of the board
was comprised of three directors, Messrs. Edwards, Rollins and Collins. None of
these directors is or was an officer of the company or any of its subsidiaries
at any time now or in the past.

REPORT OF THE COMPENSATION COMMITTEE OF THE COMPANY

         The Compensation Committee of the board of directors is responsible for
setting and administering the policies that govern the annual compensation and
the long-term compensation for our executive officers. The Compensation
Committee for the year ended November 30, 2004 was composed of Messrs. Edwards,
Rollins, and Collins none of whom is employed by the company or any of its
subsidiaries. The Compensation Committee makes all decisions concerning the
compensation of executive officers who receive annual compensation in excess of
$100,000, determines the total amount of bonuses, if any, to be paid and grants
all awards of stock options. The Compensation Committee's compensation practices
are designed to attract, motivate and retain key personnel by recognizing
individual contributions, as well as the overall performance of the company. The
current executive compensation consists of base salary, potential cash bonus
awards and long-term incentive opportunities in the form of stock options.
Although the Compensation Committee has not adopted a formal compensation plan,
executive compensation is reviewed by the Compensation Committee and is set for
individual executive officers based on subjective evaluations of each
individual's performance, the company's performance, and a comparison to salary
ranges for similar positions in other companies within the oil and gas industry.
The goal of the Compensation Committee is to ensure that the company retains
qualified executives and whose financial interests are aligned with those of the
shareholders.

         BASE SALARIES. The base salary for each executive officer is determined
based on the individual's performance, industry experience and the compensation
levels of industry competitors. The Compensation Committee reviews various
surveys and publicly filed documents to determine comparable salary levels
within the industry.

         POTENTIAL CASH BONUS AWARDS. The Compensation Committee does not
currently have a formal cash bonus plan. Cash bonuses may be awarded from time
to time for exceptional effort and performance. The Compensation Committee
considers the achievements of the company to determine the level of the cash
bonus, if any, to be awarded. The Compensation Committee focuses the earnings of
the company, the return on stockholders' equity, the growth in proved oil and
gas reserves and the successful completion of specific projects of the company
to determine the level of bonus awards, if any.

         STOCK OPTIONS. The Compensation Committee utilizes stock option awards
as a method of aligning the executives' interests with those of the stockholders
by giving the key employees a direct stake in the performance of the company.
The Compensation Committee uses the same criteria described above to determine
the level of stock option awards. During fiscal 2004, 3,500,000 common stock
options were granted to the company's employees, consultants and directors,
60,000 of which were relinquished in April 2004. During fiscal 2003, 120,000
common stock options were granted to the company's directors, 60,000 of which
were relinquished in April 2004. There were no common stock options granted to
the executive officers during the year ended November 30, 2003.


                                       30
<PAGE>

         COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. During the year ended
November 30, 2004, Marc E. Bruner, President and Chief Executive Officer
received total compensation of $108,000 in salary and no cash bonus. The
Compensation Committee considered the factors described above to determine that
the compensation paid to Mr. Bruner during 2004 was appropriate. The foregoing
report is made by the Compensation Committee of the company's board of
directors.

PERFORMANCE CHART

         The following chart shows the changes in the value of $100, over the
period of December 2001, when the company began trading, until November 30,
2004, invested in: (1) Galaxy Energy Corporation; (2) the NASDAQ Market Index;
and (3) a peer group consisting of all the publicly-held companies within SIC
code 1311, Crude Petroleum and Natural Gas, consisting of approximately 190
companies. The year-end value of each investment is based on share price
appreciation and assumes that $100 was invested on December 1, 2001 and that all
dividends were reinvested. Calculations exclude trading commissions and taxes.
The comparison of past performance in the graph is required by the SEC and is
not intended to forecast or be indicative of possible future performance of the
our common stock.



                                [GRAPHIC OMITTED]



--------------------------------------------------------------------------------
TOTAL RETURN ANALYSIS
                                         11/30/2002    11/30/2003     11/30/2004
--------------------------------------------------------------------------------
GALAXY ENERGY CORP.                       $100.00       $199.13        $122.61
--------------------------------------------------------------------------------
S&P 500  OIL & GAS EXPLOR. & PROD.        $100.00       $143.91        $178.16
--------------------------------------------------------------------------------
NASDAQ COMPOSITE                          $100.00       $132.56        $141.79
--------------------------------------------------------------------------------
 Source:  CTA Public Relations www.ctapr.com (303) 665-4200.  Data from BRIDGE
          Information Systems, Inc.

STOCK OPTION PLAN

         Our stockholders adopted a 2003 Stock Option Plan in May 2003, under
which options to purchase up to 3,500,000 shares of common stock may be granted.
In October 2004, our stockholders approved an amendment to the plan that
increased the aggregate number of shares of common stock authorized for issuance
under the plan to 6,500,000. The plan provides for the granting of incentive
stock options to our employees and non-statutory options to our employees,
advisors and consultants. The compensation committee of our board of directors
administers the

                                       31
<PAGE>

plan. The maximum aggregate number of common shares underlying all options to be
granted to any one person may not exceed 60% of authorized options.

         The committee determines the exercise price for each option at the time
the option is granted. The exercise price for shares under an incentive stock
option may not be less than 100% of the fair market value of the common stock on
the date such option is granted. The fair market value price is the closing
price per share on the date the option is granted. The committee also determines
when options become exercisable. The plan permits payment to be made by cash,
check, broker assisted same day sales, and by delivery of other shares of our
stock which optionees have owned for six (6) months or more as of the exercise
date. The term of an option may be no more than ten (10) years from the date of
grant. No option may be exercised after the expiration of its term.

         Unless otherwise expressly provided in any option agreement, the
unexercised portion of any option granted to an optionee shall automatically
terminate one year after the date on which the optionee's employment or service
is terminated for any reason, other than by reason of cause, voluntary
termination of employment or service by the optionee, or the optionee's death.
Options shall terminate immediately upon the termination of an optionee's
employment for cause or 30 days after the voluntary termination of employment or
service by the optionee. If an optionee's employment or consulting relationship
terminates as a result of his or her death, then all options he or she could
have exercised at the date of death, or would have been able to exercise within
the following year if the employment or consulting relationship had continued,
may be exercised within the one year period following the optionee's death by
his or her estate or by the person who acquired the exercise right by bequest or
inheritance.

         Options granted under the plan are not transferable other than by will
or the laws of descent and distribution and may be exercised during the
optionee's lifetime only by the optionee, except that a non-statutory stock
option may be transferred to a family member or trust for the benefit of a
family member if the committee's prior written consent is obtained.

         We have the right to redeem any shares issued to any optionee upon
exercise of the option granted under the plan immediately upon the termination
of optionee's employment or service arising from disability, the death of the
optionee, the voluntary termination of employment or services of the optionee,
or the termination of employment or services of the optionee for cause. The
redemption price is the fair market value of the shares on the date of the event
of redemption.

         In the event that our stock changes by reason of any stock split,
dividend, combination, reclassification or other similar change in our capital
structure effected without the receipt of consideration, appropriate adjustments
shall be made in the number and class of shares of stock subject to the plan,
the number and class of shares of stock subject to any option outstanding under
the plan, and the exercise price for shares subject to any such outstanding
option.

         In the event of a merger in which our shareholders immediately before
the merger own 50% or more of the issued and outstanding shares of stock of the
resulting entity after the merger, then existing options shall automatically
convert into options to receive stock of the resulting entity. Unless otherwise
expressly provided in any option, the committee in its sole discretion may
cancel, effective upon the date of the consummation of any change of control,
any option that remains unexercised on such date.

         The board may amend, alter, suspend, or terminate the plan, or any part
thereof, at any time and for any reason. However, we must obtain shareholder
approval for any amendment to the plan to the extent necessary and desirable to
comply with applicable laws. No such action by the board or shareholders may
alter or impair any option previously granted under the plan without the written
consent of the optionee. The plan shall remain in effect until terminated by
action of the board or operation of law.

         As of November 30, 2004, options to purchase 3,500,000 shares were
outstanding at an average exercise price of $2.37 per share and 3,000,000 shares
were available for future grant.


                                       32

<PAGE>


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The following table provides certain information as to the officers and
directors individually and as a group, and the holders of more than 5% of the
our common stock, as of March 8, 2005:


<TABLE>
<CAPTION>
                                                        AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1)<F1>            BENEFICIAL OWNERSHIP             PERCENT OF CLASS (2)<F2>
<S>                                                     <C>                                     <C>

Marc A. Bruner                                          12,522,354 (3)<F3>(4)<F4>               20.4%
29 Blauenweg
Metzerlen, Switzerland 4116

Resource Venture Management                              5,222,729 (4)<F4>                       8.5%
29 Blauenweg
Metzerlen, Switzerland 4116

Bruner Group, LLP                                        4,500,000 (4)<F4>                       7.4%
1775 Sherman Street #1375
Denver, Colorado 80203

Marc E. Bruner                                           1,697,500 (4)<F4>(5)<F5>                2.8%

Carmen Lotito                                            1,135,000 (4)<F4>(6)<F6>                1.9%

Cecil D. Gritz                                             166,250 (7)<F7>                        *

Dr. James Edwards                                          140,000 (8)<F8>                        *

Robert Thomas Fetters, Jr.                                 120,000 (9)<F9>                        *

Thomas W. Rollins                                          120,000 (9)<F9>                        *

Nathan C. Collins                                          120,000 (9)<F9>                        *

Richard E. Kurtenbach                                      101,250 (10)<F10>                      *

Gerri Baratz                                                33,750 (11)<F11>                      *

All officers and directors as a group  (9 persons)       3,633,750 (12)<F12>                     5.8%

*less than one percent (1%)
--------------
<FN>
(1)<F1>  To our knowledge, except as set forth in the footnotes to this table
         and subject to applicable community property laws, each person named in
         the table has sole voting and investment power with respect to the
         shares set forth opposite such person's name.

(2)<F2>  This table is based on 61,186,374 shares of Common Stock outstanding as
         of March 8, 2005. If a person listed on this table has the right to
         obtain additional shares of Common Stock within sixty (60) days from
         March 8, 2005, the additional shares are deemed to be outstanding for
         the purpose of computing the percentage of class owned by such person,
         but are not deemed to be outstanding for the purpose of computing the
         percentage of any other person.

(3)<F3>  Included in Mr. Bruner's share ownership are shares owned of record by
         Resource Venture Management and Bruner Group, LLP. Mr. Bruner is a
         control person of both these entities. Also included in Mr. Bruner's
         share ownership are 203,390 shares issuable upon exercise of warrants.

                                       33
<PAGE>


(4)<F4>  This shareholder has signed a lock-up agreement restricting the sale or
         transfer of one-half of the shares owned until September 24, 2004 and
         the remaining half until March 24, 2005.

(5)<F5>  Includes 197,500 shares issuable upon exercise of stock options.

(6)<F6>  Includes 135,000 shares issuable upon exercise of stock options.

(7)<F7>  Includes 166,250 shares issuable upon exercise of stock options.

(8)<F8>  Includes 140,000 shares issuable upon exercise of stock options.

(9)<F9>  Includes 120,000 shares issuable upon exercise of stock options.

(10)<F10>Includes 101,250 shares issuable upon exercise of stock options.

(11)<F11>Includes 33,750 shares issuable upon exercise of stock options.

(12)<F12>Includes 1,133,750 shares issuable upon exercise of stock options.
</FN>
</TABLE>

CHANGES IN CONTROL

         There are no agreements known to management that may result in a change
of control of our company.

EQUITY COMPENSATION PLANS

         At November 30, 2004, our equity compensation plans were as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                NUMBER OF SECURITIES TO BE    WEIGHTED AVERAGE EXERCISE
                                  ISSUED UPON EXERCISE OF       PRICE OF OUTSTANDING         NUMBER OF SECURITIES
                                   OUTSTANDING OPTIONS,         OPTIONS, WARRANTS AND       REMAINING AVAILABLE FOR
        PLAN CATEGORY               WARRANTS AND RIGHTS                RIGHTS                   FUTURE ISSUANCE
--------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                            <C>                        <C>

  Equity compensation plans              3,500,000                      $2.37                      3,000,000
 approved by security holders
--------------------------------------------------------------------------------------------------------------------

Equity compensation plans not               -0-                          --                           -0-
 approved by security holders
--------------------------------------------------------------------------------------------------------------------

            Total                        3,500,000                      $2.37                      3,000,000
--------------------------------------------------------------------------------------------------------------------
</TABLE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Other than as disclosed below, none of our present directors, officers
or principal shareholders, nor any family member of the foregoing, nor, to the
best of our information and belief, any of our former directors, senior officers
or principal shareholders, nor any family member of such former directors,
officers or principal shareholders, has or had any material interest, direct or
indirect, in any transaction, or in any proposed transaction which has
materially affected or will materially affect us.

         MARC A. BRUNER/RESOURCE VENTURE MANAGEMENT. Marc A. Bruner is one of
our principal shareholders, one of the founders of Dolphin, and the father of
Marc E. Bruner, who serves as our president and a director. We utilize the
services of Marc A. Bruner as a consultant and pay for his services through his
company, Resource Venture Management. The nature of his ongoing consulting
services is such that we have identified him as Chairman of our Advisory
Committee. During the fiscal year ended November 30, 2002, we agreed to pay
Resource Venture Management a total of $692,500 for monthly management fees of
$162,000 through November 30, 2002, for finding oil and gas projects ($300,000),
and for reimbursement of costs and expenses ($230,500). We paid $259,296 in cash
and issued 4,000,000 shares of our common stock valued at $200,000, leaving
$233,204 due at November 30, 2002.


                                       34
<PAGE>

At February 28, 2003, Resource Venture Management agreed to convert its
outstanding debt of $233,204, into 233,204 shares of our common stock, valued at
$1.00 per share.

         From June 2002 through September 2003 we paid Resource Venture
Management $30,000 per month to provide consulting services. Beginning October
1, 2003, we and Resource Venture Management agreed to a reduced fee of $10,000
per month. Such consulting services include service as Chairman of the Advisory
Committee. During the year ended November 30, 2003, consulting fees of $320,000
were incurred and $90,000 of such fees were paid through the issuance of 90,000
shares of common stock valued at $1.00 per share. We subsequently agreed to pay
Resource Venture Management additional expenses of $77,500 during the year ended
November 30, 2003, of which $42,500 was included in accounts payable at November
30, 2003. Resource Venture Management currently has only one employee, Marc A.
Bruner. During the year ended November 30, 2004, we incurred management fees of
$120,000 and other costs and expenses of $79,929 with Resource Venture
Management, of which $37,826 remained outstanding at November 30, 2004.

         At November 30, 2003 and 2004, we also owed Marc A. Bruner $19,500 for
amounts advanced to Pannonian International prior to its acquisition by us. Upon
our acquisition of Pannonian, we assumed this obligation.

         On March 2, 2005, Dolphin deposited $7,000,000 in escrow as a condition
precedent to an agreement to acquire an initial 58-1/3% working interest in
4,000 net undeveloped mineral acres in the Piceance Basin in Colorado. The terms
of the acquisition are set forth in a Lease Acquisition and Development
Agreement with Apollo Energy LLC and ATEC Energy Ventures, LLC, the Sellers. The
Sellers were not willing to enter into the Agreement with Dolphin without having
some agreement regarding the remaining 41-2/3% working interest in the subject
properties. Since our management and advisers had previously decided that our
maximum commitment should not exceed that provided in the Agreement, it was
necessary to find a third party to take the remaining working interest, and Marc
A. Bruner was willing to provide a guaranteed payment of $2,000,000 to the
Sellers and enter into an agreement with the Sellers to acquire a 16-1/3%
working interest for such $2,000,000 with the option to acquire up to all of the
then remaining 25% working interest in the subject properties by investing an
additional $3,000,000. If Mr. Bruner invests the entire $5,000,000, his total
working interest in the properties will be 41-2/3%. Mr. Bruner and Dolphin
entered into a Participation Agreement to address certain rights and obligations
as between them, pertaining to their acquisition agreements with the Sellers.

         Under the Participation Agreement, Marc A. Bruner has the right, but
not the obligation to deposit up to an additional $25,000,000 into escrow on or
before August 1, 2005, while Dolphin has the right, but not the obligation, to
deposit up to an additional $3,000,000 into escrow on or before December 1,
2005. Dolphin and Mr. Bruner have agreed that their respective ownership
interests shall be based upon the amounts deposited into escrow and used to
acquire the leases. Therefore, if both Dolphin and Mr. Bruner contribute their
maximum amounts, their ownership interests in the leases will be Dolphin 25% and
Bruner 75%.

         Under the acquisition agreements with the Sellers, Dolphin and Mr.
Bruner are obligated to drill one well by November 1, 2005 and 9 additional
wells by August 22, 2006. If they should fail to drill any of the 9 wells, they
are obligated to pay Sellers $500,000 for each well as liquidated damages or
they are to reassign to Sellers any of the acreage covered by the leases that
remains undrilled.

         Dolphin and Mr. Bruner have agreed that each shall be responsible for
its/his respective share of the cost of operations in accordance with the terms
of the operating agreement, with such share based on the ownership interest at
the time the cost is incurred.

         Dolphin and Mr. Bruner have also agreed that for the first 36 months of
operations under the operating agreement, Bruner shall assign all of his rights
and obligations as operator, such that Dolphin shall be the contract operator or
sub-operator under the operating agreement, and that Dolphin shall be entitled
to a management fee of 10% of its costs as operator.

         CRUSADER RESOURCES, LLC/MARC A. BRUNER. Our agreement with Horizon
Exploitation, Inc., which expired January 15, 2004, identified Crusader
Resources, LLC, as the contract operator for the drilling of any wells under the
agreement. Crusader Resources, LLC is a Colorado limited liability company of
which Brian Hughes and


                                       35

<PAGE>

Marc A. Bruner were the only members at the time of the agreement. Mr. Bruner
has since transferred his interest in Crusader Resources, LLC to Brian Hughes,
who is also the manager of Crusader Resources.

         The agreement stated that a contract operatorship well fee of $5,000
was to be paid to the Crusader Resources as contract operator. To date, no
amounts have been paid to Crusader Resources, LLC, as no wells have been drilled
under the agreement. Further, the contract operating agreement with Crusader
stated that all wells on the subject leases were to be drilled on a competitive
contract basis at the usual rates prevailing in the area. Since we have retained
Continental Industries as operator with respect to our Powder River Basin
acreage in Wyoming, it is anticipated that our new agreement with Horizon will
identify Continental Industries instead of Crusader Resources as the contract
operator.

         Crusader Resources, based in Denver, Colorado and organized in May
2002, was recommended to Horizon Exploitation because of the extensive drilling
experience of Brian Hughes in the Powder River Basin area. While Crusader
Resources has no clients and has not served as a contract operator, Mr. Hughes
has drilled over 1,500 wells in that area. We have retained Brian Hughes to
serve as a member of our Advisory Committee, and have completed a strategic
consulting agreement with him. The term of the agreement is from April 1, 2004
to January 31, 2007 and is automatically extended for additional one-year terms
unless we elect to terminate the agreement. We have agreed to pay Mr. Hughes a
consulting fee of $95 per hour for all services in excess of 40 hours per
calendar month and a location fee of $5,000 per well for each well drilled in
the Powder River Basin in Wyoming and Montana, which is drilled on either
undrilled properties we owned at April 1, 2004 or subsequently acquired
undrilled properties. The location fee is multiplied by our working interest in
the well. In addition, we have agreed to pay Mr. Hughes an overriding royalty
interest in oil and gas production from all of our properties in the Powder
River Basin not to exceed 2%. For the fiscal year ended November 30, 2003, we
reimbursed Brian Hughes $25,000, for expenses incurred on our behalf. For the
year ended November 30, 2004, we incurred consulting and location fees of
$590,000 under the terms of the agreement..

         PANNONIAN INTERNATIONAL, LTD./THOMAS G. FAILS. On November 15, 2002, we
executed a letter of intent to acquire Pannonian International, Ltd., a Colorado
corporation, solely for shares of our common stock. Thomas G. Fails became one
of our directors on November 13, 2002 and resigned March 2, 2004. Mr. Fails is
the president and a director of Pannonian International, Ltd. At November 30,
2002, Pannonian International owed us $25,000 for advances made in contemplation
of the acquisition transaction. We completed the acquisition of Pannonian
International on June 2, 2003, by issuing 1,951,241 shares.

         At November 30, 2004 and 2003, we, through Pannonian International,
owed Thomas G. Fails and his company $46,839 and $139,843, respectively, for
amounts paid by him for the benefit of Pannonian International and/or advanced
to Pannonian. Pannonian International shares office space with Mr. Fails and is
charged a proportionate share of the office rent and other expenses.

         HARBOR PETROLEUM, LLC AND FLORIDA ENERGY, INC. From May 2002 through
the present, Dolphin has advanced funds to Harbor Petroleum, LLC for the
purposes of acquiring oil, gas and mineral interest leases in Rusk and
Nacogdoches Counties, Texas. Harbor Petroleum is 50%-owned and managed by Cecil
Gritz, our chief operating officer and one of our directors. During the years
ended November 30, 2004, 2003 and 2002, we incurred total costs with Harbor
Petroleum of $266,403, $344,294 and $355,817, respectively. Of those amounts,
$130,886 in 2004, $254,084 in 2003 and $266,617 in 2002 were for reimbursement
of costs incurred by Harbor to acquire oil and gas leases and other costs, and
$135,517 in 2004, $90,210 in 2003 and $89,200 in 2002 represented consulting
fees and expenses from Harbor.

         As of November 30, 2004, leases covering approximately 2,780 acres had
been acquired. No additional leases have been acquired since November 30, 2004.
While the leases are in the names of Harbor Petroleum or Florida Energy, Inc.,
such leases have been assigned to Dolphin. Florida Energy is owned and
controlled by Stephen E. Bruner, the brother of Marc A. Bruner, our controlling
shareholder, and the uncle of Marc E. Bruner, our president.

         By an agreement dated March 6, 2003, Dolphin acknowledged that it was
responsible for payment of all of the acquisition costs and maintenance costs of
the leases. Dolphin owns all of the working interests acquired under the leases,
except for a 2% overriding royalty interest, shared equally by Harbor Petroleum
and Florida Energy.

                                       36
<PAGE>

However, with respect to 400 contiguous acres designated by Florida Energy,
Florida Energy shall have a 3.125% overriding royalty interest instead of a 1%
overriding royalty interest. In addition, Dolphin has agreed to pay Florida
Energy a bonus of $50,000 for identifying this lease play. This bonus obligation
was evidenced by a promissory note due March 7, 2004 that bore interest at the
annual rate of 7-1/2%. Accrued interest at November 30, 2003 on this note was
$2,742. We paid this note on March 8, 2004.

         During the fiscal years ended November 30, 2004 and 2003 we paid Harbor
$104,450 and $13,900 in compensation for Mr. Gritz's services as our chief
operating officer. The Company also paid living expenses of $24,348 directly to
third parties for the benefit of the chief operating officer during the year
ended November 30, 2004. At November 30, 2003, $4,375 was owed to Harbor for Mr.
Gritz's services and expense reimbursement.

         FUTURE TRANSACTIONS. All future affiliated transactions will be made or
entered into on terms that are no less favorable to us than those that can be
obtained from any unaffiliated third party. A majority of the independent,
disinterested members of our board of directors will approve future affiliated
transactions.

         We believe that of the transactions described above have been on terms
as favorable to us as could have been obtained from unaffiliated third parties
as a result of arm's length negotiations.


ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

         On October 22, 2004, we dismissed Wheeler Wasoff, P.C. ("WW-PC") as our
independent public accountants. WW-PC had audited our financial statements for
the fiscal years ended November 30, 2002 and 2003. On October 23, 2004, we
engaged Hein & Associates LLP ("Hein") to serve as our independent public
accountants for the fiscal year ending November 30, 2004.

AUDIT FEES

         For the fiscal year ended November 30, 2004, Hein is expected to bill
approximately $75,000 for the audit of our annual financial statements. For the
fiscal year ended November 30, 2004, WW-PC billed $13,400 for the review of our
Form 10-QSB filings. For the fiscal year ended November 30, 2003, WW-PC billed
$52,141 for the audit of our annual financial statements and review of our Form
10-QSB filings.

AUDIT-RELATED FEES

         There were no fees billed for services reasonably related to the
performance of the audit or review of our financial statements outside of those
fees disclosed above under "Audit Fees" for fiscal years 2004 and 2003.

TAX FEES

         For the fiscal year ended November 30, 2003, WW-PC billed $9,273 for
tax compliance, tax advice, and tax planning services.

ALL OTHER FEES

         For the fiscal years ended November 30, 2004 and 2003, WW-PC billed
$10,533 and $13,793, respectively, in connection with the review of our
registration statements on Form SB-2, review of our current reports on Form 8-K,
and review of our private placement documentation.


PRE-APPROVAL POLICIES AND PROCEDURES

         Prior to engaging our accountants to perform a particular service, our
audit committee obtains an estimate for the service to be performed. The audit
committee in accordance with procedures for the company approved all of the
services described above.



                                       37
<PAGE>

         There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced in the preceding paragraph.

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

FINANCIAL STATEMENTS:

The following documents are either filed herewith or incorporated herein by
reference:

The audited consolidated financial statements of Galaxy Energy Corporation and
subsidiaries as of November 30, 2004 and 2003 and for each of the three years in
the period ended November 30, 2004, and the Reports of Independent Registered
Public Accounting Firms thereon, are included herein as shown in the "Index to
the Consolidated Financial Statements" set forth in Item 8.

FINANCIAL STATEMENT SCHEDULES:

No Financial Statement Schedules are included herein because either the amounts
are not sufficient to require submission of the schedules or because the
information is included in the Financial Statements or notes thereto.

EXHIBITS:

--------------------------------------------------------------------------------
REGULATION
S-K NUMBER                                   EXHIBIT
--------------------------------------------------------------------------------
   2.1         Agreement and Plan of Reorganization dated as of November 1, 2002
               by and among Galaxy Investments, Inc., Dolphin Acquisition
               Corporation and Dolphin Energy Corporation (1)
--------------------------------------------------------------------------------
   2.2         Share Exchange Agreement by and between Galaxy Investments, Inc.
               and Pannonian International, Ltd. (2)
--------------------------------------------------------------------------------
   3.1         Articles of Incorporation (3)
--------------------------------------------------------------------------------
   3.2         Articles of Amendment to Articles of Incorporation (4)(17)
--------------------------------------------------------------------------------
   3.3         Bylaws (3)
--------------------------------------------------------------------------------
  10.1         Escrow Instructions and Agreement dated as of August 28, 2002 (5)
--------------------------------------------------------------------------------
  10.2         Lease Acquisition and Drilling Agreement dated as of September
               30, 2002, as amended (5)
--------------------------------------------------------------------------------
  10.3         Letter agreement among Dolphin Energy Corporation, Harbor
               Petroleum, LLC and Florida Energy, Inc. dated March 6, 2003 (5)
--------------------------------------------------------------------------------
  10.4         2003 Stock Option Plan (4)
--------------------------------------------------------------------------------
  10.5         Third Extension Agreement between Pioneer Oil LLC and Dolphin
               Energy Corporation dated April 28, 2003 (4)
--------------------------------------------------------------------------------
  10.6         Lease Option and Acquisition Agreement between Dolphin Energy
               Corporation and Quaneco, L.L.C. (6)
--------------------------------------------------------------------------------

                                       38
<PAGE>



--------------------------------------------------------------------------------
REGULATION
S-K NUMBER                                   EXHIBIT
--------------------------------------------------------------------------------
  10.7         Amendment to Lease Option and Acquisition Agreement between
               Dolphin Energy Corporation and Quaneco, L.L.C. dated September 2,
               2003 (7)
--------------------------------------------------------------------------------
  10.8         Fourth Extension Agreement between Pioneer Oil LLC and Dolphin
               Energy Corporation dated April 28, 2003 (8)
--------------------------------------------------------------------------------
  10.9         Form of Securities Purchase Agreement dated as of September 24,
               2003 between Galaxy Energy Corporation and the Purchaser named
               therein (8)
--------------------------------------------------------------------------------
  10.10        Form of 7% Secured Convertible Debenture due September 24, 2005
               (8)
--------------------------------------------------------------------------------
  10.11        Form of Common Stock Purchase Warrant Exercisable at $0.71 per
               Share (8)
--------------------------------------------------------------------------------
  10.12        Form of Common Stock Purchase Warrant Exercisable at $0.83 per
               Share (8)
--------------------------------------------------------------------------------
  10.13        Letter amending Lease Option and Acquisition Agreement between
               Dolphin Energy Corporation and Quaneco, L.L.C. dated September
               22, 2003 (9)
--------------------------------------------------------------------------------
  10.14        Fifth Extension Agreement between Pioneer Oil LLC and Dolphin
               Energy Corporation dated September 30, 2003 (9)
--------------------------------------------------------------------------------
  10.15        Option Agreement between Tom Horn, LLC and Dolphin Energy
               Corporation dated October 10, 2003 (9)
--------------------------------------------------------------------------------
  10.16        Sixth Extension Agreement between Pioneer Oil LLC and Dolphin
               Energy Corporation dated October 16, 2003 (9)
--------------------------------------------------------------------------------
  10.17        Form of Securities Purchase Agreement dated as of December 18,
               2003 between Galaxy Energy Corporation and the purchaser named
               therein (10)
--------------------------------------------------------------------------------
  10.18        Form of Common Stock Purchase Warrant Exercisable at $2.71 per
               Share (10)
--------------------------------------------------------------------------------
  10.19        Sale and Escrow Agreement dated December 22, 2003 between Pioneer
               Oil, LLC and Dolphin Energy Corporation (11)
--------------------------------------------------------------------------------
  10.20        Share Acquisition Agreement between Pioneer Oil, LLC and Galaxy
               Energy Corporation dated December 22, 2003 (11)
--------------------------------------------------------------------------------
  10.21        Registration Rights Agreement dated as of December 22, 2003
               between Pioneer Oil, LLC and Galaxy Energy Corporation (11)
--------------------------------------------------------------------------------
  10.22        Purchase and Sale Agreement by and between Continental
               Industries, LC and DAR, LLC and Galaxy Energy Corporation dated
               January 14, 2004 (12)
--------------------------------------------------------------------------------
  10.23        Form of Securities Purchase Agreement dated as of January 15,
               2004 between Galaxy Energy Corporation and the Purchaser named
               therein (13)
--------------------------------------------------------------------------------
  10.24        Form of Common Stock Purchase Warrant Exercisable at $4.05 per
               Share (13)
--------------------------------------------------------------------------------
  10.25        Strategic Consulting Agreement Between Brian Hughes and Dolphin
               Energy Corporation (14)
--------------------------------------------------------------------------------
  10.26        Securities Purchase Agreement dated August 19, 2004 between
               Galaxy Energy Corporation and the Buyers named therein (15)
--------------------------------------------------------------------------------

                                       39
<PAGE>



--------------------------------------------------------------------------------
REGULATION
S-K NUMBER                                   EXHIBIT
--------------------------------------------------------------------------------
  10.27        Form of Initial Note (15)
--------------------------------------------------------------------------------
  10.28        Form of Conditional Note (15)
--------------------------------------------------------------------------------
  10.29        Form of Common Stock Purchase Warrant (15)
--------------------------------------------------------------------------------
  10.30        Registration Rights Agreement dated August 19, 2004 between
               Galaxy Energy Corporation and the Buyers named therein (15)
--------------------------------------------------------------------------------
  10.31        Security Agreement dated August 19, 2004 among Galaxy Energy
               Corporation, Dolphin Energy Corporation, and Pannonian
               International, Ltd. and Promethean Asset Management L.L.C. a
               Delaware limited liability company, in its capacity as collateral
               agent for the Lender (15)
--------------------------------------------------------------------------------
  10.32        Guaranty dated August 19, 2004 by Dolphin Energy Corporation and
               Pannonian International, Ltd. in favor of Promethean Asset
               Management L.L.C. in its own behalf and in its capacity as agent
               for the benefit of the Buyers (15)
--------------------------------------------------------------------------------
  10.33        Form of Mortgage (15)
--------------------------------------------------------------------------------
  10.34        Purchase and Sale Agreement by and among Tower Colombia
               Corporation, North Finn, LLC and American Oil & Gas, Inc., as
               Sellers and Dolphin Energy Corporation, as Buyer dated July 15,
               2004 (16)
--------------------------------------------------------------------------------
  10.35        Coal Bed Methane Participation Agreement dated November 2, 2004
               between Dolphin Energy Corporation and Horizon Gas, Inc. (18)
--------------------------------------------------------------------------------
  10.36        Lease Acquisition and Development Agreement between Dolphin
               Energy Corporation (Buyer/Operator) and Apollo Energy LLC and
               ATEC Energy Ventures, LLC (Seller/Non-Operator) dated February
               22, 2005 (19)
--------------------------------------------------------------------------------
  10.37        Participation Agreement between Dolphin Energy Corporation and
               Marc A. Bruner dated February 23, 2005 (19)
--------------------------------------------------------------------------------
  10.38        Securities Purchase Agreement dated August 19, 2004 between
               Galaxy Energy Corporation and the Buyers named therein (19)
--------------------------------------------------------------------------------
  10.39        Form of Note (19)
--------------------------------------------------------------------------------
  10.40        Form of Common Stock Purchase Warrant (19)
--------------------------------------------------------------------------------
  10.41        Registration Rights Agreement dated March 1, 2005 between Galaxy
               Energy Corporation and the Buyers named therein (19)
--------------------------------------------------------------------------------
  10.42        Subordination Agreement (19)
--------------------------------------------------------------------------------
  16.1         Letter from Wheeler Wasoff, P.C. (17)
--------------------------------------------------------------------------------
   21          Subsidiaries of the registrant (4)
--------------------------------------------------------------------------------
  31.1         Rule 13a-14(a) Certification of Chief Executive Officer
--------------------------------------------------------------------------------
  31.2         Rule 13a-14(a) Certification of Chief Financial Officer
--------------------------------------------------------------------------------


                                       40
<PAGE>

--------------------------------------------------------------------------------
REGULATION
S-K NUMBER                                   EXHIBIT
--------------------------------------------------------------------------------
  32.1         Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
               Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
               Chief Executive Officer
--------------------------------------------------------------------------------
  32.2         Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
               Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
               Chief Financial Officer
--------------------------------------------------------------------------------

--------------------
(1)      Incorporated by reference to the exhibits to the registrant's current
         report on Form 8-K dated November 13, 2002, filed December 6, 2002,
         file number 0-32237.
(2)      Incorporated by reference to the exhibits to the registrant's current
         report on Form 8-K dated May 7, 2003, filed May 13, 2003, file number
         0-32237.
(3)      Incorporated by reference to the exhibits to the registrant's
         registration statement on Form 10-SB, file number 0-32237.
(4)      Incorporated by reference to the exhibits to the registrant's quarterly
         report on Form 10-QSB for the quarter ended May 31, 2003, file number
         0-32237.
(5)      Incorporated by reference to the exhibits to the registrant's annual
         report on Form 10-KSB for the fiscal year ended November 30, 2002, file
         number 0-32237.
(6)      Incorporated by reference to the exhibits to the registrant's current
         report on Form 8-K dated August 5, 2003, filed August 18, 2003, file
         number 0-32237.
(7)      Incorporated by reference to the exhibits to the registrant's current
         report on Form 8-K dated September 2, 2003, filed September 8, 2003,
         file number 0-32237.
(8)      Incorporated by reference to the exhibits to the registrant's current
         report on Form 8-K dated October 7, 2003, filed October 8, 2003, file
         number 0-32237.
(9)      Incorporated by reference to the exhibits to the registrant's initial
         filing of its registration statement on Form SB-2, file number
         333-110053, on October 29, 2003.
(10)     Incorporated by reference to the exhibits to the registrant's amended
         current report on Form 8-K dated December 19, 2003, filed December 23,
         2003, file number 0-32237.
(11)     Incorporated by reference to the exhibits to the registrant's current
         report on Form 8-K dated December 22, 2003, filed December 23, 2003,
         file number 0-32237.
(12)     Incorporated by reference to the exhibits to the registrant's amended
         current report on Form 8-K dated January 14, 2004, filed January 20,
         2004, file number 0-32237.
(13)     Incorporated by reference to the exhibits to the registrant's amended
         current report on Form 8-K dated January 15 2004, filed January 16,
         2004, file number 0-32237.
(14)     Incorporated by reference to the exhibits to post-effective amendment
         no. 1 to the registrant's registration statement on Form SB-2, filed
         August 2, 2004, file number 333-110053
(15)     Incorporated by reference to the exhibits to the registrant's current
         report on Form 8-K dated August 19, 2004, filed August 20, 2004, file
         number 0-32237.
(16)     Incorporated by reference to the exhibits to the registrant's current
         report on Form 8-K dated September 30, 2004, filed October 5, 2004,
         file number 0-32237.
(17)     Incorporated by reference to the exhibits to the registrant's current
         report on Form 8-K dated October 22, 2004, filed October 26, 2004, file
         number 0-32237.
(18)     Incorporated by reference to the exhibits to the registrant's current
         report on Form 8-K dated November 2, 2004, filed November 4, 2004, file
         number 0-32237.
(19)     Incorporated by reference to the exhibits to the registrant's current
         report on Form 8-K dated March 1, 2005, filed March 4, 2005, file
         number 0-32237.



                                       41
<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                       GALAXY ENERGY CORPORATION



Date:  March 15, 2005                  By:   /s/ MARC E. BRUNER
                                          --------------------------------------
                                              Marc E. Bruner, President

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


<TABLE>
<CAPTION>
SIGNATURE                                TITLE                                          DATE

<S>                                      <C>                                            <C>

                                         President and Director (Principal Executive
/s/ MARC E. BRUNER                       Officer)                                       March 15, 2005
----------------------------------
Marc E. Bruner
                                         Executive Vice President, Chief Financial
                                         Officer, Treasurer and Director (Principal
/s/ CARMEN J. LOTITO                     Financial Officer)                             March 15, 2005
----------------------------------
Carmen J. Lotito


                                         Vice President - Administration and
/s/ RICHARD E. KURTENBACH                Controller (Principal Accounting Officer)      March 15, 2005
----------------------------------
Richard E. Kurtenbach


/s/ NATHAN C. COLLINS                    Director                                       March 15, 2005
----------------------------------
Nathan C. Collins


                                         Director
----------------------------------
Dr. James M. Edwards


/s/ ROBERT THOMAS FETTERS, JR.           Director                                       March 15, 2005
----------------------------------
Robert Thomas Fetters, Jr.


/s/ CECIL D. GRITZ                       Director                                       March 15, 2005
----------------------------------
Cecil D. Gritz



----------------------------------
Thomas W. Rollins                        Director




</TABLE>


                                       42

<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS








Reports of Independent Registered Public Accounting Firms              F-2 - F-3

Consolidated Balance Sheets
   November 30, 2004 and 2003                                                F-4

Consolidated Statements of Operations
   Years ended November 30, 2004 and 2003, Period from Inception
   (June 18, 2002) to November 30, 2002, and Cumulative Amounts
   from Inception to November 30, 2004                                       F-5

Consolidated Statement of Stockholders' Equity
   Period from Inception (June 18, 2002) to November 30, 2002, and
   Years ended November 30, 2004 and 2003                              F-6 - F-7

Consolidated Statements of Cash Flows
   Years ended November 30, 2004 and 2003, Period from Inception
   (June 18, 2002) to November 30, 2002, and Cumulative Amounts
   from Inception to November 30, 2004                                 F-8 - F-9

Notes to Consolidated Financial Statements                           F-10 - F-32










                                      F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
Galaxy Energy Corporation
Denver, CO

We have audited the consolidated  balance sheet of Galaxy Energy Corporation and
subsidiaries (the "Company"),  a development  stage company,  as of November 30,
2004,  and the related  consolidated  statements  of  operations,  stockholders'
equity  and cash  flows  for year  ended  November  30,  2004.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

In our  opinion,  based on our  audit  and the  report  of other  auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material  respects,  the  financial  position of the Company as of November  30,
2004, and the results of their operations and their cash flows for the year then
ended, in conformity with U.S. generally accepted accounting principles.

The financial statements of the Company as of November 30, 2003 and for the year
then ended,  and the period from inception (June 18, 2002) to November 30, 2002,
and the period from inception  (June 18, 2002) to November 30, 2003 were audited
by  other  auditors,   whose  report  dated  February  24,  2004,  expressed  an
unqualified  opinion  on  those  financial  statements.   We  have  audited  the
combination in the accompanying statements of operations,  stockholders' equity,
and cash flows for the period from  inception  (June 18,  2002) to November  30,
2003 into the period from inception (June 18, 2002) to November 30, 2004. In our
opinion, such financial statements have been properly combined.



/s/ HEIN & ASSOCIATES, LLP

HEIN & ASSOCIATES, LLP


Denver, Colorado
March 15, 2005


                                      F-2
<PAGE>








             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To The Board of Directors and Stockholders
Galaxy Energy Corporation


We have audited the  accompanying  consolidated  balance  sheet of Galaxy Energy
Corporation (formerly Galaxy Investments, Inc.) (a development stage company) as
of November 30, 2003,  and the related  consolidated  statements of  operations,
stockholders'  equity and cash flows for the year ended  November 30, 2003,  for
the period from  inception  (June 18, 2002) to November 30, 2002 and  cumulative
amounts from inception (June 18, 2002) to November 30, 2003. These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of Galaxy  Energy
Corporation  as of November 30, 2003,  and the results of its operations and its
cash flows for the year ended  November 30, 2003,  for the period from inception
(June 18, 2002) to November 30, 2002 and cumulative amounts from inception (June
18,  2002)  to  November  30,  2003 in  conformity  with  accounting  principles
generally accepted in the United States of America.


                              /s/ WHEELER WASOFF, P.C.


                              WHEELER WASOFF, P.C.




Denver, Colorado
February 24, 2004



                                      F-3
<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEETS
                           NOVEMBER 30, 2004 AND 2003

<TABLE>
<CAPTION>
                                                             ASSETS          2004                    2003
<S>                                                                     <C>                    <C>
CURRENT ASSETS
     Cash and cash equivalents                                          $    10,513,847        $     2,239,520
     Accounts receivable                                                         43,786                      -
     Prepaid and other                                                          154,216                 54,573
                                                                        ----------------       ----------------
         Total Current Assets                                                10,711,849              2,294,093
                                                                        ----------------       ----------------

UNDEVELOPED OIL AND GAS ASSETS, AT COST,
     FULL COST METHOD OF ACCOUNTING                                          37,491,529              2,799,720

FURNITURE AND EQUIPMENT, NET                                                    130,083                  4,527
                                                                        ----------------       ----------------
OTHER ASSETS
     Deferred financing costs, net                                            1,310,650                547,133
     Other                                                                        4,054                  9,960
                                                                        ----------------       ----------------
                                                                              1,314,704                557,093
                                                                        ----------------       ----------------

TOTAL ASSETS                                                            $    49,648,165        $     5,655,433
                                                                        ================       ================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Accounts payable and accrued expenses                              $     2,152,977        $       194,933
     Accounts payable - related party                                           113,758                160,032
     Current portion of notes payable - related party                            15,946                107,632
     Current portion of convertible notes payable, net                        6,249,557
     Notes payable                                                            2,100,000
     Interest payable                                                           705,719                 74,720
                                                                        ----------------       ----------------
         Total Current Liabilities                                           11,337,957                537,317
                                                                        ----------------       ----------------

LONG TERM OBLIGATIONS
     Convertible notes payable, net                                          10,415,928                      -
     Notes payable                                                              500,000                      -
     Convertible debentures, net                                                      -              2,461,611
     Notes payable - related party                                                    -                 21,946
     Asset retirement obligation                                                713,073                      -
                                                                        ----------------       ----------------
         Total long term obligations                                         11,629,001              2,483,557
                                                                        ----------------       ----------------

COMMITMENTS AND CONTINGENCIES (NOTES 2, 11 AND 12)

STOCKHOLDERS' EQUITY
     Preferred stock, $.001 par value
         Authorized - 25,000,000 shares
         Issued - none                                                                -                      -
     Common stock, $.001 par value
         Authorized - 400,000,000 shares and
         100,000,000 shares
         Issued and outstanding - 58,817,509 shares
              and 33,971,503 shares                                              58,818                 33,972
     Capital in excess of par value                                          40,173,154              6,320,248
     Deficit accumulated during the development stage                       (13,550,765)            (3,719,661)
                                                                        ----------------       ----------------
         Total Stockholders' Equity                                          26,681,207              2,634,559
                                                                        ----------------       ----------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              $    49,648,165        $     5,655,433
                                                                        ================       ================

</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      F-4
<PAGE>




                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                     PERIOD FROM       CUMULATIVE FROM
                                                                                   INCEPTION (JUNE        INCEPTION
                                              YEAR ENDED         YEAR ENDED          18, 2002) TO      (JUNE 18, 2002)
                                             NOVEMBER 30,       NOVEMBER 30,         NOVEMBER 30,           TO
                                                 2004               2003                 2002          NOVEMBER 30, 2004
<S>                                         <C>               <C>                  <C>                <C>

REVENUE
     Natural gas sales                      $     122,455     $            -       $             -    $      122,455
                                            --------------    ---------------      ----------------   ---------------

COSTS AND EXPENSES
     Lease operating expense                       59,247                  -                     -            59,247
     General and administrative                 3,517,218          2,095,495             1,140,066         6,752,779
     Abandoned oil and gas
     properties                                         -             65,769                     -            65,769
     Depreciation and amortization                 76,390                685                     -            77,075
                                            --------------    ---------------      ----------------   ---------------
                                                3,652,855          2,161,949             1,140,066         6,954,870
                                            --------------    ---------------      ----------------   ---------------

OTHER INCOME (EXPENSE)
     Interest income                               51,396                  -                     -            51,396
     Interest expense and
       financing costs                         (6,352,100)          (417,646)                    -        (6,769,746)
                                            --------------    ---------------      ----------------   ---------------
                                               (6,300,704)          (417,646)                    -        (6,718,350)
                                            --------------    ---------------      ----------------   ---------------


NET (LOSS)                                  $  (9,831,104)    $   (2,579,595)      $    (1,140,066)   $  (13,550,765)
                                            ==============    ===============      ================   ===============

NET (LOSS) PER COMMON SHARE -
   BASIC AND DILUTED                        $       (0.18)    $        (0.08)      $         (0.04)   $        (0.34)
                                            ==============    ===============      ================   ===============

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
BASIC AND DILUTED                              53,488,853         32,391,981            27,837,822        40,178.384
                                            ==============    ===============      ================   ===============

</TABLE>






        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      F-5
<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
   PERIOD FROM INCEPTION (JUNE 18, 2002) TO NOVEMBER 30, 2002, AND YEARS ENDED
                           NOVEMBER 30, 2003 AND 2004


<TABLE>
<CAPTION>
                                                                                                            (DEFICIT)
                                                                                                          ACCUMULATED
                                                                                      CAPITAL IN           DURING THE
                                                               COMMON STOCK            EXCESS OF           DEVELOPMENT
                                                           SHARES         AMOUNT       PAR VALUE              STAGE
<S>                                                    <C>             <C>           <C>                 <C>

BALANCE, JUNE 18, 2002 (INCEPTION)                                -    $       -     $         -         $            -

   Issuance of common stock for
     services at $.05 per share                           4,000,000        4,000         196,000                      -
   Sale of common stock for cash at:
     $.001 per share                                     11,500,000       11,500               -                      -
     $.02 per share                                         500,000          500           9,500                      -
     $.05 per share                                       3,000,000        3,000         147,000                      -
     $.34 per share                                       1,997,058        1,997         677,003                      -
   Recapitalization of shares
     issued prior to merger                               9,028,000        9,028         (69,359)                     -
   Net loss                                                                                                  (1,140,066)
                                                                  -            -               -

BALANCE, NOVEMBER 30, 2002                               30,025,058       30,025         960,144             (1,140,066)
                                                       ------------    ---------     ------------        ---------------

   Issuance of common stock for
      cash at $1.00 per share                             1,602,000        1,602       1,600,398                      -
   Costs of offering                                              -            -          (2,170)                     -
   Issuance of common stock for  services at:
    $  .91 per share                                         60,000           60          54,540                      -
    $ 1.00 per share                                         10,000           10           9,990                      -
   Issuance of common stock to related party
      upon conversion of outstanding debt
      at $1.00 per share                                    233,204          233         232,971                      -
   Issuance of common stock to related party
      for services at $1.00 per share                        90,000           90          89,910                      -
   Issuance of common stock to acquire
       Subsidiary                                         1,951,241        1,952        (204,184)                     -
   Discount on convertible debentures due to
      issuance of detachable warrants and
      beneficial conversion feature                               -            -       3,471,071                      -
   Warrants issued to placement agent in
      connection with convertible debenture
      offering                                                    -            -         107,578                      -
   Net loss
                                                                  -            -               -             (2,579,595)
                                                       ------------    ---------     ------------        ---------------

BALANCE, NOVEMBER 30, 2003                               33,971,503    $  33,972     $ 6,320,248         $   (3,719,661)

</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      F-6
<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
   PERIOD FROM INCEPTION (JUNE 18, 2002) TO NOVEMBER 30, 2002, AND YEARS ENDED
                           NOVEMBER 30, 2003 AND 2004
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                          (DEFICIT)
                                                                                                         ACCUMULATED
                                                                                      CAPITAL IN          DURING THE
                                                               COMMON STOCK            EXCESS OF          DEVELOPMENT
                                                           SHARES         AMOUNT       PAR VALUE             STAGE
<S>                                                      <C>            <C>        <C>                  <C>

   Issuance of common stock upon warrant
     conversion                                              45,763     $     46   $      26,954        $           -
   Issuance of common stock for cash at $1.40
     per share                                            2,503,571        2,504       3,502,496                    -
   Warrants issued to placement agents in
     connection with issuance of common stock                                            157,599
   Costs of offering                                              -            -        (449,439)                   -
   Issuance of common stock for oil and gas
     properties at $1.40 per share                        2,000,000        2,000       2,798,000                    -
   Issuance of common stock for oil and gas
     properties at $1.80 per share                        3,000,000        3,000       5,397,000                    -
   Issuance of common stock for cash at $1.80
     per share                                            6,637,671        6,638      11,941,161                    -
   Warrants issued to placement agents in
     connection with issuance of common stock                                            900,504
   Costs of offering                                              -            -      (1,784,448)                    -
   Issuance of common stock for oil and gas
     properties at $2.63 per share                          360,000          360         946,440                    -
   Issuance of common stock upon conversion of
     convertible debenture and accrued interest           9,579,788        9,579       5,642,496                    -
   Issuance of common stock for cashless
     exercise of placement agent warrants                   719,213          719            (719)                   -
   Discount on convertible notes payable due to
     issuance of detachable warrants                              -            -       4,336,316                    -
   Warrants issued to placement agents in
     connection with convertible notes payable                    -            -         404,021                    -
   Stock based compensation costs for stock
     options granted to non-employees                             -            -          34,525                    -

   Net loss
                                                                  -            -               -           (9,831,164)
                                                        -----------     --------   --------------       --------------

   BALANCE, NOVEMBER 30, 2004                            58,817,509     $ 58,818   $  40,173,154        $ (13,550,765)
                                                        ===========     ========   ==============       ==============
</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      F-7
<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                      PERIOD FROM       CUMULATIVE FROM
                                                                                       INCEPTION            INCEP-
                                                                                       (JUNE 18,         TION (JUNE 18,
                                                      YEAR ENDED      YEAR ENDED        2002) TO           2002) TO
                                                     NOVEMBER 30,    NOVEMBER 30,     NOVEMBER 30,        NOVEMBER 30,
                                                         2004            2003             2002               2004
<S>                                               <C>              <C>             <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                       $   (9,831,104)  $  (2,579,595)  $   (1,140,066)     $  (13,550,765)
   Adjustments to reconcile net loss to
   net cash used by operating activities
   Stock for services                                          -          64,600          200,000             264,600
   Stock for services - related                                -          90,000                -              90,000
   Stock for debt-related                                      -         233,204                -             233,204
   Amortization of discount on convertible
   debentures                                          1,642,675         292,682                -           1,935,357
   Amortization of deferred financing
   costs                                                 442,816          48,997                -             491,813
   Writeoff of discount on convertible debentures
   and warrants upon conversion                        2,979,464               -                -           2,979,404
   Compensation expense on vested stock
   options to non-employees                               34,521               -                -              34,521
   Depreciation, depletion, and amortization
   expense                                                71,389             685                -              72,074
   Abandonment of oil and gas
   properties                                                  -          65,769                -              65,769
   Other                                                  12,075          11,178                -              23,253
   Changes in assets and liabilities
     Accounts payable                                    (63,539)       (303,488)         284,344             (82,683)
     Accounts payable - related                          (46,274)        (73,172)         233,204             113,758
     Interest payable                                    631,000          74,720                -             705,720
     Prepaids and other current assets                  (137,522)        (54,573)               -            (192,096)
     Other                                                 4,973               -           (9,960)             (4,987)
                                                    -------------  --------------  ---------------     ---------------

Net cash used by operating activities                 (4,259,586)     (2,128,993)        (432,478)         (6,821,058)
                                                    -------------  --------------  ---------------     ---------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Additions to oil and gas properties               (20,266,368)     (1,787,926)        (351,883)        (22,406,176)
   Purchase of furniture and equipment                  (145,909)         (2,419)          (2,793)           (151,121)
   Advance to affiliate                                        -         (35,000)         (25,000)            (60,000)
   Cash received upon recapitalization and
   merger                                                      -           1,260            2,974               4,234
                                                    -------------  --------------  ---------------     ---------------

Net cash used in investing activities                (20,412,277)     (1,824,085)        (376,702)        (22,613,063)
                                                    -------------  --------------  ---------------     ---------------

</TABLE>


        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                      F-8

<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                     PERIOD FROM     CUMULATIVE FROM
                                                                                   INCEPTION (JUNE      INCEPTION
                                                                                      18, 2002)       (JUNE 18, 2002)
                                                   YEAR ENDED       YEAR ENDED            TO                TO
                                                  NOVEMBER 30,     NOVEMBER 30,      NOVEMBER 30,       NOVEMBER 30,
                                                      2004             2003              2002               2004
<S>                                             <C>               <C>               <C>              <C>

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from sale of common stock               15,452,800        1,602,000          850,500         17,905,300
   Proceeds from the sale of convertible
     notes payable                                  20,000,000                -                -         20,000,000
   Proceeds from sale of convertible
     debentures                                              -        5,040,000                -          5,040,000
   Debt and stock offering costs                    (2,419,978)        (490,722)               -         (2,910,700)
   Payment of note payable - related party            (113,632)               -                -           (113,632)
   Proceeds from exercise of placement
     agent warrants                                     27,000                -                -             27,000
                                                ---------------   --------------    -------------    ---------------

Net cash provided by financing activities           32,946,190        6,151,278          850,500         39,947,968
                                                ---------------   --------------    -------------    ---------------

NET INCREASE IN CASH                                 8,274,327        2,198,200           41,320         10,513,847

CASH AND CASH EQUIVALENTS,
   BEGINNING OF PERIODS                              2,239,520           41,320                -                  -
                                                ---------------   --------------    -------------    ---------------

CASH AND CASH EQUIVALENTS,
   END OF PERIODS                               $   10,513,847    $   2,239,520     $     41,320     $   10,513,847
                                                ===============   ==============    =============    ===============

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
   Cash paid for interest
                                                $      205,084    $       3,617     $          -     $      208,701
                                                ===============   ==============    =============    ===============
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
   Debt incurred for oil and gas properties     $    2,600,000    $     600,000     $    446,000     $    3,646,000
                                                ===============   ==============    =============    ===============
   Stock issued for services                    $            -    $     154,600     $    200,000     $      354,600
                                                ===============   ==============    =============    ===============
   Stock issued for interest and debt           $       12,075    $     233,204     $          -     $      245,279
                                                ===============   ==============    =============    ===============
   Stock issued for convertible debt            $    5,640,000    $           -     $          -     $    5,640,000
                                                ===============   ==============    =============    ===============
   Warrants issued for offering and
      financing costs                           $    1,462,124    $     107,578     $          -     $    1,569,702
                                                ===============   ==============    =============    ===============
   Discount on convertible notes and
      debentures issued                         $    4,336,316    $   3,471,001     $          -     $    7,807,387
                                                ===============   ==============    =============    ===============
   Conversion of interest to debt               $            -    $      11,178     $          -     $       11,178
                                                ===============   ==============    =============    ===============
   Stock issued for subsidiary - related        $            -    $    (202,232)    $          -     $     (202,232)
                                                ===============   ==============    =============    ===============
   Stock issued for oil and gas properties      $    9,146,800    $           -     $          -     $    9,146,800
                                                ===============   ==============    =============    ===============
</TABLE>



        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                      F-9
<PAGE>
                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS COMBINATIONS

         Galaxy Energy  Corporation (the "Company") was  incorporated  under the
         laws of the State of Colorado on December 17, 1999,  for the purpose of
         acquiring and developing mineral properties.  On November 13, 2002, the
         Company  completed  an  Agreement  and  Plan  of  Reorganization   (the
         "Agreement") whereby it issued 20,997,058 shares of its common stock to
         acquire all of the shares of Dolphin Energy Corporation ("Dolphin"),  a
         private  corporation  incorporated on June 18, 2002,  under the laws of
         the  State of  Nevada.  The  Company  was a public  company  and had no
         operations   prior  to  entering  into  the  Agreement.   Dolphin,   an
         independent energy company engaged in the exploration,  development and
         acquisition of crude oil and natural gas reserves in the western United
         States,  is  considered  a  development  stage  company  as  defined by
         Statement of Financial  Accounting  Standards (SFAS) No. 7. Dolphin was
         an  exploration  stage  oil and gas  company  and  had not  earned  any
         production   revenue,   nor  found  proved  resources  on  any  of  its
         properties.  Dolphin's  principal  activities had been raising  capital
         through  the sale of its  securities  and  identifying  and  evaluating
         potential oil and gas properties.

         As a  result  of  this  transaction,  Dolphin  became  a  wholly  owned
         subsidiary  of the  Company.  Since this  transaction  resulted  in the
         former  shareholders of Dolphin acquiring  control of the Company,  for
         financial reporting purposes the business combination was accounted for
         as an additional  capitalization of the Company (a reverse  acquisition
         with Dolphin as the accounting acquirer).  Dolphin was deemed to be the
         purchaser  and  parent  company  for  financial   reporting   purposes.
         Accordingly,  its net assets were included in the consolidated  balance
         sheet at their historical book value.

         The fair value of the assets acquired and liabilities  assumed pursuant
         to the transaction with Dolphin are as follows:

           Net cash acquired                $    2,974
           Liabilities assumed                 (63,305)
                                            -----------

           Common stock issued              $  (60,331)
                                            ===========

         On June 2, 2003,  the  Company  completed  a Share  Exchange  Agreement
         whereby it issued  1,951,241  shares of its common stock to acquire all
         the shares of Pannonian  International,  Ltd. ("Pannonian"),  a related
         entity.  Pannonian is a private corporation incorporated on January 18,
         2000,  under the laws of the State of Colorado.  The shares issued were
         valued at the predecessor cost of the net assets of Pannonian acquired.
         Pannonian is an independent  energy company engaged in the exploration,
         development  and  acquisition  of crude oil and natural gas reserves in
         Europe and is considered a development stage company as defined by SFAS
         7.  Pannonian has not earned any production  revenue,  nor has it found
         proved  resources on any of its properties.  As a result of the June 2,
         2003  transaction,  Pannonian  became a wholly owned  subsidiary of the
         Company.

         The predecessor  cost of the assets  acquired and  liabilities  assumed
         pursuant to the transaction with Pannonian were:


                                      F-10
<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS COMBINATION (CONTINUED)


           Net cash acquired                           $  1, 260
           Undeveloped oil and gas properties             75,680
           Liabilities assumed                          (279,173)
                                                       ----------

           Common stock issued                         $(202,233)
                                                       ==========

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION

         The accompanying  consolidated financial statements include the Company
         for the period from  November 13, 2002 to November  30,  2002,  and its
         wholly owned subsidiary,  Dolphin, for the period from June 18, 2002 to
         November  30,  2002.   For  the  year  ended  November  30,  2003,  the
         consolidated  financial  statements include the Company and Dolphin for
         the  entire  year  and  Pannonian   from  the  effective  date  of  the
         acquisition,  June 2, 2003,  to November 30,  2003.  For the year ended
         November 30, 2004, the consolidated  financial  statements  include the
         Company,   Dolphin,   and  Pannonian.   All  significant   intercompany
         transactions have been eliminated upon consolidation.

         LIQUIDITY

         During the year ended  November  30, 2004,  the Company  incurred a net
         loss  of  $8,524,496   and  used  cash  for  operating   activities  of
         $4,259,586.  As of November 30, 2004, the Company had a working capital
         deficiency of $626,108. Included in current liabilities at November 30,
         2004 is the current portion of convertible  notes payable of $6,249,557
         and related accrued  interest of $565,685.  The Company may, subject to
         certain  conditions,  make payment of these amounts in shares of common
         stock  rather  than  cash.  Additionally,  as  discussed  in  Note  12,
         subsequent to November 30, 2004 the Company made principle and interest
         payments to the Convertible Note Holders in both common stock and cash;
         issued  $7,695,000 in Senior  Subordinated  Convertible  Notes; and has
         received  $451,272 from the exercise of 635,594  warrants at a price of
         $.71 per share.

         Management  believes  these  transactions  are  an  indication  of  the
         Company's   ability  to  generate   additional   capital  to  meet  its
         obligations  during  the next year.  However,  the  Company's  drilling
         program for the coming year will  require  additional  capital and will
         require the Company to raise  additional  funds by selling  securities,
         issuing debt, selling assets or farm-outs or similar type arrangements.
         Any financing  obtained  through the sale of the Company's  equity will
         likely result in substantial dilution to the Company's stockholders. If
         the Company is forced to sell assets to meet its  operating and capital
         requirements,  it may not realize  the full market  value of the assets
         and the sales price could be less than the Company's  carrying value of
         the assets.

         USE OF ESTIMATES

         The  preparation of financial  statements in conformity  with generally
         accepted  accounting  principles  requires management to make estimates
         and  assumptions  that  affect  the  reported  amounts  of  assets  and
         liabilities and disclosure of contingent  assets and liabilities at the
         date  of  the  financial   statements


                                      F-11
<PAGE>



                            GALAXY ENERGY CORPORATION
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         and  reported  amounts of revenues and  expenses  during the  reporting
         period. Actual results could differ from those estimates.

         The Company's financial statements are based on a number of significant
         estimates, including oil and gas reserve quantities which are the basis
         for the  calculation of  depreciation,  depletion and impairment of oil
         and gas properties, and timing and costs associated with its retirement
         obligations.

         The oil and gas industry is subject,  by its nature,  to  environmental
         hazards  and  clean-up  costs.  At this  time,  management  knows of no
         substantial costs from environmental  accidents or events for which the
         Company may be currently liable. In addition, the Company's oil and gas
         business makes it vulnerable to changes in wellhead prices of crude oil
         and natural gas.  Such prices have been volatile in the past and can be
         expected to be volatile in the future.  By definition,  proved reserves
         are based on current oil and gas prices and estimated  reserves.  Price
         declines reduce the estimated  quantity of proved reserves and increase
         annual amortization expense (which is based on proved reserves).

         CASH EQUIVALENTS

         For purposes of  reporting  cash flows,  the Company  considers as cash
         equivalents  all highly  liquid  investments  with a maturity  of three
         months or less at the time of purchase.  On  occasion,  the Company may
         have cash in banks in excess of federally insured amounts.

         ACCOUNTS RECEIVABLE AND CREDIT POLICIES

         The Company has certain  trade  receivables  consisting  of oil and gas
         sales  obligations due under normal trade terms.  Management  regularly
         reviews  trade  receivables  and  reduces  the  carrying  amount  by  a
         valuation  allowance  that reflects  management's  best estimate of the
         amount that may not be  collectible.  At November 30, 2004, the Company
         has determined no allowance for uncollectible receivables is necessary.

         OIL AND GAS PROPERTIES

         The Company utilizes the full cost method of accounting for oil and gas
         activities.  Under  this  method,  subject  to a  limitation  based  on
         estimated  value,  all  costs  associated  with  property  acquisition,
         exploration   and   development,   including   costs  of   unsuccessful
         exploration,  are capitalized  within a cost center. No gain or loss is
         recognized upon the sale or abandonment of undeveloped or producing oil
         and gas properties unless the sale represents a significant  portion of
         oil  and  gas  properties  and  the  gain   significantly   alters  the
         relationship  between capitalized costs and proved oil and gas reserves
         of the cost center. Depreciation, depletion and amortization of oil and
         gas  properties is computed on the units of production  method based on
         proved  reserves.   Amortizable   costs  include  estimates  of  future
         development costs of proved undeveloped reserves.

         Capitalized  costs of oil and gas  properties  may not exceed an amount
         equal to the present value,  discounted at 10%, of the estimated future
         net cash  flows  from  proved oil and gas  reserves  plus the cost,  or
         estimated fair market value, if lower, of unproved  properties.  Should
         capitalized costs exceed this ceiling, an impairment is recognized. The
         present  value of  estimated  future  net cash  flows  is  computed  by
         applying  year end prices of oil and  natural gas to  estimated  future
         production


                                      F-12
<PAGE>

                           GALAXY ENERGY CORPORATION
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         of proved oil and gas reserves as of year end,  less  estimated  future
         expenditures  to be incurred in  developing  and  producing  the proved
         reserves and assuming continuation of existing economic conditions.  As
         of November 30, 2004,  the Company has recognized  initial  natural gas
         production  from a number of its  wells;  however,  due to the  limited
         production history, all oil and gas property costs are considered to be
         unevaluated and are recorded at the lower of cost or fair market value.

         IMPAIRMENT

         The  Company  applies  SFAS 144,  "Accounting  for the  Impairment  and
         Disposal of Long-Lived  Assets," which requires that long-lived  assets
         to be held and used be  reviewed  for  impairment  whenever  events  or
         changes in circumstances  indicate that the carrying amount of an asset
         may not be recoverable.  Oil and gas properties accounted for using the
         full cost method of accounting, the method utilized by the Company, are
         excluded from this requirement,  but will continue to be subject to the
         ceiling test limitations as described above.

         The Company's  exploration  projects in Texas continue to be evaluated,
         and  management  believes that the carrying costs of these projects are
         recoverable.

         During the year ended November 30, 2003, the Company charged operations
         $65,769 for abandonment of unevaluated properties.

         As of November 30,  2004,  there were no reserves  associated  with the
         European  properties.  The  company's  oil and gas  prospects in Europe
         consist of undeveloped  properties of approximately  $85,909, and there
         were neither revenues nor expenses recognized in conjunction with these
         properties.  The Company is pursuing  the  exploration  of its European
         prospects,  and  management  believes  that the carrying  cost of these
         prospects is  recoverable.  Should the company be  unsuccessful  in its
         European exploration  activities,  the carrying cost of these prospects
         will be charged to operations.

         PROPERTY AND EQUIPMENT

         Furniture  and  equipment  is recorded at cost.  Depreciation  is to be
         provided by use of the  straight-line  method over the estimated useful
         lives of the related  assets of three to five years.  Expenditures  for
         replacements,  renewals,  and betterments are capitalized.  Maintenance
         and repairs are charged to operations as incurred.  Long-lived  assets,
         other than oil and gas  properties,  are  evaluated  for  impairment to
         determine if current  circumstances and market conditions  indicate the
         carrying amount may not be recoverable.  The Company has not recognized
         any impairment losses on non oil and gas long-lived assets.

         Depreciation  expense of $20,353  and $685 was  recorded  for the years
         ended November 30, 2004 and 2003. No depreciation  expense was recorded
         for the period from inception (June 18, 2002) to November 30, 2002.


                                      F-13
<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         DEFERRED FINANCING COSTS

         The Company  capitalizes  costs  associated  with the  issuance of debt
         instruments.  These costs are amortized on a  straight-line  basis over
         the term of the  debt  agreements.  Amortization  expense  of  deferred
         financing  costs were $442,816 and $48,997 for the years ended November
         30, 2004 and 2003, respectively.

         ASSET RETIREMENT OBLIGATION

         In 2001,  the FASB issued SFAS 143,  "Accounting  for Asset  Retirement
         Obligations." SFAS 143 addresses financial accounting and reporting for
         obligations  associated  with the  retirement  of  tangible  long-lived
         assets  and the  associated  asset  retirement  costs.  This  statement
         requires   companies  to  record  the  present  value  of   obligations
         associated  with the  retirement of tangible  long-lived  assets in the
         period in which it is incurred. The liability is capitalized as part of
         the related long-lived asset's carrying amount. Over time, accretion of
         the liability is recognized as an operating expense and the capitalized
         cost is depreciated over the expected useful life of the related asset.
         The Company's asset retirement  obligations ("ARO") relate primarily to
         the plugging,  dismantlement,  removal,  site  reclamation  and similar
         activities of its oil and gas properties.

         During  the  year  ended  November  30,  2004,  the  Company,   through
         acquisition and drilling, acquired working interests in 176 natural gas
         wells.  A limited  number of these  wells had  initial  gas  production
         during the period,  and the others are in various  stages of completion
         and hook up at November 30, 2004. The Company adopted the provisions of
         SFAS 143 to  record  the ARO  associated  with all  wells in which  the
         Company   owns  an  interest  on  the  date  such   obligation   arose.
         Depreciation  of the related  asset,  and accretion of the ARO on wells
         from which  production has  commenced,  has been  calculated  using the
         Company's  estimate  of the life of the wells,  based upon the lives of
         comparable wells in the area. The amounts  recognized upon adoption are
         based  upon  numerous  estimates  and  assumptions,   including  future
         retirement costs, future recoverable  quantities of oil and gas, future
         inflation rates and the  credit-adjusted  risk-free  interest rate. The
         information  below reflects the change in the ARO during the year ended
         November 30, 2004:

         Asset retirement obligation beginning of year      $          -
            Liabilities incurred                                  710,431
            Accretion                                               2,642
                                                            -------------

         Asset retirement obligation end of year            $     713,073
                                                            =============

         FAIR VALUE

         The carrying  amount  reported in the balance sheet for cash,  accounts
         receivable,  prepaids,  and  accounts  payable and accrued  liabilities
         approximates fair value because of the immediate or short-term maturity
         of these financial instruments.

         Based upon the borrowing rates  currently  available to the Company for
         loans with  similar  terms and  average  maturities,  the fair value of
         long-term debt approximates its carrying value.


                                      F-14
<PAGE>

                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         INCOME TAXES

         The Company has adopted the  provisions  of SFAS 109,  "Accounting  for
         Income   Taxes."  SFAS  109  requires   recognition   of  deferred  tax
         liabilities  and assets for the  expected  future tax  consequences  of
         events  that have been  included  in the  financial  statements  or tax
         returns.  Under this method,  deferred tax  liabilities  and assets are
         determined based on the difference between the financial  statement and
         tax basis of assets and  liabilities  using enacted tax rates in effect
         for the year in which the differences are expected to reverse.

         Temporary  differences  between the time of reporting certain items for
         financial and tax reporting  purposes consist  primarily of exploration
         and  development  costs  on oil and gas  properties,  depreciation  and
         depletion, asset retirement obligation, and amortization of discount on
         convertible debentures.

         REVENUE RECOGNITION

         The Company  recognizes  oil and gas  revenues  from its  interests  in
         producing  wells as oil and gas is produced  and sold from these wells.
         The Company has no gas  balancing  arrangements  in place.  Natural gas
         sold  is  not   significantly   different  for  the  Company's  product
         entitlement.

         GAS BALANCING

         The Company uses the sales method of  accounting  for gas  balancing of
         gas production,  and would recognize a liability if the existing proven
         reserves were not adequate to cover the current imbalance situation. As
         of November 30, 2004, the Company's gas production is in balance.

         SHARE BASED COMPENSATION

         In October 1995, the FASB issued SFAS 123,  Accounting for  Stock-Based
         Compensation,  effective for fiscal years  beginning after December 15,
         1995.  This  statement  defines a fair value method of  accounting  for
         employee stock options and encourages  entities to adopt that method of
         accounting for its stock compensation  plans. SFAS 123 allows an entity
         to  continue  to measure  compensation  costs for these plans using the
         intrinsic  value based method of accounting as prescribed in Accounting
         Pronouncement  Bulletin Opinion No. 25,  Accounting for Stock Issued to
         Employees  (APB 25). The Company has elected to continue to account for
         its employee stock  compensation  plans as prescribed under APB 25. Had
         compensation cost for the Company's stock-based compensation plans been
         determined  based on the fair value at the grant dates for awards under
         those plans  consistent  with the method  prescribed  in SFAS 123,  the
         Company's  net (loss) and (loss) per share for the year ended  November
         30, 2004 would have been  adjusted to the pro-forma  amounts  indicated
         below.


                                      F-15
<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

<TABLE>
<CAPTION>
                                                                           2004                   2003
<S>                                                                 <C>                    <C>
           Net loss
             As reported                                            $  (8,524,696)         $  (2,579,595)
           Add stock based compensation
             included in reported net loss                                 34,525                      -
           Deduct stock based compensation expense
             determined under fair value method                        (1,868,653)                     -
                                                                    --------------         --------------
           Pro forma net loss                                       $ (10,358,824)         $  (2,579,595)
                                                                    ==============         ==============
                     Net (loss) per share
                       As reported                                  $       (0.16)         $       (0.08)
                                                                    ==============         ==============
                       Pro forma                                    $       (0.19)         $       (0.08)
                                                                    ==============         ==============

</TABLE>


         The  calculated  value of stock  options  granted  under  these  plans,
         following   calculation  methods  prescribed  by  SFAS  123,  uses  the
         Black-Scholes stock option pricing model with the following assumptions
         used:

                                                    2004          2003

         Expected option life-years                    10             10
         Risk-free interest rate                2 - 4.75%         3.625%
         Dividend yield                                 0              0
         Volatility                             79 - 110%            39%

         There were no options  granted in the period from  inception  (June 18,
         2002) to November 30, 2002.

         (LOSS) PER COMMON SHARE

         Basic  (loss)  per  share is based on the  weighted  average  number of
         common shares outstanding  during the period.  Diluted (loss) per share
         reflects the potential dilution that could occur if securities or other
         contracts to issue common stock were exercised or converted into common
         stock. Convertible equity instruments such as stock options,  warrants,
         convertible   debentures  and  notes  payable  are  excluded  from  the
         computation  of diluted  loss per share,  as the effect of the  assumed
         exercises would be antidilutive.

         CONCENTRATIONS

         Financial  instruments,   which  potentially  subject  the  Company  to
         concentrations  of credit risk,  consist of cash. The Company maintains
         cash accounts at one financial  institution.  The Company  periodically
         evaluates  the  credit  worthiness  of  financial   institutions,   and
         maintains   cash  accounts   only  in  large  high  quality   financial
         institutions.

         The  Company  has  concentrated  its  United  States   exploration  and
         production   activities   primarily  in  the  Rocky  Mountain   region,
         specifically  in coal bed methane  prospects  of the Powder River Basin
         areas of Wyoming and Montana.  As of November 30, 2004, the Company had
         recorded  no  proved  reserves.  The  Company  is  in  the  process  of
         completing and hooking up a number of wells on its

                                      F-16
<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         prospects in the Powder River Basin,  and management  believes that the
         carrying cost of these prospects is recoverable.

         All sales of oil and gas were  made to one  customer,  Enserco  Energy,
         Inc.

         RECLASSIFICATION

         Certain  amounts in the 2003 and 2002  financial  statements  have been
         reclassified to conform to the 2004 financial statement presentation.

         RECENT ACCOUNTING PRONOUNCEMENTS

         In December 2004, the FASB issued SFAS 123(R),  "Share-Based  Payment,"
         which  is a  revision  of SFAS  No.  123,  Accounting  for  Stock-Based
         Compensation. SFAS 123(R) is effective for public companies for interim
         or annual periods beginning after June 15, 2005, supersedes APB Opinion
         25,  Accounting  for Stock  Issued to  Employees,  and amends  SFAS 95,
         Statement of Cash Flows.

         SFAS 123(R) requires all share-based  payments to employees,  including
         grants of  employee  stock  options,  to be  recognized  in the  income
         statement based on their fair values. Pro-forma disclosure is no longer
         an  alternative.  The new standard  will be effective  for the company,
         beginning  August 1, 2005.  The  Company  has not yet  completed  their
         evaluation  but expects the adoption to have an effect on the financial
         statements similar to the pro-forma effects reported above.

         In December  2004,  the FASB issued SFAS 153,  Exchanges of Nonmonetary
         Assets,   which  changes  the  guidance  in  APB  29,   Accounting  for
         Nonmonetary Transactions. This Statement amends APB 29 to eliminate the
         exception for nonmonetary  exchanges of similar  productive  assets and
         replaces  it with a general  exception  for  exchanges  of  nonmonetary
         assets that do not have commercial  substance.  A nonmonetary  exchange
         has  commercial  substance  if the future  cash flows of the entity are
         expected to change significantly as a result of the exchange.  SFAS 153
         is effective  during fiscal years  beginning  after June 15, 2005.  The
         Company  does not believe the adoption of SFAS 153 will have a material
         impact on the Company's financial statements.

         The  Securities  and Exchange  Commission  has issued Staff  Accounting
         Bulletin  (SAB)  No.  106  regarding  the   application  of  SFAS  143,
         "Accounting for Asset Retirement Obligations," on oil and gas producing
         entities that use the full cost accounting method. It states that after
         adoption of SFAS 143, the future cash outflows associated with settling
         asset  retirement  obligations  that have been  accrued on the  balance
         sheet should be excluded from the present value of estimated future net
         cash flows used for the full cost ceiling test calculation. SAB No. 106
         will be effective for the Company once the Company has proved  reserves
         and will exclude the future cash flows from settling  asset  retirement
         obligations  in  its  ceiling  test   computation  upon  having  proved
         reserves.

NOTE 3 - PROPERTY AND EQUIPMENT

         OIL AND GAS PROPERTIES
         At November 30, 2004, the Company's oil and gas  properties  consist of
         oil  and  gas  lease  acquisition   costs  and  capitalized   drilling,
         completion and facility  costs.  The Company had no proved reserves and
         all properties are considered to be unevaluated.

                                      F-17
<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - PROPERTY AND EQUIPMENT (CONTINUED)

         During the year ended November 30, 2004, the Company acquired interests
         in 176  natural  gas wells in the Powder  River  Basin  either  through
         acquisition or drilling.  Fifteen wells have had initial production but
         due to the lack of sufficient production history,  proved reserves have
         not been  determined.  The  remaining  wells are in  various  stages of
         completion or awaiting hook up to pipelines.

         WYOMING

         On  December  22,  2003,  the  Company  completed  the  acquisition  of
         unevaluated  oil and gas  leases  covering  15,657  acres in the Powder
         River Basin near  Leiter,  Wyoming,  together  with five  non-producing
         wells  drilled  by  the  previous  operator  for  $1,000,000  cash  and
         2,000,000  shares of common stock valued at $1.40 per share.  Under the
         terms of the agreement, as amended, the Company is obligated to drill a
         total of 125 wells on the leased  acreage by December 31,  2005.  As of
         November 30, 2004, 43 wells have been drilled toward the commitment. If
         the Company fails to meet the 125 well  commitment,  it will retain its
         interest  in only the 80 acres  surrounding  each well  drilled at that
         date. All remaining acreage will be forfeited.

         On January 15, 2004,  the Company  entered into an agreement  with DAR,
         LLC, an unrelated  entity,  a Wyoming  limited  liability  company,  to
         acquire  certain  unevaluated  oil and  gas  leases  (the  "Continental
         Acreage")  in the  Powder  River  Basin of  Wyoming  for  approximately
         $2,764,000  in cash and  debt and  3,000,000  shares  of the  Company's
         common stock valued at $1.80 per share.

         On  March  23,  2004,  the  Company  completed  the  acquisition  of an
         additional  35%  working  interest  in  the  Continental   acreage  for
         $592,500.

         On April 13,  2004,  the  Company  entered  into an  agreement  with an
         individual  to  increase  its  working  interest  in a  portion  of the
         Continental  acreage.  The acquisition price for the additional working
         interest  was  $300,000  in cash and  360,000  shares of the  Company's
         common  stock,  valued at the  market  price as of  closing,  $2.63 per
         share.

         On April 30, 2004, the Company  acquired  various working  interests in
         unevaluated oil and gas leases adjacent to, and in the vicinity of, the
         Continental acreage for $739,550.

         On June 16, 2004, the Company  entered into an agreement to acquire oil
         and gas leases in Campbell  and Converse  Counties.  Under the terms of
         the agreement,  the Company  committed to pay 100% of the cost to drill
         twelve  wells on the  acreage,  to earn a 50%  interest  in those wells
         along with a 50% working  interest  in nine  existing  wells,  seven of
         which have been completed but had no  production.  The Company paid the
         seller  $100,000  and  had  the  right  to  acquire  for an  additional
         $1,900,000,  a 90%  working  interest in the entire  leasehold  acreage
         including  all wells on the  property.  On September  30, 2004,  having
         drilled 16 wells on the  acquired  acreage and  completed  its drilling
         obligation,  the Company exercised its option to acquire the additional
         working  interest  in  the  wells  and a 90%  working  interest  in the
         leasehold acreage in the prospects.

         MONTANA
         In August 2003, the Company entered into a Lease Option and Acquisition
         Agreement  which gave the Company an option to acquire up to 50% of the
         seller's  working  interest  in  certain  oil and gas  leases  covering
         approximately  214,000  gross  acres in the Powder  River Basin area of
         southern

                                      F-18
<PAGE>


                           GALAXY ENERGY CORPORATION
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - PROPERTY AND EQUIPMENT (CONTINUED)

         Montana.   In  2003  and  2004,  the  Company  made  payments  totaling
         $3,387,500, thereby acquiring a 12.5% working interest. On September 1,
         2004,  the  Company  determined  not to increase  its working  interest
         position  beyond its  existing  12.5% and no further  payments  are due
         under the agreement.

         TEXAS

         Under the terms of an agreement  executed March 6, 2003, the Company is
         engaged  in an  ongoing  leasing  program  with  Harbor  Petroleum  LLC
         ("Harbor") and Florida Energy, Inc.  ("Florida") (both related parties)
         for  the  acquisition  of oil,  gas  and  mineral  leases  in Rusk  and
         Nacogdoches Counties in the State of Texas.

         EUROPEAN PROPERTIES

         The  Company,   through  its   wholly-owned   international   operating
         subsidiary  Pannonian  International,  Ltd., holds a 100% interest in a
         Concession  of  unevaluated  acreage  in the Jiu  Valley  Coal Basin in
         Romania. Concession terms require Pannonian to conduct a defined amount
         of  exploratory  work each year on the  Concession or pay an equivalent
         amount  to  the  Romanian  Government.   Pannonian  has  satisfied  its
         expenditure obligation for the Concession year ended October 2004.

         On  December  12,  2003,   Pannonian,   together   with  two  unrelated
         privately-held  oil and gas  companies,  were  granted  an  Exploration
         Permit to explore for natural gas within the unevaluated Neues Bergland
         Exploration  Permit.  The Permit has a 3-year  term,  and  requires the
         drilling of a test borehole during 2005 to maintain the Permit.

         UNEVALUATED PROPERTIES

         At November  30, 2004 and 2003 the  Company's  unevaluated  oil and gas
         properties  consist of costs incurred in the following areas:

                                                         2004           2003
         Oil and gas  properties - full cost method
            United States                           $ 37,405,620   $  2,732,486
            Europe                                        85,909         67,234
                                                    ------------   ------------

                                                    $ 37,491,529   $  2,799,720
                                                    ============   ============

         During the year ended  November 30,  2004,  the  Company's  oil and gas
         expenditures  consisted  of  acquisition  costs to  purchase,  lease or
         otherwise acquire  properties,  costs to drill complete and equip wells
         and costs to construct gathering systems and production facilities. The
         Company has realized initial  production from fifteen wells. Due to the
         relatively  short  production  history,   the  Company  does  not  have
         sufficient  production  information by which reserves can be estimated.
         The Company has no proved reserves at November 30, 2004 and all oil and
         gas property costs relate to unevaluated properties.


                                      F-19
<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - PROPERTY AND EQUIPMENT (CONTINUED)

         The following  table sets forth the  capitalized  costs incurred in our
         oil and gas acquisition and exploration activities:

<TABLE>
<CAPTION>
                                                                                                      Period from
                                                                                                       inception
                                                                    Year Ended                     (June 18, 2002) to
                                                            2004                  2003             November 30, 2002
<S>                                                     <C>                    <C>                       <C>
         Acquisition of unevaluated
           properties                                   $ 19,365,549           $ 2,306,409               $   873,797
         Exploration                                      14,664,223                     -                         -
                                                        ------------           -----------               -----------
         Oil and gas expenditures                         34,029,772             2,306,409                   873,797
         Asset retirement obligation                         710,431                     -                         -
                                                        ------------           -----------               -----------
                                                        $ 34,740,203           $ 2,306,409               $   873,797
                                                        ============           ===========               ===========
</TABLE>

         Through November 30, 2004, all oil and gas  expenditures  have been for
         the  acquisition  and  exploration  of unevaluated  properties.  As the
         Company  completes the  development of wells and commences  production,
         all costs  associated  with  those  wells  will be  transferred  to the
         amortization  base. As of November 30, 2004,  all oil and gas costs are
         excluded from amortization.

         FURNITURE AND EQUIPMENT

         At November 30, 2004 and 2003, furniture and equipment is as follows:

                                                 2004             2003
         Furniture and equipment            $   151,122       $     5,212
         Less accumulated depreciation          (21,039)             (685)
                                            ------------      ------------
                                            $   130,083       $     4,527
                                            ============      ============

NOTE 4 - NOTES PAYABLE

         RELATED PARTIES

         At  November  30,  2004 and 2003,  notes  payable  to  related  parties
         consists of the following:

                                                          2004           2003
         Payable to Florida Energy,
           Due March 7, 2004, Interest rate - 7.5%    $        -     $   50,000
         Payable to the President of Pannonian
           Due February 5, 2005, Interest rate 6.5%       15,946         39,946
         Payable to a company wholly owned by the
         President of Pannonian
           Due August 1, 2004, Interest rate 6.5%              -         17,132
           Due October 5, 2001, Interest rate 15%              -         10,000
           Due November 29, 2001, Interest rate 15%            -         10,000
           Due January 12, 2002, Interest rate 15%             -          2,500
                                                      -----------    -----------
                                                          15,946        129,578
         Less current portion                            (15,946)      (107,632)
                                                      -----------    -----------
         Long term portion                            $        -     $   21,946
                                                      ===========    ===========


                                      F-20
<PAGE>

                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - NOTES PAYABLE (CONTINUED)

         OTHER

         In connection  with the  acquisition of oil and gas properties from DAR
         LLC,  the  company  issued a  promissory  note to DAR in the  amount of
         $2,600,000.  The note called for interest at a rate of 6% per annum and
         for principal payments of $1,000,000 on January 14, 2005 and $1,600,000
         on June 24, 2005.

         Subsequent to November 30, 2004, the Company  entered into an amendment
         to the  agreement  with DAR  whereby  for the  payment of  $100,000  by
         January 21, 2005, the payment schedule was revised as follows:

                Due on or before March 1, 2005                    $500,000
                Due on or before August 19, 2005                 1,600,000
                Due on or before January 13, 2006                  500,000

NOTE  5 - CONVERTIBLE DEBENTURES

         In October 2003, the Company completed a $5,640,000 private offering of
         7% Secured Convertible Debentures and Warrants (the "Debentures"),  due
         two years  from date of issue,  and  secured by  substantially  all the
         Company's assets.  Debenture  purchasers  received warrants to purchase
         2,867,797  shares of the Company's common stock at an exercise price of
         $0.71 per share, and 2,867,797 shares at an exercise price of $0.83 per
         share, for a period of five years (the "debenture warrants").

         The Company  calculated  the value of the  debenture  warrants  and the
         beneficial  conversion  feature to the  debentures in  accordance  with
         Emerging  Issues Task Force Issue No. 98-5 ("EITF  98-5"),  "Accounting
         for  Convertible  Securities  with  Beneficial  Conversion  Features or
         Contingently   Adjustable   Conversion   Ratios,"   and   EITF   00-27,
         "Application of Issue No. 98-5 to Certain Convertible Instruments." The
         fair value of the debenture warrants was estimated as of the issue date
         under the Black-Scholes pricing model, with the following  assumptions:
         common stock based on a market  price of $.63 and $.80 per share,  zero
         dividends,  expected volatility of 46% and 55%, risk free interest rate
         of  3.125%  and  expected  life of five  years.  The fair  value of the
         debenture  warrants  of  $1,823,211,  resulted  in a  discount  to  the
         debentures of $1,178,417,  and a beneficial  conversion  feature to the
         debentures of $2,292,654.  The beneficial  conversion  feature reflects
         the fact the market price of the  Company's  common stock  exceeded the
         conversion  price of the debentures as of the  respective  issue dates.
         The resulting  discount  attributable to the debenture warrants and the
         beneficial conversion feature of the debentures  aggregating $3,471,071
         was recorded as a discount to the  debentures  and was being  amortized
         over  the  term of the  debentures.  Amortization  of the  discount  of
         $292,682  and  $643,630 is  included in interest  expense for the years
         ended November 30, 2003 and 2004, respectively.

         During the year ended November 30, 2004, all investors  converted their
         debentures into 9,558,332  shares of common stock, at a conversion rate
         of $.59 per  share,  in  accordance  with the  terms of the  Securities
         Purchase  Agreement.  On  the  dates  of  conversion,  the  unamortized
         discount  attributable  to the fair  value of the  debenture  warrants,
         $864,722,  was  credited  to  capital  in  excess  of  par  value.  The
         unamortized discount attributable to the beneficial conversion feature,
         $1,670,037 is included in interest expense.  At the date of conversion,
         certain investors

                                      F-21
<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  5 - CONVERTIBLE DEBENTURES (CONTINUED)

         elected to convert  $12,075 of interest  accrued through the conversion
         date into 20,466 shares of common stock, rather than cash payment.

         Deferred  financing costs associated with the debentures were amortized
         through the dates of  conversion of the  debentures  into common stock.
         Amortization  of deferred  financing  costs of $105,248 and $48,997 was
         recorded for the years ended November 30, 2004 and 2003,  respectively.
         As of  the  conversion  dates  the  remaining  unamortized  balance  of
         deferred financing costs was credited to capital in excess of par value
         in the amount of $441,886.


         At November 30, 2003, convertible debentures consisted of:
            Debentures issued September 24, 2003                 $    3,100,000
            Debentures issued October 3, 2003                         2,540,000
            Less: unamortized discount                               (3,178,389)
                                                                 ---------------
                                                                 $    2,461,611
                                                                 ===============

NOTE 6 - CONVERTIBLE NOTES PAYABLE

         In August and October  2004,  the Company  completed  two tranches of a
         private offering of Senior Secured  Convertible Notes and Warrants (the
         "Notes").  Gross proceeds from the initial tranche of the offering were
         $15,000,000.  Gross  proceeds  from the second  tranche of the offering
         were  $5,000,000.  The Notes pay  interest at the prime rate plus 7.25%
         per annum,  mature two years from the date of issue, are collateralized
         by  substantially  all the Company's  assets,  and are convertible into
         10,695,187  shares of the Company's  common stock based on a conversion
         price of $1.87 per share. On January 14, 2005, the Company is obligated
         to pay accrued interest on the principal amount of the then outstanding
         Notes.  Beginning  March 1, 2005,  and  ending  February  1, 2007,  the
         Company  is  obligated  to repay the Notes in monthly  installments  of
         principal  in the amount of  $833,333,  plus  accrued  interest  on the
         principal  amount  of the  then  outstanding  Notes.  At the  Company's
         option,  and  assuming  the  satisfaction  of certain  conditions,  the
         Company may pay the monthly  installments  in cash or through a partial
         conversion of the Notes into shares of the Company's  common stock at a
         conversion  rate  equal to the lesser of $1.87 (as may be  adjusted  to
         prevent dilution),  or 93% of the weighted average trading price of the
         Company's  common stock on the trading day  preceding  the  conversion.
         Note purchasers  received warrants to purchase  5,194,806 shares of the
         Company's  common stock at an exercise price of $1.54 per share,  for a
         period of three years (the "Warrants").

         Pursuant  to EITF 98-5 and EITF 00-27,  the fair value of the  Warrants
         was  estimated  as of the issue  date under the  Black-Scholes  pricing
         model, with the following  assumptions:  common stock based on a market
         price of $1.21  per  share,  zero  dividends,  expected  volatility  of
         109.21%,  risk free  interest  rate of 2.75% and expected life of three
         years.  The fair value of the  Warrants  of  $3,946,833,  resulted in a
         discount to the notes of  $4,336,316.  Amortization  of the discount of
         $1,001,801 is included in interest  expense for the year ended November
         30, 2004.

         Deferred  financing  costs  associated  with the notes in the amount of
         $1,648,218 have been  capitalized and are being amortized over the life
         of the notes. For the year November 30, 2004  amortization of financing
         costs of $337,569 was recorded as interest.


                                      F-22
<PAGE>

                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - CONVERTIBLE NOTES PAYABLE (CONTINUED)

         The  placement  agents  for the notes  received  warrants  to  purchase
         400,000  shares of the Company's  common stock at an exercise  price of
         $1.54  per share  for a term of 5 years  from the  dates of grant.  The
         $404,022  fair value of these  warrants was estimated at the grant date
         under  the  Black-Scholes  pricing  model  and  has  been  recorded  as
         financing costs.

         At November 30, 2004,  convertible notes payable  debentures  consisted
         of:

             Notes payable issued August 19,2004             $    15,000,000
             Notes payable issued October 27,2004                  5,000,000
             Less: unamortized discount                           (3,334,515)
                                                             ----------------
                                                                  16,665,485
             Less current portion                                 (6,249,557)
                                                             ----------------
             Long term portion                               $    10,415,928
                                                             ================


         At November  30,  2004,  the  Company's  debt  maturity  schedule is as
         follows:

                       Years ended November 30,
                                                 2005     $    9,615,946
                                                 2006         10,500,000
                                                 2007          2,500,000
                                                          --------------
                                                          $   22,615,946
                                                          ==============

NOTE 7 - STOCKHOLDERS' EQUITY

        COMMON STOCK

         During the year ended  November 30, 2004,  the Company issued shares of
         its common stock as follows:

         o  45,763 shares for $27,000  cash  for the exercise 45,763 warrants at
            an exercise price of  $0.59 per share
         o  2,503,571 shares for cash at $1.40 per share
         o  2,000,000 shares  for  partial consideration of acquired oil and gas
            properties at $1.40 per share
         o  6,637,671 shares for cash of $1.80 per share
         o  3,000,000  shares for  partial consideration of acquired oil and gas
            properties at $1.80 per share
         o  360,000 shares for  partial  consideration  of  acquired oil and gas
            properties at $2.63 share
         o  1,525,424  shares  upon  conversion  of  $900,000   of   convertible
            debentures at a conversion price of $.59 per share
         o  8,033,898 shares upon  conversion  of   $4,740,000  of   convertible
            debentures at a conversion price of $.59 per share
         o  20,466  share s upon  conversion of  $12,075 of accrued  interest on
            convertible  debentures at a conversion price of $.59 per share


                                      F-23
<PAGE>

                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)

         o  371,206 shares  issued  in conjunction with the cashless exercise of
            508,475   Series  "A"  warrants  associated  with  the   convertible
            debentures dated September 24, 2003
         o  348,005  shares  issued in conjunction with the cashless exercise of
            508,475  Series  "B"  warrants  associated  with   the   convertible
            debentures dated October 3, 2003

         During the year ended  November 30, 2003,  the Company issued shares of
         its common stock as follows:

         o  1,602,000 shares for cash at $1.00 per share
         o  10,000 shares for services at $1.00 per share
         o  60,000 shares for services at $.91 per share
         o  233,204 shares to Resource Venture Management (RVM), an entity owned
            by a founder of the Company,  as payment of  an outstanding debt, at
            $1.00 per share
         o  90,000 shares to RVM for services rendered, valued at $90,000 ($1.00
             per share)
         o  1,951,241 shares to the shareholders of Pannonian in accordance with
            the  Share Exchange  Agreement to acquire all the outstanding shares
            of Pannonian (Note 1).

         During the period ended November 30, 2002, the Company issued shares of
         its common stock as follows:

         o  11,500,000  shares  at inception  to officers/directors/founders for
            cash at $.001 per share
         o  500,000 shares for cash at $.02 per share
         o  4,000,000 shares to RVM,  for  services rendered, valued at $200,000
            ($.05 per share)
         o  3,000,000 shares for cash at $.05 per share
         o  1,997,058 shares for cash at $.34 per share

         Effective  November 13, 2002, the Company  completed the acquisition of
         Dolphin  (Note 1). In  conjunction  with the  acquisition,  the Company
         exchanged  20,997,058  shares  of its  common  stock  for  100%  of the
         outstanding  common shares of Dolphin.  The 9,028,000  shares of common
         stock  of the  Company  outstanding  at the  date of  acquisition  were
         recapitalized  at the net asset  value of the  Company  at that date of
         $(60,331).  For financial statement reporting purposes this transaction
         was treated as a reverse acquisition whereby Dolphin was considered the
         surviving  and  reporting  entity.  For  legal  purposes,  the  Company
         remained as the surviving entity;  therefore,  the capital structure of
         the Company was accordingly restated.

         The  value  of all  common  stock  issued  for  non-cash  consideration
         represents the  non-discounted  cash price of equivalent  shares of the
         Company's common stock at the transaction date.

         WARRANTS

         In connection with the issuance of convertible  debentures in September
         and October 2003,  the Company  issued  warrants to purchase  2,867,797
         shares of common  stock at $.71 per  share,  and  2,867,797,  shares of
         common stock at $.83 per share to  purchasers  of the  debentures,  and
         issued warrants to purchase  230,847 shares of common stock at $.59 per
         share to placement agents for the issue.

                                      F-24
<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)

         In  connection  with sales of common stock in December 2003 and January
         2004, the Company issued warrants to purchase  500,715 shares of common
         stock at $2.71 per share, and 1,327,535 shares of common stock at $4.05
         per share to purchasers of the stock,  and issued  warrants to purchase
         105,166  and  358,435  shares  of  common  stock at $1.40 and $1.80 per
         share, respectively,  to placement agents for the issue. The fair value
         of the placement agent warrants,  estimated as of the issue dates under
         the  Black-Scholes  pricing  model,  was  $157,599 and $900,504 for the
         December  2003 and January 2004 common stock  offerings,  respectively.
         These  amounts were recorded as issue costs for the  respective  common
         stock  offerings.  In accordance  with the terms of the  warrants,  the
         exercise  prices of those  warrants  with original  exercise  prices in
         excess of the exercise price of the warrants issued in association with
         the Senior  Secured  Convertible  Note  offering (see Note 6) have been
         reset to $1.54 per share.

         In August 2004, in connection with the private placement of convertible
         notes,  the Company  issued  warrants to purchase  5,194,806  shares of
         common  stock at  $1.54  per  share  for a period  of three  years.  In
         addition,  placement agents for the convertible notes received warrants
         to  purchase  400,000  shares of common  stock at $1.54 per share for a
         period of five years.

         During  the year  ended  November  30,  2004,  certain  holders  of the
         warrants  issued  with  the  convertible   debentures  exercised  their
         warrants.  45,763  shares of common  stock were  issued for  $27,000 in
         cash, and 719,211  shares were issued upon exercise in accordance  with
         the cashless exercise provisions of the Securities Purchase Agreement.

         As of  November  30,  2004,  warrants  issued  and  outstanding  are as
         follows:

<TABLE>
<CAPTION>
                  Issue             Shares                    Exercise          Expiration
                  Date              Exercisable               Price             Date
<S>                                  <C>                  <C>                   <C>
         September 24, 2003           3,208,475           $  .59 - $  .83       September 24, 2008
         October 3, 2003                678,305           $  .59 - $  .83       October 3, 2008
         December 18, 2003              605,880           $ 1.40 -  $1.54       December 17, 2007
         January 15, 2004             1,685,970                     $1.54       January 14, 2009
         August 19, 2004              5,494,805                     $1.54       August 18, 2009
         October 27, 2004               100,000                     $1.54       October 26, 2009
                                     ----------

                                     11,773,435
                                     ==========
</TABLE>

         At November 30, 2004 and 2003 the weighted  average  exercise price for
         warrants outstanding is $1.27 and $.76, respectively,  and the weighted
         average remaining contractual life is 3.4 and 4.8 years, respectively.



                                      F-25
<PAGE>

                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - STOCK OPTION PLAN

         The  Company  adopted  the 2003  Stock  Option  Plan (the  "Plan"),  as
         amended.  Under the Plan,  stock  options may be granted at an exercise
         price not less than the fair market value of the Company's common stock
         at the date of grant. Options may be granted to key employees and other
         persons who  contribute to the success of the Company.  The Company has
         reserved  6,500,000  (2004) and 3,500,000 (2003) shares of common stock
         for the plan.  At  November  30,  2004 and 2003,  options  to  purchase
         3,000,000 and 3,380,000 shares were available to be granted pursuant to
         the stock option plan.

         The status of outstanding  options granted pursuant to the plans are as
         follows:

<TABLE>
<CAPTION>
                                                           Number of     Weighted Avg.     Weighted Avg.
                                                             Shares      Exercise Price     Fair Value
<S>                                                        <C>              <C>               <C>
        Options Outstanding - November 30, 2002                    -        $  -              $ -

        Granted                                              120,000        $1.00             $0.52
        Options Outstanding - November 30, 2003
             (None exercisable)                              120,000        $1.00             $0.52

        Granted                                            3,500,000        $2.28             $2.07
        Cancelled                                           (120,000)       $2.26
                                                           ----------

        Options Outstanding - November 30, 2004
             (921,250 exercisable)                         3,500,000        $2.37
                                                           ==========
</TABLE>

         There have been no options exercised to date.

         The following  table  presents  additional  information  related to the
         options outstanding at November 30, 2004:


<TABLE>
<CAPTION>
                                                                                    Weighted average
         Exercise price         Number of shares         Number of shares         remaining contractual
            per share              outstanding             Exercisable                life (Years)
<S>                                 <C>                        <C>                        <C>

                $ 1.00                  60,000                   20,000                   8.5
                  1.30                 200,000                  192,500                   9.7

                  1.50                 300,000                   25,000                   9.4

                  1.55                 325,000                   87,500                   9.6

                  2.24                  60,000                   60,000                   9.4

                  2.64               2,375,000                  356,250                   9.4

                  3.51                 180,000                  180,000                   9.3
                                    ----------                 --------

                                     3,500,000                  921,250                   9.4
                                    ==========                 ========
</TABLE>

NOTE 9 - INCOME TAXES

         The Company  follows the asset and liability  method of accounting  for
         deferred  income  taxes.   Deferred  tax  assets  and  liabilities  are
         determined  based on the  temporary  differences  between the financial
         statement  and tax basis of assets and  liabilities.  At  November  30,
         2004, the Company had



                                      F-26
<PAGE>

                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - INCOME TAXES (CONTINUED)

         approximately  $7,800,000  of  net  operating  losses  and  $18,000  of
         statutory depletion carry forward for tax return purposes.

         The income tax  expense  recorded  in the  consolidated  statements  of
         operations consists of the following:

                                                    Years Ended November 30,
                                                       2004              2003

         Current                                   $          -      $        -
         Deferred                                     3,602,000         801,301
         Less valuation allowance                    (3,602,000)       (801,301)
                                                   -------------     -----------

                                                   $          -      $        -
                                                   =============     ===========

         The effective income tax rate differs from the U.S.  Federal  statutory
         income tax rate due to the following:

                                                    Years Ended November 30,
                                                       2004              2003

         Federal statutory income tax rate            (34.0%)           (34%)
         State income taxes                            (3.3%)          (3.3%)
         Permanent differences                         15.1%            6.0%
         Increase in valuation allowance               22.2%           31.3%
                                                   ----------       ---------

                                                           -               -
                                                   ==========       =========

         The principal  sources of temporary  differences  resulting in deferred
         tax assets and tax liabilities at November 30, 2004 are as follows:

                                                          2004           2003
         Deferred tax assets
           Asset retirement obligation                $   265,000     $       -
           Tax loss carryforward                        3,671,000       801,000
                                                      ------------    ----------
             Total deferred taxes                       3,936,000       801,000
                                                      ------------    ----------

         Deferred tax liabilities
           Intangible drilling and other exploration
             costs capitalized for financial reporting
             purposes                                    (319,000)            -
           Other                                          (15,000)            -
         Total deferred tax liabilities                  (334,000)            -

         Net deferred tax asset                         3,602,000       801,000
           Valuation allowance                         (3,602,000)     (801,000)
                                                      ------------    ----------

         Net deferred taxes                           $         -     $       -
                                                      ============    ==========

         The  valuation  allowance  increased by  approximately  $2,801,000  and
         $791,000 in 2004 and 2003, respectively.



                                      F-27
<PAGE>

                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - RELATED PARTY TRANSACTIONS

         The Company  incurred  consulting fees related to services  provided by
         RVM in the amounts of  $120,000,  $320,000  and  $462,000 for the years
         ended November 30, 2004,  2003 and 2002  respectively.  RVM also billed
         the Company  $79,929,  $77,500 and $230,500 for  reimbursement of costs
         and expenses  incurred on behalf of the Company  during the same years.
         During the year ended  November  30,  2003 the Company  issued  323,204
         shares of common stock valued at $1.00 per share to RVM for outstanding
         debt at November  30,  2002 and  services  rendered in 2003.  All other
         amounts paid in 2004,  2003 and 2002 were paid in cash. At November 30,
         2004 and 2003 the  Company  included  amounts due to RVM of $37,826 and
         $42,500, respectively, in accounts payable related parties.

         Harbor  is a company  owned  50% and  managed  by the  Company's  Chief
         Operating  Officer  ("COO").  During the years ended November 30, 2004,
         2003 and 2002,  the Company  incurred costs and expenses with Harbor as
         follows:   $271,588,   $344,294  and   $355,817.   Of  those   amounts,
         compensation  expenses paid to Harbor for services  provided by the COO
         and other  Harbor  staff,  were  $163,737,  $90,210 and $89,200 for the
         corresponding  years.  Reimbursement  of costs  advanced  by  Harbor on
         behalf of the  Company of  $132,197  $254,084  and  $266,617  were paid
         during the years ended November 30, 2004, 2003 and 2002, respectively

         Under the terms of the  agreement  between  the  Company,  Harbor,  and
         Florida,  Harbor and Florida will each retain a 1%  overriding  royalty
         interest in the acquired leases,  including those leases acquired as of
         the date of the  agreement.  However,  with  respect to 400  contiguous
         acres  designated by Florida,  Florida  shall have a 3.125%  overriding
         royalty instead of a 1% overriding royalty interest.

         The Company  incurred  Directors  fees  totaling  $180,000  and $27,500
         during the years ended November 30, 2004 and 2003, of which $31,000 and
         $3,500 is included in accounts payable - related as of those dates.

         In April, 2004, the Company executed a strategic  consulting  agreement
         with a member of the Company's Advisory  Committee.  Under the terms of
         the Agreement, the individual is to be paid a consulting fee of $95 per
         hour for all  services in excess of 40 hours per  calendar  month and a
         location fee of $5,000 per well for each well drilled on the  Company's
         acreage in the Powder  River Basin in Wyoming and  Montana.  During the
         year ended November 30, 2004 the Company paid the  individual  $590,000
         under the terms of the Agreement.

         In connection  with the  acquisition of Pannonian,  the Company assumed
         liabilities  due from Pannonian to related parties  including  advances
         from the founder of the Company of $39,500;  notes  payable and accrued
         interest due to the  President of Pannonian of $37,508;  notes  payable
         and accrued  interest to a company  wholly  owned by the  President  of
         Pannonian of $44,400;  and accounts payable to Directors of the Company
         for services rendered and costs advanced of $63,346.

         During the  period  ended  November  30,  2002,  the  Company  incurred
         consulting fees for services rendered by its  officers/directors in the
         aggregate amount of $102,000,  of which $38,000 is included in accounts
         payable.


                                      F-28
<PAGE>

                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - COMMITMENTS AND CONTINGENCIES

         OFFICE LEASES

         The Company currently leases space in Denver,  Colorado.  Total minimum
         rental payments for non-cancelable operating leases are as follows:

                      2005                $     50,541
                      2006                      53,517
                      2007                      13,564
                                          ------------
                                          $    117,622
                                          ============

         Rent expense was  approximately  $98,000,  $51,000,  and $4,000 for the
         years ended November 30, 2004, 2003 and 2002, respectively.

         DELAY RENTALS

         In conjunction with the Company's  working interests in undeveloped oil
         and gas prospects, the Company must pay approximately $155,000 in delay
         rentals and other costs during the fiscal year ending November 30, 2005
         to  maintain  the  right  to  explore  these  prospects.   The  Company
         continually evaluates its leasehold interests, therefore certain leases
         may be abandoned by the Company in the normal course of business.

         EUROPEAN PROPERTIES

         In  connection  with its  exploration  concession  in the Jiu Valley in
         Romania,  the Company is obligated to expend  $252,000  during the year
         ending in October 2005 in order to retain its rights to the concession.
         The Company  has an  obligation  to drill a test  borehole in the Neues
         Bergland Permit in Germany in 2005, in order to maintain the permit.

         ENVIRONMENTAL

         Oil and gas  producing  activities  are subject to  extensive  Federal,
         state and local  environmental laws and regulations.  These laws, which
         are constantly  changing,  regulate the discharge of materials into the
         environment  and may  require  the  Company to remove or  mitigate  the
         environmental  effects  of the  disposal  or release  of  petroleum  or
         chemical  substances at various sites.  Environmental  expenditures are
         expensed or  capitalized  depending on their future  economic  benefit.
         Expenditures  that  relate  to an  existing  condition  caused  by past
         operations  and that  have no future  economic  benefit  are  expensed.
         Liabilities for  expenditures of a noncapital  nature are recorded when
         environmental  assessment and/or remediation is probable, and the costs
         can be reasonably estimated.

         CONTINGENCIES

         The  Company  may from  time to time be  involved  in  various  claims,
         lawsuits, disputes with third parties, actions involving allegations of
         discrimination,  or breach of contract  incidental to the operations of
         its  business.  The  Company  is not  currently  involved  in any  such
         incidental litigation which it believes could have a materially adverse
         effect on its financial condition or results of operations.


                                      F-29
<PAGE>

                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - SUBSEQUENT EVENTS

     a.) In January, 2005, certain holders of warrants issued in connection with
         the August and October 2003 Convertible  Debenture  offering  exercised
         their stock  purchase  warrants.  The Company  issued 635,594 shares of
         common  stock at the  exercise  price of $0.71 per share for total cash
         proceeds received of $451,272.

     b.) The  Company  notified  the  holders  of  its  Convertible  Notes  (the
         "Holders") that, in accordance with the terms of the Convertible Notes,
         the payment of accrued  interest due on January 14, 2005, would be made
         in shares of the Company's  Common Stock  instead of cash.  The Holders
         converted the accrued interest totaling $860,440 into 722,567 shares of
         Common Stock at various conversion rates.

     c.) The Company has notified the Holders that in accordance  with the terms
         of the  Convertible  Notes,  the principal and interest  payment due on
         March  1,  2005,  totaling  $1,148,402,  would  be made  part in  cash,
         $474,217, and the balance,  $674,185, in shares of the Company's Common
         Stock. On March 1, 2005, holders converted $674,185 into 433,671 shares
         of Common Stock at a conversion rate of $1.55 per share.

     d.) On March 2, 2005,  the Company  entered  into a Lease  Acquisition  and
         Development Agreement (the "Agreement") with two non-related parties to
         acquire an initial 58-1/3% working  interest in unevaluated oil and gas
         properties in the Piceance Basin in Colorado,  by depositing $7,000,000
         in escrow.  In connection with the Agreement the Company entered into a
         Participation  Agreement  with a related  party,  to  acquire  all or a
         portion  of the  remaining  41-2/3%  working  interest  in the  subject
         properties.  Jointly,  the  Company  and  the  Related  Party  have  an
         obligation  under the  Agreement  to drill one well by November 1, 2005
         and nine additional wells by August 22, 2006.

         Funding for the Company's  share of  acquisition  and project costs has
         been  financed  through a  private  placement  of  senior  subordinated
         convertible  notes.  On March 1, 2005,  Galaxy entered into  Securities
         Purchase Agreements with several accredited investors pursuant to which
         Galaxy  agreed to sell,  and the Investors  agreed to purchase,  in the
         aggregate,  up to $7,695,000  principal  amount of Senior  Subordinated
         Convertible Notes and three-year  warrants to purchase 1,637,234 shares
         of common  stock at $1.88 per share.  The notes may be converted by the
         holders into shares of common stock at a price of $1.88 per share.








                                      F-30
<PAGE>
                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)

         The  following is a summary of the  Unaudited  financial  data for each
         quarter for the years ended November 30, 2004, 2003 and 2002:

<TABLE>
<CAPTION>
                                                                       Three months ended
                                                 02/28/04           05/31/04           08/31/04          11/30/04
<S>                                             <C>               <C>                <C>               <C>
Revenues
  Natural gas sales                             $          -      $           -      $      23,780     $     98,675

Operating expenses
  Lease operating expenses                                 -                  -             15,215           44,032
  General and administrative                         676,424          1,047,625            874,001          919,168
  Abandoned oil and gas properties                         -                  -                  -                -
  Depreciation and amortization                        1,335             21,767             18,207           35,081
                                                -------------     --------------     --------------    -------------
                                                     677,759          1,069,392            907,423          998,281

Other income (expense)
  Interest                                            13,337              9,897              7,652           20,510
  Interest and financing costs                      (771,594)        (2,288,633)          (191,268)      (1,793,997)
                                                -------------     --------------     --------------    -------------
                                                    (758,257)        (2,278,736)          (183,616)      (1,773,487)
                                                -------------     --------------     --------------    -------------

Net (loss)                                      $ (1,436,016)     $  (3,348,128)     $  (1,067,259)    $ (2,673,093)
                                                =============     ==============     ==============    =============

Net (loss) per common share
  Basic and diluted                             $      (0.03)     $       (0.06)     $       (0.02)    $      (0.05)
                                                =============     ==============     ==============    =============
</TABLE>













                                      F-31

<PAGE>


                            GALAXY ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>
                                                                       Three months ended
                                                 02/28/03           05/31/03           08/31/03          11/30/03
<S>                                             <C>               <C>                <C>               <C>


Revenues
  Natural gas sales                             $          -      $           -      $           -     $         -
                                                -------------     --------------     --------------    -------------

Operating expenses
  Lease operating expenses                                 -                  -                  -                -
  General and administrative                         428,216            441,585            654,990          570,704
  Abandoned oil and gas properties                         -                  -                  -           65,769
  Depreciation and amortization                            -                  -                  -              685
                                                -------------     --------------     --------------    -------------
                                                     428,216            441,585            654,990          637,158

Other income (expense)
  Interest                                                 -                  -                  -                -
  Interest and financing costs                             -                  -                  -         (417,646)
                                                -------------     --------------     --------------    -------------
                                                           -                  -                  -         (417,646)
                                                -------------     --------------     --------------    -------------

Net (loss)                                      $   (428,216)     $    (441,585)     $    (654,990)    $ (1,054,804)
                                                =============     ==============     ==============    =============

Net (loss) per common share
  Basic and diluted                             $      (0.01)     $       (0.01)     $       (0.02)    $      (0.04)
                                                =============     ==============     ==============    =============

</TABLE>

<TABLE>
<CAPTION>
                                                                                        Period from
                                                                                         Inception           Three
                                                                                      (June 18, 2002)        Months
                                                                                             To               ended
                                                                                          08/31/02          11/30/02
<S>                                                                                  <C>               <C>
Revenues
  Natural gas sales                                                                  $           -     $          -
                                                                                     --------------    -------------

Operating expenses
  Lease operating expenses                                                                       -                -
  General and administrative                                                               456,821          683,245
  Abandoned oil and gas properties                                                               -                -
  Depreciation and amortization                                                                  -                -
                                                                                     --------------    -------------
                                                                                           456,821          683,245

Other income (expense)
  Interest                                                                                       -                -
  Interest and financing costs                                                                   -                -
                                                                                     --------------    -------------
                                                                                                 -                -
                                                                                     --------------    -------------

Net (loss)                                                                           $    (456,821)    $   (683,245)
                                                                                     ==============    =============
Net (loss) per common share
  Basic and diluted                                                                  $       (0.06)    $      (0.02)
                                                                                     ==============    =============

</TABLE>


                                      F-32