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

                                   FORM 10-QSB

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

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
         For the transition period from ________________ to __________________

                         Commission file number: 0-28627

                            PATCH INTERNATIONAL INC.
        (Exact name of small business issuer as specified in its charter)


                   NEVADA                                 87-0393257
(State or other jurisdiction of incorporation           (IRS Employer
             or organization)                         Identification No.)


      1220 - 666 BURRARD STREET, VANCOUVER, BRITISH COLUMBIA V6C 2X8 CANADA
                    (Address of principal executive offices)

                                 (604) 688-2790
                           (Issuer's telephone number)

                                 NOT APPLICABLE
              (Former name, former address and former fiscal year,
                          if changed since last report)

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

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

 State the number of shares outstanding of each of the issuer's classes
              of common equity, as of the latest practicable date:
            15,761,774 SHARES OF COMMON STOCK, $.001 PAR VALUE, AS OF
                                 AUGUST 31, 2006

  Transitional Small Business Disclosure Format (check one);  Yes [  ] No [X]


<PAGE>


                         PART I - FINANCIAL INFORMATION

PATCH INTERNATIONAL INC.
August 31, 2006
(unaudited)
                                                                            Page

Consolidated Balance Sheets                                                 3

Consolidated Statements of Operations                                       4

Consolidated Statements of Cash Flows                                       5

Notes to the Consolidated Financial Statements                              6




















                                       2

<PAGE>
PATCH INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars)
(unaudited)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                                                                         AUGUST 31,           MAY 31,
                                                                                            2006                2006
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                <C>
ASSETS

Current Assets
     Cash                                                                           $      3,945,324   $      4,473,444
     Accounts receivable                                                                      25,772             29,260
     Prepaid expenses and other                                                              293,622             70,603
------------------------------------------------------------------------------------------------------------------------

Total Current Assets                                                                       4,264,718          4,573,307
Available-for-sale Securities (Note 3)                                                     7,158,000          7,241,000
Property and Equipment, Net                                                                    1,553              1,452
Oil and Gas Interests (successful efforts method) (Note 4)                                 4,343,905          2,964,017
------------------------------------------------------------------------------------------------------------------------

Total Assets                                                                        $     15,768,176   $     14,779,776
========================================================================================================================

LIABILITIES & STOCKHOLDERS' EQUITY

Current Liabilities
     Accounts payable and accrued liabilities                                       $        267,332   $        215,694
     Income taxes payable                                                                  2,472,409          2,181,000
     Due to related parties (Note 5)                                                          71,869             86,878
------------------------------------------------------------------------------------------------------------------------

Total Current Liabilities                                                                  2,811,610          2,483,572
Asset retirement obligations (Note 6)                                                         34,536             34,379
------------------------------------------------------------------------------------------------------------------------

Total Liabilities                                                                          2,846,146          2,517,951
------------------------------------------------------------------------------------------------------------------------

Minority Interest                                                                            573,335            570,862

STOCKHOLDERS' EQUITY

Preferred Stock:
1,000,000 preferred shares authorized with par value of $0.001 per share; none
issued and outstanding                                                                             -                  -

Common Stock:
24,801,250 common shares authorized with par value of $0.001 per share;
15,761,774 shares issued and outstanding (May 31, 2006 - 15,163,112 shares)                   15,762             15,163

Additional Paid-in Capital                                                                 4,062,924          3,335,380

Stock Subscriptions Receivable                                                               (35,000)                 -

Accumulated Other Comprehensive Income                                                     7,302,086          7,352,558

Retained Earnings                                                                          1,002,923            987,862
------------------------------------------------------------------------------------------------------------------------

Total Stockholders' Equity                                                                12,348,695         11,690,963
------------------------------------------------------------------------------------------------------------------------

Total Liabilities and Stockholders' Equity                                          $     15,768,176   $     14,779,776
========================================================================================================================
</TABLE>


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

                                       3
<PAGE>


PATCH INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in U.S. Dollars)
(unaudited)

<TABLE>
<CAPTION>
                                                                                         FOR THE             FOR THE
                                                                                       THREE MONTHS        THREE MONTHS
                                                                                          ENDED               ENDED
                                                                                        AUGUST 31,          AUGUST 31,
                                                                                           2006                2005
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                  <C>
Revenue
     Oil and gas                                                                    $         47,621     $       50,485
---------------------------------------------------------------------------------------------------------------------------
Expenses
     Consulting                                                                              264,487            108,890
     Depletion, depreciation, impairment and accretion                                        25,356             27,196
     Foreign exchange loss                                                                       536                  -
     General and administrative                                                               60,688             39,098
     Investor relations and marketing                                                        223,690             53,358
     Oil and gas production, royalties and other                                              11,821              9,850
     Professional fees                                                                        55,361             44,572
     Related party compensation (Note 5)                                                     113,790             49,419
---------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses                                                                     755,729            332,383
---------------------------------------------------------------------------------------------------------------------------
Operating Loss                                                                              (708,108)          (281,898)
---------------------------------------------------------------------------------------------------------------------------
Other Income
     Interest                                                                                 40,842                  -
     Gain on sale of available-for-sale securities                                           969,599                  -
     Non-controlling interest in net loss                                                      7,760                  -
---------------------------------------------------------------------------------------------------------------------------
Total Other Income                                                                         1,018,201                  -
---------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes                                                            310,093           (281,898)

Provisions For Income Taxes                                                                 (291,409)                 -
---------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)                                                                   $         18,684      $    (281,898)

Other Comprehensive Income (Loss) (Note 8)

     Available-for-sale securities:
         Reclassification to realized gain                                                  (746,282)                 -
         Holding gain                                                                        663,282          6,182,000
---------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in unrealized gain on available-for-sale securities                      (83,000)         6,182,000

Foreign currency translation adjustment                                                       32,528                  -
---------------------------------------------------------------------------------------------------------------------------
Comprehensive Income (Loss)                                                         $        (31,788)     $   5,900,102
===========================================================================================================================

Net Income (Loss) Per Share
     Basic                                                                          $          (0.00)     $       (0.05)
     Diluted                                                                        $          (0.00)     $       (0.05)

Weighted Average Number Of Common Stock Outstanding
     Basic                                                                                14,243,000          5,242,000
     Diluted                                                                              14,243,000          5,242,000
</TABLE>


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

                                       4
<PAGE>
PATCH INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)
(unaudited)

<TABLE>
<CAPTION>
                                                                                            FOR THE             FOR THE
                                                                                         THREE MONTHS        THREE MONTHS
                                                                                             ENDED               ENDED
                                                                                           AUGUST 31,          AUGUST 31,
                                                                                              2006                2005
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                 <C>
Operating Activities
     Net income (loss)                                                                $       18,684      $     (281,898)
  Adjustments to reconcile net loss to net cash used
     by operating activities:
         Depletion, depreciation, impairment and accretion                                    25,356              27,196
         Stock-based compensation                                                            213,461              63,977
         Shares issued for services                                                           64,924                   -
         Gain on sale of available-for-sale securities                                      (969,599)                  -
         Minority interest in net loss                                                        (7,760)                  -
         Decrease (increase) in accounts receivable                                            6,034              (3,507)
         (Increase) decrease in prepaid expenses and other                                   (10,130)              1,230
         Increase in accounts payable and accrued liabilities                                 48,230              20,441
         Increase in income taxes payable                                                    291,409                   -
         (Decrease) increase in due to related parties                                       (14,734)             19,259
-------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities                                                       (334,125)           (153,302)
-------------------------------------------------------------------------------------------------------------------------

Investing Activities
     Oil and gas interests                                                                (1,359,416)            (41,693)
     Proceeds on sale of available-for-sale securities                                       969,599                   -
-------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                       (389,817)            (41,693)
-------------------------------------------------------------------------------------------------------------------------

Financing Activities
     Common stock issued for cash                                                            203,000             176,250
     Acquisition of treasury stock                                                            (4,755)                  -
-------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                                    198,245             176,250
-------------------------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash                                                       (2,423)                  -

Change in cash and cash equivalents for the period                                          (528,120)            (18,745)

Cash and cash equivalents, beginning of period                                             4,473,444             128,872
-------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                                              $    3,945,324      $      110,127
=========================================================================================================================

SUPPLEMENTAL CASH FLOW INFORMATION
     Taxes paid                                                                       $            -      $            -
     Interest paid                                                                            12,631                   -

</TABLE>


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

                                       5
<PAGE>
PATCH INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2006
(Stated in U.S. Dollars)
(unaudited)

1.   BASIS OF PRESENTATION

     The unaudited  consolidated financial information furnished herein reflects
     all  adjustments,  which in the opinion of  management,  are  necessary  to
     fairly state the Company's  consolidated financial position and the results
     of its consolidated  operations for the periods  presented.  This report on
     Form 10-QSB should be read in conjunction  with the Company's  consolidated
     financial  statements  and notes  thereto  included in the  Company's  Form
     10-KSB for the fiscal year ended May 31, 2006. The Company assumes that the
     users of the interim financial  information herein have read or have access
     to the audited financial  statements for the preceding fiscal year and that
     the adequacy of additional disclosure needed for a fair presentation may be
     determined in that context.  Accordingly,  footnote disclosure, which would
     substantially  duplicate the  disclosure  contained in the  Company's  Form
     10-KSB  for the fiscal  year  ended May 31,  2006,  has been  omitted.  The
     results of operations for the three-month  period ended August 31, 2006 are
     not  necessarily  indicative of results that may be expected for the fiscal
     year ending May 31, 2007.

2.   RECENT PRONOUNCEMENTS

     In February 2006, the Financial  Accounting Standards Board ("FASB") issued
     SFAS No. 155 "ACCOUNTING FOR CERTAIN HYBRID  FINANCIAL  INSTRUMENTS" and in
     March 2006,  the FASB  issued SFAS No. 156  "ACCOUNTING  FOR  SERVICING  OF
     FINANCIAL  ASSETS",  but  they  will  not  have  any  relationship  to  the
     operations of the Company.  Therefore a description and its impact for each
     on the Company's operations and financial position have not been disclosed.

     In May 2005, the Financial  Accounting  Standards  Board (FASB) issued SFAS
     No. 154,  "ACCOUNTING  CHANGES AND ERROR CORRECTIONS - A REPLACEMENT OF APB
     OPINION NO. 20 AND SFAS NO. 3". SFAS No. 154 changes the  requirements  for
     the  accounting  for and reporting of a change in accounting  principle and
     applies to all voluntary changes in accounting  principle.  It also applies
     to changes required by an accounting  pronouncement in the unusual instance
     that the  pronouncement  does not include specific  transition  provisions.
     SFAS No. 154 requires retrospective application to prior periods' financial
     statements of changes in accounting  principle,  unless it is impracticable
     to determine either the period-specific effects or the cumulative effect of
     the change.  The  provisions of SFAS No. 154 are  effective for  accounting
     changes and  correction  of errors  made in fiscal  years  beginning  after
     December  15, 2005.  The adoption of this  standard did not have a material
     effect on the Company's results of operations or financial position.

     In December 2004,  the FASB issued SFAS No. 153,  "EXCHANGES OF NONMONETARY
     ASSETS - AN  AMENDMENT  OF APB OPINION NO. 29". The guidance in APB Opinion
     No.  29,  "ACCOUNTING  FOR  NONMONETARY  TRANSACTIONS",  is  based  on  the
     principle that exchanges of nonmonetary  assets should be measured based on
     the fair value of the  assets  exchanged.  The  guidance  in that  Opinion,
     however, included certain exceptions to that principle. SFAS No. 153 amends
     Opinion No. 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.  The  provisions of SFAS No. 153 are  effective  for  nonmonetary
     asset exchanges  occurring in fiscal periods beginning after June 15, 2005.
     The  adoption  of this  standard  did not  have a  material  effect  on the
     Company's results of operations or financial position.

     Prior to June 1, 2006, the Company  accounted for stock-based  awards under
     the recognition and measurement  provisions of Accounting  Principles Board
     Opinion ("APB") No. 25,  "ACCOUNTING  FOR STOCK ISSUED TO EMPLOYEES"  using
     the  intrinsic  value method of  accounting.  Effective  June 1, 2006,  the
     Company  adopted  the fair value  recognition  provisions  of SFAS No. 123R
     "SHARE BASED PAYMENTS",  using the modified prospective  transition method.
     Under that  transition  method,  compensation  cost is  recognized  for all
     share-based  payments  granted  prior to,  but not yet vested as of June 1,
     2006,  based on the grant date fair value  estimated in accordance with the
     original  provisions  of  SFAS  No.  123,  and  compensation  cost  for all
     share-based payments granted subsequent to June 1, 2006, based on the grant
     date fair value  estimated in accordance  with the provisions of SFAS 123R.
     Results for prior periods have not been restated.


                                       6
<PAGE>
PATCH INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2006
(Stated in U.S. Dollars)
(unaudited)


3.   AVAILABLE-FOR-SALE SECURITIES

     At August 31, 2006, the Company owned  6,091,937 (May 31, 2006 - 6,791,937)
     ordinary  shares of Pharmaxis  Ltd.  ("Pharmaxis"),  an Australian  company
     listed on the Australian  Stock Exchange.  The Company records the ordinary
     shares of Pharmaxis at market  value,  net of tax. At August 31, 2006,  the
     market value is recorded at $7,158,000, after tax of $3,068,000,  resulting
     in  an  unrealized   gain  of  $7,157,999,   which  is  recorded  as  other
     comprehensive income, a separate component of stockholders' equity.

     During the year three-month  period ended August 31, 2006, the Company sold
     700,000  Pharmaxis  shares for gross  proceeds of $969,599,  and realized a
     gain of $969,599, before applicable taxes.


                                                            August 31,
                                                               2006
                                                         -----------------

     6,091,937 ordinary shares                              $ 7,158,000
                                                         =================

                                                              May 31,
                                                               2006
                                                         -----------------

     6,791,937 ordinary shares                              $ 7,241,000
                                                         =================


4.   OIL AND GAS INTERESTS
<TABLE>
<CAPTION>
                                                                                  August 31,         May 31,
                                                                                     2006             2006
                                                                                --------------   --------------
<S>                                                                             <C>              <C>
OIL AND GAS INTERESTS - SUCCESSFUL EFFORTS METHOD

Balance beginning of the period                                                 $   2,964,017    $     198,284
Expenditures                                                                        1,404,746        3,029,321
Depletion and depreciation                                                            (24,858)        (193,888)
Dry well and abandoned interests                                                            -          (69,700)
                                                                                --------------   --------------
Balance end of the period                                                       $   4,343,905    $   2,964,017
                                                                                ==============   ==============

Represented by:

Alberta, Canada
Non-producing interests                                                         $   4,223,547    $   2,846,147
Producing interests subject to depletion and amortization                             159,225          150,739
Accumulated depletion and depreciation                                               (142,571)        (121,060)
                                                                                --------------   --------------
                                                                                    4,240,201        2,875,826
Saskatchewan, Canada
Producing interests subject to depletion and amortization                             307,279          243,004
Accumulated depletion and depreciation                                               (203,575)        (154,813)
                                                                                --------------   --------------
                                                                                      103,704           88,191
                                                                                --------------   --------------
                                                                                $   4,343,905    $   2,964,017
                                                                                ==============   ==============
</TABLE>




                                       7
<PAGE>
PATCH INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2006
(Stated in U.S. Dollars)
(unaudited)


4.   OIL AND GAS INTERESTS (CONTINUED)

     a)  Alberta, Canada

         (i)   The Company  entered into an Agreement dated November 8, 2005, to
               acquire  a  working   interest  in  a  project   located  in  the
               Lloydminster area of Alberta. In accordance with the terms of the
               Agreement  the  Company  drilled  a test  well and a second  well
               proposed by the Farmor.  These wells are ready for production but
               are not producing  yet. By drilling and  completing the test well
               the Company  earned a 30% working  interest in the balance of the
               farmout lands and a 50% working interest in the test well spacing
               unit subject to a  convertible  after payout  overriding  royalty
               such that if converted  reduces the  Company's  interest to a 30%
               working  interest.  The second well was  drilled  with the Farmor
               having to participate by converting his overriding  royalty prior
               to drilling into a working interest. As a result the Company paid
               30% of the cost of the second well to earn a 30% working interest
               in that well  spacing  unit.  All the lands are  subject  to a 1%
               gross overriding  royalty and Crown  royalties.  As at August 31,
               2006,  the  Company  had made cash call  advances  of $303,472 on
               these two wells and has  subsequently  advanced a further $20,819
               in cash call payments.

         (ii)  The Company  entered into an Agreement dated November 8, 2005, to
               acquire  a  working   interest  in  a  project   located  in  the
               Atlee-Buffalo  area of Alberta.  In accordance  with the terms of
               the Agreement the Company drilled a test well. This potential gas
               well is  awaiting  completion  pending  negotiation  of a pooling
               agreement  with a third party.  Upon  completion the Company will
               earn a 30% working  interest in the balance of the farmout  lands
               and a 50% working  interest in the test well spacing unit subject
               to an overriding  royalty  convertible  after payout such that if
               converted  reduces  the  Company's  interest  to  a  30%  working
               interest.  The lands are also  subject  to a 1% gross  overriding
               royalty and Crown  royalties.  As at August 31, 2006, the Company
               has made  cash call  advances  of  $169,038  on this well and has
               subsequently advanced a further $35,511 in cash call payments.

         (iii) The Company  entered into an Agreement dated November 8, 2005, to
               acquire a working  interest  in a project  located  in the Elnora
               area of  Alberta.  The Company  decided not to proceed  with this
               project.

         (iv)  On May 30, 2005, the Company acquired a 10% working interest in a
               test well (the "McLeod"  project) located in Alberta by incurring
               10% of the costs. The well was drilled in June 2005 and commenced
               operations  in November  2005.  A second test well was drilled in
               December  2005  and was  shut-in  January  2006  and the  Company
               recognized an impairment  charge of $44,913 in the year ended May
               31, 2006.

         (v)   The Company  entered into an Agreement  dated January 4, 2006, to
               acquire a 100% working interest in a test well project located in
               the  Halkirk  area of  Alberta.  The well has  been  drilled  and
               perforated  and the Company is waiting to test flow rates pending
               further  swabbing.  Upon  completion the Company will earn a 100%
               interest in the test well spacing  unit subject to an  overriding
               royalty  such that if  converted  after  payout the Company  will
               revert to a 50%  working  interest  in the well and a 50% working
               interest  in the  balance  of the  farmout  lands.  The lands are
               subject to a 1% gross overriding royalty and Crown royalties.  As
               at August 31, 2006, the Company has made total cash call advances
               of $260,001 in respect of this project.


                                       8
<PAGE>
PATCH INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2006
(Stated in U.S. Dollars)
(unaudited)

4.   OIL AND GAS INTERESTS (CONTINUED)

     a)  Alberta, Canada (continued)

         (vi)  The Company  entered into a Farmout and  Participation  Agreement
               dated January 19, 2006, to acquire a working  interest in oil and
               gas leases ("Block A" and "Block B") in the Peace River arch area
               of Alberta. Under the terms of the Agreement,  the Company made a
               payment of $703,497 to the title-holder of the farmout lands. The
               Company  will  earn a 90%  working  interest  in a test  well and
               spacing  unit,  subject  to  a  convertible   overriding  royalty
               exercisable  after  payout  such that if  exercised  reduces  the
               Company's  interest  to 54%,  and a 54%  working  interest in the
               balance of Block A lands, by incurring 90% of the costs of a test
               well to be spudded on the Block A lands no later than February 1,
               2007. The Company will earn a 90% working  interest in the second
               test well and spacing unit,  subject to a convertible  overriding
               royalty  exercisable  after payout that if exercised  reduces the
               Company's  interest  to 54%,  and a 54%  working  interest in the
               balance of Block B lands by incurring  90% of the costs of a test
               well to be spudded on the Block B lands no later than February 1,
               2007. The lands are subject to a 1% gross overriding  royalty and
               Crown  royalties.  As at August  31,  2006,  cash  call  payments
               totalling $62,108 have been made towards the two test wells.

         (vii) On April 5, 2006,  Energy  acquired three Crown oil sands leases,
               comprising  four sections  (1,024  hectares) at the Alberta Crown
               Oil Sands for a cost of $402,866.  The initial  lease term is for
               15 years with annual rental payable to the Alberta Crown of $3.18
               per hectare and Crown royalties on production.

        (viii) On February 28, 2006, the Patch Oilsands Limited Partnership (the
               "Partnership")  entered into an agreement for the  acquisition of
               an Alberta oil sands property located just south of Fort McMurray
               in the area of Leismer,  Alberta, Canada. The property is divided
               into two half  sections  called  Block A and Block B. On March 2,
               2006, the Partnership  paid $722,000 and issued 437,500 shares of
               the  Company  at a price of $1.08 per  share,  for a 40%  working
               interest in Block A. On March 30, 2006, the  Partnership  paid an
               additional  $451,250 to earn a further  40%  working  interest in
               Block A. The Partnership has the option, exercisable on or before
               April 1,  2007,  to acquire  an 80%  interest  in Block B for the
               payment  of  $1,173,250  and  100,000  additional  shares  of the
               Company.  Both  Blocks  A and B are  subject  to a 5%  overriding
               royalty and Crown royalties. The Partnership must fund 80% of the
               costs of a 3D seismic program covering  approximately  1.2 square
               miles  over the Block A and  Block B lands on or before  March 1,
               2007. The  Partnership  must also fund a Test Well on the Block A
               lands, which must be spudded by March 1, 2007. The Partnership is
               required to fund 80% of the total cost of the test well.

         (ix)  The Company entered into a Participation  Agreement with Highview
               Resources Ltd. ("Highview") dated June 6, 2006, to acquire 50% of
               Highview's majority interest in two sections of land located near
               to the City of Red Deer in  Central  Alberta,  Canada.  Under the
               terms  of the  Agreement,  the  Company  paid  50% of  past  land
               acquisition and seismic costs incurred by Highview of $49,638 and
               has  incurred  $38,695 in  respect of its share of a new  seismic
               program.  An additional  seismic  program on this property is now
               under  consideration.  Under the terms of a Pooling  and  Seismic
               Option Agreement with a third party, the Company and Highview can
               elect  to  drill a test  well in and  earn  100% in each  section
               subject  to a 12%  non  convertible  overriding  royalty  of 12%,
               reduced  proportionately  by  the  acreage  contribution  of  the
               Company and Highview in each section.  Crown royalties will apply
               on any production.


                                       9
<PAGE>
PATCH INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2006
(Stated in U.S. Dollars)
(unaudited)

4.   OIL AND GAS INTERESTS (CONTINUED)

     a)  Alberta, Canada (continued)

         (x)   The Company  entered into an Agreement with Vanguard  Exploration
               Corp.  dated July 7, 2006,  in the Rich / Rumsey area of Alberta,
               Canada to acquire a 26.25%  working  interest in certain  mineral
               rights on a quarter  section of land and the right to participate
               as to 35% in a test  well and an option  well over two  sections,
               convertible  by a  third  party  after  payout  to a 21%  working
               interest. Crown royalties will apply on any production. Under the
               terms  of the  Agreement,  the  Company  paid a  prospect  fee of
               $60,979 to cover a share of seismic and land  acquisition  costs.
               The Company also paid $468,676  towards its share of the drilling
               and casing costs of a test well, which has been drilled and cased
               back to a secondary  target.  Subsequent to August 31, 2006,  the
               Company  advanced $42,075 as its estimated share of a new seismic
               program on this property.

     b)  Saskatchewan, Canada

         (i)   On May 1, 2002, the Company  acquired a 12.5% working interest in
               ten test wells located in  Saskatchewan  by incurring  15.625% of
               the costs. The Company  participated in a second set of nine test
               wells in  Saskatchewan,  Canada,  by agreeing to incur 15.625% of
               the costs to earn a 12.5% working interest.

         (ii)  The Company entered into a participation  agreement on the second
               nine test wells with Micron Enviro Systems Inc.  ("Micron") dated
               March 27, 2003 whereby  Micron earned a 3.5% working  interest in
               those wells by incurring 5% of the associated  costs. The Company
               also entered into a  participation  agreement on those same wells
               with Butler  Development  Corporation  ("Butler") dated April 28,
               2003 whereby  Butler earned a 3.5% working  interest by incurring
               5% of the  associated  costs and by paying  the  Company  $13,614
               (CDN$15,000).  Effective June 30, 2006,  the Company  re-acquired
               Butler  Development's  3.5%  working  interest in the second nine
               Kerrobert wells for $9,025.


5.   DUE TO RELATED PARTIES

     a)  Related  parties  include  directors  and officers and  companies  with
         common  management  and  directorships.   Related  party  accounts  are
         unsecured  with no fixed terms of interest or repayment.  At August 31,
         2006, $71,869 (May 31, 2006 - $86,878) was due to related parties.

     b)  On May 1, 2005, the Company entered into a management  agreement with a
         director and the former  President of the Company for a term of 5 years
         with  payments  of  $175,000  per annum.  On May 1, 2006,  the  Company
         entered into a management  agreement  with the President of the Company
         for a term of 1 year with payment of $60,000 per annum. On December 16,
         2005, the Company  entered into a management  agreement with a director
         of the Company with payments of $5,446 (CDN$6,000) per quarter.  During
         the three-month  period ended August 31, 2006, the Company paid $43,077
         (2005 - $43,749) in related party compensation.


                                       10
<PAGE>
PATCH INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2006
(Stated in U.S. Dollars)
(unaudited)


6.   ASSET RETIREMENT OBLIGATIONS


                                                    For the Three   For the Year
                                                    Months Ended
                                                     August 31,    Ended May 31,
                                                        2006           2006
                                                  ------------------------------

     Beginning asset retirement obligations       $    34,379     $           -
     Additions related to new properties                    -                 -
     Liabilities incurred                                   -            32,834
     Effects of foreign exchange translation             (245)                -
     Deletions related to property disposals                -                 -
     Accretion                                            402             1,545
                                                  ------------------------------

     Total asset retirement obligations           $    34,536     $      34,379
                                                  ==============================

7.   COMMON STOCK

     During the  three-month  period ended August 31, 2006,  the Company  issued
     380,000 shares of common stock and received  $203,000 in cash proceeds from
     the  exercise of 380,000  stock  options.  The Company has recorded a stock
     subscription receivable of $35,000 related to these stock option exercises.

     On June 23,  2006,  the Company  purchased  3,588 of its shares on the open
     market at an average price of $1.32 per share. Refer to Note 10.

     On July 26, 2006,  the Company  issued  222,250 shares of common stock at a
     price of $1.25 per share for investor  relation  services.  The Company has
     recorded a prepaid expense of $212,889 related to the future portion of the
     agreement.

     On July 25, 2005,  the Company  effected a reverse stock split on the basis
     of the issue of one new common share for the  cancellation of 10 old common
     shares.  On March 27, 2006,  the Company  effected a forward stock split on
     the  basis of the  issue of two and  one-half  new  common  shares  for the
     cancellation   of  1  old  common  share.   All  share  amounts  have  been
     retroactively adjusted for all periods presented.

     The Company is proposing the  distribution of a cash dividend on a pro-rata
     basis of 50% of the net proceeds of the sale of its investment in Pharmaxis
     Ltd. (the "Pharmaxis  Shares").  Net proceeds  include the costs associated
     with the sale of the Pharmaxis  shares and related taxes.  The directors of
     the Company have fixed July 30, 2004 as the record date.  The  distribution
     is subject to the Company receiving all required regulatory approvals.

     On September 22, 2005, the Company filed a form S-8 Registration  Statement
     in  connection  with a 2005 Stock Option Plan  allowing for the granting of
     options to acquire up to a total of 2,250,000 shares.

     On May 15, 2006,  the Company  adopted the 2006 Stock Option Plan approving
     the granting of options to acquire up to a total of 1,500,000 shares.



                                       11
<PAGE>
PATCH INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2006
(Stated in U.S. Dollars)
(unaudited)


7.   COMMON STOCK (CONTINUED)

     A summary of the Company's stock option activity is as follows:

                                                     August 31, 2006
                                        ---------------------------------------
                                                                      Weighted
                                                    Number             Average
                                                        of            Exercise
                                                   Options               Price
                                        ---------------------------------------

     Balance, beginning of period                2,272,500               $0.75
     Granted                                       240,000                0.90
     Cancelled                                     (37,500)               0.80
     Exercised                                    (380,000)               0.63
                                        ---------------------------------------

     Balance, end of period                      2,095,000               $0.64
                                        =======================================

     As at August 31, 2006, the following options are outstanding:

<TABLE>
<CAPTION>
                                               OUTSTANDING                               EXERCISABLE
                               ---------------------------------------------     ---------------------------
                                                   Weighted
                                                    Average        Weighted                        Weighted
                                      Number      Remaining         Average            Number       Average
                                          of    Contractual        Exercise                of      Exercise
               Exercise Price         Shares   Life (years)           Price            Shares         Price
     -----------------------------------------------------------------------     ---------------------------
<S>                                <C>                 <C>            <C>           <C>               <C>
             $    0.26 - 0.79      1,025,000           2.35           $0.40         1,025,000         $0.40
             $    0.80 - 0.90      1,070,000           1.59           $0.87           345,000         $0.80
                               ---------------------------------------------     ---------------------------

                                   2,095,000                                        1,370,000
                               =============================================     ===========================
</TABLE>

     Prior to June 1, 2006, the Company  accounted for stock-based  awards under
     the recognition and measurement  provisions of Accounting  Principles Board
     Opinion ("APB") No. 25,  "ACCOUNTING  FOR STOCK ISSUED TO EMPLOYEES"  using
     the  intrinsic  value method of  accounting.  Effective  June 1, 2006,  the
     Company  adopted  the fair value  recognition  provisions  of SFAS No. 123R
     "SHARE BASED PAYMENTS",  using the modified prospective  transition method.
     Under that  transition  method,  compensation  cost is  recognized  for all
     stock-based  payments  granted  prior to,  but not yet vested as of June 1,
     2006,  based on the grant date fair value  estimated in accordance with the
     original  provisions  of  SFAS  No.  123,  and  compensation  cost  for all
     stock-based payments granted subsequent to June 1, 2006, based on the grant
     date fair value  estimated in accordance  with the provisions of SFAS 123R.
     Results for prior periods have not been restated.

     As a result of adopting SFAS 123R on June 1, 2006,  the Company's  loss for
     the  three-month  period ended August 31, 2006 is $70,713 higher than if it
     had  continued to account for  share-based  compensation  under APB No. 25.
     Basic and diluted  loss per share for the  three-month  period ended August
     31, 2006 would have remained unchanged at $0.00 per share.

     During  the   three-month   period  ended  August  31,  2006,   stock-based
     compensation  amounting to $213,461 was  recorded.  During the  three-month
     period ended August 31, 2006,  stock options for  stock-based  compensation
     were issued as follows: 50,000 stock options priced at $0.90 per share, and
     190,000 stock options priced at $0.90 per share.  Stock-based  compensation
     also  includes  amounts  relating to the repricing of 485,000 stock options
     previously granted on May 15, 2006 from $1.54 to $0.90.


                                       12
<PAGE>
PATCH INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2006
(Stated in U.S. Dollars)
(unaudited)


7.   COMMON STOCK (CONTINUED)

     For the  three-month  period ended August 31, 2005, had  compensation  cost
     been  recognized on the basis of fair value,  pursuant to SFAS No. 123, net
     loss and loss per share would have been as follows:

<TABLE>
<CAPTION>
                                                                                  August 31,
                                                                                        2005
<S>                                                                            <C>
      Net Loss - as reported                                                     $  (281,898)
        Add: Stock-based compensation expense included in net loss - as
        reported                                                                      63,977
        Deduct: Stock-based compensation expense determined under fair
        value method                                                                 (63,977)
                                                                               ---------------

      Net Loss - Pro-Forma                                                       $  (281,898)
                                                                               ===============

      Basic and diluted net loss per share - as reported                            $  (0.05)
                                                                               ---------------

      Basic and diluted net loss per share - Pro-Forma                              $  (0.05)
                                                                               ---------------
</TABLE>

     The fair value of each option  granted  during the three months  August 31,
     2005 was estimated using the Black-Scholes  option pricing model assuming a
     dividend  yield of 0.0%,  expected  volatility of 179%,  risk free interest
     rate of 4.0%, and weighted average expected option terms of 2.5 years.

     The  weighted  average fair value of the options  granted  during the three
     month period ended  August 31, 2006 was $0.71 and was  estimated  using the
     Black-Scholes  option  pricing model using the  following  weighted-average
     assumptions:  a dividend yield of 0.0%;  expected  volatility of 283%; risk
     free interest rate of 4.74%; and expected life of 1.74 years.

8.   TAX EFFECTS OF OTHER COMPREHENSIVE INCOME (LOSS)

     Components of other comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
                                                                          For the Three Months Ended
                                                                                August 31, 2006
                                                             ---------------------------------------------------------
                                                                 Before-Tax         Tax (Expense)        Net-of-Tax
                                                                   Amount             Or Benefit           Amount
                                                             ---------------------------------------------------------
<S>                                                            <C>                  <C>                  <C>
Available-for-sale securities:
    Decrease in unrealized gain on available for sale
    securities                                                 $ (1,066,112)        $     319,830        $   (746,282)
    Holding gain                                                    947,653              (284,371)            663,282
                                                             ---------------------------------------------------------
(Decrease) in unrealized gain on available-for-sale                (118,459)               35,459             (83,000)
    securities
Foreign currency translation adjustment                              32,528                     -              32,528
                                                             ---------------------------------------------------------
Other comprehensive (loss)                                     $    (85,931)        $      35,459        $    (50,472)
                                                             =========================================================

                                                                          For the Three Months Ended
                                                                                August 31, 2005
                                                             ---------------------------------------------------------

                                                                Before-Tax         Tax (Expense)          Net-of-Tax
                                                                  Amount             Or Benefit             Amount
                                                             ---------------------------------------------------------
Available-for-sale securities:
    Holding gain                                               $  9,449,000         $  (3,267,000)       $  6,182,000
                                                             ---------------------------------------------------------
Other comprehensive income                                     $  9,449,000         $  (3,267,000)       $  6,182,000
                                                             =========================================================
</TABLE>

                                       13
<PAGE>
PATCH INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2006
(Stated in U.S. Dollars)
(unaudited)


9.   COMMITMENTS

     a)  The Company entered into a management  agreement dated May 1, 2005 with
         a Director  and Former  President  of the Company for the  provision of
         management  services  for a term of 5 years  at a rate of  $14,583  per
         month.

     b)  The  Company entered into a consulting  agreement dated May 1, 2005 for
         the provision of consulting services for a term of 5 years at a rate of
         $6,250 per month.

     c)  The Company  entered into a consulting  agreement  effective  April 15,
         2006,  for the  provision of  consulting  services for a term of twelve
         months at a rate of $10,000 per month.

     d)  The Company entered into a consulting  agreement  effective December 1,
         2005,  with a director of the Company for the  provision of  consulting
         services at a rate of $1,815 (CDN$2,000) per month.

     e)  The Company entered into an agreement with the President of the Company
         dated May 1, 2006 for the provision of services for a term of one year,
         thereafter renewable on a monthly basis, at a rate of $5,000 per month.

     f)  The Company entered into a consulting  agreement dated May 12, 2006 for
         the provision of consulting services for a term of 6 months, thereafter
         renewable  on a  monthly  basis,  at a rate of $3,630  (CDN$4,000)  per
         month.

     g)  The Company entered into a consulting  agreement dated May 12, 2006 for
         the provision of consulting services for a term of 6 months, thereafter
         renewable on a monthly basis, $4,084 (CDN$4,500) per month.


10.      SUBSEQUENT EVENT

     On September  12, 2006,  the Company  purchased  2,000 of its shares on the
open market at an average price of $0.70 per share.



















                                       14

<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following  discussion  of the financial  condition and results of operations
for the Company should be read in conjunction  with the  accompanying  financial
statements and related footnotes.

GENERAL

The Company's business originally was the development and  commercialization  of
non-prescription   therapeutics   and   nutraceuticals   designed   to   prevent
inflammation  and their  sequelae,  and the  development  of cosmetics  for skin
conditions.  The Company had not  generated  any revenues  from  product  sales,
royalties or license fees. Due to the inability of the Company to obtain funding
and/or partners to pursue its pharmaceutical  projects, it decided to seek other
business  opportunities.  As of March 15,  2004,  the  Company  consummated  the
Arrangement  Agreement with Patch Energy Inc. ("Energy") under which the Company
acquired Energy, a privately-held  oil and gas company  continued under the laws
of Canada,  in a  stock-for-stock  transaction.  As a result of the acquisition,
Energy is a wholly owned  subsidiary of the Company.  In the  arrangement,  each
issued common share of Energy was exchanged for one common share of the Company.
A total of 18,232,625 shares  (4,558,155  post-reverse and forward split shares)
were  issued,  bringing  the issued  and  outstanding  shares of the  Company to
38,224,372 at that time.

The  acquisition  has been treated for accounting  purposes as an acquisition by
Energy of the net assets  and  liabilities  of the  Company.  Because  Energy is
deemed to be the purchaser for accounting purposes,  the consolidated  financial
statements are presented as a continuation  of Energy and include the results of
operations of Energy since  incorporation  on February 11, 2002, and the results
of operations of the Company since the date of acquisition on March 15, 2004.

A 10:1 reverse split of the Company's stock was made effective on July 25, 2005.
A 2.5 forward split of the Company's stock was made effective on March 27, 2006.

On February 3, 2006 the Company, through Energy, formed a new subsidiary,  Patch
Oilsands Ltd.  ("Oilsands").  On February 27, 2006 the Company,  through Energy,
formed Patch Oilsands Limited  Partnership  ("Partnership") in which Energy owns
75% of the Limited  Partnership  units.  Oilsands manages the Partnership in its
capacity as General Partner.

As Energy's  activities are now conducted in Canada, the functional  currency of
Energy was changed to the Canadian dollar effective June 1, 2006.

ACCOUNTING POLICIES

The Company follows the successful  efforts method of accounting for its oil and
gas  producing  activities.   Under  this  method,  all  costs  associated  with
productive exploratory wells and productive or non-productive  development wells
are  capitalized  while  the  costs  of  non-productive  exploratory  wells  are
expensed. If an exploratory well finds oil and gas reserves, but a determination
that such  reserves  can be  classified  as  proved  is not made  after one year
following  completion  of  drilling,  the  costs  of  drilling  are  charged  to
operations.  Indirect exploratory expenditures,  including geophysical costs and
annual lease rentals, are expensed as incurred.  Unproved oil and gas properties
that are individually  significant are  periodically  assessed for impairment of
value,  and a loss is  recognized  at the time of  impairment  by  providing  an
impairment allowance.  Capitalized costs of producing oil and gas properties and
related  support  equipment,   after  considering  estimated  dismantlement  and
abandonment costs and estimated salvage values,  are depreciated and depleted by
the unit-of-production method.

On the sale or retirement of a complete unit of a proved property,  the cost and
related  accumulated  depreciation,  depletion,  and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On the
retirement or sale of a partial unit of proved property,  the cost is charged to
accumulated  deprecation,  depletion,  and amortization with a resulting gain or
loss  recognized  in income.  On the sale of an entire  interest  in an unproved
property for cash or cash  equivalent,  gain or loss on the sale is  recognized,
taking into consideration the amount of any recorded  impairment if the property
had been assessed individually. If a partial interest in an unproved property is
sold, the amount  received is treated as a


                                       15
<PAGE>


reduction of the cost of the interest  retained.  In joint  ventured oil and gas
exploration and production  activities,  the accounts reflect only the Company's
proportionate interest in such activities.

Prior to June 1, 2006, the Company  accounted for  stock-based  awards under the
recognition and measurement  provisions of Accounting  Principles  Board Opinion
("APB") No. 25,  "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," using the intrinsic
value method of accounting. Effective June 1, 2006, the Company adopted the fair
value recognition  provisions of SFAS No. 123R "SHARE BASED PAYMENTS," using the
modified   prospective   transition   method.   Under  that  transition  method,
compensation  cost is recognized for all share-based  payments granted prior to,
but not yet  vested  as of June 1,  2006,  based on the grant  date  fair  value
estimated  in  accordance  with the  original  provisions  of SFAS NO. 123,  and
compensation  cost for all share-based  payments  granted  subsequent to June 1,
2006,  based on the grant  date fair  value  estimated  in  accordance  with the
provisions of SFAS 123R. Results for prior periods have not been restated.

RESULTS OF OPERATIONS

THREE MONTHS ENDED AUGUST 31, 2006. The Company generated $47,621 in oil and gas
revenues  for the three months  ended  August 31, 2006  ("2006"),  a decrease of
$2,864 or 6% from the  comparable  three months ended August 31, 2005  ("2005").
The decrease was due to a decrease in  production  offset in part by an increase
in price. Oil and gas production,  royalties and other expenses increased $1,971
or 20% to  $11,821  in 2006  from  $9,850  in 2005.  As  result  net oil and gas
operations  produced a profit of  $35,800 in 2006  versus a profit of $40,635 in
2005, a decline of $4,835 or 12%.

Expenses, other than oil and gas production expenses, were $718,552 for 2006, as
compared to $295,337 for 2005, an increase of $423,215 or 143%.  The increase in
non-oil and gas expenses is primarily due to increases in the following  expense
categories: Consulting expense increased by $155,597 or 143% to $264,487 in 2006
as compared to $108,890 in 2005. Consulting expense in 2006 included $142,748 of
stock based  compensation  expense as compared to $nil in 2005 and shares issued
for services  expense of $nil in 2006 versus  $63,977 in 2005 for a net increase
in stock based  compensation  and shares issued for services expense included in
consulting  expense  in 2006 of  $78,771  or 123%.  General  and  administrative
expense  increased  $21,590 or 55% to $60,688 in 2006 as  compared to $39,098 in
2005  primarily due to incurring  $15,000 of directors  and officers'  insurance
expense in 2006 versus $nil in 2005.  Investor  relations  expense  increased by
$170,332  or 319% in 2006 to  $223,690  as compared to $53,358 in 2005 due to an
increase  in the  number of  investor  relations  service  providers;  also 2006
expense  included  $64,924  paid in shares for  services  as compared to $nil in
2005. Related party  compensation  expense increased $64,371 or 130% to $113,790
in 2006 as  compared  to $49,419 in 2005.  Related  party  compensation  expense
includes  $70,713 of stock option expense in 2006 as compared to $nil in 2005 as
a result of the  Company's  adoption  of SFAS 123R to  account  for stock  based
compensation for directors and officers. The increase in expenses in the Company
overall reflect the increased level of activity in the Company in respect of its
oil and gas operations as well as operations  relating to the disposition of its
share position in Pharmaxis Ltd.

As a result of the increase in expenses in 2006 versus 2005 the Company incurred
an  operating  loss of $708,108 as compared to $281,898 in 2005,  an increase in
operating loss of $426,210 or 151%.

The Company realized a gain before applicable taxes of $969,599 from the sale of
its available for sale Pharmaxis shares in 2006 as compared to $nil in 2005. The
Company earned  interest  income of $40,842 in 2006 as compared to $nil in 2005.
As a result the Company had income  before taxes of $310,093 in 2006 as compared
to a loss of $281,898 in 2005, an increase in income before taxes of $591,991.

Provision for income taxes is $291,409 are 2006 as compared to $nil in 2005.

Net income for 2006 is $18,684 as compared to a net loss of $281,898 in 2005, an
increase in net income of $300,582.

Other  comprehensive  loss comprised a decrease in unrealized  gain on available
for sale Pharmaxis securities of $6,265,000 to $83,000 in 2006, as compared to a
gain of $6,182,000 in 2005, and a foreign currency  translation  adjustment gain
of  $32,528  in 2006,  as  compared  to $nil in  2005.  The  unrealized  gain on
available

                                       16
<PAGE>

for sale Pharmaxis  securities of $83,000 in 2006 is due to the reclassification
of available for sale Pharmaxis  securities holding gain of $746,282 to realized
gain in 2006, as compared to $nil in 2005, and the holding gain on available for
sale Pharmaxis securities of $663,282 in 2006 as compared to $6,182,000 in 2005.

Comprehensive  loss is $31,788 in 2006 as  compared to  comprehensive  income of
$5,900,102 in 2005, a decrease in comprehensive income of $5,931,890.

LIQUIDITY AND CAPITAL RESOURCES

For 2006,  the Company used cash of $334,125  for its  operating  activities  as
compared  to  $153,302  in 2005.  The  Company  used  net cash in its  investing
activities  of  $389,817  in 2006 as  compared  to $41,693 in 2005.  The Company
expended  $1,359,416 on its oil and gas interests in 2006 as compared to $41,693
in  2005.  The  Company  realized  proceeds  on the  sale of  available-for-sale
Pharmaxis  securities  of $969,599  before  taxes in 2006 as compared to $nil in
2005.

Financing  activities  provided  $203,000  from  the  sale of  stock  in 2006 as
compared to $176,250 in 2005.  The Company  acquired  3,588 shares of its common
stock for $4,755 under the Company's stock  repurchase plan in 2006. The Company
did not repurchase any shares of its common stock in 2005.

At August 31, 2006, the Company had working capital of $1,453,108 as compared to
$2,089,735 as at May 31, 2006.

As at August 31, 2006, the Company owned 6,091,937  available-for-sale Pharmaxis
shares,  recorded at a net of taxes  market value of  $7,158,000  as compared to
6,791,937  available-for-sale  Pharmaxis shares with a net of taxes market value
of $7,241,000 as at May 31, 2006.

The Company  believes it will have  sufficient  working capital on hand together
with expected proceeds from the proposed sale of its remaining  Pharmaxis shares
and  potential  proceeds  from the  expected  future  sales of stock to fund its
2006/2007  planned oil and gas program of capital  expenditures  and operations,
and to pay its corporate  obligations as they arise over the next 12 months,  to
repurchase  shares  under its share  repurchase  program and to pay its proposed
dividend if it is approved by the regulatory authorities.

PLAN OF OPERATION

The Company  intends to use its cash on hand and proceeds  from the future sales
of its remaining  Pharmaxis  shares and share sales to fund the  acquisition and
exploration of oil and gas properties, working capital, and to repurchase shares
if  opportune  under  its  share  repurchase  program  and to fund its  proposed
dividend if it is approved by the regulatory authorities.

The Company proposed dividend is a distribution of a cash dividend on a pro-rata
basis of 50% of the net proceeds of the sale of its investment in Pharmaxis Ltd.
Net proceeds  includes  the costs  related to the sale of the shares and related
taxes.  The  directors  have  fixed  July  30,  2004 as the  record  date.  Each
shareholder  of record will receive the  equivalent  net proceeds of the sale of
one Pharmaxis  share for each 7.497 of pre-reverse and forward stock split Patch
International  Inc.  shares owned.  The  distribution  will take place after the
Company has completed the final sale of its Pharmaxis  investment and is subject
to the Company receiving all required regulatory approvals.

The Company  intends to  undertake  production  at its two oil wells  located at
Lloydminster, Alberta, Canada.

The Company intends to enter into a pooling  agreement to allow it to complete a
potential gas well at Atlee-Buffalo, Alberta, Canada.

The Company  intends to continue to  participate  in  production  at its well at
McLeod, Alberta, Canada.

The Company intends to undertake  measurement of gas flow rates after completion
of swabbing at the well drilled and perforated at Halkirk, Alberta, Canada.



                                       17
<PAGE>


The  Company has a working  interest  in an oil and gas  project  located in the
Peace  River Arch area of Alberta,  Canada.  The Company is required to spud two
test wells on this property by February 1, 2007.  The Company is  negotiating to
swap one of the test well commitments for a seismic work program  commitment and
additional  land  acquisition  commitment.  Assuming  the revised  Agreement  is
completed the Company will  undertake the seismic work program this winter.  The
Company is negotiating an extension of the drill spud dates.

The Company has a 75% majority  interest in Patch Oilsands  Limited  Partnership
("the  Partnership").  The Partnership has a working interest in a 1/2 oil sands
section (Block A) at Leismer,  Alberta,  Canada.  The  Partnership  also has the
option,  exercisable  on or before April 1, 2007,  to acquire an 80% interest in
the  adjoining  1/2 section  (Block B) for a payment of  $1,173,250  and 100,000
shares of Patch  International  Inc.  The  Company is  required  to  undertake a
seismic work program over both Block A and Block B and spud a test well in Block
A on or before March 1, 2007. The Company is planning a seismic work program for
this winter.  The Company is negotiating an extension of the drill spud date and
the Block B option acquisition date.

On April 5,  2006,  Energy  acquired  three oil sands  leases,  comprising  four
sections (1,024 hectares), at the Alberta Crown Oil Sands sale. The Company will
establish a future work program on these leases based on the engineering  report
it has obtained.

The Company  also intends to  participate  in future oil sands land sales and/or
acquire oil sands leases/participation from third parties.

The Company has a seismic option and participation  interest in a gas project at
Red Deer, Alberta,  Canada. The Company is currently considering further seismic
work on this property before deciding whether to proceed with a drill program.

The Company  has a working  interest in a test well in the Rich / Rumsey area of
Alberta,  Canada, cased back to a secondary gas target. The Company has advanced
its share of funds for  additional  seismic work to be undertaken on this before
deciding whether to proceed with a drill program.

The Company  intends to continue to  participate  in  production at its wells at
Kerrobert, Saskatchewan, Canada.

FORWARD-LOOKING STATEMENTS

Certain  statements  in this  Quarterly  Report on Form 10-QSB and the Company's
Annual  Report on Form 10-KSB for its fiscal year ended May 31, 2006, as well as
statements  made by the Company in periodic press  releases and oral  statements
made by the Company's  officials to analysts and  shareholders  in the course of
presentations about the Company, constitute  "forward-looking  statements." Such
forward-looking statements involve known and unknown risks,  uncertainties,  and
other factors that may cause the actual results,  performance or achievements of
the Company to be materially  different from any future results,  performance or
achievements  expressed  or  implied by the  forward  looking  statements.  Such
factors  include,   among  other  things,  (1)  general  economic  and  business
conditions;  (2) interest rate changes;  (3) the relative  stability of the debt
and equity markets;  (4) required accounting changes; and (5) other factors over
which the Company has little or no control.

ITEM 3.  CONTROLS AND PROCEDURES

Our principal  executive  officer and principal  financial officer evaluated our
disclosure  controls and  procedures as of the end of the period covered by this
report.  In his opinion,  the disclosure  controls and procedures are effective.
There have been no changes in our internal control over financial reporting that
occurred  during  our last  fiscal  quarter  that  materially  affected,  or are
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.



                                       18
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Not Applicable.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following is a summary of shares repurchased for cancellation by the Company
in the quarter ended August 31, 2006.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                    (A) TOTAL                       (C) TOTAL NUMBER OF SHARES         (D) MAXIMUM NUMBER (OR
                    NUMBER OF       (B) AVERAGE          SHARES (OR UNITS)          APPROXIMATE DOLLAR VALUE) OF
   PERIOD          SHARES (OR        PRICE PAID        PURCHASES AS PART OF         SHARES (OR UNITS) THAT MAY YET
                     UNITS)        PER SHARE (OR        PUBLICLY ANNOUNCED           BE PURCHASED UNDER THE PLANS
                   PURCHASED)          UNIT)            PLANS OR PROGRAMS                   OR PROGRAMS
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
<S>                  <C>               <C>                   <C>                              <C>
June 1, 2006         3,588             $1.32                 202,338                          475,162
 - June 30,
    2006
-------------------------------------------------------------------------------------------------------------------
July 1, 2006           0                 0                      0                             475,162
 - July 31,
    2006
-------------------------------------------------------------------------------------------------------------------
 Aug 1, 2006           0                 0                      0                             475,162
  - Aug 31,
    2006
-------------------------------------------------------------------------------------------------------------------
    Total            3,588             $1.32                 202,338                          475,162
-------------------------------------------------------------------------------------------------------------------
</TABLE>

    1)   The share repurchase program  was announced November 17, 2005 effective
         December 1, 2005
    2)   677,500 post forward split shares were approved
    3)   The repurchase program ends November 30, 2006

During the three month period ended August 31, 2006,  the Company issued 380,000
shares of common stock and received  $203,000 in cash proceeds from the exercise
of  380,000  stock  options.  The  Company  has  recorded  a stock  subscription
receivable of $35,000 related to these stock option exercises.

On July 26, 2006,  the Company  issued 222,250 shares of common stock at a price
of $1.25 per share for investor  relation  services.  The Company has recorded a
prepaid expense of $212,889 related to the future portion of the agreement.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

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

Not Applicable.


                                       19
<PAGE>

ITEM 5.  OTHER INFORMATION

Not Applicable.

ITEM 6.  EXHIBITS

REGULATION
S-B NUMBER                             EXHIBIT

   2.1        Stock Exchange Agreement with Micronetics, Inc. (1)

   2.2        Arrangement Agreement made among Praxis Pharmaceuticals Inc. and
              Patch Energy Inc. dated as of October 20, 2003 (2)

   2.3        Articles of Merger Merging Praxis Pharmaceuticals Inc., a Utah
              Corporation, into Patch International Inc., a Nevada Corporation
              (3)

   3.1        Articles of Incorporation, as amended (4)

   3.2        Bylaws (4)

   3.3        Certificate of Change Pursuant to NRS 78.209 (5)

   3.4        Certificate of Change Pursuant to NRS 78.209 (6)

  10.1        1999 Stock Option Plan (1)

  10.2        Shareholders Agreement dated August 23, 2002 among Praxis
              Pharmaceuticals Inc., Perpetual Trustees Nominees Limited,
              Rothschild Bioscience Managers Limited, CM Capital Investments Pty
              Ltd, CIBC Australia VC Fund LLC, Mooroolbark Technology Pty Ltd,
              The Australian National University and Pharmaxis Pty Ltd, Dr.
              William Cowden and Dr. Brett Charlton (7)

  10.3        Letter agreement dated February 18, 2004 regarding Termination
              Agreement with Fairchild International Corporation (8)

  10.4        2005 Stock Option Plan (9)

  10.5        Assumption and Cancellation of Debt agreements with Fairchild
              International Corporation dated April 15, 2005 (4)

  10.6        Management services agreement with David Stadnyk dated May 1, 2005
              (4)

  10.7        Change of Control Agreement with David Stadnyk dated May 1, 2005
              (4)

  10.8        2006 Stock Option Plan (10)

   21         Subsidiaries of the registrant (4)

  31.1        Rule 13a-14(a) Certification of Principal Executive and Financial
              Officer

  32.1        Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
-----------------
(1)  Incorporated  by  reference  to the  exhibits  filed with the  Registration
     Statement on Form 10-SB, file no. 0-28627.


                                       20
<PAGE>


(2)  Incorporated  by  reference  to  the  exhibits  filed with the registrant's
     current report on Form 8-K dated March 15, 2004.
(3)  Incorporated  by  reference  to  the  exhibit  filed with the  registrant's
     current report on Form 8-K dated June 15, 2004.
(4)  Incorporated by reference to  the  exhibits  filed  with  the  registrant's
     annual report on Form 10-KSB for the fiscal year ended May 31, 2005.
(5)  Incorporated  by  reference  to the  exhibits  filed with the  registrant's
     current report on Form 8-K dated July 8, 2005.
(6)  Incorporated  by  reference  to  the  exhibits  filed with the registrant's
     current report on Form 8-K dated March 14,  2006.
(7)  Incorporated  by  reference  to the exhibits  filed  with  the registrant's
     annual report on Form 10-KSB for the fiscal year ended May 31, 2002.
(8)  Incorporated  by  reference  to the  exhibits  filed with the  registrant's
     annual report on Form 10-KSB for the fiscal year ended May 31, 2004.
(9)  Incorporated  by  reference  to the  exhibits  filed with the  registrant's
     registration statement on Form S-8, file number 333-128627, filed September
     27, 2005.
(10) Incorporated  by  reference  to the  exhibits  filed with the  registrant's
     annual report on Form 10-KSB for the fiscal year ended May 31, 2006.


                                   SIGNATURES

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

                                         PATCH INTERNATIONAL INC.
                                         (REGISTRANT)

Date:  October 13, 2006                  By:  /s/ JOHN THORNTON
                                            ------------------------------------
                                             John Thornton, Interim President
                                             (Principal financial officer)

















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