UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-KSB





(Mark
One)





[X]
            ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
fiscal year ended December 31, 2007





[  
      ]
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
transition period from __________ to ___________





Commission
file number 000-28813





NEW CENTURY ENERGY
CORP.


(Exact
name of small business issuer as specified in its charter)





COLORADO
            
            93-1192725(State
      or other jurisdiction of
            
            (IRS
      Employer Identification No.)incorporation
      or organization)





5851 San Felipe, Suite 775,
Houston Texas 77057


(Address
of principal executive offices)





(713)
266-4344


(Registrant's
telephone number)





Securities
registered under Section 12(b) of the Exchange Act:





NONE





Securities
registered under Section 12(g) of the Exchange Act:





COMMON
STOCK, $.001 PAR VALUE PER SHARE





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





Check
whether the registrant (1) has 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 [
]





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








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





The
issuer's revenues for the most recent fiscal year ended December 31, 2007 were
$13,683,913.





The
aggregate market value of the issuer's voting and non-voting common equity held
by non-affiliates computed by reference to the average bid and ask price of such
common equity as of March 24, 2008, was approximately $554,770.





As of
March 31, 2008, the issuer had 56,010,612 shares of common stock, $0.001 par
value per share outstanding ("Common Stock"),





Documents
Incorporated by Reference:





NONE





Transitional
Small Business Disclosure Format:





Yes
[   ] No [X]











NEW
CENTURY ENERGY CORP.


FORM
10-KSB


YEAR
ENDED DECEMBER 31, 2007


INDEX





PART
      IItem
      1.
            Description
      of Business
            4Item
      2.
            Description
      of Property
            18Item
      3.
            Legal
      Proceedings
            29Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            29PART
      IIItem
      5.
            Market
      for Common Equity and Related Stockholder Matters
            30Item
      6.
            Management's
      Discussion and Analysis or Plan of Operation
            31Item
      7.
            Financial
      Statements
            F-1Item
      8.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
            60Item
      8A.
            Controls
      and Procedures
            60Item
      8B.
            Other
      Information
            62PART
      IIIItem
      9.
            Directors,
      Executive Officers, Promoters and Control Persons; Compliance with Section
      16(a) of the Exchange Act
            63Item
      10.
            Executive
      Compensation
            67Item
      11.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            72Item
      12.
            Certain
      Relationships and Related Transactions
            73Item
      13.
            Exhibits
      and Reports on Form 8-K
            74


Item
      14.
            Principal
      Accountant Fees and Services
            82













PART
I





ITEM 1. DESCRIPTION OF
BUSINESS





THE
FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS CONTAINS FORWARD
LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACT INCLUDED IN THIS SECTION REGARDING OUR FINANCIAL
POSITION AND LIQUIDITY, STRATEGIC ALTERNATIVES, FUTURE CAPITAL NEEDS, BUSINESS
STRATEGIES AND OTHER PLANS AND OBJECTIVES OF OUR MANAGEMENT FOR FUTURE
OPERATIONS AND ACTIVITIES, ARE FORWARD LOOKING STATEMENTS. THESE STATEMENTS ARE
BASED ON CERTAIN ASSUMPTIONS AND ANALYSES MADE BY OUR MANAGEMENT IN LIGHT OF ITS
EXPERIENCE AND ITS PERCEPTION OF HISTORICAL TRENDS, CURRENT CONDITIONS, EXPECTED
FUTURE DEVELOPMENTS AND OTHER FACTORS IT BELIEVES ARE APPROPRIATE UNDER THE
CIRCUMSTANCES. SUCH FORWARD LOOKING STATEMENTS ARE SUBJECT TO UNCERTAINTIES THAT
COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH STATEMENTS. SUCH
UNCERTAINTIES INCLUDE BUT ARE NOT LIMITED TO: THE VOLATILITY OF THE OIL AND GAS
INDUSTRY; CHANGES IN COMPETITIVE FACTORS AFFECTING OUR OPERATIONS; RISKS
ASSOCIATED WITH THE ACQUISITION OF MATURE OIL AND GAS PROPERTIES, INCLUDING
ESTIMATES OF RECOVERABLE RESERVES, FUTURE OIL AND GAS PRICES AND POTENTIAL
ENVIRONMENTAL AND PLUGGING AND ABANDONMENT LIABILITIES; OUR DEPENDENCE ON KEY
PERSONNEL AND CERTAIN CUSTOMERS; RISKS OF OUR GROWTH STRATEGY, INCLUDING THE
INHERENT RISK IN ACQUIRING MATURE OIL AND GAS PROPERTIES; OPERATING HAZARDS,
INCLUDING THE SIGNIFICANT POSSIBILITY OF ACCIDENTS RESULTING IN PERSONAL INJURY,
PROPERTY DAMAGE OR ENVIRONMENTAL DAMAGE; THE EFFECT ON OUR PERFORMANCE OF
REGULATORY PROGRAMS AND ENVIRONMENTAL MATTERS INCLUDING POLITICAL AND ECONOMIC
UNCERTAINTIES. ALTHOUGH WE BELIEVE THAT THE EXPECTATION REFLECTED IN SUCH
FORWARD LOOKING STATEMENTS ARE REASONABLE, WE CAN GIVE NO ASSURANCE THAT SUCH
EXPECTATIONS WILL PROVE TO BE CORRECT. YOU ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
HEREOF. WE UNDERTAKE NO OBLIGATION TO UPDATE ANY OF OUR FORWARD LOOKING
STATEMENTS FOR ANY REASON. REFERENCES TO "NEW CENTURY", "THE COMPANY", "WE",
"US" OR "OUR" AS USED THROUGHOUT THIS FORM 10-KSB REFER TO NEW CENTURY ENERGY
CORP. AND ITS WHOLLY OWNED SUBSIDIARIES, GULF COAST OIL CORPORATION AND CENTURY
RESOURCES, INC. UNLESS OTHERWISE STATED, OR THE CONTEXT APPEARS OTHERWISE.
REFERENCES IN THIS FORM 10-KSB, UNLESS ANOTHER DATE IS STATED, ARE TO DECEMBER
31, 2007.





Information
regarding certain technical oil and gas exploration terms which are used
throughout this Form 10-KSB can be found in the "Glossary of Oil and Gas Terms,"
incorporated by reference into this Form 10-KSB as exhibit 99.1.





HISTORY





New
Century Energy Corp. (the "Company"), was incorporated in Colorado on April 18,
1997 as "Perfection Development Corporation." On September 29, 1998, the Company
entered into an agreement pursuant to which it would acquire all of the
outstanding capital stock of Vertica Software, Inc., a California corporation
("Vertica California"). On December 31, 1998, Vertica California merged with and
into the Company. The Company was the surviving corporation in the merger and
the separate corporate existence of Vertica California ceased.






-4-


Concurrently
with the merger, the Company changed its name from Perfection Development
Corporation to Vertica Software, Inc. ("Vertica").  On February 1, 2002,
the Company's charter was automatically revoked by the Colorado Secretary of
State for failure to file a periodic report. Because of the Colorado statute at
that time, once a charter was revoked it could not be renewed and the Company
was forced to file new Articles of Incorporation with the Colorado Secretary of
State, which it did on December 22, 2003, as Vertica Software, Inc. The Company
filed a Statement of Merger with the Colorado Secretary of State to merge its
former Colorado filings as Perfection Development Corporation/Vertica Software,
Inc., with its current filings as New Century Energy Corp.





On
September 30, 2004, the Company acquired 100% of the issued and outstanding
common stock of Century Resources, Inc., a Delaware Corporation ("Century"),
which was originally established for the acquisition, development, production,
exploration for, and the sale of oil and natural gas in Texas, in exchange for
37,500,000 newly issued shares of the Company's common stock, pursuant to an
Agreement and Plan of Reorganization whereby Century became a wholly-owned
subsidiary of the Company (the "Exchange"). On October 26, 2004, in connection
with its new business focus, the Company filed Articles of Amendment with the
Colorado Secretary of State, to change its name to "New Century Energy Corp."
which name change became effective on November 1, 2004.





2005
AND 2006 FUNDING AND


RELATED
ACQUISITION AGREEMENTS





JUNE 2005
LAURUS FUNDING TRANSACTIONS





On June
30, 2005, we entered into a Securities Purchase Agreement with Laurus Master
Fund, Ltd., a Cayman Islands company ("Laurus" and the "Closing"), whereby we
sold a three (3) year Secured Convertible Term Note in the principal amount of
fifteen million dollars ($15,000,000)(the "Note" or "Convertible Note"), which
is convertible into an aggregate of 24,193,548 shares of our common stock at a
conversion price of $0.62 per share; issued Laurus a warrant to purchase up to
7,258,065 shares of common stock at $0.80 per share (the "Warrant"); issued an
option to Laurus to purchase up to 10,222,784 shares of our common stock
(representing 20% of our outstanding common stock on a fully-diluted basis
[prior to the issuance of shares in connection with the Purchase and Sale
Agreement]), for $0.001 per share (as amended)(the "Option"). We also granted
Laurus registration rights to the shares issuable in connection with the
Convertible Note and exercisable in connection with the Warrant and Option
pursuant to a Registration Rights Agreement.





The
Secured Convertible Note was subsequently replaced by an Amended and Restated
Secured Convertible Term Note and a Second Amended and Restated Note (the
"Convertible Term Note" or the "Note") which bears interest at the prime rate
(as published by the Wall Street Journal) plus 2% (currently 7.25%, with the
prime rate at 5.25% as of March 24, 2008, the "Contract Rate") per year, and
which at no time unless adjusted as described below, shall bear interest at less
than 7% per year, which unpaid principal and unpaid accrued interest, if any, is
due and payable on June 30, 2008 (the "Maturity Date"). The interest on the Note
is payable monthly, in arrears. Additionally, if our common stock has traded at
least 25% above the "Fixed Conversion Rate," initially $0.62, which is subject
to adjustment, for the five trading days immediately preceding the date a
monthly interest payment is due, then the Contract Rate is reduced by 1% for
each incremental 25% increase in the market price of our common stock above the
then applicable Fixed Conversion Rate; however, in no event shall the Contract
Rate at any time be less than 0%.





Additionally,
we agreed to make payments of the principal amount owing under the Note, as
amended, to Laurus on July 1, 2006, and on the first business day of each month
thereafter, including the Maturity Date in the amount of $250,000 from July 1,
2006 to December 31, 2006, $100,000 from January 1, 2007 until December 31,
2007, and $250,000 from January 1, 2008 until June 30, 2008, together with any
accrued and unpaid interest on such portion of the unpaid portion of the Note
(together with any other amounts to be paid, including the Contract Rate, the
"Monthly Amount") and to pay Laurus an amount equal to the outstanding principal
amount of the Note and any accrued and unpaid interest on the Maturity
Date.





-5-


Laurus
must convert all or a portion of the Monthly Amount into shares of our common
stock if: (i) the average closing price of our common stock for the five trading
days immediately proceeding such payment is greater than or equal to 110% of the
Fixed Conversion Price; and (ii) the amount of such conversion does not exceed
twenty-five percent of the aggregate dollar trading volume of the common stock
for the period of twenty-two trading days immediately preceding such payment
date; however if (i) is met and (ii) is not, Laurus may convert such amount of
the Monthly Amount into shares of our common stock that meet (i), above,
assuming that such conversion does not cause Laurus to hold more than 9.99% of
our then issued and outstanding stock, as described and subject to the
conditions listed below. Additionally, no amount of the Monthly Amount may be
converted into shares of our common stock unless there is an effective
Registration Statement covering such shares to be converted or an exemption from
registration exists under Rule 144 for such shares, and there is no event of
default. If (i) above is not met, the Monthly Amount must be payable in cash and
we must pay an amount of cash to Laurus equal to 102% of the Monthly
Amount.




We may
prepay the Note in cash by giving Laurus a notice of repayment, seven (7) days
before such intent to prepay, and by paying Laurus an amount equal to 115% of
the outstanding principal amount of the Note.





The Note
includes a provision whereby Laurus is not entitled to convert any amount of
shares which would cause Laurus to become the beneficial owner of more than
9.99% of our outstanding common stock, which limitation automatically becomes
null and void upon the occurrence and continuance of an event of default, or
upon 75 days prior notice to us.





The Fixed
Conversion Price of the Note is adjusted automatically in the event that we
issue any additional shares of common stock as a dividend or any preferred
stock; subdivide our outstanding shares of common stock; or effect a reverse
stock split, by multiplying the exercise price (currently $0.62) by the number
of our shares outstanding prior to such event and dividing that number by the
number of our shares outstanding after such event. Additionally, if at any time
prior to the full conversion or full repayment of the principal amount of the
Note, we issue any shares, options, warrants, or other obligations, to anyone
other than to Laurus (other than in connection with a company employee incentive
stock plan, or to vendors for goods sold and services rendered (not to exceed
1,000,000 shares and not eligible to be sold by the holders of such shares until
three years from June 30, 2005)), for consideration per share less than the
Fixed Conversion Price, the Fixed Conversion Price shall immediately reset to
such lower price.





If an
event of default were to occur under the Note, Laurus may at its option, demand
repayment in full of all obligations and liabilities owed to it by us under the
Note, Securities Purchase Agreement and any Related Agreement and may require us
to immediately pay 130% of the principal amount outstanding under the Note, plus
any accrued and unpaid interest.





COMMON
STOCK PURCHASE WARRANT





We
granted Laurus a seven year common stock Purchase Warrant ("Warrant") to
purchase 7,258,065 shares of our common stock at an exercise price of $0.80 per
share. The Warrant became immediately exercisable when granted. The Warrant
allows Laurus to purchase the shares until 5:00 p.m., June 30, 2012. The Warrant
states that Laurus may not exercise the Warrant, if such exercise would cause
Laurus to hold more than 9.99% of our outstanding common stock, subject to the
same limitation as in the Note, as described above.





OPTION
AGREEMENT





At the
Closing, and in connection with the Securities Purchase Agreement, we granted
Laurus an option which vested immediately to purchase up to 10,222,784 shares of
our common stock at an aggregate exercise price of approximately $10,223 (with a
per share exercise price of $0.001). Laurus agreed under the Option not to sell
any shares of common stock issuable upon exercise of the Option until: (a)
payment in full of all of our obligations and liabilities to Laurus under the
Securities Purchase Agreement, and (b) the
exercise of the Warrant by Laurus; provided; however that Laurus may sell all or
any portion of the common stock issuable upon the Option following an event of
default (as defined in the Note, and described under the section titled "Secured
Convertible Note,"
above).   On  July  28,  2005,  Laurus  exercised
a portion of the Option  and
received  3,675,000  shares of our common stock
at  $.001  per  share  for cash
consideration of $3,675, leaving an option to purchase 6,547,784 shares of our
common stock for approximately $6,548.





-6-


Laurus is
not able to exercise the Option, if such exercise shall cause it to hold in
excess of 9.99% of our issued and outstanding common stock, unless they provide
us 75 days written notice of their intent to hold more than 9.99% of our common
stock, subject to the same limitation as in the Note and Warrant, as described
above.





SEPTEMBER
2005 CLOSING WITH LAURUS





On
September 19, 2005, we entered into a Securities Purchase Agreement with Laurus
(the "September 2005 SPA"), pursuant to which we sold Laurus a Secured Term Note
in the amount of $9,500,000 (the "Term Note"). We also entered into a
Reaffirmation and Ratification Agreement with Laurus in connection with the
September 19, 2005 Securities Purchase Agreement and Term Note. The interest
rate of the Term Note is twenty percent (20%) per year, based on a 360 day year,
payable monthly in arrears, with the first interest payment due on November 1,
2005. The Term Note was amended by our entry into the Amended and Restated Term
Note (the "Amended Term Note") as described below on March 30, 2006, to provide
for the interest and principal on the Amended Term Note, to be payable to Laurus
by way of a production payment equal to 80% of the gross proceeds generated by
our 7.5% interest in the Lindholm-Hanson Gas Unit, which we purchased pursuant
to the September 2005 Purchase and Sale Agreement, described above.
Additionally, the due date of the Amended Term Note was changed from March 19,
2006 until January 2, 2007, pursuant to the amendment, which date has
subsequently been extended to July 2, 2007, pursuant to the Second Restated Term
Note, and to December 31, 2007, pursuant to the Third Restated Note, and to July
1, 2008, pursuant to the Letter Agreement, described below.





THIRD
AMENDMENT AGREEMENT WITH LAURUS





On
December 30, 2005, we entered into among other agreements and amendments to our
prior agreements with Laurus, an Amended and Restated Secured Convertible Term
Note ("Restated Note," described in greater detail below) and an Option (the
"December Option"). The December Option, provides Laurus the right to purchase
up to 5,061,392 shares of our common stock at $0.001 per share, representing ten
percent (10%) of our fully diluted issued and outstanding shares of common stock
prior to the date of the June 2005 SPA (June 30, 2005). Laurus agreed under the
December Option not to exercise any rights under the December Option until: (a)
payment in full of all of the obligations and liabilities of the Company to
Laurus under the June 2005 SPA and Restated Note have been paid in full and (b)
the exercise of the Warrant by Laurus, provided however that Laurus may sell all
or any portion of the common stock issuable upon the December Option following
an event of default (as defined in the Amended Note).





The
Restated Note, replaced and superseded the Convertible Note, and had an
effective date of June 30, 2005, the date of the original Convertible Note. The
Restated Note also included a provision which provided that the events of
default set forth in the Restated Note are subject to the express waiver of
certain events of default by Laurus in favor of the Company as provided in the
Amendment and the Second Amendment entered into with Laurus on November 3, 2005
and December 14, 2005. The Restated Note provided that such events of default
expressly waived pursuant to the First Amendment and the Second Amendment shall
remain waived in accordance with the express terms of the First Amendment and
the Second and shall not be deemed to constitute events of default for purposes
of the Restated Note, the June 2005 SPA or related agreements, the September
2005 SPA and/or related agreements.





Additionally,
under the Restated Note, Laurus agreed to amend the date on which we were
required to begin making payments of principal under the original Convertible
Note from January 1, 2006, until July 1, 2006, in
consideration for us entering into the Restated Note, the December Option and a
Third Amendment Agreement.





-7-


The
payments of principal under the Restated Note are due monthly at the rate of
$250,000 per month, until June 30, 2008, the maturity date of the Restated Note
(the "Maturity Date"). On the Maturity Date, the $10,800,000 remaining
outstanding under the Restated Note (assuming Laurus does not convert any
principal amount of the Restated Note into shares of our common stock), plus any
accrued and unpaid interest will be due and payable.





THIRD
ACQUISITION OF MINERAL INTEREST IN THE LINDHOLM-HANSON GAS UNIT AND
WELLS





On
January 3, 2006, we closed a Purchase and Sale Agreement entered into on
November 1, 2005 ("Agreement") with Mr. Gerald W. Green, the "Seller." Pursuant
to the Agreement, we agreed to purchase certain interests in and to certain oil
and gas leases which are located within and adjacent to the Lindholm-Hanson Gas
Unit in the Wishbone Field in McMullen County, Texas, located 80 miles south of
San Antonio, Texas (the "Unit"), for $1,890,000. We previously paid the Seller a
ten percent (10%) deposit under the Agreement, representing $189,000 and paid
the Seller the remaining ninety percent (90%) of the purchase price,
representing $1,701,000 on January 3, 2006. The interests purchased total a
1.75% working interest and a 1.3125% net revenue interest in the leases (the
"Interest"). As a result of the closing of the Interest, our total ownership of
interests within the Lindholm-Hanson Gas Unit totals a 15.20% working interest
and a 12.2140% net revenue interest and our total ownership of the Lindholm fee
#1 well, which is outside of the Unit includes a 12.10% working interest and an
8.9820% net revenue interest. The Agreement is described in greater detail in
our Report on Form 8-K filed with the Commission on November 7,
2005.





AMENDED
AND RESTATED SECURED TERM NOTE





On or
about March 30, 2006, with an effective date of September 19, 2005, we entered
into the Amended and Restated Secured Term Note (the "Amended Term Note") with
Laurus. Pursuant to the Amended Term Note, the maturity date of the September
2005 Secured Term Note ("Term Note") with Laurus was extended to January 2, 2007
(which has subsequently been extended to July 2, 2007, pursuant to the Second
Restated Term Note, to December 31, 2007, pursuant to the Third Restated Term
Note, and to July 1, 2008, pursuant to the Letter Agreement with Laurus,
described below). Additionally, a section was added to the Amended Term Note
which provided for the Amended Term Note to be repaid by way of a production
payment on certain of our oil and gas property (described below). The interest
rate of the Term Note, which rate was not changed by the Amended Term Note, is
twenty percent (20%) per year, based on a 360 day year, payable monthly in
arrears.





The
Amended Term Note provided for the payment of amortizing payments ("Amortizing
Payments") of principal and interest due under the Amended Term Note equal to
eighty percent (80%) of the gross proceeds paid to us in respect of oil, gas
and/or other hydrocarbon production arising from our 7.25% working interest in
the Wishbone Field in the Lindholm-Hanson Gas Unit, located in McMullen County,
Texas, purchased by us pursuant to the Purchase and Sale Agreement dated
September 2, 2005 (the "September Interests" and the "Production Payments").
Pursuant to the Amended Term Note, each such Amortizing Payment shall be made by
us to Laurus not later than five (5) days following the date on which we receive
the Production Payment, commencing with all Production Payments received by us
after March 1, 2006, with respect to the production month of January 2006 and
each month thereafter. Our payment of the Amortizing Payments to Laurus will be
in lieu of the monthly payments of interest accruing under the Term Note, which
we had previously been making since November 1, 2005. The Amended Term Note was
subsequently amended by the Second Amended and Restated Term Note (the “Second
Restated Term Note”), which added a provision, whereby we would be obligated to
pay Laurus an amount each month equal to the greater of (a) the amount owing to
Laurus in connection with the monthly Amortizing Payment and (b) the total
amount of interest due under the Term Note.




-8-


On July
10, 2007, we entered into a Third Amended and Restated Secured Term Note with
Laurus (the “Third Restated Note”). The Third Restated Note amended the terms of
our Second Amended and Restated Secured Term Note entered into with Laurus on or
about January 2, 2007, which in turn amended the terms of our Amended and
Restated Secured Term Note with Laurus, entered into on March 30, 2006, which in
turn amended the terms of our original Secured Term Note entered into with
Laurus on September 15, 2005. The Third Restated Note amended the maturity date
of the note from July 2, 2007, which was the maturity date of the Second Amended
and Restated Secured Term Note, to December 31, 2007, and amended the terms of
an event of default under the Second Amended and Restated Term Note to include
an event of default under any other of the previous Securities Purchase
Agreements or related agreements entered into with Laurus by us and/or by Gulf
Coast Oil Corporation, our wholly owned subsidiary.





On
January 20, 2008, we entered into a Letter Agreement (the “Letter Agreement”)
with Laurus. The Letter Agreement amended the terms of our Third Restated Note
to extend the maturity date to July 1, 2008. The Letter Agreement also amended
the terms of an event of default under the Third Restated Note to include an
event of default under any other of the previous Securities Purchase Agreements
(“SPAs”) or Related Agreements (as defined in the SPAs) entered into with Laurus
by us and/or by Gulf Coast Oil Corporation, our wholly owned
subsidiary.





APRIL
2006 GULF COAST TRANSACTIONS





On April
26, 2006, our then newly formed wholly owned subsidiary, Gulf Coast Oil
Corporation, a Delaware corporation ("Gulf Coast"), entered into a Securities
Purchase Agreement with Laurus Master Fund, Ltd. (the "Purchase Agreement" and
"Laurus"), whereby Gulf Coast sold Laurus a Secured Term Note in the amount of
$40,000,000 (the "Gulf Coast Note") and a common stock Purchase Warrant to
purchase up to 49% of the shares of common stock of Gulf Coast (the "Gulf Coast
Warrant") at $0.001 per share. In connection with the Purchase Agreement, Gulf
Coast also entered into a Guaranty with Laurus (the "Gulf Coast Guaranty"); a
Mortgage Deed of Trust, Security Agreement, Financing Statement and Assignment
of Production; a Master Security Agreement; a Collateral Assignment; and a
letter agreement relating to a Shareholders Agreement to be entered into between
Laurus and Gulf Coast following Laurus' exercise of the Gulf Coast Warrant. In
connection with Gulf Coast's entry into the Securities Purchase Agreement, we
and Century Resources, Inc., our wholly owned Delaware subsidiary ("Century")
entered into a Guaranty with Laurus (the "New Century Guaranty"); we and Century
entered into an Amended and Restated Mortgage, Deed of Trust, Security
Agreement, Financing Statement and Assignment of Production in favor of Laurus;
and we entered into a Stock Pledge Agreement with Laurus.





GULF
COAST NOTE





In
connection with the Purchase Agreement, Gulf Coast issued Laurus a three (3)
year Secured Term Note in the amount of $40,000,000 (the "Gulf Coast Note")
which bears interest at the prime rate (as published by the Wall Street Journal)
plus 2%(currently 8%, with the prime rate at 5.25% as of March 24, 2008) per
year, and which at no time shall bear interest at less than 8% per year, which
unpaid principal and unpaid accrued interest, if any, shall be due and payable
on October 28, 2009 (the "Maturity Date"). The interest on the Gulf Coast Note
is payable monthly, in arrears, commencing on July 1, 2006. Additionally,
amortizing payments of the principal amount due under the Gulf Coast Note are
due July 1, 2006, and each succeeding month thereafter including the Maturity
Date (each an "Amortization Amount"). As long as no Event of Default, as defined
below, has occurred under the Gulf Coast Note, interest on the Gulf Coast Note
shall only be payable as a component of the Amortization Amount, unless such
Amortization Amount is less than $150,000 for any month, as described
below.





-9-


The Gulf
Coast Note was replaced by the Amended and Restated Secured Term Note in
connection with Gulf Coast's entry into the June 2006 Purchase Agreement with
Laurus (collectively the "Gulf Coast Note"). The amendment to the Gulf Coast
Note, amended the monthly Amortization Amount which was to be paid under the
Gulf Coast Note, from 80% of the gross proceeds paid to Gulf Coast in connection
with all of Gulf Coast's oil, gas and/or other hydrocarbon production, to .875
times 80% of such production, to allow for the remaining 12.5% of 80% of Gulf
Coast's production to be paid to Laurus in connection with Amortization
Amounts due on the June 2006 Gulf Coast Note, as described and defined below.
The amendment also provided that any event of default or failure to pay the June
2006 Gulf Coast Note, would be treated as an event of Default under the Gulf
Coast Note. All references to the Gulf Coast Note contained in this filing have
been revised to reflect the changes affected by the Amended and Restated Secured
Term Note.





Each
monthly Amortization Amount was equal to the product of (a) .875 (the
“Amortizing Percentage”) and (b) eighty percent (80%) of the gross proceeds paid
to Gulf Coast in respect of all oil, gas and/or other hydrocarbon production in
which Gulf Coast has an interest less (i) the reasonable ordinary day to day
expenses associated with Gulf Coast's operation of the leases, wells and
equipment, including fuel, materials, labor, maintenance, routine production
equipment replacement, repairs, routine workover costs to maintain production
from an existing completed well, royalty, severance tax and ad valorem tax, in
each case using accounting practices and procedures ordinary and customary in
the oil and gas industry and (ii) Gulf Coast's reasonable estimate of its
federal tax (including federal income tax) liability (after taking into account
all applicable deductions, depletion and credits), all of which, in each case,
shall be subject to Laurus' approval, which approval shall be provided in the
exercise of Laurus' reasonable discretion based on such supporting documentation
from Gulf Coast as Laurus shall request (the "Net Revenue"), subject to a
minimum of $150,000. Provided, however, that each Amortization Amount shall be
equal to one hundred (100%) of Net Revenue, upon the occurrence and during the
continuance of an Event of Default under the Gulf Coast Note as described
below.  Additionally, since the repayment of the June 2006 Gulf Coast
Note, as described below, the Amortizing Percentage was increased to
1.00.





Gulf
Coast used $33,000,000 of the funds received through the sale of the Gulf Coast
Note to purchase the Manti property as described below; $1,400,000, representing
3.5% of the Gulf Coast Note, to Laurus Capital Management, LLC ("LCM"), as a
management fee, as well as an additional $24,705 in due diligence and
documentation fees to LCM; $75,295 to Laurus' attorneys for legal and escrow
agent fees; with the remaining $5,500,000 to be used by Gulf Coast for future
drilling expenses, of which a significant portion of this amount has been used
by Gulf Coast to date.





GULF
COAST WARRANT





The Gulf
Coast Warrant as amended provides Laurus the right to purchase shares of Gulf
Coast's common stock, representing up to 49% of Gulf Coast's then issued and
outstanding common stock at an exercise price of $0.001 per share, which
warrants are exercisable by Laurus after all amounts owed to Laurus by Gulf
Coast have been repaid in full. Pursuant to the Gulf Coast Warrant, we agreed to
provide Laurus with registration rights to the shares issuable in connection
with the Gulf Coast Warrant, if Gulf Coast ever affects an initial public
offering of its securities and/or if its securities become publicly
traded.





APRIL
2006 GULF COAST ACQUISITION





On April
28, 2006, Gulf Coast entered into an Asset Purchase Agreement ("Asset Purchase
Agreement") and closed the purchase of certain undivided interests in producing
properties as well as undeveloped oil and gas mineral leases totaling 9,167
acres and other related assets and contracts in McMullen County, Texas (the
"Manti Property"), from Manti Resources, Inc., a Texas corporation, Manti
Operating Company, a Texas corporation and Manti Mustang Creek, Ltd., a Texas
limited partnership (collectively "Manti"). The purchase price of the Manti
Property was $33,000,000, which amount was paid from funds received from Gulf
Coast's sale of the Gulf Coast Note to Laurus. The effective date of the Asset
Purchase Agreement, for the purpose of the receipt of proceeds from the sale of
hydrocarbon reserves was December 1, 2005.





JUNE 2006
GULF COAST TRANSACTIONS





On June
30, 2006, Gulf Coast entered into a Securities Purchase Agreement with Laurus
(the "June 2006 Purchase Agreement"), whereby Gulf Coast sold Laurus a Secured
Term Note in the amount of $5,000,000 (the
"June 2006 Gulf Coast Note" and collectively with the Gulf Coast Note, the "Gulf
Coast Notes"). In connection with the June 2006 Purchase Agreement, Gulf Coast
also entered into an Amended and Restated Mortgage, a Collateral Assignment; an
Amended and Restated Secured Term Note, and a Reaffirmation and Ratification
Agreement. In connection with Gulf Coast's entry into the June 2006 Purchase
Agreement, we and Century entered into a Reaffirmation and Ratification
Agreement with Laurus (the "New Century Reaffirmation Agreement"). We also
entered into a Reaffirmation and Ratification Agreement (the "New Century
Reaffirmation Agreement").





-10-


In
connection with the June 2006 Purchase Agreement, Gulf Coast issued Laurus a
forty (40) month Secured Term Note in the amount of $5,000,000 (the "June 2006
Gulf Coast Note"), which accrued interest at the rate of 17.5% per year, and
which unpaid principal and unpaid accrued interest, if any, was due and payable
on October 30, 2009 (the "Maturity Date"). The interest on the June 2006 Gulf
Coast Note was payable monthly, in arrears, commencing on July 1, 2006.
Additionally, amortizing payments of the principal amount due under the June
2006 Gulf Coast Note were due July 1, 2006, and each succeeding month thereafter
including the Maturity Date (each an "Amortization Amount").





Gulf
Coast used $4,450,000 of the funds received through the sale of the Gulf Coast
Note to purchase the remaining 1/8th of certain undivided interests in producing
properties as well as undeveloped oil and gas mineral leases totaling 9,167
acres and other related assets and contracts in McMullen County, Texas, of which
Gulf Coast purchased 7/8th of on April 28, 2006; $175,000, representing 3.5% of
the June 2006 Gulf Coast Note, to Laurus Capital Management, LLC ("LCM"), as a
management fee, as well as an additional $30,000 in due diligence and
documentation fees to LCM; $33,125 to Laurus' attorneys for legal and escrow
agent fees; with the remaining $311,874 to be used by Gulf Coast for future
drilling expenses.





The June
2006 Gulf Coast Note was repaid in full in connection with funds received from
Laurus in connection with the sale of the December 2006 Note as described in
greater detail below.





JUNE 2006
GULF COAST ACQUISITION





On June
30, 2006, Gulf Coast entered into an Asset Purchase Agreement (the "June 2006
Asset Purchase Agreement") and closed the purchase of all of the working
interest owned by J&P Family Properties, Ltd. and Lara Energy, Inc. (the
"June 2006 Sellers") in producing properties as well as undeveloped oil and gas
mineral leases totaling 9,167 acres and other related assets and contracts in
McMullen County, Texas (the "June 2006 Assets"), of which Gulf Coast purchased
7/8th of on April 28, 2006. The purchase price of the June 2006 Assets was
$4,450,000, which amount was paid to the June 2006 Sellers from funds received
from Gulf Coast's sale of the June 2006 Gulf Coast Note to Laurus as described
above. The effective date of the June 2006 Asset Purchase Agreement, for the
purposes of the receipt of proceeds from the sale of hydrocarbon reserves was
December 1, 2005. As a result of the June 2006 Asset Purchase Agreement, Gulf
Coast holds a 100% working interest in the producing properties and undeveloped
oil and gas mineral leases totaling 9,167 acres in McMullen County, Texas, other
than one well on such property, in which Gulf Coast holds only a 75%
interest.





DECEMBER
2006 SECURED NOTE FINANCING





On
December 28, 2006, we entered into a Securities Purchase Agreement (the
"December 2006 Purchase Agreement") with Laurus, pursuant to which we sold
Laurus a Secured Term Note in the aggregate principal amount of $16,210,000 (the
"December 2006 Note").





The
December 2006 Note bears interest at the prime rate plus 2% per annum until paid
(which is subject to a floor of 8% per annum), which currently has an interest
rate of 8% per annum, with the prime rate as of March 24, 2008 of 5.25% per
annum. Interest due under the December 2006 Note is payable monthly in arrears
beginning on February 1, 2007. The maturity date of the December 2006 Note is
January 4, 2010. Amortizing payments are due pursuant to the December 2006 Note
beginning on July 1, 2007, and the first business day of each month thereafter
equal to $200,000. We have the right to prepay the December 2006 Note at
any time without any prepayment penalty. If an Event of Default occurs under the
December 2006 Note (as defined and described in the December 2006 Note), the
December 2006 Note bears interest at the applicable interest rate then in affect
plus an additional 2% per annum, and Laurus can declare 130% of the then entire
outstanding amount of the December 2006 Note due and payable.





-11-


In
connection with the sale of the December 2006 Note, we agreed to pay Laurus
Capital Management, L.L.C., the manager of Laurus, a closing payment equal to
$210,000. We also reimbursed Laurus for certain due diligence and document fees
equal to $30,000. The use of proceeds for the December 2006 Note is described in
greater detail below.





On August
1, 2007, with an effective date of January 1, 2007, Century Assets Corporation
(“Century Assets”), which is owned by Edward R. DeStefano, our Chief Executive
Officer and Director, entered into a Surface Lease with Century Resources, Inc.
(“Century” and the “Surface Lease”).  Pursuant to the Surface Lease,
Century Assets leased us the use of five acres of land, next to our Sargent
South Gas Field in Matagorda County, Texas for storage of equipment, pipe and
materials used in the operation of the gas field. The term of the Lease is for
one year, and shall automatically renew thereafter unless terminated by either
party with thirty (30) days prior written notice.  We agreed to pay
Century Assets $1,000 per month for use of the Lease acreage.  In
addition to the use of the leased acreage for storage, Century, our wholly owned
subsidiary agreed to operate a pipeline on the acreage, and to pay all costs
associated with such operations, and to indemnify Century Assets for all
liability in connection with the operation of such pipeline.  Century
Assets had previously provided us the use of the leased acreage free of charge
since 2004.





Recent
Events





From July
to December 2007, Laurus notified us that it had assigned approximately
$3,417,597 of the December 2006 Secured Term Note to various related parties of
Laurus, an aggregate of $844,968 of the Term Note to various related parties of
Laurus, and an aggregate of approximately $4,427,065 of the Gulf Coast Note to
various related parties of Laurus.  Laurus has also acknowledged that
none of our rights and obligations under notes which were assigned would be
affected by such assignments.





From
January 2008 to the date of this report, Laurus has notified us that it had
assigned an additional approximately $4,932,098 of the December 2006 Secured
Term Note to various related parties of Laurus and has also acknowledged that
none of our rights and obligations under the note which was assigned would be
affected by such assignments.





On
October 9, 2007, at an annual meeting of stockholders of the Company, the
Company’s majority shareholder, Edward R. DeStefano, also the Company’s sole
officer and Director, ratified the election of himself as the Company’s sole
Director, ratified the Company’s 2007 Stock Incentive Plan, approved the
cancellation of the Company’s previously adopted 2000 Stock Incentive Plan, 2002
Stock Incentive Plan and 2004 Stock Incentive Plan, and ratified the appointment
of PMB Helin Donovan, LLP, as the Company’s independent auditors for the fiscal
year ended 2007.





The
Company’s 2007 Stock Incentive Plan, which includes a total of up to ten million
(10,000,000) shares or optionsprovides an
opportunity for any employee, officer, Director or consultant of the Company,
except for instances where services are in connection with the offer or sale of
securities in a capital-raising transaction, or they directly or indirectly
promote or maintain a market for the Company's securities, subject to any other
limitations provided by federal or state securities laws, to receive (i)
incentive stock options (to eligible employees only); (ii) nonqualified stock
options; (iii) restricted stock; (iv) stock awards; (v) shares in performance of
services; or (vi) any combination of the foregoing. In making such
determinations, the Board of Directors may take into account the nature of the
services rendered by such person, his or her present and potential contribution
to the Company's success, and such other factors as the Board of Directors in
its discretion shall deem relevant.




-12-


Gulf Coast / Valens Funding
Transactions





On
November 20, 2007, Gulf Coast entered into a Securities Purchase Agreement with
LV Administrative Services, Inc., as administrative and collateral agent (the
“Agent”) for Valens U.S. SPV I, LLC (“Valens U.S.”) and Valens Offshore SPV
II, Corp. (“Valens Offshore,” and collectively
with Valens U.S., each a “Purchaser” and collectively the “Purchasers” and the
"November 2007 Purchase Agreement"), whereby Gulf Coast sold Valens U.S. a
Secured Term Note in the amount of $3,100,000 (the "November 2007 Valens U.S.
Note"), and Valens Offshore a Secured Term Note in the amount of $4,000,000 (the
“November 2007 Valens Offshore Note” and collectively the “November 2007 Gulf
Coast Notes”). Valens U.S. and Valens Offshore are related parties of
Laurus.  In connection with the November 2007 Purchase Agreement, Gulf
Coast also entered into a Master Security Agreement, a Restricted Account
Agreement, a Restricted Account Letter Agreement, a Funds Escrow Agreement, an
Amended and Restated Common Stock Purchase Warrant, a Conveyance of Net Profits
Overriding Royalty Interest, a Net Profits Interest Agreement, and a Mortgage
(including a Deed of Trust, Security Agreement, Financing Statement and
Assignment of Production). In connection with Gulf Coast's entry into the
November 2007 Purchase Agreement, we and Century Resources entered into a Letter
Agreement with the Purchasers (the "New Century Letter Agreement").





In
connection with the November 2007 Purchase Agreement, Gulf Coast granted the
Purchasers a right of first refusal to provide additional financing, prior to
the incurrence of any additional indebtedness and/or the sale or issuance of any
equity interests of Gulf Coast. If Gulf Coast shall receive a proposed term
sheet for additional funding, pursuant to the November 2007 Purchase Agreement,
it will submit such term sheet to the Purchasers, at which time the Purchasers
will have the right, but not the obligation, to deliver, within 10 days of its
receipt of the proposed term sheet, its own proposed term sheet setting forth
the terms and conditions upon which it would be willing to provide additional
financing to Gulf Coast, at terms no less favorable than those outlined in the
proposed term sheet. If the Purchasers' terms are at least as favorable to Gulf
Coast as those of the proposed term sheet, in the sole determination of Gulf
Coast, Gulf Coast shall accept the Purchasers' terms in lieu of the proposed
term sheet, if not, Gulf Coast may accept the proposed term sheet.





November
2007 Promissory Notes





In
connection with the November 2007 Purchase Agreement, Gulf Coast issued Valens
U.S. a thirty-six (36) month Secured Term Note in the amount of $3,100,000 (the
"November 2007 Valens U.S. Note"), and Valens Offshore a thirty-six (36) month
Secured Term Note in the amount of $4,000,000 (the "November 2007 Valens
Offshore Note," and collectively with the November 2007 Valens U.S. Note, the
“Valens Notes”).  The Valens Notes bear interest at a rate equal to
the “prime rate” published in The Wall Street Journal (the “Prime Rate”), plus
two percent (2%) (the “Contract Rate”), per annum, provided however that the
Contract Rate never being less than eight percent (8%) per annum.  The
unpaid principal and accrued interest, if any, on the Valens Notes are due and
payable on November 22, 2010 (the "Maturity Date"). The interest on the Valens
Notes is payable monthly, in arrears, commencing on March 1, 2008.





Additionally,
amortizing payments of the principal amount due under the Valens Notes are due
December 1, 2007, and each succeeding month thereafter including the Maturity
Date (each an "Amortization Amount"). As long as no Event of Default, as defined
below, has occurred under the Valens Notes, interest on the Valens Notes is only
payable as a component of the Amortization Amount (defined below), unless such
Amortization Amount is less than $60,000 for any month.





Each
monthly Amortization Amount of the Valens Notes is equal to eighty percent (80%)
of the Net Revenues (defined below) which Gulf Coast receives in respect to the
oil, gas and/or other hydrocarbon production from certain oil and gas wells
which Gulf Coast plans to drill and if successful operate, on the property owned
by Gulf Coast.  “Net Revenue” is defined as the gross proceeds paid to
Gulf Coast, after subtracting (i) the reasonable ordinary day to day expenses
associated with Gulf Coast's operation of the leases, wells and equipment,
including fuel, materials, labor, maintenance, routine production equipment
replacement, repairs, routine workover costs to maintain production from an
existing completed well, royalty,
severance tax and ad valorem tax, in each case using accounting practices and
procedures ordinary and customary in the oil and gas industry and (ii) Gulf
Coast's reasonable estimate of its federal tax (including federal income tax)
liability (after taking into account all applicable deductions, depletion and
credits), all of which, in each case, shall be subject to the Agents approval.
Provided, however, that each Amortization Amount shall be equal to one hundred
(100%) of Net Revenue, upon the occurrence and during the continuance of an
Event of Default under the Valens Notes as described below.





-13-


In the
event the Amortization Amount payable to the Purchasers during any month is less
than $60,000 in aggregate ($26,220 in the case of the Valens U.S. note or
$33,780 in the case of Valens Offshore note), then Gulf Coast is required to
make a cash payment to such Purchaser in an amount equal to the difference
between the amount of money received by such party and the applicable
Amortization Amount.





Following
the occurrence of and during the continuance of an Event of Default (as defined
in the Valens Notes), Gulf Coast is required to pay additional interest on the
Valens Notes in an amount equal to two percent (2%) per month, and all
outstanding obligations under the Valens Notes, the November 2007 Purchase
Agreement and each other Related Agreement (as defined in the November 2007
Purchase Agreement), including unpaid interest, shall continue to accrue
interest at such additional interest rate from the date of such Event of Default
until the date such Event of Default is cured or waived. Additionally, following
the occurrence of and during the continuance of an Event of Default, the
Purchasers may, at their option, demand immediate repayment in full of all
obligations and liabilities owing by Gulf Coast to the Purchasers under the
Valens Notes, the November 2007 Purchase Agreement and/or any other Related
Agreement, to require Gulf Coast to make a default payment equal to 130% of the
outstanding principal amount of the Valens Notes, plus accrued but unpaid
interest, all other fees then remaining unpaid, and all other amounts payable
hereunder.





Gulf
Coast plans to use the funds received through the sale of the Valens Notes to
drill up to fourteen wells on its properties during
2008.  Additionally, Gulf Coast paid Valens Capital Management, LLC,
the investment manager of the Purchasers (“VCM”), a non-refundable payment in an
amount equal to $106,500, plusreasonable expenses
(including legal fees and expenses) incurred in connection with the November
2007 Purchase Agreement and the Related Agreements; and a non-refundable payment
in an amount equal to one percent (1.00%) of the aggregate principal amount of
the Notes ($71,000); and an advance prepayment discount deposit equal to one
percent (1.00%) of the aggregate principal amount of the Notes ($71,000) at the
closing.





Conveyance
Of Net Profits Overriding Royalty Interest And Net Profits Interest
Agreement





In
connection with the November 2007 Purchase Agreement, Gulf Coast also entered
into a Net Profits Interest Agreement (the “Interest Agreement”) and a
Conveyance Of Net Profits Overriding Royalty Interest (the “Conveyance”) with
the Purchasers.   Pursuant to the terms of the Interest Agreement
and the Conveyance, Gulf Coast agreed to sell and convey to the Purchasers, in
the proportions of forty-three and seven tenths percent (43.7%) to Valens U.S.
and fifty-six and three tenths percent (56.3%) to Valens Offshore, a net profits
overriding royalty interest equal to forty-nine percent (49%) of  the
Net Profits (as defined therein) of the production of oil and gas produced,
saved, and marketed from certain oil and gas properties proposed to be drilled
by Gulf Coast.





New Century / Valens Funding
Transactions





On
November 30, 2007, we entered into a Securities Purchase Agreement with the
Agent for Valens U.S. and Valens Offshore, whereby we sold Valens U.S. a Secured
Term Note in the amount of $2,300,000 (the "New Century November 2007 Valens
U.S. Note"), and Valens Offshore a Secured Term Note in the amount of $3,000,000
(the “New Century November 2007 Valens Offshore Note” and collectively the
“Valens Notes”). In connection with the November 2007 Purchase Agreement, the
Company also entered into a Consent Letter Agreement, Master Security Agreement,
a Stock Pledge Agreement, a Restricted Account Agreement, Funds Escrow
Agreement, a Net Profits Interest Agreement, a Conveyance of Net Profits
Overriding Royalty Interest, a Lockbox Account Agreement Letter, a SPA and Lien
Consent Agreement,
and a Mortgage (including a Deed of Trust, Security Agreement, Financing
Statement and Assignment of Production).





-14-


In
connection with the Purchase Agreement, the Company granted the Purchasers a
right of first refusal to provide additional financing, prior to the incurrence
of any additional indebtedness and/or the sale or issuance of any equity
interests of the Company. If the Company shall receive a proposed term sheet for
additional funding, pursuant to the November 2007 Purchase Agreement, it will
submit such term sheet to the Purchasers, at which time the Purchasers will have
the right, but not the obligation, to deliver, within 10 days of its receipt of
the proposed term sheet, its own proposed term sheet setting forth the terms and
conditions upon which it would be willing to provide additional financing to the
Company, at terms no less favorable than those outlined in the proposed term
sheet. If the Purchasers' terms are at least as favorable to the Company as
those of the proposed term sheet, in the sole determination of the Company, the
Company shall accept the Purchasers' terms in lieu of the proposed term sheet,
if not, the Company may accept the proposed term sheet.





November
2007 New Century Notes





In
connection with the Purchase Agreement, the Company issued Valens U.S. a
thirty-six (36) month Secured Term Note in the amount of $2,300,000 (the
"November 2007 New Century Valens U.S. Note"), and Valens Offshore a thirty-six
(36) month Secured Term Note in the amount of $3,000,000 (the "November 2007 New
Century Valens Offshore Note," and collectively with the November 2007 New
Century Valens U.S. Note, the “Valens New Century Notes”).  The Valens
New Century Notes bear interest at a rate equal to the “prime rate” published in
The Wall Street Journal (the “Prime Rate”), plus two percent (2%) (the “Contract
Rate”), per annum, provided however that the Contract Rate never is less than
eight percent (8%) per annum.  The unpaid principal and accrued
interest, if any, on the Valens New Century Notes are due and payable on
November 30, 2010 (the "Maturity Date"). The interest on the Valens New Century
Notes is payable monthly, in arrears, commencing on March 1, 2008. Additionally,
amortizing payments of the principal amount due under the Valens New Century
Notes are due December 1, 2007, and each succeeding month thereafter including
the Maturity Date (each an "Amortization Amount"). As long as no Event of
Default, as defined below, has occurred under the Valens New Century Notes,
interest on the Valens New Century Notes is only payable as a component of the
Amortization Amount (defined below), unless such Amortization Amount is less
than $50,000 for any month.





Each
monthly Amortization Amount of the Valens New Century Notes is equal to eighty
percent (80%) of the Net Revenues (defined below) which the Company receives in
respect to the oil, gas and/or other hydrocarbon production from certain oil and
gas wells which the Company plans to drill and if successful operate, on the
property owned by the Company.  “Net Revenue” is defined as the gross
proceeds paid to the Company, after subtracting (i) the reasonable ordinary day
to day expenses associated with the Company's operation of the leases, wells and
equipment, including fuel, materials, labor, maintenance, routine production
equipment replacement, repairs, routine workover costs to maintain production
from an existing completed well, royalty, severance tax and ad valorem tax, in
each case using accounting practices and procedures ordinary and customary in
the oil and gas industry and (ii) the Company's reasonable estimate of its
federal tax (including federal income tax) liability (after taking into account
all applicable deductions, depletion and credits), all of which, in each case,
shall be subject to the Agents approval. Provided, however, that each
Amortization Amount shall be equal to one hundred (100%) of Net Revenue, upon
the occurrence and during the continuance of an Event of Default under the
Valens New Century Notes as described below.





In the
event the Amortization Amount payable to the Purchasers during any month is less
than $50,000 in aggregate ($21,700 in the case of the Valens New Century U.S.
Note or $28,300 in the case of Valens New Century Offshore Note), then the
Company is required to make a cash payment to such Purchaser in an amount equal
to the difference between the amount of money received by such party and the
applicable Amortization Amount.




-15-


Following
the occurrence of and during the continuance of an Event of Default (as defined
in the notes), the Company is required to pay additional interest on the Valens
New Century Notes in an amount equal to two percent (2%) per month, and all
outstanding obligations under the Valens New Century Notes, the November 2007
Purchase Agreement and each other Related Agreement (as defined in the November
2007 Purchase Agreement), including unpaid interest, shall continue to accrue
interest at such additional interest rate from the date of such Event of Default
until the date such Event of Default is cured or waived. Additionally, following
the occurrence of and during the continuance of an Event of Default, the
Purchasers may, at their option, demand immediate repayment in full of all
obligations and liabilities owing by the Company to the Purchasers under the
Valens New Century Notes, the November 2007 Purchase Agreement and/or any other
Related Agreement, to require the Company to make a default payment equal to
130% of the outstanding principal amount of the Valens New Century Notes, plus
accrued but unpaid interest, all other fees then remaining unpaid, and all other
amounts payable hereunder.





The
Company plans to use the funds received through the sale of the Valens New
Century Notes to drill up to fourteen wells and rework two other existing wells
on its properties during 2008.  As of March 31, 2008, we have drilled
eight wells.  Additionally, the Company paid Valens Capital
Management, LLC, the investment manager of the Purchasers (“VCM”), a
non-refundable payment in an amount equal to one and one-half percent (1.50%) of
the aggregate principal amount of the Notes ($79,500), plusreasonable expenses
(including legal fees and expenses) incurred in connection with the November
2007 Purchase Agreement and the Related Agreements; and a non-refundable payment
in an amount equal to one percent (1.00%) of the aggregate principal amount of
the Notes ($53,000); and an advance prepayment discount deposit equal to one
percent (1.00%) of the aggregate principal amount of the Notes ($53,000) at the
closing.





CONVEYANCE
OF NET PROFITS OVERRIDING ROYALTY INTEREST AND
NET PROFITS INTEREST AGREEMENT





In
connection with the November 2007 Purchase Agreement, the Company also entered
into a Net Profits Interest Agreement (the “New Century Interest
Agreement”) and a Conveyance Of Net Profits Overriding Royalty Interest
(the “New Century Conveyance”) with the Purchasers.   Pursuant to
the terms of the New Century Interest Agreement and the New Century Conveyance,
the Company agreed to sell and convey to the Purchasers, in the proportions of
forty-three and four tenths percent (43.4%) to Valens U.S. and fifty-six and six
tenths percent (56.6%) to Valens Offshore, a net profits overriding royalty
interest equal to forty-nine percent (49%) of  the Net Profits (as
defined therein) of the production of oil and gas produced, saved, and marketed
from certain oil and gas properties proposed to be drilled by the
Company.





Second Amended Executive
Employment Agreement with Edward R. DeStefano





On or
about December 3, 2007, the Company and Edward R. DeStefano, the Company’s Chief
Executive Officer and President, entered into a Second Amended Executive
Employment Agreement (the “Employment Agreement”).  Pursuant to the
terms of the Employment Agreement, as amended, Mr. DeStefano will receive a
yearly salary of $425,000 for the twelve month period beginning January 1, 2008
and ending December 31, 2008, and a yearly salary of $475,000 for each of the
twelve month periods beginning January 1, 2009 and January 1, 2010, and ending
December 31, 2009 and December 31, 2010, respectively.  Furthermore,
Mr. DeStefano is entitled to a one-time payment in the amount of $20,000, in
connection with Gulf Coast Oil Corporation’s November 2007 closing of the
$7,100,000 in financing for the drilling of up to fourteen wells on its
properties and the New Century closing of the $5,300,000 in financing described
above.  Mr. DeStefano will also receive twenty days of paid time off
per year, and he may be granted, at the sole discretion of the Company’s Board
of Directors, an overriding royalty interest of up to one half of one percent
(0.005%) in connection with any new wells drilled by the Company subsequent to
the date of the Employment Agreement.





Agility
Agreement




The
Company named Ken Cleveland as Acting Chief Financial Officer effective January
31, 2008. Mr. Cleveland is employed by Agility Financial Partners, LLC
(“Agility”), which entered into an agreement with the Company regarding the
employment of Mr. Cleveland (the “Agility Agreement”).  Pursuant to
the Agility Agreement, the Company agreed to pay Agility $150 per hour for Mr.
Cleveland’s services to the Company and to pay Agility a placement fee equal to
25% of the annualized compensation of Mr. Cleveland, should the Company hire Mr.
Cleveland as a full time employee during the first six months of the Agility
Agreement, 20% of such salary during the period from six months after the date
of the agreement until one year from the date of the agreement and 10%
thereafter.





-16-


Letter
Agreement Regarding Third Amended And Restated Note





On
January 20, 2008, we entered into a Letter Agreement (the “Letter Agreement”)
with Laurus. The Letter Agreement amended the terms of our Third Amended and
Restated Note entered into with Laurus on or about July 10, 2007 (“Third
Restated Note”) to extend the maturity date to July 1, 2008. The Letter
Agreement also amended the terms of an event of default under the Third Restated
Note to include an event of default under any other of the previous Securities
Purchase Agreements (“SPAs”) or Related Agreements (as defined in the SPAs)
entered into with Laurus by us and/or by Gulf Coast Oil Corporation, our wholly
owned subsidiary.





RESEARCH
AND DEVELOPMENT




We
currently own licenses to 2-D seismic surveys and data over the South Sargent
Field, Prado Field, the San Miguel Creek Field, and Mustang Creek Field and we
plan to continue reprocessing and interpretation projects using this
data.





EMPLOYEES





We have
eight (8) contract employees, five (5) of whom are employed in field operations.
We also have four (4) full time employees who work for us, our Chief Executive
Officer, Edward R. DeStefano (who also serves as President, Treasurer, Secretary
and Director), and our controller, an accountant and an administrative
assistant.





COMPETITION





We face
competition from numerous other oil and gas exploration and development
companies, which have greater resources than we do and may be better able to
find and extract commercial quantities of oil and gas and may be able to offer
their oil and gas products at prices lower than we can.





PATENTS,
TRADEMARKS AND LICENSES





As an oil
and gas operator in Texas, we are required to have a Texas Railroad Commission
Operator number, which number is 141835. Additionally, we are required to, and
have certain bonds in connection with our oil and gas exploration activities. We
may also be required to obtain other permits from government agencies depending
on the location of future exploration plans. We do not currently hold any
patents or trademarks.





GOVERNMENT
REGULATION





Various
federal, state and local laws regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment,
directly impact our oil and gas exploration, development and production
operations, and consequently may impact our operations and costs. These
regulations include, among others, (i) regulations by the Environmental
Protection Agency and various state agencies regarding approved methods of
disposal for certain hazardous and non-hazardous wastes; (ii) the Comprehensive
Environmental Response, Compensation, and Liability Act, Federal Resource Conservation and Recovery Act and
analogous state laws which regulate the removal or remediation of previously
disposed wastes (including wastes disposed of or released by prior owners or
operators), property contamination (including groundwater contamination), and
remedial plugging operations to prevent future contamination; (iii) the Clean
Air Act and comparable state and local requirements which may result in the
gradual imposition of certain pollution control requirements with respect to air
emissions from our operations; (iv) the Oil Pollution Act of 1990 which contains
numerous requirements relating to the prevention of and response to oil spills
into waters of the United States; (v) the Resource Conservation and Recovery Act
which is the principal federal statute governing the treatment, storage and
disposal of hazardous wastes; and (vi) state regulations and statutes governing
the handling, treatment, storage and disposal of naturally occurring radioactive
material.  Management believes that we are in substantial
compliance with applicable environmental laws and regulations. To date, we have
not expended any material amounts to comply with such regulations, and
management does not currently anticipate that future compliance will have a
materially adverse effect on our consolidated financial position, results of
operations or cash flows. However, if we are deemed not to be in compliance with
applicable environmental laws, we could be forced to expend substantial amounts
to be in compliance, which would have a materially adverse effect on our
available cash and liquidity.





-17-


ITEM 2. DESCRIPTION OF
PROPERTY





OFFICE
SPACE





We
entered into an amended lease with Essex Tanglewood Investors, L.P., a Texas
limited partnership, in connection with our office space lease at 5851 San
Felipe, Houston, Texas, on February 10, 2006 (the "Lease"). The Lease
encompasses approximately 1,378 square feet of office space. The Lease term is
until September 30, 2010. The monthly rent under the Lease is $2,959 from the
date of the expansion of the lease in 2005 until June 30, 2007, and $3,042 per
month from July 1, 2007 until September 30, 2010. The lease may not be
terminated by us prior to its stated expiration. We increased the square footage
we rent during 2005 and 2006, in connection with increases of the number of
personnel on our staff.





OIL AND
GAS PROPERTIES





1.)
OPERATED PROPERTIES:





The
Company operates oil and gas properties in Texas under the name of Century
Resources, Inc., a wholly owned subsidiary of the Company. Century Resources,
Inc. is a bonded operator with the Railroad Commission of Texas and our Operator
number is 141835. Of the properties we operate, our working interest ownership
ranges from 80% in the Sargent South Field, to 100% in the San Miguel Creek,
Mustang Creek, Prado, Soleberg, and Tenna Fields.





SARGENT
SOUTH FIELD- MATAGORDA COUNTY, TEXAS





The
Company acquired 100% of the working interest in the Sargent South Field from
Calpine Natural Gas (NYSE) and its partner, ("Calpine") in January 2004. The
Sargent South Field is located onshore in Matagorda County, Texas, east of
Matagorda Bay. The leasehold is approximately 3,645 acres. Currently, there are
two (2) producing wells on the Hamill Lease; Hamill #2 and Hamill #17, with
daily production in excess of approximately 1,600 MCF of gas per day, (MCFGPD),
however, the Company can provide no assurance that the wells will continue to
produce at this rate, if at all.  There are also five (5) shut-in
wells, Hamill #10, Hamill #11, Hamill #14, Hamill #19, and Hamill
#1-R.





At the
time of this acquisition there were two producing wells, the Hamill #2 and
Hamill #19. In March 2004, the Company recompleted a shut-in well on the lease,
Hamill #10 and established production in the 3,345 foot sand. One of the
original producing wells acquired from Calpine, the Hamill #19 ceased flowing
gas in May of 2004 after producing 615 MMCF of gas from the original completion
at 3,917 foot. This Hamill #19 well was recompleted by the Company in July 2004,
in a sand at 4,324 feet and this sand produced
107 MMCF of gas until it was depleted in October 2004. A workover was attempted
in 2006 on the Hamill #19 at the 6,700 sand level; however this sand proved to
be non-productive. The Hamill #19 is currently shut-in and nonproducing. During
2008, the Company may attempt a possible deepening outside of the casing of the
well.





-18-


A license
to a 10 square mile 3-D seismic survey ("3-D") was also acquired from Calpine
and this 3-D has been reprocessed, along with some recently purchased 2-D
seismic lines. New drilling locations have been identified on this lease for
drilling in 2008. The seismic and geological 3-D interpretation project process
will be an ongoing process. When the results from any new wells are drilled on
this lease, the data from the new wells will be integrated into and used to
update our ongoing interpretation project.





The
Company has an ongoing workover and recompletion project underway in the Sargent
South Field. The first well work began in January 2005, when work over
operations were commenced on the Hamill #17 well, which had been shut-in since
2001 by the previous owner and operator. The wellhead and surface equipment were
replaced and remedial operations commenced to drill out and remove various
cement and cast iron bridge plugs set inside the well casing by previous
operators. The well bore was cleaned out to a depth of 4,500 feet, and tests
were run in the well to evaluate potential productive sands in this well. In
March 2005, the Hamill #17 well was recompleted in a stray sand at 4,230 feet;
which depleted in August of 2008 after producing 146 MMCF of gas.  As
of November 1, 2007, the Hamill #17 has been worked over and deepened inside
casing to 5,700 feet.  New production has been established in the
Hamill #17 well from perforations in a stray sand at 5,630 feet.  The
well is currently producing gas at the rate of  600 MCF per day on a
9/64 inch choke with a flowing tubing pressure of 1,250 pounds per square inch
(“psi”).





Hamill
#14 was recompleted in August of 2007 in a new sand at a depth of 3,453 feet and
produced gas at the rate of approximately 100 MCF per day. The well is currently
shut-in and being evaluated for deepening outside of its casing.





During
August 2007, workover operation commenced on the Hamill #10 well after the well
ceased producing gas during August 2007. This well is currently shut-in and
being evaluated for possible recompletion.





During
the forth quarter of 2006, the Hamill #2 well was shut in and the well was
cleaned out in November 2007. The well is currently producing at the rate of
approximately 1,000 MCF per day on an 8/64 inch choke, with a flowing tubing
pressure of 940 psi.





In
February of 2006, the Hamill #11 was recompleted in the 2,760 foot sand at the
rate of 275 MCF per day. The well is currently shut in.





During
August of 2006, re-entry operations commenced on the Hamill #1-R well, that was
originally drilled by Gulf Oil Corporation (“Gulf”) to a depth of 16,200 feet in
1961 and subsequently plugged and abandoned by Gulf in June 1967. Recent
operations included milling out and removing numerous cement and bridge plugs
set in the well when it was originally abandoned by Gulf. The well has been
cleaned out to a depth of 11,000 feet inside the existing 9-5/8” casing. Cased
hole logs were run in the well in October of 2006 and the well is being
evaluated for possible gas sands for testing and possible production. The first
recompletion attempted in November of 2006, at a depth of 5,560 feet produced
gas, but in non-commercial quantities. The Hamill #1-R well is currently
temporarily abandoned and being evaluated for deepening outside of
casing.





On or
about March 16, 2007, our working interest partner in the South Sargent field,
Aquatic Cellulose International Corporation (“Aquatic”) executed a Partial
Assignment of Oil and Gas Lease and Bill of Sale whereby Aquatic conveyed to
Century Resources, Inc., all of Aquatic’s rights, title and interest in the
Hamill and Hamill leasehold for all depths below a depth of 7,000 feet below the
surface. In addition, Aquatics assigned all of its interests, regardless of
depth, in Hamill and Hamill well numbers Nos. 19 and 1-R. In
return, we repaid Aquatics all deposits made toward the Hamill 1-R workover and
released Hamill of all prior commitments made regarding that well.





-19-


SAN
MIGUEL CREEK FIELD- MCMULLEN COUNTY, TEXAS





The San
Miguel Creek Field is located in north central McMullen County, Texas, near its
border with Atascosa County, approximately 75 miles due south of San Antonio,
Texas. The Company currently owns and operates the 200-acre Herrera Lease and
the 40-acre Wheeler #2 lease in this field (240 acres total). The Company now
controls 100% of the working interest on these leases and wells. To date two new
drilling locations have been identified.  The Herrera #9 well was
drilled in February 2007 and completed as an oil producer, and the Herrera #10
location has been staked as a possible future drilling location.





MUSTANG
CREEK FIELD AREA WELLS- McMULLEN AND ATASCOSA COUNTIES, TEXAS.





On April
28, 2006, the Company’s then newly formed wholly owned subsidiary, Gulf Coast
Oil Corporation (“Gulf Coast”), acquired the majority working interest and
operations over developed and undeveloped oil and gas mineral leases totaling
9,167 acres in the Mustang Creek Field area in McMullen and Atascosa Counties,
Texas. On June 30, 2006, Gulf Coast acquired the remainder of the working
interest ownership from another group of owners, in this same group of leases
and producing wells. As a result of the June 30, 2006 closing and recent
drilling activity, Gulf Coast now owns a 100% working interest in 22 oil wells
and one gas well and a 75% working interest in one additional oil well for a
total of 23 wells. The effective date for ownership for both acquisitions was
December 1, 2005. The following table summarizes Gulf Coast’s ownership in the
producing wells as of March 31, 2008:





Schedule
of Acquired and Recently Drilled Wells and Mineral Interests in Mustang Creek
Area, as of March 31, 2008:




WORKING
            
            NET
      REVENUEWELL
      NAME
            
            INTEREST
            
            INTEREST1.  HODDE
      #1
            
            100
      %
            
            0.7700
      %2.  DOUBLE
      K #2
            
            100
      %
            
            0.7700
      %3.  DOUBLE
      K #3
              4.  DOUBLE
      K #4
              5.  DOUBLE
      K #5
            
            100
      %
              100
      %
              100
      %
            
            0.7700
      %
              0.7800
      %
              0.7800
      %6.  KASSNER
      #1
            
            100
      %
            
            0.7700
      %7.  KASSNER
      #2
            
            100
      %
            
            0.7700
      %8.  TYLER
      RANCH UNIT WELL #1
            
            100
      %
            
            0.77375
      %9.  PEACOCK
      #1
            
            100
      %
            
            0.7700
      %10.
      POWERS-SWAIM UNIT WELL #1
            
            100
      %
            
            0.7700
      %11.
      SWAIM 33-2
              12.
      SWAIM 58-1
              13.
      SWAIM 58-2
            
            100
      %
              100
      %
              100
      %
            
            0.7500
      %
              0.7700
      %
              0.7500
      %14.
      WHEELER #1
            
            75
      %
            
            0.4375
      %15.
      POWERS-SWAIM UNIT WELL #1-R
            
            100
      %
            
            0.7500
      %16.
      CAJUN CAPER UNIT #1
            
            100
      %
            
            0.75517154
      %17.
      RABKE#2
            
            100
      %
            
            0.766250
      %18.
      RABKE #3
            
            100
      %
            
            0.7800
      %19.
      RABKE #4
            
            100
      %
            
            0.7800
      %20.
      RABKE/MASPERO UNIT #1
              21.
      RABKE/MASPERO UNIT #2
              22.
      RABKE MASPERO OIL UNIT #1
              23.
      MAHONEY #1
            
            100
      %
              100
      %
              100
      %
              100
      %
            
            0.773750
      %
              0.773750
      %
              0.7500%
              0. 7500
      %








-20-




Mustang
Creek Field area is located approximately 75 miles south of San Antonio, Texas.
Geologically, the Mustang Creek field area is located on the San Marcos Platform
back reef of the Cretaceous Stuart City and Sligo reef trends. The field
produces oil and gas from sands trapped against Wilcox faults from depths
between 3,000 feet and 6,200 feet, which wells commonly have multiple Wilcox pay
sands. In 2004, a new 65 square mile 3-D seismic survey was completed which
helped recognize and delineate numerous shallow Wilcox anomalies. Gulf Coast
acquired 9,167 acres of developed and undeveloped leases from Manti Operating
Company and its partners, along with the recently drilled producing wells noted
in the table above. In addition to the producing wells, in July of 2006, Gulf
Coast acquired a license to approximately 45 square miles of the new 3-D seismic
data and is finalizing an interpretation project to further delineate additional
Wilcox drilling opportunities and possibly drilling targets at deeper
depths.





As of the
beginning of the first quarter of 2008, we have identified approximately twenty
(20) un-drilled seismic anomalies and development locations based on our ongoing
3-D seismic interpretation project.  We anticipate drilling an
additional five (5) wells in 2008, of which there can be no
assurance.  From the commencement of our initial drilling program in
November 2006, through March 31, 2008, we have drilled a total of twenty-one
(21) prospects and locations.  Of the twenty-one (21) prospects
drilled, ten (10) are successful producing wells, one (1) well is waiting on
completion, and eight (8) were plugged as dry holes.  Additionally, in
one (1) non-producing well the Swaim 60-1, we set casing to a depth of 5,800
feet and anticipate permitting this well for use as a salt water disposal
well.  In one other (1) new well, the Power-Swaim Unit 1-R, casing was
set to 5,900 feet, based upon further geological study we plan to re-drill the
lower portion of Power Swaim Unit 1-R  well in an attempt to gain
better structural position and complete for production.  In July 2006,
the Tyler Ranch Gas Unit #1, the only gas well in our Mustang Creek field,
ceased producing, and as of the date of this filing it remains shut in and
non-producing.





Status
of Mustang Creek Field Prospects Drilled by Gulf Coast Oil Corporation as of
March 31, 2008:





Prospect/Well
      Name
            StatusDouble
      K North #4
            ProducerDouble
      K North #5
            ProducerDouble
      K Swaim Unit #1
            Dry
      holeHenry
      Kuykendall Unit #1
            Dry
      holeHodde
      #2
            Dry
      holeKassner
      #3
            Dry
      holeKassner
      #4
            Dry
      holeMahoney
      #2
            ProducerRabke
      Maspero Unit #2
            ProducerRabke-Maspero
      Oil Unit #1
            ProducerRabke
      #1
            Dry
      holeRabke
      #2
            ProducerRabke
      #3
            ProducerRabke
      #4
            ProducerPower-Swaim
      Unit 1-R
            To
      be deepened outside casingSwaim
      33-2
            ProducerSwaim
      33-3
            Dry
      holeSwaim
      58-2
            ProducerSwaim
      58-3
            Dry
      holeSwaim
      60-1
            Dry
      hole- converting to Salt Water Disposal Well (“SWD”)Dowdy
      #1
            Waiting
      on completion







-21-


Out of
the nine (9) wells listed as dry holes above, one (1) was plugged and abandoned
in 2006, five (5) were plugged and abandoned in 2007, and two (2) were plugged
and abandoned in the first quarter of 2008.  The remaining dry hole,
Swaim 60-1, was drilled in 2007 as a dry hole but will be converted to a Salt
Water Disposal well in the second quarter of 2008.





Other
Production Activity in Mustang Creek Field in 2007 and 2008:





During
the first quarter of 2007, workover operations were completed on the Kassner #2
well and production was restablished in the W-4 sand at a depth of 5,500
feet.  This well was non-producing at the time it was purchased in
2006.





During
2007, pumping units were installed on five (5) wells that were originally
purchased in 2006, the Double K #2, Kassner #2, Rabke-Maspero Unit #1, Wheeler
#1 and Swaim 58-1 when these wells ceased flowing.





During
2007, we sold 168,419 gross barrels or 127,738 net barrels from the Mustang
Creek Field oil wells.  As of March 31, 2008, current daily 8/8ths oil
production from the Mustang Creek Field wells was approximately 700 barrels of
oil per day (BOPD) from twenty (20) producing oil wells.





TENNA
(HILLJE SAND) FIELD- WHARTON COUNTY, TEXAS





The
Company acquired 100% of the working interest in three (3) wells in the Tenna
field in July 2003. The field is located on county road 1300 in western Wharton
County, Texas, approximately 60 miles southwest of Houston, Texas. The Hillje
Sand was discovered in 1991 and has been an oil and gas producer at a shallow
depth of 4,100 feet. We drilled a new well location, the Brothers Cattle Company
#5 well, in the first quarter of 2008, with completion operations planned to
commence around April 2008.  Also, in July of 2007, we completed a
workover of the Hillje Oil Unit #1 by cleaning out the well bore, removing and
replacing the old down hole production screen, and replacing the submersible
production pump and motor; however, commercial production has not been
re-established in this well, and a new workover is planned for this well in the
second quarter of 2008, of which there can be no assurance.





SOLEBERG
WILCOX FIELD – GOLIAD COUNTY, TEXAS.





On
December 5, 2006, but effective November 30, 2006, the Company executed an Oil,
Gas and Mineral Lease with James Allen Lewis and Mildred M. Lewis covering
83.516 acres in the S.C. White Survey, Abstract 290, in Goliad County,
Texas.  The Company also acquired an additional 750 acres in this area
from four additional Lessors.





On
December 6, 2006, but effective November 1, 2006, the Company executed an
Assignment and Bill of Sale with Unit Petroleum Company (“Unit”) whereby Unit
conveyed to the Company all of Unit’s right, title and interest in the Lewis “A”
No. 1 and the Lewis “A” No. 2 wells in Goliad County, Texas, including all
production equipment, surface facilities, improvements, to the extent
transferable all surface use agreements, easements, right of ways, permits and
similar rights and interests  associated with the subject wells and
oil and gas properties, located on the Lewis lease.   The Company
now owns 100% of the working interest in the subject inactive wells and
leasehold.





In April
2007, the Company commenced workover operations on the Lewis “A” No. 2 well and
attempted to establish production in the First Austin Sand at 10,500
feet.  The well flowed gas in non-commercial quantities and is
presently shut in.  Additional flow testing occurred in late November
2007, and commercial production was not established from the current
completion.  The Company plans to re-enter this well in the second quarter
of 2008 and attempt to restore production from a deeper existing completion in
the Second Austin sand that is currently isolated under a cast iron bridge
plug.  The Company cannot assure that the additional well work will be
performed in 2008, or if the well will be restored to production after any
workover or testing is completed.




-22-


In August
of 2007, the Company acquired a license for eight (8) square miles of 3-D
seismic data covering the leased acreage and adjoining area.  The data
was acquired to assist in the exploration and mapping process and to help
identify additional possible exploration well locations, for future drilling and
development. The interpretation project was completed in the first quarter of
2008.  The Company plans to farmout drilling prospects on its acreage
to industry partners in 2008, of which there can be no assurance.





2.)
NON-OPERATED PROPERTIES: WISHBONE FIELD - LINDHOLM HANSON GAS UNIT- McMULLEN
COUNTY, TEXAS:





As of
January 3, 2006, the Company owns a 15.20% non-operated working interest with a
12.214% net revenue interest in the Wishbone Field in McMullen County, Texas,
which is operated by U.S. Enercorp, LTD, headquartered in San Antonio, Texas.
The Company acquired its interest in the Wishbone Field through three (3)
separate transactions. In June of 2005, it acquired a 6.2% working interest and
5.464% net revenue interest. In September of 2005, it acquired a 7.25% working
interest and 5.4375% net revenue interest. In January of 2006, it acquired a
1.75% working interest and 1.3125% net revenue interest. The total combined
interest now owned by the Company is a 15.20% working interest and 12.214% net
revenue interest.





The field
was discovered in 2004 after the successful drilling of the Lindholm-Hanson Gas
Unit #1 Well, operated by U.S. Enercorp LTD of San Antonio Texas. The field
produces from Upper Wilcox sands at an average depth of approximately 12,800
feet. All of the producing wells in the Lindholm-Hanson Gas Unit have been
fracture stimulated using approximately 400,000 pounds of 20/40 proppant.
Initial producing rates after stimulation in a number of wells has exceeded
15,000 MCFGPD per well. As of March 2008, there are ten (10) producing wells in
the 640 acre unitized Lindholm-Hanson Gas Unit. Cumulative production in the
field has been approximately 24 billion cubic feet of gas (Bcf). Well log
analysis indicates probable and possible oil and gas production at shallow
depths in the Wishbone Field. Potential future production may be achieved in the
Slick sand, the 9,100 foot sand, the Hostetter sand and the Tom Lyne sands,
ranging in depth from 7,000 feet to 11,000 feet, of which there can be no
assurance.





Since the
Company acquired its working interest in the Wishbone field, we have
participated in drilling an additional three (3) new wells within the unitized
Wishbone field. LH Gas Unit #10 was drilled in July of 2005. LH Gas Unit #11 was
drilled in September of 2005. LH Gas Unit #9 was drilled in December of 2005.
The Company also participated in drilling of the Lindholm Fee #1 in September of
2005, this well is not a part of the Lindholm-Hanson Gas unitized gas field and
our working interest is smaller in this well at 12.10%.





RECENT DEVELOPMENTS IN WISHBONE FIELD





The
Lindholm Hanson Gas Unit Well #1 was recompleted in December 2006 by plugging
off the old perforations in the Wilcox House 3 sand, and recompleting in the
Wilcox House 2 sand with perforations at 12,310 to 12,324 feet. The new
completion has not been acidized or frac treated, and is currently producing at
a rate of 1312 MCFGPD with a flowing tubing pressure of 400 psi.





During
2007, the Company’s proved gas reserves in the Wishbone Field were decreased by
57%.  The majority of this reduction, approximately ninety percent
(90%), was due to a significant reduction in future proved undeveloped (PUD)
locations projected to be drilled.  This reduction was based on the
operator’s indication that only one more PUD may be drilled due to current high
drilling costs and lower product prices.  In addition, the decline
rate associated with the existing proved developed producing (PDP) gas reserves
was steeper than previously projected, which contributed to approximately ten
percent (10%) of the decrease in the proved reserves in this field.




-23-





Current
well status in the Lindholm-Hanson Gas Unit and Lindholm Fee #1 at March 15,
2008:





Well
            
            Status
            
            Daily
      8/8THS
              Production
      (MCF)
            
            Net
      Revenue
              Interest(MCF)LH-Gas
      Unit #1
            
            Producing
            
            1312
            
            160LH-Gas
      Unit #2
            
            Shut-in
            
            0
            
            0LH-Gas
      Unit #3
            
            Producing
            
            517
            
            63LH-Gas
      Unit #4-C
            
            Shut-in
            
            0
            
            0LH-Gas
      Unit #4-T
            
            Producing
            
            507
            
            62LH-Gas
      Unit #5
            
            Producing
            
            977
            
            119LH-Gas
      Unit #7
            
            Shut-in
            
            0
            
            0LH-Gas
      Unit #8
            
            Producing
            
            0
            
            0LH-Gas
      Unit #9
            
            Producing
            
            469
            
            57LH-Gas
      Unit #10
            
            Producing
            
            142
            
            17LH-Gas
      Unit #11
            
            Producing
            
            613
            
            75Lindholm
      Fee #1
            
            Producing
            
            46
            
            6Daily
      totals in MCF of Gas
            
            
            
            4,583
            
            559




PRADO
FIELD LEASES, JIM HOGG COUNTY, TEXAS.





In June
2004, the Company acquired leases in the Prado Field comprising 1,280 acres in
Jim Hogg County, Texas. The former owner was JMI Energy Inc., of Houston, Texas
("JMI"). As of January 1, 2006, there were four (4) active wells on this lease
and twenty (20) inactive well bores. In July 2004, under the terms of the
Aquatic Agreement, Aquatic exercised its option to participate for a 50% working
interest in this acquisition by purchasing a 50% working interest from the
Company. In September of 2006, the Company re-purchased the remaining fifty
percent (50%) working interest formerly owned by Aquatic Cellulose in the Prado
Field for a cash payment of $300,000. The Company now owns 100% of the working
interest in the Prado Field production.  We have
finalized  a seismic and geological interpretation of the field and
have identified re-completion potential and possible future drilling locations
on Company owned acreage. A workover program and well plugging program
commenced in November 2007 and will continue into mid 2008 on certain existing
wells.  Since the workover program commenced, we have plugged and
abandoned seven (7) wells and recompleted two (2) new wells.  As of
March 31, 2008, production is averaging 32 BOPD from four (4) pumping
wells.





OTHER
INDUSTRY AGREEMENTS





The
Company has executed agreements with other oil and gas companies and other
industry investors who are interested in participating in the Company's
exploration and production activities.





GEOPHYSICAL
INTERPRETATION AGREEMENT:





In July
2005, the Company executed a Geophysical Interpretation & Exploration
Agreement (“Seismic Agreement”) with Viking International Petroleum, L.L.C.
(“Viking”) which was later amended in May of 2006. Under the Seismic Agreement,
Viking committed to reprocess the Company’s 3-D seismic data base in Matagorda
County, Texas using its proprietary technology for the purpose of reprocessing
the seismic data, identifying new well locations and to provide structural
interpretations and mapping as requested by the Company. Under the original and
amended agreement, in return for reprocessing and interpretation work, the
Seismic Agreement provides for Viking to earn an overriding royalty as it sole
compensation. Under the May 2006 amendment, Viking’s earning rights were limited
to a Common Area, any and all other acreage previously covered by the original
July 2005 agreement and outside of the Common Area was released, and is no
longer subject to an overriding royalty as if the original agreement had never existed.
Under the May 2006 amendment, Viking retained the right but not the obligation
to participate for between 10% and up to 50% of the working interest, on a well
bore only basis, of any new productive well drilled in the Common Area. Century
Resources, Inc. shall be the operator with respect to any operations that occur
in the Common Area.





-24-


OIL AND
GAS ACREAGE, PRODUCTIVE WELLS,


AND
DRILLING ACTIVITY DISCLOSURE OF OIL AND GAS OPERATIONS:




COMPARISON
OF AVERAGE SALES PRICES OF OIL AND GAS SOLD BY THE COMPANY FOR THE LAST THREE
FISCAL YEARS OPERATED AND NON-OPERATED PROPERTIES:







2007
            
            
            2006
            
            
            2005AVERAGE
      SALE PRICE OF OIL(Per
      bbl.)
            
            $
            70.34
            
            $
            62.87
            
            $
            53.63AVERAGE
      SALE PRICE OF GAS(PER
      MCF)
            
            $
            6.10
            
            $
            5.99
            
            $
            7.10







NET OIL
PRODUCTION FROM COMPANY OPERATED PROPERTIES FOR THE LAST THREE FISCAL
YEARS:





2007
            
            2006
            
            2005Barrels
            
            Barrels
            
            BarrelsMUSTANG
      CREEK FIELD
            
            
            127,738
            
            
            173,097
            
            
            --PRADO
      FIELD
            
            
            2,083
            
            
            --
            
            
            --SAN
      MIGUEL CREEK FIELD
            
            
            11,344
            
            
            9,938
            
            
            8,143TENNA
      FIELD
            
            
            5,414
            
            
            7,811
            
            
            7,099ANNUAL
      TOTALS
            
            
            146,579
            
            
            190,846
            
            
            15,242





NET GAS
PRODUCTION FROM COMPANY OPERATED PROPERTIES FOR THE LAST THREE FISCAL
YEARS:







2007
            
            2006
            
            2005SARGENT
      SOUTH FIELD (MCF)
            
            
            180,220
            
            
            318,229
            
            
            164,965TYLER
      RANCH GAS UNIT #1 (MCF)*
            
            
            --
            
            
            105,861
            
            
            --TOTAL
            
            
            180,220
            
            
            424,090
            
            
            164,965







*In July
2006 the TYLER RANCH GAS UNIT #1 well stopped producing and is  now
shut-in and non-operational.





-25-


NET GAS
PRODUCTION FROM NON-OPERATED PROPERTIES FOR THE LAST THREE FISCAL
YEARS:





2007
            
            2006
            
            2005WISHBONE
      FIELD-LINDHOLM
      HANSONGAS
      UNIT(MCF)
            
            
            272,301
            
            
            715,624
            
            
            1,374,755





This
table below sets forth the net quantities of oil and gas production (net of all
royalties, overriding royalties and production due to others) attributable to
New Century Energy Corp. for the fiscal years ended December 31, 2007 and 2006,
and the average sales prices, average production costs and direct lifting costs
per unit of production for the years ended December 31, 2007 and
2006.











Years Ended December 31,2007
            
            
            2006Net
      ProductionOil
      (Bbls)
            
            
            146,579
            
            
            
            190,846Gas
      (Mcf)
            
            
            452,521
            
            
            
            1,139,714Average
      Sales PricesOil
      (per Bbl)
            
            $
            70.34
            
            
            $
            62.87Gas
      (per Mcf)
            
            $
            6.10
            
            
            $
            5.99Average
      Production Cost 1per
      equivalent Bbl of oil
            
            $
            48.27
            
            
            $
            31.38Average
      Lifting Costs 2per
      equivalent Bbl of oil
            
            $
            11.61
            
            
            $
            5.81


1
            Production
      costs include depreciation, depletion and amortization, lease operating
      expenses and all associated taxes.





2
            Direct
      lifting costs include lease operating expenses and all associated taxes
      but do not include impairment expense, ceiling write-down, or
      depreciation, depletion and
amortization.








-26-


OIL AND
GAS ACREAGE





In the
data below, "gross" represents the total acres or wells in which we own a
working interest and "net" represents the gross acres or wells multiplied by the
Company's working interest percentage. The following table sets forth New
Century's and its subsidiaries’ acreage position at December 31,
2007:







DEVELOPED
            
            UNDEVELOPEDGROSS
            
            NET
            
            GROSS
            
            NETGoliad
      County, TX
            
            
            84
            
            
            84
            
            
            1,086
            
            
            1,086


Jim
      Hogg County, TX
              
              
              1,280
              
              
              1,280
              
              
              0
              
              
              0Matagorda
      County, TX
              
              
              3,645
              
              
              2,916
              
              
              0
              
              
              0(onshore)Matagorda
      County, TX
              
              
              0
              
              
              0
              
              
              1,610
              
              
              1,288(offshore)McMullen
      County, TX
              
              
              240
              
              
              240
              
              
              0
              
              
              0(San
      Miguel Creek Field)McMullen
      County, TX
              
              
              720
              
              
              109
              
              
              0
              
              
              0(Wishbone
      Field)McMullen
      County, TX
              
              
              7,765
              
              
              7,765
              
              
              2,696
              
              
              2,696(Mustang
      Creek Field)Wharton
      County, TX
              
              
              100
              
              
              100
              
              
              0
              
              
              0Kern
      County, CA
              
              
              0
              
              
              0
              
              
              1,500
              
              
              1,500Total
              
              
              13,834
              
              
              12,494
              
              
              6,892
              
              
              6,570





The
Company's net undeveloped acreage, subject to expiration as
follows:





Year
            Acres2008
            16882009
            10142010
            19432011
            1924





PRODUCTIVE
WELLS





The
following table sets forth our gross and net productive oil and natural gas
wells at December 31, 2007:




PRODUCING
            
            OIL
      WELLS
            
            PRODUCING
            
            GAS
      WELLSGROSS
            
            NET
            
            GROSS
            
            NETJim
      Hogg County, TX
            
            
            3
            
            
            3
            
            
            0
            
            
            0Matagorda
      County, TX
            
            
            0
            
            
            0
            
            
            3
            
            
            2.4McMullen
      County, TX
            
            
            26
            
            
            25.75
            
            
            11
            
            
            1.705


Wharton
      County, TX
            
            
            2
            
            
            2
            
            
            0
            
            
            0TOTAL
            
            
            31
            
            
            30.75
            
            
            14
            
            
            4.105






-27-


DRILLING
ACTIVITY:





The
following tables set forth the results of our drilling activities over the years
ending December 31, 2007, 2006, and 2005:





OIL
      WELLS2007
            
            2006
            
            2005Oil
      Gross
            Wells
      Net
            
            Oil
      Gross
            Wells
              Net
            
            Oil
      Gross
            Wells
      NetExploratory
      Wells – Productive (1) (2)
            6
            6
            
            1
            1
            
            0
            0Exploratory
      Wells- Non-productive (1) (3)
            7
            7
            
            1
            1
            
            1
            .5Development
      Wells
            0
            0
            
            0
            0
            
            0
            0








GAS
      WELLS2007
            
            2006
            
            2005Gas
      Gross
            Wells
      Net
            
            Gas
      Gross
            Wells
              Net
            
            Gas
      Gross
            Wells
      NetExploratory
      Wells – Productive (1) (2)
            0
            0
            
            0
            0
            
            4
            .608Exploratory
      Wells- Non-productive (1) (3)
            0
            0
            
            0
            0
            
            1
            .0419Development
      Wells
            0
            0
            
            0
            0
            
            0
            0





(1) An
exploratory well is a well drilled either in search of a new, as yet
undiscovered oil or gas reservoir or to greatly extend the known limits of a
previously discovered reservoir. A development well is a well drilled with the
presently proved productive area of an oil or natural gas reservoir, as
indicated by reasonable interpretations of available data, with the objective of
completing in that reservoir.





(2) A
productive well is an exploratory or development well found to be capable of
producing either oil or natural gas in sufficient quantities to justify
completion as an oil or natural gas well.





(3) A
non-productive well is an exploratory or development well that is not a
producing well.





SIGNIFICANT
OIL AND GAS PURCHASERS AND PRODUCT MARKETING





Oil and
gas sales are made on a day-to-day basis under short-term contracts at the
current area market price. For the year ended December 31, 2007, we had four
purchasers that each accounted for 10% or more of our oil and natural gas
revenues on Company operated properties. Two purchasers accounted for 100% of
crude oil sales. Gulf Mark Energy, Inc. purchases all of the crude oil produced
from our Mustang Creek Field wells; and Flint Hill Resources, Inc., acquires the
crude oil produced from our San Miguel Creek, Tenna Field and Prado Field oil
wells. Two separate purchasers individually accounted for 100% of sales of
natural gas products.  Additionally, our non-operated properties had
yet another purchaser that individually accounted for 100% of sales of all
natural gas production from the Wishbone Field, for the year ended December 31,
2007.





Our
ability to market oil and natural gas depends on many factors beyond our
control, including the extent of domestic production and imports of oil and gas,
the proximity of our gas production to pipelines, the available capacity in such
pipelines, the demand for oil and natural gas, the effects of weather, and the
effects of state and federal regulation. Our production is primarily from
developed fields close to major pipelines or refineries and established
infrastructure. As a result, we have not experienced any difficulty to date in
finding a market for all of our production as it becomes available or in
transporting our production to those markets; however, there is no assurance
that we will always be able to market all of our production or obtain favorable
prices.





-28-


OIL
MARKETING





The
quality of our crude oil varies by area as well as the corresponding price
received. In our operated properties in the Mustang Creek and San Miguel Creek
Fields in McMullen County, Texas, and the Tenna Field, in Wharton County, Texas;
our oil production is primarily light sweet crude, which typically sells at or
near NYMEX West Texas Intermediate ("WTI") prices adjusted for transportation
costs by the purchaser.





NATURAL
GAS MARKETING





OPERATED
PROPERTIES





Virtually
all of our natural gas production is close to existing pipelines. We sell all of
our natural gas produced from the Sargent South Field to Harvest Pipeline on a
month-to-month contract with prices fluctuating month-to-month based on a
discount to the published Houston Ship Channel Inside FERC, first of month index
price.





NON-OPERATED
PROPERTIES





All of
the natural gas production sold from the non-operated gas wells in the Wishbone
Field is sold to Cross Tex CCNG Marketing LTD. ("Cross Tex"). The price payable
by Cross Tex is equal to the first of the month "Index" price published in
Inside F.E.R.C.'s Gas Market Report for the Houston Ship Channel as listed in
the table entitled Market center spot-gas prices, less sixteen cents per MMBtu
($0.16/MMBtu).




ITEM 3. LEGAL
PROCEEDINGS





In
February 2008, a demand was made by letter from counsel for J & P Family
Properties, Ltd. and Lara Energy, Inc. (the “Claimants”).  The letter
relates only to Gulf Coast’s McMullen County and Atascosa County properties and
possible acquisitions, all as found in an area outlined on a plat attached to a
Geophysical Exploration Agreement dated January 8, 2004 between Manti Resources,
Inc. and the Claimants, describing an Area of Mutual
Interest.  Claimants contend that pursuant to a June 1, 2006 letter
agreement, Gulf Coast assumed Manti’s obligations to assign overriding royalties
up to 3% on future acquisitions within the referenced area.





The
demand seeks assignments of overriding royalty interest believed in no event to
exceed 3%, and in some cases less, on newly acquired (since June 1, 2006)
acreage together with various forms of information regarding operation, in the
referenced area.  We strongly disputed this claim and are engaged in
an attempt to resolve this matter without arbitration.  If such
efforts are not successful, we believe that arbitration would be the
contractually established method for resolving this dispute.





Other
than the above, the Company is not a party to, and its properties are not the
subject of, any material pending legal proceeding nor to the knowledge of the
Company, are any such legal proceedings threatened.





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





None.





-29-


PART
II





ITEM 5. MARKET FOR COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS





"Bid" and
"asked" offers for the common stock are listed on the NASDAQ OTC-Bulletin Board
published by the National Quotation Bureau, Inc.





The table
below sets forth the high and low trading prices for the Company's common stock
for the periods indicated as reported by the NASDAQ OTC-Bulletin Board. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. On November 2, 2004 in
connection with the Exchange and the Company's change in business focus, the
Company changed its name to "New Century Energy Corp." and the Company's
securities began trading under the symbol "NCEY." Previous to the Company's name
change and the Exchange described above, the Company's securities traded under
the symbol "VERI."





TRADING
      PRICESQUARTER
      ENDED
            
            HIGH
            
            LOWDecember
      31, 2007
            
            $
            0.07
            
            $
            0.021September
      30, 2007
            
            $
            0.11
            
            $
            0.035June
      30, 2007
            
            $
            0.12
            
            $
            0.060March
      31, 2007
            
            $
            0.16
            
            $
            0.080December
      31, 2006
            
            $
            0.20
            
            $
            0.090September
      30, 2006
            
            $
            0.27
            
            $
            0.140June
      30, 2006
            
            $
            0.32
            
            $
            0.170March
      31, 2006
            
            $
            0.32
            
            $
            0.170




There were approximately 475 holders of
record of the common stock as of March 31, 2008. The Company has never paid a cash
dividend on its common stock and does not anticipate the payment of a cash
dividend in the foreseeable future. The Company intends to reinvest in its
business operations any funds that could be used to pay a cash dividend. The
Company's common stock is considered a "penny stock" as defined in the
Commission's rules promulgated under the Exchange Act. The Commission's rules
regarding penny stocks impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally persons with net worth in excess
of $1,000,000 or an annual income exceeding $200,000 or $300,000 jointly with
their spouse). For transactions covered by the rules, the broker-dealer must
make a special suitability determination for the purchaser and receive the
purchaser's written agreement to the transaction prior to the sale. Thus the
Rules affect the ability of broker-dealers to sell the Company's shares should
they wish to do so because of the adverse effect that the Rules have upon
liquidity of penny stocks. Unless the transaction is exempt under the Rules,
under the Securities Enforcement Remedies and Penny Stock Reform Act of 1990,
broker-dealers effecting customer transactions in penny stocks are required to
provide their customers with (i) a risk disclosure document; (ii) disclosure of
current bid and ask quotations if any; (iii) disclosure of the compensation of
the broker-dealer and its sales personnel in the transaction; and (iv) monthly
account statements showing the market value of each penny stock held in the
customer's account. As a result of the penny stock rules, the market liquidity
for the Company's securities may be severely adversely affected by limiting the
ability of broker-dealers to sell the Company's securities and the ability of
purchasers of the securities to resell them.





RECENT
SALES OF UNREGISTERED SECURITIES





On
November 20, 2007, in connection with Gulf Coast entering into a Securities
Purchase Agreement with the Agent for Valens U.S. SPV I, LLC (“Valens
U.S.”) and Valens Offshore SPV II, Corp. (“Valens Offshore”), Gulf Coast
sold Valens U.S. a Secured Term Note in the amount of
$3,100,000.  Gulf Coast claims an
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, for the above issuance, since the issuance did not involve a public
offering, the recipient took the securities for investment and not resale and
Gulf Coast took appropriate measures to restrict transfer. No underwriters or
agents were involved in the issuance and no underwriting discounts or
commissions were paid by Gulf Coast.





-30-


In
connection with the same Securities Purchase Agreement above, Gulf Coast also
sold Valens Offshore a Secured Term Note in the amount of
$4,000,000.  Gulf Coast claims an exemption from registration afforded
by Regulation S of the Act ("Regulation S") for the above issuances since the
issuance was made to a non-U.S. person (as defined under Rule 902 section
(k)(2)(i) of Regulation S), pursuant to an offshore transaction, and no directed
selling efforts were made in the United States by Gulf Coast, a distributor, any
respective affiliates, or any person acting on behalf of any of the
foregoing.





On
November 30, 2007, New Century also entered into a Securities Purchase Agreement
with the Agent for Valens U.S. and Valens Offshore, whereby we sold Valens U.S.
a Secured Term Note in the amount of $2,300,000.  We claim an
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, for the above issuance, since the issuance did not involve a public
offering, the recipient took the securities for investment and not resale and
the Company took appropriate measures to restrict transfer. No underwriters or
agents were involved in the issuance and no underwriting discounts or
commissions were paid by the Company.





In
connection with the same Securities Purchase Agreement above, we also sold
Valens Offshore a Secured Term Note in the amount of $3,000,000.  We
claim an exemption from registration afforded by Regulation S of the Act
("Regulation S") for the above issuance since the issuance was made to a
non-U.S. person (as defined under Rule 902 section (k)(2)(i) of Regulation S),
pursuant to an offshore transaction, and no directed selling efforts were made
in the United States by us, a distributor, any respective affiliates, or any
person acting on behalf of any of the foregoing.





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





This
report contains forward looking statements within the meaning of Section 27a of
the Securities Act of 1933 and Section 21e of the Securities Exchange Act of
1934. These forward looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or anticipated results, including those set forth under "Risk
Factors" in this Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this report. The following discussion
and analysis should be read in conjunction with "Selected Financial Data" and
the Company's financial statements and notes thereto included elsewhere in this
report.





PLAN OF
OPERATIONS OVERVIEW





New
Century Energy Corp. is an independent oil and gas exploration and production
company, with daily net production to its working interest of approximately 750
barrels of oil per day (Bopd) and 1.950 million cubic feet of gas per day
(Mcfgpd). The Company’s proved reserves as of December 31, 2007 are 1,613,000
barrels of crude oil and 3.0 billion cubic feet (Bcf) of gas.  The
Company’s major areas of operations are located onshore United States, primarily
in Matagorda, McMullen, Goliad and Wharton Counties in Texas.





During
2007, the Company’s proved oil reserves increased by over 88% due primarily to
drilling success of new oil reserves in the Mustang Creek Field area in McMullen
County, Texas and favorable well performance.  Proved developed oil
reserves now equal 1.3 million barrels, and comprise 80% of the Company’s 1.6
million barrels of total proved oil reserves.





During
2007, the Company’s proved gas reserves in the Wishbone Field were decreased by
57%.  The majority of this reduction, approximately ninety percent
(90%), was due to a significant reduction in future proved undeveloped (PUD)
locations projected to be drilled.  This reduction was based on the
operator’s indication
that only one more PUD may be drilled due to current high drilling costs and
lower product prices.  In addition, the decline rate associated with
the existing proved developed producing (PDP) gas reserves was steeper than
previously projected, which contributed to approximately ten percent (10%) of
the decrease in the proved reserves in this field.  Proved developed
gas reserves equal 2.2 Bcf of gas, and comprise 73% of the Company’s 3.0 Bcf of
total proved gas reserves.





-31-


The
Company's estimates of proved reserves and proved undeveloped reserves at
December 31, 2007 and 2006, and changes in proved reserves during the last two
years are contained in the Supplemental Information on Oil and Gas Exploration
and Production Activities in the Company's 2007 Consolidated Financial
Statements of this Form 10-KSB. Proved reserve estimates were made by R.A.
Lenser and Associates, an independent petroleum evaluation and consulting firm,
and were prepared in accordance with generally accepted petroleum engineering
and evaluation principles in conformity with SEC definitions and
guidelines.





The
Company earns revenues and income and generates operating cash flows primarily
from the sale of natural gas and crude oil at market prices of those products at
the time of sale. An important element in understanding the Company's future
operating performance are trends and uncertainties in natural gas and crude oil
prices that may have a material impact on future cash flows. Trends in energy
supply and demand are affected by many factors that are difficult to predict,
such as energy prices, U.S. economic growth, advances in technology, changes in
weather patterns, and future public policy decisions.





The
Energy Information Administration “EIA” of the U.S. Government in its Short-Term
Energy Outlook release dated March 11, 2008 states, “Tight fundamentals,
reflected by low available crude oil surplus production capacity, combined with
supply concerns in several oil exporting countries, have continued to put upward
pressure on world crude oil prices.  The outlook over the next 2 years
points to some easing of the oil market balance due to increased production
outside of the Organization of the Petroleum Exporting Countries
(OPEC) and planned additions to OPEC capacity.  The annual average WTI
[West Texas Intermediate] price, which was $72 per barrel in 2007, is projected
to average $94 per barrel in 2008, but ease somewhat to about $86 per barrel in
2009.” Regarding natural gas, the EIA’s current projection calls for the average
U.S. wellhead price for natural gas to be “8.18 per Mcf in 2008 and $7.95 per
Mcf in 2009.”





With the
uncertainties in product prices, and possible changes in sales volumes that may
increase or decrease as a result of future operations, these factors can impact
cash flow from operating activities in the short and long term. If there are
significant changes in crude oil or natural gas prices in 2008 and 2009 beyond
those projected by the EIA, this factor may have a material impact on future
revenues, income and operating cash flows for the Company.





The
discussion found below describes our activities and operations in more
detail.





BUSINESS
STRATEGY FOR 2008 & 2009





As part
of our corporate strategy, we expect to remain focused in the following
operational and project areas:





1.
            remain
      focused in the Texas Gulf Coast onshore
region;





2.
            acquire
      properties and proven reserves where we believe additional value can be
      created through a combination of exploitation, development, exploration
      drilling and expanding marketing
opportunities;





3.
            acquire
      properties that give us a majority working interest and operational
      control or where we believe we can ultimately obtain
  it;




4.
            maximize
      the value of our properties by increasing production and reserves while
      reducing operating costs;





5.
            maintain
      a highly experienced team of operations and exploration consultants using
      state of the art 3D seismic technology to prepare detailed field
      geological studies; and





6.
            develop
      drilling prospects and acquire acreage positions over new drilling areas,
      for future drilling by the Company or farmout to qualified industry
      partners. In connection with this strategy, new projects are being
      evaluated in Texas.







-32-


OPERATED
PROPERTIES:





As of
December 31, 2007, we estimated that our daily deliverability was approximately
1,600 Mcf of gas per day, and 700 Bpd of crude oil per day on Company operated
properties. In the fourth quarter of 2007, we commenced our second drilling
program in McMullen County and as of March 30, 2008, we had drilled seven
prospects and set production casing in four (4) new wells. This drilling program
will continue through the second quarter of 2008, and into the third quarter of
2008, as we continue to drill our prospects in McMullen County, Texas.
Additional prospective acreage has been identified for oil and gas leasing in
the Mustang Creek field area and new wells will be drilled on this acreage in
2008 and beyond. During 2007 our production declined in the South Sargent Field
due to natural depletion of reservoirs over time.  Also, we worked
over two wells in the fourth quarter of 2007 that increased production to 1,600
MCFPD. We have identified 5 new locations to be drilled in this field and its
surrounding area in 2008 and beyond. As producing wells deplete in current
producing sands, we expect to continue our recompletion program on our owned and
operated wells.





In
December 2006, we acquired an inactive wellbore and complete production
facilities from Unit Petroleum Corporation and also purchased new oil and gas
leases in Goliad County, Texas. We intend to recomplete the Lewis A-2 well in
the second quarter of 2008, to exploit probable undeveloped gas reserves
associated with this prospect.





While it
is extremely difficult to accurately forecast future production, we believe that
our recompletion and drilling programs in Matagorda and McMullen Counties will
provide long-term stable production potential and will be an important source of
our reserve growth for the foreseeable future, of which there can be no
assurance.





NON-OPERATED
PROPERTIES:





On June
30, 2005, we closed the acquisition of the various non-operated working, term
royalty and overriding royalty interests in the Wishbone Field in McMullen
County, Texas, with an effective date for ownership of April 1, 2005. On
September 19, 2005, we closed the acquisition of additional various non-operated
working interests in the Wishbone Field in McMullen County, Texas, with an
effective date for ownership of July 1, 2005. On January 3, 2006, we closed the
acquisition of an additional working interest in the Wishbone Field in McMullen
County, Texas with an effective date for ownership of October 1, 2005. The
purchase of the June 2005, September 2005 and January 2006 interests are
described in greater detail above under "Description of Business."





As of
March 31, 2008, we estimate that daily gas deliverability from Wishbone Field
was approximately 4.5 MMCF of gas per day to the 8/8ths interest, with net
production to the Company's net revenue interest (0.1224%) of approximately 559
MCF of gas per day.





As of
January 1, 2008, our third party engineers attribute over 1.3 billion cubic feet
of total proved gas reserves in the Wishbone Field to our net interest, with
approximately $6.3 million of undiscounted future net income attributed to our
interests in the Wishbone Field.





-33-





CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues, expenses, contingent assets and liabilities and the related
disclosures in the accompanying financial statements. Changes in these estimates
and assumptions could materially affect our consolidated financial position,
results of operations or cash flows. Management considers an accounting estimate
to be critical if: (a) it requires assumptions to be made that were uncertain at
the time the estimate was made and (b) changes in the estimate or different
estimates that could have been selected may have a material impact on our
consolidated results of operations or financial condition. All other significant
accounting policies that we employ are presented in the notes to the
consolidated financial statements. The following discussion presents information
about the nature of our most critical accounting estimates, our assumptions or
approach used and the effects of hypothetical changes in the material
assumptions used to develop each estimate.





Oil and
Gas Properties. -





We follow
the successful efforts method of accounting for our investment in oil and
natural gas properties. Under the successful efforts method, the costs of
successful exploratory wells and leases containing productive reserves are
capitalized. Costs incurred to drill and equip developmental wells, including
unsuccessful development wells, are capitalized. Other costs such as geological
and geophysical costs and the drilling costs of unsuccessful exploratory wells
are expensed.





All
capitalized costs are accumulated and recorded separately for each field and
allocated to leasehold costs and well costs. Leasehold costs are depleted on a
units-of-production basis based on the estimated remaining equivalent proved oil
and gas reserves of each field. Well costs are depleted on a units-of-production
basis based on the estimated remaining equivalent proved developed oil and gas
reserves of each field.





Proved
Reserve Estimates. -





Our
estimate of proved reserves is based on the quantities of oil and gas which
geological and engineering data demonstrate, with reasonable certainty, to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. The accuracy of any reserve estimate is a function of the
quality of available data, engineering and geological interpretation, and
judgment. For example, we must estimate the amount and timing of future
operating costs, severance taxes, development costs, and work-over costs, all of
which may in fact vary considerably from actual results. In addition, as prices
and cost levels change from year to year, the economics of producing the
reserves may change and therefore the estimate of proved reserves also may
change. Any significant variance in these assumptions could materially affect
the estimated quantity and value of our reserves. Despite the inherent
imprecision in these engineering estimates, our reserves are used throughout our
consolidated financial statements. When converting proved gas reserves to barrel
of oil equivalent, we use a conversion factor of 6,000:1, or 6,000 cubic feet of
gas equaling 1 barrel of oil.





Long-Lived
Assets -





We review
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of any such asset may not be recoverable. We
record impairment losses on long-lived assets, including oil and gas properties,
used in operations when the estimated cash flows to be generated by those assets
are less than the carrying amount of those items. Our cash flow estimates are
based upon, among other things, historical results adjusted to reflect our best
estimate of future market rates, utilization levels, operating performance, and
with respect to our oil and gas properties, future oil and natural gas sales prices,
an estimate of the ultimate amount of recoverable oil and natural gas reserves
that will be produced from a field, the timing of this future production, future
costs to produce the oil and natural gas and other factors. Our estimate of fair
value represents our best estimate based on industry trends and reference to
market transactions and is subject to variability. The oil and gas industry is
cyclical and our estimates of the period over which future cash flows will be
generated, as well as the predictability of these cash flows, can have
significant impact on the carrying value of these assets and, in periods of
prolonged down cycles, may result in impairment charges.





-34-


Asset
Retirement Obligations -




We have
certain obligations to remove tangible equipment and restore land at the end of
oil and gas production operations. Our removal and restoration obligations are
primarily associated with plugging and abandoning wells. We adopted Statement of
Financial Accounting Standards ("SFAS") No. 143, “Accounting for Asset
Retirement Obligations” effective January 1, 2003, as discussed in Note 2 to our
Consolidated Financial Statements. SFAS No. 143 significantly changed the method
of accruing for costs an entity is legally obligated to incur related to the
retirement of fixed assets ("asset retirement obligations" or "ARO"). Primarily,
SFAS No. 143 requires us to estimate asset retirement costs for all of our
assets, adjust those costs for inflation to the forecast abandonment date,
discount that amount using a credit-adjusted-risk-free rate back to the date we
acquired the asset or obligation to retire the asset and record an ARO liability
in that amount with a corresponding addition to our asset value. When new
obligations are incurred, i.e. new well drilled or acquired, we add a layer to
the ARO liability. We then accrete the liability layers quarterly using the
applicable period-end effective credit-adjusted-risk-free rates for each layer.
Should either the estimated life or the estimated abandonment costs of a
property change upon our quarterly review, a new calculation is performed using
the same methodology of taking the abandonment cost and inflating it forward to
its abandonment date and then discounting it back to the present using our
credit-adjusted-risk-free rate. The carrying value of the asset retirement
obligation is adjusted to the newly calculated value, with a corresponding
offsetting adjustment to the asset retirement cost; therefore, abandonment costs
will almost always approximate the estimate. When well obligations are relieved
by sale of the property or plugging and abandoning the well, the related
liability and asset costs are removed from our balance sheet.





Derivatives
-





We follow
the provisions of SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133") along with related interpretations EITF No.
00-19 "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock" ("EITF-19") and EITF No. 05-2
"The Meaning of 'Conventional Convertible Debt Instrument' in Issue No. 00-19"
("EITF 05-2"). SFAS No. 133 requires every derivative instrument (including
certain derivative instruments embedded in other contracts) to be recorded in
the Balance Sheet as either an asset or liability measured at its fair value,
with changes in the derivative's fair value recognized currently in earnings
unless specific hedge accounting criteria are met.





We value
these derivative securities under the fair value method at the end of each
reporting period (quarter and annual), and their value is marked to market at
the end of each reporting period with the gain or loss recognition recorded
against earnings. We continue to revalue these instruments each quarter and year
to reflect their current value in light of the current market price of our
common stock. As a result, our consolidated financial statements may fluctuate
from quarter to quarter and year to year based on the change in fair value of
the derivatives and therefore our consolidated financial position and results of
operations may vary significantly from quarter to quarter and year to year,
based on factors other than the Company's revenues and expenses.





We
utilize the Black-Scholes option-pricing model to determine the fair value of
our freestanding derivative instruments. Key assumptions of the Black-Scholes
option-pricing model include applicable volatility rates, risk-free interest
rates and the instruments expected remaining life. We also determined a fair
value for our various embedded derivatives within our $15 million Convertible
Note by using a layered,
discounted, probability-weighted cash flow model. The assumptions used in both
modeling techniques required significant management judgment and estimates of
future fluctuation in stock price as well as changes in future interest rates.
The reader should reference Note 6 in the "Notes to Consolidated Financial
Statements" for further details in regards to our derivative
liabilities.





-35-


Extinguishment
of Debt -





We follow
the provisions of SFAS No. 140 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS No. 140") along with
related interpretations from Emerging Issues Task Force No. 96-19 ("EITF No.
96-19"). The Task Force reached a consensus that an exchange of debt instruments
with substantially different terms is a debt extinguishment and should be
accounted for in accordance with paragraph 16 of SFAS No. 140. The Task Force
also observed that a debtor could achieve the same economic effect by making a
substantial modification of terms of an existing debt instrument. Accordingly,
the Task Force reached a consensus that a substantial modification of terms
should be accounted for like, and reported in the same manner as, an
extinguishment of debt.





From the debtor's perspective, an
exchange of debt instruments between or a modification of a debt instrument by a
debtor and a creditor in a non-troubled debt situation is deemed to have been
accomplished with debt instruments that are substantially different in the
present value of the cash flows under the terms of the new debt instrument when
it is at least 10 percent different from the present value of the remaining cash
flows under the terms of the original instrument.





In
evaluating the refinancing that occurred in December 2006 when New Century
Energy Corp. exchanged proceeds costing 10.25% interest for that costing 17.5%
interest in terms of present value, it was deemed that SFAS 140 did not apply
since the 17.5% note was liquidated. The present value of the other note
instruments modified in the transaction did not change by more than the minimum
of ten percent.





Income
Taxes -





The
amount of income taxes recorded by us requires the interpretation of complex
rules and regulations of various taxing jurisdictions throughout the world. We
have recognized deferred tax assets and liabilities for all significant
temporary differences, operating losses and tax credit carryforwards. We
routinely assess the realizability of our deferred tax assets and reduce such
assets by a valuation allowance if it is more likely than not that some portion
or all of the deferred tax assets will not be realized. We routinely assess
potential tax contingencies and, if required, establish accruals for such
contingencies. The accruals for deferred tax assets and liabilities are subject
to a significant amount of judgment by us and we review and adjust routinely our
estimates based on changes in facts and circumstances. Although we believe our
tax accruals are adequate, material changes in these accruals may occur in the
future, based on the progress of ongoing tax audits, changes in legislation and
resolution of pending tax matters.





Loss per
share





In
accordance with SFAS No. 128, "Earnings Per Share," we report basic loss per
common share, which excludes the effect of potentially dilutive securities, and
diluted loss per common share, which includes the effect of all potentially
dilutive securities unless their impact is antidilutive. The Company has
outstanding free standing and embedded derivatives that were issued with the
Secured Convertible Note in June 2005 and the Third Amendment to the Secured
Convertible Note in December 2005. These are potentially dilutive securities, as
well as other outstanding warrants, but their impact was antidilutive in 2007
and 2006.





Stock-Based
Compensation.-





On
December 16, 2004, the FASB issued SFAS No. 123(R),"Share-Based Payment", which
is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS
No. 123(R) supersedes Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and
amends SFAS No. 95, "Statement of Cash Flows." Generally, the approach in SFAS
No. 123(R) is similar to the approach described in SFAS No. 123; however, SFAS
No. 123(R) requires all share-based payments to employees, including grants of
employee stock options, be recognized in the income statement based on their
fair values. Pro forma disclosure will no longer be an alternative.





-36-


SFAS No.
123(R) permits public companies to adopt its requirements using one of two
methods:





1.
            A
      "modified prospective" method in which compensation cost is recognized
      beginning with the effective date (a) based on the requirements of SFAS
      No. 123(R) for all share-based payments granted after the effective date
      and (b) based on the requirements of SFAS No. 123 for all awards granted
      to employees prior to the effective date of SFAS No. 123(R) that remain
      unvested on the effective date.





2.
            A
      "modified retrospective" method which includes the requirements of the
      modified prospective method described above, but also permits entities to
      restate based on the amounts previously recognized under SFAS No. 123 for
      purposes of pro forma disclosures either (a) all prior periods presented
      or (b) prior interim periods of the year of
  adoption.





We have
elected the modified prospective transition method.





In March
2005, the SEC issued Staff Accounting Bulletin ("SAB") No. 107 which expressed
the views of the SEC regarding the interaction between SFAS No. 123(R) and
certain SEC rules and regulations. SAB No. 107 provides guidance related to the
valuation of share-based payment arrangements for public companies, including
assumptions such as expected volatility and expected term. In April 2005, the
SEC approved a rule that delayed the effective date of SFAS No. 123(R) for
public companies. As a result, SFAS No. 123(R) was effective for us on January
1, 2006.





Recent
accounting pronouncements







In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities", which permits entities to choose to
measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. The statement amends SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity". If elected, SFAS 159 will be
effective as of the beginning of the first fiscal year that begins after
November 15, 2007. The Company is currently evaluating the impact, if any,
that SFAS 159 may have on its consolidated financial
statements.








In
December 2006, the FASB issued the FASB Staff Position (FSP) No. EITF 00-19-2,
("FSP EITF 00-19-2"), Accounting for Registration Payment Arrangements. This FSP
addresses an issuer's accounting for registration payment arrangements. This FSP
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether issued
as a separate agreement or included as a provision of a financial instrument or
other agreement, should be separately recognized and measured in accordance with
FASB Statement No. 5, Accounting for Contingencies. The guidance in this FSP
amends FASB Statements No. 133, Accounting for Derivative Instruments and
Hedging Activities, and No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity, and FASB Interpretation No.
45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, to include scope exceptions for
registration payment arrangements. This FSP further clarifies that a financial
instrument subject to a registration payment arrangement should be accounted for
in accordance with other applicable
generally accepted accounting principles (GAAP) without regard to the contingent
obligation to transfer consideration pursuant to the registration payment
arrangement. This FSP shall be effective immediately for registration payment
arrangements and the financial instruments subject to those arrangements that
are entered into or modified subsequent to the date of issuance of this FSP, or
for financial statements issued for fiscal years beginning after December 15,
2006, and interim periods within those fiscal years.   The
Company adopted FSP EITF 00-19-2 beginning in 2007. The adoption of this FSP did
not have a material effect upon the Company’s consolidated financial
statements.







-37-


In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 158 “Employers’ Accounting For Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements Nos. 87, 88, 106 and
132(R)” (“SFAS 158”), which requires companies to recognize the funded status of
a defined benefit postretirement plan as an asset or liability in its balance
sheet.  The Company adopted SFAS 158 on January 1, 2007. The
adoption of SFAS 158 did not have a material impact on its consolidated
financial statements.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”), which defines fair value, establishes a frame work for measuring fair
value in accordance with generally accepted accounting principles and expands
disclosures about fair value measurements. This Statement applies under other
accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
SFAS 157 is effective for fiscal years beginning after December 15, 2007. We
plan to adopt SFAS 157 beginning in the first quarter of fiscal 2008. We are
currently evaluating the impact, if any; the adoption of SFAS 157 will have on
our consolidated financial position, results of operations or cash
flows.




In July
2006, The Financial Accounting Standards Board (“FASB”) issued Financial
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109” (“FIN 48”), to clarify certain aspects
of accounting for uncertain tax positions, including issues related to the
recognition and measurement of those tax positions. The Company adopted
FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a
material impact on its consolidated financial statements.




In March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets” (“SFAS 156”), which requires all separately recognized servicing assets
and servicing liabilities to be initially measured at fair value. SFAS 156
permits, but does not require, the subsequent measurement of servicing assets
and liabilities at fair value.  The Company adopted SFAS 156 on
January 1, 2007. The adoption of SFAS 156 did not have a material impact on
its consolidated financial statements.




In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments, an amendment of FASB Statements No. 133 and 140” (“SFAS
155”). SFAS 155 clarifies certain issues relating to embedded derivatives and
beneficial interests in securitized financial assets.  SFAS No. 155 was
effective for the Company for all financial instruments acquired, issued, or
subject to remeasurement after January 1, 2007, and for certain hybrid financial
instruments that have been bifurcated prior to the effective date, for which the
effect is to be reported as a cumulative-effect adjustment to beginning retained
earnings.  The adoption of SFAS No. 155 did not have an impact on the
Company's consolidated financial statements.





In
September 2006, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements”.  SAB 108 provides guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in
quantifying a current year misstatement. SAB 108 established a dual
approach that requires quantification of errors under two methods:
(1) roll-over method which quantifies the amount by which the current year
income statement is misstated, and (2) the iron curtain method which
quantifies the error as the cumulative amount by which the current year balance
sheet is misstated. In some situations, companies will be required to record
errors that occurred in prior years even though those errors were immaterial for
each year in which they arose. Companies may choose to either
restate all previously presented financial statements or record the cumulative
effect of such errors as an adjustment to retained earnings at the beginning of
the period in which SAB 108 is applied. SAB 108 is effective for
fiscal years ending after November 15, 2006. The adoption of this
pronouncement during 2007 on our Company’s consolidated financial statements was
not material.





-38-


In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (as amended) (“SFAS 159”), which
permits entities to choose to measure most financial Instruments and certain
other items at fair value. SFAS 159 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. We will adopt SFAS 159 on
January 1, 2008, and have not yet determined the impact, if any, on our
Consolidated Financial Statements.





In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations - Revised 2007. SFAS 141 R provides guidance on improving the
relevance, representational faithfulness, and comparability of information that
a reporting entity provides in its financial reports about a business
combination and its effects. SFAS 141R applies to business combinations where is
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company is in the process of
analyzing the effects SFAS 141R will have on the Company’s consolidated
financial statements.




In
December 2007, the FASB also issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, which establishes accounting and reporting
standards to improve the relevance, comparability, and transparency of financial
information in its consolidated financial statements that include an outstanding
noncontrolling interest in one or more subsidiaries. SFAS 160 is effective for
fiscal years, and the interim periods within those fiscal years, beginning on or
after December 15, 2008. Management of the Company does not expect the adoption
of this pronouncement to have a material impact on its consolidated financial
statements.





In March
2008, the Financial Accounting Standards Board ("FASB") issued Statement No. 161
"Disclosures about Derivative Instruments and Hedging Activities, an amendment
of FASB Statement No. 133” ("SFAS 161"), which establishes new disclosure
requirements for derivative instruments and hedging activities.  We do
not engage in hedging activities, therefore, we do not expect the adoption of
SFAS 161 to have a material impact on our consolidated financial
statements.





RESULTS
OF OPERATIONS:





COMPARISON
OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2007 AND
2006





Revenues
-





Our
revenues are summarized as follows for the years ended December 31:







2007
            
            2006
            
            %
      ChangeOil
      sales
            
            $
            10,726,587
            
            $
            8,065,927
            
            
            33
            %Gas
      sales
            
            
            2,885,716
            
            
            6,797,801
            
            
            (58
            )Oil
      and gas
            
            
            13,612,303
            
            
            14,863,728
            
            
            (8
            )Gain
      on sale of oil and gas interest
            
            
            34,680
            
            
            44,766
            
            
            (23
            )Gas
      operations consulting
            
            
            36,930
            
            
            18,708
            
            
            97


Total
      revenues
            
            $
            13,683,913
            
            $
            14,927,202
            
            
            (8
            )%







-39-


Oil sales
rose $2.7 million for the year ended 2007, compared to the year ended 2006,
primarily due to the completion of six new wells (Double K #4, and #5, Rabke #2,
Mahoney #2, Swaim #33-2 and Swaim #58-2) in the Mustang Creek Field and
increased production and sale of oil in connection with such wells during the
year ended December 31, 2007. Revenue of $2,358,713 (29,209 barrels) was
attributable to the new wells from the Mustang Creek Field in
2007.  Additionally, during 2007, we earned twelve (12) months of
revenue relating to the Mustang Creek Field acquisition, as compared to only
eight (8) months in 2006, as such acquisition was made in April 2006. Also
contributing to the increase in 2007 oil revenue was the installation of pumping
units on existing wells that increased production, as well as the increase in
the price of oil in 2007, compared to oil prices in 2006. The average price of
oil for our operated and non operated properties was $70.34 per barrel in 2007
compared to $62.87 during 2006.





The major
contributor of the $3.9 million decrease in gas sales in 2007 was the declining
production in the Lindholm-Hanson Gas Unit.  Total production was 272
MMCF in 2007 compared to 715 MMCF in 2006.





During
2006, the non operator working interest partner in the Hamill wells was charged
an operating fee on a per well basis as provided in the joint agreement
governing the property.





Expenses-





Our
expenses were comprised of the following for the year ended December
31:







2007
            
            2006
            
            %
      ChangeExploration
            
            $
            1,960,977
            
            $
            1,128,134
            
            
            74
            %Lease
      Operating
            
            
            2,964,389
            
            
            1,509,150
            
            
            96Production
      Taxes
            
            
            607,225
            
            
            704,051
            
            
            (14
            )Depreciation,
      depletion and amortization
            
            
            8,138,310
            
            
            9,737,889
            
            
            (16
            )Impairment
      of oil and gas properties
            
            
            10,211,390
            
            
            -
            
            
            100General
      and administrative
            
            
            1,196,638
            
            
            1,291,295
            
            
            (7
            )Total
      expenses
            
            $
            25,078,929
            
            $
            14,370,519
            
            
            62
            %







Exploration
expenses rose $832,843 for the year ended 2007, compared with exploration
expenses for the year ended 2006, due mainly to the write-off of the Rabke #1,
Henry Kuykendall #1, Double K Swaim #1, Swaim #58-3, and Hodde #2 dry wells
during the year ended December 31, 2007.





The added
costs associated with operating the wells in the Mustang Creek Field acquisition
for twelve months in 2007 as compared to only eight months in 2006 and the costs
of operating the six new wells completed in the Mustang Creek Field gave rise to
$1,236,845 of the $1,455,239 increase in lease operating expenses for the year
ended December 31, 2007, compared to the year ended December 31, 2006. Also,
contributing to the rise in the operating expenses were the increase in the 2007
work over expenses in the Sargent Field compared to 2006. The production taxes
decreased in 2007 due to the decrease in production in 2007 as compared to the
2006 production in the Wishbone Field.





Depreciation,
depletion and amortization decreased by $1,599,579 for the year ended December
31, 2007, compared to the year ended December 31, 2006, primarily due to the
decrease in both our overall production and reserves, mainly due to the
impairment associated with the Wishbone Field.





-40-


Due to
the declining reserves in the Wishbone Field, there was a $10,211,390 impairment
expense for the year ended December 31, 2007.  During 2007, the
Company’s proved gas reserves in the Wishbone Field were decreased by
57%.  The majority of this reduction, approximately ninety percent
(90%), was due to a significant reduction in future proved undeveloped (PUD)
locations projected to be drilled.  This reduction was based on the
operator’s indication that only one more PUD may be drilled due to current high
drilling costs and lower product prices.  In addition, the decline
rate associated with the existing proved developed producing (PDP) gas reserves
was steeper than previously projected, which contributed to approximately ten
percent (10%) of the decrease in the proved reserves in this field.





General
and administrative expenses decreased by $94,657 or 7%, for the year ended
December 31, 2007, compared to the year ended December 31, 2006, which decrease
was primarily associated with the accounting services related to establishing
the new accounting software system, which was implemented in 2007, and special
audit fees during the year ended December 31, 2006, which were not represented
during the year ended December 31, 2007.




Other
Income (Expense)-





Other
income (expense) consisted of the following for the year ended December
31:







2007
            
            2006Net
      decrease in fair valueof
      derivative liabilities
            
            $
            1,255,507
            
            $
            1,296,373Loss
      on early extinguishment of debt
            
            
            -
            
            
            (204,170
            )Interest
      and amortization of discounton
      debt expense
            
            
            (9,368,772
            )
            
            (7,958,392
            )All
      other, net
            
            
            320,943
            
            
            211,938Other
      income (expense), net
            
            $
            (7,792,322
            )
            $
            (6,654,251
            )







The
Convertible Note for the first acquisition of the Lindholm-Hanson Gas Unit (the
“L-H Gas Unit”) in June 2005, comprised freestanding derivatives of warrants and
options issued to the lender (the Warrant and Option, described in greater
detail above), and embedded derivatives relating to a conversion feature, a
contract rate adjustment and an optional redemption provision (the Convertible
Note, as described above) which were bundled together into a single compound
embedded derivative for financial accounting purposes.





These
derivative liabilities are marked-to-market each quarter, with the change in
fair value recorded in our consolidated statements of operations. For each of
the years ended December 31, 2007 and 2006, the net decrease in fair value, or
increase in income, by derivative was as follows:







2007
            
            2006Laurus
      Warrant
            
            $
            295,729
            
            $
            389,577


Laurus
      Stock Option
            
            
            89,934
            
            
            392,765Single
      compound embedded derivativewithin
      Convertible Note
            
            
            490,608
            
            
            210,426Laurus
      December Option
            
            
            379,236
            
            
            303,605Decrease
      in fair value of derivative liabilities
            
            $
            1,255,507
            
            $
            1,296,373







-41-


The
Black-Scholes Method is utilized in determining fair value of the Laurus Stock
Option, Laurus Warrant and the Laurus December Option. Principally due to a
decrease in the price of our common stock and increase in the volatility
assumption since the issuance of the note, the fair value of these derivative
liabilities has decreased sharply over time, as shown by the table above. A
layered discounted probability-weighted expected cash flow method is used for
determining the fair value of the single compound embedded derivative. The
effect of the smaller initial assigned fair market value to the single compound
embedded derivative, together with our stock price and volatility assumption
representing only one component of the methodology, resulted in the effect on
income not being as great as the effect on the freestanding derivatives. So long
as the Convertible Note remains outstanding, the quarterly mark-to-market
adjustments of these derivative liabilities could produce wide fluctuations in
our consolidated financial position and results of operations.





We
utilized a portion of the proceeds from the $16.2 million December 2006 Note to
repay in full the June 2006 Gulf Coast Note, in order to pay off existing higher
interest rate notes, which resulted in the loss on early extinguishment of debt
of $204,170 in the 2006 consolidated statement of operations for the year ended
December 31, 2006. The extinguishment amount is equal to the unamortized
discount and deferred loan costs on the June 2006 Gulf Coast Note.





Interest
and amortization of discounts on debt for each of the years ended December 31,
2007 and 2006 can be broken down as follows:








2007
            
            2006Interest
      expense on notional balance
            
            $
            7,578,598
            
            $
            6,190,935Accretion
      of note discount
            
            
            1,760,258
            
            
            1,659,441Amortization
      of deferred loan costs
            
            
            29,916
            
            
            108,0119,368,772
            
            
            7,958,387Other
      interest expense
            
            
            -
            
            
            5Total
      interest expense
            
            $
            9,368,772
            
            $
            7,958,392







The
interest on notional balances during the years ended December 31, 2007 and 2006,
represents the stated interest on the Restated and Amended Convertible Note and
the four Secured Term Notes held by us and the three Secured Term Notes held by
Gulf Coast Oil Corporation, our wholly owned subsidiary.





The
accretion of note discounts for the periods presented refers to the accretion of
the unamortized discounts on the Restated and Amended Convertible Note and the
six Secured Term Notes of the consolidated entity using the effective interest
method. Each discount is amortized over the original life of the
note.




Amortization
of deferred loan costs comprises fees (i.e. escrow fees, legal fees, etc.) paid
to non-lenders in connection with the Convertible Note and seven of the Secured
Term Note financings. Such costs are capitalized as deferred loan costs and
amortized over the respective life of the note.





-42-


Also
included in other income (expense), are the following line items:








2007
            
            2006Release
      of Vertica liabilities
            
            $
            59,260
            
            $
            60,815Other
      income
            
            
            285,143
            
            
            154,407Other
      expenses
            
            
            (23,460
            )
            
            (3,284
            )Total
      all other, net
            
            $
            320,943
            
            $
            211,938







In
connection with the reverse merger with Vertica Software, Inc. in September
2004, we assumed the Company’s pre-merger liabilities which were recorded in our
results of operations in 2004. The resolution of these liabilities through
settlements with creditors and the expiration of the four-year statute of
limitations on bringing such claims resulted in the release of the liabilities
in the corresponding periods.





Included
in other income is interest earned on funds received in the note financings
which have been temporarily invested pending the disbursement for which they
were borrowed.





Income
taxes-





No
federal income taxes have been paid since inception of the Company, due to our
net operating loss carry forwards. Due to the uncertainty surrounding the
realization of the benefits of our tax attributes, including net operating loss
carry forwards, no provision or benefit for federal income taxes has been
recorded in our consolidated statements of operations.





Net Loss
-





The
Company had a net loss of $19,187,338 for the year ended December 31, 2007, as
compared to a net loss of $6,097,568 for the year ended December 31, 2006.
Significant components of the increased net loss in 2007 as compared to 2006
include the $10.2 million impairment of oil and gas properties associated with
the Wishbone Field, $1.4 million increase in interest costs and a $1.2 million
reduction in total revenue.





LIQUIDITY
AND CAPITAL RESOURCES




Cash and cash equivalents
-




We have
cash and cash equivalents of $9,522,517 plus restricted cash of $1,964,446 as of
December 31, 2007; however, based on our current plan of operations, we do not
believe that we have sufficient funds to continue our operations for the next 12
months. We believe that we will require additional funds to continue our oil and
gas exploration and production program. If we are unable to raise additional
financing in the next 12 months, and we fail to otherwise generate sufficient
cash flows through operations, we will be required to modify our operations plan
accordingly or even to cease operations altogether. These funds may be raised
through equity financing, debt financing or other sources, and may result in
substantial dilution of the equity ownership of our shares.  There can
be no assurance that additional financing will be available to us when needed
or, if available, that it can be obtained on commercially reasonable
terms.




Due to
the substantial doubt of our ability to meet our current operating expenses and
the capital expenses noted above, in their report on the annual consolidated
financial statements for the year ended December 31, 2007,
our independent auditors included an explanatory paragraph regarding concerns
about our ability to continue as a going concern. Our financial statements
contain additional note disclosures describing the circumstances that lead to
this disclosure by our independent auditors.





We had
total current assets as of December 31, 2007 of $14,144,994, which included the
cash and cash equivalents of $9,522,517 and restricted cash of $1,964,446,
certificate of deposit of $35,075, accounts receivable of $2,038,876, amount due
from Laurus of $8,942, inventory of $512,578 and prepaid expenses and other of
$62,560.





-43-


Total
Assets -





We had
total assets of $54,058,399 as of December 31, 2007, which included $14,144,994
of current assets; $102,303 of office equipment, net of $84,528 of accumulated
depreciation; $39,560,602 of oil and gas properties net of accumulated depletion
of $30,941,996, which includes $10,211,390 of impairment expense; and deferred
loan costs and other assets of $250,500.





Working
capital -





At
December 31, 2007, we had a working capital deficit of $18,204,174.
Additionally, as of December 31, 2007, we had current liabilities of
$32,349,168, which included $29,730,690 of current portion of notes payable due
in 2008 and $806,867 in derivative liabilities which are subject to wide
fluctuations from quarter-to-quarter. The classification of our derivative
liabilities did not change upon our adoption of  FASB Staff Position
(FSP) No. EITF 00-19-2 in 2007. Our current assets of $14,144,994 at December
31, 2007, are substantially liquid as they comprise cash and cash equivalents of
$9,522,517, restricted cash of $1,964,446, and accounts receivable of
$2,038,876.  We do not have sufficient funds to meet our financial
obligations for 2008 without successful negotiation of a refinancing of both the
$11.1 million balloon payment under the $15 million Secured Convertible Term
Note, due June 30, 2008, and the $6.4 million balloon payment under the $9.5
million Secured Term Note, due July 1, 2008.  The conditions described
above create substantial doubt as to the Company’s ability to continue as a
going concern.  See Note 2 to our consolidated financial
statements included elsewhere in this Annual Report on
Form 10-KSB.





Liabilities
-





Total
liabilities as of December 31, 2007 were $76,920,658, and included current
liabilities of $32,349,168; $44,073,786 in notes payable in connection with
amounts loaned to us by Laurus, less current portion of $29,730,690 and
unamortized discounts of $2,002,812; and asset retirement obligation of
$497,704.





Off-balance
sheet financing -





We have
not entered into any off-balance sheet financing arrangements.





Change in
prices -





Oil and
natural gas prices are subject to seasonal and other fluctuations that are
beyond our ability to control or predict.





Inflation
-





Although
certain of our costs and expenses are affected by the level of inflation,
inflation has not had a significant effect on our results of operations since
inception.





Cash
flows-







2007
            
            
            2006Net
      cash provided by /(used in)Operating
      activities
            
            $
            (859,377
            )
            
            $
            5,162,379Investing
      activities
            
            
            (7,080,834
            )
            
            
            (38,067,485
            )Financing
      activities
            
            
            9,938,450
            
            
            
            37,117,610Increase/(decrease)
      in cash andcash
      equivalents
            
            $
            1,998,239
            
            
            $
            4,212,613Year
      ended December 31,
            
            2007
            
            
            2006Cash
      and cash equivalents
            
            $
            9,522,517
            
            
            $
            7,524,278







-44-


Operating
activities -





Year
ended December 31, 2007





Cash
flows used in operating activities of $859,377 for the year ended December 31,
2007, included a net loss for the year of $19,187,338; changes in working
capital components which totaled $437,902; interest earned on restricted cash
balances of $154,542; and other non-cash financing cost adjustments, which
netted to $70,480 (write down of Vertica liabilities, loss on natural gas put
option and gain on sale of oil and gas property).  Offsetting the cash
used in operating activities were the benefits of non-cash charges for
depletion, depreciation and amortization of $8,138,310; impairment of oil and
gas properties of $10,211,390; and non-cash adjustments of $534,667, (net
decrease in fair value of derivative liabilities and accretion of discount and
loan cost on debt); and $106,518 for the asset retirement obligation for the
year ended December 31, 2007.





Investing
Activities –





Year
ended December 31, 2007





Cash
flows used in investing activities of $7,080,834 for the year ended December 31,
2007, were primarily attributed to investments in oil and gas properties
totaling $2,059,483; investment in unproved properties of $484,832; and
investment in drilling exploratory wells at Mustang Creek of $4,655,289. Other
investing activities netted to a cash inflow of $118,770 during the year ended
December 31, 2007.





Financing
activities -





Year
ended December 31, 2007





Cash
flows from financing activities of $9,938,450 for the year ended December 31,
2007, were generated from net proceeds totaling $5,114,500 on the New Century
November 2007 Notes and $6,851,500 on the Gulf Coast November 2007
Notes.  Offsetting positive cash flows from financing was $5,183,558
in debt payments.  A portion of the proceeds totaling $3,156,008 from
the December 2006 $16.2 million note was released for our drilling program by
Laurus.





Outlook:




Our
objective in 2008 is to generate positive cash flows from operations to meet our
working capital requirements and service our debt, namely the principal and
interest payments under the Secured Convertible Note and the seven Secured Term
Notes.





Our
strategy with respect to our capital program is to maintain a steady level of
drilling activity. Like all oil and gas exploration and production companies, we
face the challenge of natural production decline. An oil and gas exploration and
production company depletes part of its asset base with each unit of oil and gas
it produces. Despite this natural decline we have been able to grow our
production through acquisitions and development of existing fields, resulting in
the addition of more reserves than we produced. Future growth will depend on our
ability to continue this trend of adding reserves in excess of production at a
reasonable cost.





-45-


We have
plans to continue our redevelopment of our South Sargent Field, and also
continue our drilling program in the Mustang Creek field area. Our goal for 2008
is to increase reserves significantly. To achieve future production and reserve
growth, we will continue to pursue acquisitions that meet our criteria and to
complete development projects in our inventory of potential drilling locations.
Our 2008 development drilling budget is approximately $9,500,000. While an
acquisition budget has not been formalized, we plan to actively review
additional acquisition opportunities during 2008. We cannot ensure that we will
be able to find properties that meet our acquisition criteria, that we can
purchase such properties on acceptable terms, or secure the necessary funding to
close additional acquisitions.





Our
exploration staff is also evaluating deeper drilling prospects with the
potential for significant reserves on Company owned acreage.





Our
growth and continued operations could be impaired by limitations on our access
to the capital markets. In the event that we do not generate the amount of
revenues from our oil and gas properties which we anticipate, and/or we decide
to purchase additional oil and gas properties and are required to raise
additional financing, we may be forced to scale back our operations which would
have a material adverse impact upon our ability to pursue our business plan. We
have no commitments from officers, directors or affiliates to provide funding.
There can be no assurance that capital from outside sources will be available,
or if such financing is available, it may involve issuing securities senior to
our common stock or equity financings which are dilutive to holders of our
common stock. In addition, in the event we do not raise additional capital from
conventional sources, it is likely that our growth will be restricted and we may
need to scale back or curtail implementing our business plan.





Based on
our current plan of operations, we do not believe that we have sufficient funds
to continue our operations for the next 12 months. We believe that we will
require additional funds to continue our oil and gas exploration and production
program. If we are unable to raise additional financing in the next 12 months,
and we fail to otherwise generate sufficient cash flows through operations, we
will be required to modify our operations plan accordingly or even to cease
operations altogether. These funds may be raised through equity financing, debt
financing or other sources, and may result in substantial dilution of the equity
ownership of our shares.  There can be no assurance that additional
financing will be available to us when needed or, if available, that it can be
obtained on commercially reasonable terms.




-46-


RISK
FACTORS





Our
business is subject to many risk factors, including the following (references to
"our," "us," "we," and words of similar meaning in these Risk Factors refer to
the Company, the Company's wholly owned subsidiary Century Resources, Inc.
("Century"), and the Company's wholly owned subsidiary Gulf Coast Oil
Corporation ("Gulf Coast"), unless the context suggests otherwise).





RISKS
RELATING TO OUR OPERATIONS





OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS ISSUED AN UNQUALIFIED OPINION
WITH AN EXPLANATORY PARAGRAPH, TO THE EFFECT THAT THERE IS SUBSTANTIAL DOUBT
ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.





Our
independent registered public accounting firm has issued an unqualified opinion
with an explanatory paragraph, to the effect that there is substantial doubt
about our ability to continue as a going concern. This unqualified opinion with
an explanatory paragraph could have a material adverse effect on our business,
financial condition, results of operations and cash flows. See “Liquidity and
Capital Resources” in Part II, Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and Note 2 to
our consolidated financial statements included elsewhere in this Annual Report
on Form 10-KSB.





We have
no committed sources of capital and do not know whether additional financing
will be available when needed on terms that are acceptable, if at all. The
addition of this going concern statement from our independent registered public
accounting firm may discourage some investors from purchasing our stock or
providing alternative capital financing. The failure to satisfy our capital
requirements will adversely affect our business, financial condition, results of
operations and prospects.





Unless we
raise additional funds, either through the sale of equity securities or one or
more collaborative arrangements, we will not have sufficient funds to continue
operations. Even if we take these actions, they may be insufficient,
particularly if our costs are higher than projected or unforeseen expenses
arise.





WE
WILL NEED ADDITIONAL FINANCING TO CONTINUE OUR BUSINESS PLAN AND DRILL,
RECOMPLETE AND STUDY ADDITIONAL WELLS, WHICH FINANCING, IF WE ARE UNABLE TO
RAISE MAY FORCE US TO SCALE BACK OR ABANDON OUR BUSINESS PLAN.





We raised
$15,000,000 from the sale of a Secured Convertible Term Note to Laurus Master
Fund, Ltd. ("Laurus"); $3,675 from Laurus' exercise of a portion of the Option;
and $9,500,000 from the sale of a separate Secured Term Note to Laurus in 2005.
Additionally, our wholly owned subsidiary, Gulf Coast Oil Corporation ("Gulf
Coast") borrowed an aggregate of $45,000,000 from Laurus during the second
quarter of 2006. However, approximately $61,401,097 of the aggregate of
$85,713,675 which was borrowed from Laurus, was immediately used to purchase
interests in the Wishbone field and interests in McMullen, County, Texas; pay
closing costs and fees in connection with the various funding transactions; and
to repay amounts previously owed. Additionally, in December 2006, we sold Laurus
a Secured Term Note in the amount of $16,210,000, of which $10,000,000 was
immediately used to repay the balance of the $5,000,000 Gulf Coast note, and a
portion of the $40,000,000 Gulf Coast note (the "December 2006
Note").





We also
raised $7,100,000 on November 20, 2007 when Gulf Coast entered into a Securities
Purchase Agreement with LV Administrative Services, Inc., as administrative and
collateral agent (the “Agent”) for Valens U.S. SPV I, LLC (“Valens
U.S.”) and Valens Offshore SPV II, Corp. (“Valens Offshore”), whereby Gulf
Coast sold Valens U.S. a Secured Term Note in the amount of $3,100,000 and
Valens Offshore a Secured Term Note in the amount of
$4,000,000.  Lastly, we raised an additional $5,300,000 on November
30, 2007 when New Century entered into a Securities Purchase Agreement with the
Agent for Valens U.S. and
Valens Offshore, whereby we sold Valens U.S. a Secured Term Note in the amount
of $2,300,000 and Valens Offshore a Secured Term Note in the amount of
$3,000,000.





-47-


As a
result, as of December 31, 2007, we had $9,522,517 of cash on hand and
$1,964,446 in restricted cash.  However, based on our current plan of
operations, we do not have sufficient funds for the next 12 months. We believe
that we will require additional funds to continue our oil and gas exploration
and production program. If we are unable to raise additional financing in the
next 12 months, and we fail to otherwise generate any cash flow through
operations, we will be required to modify our operations plan accordingly or
even to cease operations altogether. These funds may be raised through equity
financing, debt financing or other sources, and may result in substantial
dilution of the equity ownership of our shares.  There can be no
assurance that additional financing will be available to us when needed or, if
available, that it can be obtained on commercially reasonable
terms.





As
described below, the price of oil and gas is extremely volatile, we cannot be
sure that we will find any additional quantities of oil and/or gas, nor can we
provide any assurances that if found, that the oil and/or gas will be in
commercial quantities, that we will be able to extract it from the ground, that
we will not face liability in connection with our extraction efforts, and/or
that we will be able to generate the revenues we expect from the sale of our oil
and gas. Additionally, we may choose to spend additional monies on the purchases
of oil and gas properties in the future. Depending on the decisions of our
management, the volatility of the prices of oil and/or gas, our exploration
activities, and/or potential liability, and the amount of money we receive from
the sale of oil and gas, we may need to raise additional capital substantially
faster than twelve months, which we currently estimate such previously borrowed
monies and monies we receive through the production of oil and gas will last. We
do not currently have any additional commitments or identified sources of
additional capital from third parties or from our officers, directors or
majority shareholders. We can provide no assurance that additional financing
will be available on favorable terms, if at all. If we are not able to raise the
capital necessary to continue our business operations, we may be forced to
abandon or curtail our business plan and/or suspend our exploration
activities.





WE
OWE LAURUS MASTER FUND, LTD., A SUBSTANTIAL AMOUNT OF MONEY WHICH WE DO NOT
HAVE.





In
connection with the Securities Purchase Agreement, Laurus Master Fund, Ltd.
("Laurus"), purchased a $15,000,000 Secured Convertible Term Note, later amended
and replaced by the Restated Note and subsequent thereto the Second Restated
Convertible Note, described below (the "Note"), which bears interest at the rate
of 9.25% per year (as of December 31, 2007), which is subject to adjustment as
described above under "Description of Business," and which is due and payable on
June 30, 2008, and which $100,000 of principal is payable on the first day of
each month beginning in March 2007 and ending on December 31, 2007, and $250,000
of principal is payable on the first day of each month beginning on January 1,
2008 and ending on June 30, 2008, at which time the remaining $10,800,000
principal amount of the Note is due and payable. Additionally, on September 19,
2005, we sold Laurus a separate Secured Term Note (the "Term Note") in the
amount of $9,500,000. The Term Note bears interest at the rate of twenty percent
(20%) per year, and is payable monthly in arrears through a payment to Laurus of
the greater of (a) 80% of the production payments on our 7.5% working interest
on the Lindholm-Hanson Gas Unit property purchased in September 2005; or (b) the
monthly interest accrued there under. The Term Note is currently due on July 1,
2008.





Additionally,
our wholly owned subsidiary, Gulf Coast, sold a Secured Term Note in the amount
of $40,000,000, which note bears interest at the prime rate (as published by the
Wall Street Journal) plus 2%, subject to a minimum interest rate of 8% per annum
(currently 8%, with the prime rate at 5.25% as of March 24, 2008) per year and
which unpaid principal and unpaid accrued interest, if any, shall be due and
payable on October 28, 2009, as well as a forty (40) month Secured Term Note in
the amount of $5,000,000, which was later repaid with a portion of the December
2006 Note sold to Laurus in December 2006 (defined below).




-48-


In
December 2006, we sold Laurus a Secured Term Note in the amount of $16,210,000,
of which $10,000,000 was immediately used to repay the balance of the $5,000,000
Gulf Coast note, and a portion of the $40,000,000 Gulf Coast note (the "December
2006 Note"). The December 2006 Note bears interest at the rate of the Prime Rate
plus 2%, subject to a minimum interest rate of 8% per annum, until paid,
currently equal to 8% per annum, and is due and payable on January 4, 2010.
Amortizing payments are due under the December 2006 Note in the amount of
$200,000 on the first day of each month beginning on July 1, 2007 until the
December 2006 Note is paid in full.





During
October and November 2007, Gulf Coast failed to make payments of interest on the
Gulf Coast Note to Laurus; however, we borrowed $7,100,000 on November 20, 2007
when Gulf Coast entered into a Securities Purchase Agreement with the Agent for
Valens U.S. and Valens Offshore, whereby Gulf Coast sold Valens U.S. a Secured
Term Note in the amount of $3,100,000 and Valens Offshore a Secured Term Note in
the amount of $4,000,000.  Further, we borrowed  an
additional $5,300,000 on November 30, 2007 when New Century entered into a
Securities Purchase Agreement with the Agent for Valens U.S. and Valens
Offshore, whereby we sold Valens U.S. a Secured Term Note in the amount of
$2,300,000 and Valens Offshore a Secured Term Note in the amount of
$3,000,000.





While, we
do have sufficient cash on hand to pay the April 1, 2008 payment of $250,000 of
principal on the Note and the April 1, 2008 payment of $200,000 on the principal
amount of the December 2006 Note, there can be no assurance that we will
continue to have sufficient funds to pay any principal or interest on the Note
or the December 2006 Note, or the Term Note or Gulf Coast note if such
production payment is not sufficient to pay Laurus the required monthly amounts
of principal when due. Also, we do not believe that we will have funds available
to repay the full $12,000,000 remaining on the Note as of March 31, 2008, the
approximately $6,351,390 remaining on the Term Note (not including any accrued
or unpaid interest, as of the filing of this Report), that we will have
sufficient funds to repay the $16,210,000 December 2006 Note, and/or that Gulf
Coast will have sufficient funds to repay the $40,000,000 note owed to Laurus if
such repayment amount is not sufficiently covered by the payment of production
proceeds to Laurus, as described below. If we do not have sufficient funds to
pay the total remaining amount of the Note (after taking into effect amortizing
payments of principal, which we may not have sufficient funds to pay, and
conversions) when due, the interest on or the principal amount of the Term Note
or December 2006 Note when due and/or if Gulf Coast does not have sufficient
funds to repay its outstanding note if not sufficiently repaid Laurus may, at
its option, take control of substantially all of our assets (as described in
more detail under "Risks Relating to the Company's Securities") or it can
declare 130% of the then outstanding principal amounts of the notes due and
payable, plus any accrued and unpaid interest.





As of
March 31, 2008, we will need to raise or otherwise generate approximately
$12,000,000 to repay the Note (not including any adjustments for payment of
principal or conversion into shares of our common stock) by June 30, 2008,
$14,411,328 to repay the December 2006 Note by January 4, 2010, (not including
any interest which is accruing or payments of principal) $6,351,391 to repay the
Term Note (not including any interest which is accruing or payments of
principal) and $29,744,569 to repay Gulf Coast's note (not including any
interest which is accruing or payments of principal), if such notes are not
repaid by production payments on certain of our properties, as described below,
by July 1, 2008 and October 28, 2009, respectively. If we fail to raise this
money, we could be forced to abandon or curtail our business
operations.





WE
MAY FACE DELAYS AND/OR MAY BE PREVENTED FROM EXECUTING OUR CURRENTLY PLANNED
DRILLING ACTIVITIES IF WE DO NOT RECEIVE THE APPROXIMATELY $1,960,000 IN CASH
HELD IN A RESTRICTED ACCOUNT, WHICH LAURUS HAS SOLE DISCRETION IN RELEASING TO
US.




We
currently have restricted cash of $1,964,446, which cash is restricted by Laurus
and held in a bank account for use by us in connection with future drilling
operations on our properties. The restricted cash must be released by Laurus for
our and Gulf Coast’s use, and although Laurus has agreed to release such cash
for our future drilling program, until such funds have been fully disbursed, we
can provide no assurances that such funds will be released to us in the
future.  The release of our restricted funds by Laurus is at
Laurus’ sole discretion.  If we do not continue to receive the restricted
cash which we currently require to continue our drilling operations, we may be
forced to curtail or abandon our currently planned drilling activities.  If
that were to happen, it may delay or prevent our discovery of new oil and gas
reserves, if any, and may cause the value of our common stock to decline in
value or become worthless.





-49-


WE
RELY HEAVILY ON EDWARD R. DESTEFANO, OUR CHIEF EXECUTIVE OFFICER AND DIRECTOR,
AND IF HE WERE TO LEAVE, WE COULD FACE SUBSTANTIAL COSTS IN SECURING A SIMILARLY
QUALIFIED OFFICER AND DIRECTOR.





Our
success depends upon the personal efforts and abilities of Edward R. DeStefano,
our sole Director and our President, Chief Executive Officer, Treasurer and
Secretary. Our ability to operate and implement our exploration activities is
heavily dependent on the continued service of Mr. DeStefano and our ability to
attract qualified contractors on an as-needed basis. We face continued
competition for such contractors. We do have an employment contract, as amended,
with Mr. DeStefano which is effective for three years ending on December 31,
2010; and we currently have key man insurance on Mr. DeStefano in the amount of
$1,000,000. Mr. DeStefano is our driving force and is responsible for
maintaining our relationships and operations. We cannot be certain that we will
be able to retain Mr. DeStefano and/or attract and retain such contractors in
the future and/or that he will not terminate his employment agreement with us.
The loss of Mr. DeStefano and/or our inability to attract and retain qualified
contractors on an as-needed basis could have a material adverse effect on our
business and operations.







WE HAVE DETERMINED THAT OUR INTERNAL
CONTROLS OVER FINANCIAL REPORTING ARE CURRENTLY NOT EFFECTIVE. THE LACK OF
EFFECTIVE INTERNAL CONTROLS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND
ABILITY TO CARRY OUT OUR STRATEGIC BUSINESS PLAN.


As
discussed in Item 8A(T), Controls and Procedures, our management team for
financial reporting, under the supervision and with the participation of our
Chief Executive Officer and Chief Financial Officer, conducted an evaluation of
the effectiveness of the design and operation of our internal controls. As of
December 31, 2007, they concluded that our disclosure controls and
procedures and our internal control over financial reporting were not effective.
Until we are successful in our effort to remediate the weaknesses in our
internal control over financial reporting, such weaknesses may adversely impact
our ability to report accurately our financial condition and results of
operations in the future in a timely manner.





EDWARD
R. DESTEFANO OWNS APPROXIMATELY 67.1% OF OUR OUTSTANDING COMMON STOCK, AND HAS
SIGNIFICANT INFLUENCE OVER OUR CORPORATE DECISIONS, AND AS A RESULT, IF YOU
INVEST IN US, YOUR ABILITY TO AFFECT CORPORATE DECISIONS WILL BE
LIMITED.





Edward R.
DeStefano, our sole Director and an executive officer, holds 37,610,700 shares
of our common stock, representing approximately 67.1% of the outstanding shares
of our common stock (and which will represent approximately 38% of our
outstanding common stock assuming the sale of all 43,060,789 of the shares
issuable upon conversion of Laurus' Note and the exercise of Laurus' Warrant,
Option and December Option, provided that Laurus may not convert the Note, or
exercise the Warrant or Options if such conversion or exercise would cause it to
own more than 9.99% of our outstanding common stock). This restriction, however,
does not prevent Laurus from converting and/or exercising some of its holdings,
selling those shares (assuming such shares are registered herein, are eligible
to be sold under Rule 144 or another exemption from registration under the
Securities Act), and then converting the rest of its holdings, while still
staying below the 9.99% limit. Accordingly, Mr. DeStefano will have significant
influence in determining the outcome of all corporate transactions or other
matters, including mergers, consolidations and the sale of all or substantially
all of our assets, and also the power to prevent or cause a change in control
even after such conversion and exercise by Laurus, as Mr. DeStefano will likely
continue to be our largest shareholder. The interests of Mr. DeStefano may
differ from the interests of the other stockholders and thus result in corporate
decisions that are adverse to other shareholders. Additionally, potential investors
should take into account the fact that any vote of shares purchased will have
limited effect on the outcome of corporate decisions.





-50-


WE
DID NOT COMPLY WITH RULE 152 IN CONNECTION WITH OUR ENTRY INTO THE EIGHTH
AMENDMENT WITH LAURUS, WHICH HAS SINCE BEEN RESCINDED, AND WE MAY CONTINUE TO
HAVE LIABILITY IN CONNECTION WITH SUCH RESCISSION.





We
previously entered into the Eighth Amendment Agreement with Laurus (the “Eighth
Amendment”), which modified the terms of the Warrant and Options while we were
in registration in connection with our Form SB-2 Registration Statement, in
violation of Rule 152 under the Securities Act of 1933, as amended ("Rule 152").
As a result, we rescinded the Eighth Amendment and all of the amendments and
modifications to the Warrant and Options affected in connection with the Eighth
Amendment pursuant to the Agreement to Rescind the Eighth Amendment (described
below). Although the previous amendments to the Warrant and Options have been
rescinded, we may face liability in connection with our violation of Rule 152
and/or in connection with the rescission of the terms of our Eighth Amendment.
Such liability could cost us substantial time and money, which could, in turn
cause the value of our securities to decrease in value.





BECAUSE
OF THE SPECULATIVE NATURE OF OIL AND GAS EXPLORATION, THERE IS SUBSTANTIAL RISK
THAT NO ADDITIONAL COMMERCIALLY EXPLOITABLE OIL OR GAS WILL BE FOUND AND THAT
OUR BUSINESS WILL FAIL.





The
search for commercial quantities of oil as a business is extremely risky. We
cannot provide investors with any assurance that our properties contain
commercially exploitable quantities of oil and/or gas. The exploration
expenditures to be made by us may not result in the discovery of commercial
quantities of oil and/or gas and problems such as unusual or unexpected
formations and other conditions involved in oil and gas exploration, and often
result in unsuccessful exploration efforts. If we are unable to find
commercially exploitable quantities of oil and gas, and/or we are unable to
commercially extract such quantities, we may be forced to abandon or curtail our
business plan, and as a result, any investment in us may become
worthless.





BECAUSE
OF THE INHERENT DANGERS INVOLVED IN OIL AND GAS EXPLORATION, THERE IS A RISK
THAT WE MAY INCUR LIABILITY OR DAMAGES AS WE CONDUCT OUR BUSINESS OPERATIONS,
WHICH COULD FORCE US TO EXPEND A SUBSTANTIAL AMOUNT OF MONEY IN CONNECTION WITH
LITIGATION AND/OR A SETTLEMENT.





The oil
and natural gas business involves a variety of operating hazards and risks such
as well blowouts, caterings, pipe failures, casing collapse, explosions,
uncontrollable flows of oil, natural gas or well fluids, fires, formations with
abnormal pressures, pipeline ruptures or spills, pollution, releases of toxic
gas and other environmental hazards and risks. These hazards and risks could
result in substantial losses to us from, among other things, injury or loss of
life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, cleanup responsibilities,
regulatory investigation and penalties and suspension of operations. In
addition, we may be liable for environmental damages caused by previous owners
of property purchased and leased by us. As a result, substantial liabilities to
third parties or governmental entities may be incurred, the payment of which
could reduce or eliminate the funds available for exploration, development or
acquisitions or result in the loss of our properties and/or force us to expend
substantial monies in connection with litigation or settlements. In accordance
with customary industry practices, we maintain insurance against some, but not
all, of such risks and losses. As such, there can be no assurance that any
insurance obtained by us will be adequate to cover any losses or liabilities. We
cannot predict the availability of insurance or the availability of insurance at
premium levels that justify our purchase. The occurrence of a significant event
not fully insured or indemnified against, could materially and adversely affect
our financial condition and operations. We may elect to self-insure if
management believes that the cost of insurance, although available, is excessive
relative to the risks presented. In addition, pollution and environmental risks
generally are not fully insurable. The occurrence of an event not fully
covered by insurance could have a material adverse effect on our financial
condition and results of operations, which could lead to any investment in us
becoming worthless.





-51-


WE
REQUIRE SUBSTANTIAL ADDITIONAL FINANCING TO CONTINUE OUR EXPLORATION AND
DRILLING ACTIVITIES, WHICH FINANCING IS OFTEN HEAVILY DEPENDENT ON THE CURRENT
MARKET PRICE FOR OIL AND GAS, WHICH WE ARE UNABLE TO PREDICT.




Our
growth and continued operations could be impaired by limitations on our access
to capital markets. If the market for oil and/or gas were to weaken for an
extended period of time, our ability to raise capital would be substantially
reduced. There can be no assurance that capital from outside sources will be
available, or that if such financing is available, that it will not involve
issuing securities senior to the common stock or equity financings which will be
dilutive to holders of common stock. Such issuances, if made, would likely cause
a decrease in the value of our common stock.





THE
MARKET FOR OIL AND GAS IS INTENSELY COMPETITIVE, AND AS SUCH, COMPETITIVE
PRESSURES COULD FORCE US TO ABANDON OR CURTAIL OUR BUSINESS PLAN.





The
market for oil and gas exploration services is highly competitive, and we only
expect competition to intensify in the future. Numerous well-established
companies are focusing significant resources on exploration and are currently
competing with us for oil and gas opportunities. Additionally, there are
numerous companies focusing their resources on creating fuels and/or materials
which serve the same purpose as oil and gas, but are manufactured from renewable
resources. As a result, there can be no assurance that we will be able to
compete successfully or that competitive pressures will not adversely affect our
business, results of operations and financial condition. If we are not able to
successfully compete in the marketplace, we could be forced to curtail or even
abandon our current business plan, which could cause any investment in us to
become worthless.





WE
MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR GROWTH, WHICH COULD LEAD TO OUR
INABILITY TO IMPLEMENT OUR BUSINESS PLAN.





Our
growth is expected to place a significant strain on our managerial, operational
and financial resources, especially considering that we currently only have one
executive officer and Director. Further, as we enter into additional contracts,
we will be required to manage multiple relationships with various consultants,
businesses and other third parties. These requirements will be exacerbated in
the event of our further growth or in the event that the number of our drilling
and/or extraction operations increases. There can be no assurance that our
systems, procedures and/or controls will be adequate to support our operations
or that our management will be able to achieve the rapid execution necessary to
successfully implement our business plan. If we are unable to manage our growth
effectively, our business, results of operations and financial condition will be
adversely affected, which could lead to us being forced to abandon or curtail
our business plan and operations.





THE
PRICE OF OIL AND NATURAL GAS HAS HISTORICALLY BEEN VOLATILE AND IF IT WERE TO
DECREASE SUBSTANTIALLY, OUR PROJECTIONS, BUDGETS, AND REVENUES WOULD BE
ADVERSELY EFFECTED, AND WE WOULD LIKELY BE FORCED TO MAKE MAJOR CHANGES IN OUR
OPERATIONS.




Our
future financial condition, results of operations and the carrying value of our
oil and natural gas properties depend primarily upon the prices we receive for
our oil and natural gas production. Oil and natural gas prices historically have
been volatile and likely will continue to be volatile in the future, especially
given current world geopolitical conditions. Our cash flows from operations are
highly dependent on the prices that we receive for oil and natural gas. This
price volatility also affects the amount of our cash flows available for capital
expenditures and our ability to borrow money or raise additional capital.
In the short term, our production on a barrel of oil equivalent (BOE) is
weighted towards oil and oil prices are likely to affect us more than gas prices
because as of December 31, 2007 (on a BOE using 6 MCF equals 1 barrel of oil)
more than approximately 76% of our Proved Developed Producing reserves for the
Company and its subsidiary Gulf Coast Oil Corporation were oil. Over the long
term, our production on a barrel of oil equivalent (BOE) is weighted towards oil
and oil prices are likely to affect us more than gas prices because as of
December 31, 2007 (on a BOE using 6 MCF equals 1 barrel of oil) more than
approximately 76% of our total proved reserves (PDP, PDNP and PUD reserves) for
the Company and its subsidiary Gulf Coast Oil Corporation were oil. The prices
for oil and natural gas are subject to a variety of additional factors that are
beyond our control. These factors include:





-52-


o
            the
      level of consumer demand for oil and natural
  gas;





o
            the
      domestic and foreign supply of oil and natural
  gas;





o
            the
      ability of the members of the Organization of Petroleum Exporting
      Countries ("OPEC") to agree to and maintain oil price and production
      controls;





o
            the
      price of foreign oil and natural
gas;





o
            domestic
      governmental regulations and taxes;





o
            the
      price and availability of alternative fuel
  sources;





o
            weather
      conditions;





o
            market
      uncertainty due to political conditions in oil and natural gas producing
      regions, including the Middle East;
and





o
            worldwide
      economic conditions.





These
factors as well as the volatility of the energy markets generally make it
extremely difficult to predict future oil and natural gas price movements with
any certainty. Declines in oil and natural gas prices would not only reduce our
revenue, but could reduce the amount of oil and natural gas that we can produce
economically and, as a result, could have a material adverse effect upon our
financial condition, results of operations, oil and natural gas reserves and the
carrying values of our oil and natural gas  properties. If the oil and
natural gas industry experiences significant price declines, we may be unable to
make planned expenditures, among other things. If this were to happen, we may be
forced to abandon or curtail our business operations, which would cause the
value of an investment in us to decline in value, or become
worthless.





OUR
OPERATIONS ARE HEAVILY DEPENDENT ON CURRENT ENVIRONMENTAL REGULATIONS, WHICH WE
ARE UNABLE TO PREDICT, AND WHICH MAY CHANGE IN THE FUTURE, CAUSING US TO EXPEND
SUBSTANTIAL ADDITIONAL CAPITAL.





Public
interest in the protection of the environment has increased dramatically in
recent years. Our oil and natural gas production and saltwater disposal
operations and our processing, handling and disposal of hazardous materials,
such as hydrocarbons and naturally occurring radioactive materials are subject
to stringent regulation. We could incur significant costs, including cleanup
costs resulting from a release of hazardous material, third-party claims for
property damage and personal injuries fines and sanctions, as a result of any
violations or liabilities under environmental or other laws. Changes in or more
stringent enforcement of environmental laws could force us to expend additional
operating costs and capital expenditures to stay in compliance.





-53-


Various
federal, state and local laws regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment,
directly impact oil and gas exploration, development and production operations,
and consequently may impact our operations and costs. These regulations include,
among others, (i) regulations by the Environmental Protection Agency and various
state agencies regarding approved methods of disposal for certain hazardous and
non-hazardous wastes; (ii) the Comprehensive Environmental Response,
Compensation, and Liability Act, Federal Resource Conservation and Recovery Act
and analogous state laws which regulate the removal or remediation of previously
disposed wastes (including wastes disposed of or released by prior owners or
operators), property contamination (including groundwater contamination), and
remedial plugging operations to prevent future contamination; (iii) the Clean
Air Act and comparable state and local requirements which may result in the
gradual imposition of certain pollution control requirements with respect to air
emissions from our operations; (iv) the Oil Pollution Act of 1990 which contains
numerous requirements relating to the prevention of and response to oil spills
into waters of the United States; (v) the Resource Conservation and Recovery Act
which is the principal federal statute governing the treatment, storage and
disposal of hazardous wastes; and (vi) state regulations and statutes governing
the handling, treatment, storage and disposal of naturally occurring radioactive
material.





Management
believes that we are in substantial compliance with applicable environmental
laws and regulations. To date, we have not expended any material amounts to
comply with such regulations, and management does not currently anticipate that
future compliance will have a materially adverse effect on our consolidated
financial position, results of operations or cash flows. However, if we are
deemed to not be in compliance with applicable environmental laws, we could be
forced to expend substantial amounts to be in compliance, which would have a
materially adverse effect on our financial condition. If this were to happen,
any investment in us could be lost.





3D SEISMIC INTERPRETATION DOES NOT
GUARANTEE THAT HYDROCARBONS ARE PRESENT OR IF PRESENT WILL PRODUCE IN ECONOMIC
QUANTITIES.





We rely
on 3D seismic studies to assist us with assessing prospective drilling
opportunities on our properties, as well as on properties that we may
acquire.  Such seismic studies are merely an interpretive tool and do
not necessarily guarantee that hydrocarbons are present or if present will
produce in economic quantities.  Our inability to properly use and
interpret the 3D seismic data may adversely affect our financial condition and
results of operations.





OUR
CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING OUR LIABILITIES AND STATEMENT OF
OPERATIONS ARE SUBJECT TO ANNUAL CHANGES IN OUR DERIVATIVE ACCOUNTING OF THE
LAURUS NOTE, WARRANT, OPTION, SINGLE COMPOUND EMBEDDED DERIVATIVE AND DECEMBER
OPTION.





The value
of the liabilities relating to the Laurus' Note, Warrant, Option, December
Option and single compound embedded derivative on our consolidated Balance
Sheet, as well as the net fair value of the Laurus Note, Warrant, Option,
December Option and single compound embedded derivatives in our consolidated
Statements of Operations, are subject to the changes in the trading value of our
securities. As a result, our consolidated financial statements and results of
operations may fluctuate annually, based on factors, such as the trading value
of our common stock on the OTCBB and the amount of shares converted by Laurus in
connection with the Note and exercised in connection with the Warrant, Option
and December Option. Consequently, our liabilities and consolidated statements
of operations may vary annually, based on factors other than the Company's
revenues and expenses.





-54-





RISKS
RELATING TO THE COMPANY'S SECURITIES





A
DEFAULT BY US UNDER THE SECURED CONVERTIBLE TERM NOTE, AS AMENDED AND RESTATED,
COMMON STOCK PURCHASE WARRANT, OPTION, SECURED TERM NOTE, AS AMENDED AND
RESTATED, THE DECEMBER 2006 NOTE, GULF COAST'S NOTE, THE VALENS OFFSHORE NOTES
OR THE VALENS U.S. NOTES WOULD ENABLE LAURUS MASTER FUND, LTD., TO TAKE CONTROL
OF SUBSTANTIALLY ALL OF OUR ASSETS.





The
Convertible Secured Term Note, as amended and restated, common stock Purchase
Warrant, Option and December Option, as well as the Secured Term Note, as
amended and restated, December 2006 Note, and the Gulf Coast Note, as amended
and restated, the Valens Offshore Note and the Valens U.S. Note are secured by
Laurus and Valens Offshore and Valens U.S. by a continuing security interest in
all of our assets, including without limitation, our cash, cash equivalents,
accounts receivable, deposit accounts, inventory, equipment, goods, fixtures and
other tangible and intangible assets, which we own or at any time in the future
may acquire rights, title or interest to. As a result, if we default under any
provision of the Note, Warrant, Option, December Option, Term Note, December
2006 Note, the Gulf Coast Note, the Valens Offshore or Valens U.S. Notes or we
fail to pay any amounts due to Laurus, Valens Offshore, or Valens U.S., Laurus,
Valens Offshore or Valens U.S. may take control of substantially all of our
assets. If this were to happen, we could be left with no revenue producing
assets, and the value of our common stock could become worthless.





Additionally,
pursuant to a Stock Pledge Agreement between Laurus and us, we pledged all of
the outstanding stock of our wholly owned subsidiaries, Century Resources, Inc.
("Century") and Gulf Coast Oil Corporation ("Gulf Coast"), as collateral for the
funds loaned to us and Gulf Coast from Laurus. As a result, if we default under
any provision of the Note, Warrant, Option, December Option, Term Note, December
2006 Note, Gulf Coast Note or any other agreement entered into with Laurus,
Laurus may take control of Century and/or Gulf Coast. If this were to happen, it
could force us to abandon or curtail our business plan, and could result in our
securities becoming worthless.





WE
MAY BE REQUIRED TO PAY PENALTIES TO LAURUS MASTER FUND, LTD. UNDER THE
REGISTRATION RIGHTS AGREEMENT, WHICH COULD FORCE US TO EXPEND A SUBSTANTIAL
AMOUNT OF THE MONEY WE HAVE PREVIOUSLY RAISED.





We
granted Laurus Master Fund, Ltd., registration rights to the shares issuable to
Laurus in connection with the Note, Warrant, Option and December Option,
pursuant to a Registration Rights Agreement, which has been amended several
times, as described herein. While we previously obtained effectiveness of a
registration statement including a portion of the shares issuable to Laurus in
connection with the exercise of the Warrant, we and Laurus agreed that if in the
future, Laurus is not able to sell the remaining shares underlying the Warrant,
Options and/or Convertible Note pursuant to Rule 144 we would file an additional
Registration Statement in connection with such shares. As a result, if we are
required to file additional Registration Statements on Laurus’ behalf, and fail
to obtain effectiveness of such Registration Statements, unless such failure is
waived by Laurus, and/or our common stock ceases to trade on the OTC Bulletin
Board, we will be forced to pay substantial penalties to Laurus, which would
cause us to spend a substantial amount of the money raised in connection with
the sale of the Note and Term Note, and could force us to abandon or scale back
our current planned operations.





THE
CONVERTIBLE NOTE, WARRANT, OPTION AND DECEMBER OPTION CONTAIN PROVISIONS WHEREBY
LAURUS MASTER FUND, LTD. MAY HOLD MORE THAN 9.99% OF OUR COMMON STOCK, PROVIDED
THEY PROVIDE US SEVENTY-FIVE (75) DAYS NOTICE OR AN EVENT OF DEFAULT
OCCURS.





Although
Laurus may not convert its Convertible Note and/or exercise its Warrant, Option
and/or December Option if such conversion or exercise would cause it to own more
than 9.99% of our outstanding common stock, the Convertible Note, Warrant,
Option and December Option also contain provisions which provide
for the 9.99% limit to be waived provided that Laurus provides us with 75 days
notice of its intent to hold more than 9.99% of our common stock or upon the
occurrence of an event of default (as defined under the Convertible Note,
Warrant, Option and/or December Option). As a result, if we receive 75 days
notice from Laurus and/or an event of default occurs and our Registration
Statement covering Laurus' securities is declared effective, Laurus may fully
exercise the Warrant, Option and December Option and fully convert the
Convertible Note, and become the beneficial owner of up to approximately 43.6%
of our then outstanding common stock, not including the conversion of interest
on the Convertible Note.





-55-


If that
were to happen, Laurus would have significant control over us, including
exerting significant influence over our election of Directors and ability to
cause or prevent a change in control and/or our business operations. If Laurus
were to take control over approximately 47.2% of our outstanding common stock,
it could force us to change our business focus, sell all or substantially all of
our assets, or abandon our business plan. Any such event, if it were to occur
would likely cause the value of our common stock to decline, and could lead to
our common stock becoming worthless.





IF
AN EVENT OF DEFAULT OCCURS UNDER THE CONVERTIBLE NOTE, TERM NOTE, GULF COAST
NOTE, DECEMBER 2006 NOTE, VALENS OFFSHORE OR VALENS U.S. NOTES OR RELATED
AGREEMENTS, WE COULD BE FORCED TO IMMEDIATELY PAY THE AMOUNTS DUE UNDER THE
NOTES.





The
Secured Convertible Term Note, Secured Term Note, December 2006 Note, Gulf Coast
Notes, Valens Offshore and Valens U.S. Notes (collectively the "Notes") include
provisions whereby Laurus Master Fund, Ltd. (and/or Valens Offshore and Valens
U.S.), may make the amounts outstanding under all of its outstanding Notes
payable immediately due and payable if an event of default occurs under any one
of the Notes, which events of default include:





o
            our
      failure to pay amounts due under the
Notes;





o
            breach
      of any covenants under the Notes, if not cured within 15
    days;





o
            breach
      of any warranties found in the
Notes;





o
            the
      occurrence of any default under any agreement, which causes any contingent
      obligation to become due prior to its stated maturity or to become
      payable;





o
            any
      change or occurrence likely to have a material adverse effect on the
      business, assets, liabilities, financial condition, our operations or
      prospects;





o
            an
      indictment or other proceedings against us or any executive officer;
      or





o
            a
      breach by us of any provision of the Securities Purchase Agreement, or any
      other Related Agreement entered into in connection with the sale of the
      Notes.





If any
event of default were to occur under the Notes and Laurus was to make the entire
amount of the Notes immediately due and payable, and we did not have sufficient
funds on hand to pay such amounts, we could be forced to sell some or all of our
assets at less than fair market value, and/or abandon or curtail our business
plan and operations.





-56-


THE
ISSUANCE AND SALE OF COMMON STOCK IN CONNECTION WITH THE SECURED CONVERTIBLE
TERM NOTE, COMMON STOCK PURCHASE WARRANT, OPTION AND DECEMBER OPTION MAY DEPRESS
THE MARKET PRICE OF OUR COMMON STOCK.





As of
March 31, 2008, we had 56,010,612 shares of common stock issued and outstanding.
Although Laurus may not convert its Note and/or exercise its Warrant, Option
and/or December Option if such conversion or exercise would cause it to own more
than 9.99% of our outstanding common stock (unless Laurus provides us 75 days
notice and/or an event of default occurs, subject to Laurus' pledge under the
December Option, not to exercise any part of the December Option, until (a) the
payment in full of all obligations of the Company to Laurus under the
Convertible Note and (b) the exercise of the Warrant, unless an event of default
occurs and is continuing), this restriction does not prevent Laurus from
converting and/or exercising some of its holdings, selling those shares, and
then converting the rest of its holdings, while still staying below the 9.99%
limit. As a result, as sequential conversions and sales take place, the price of
our common stock may decline to the detriment of our then shareholders. All of
the shares issuable upon conversion of the Note, Warrant, Option and December
Option, may be sold without restriction once our Registration Statement is
declared effective and the sale of these shares may adversely affect the market
price of our common stock.





THE
ISSUANCE OF COMMON STOCK UNDERLYING THE SECURED CONVERTIBLE NOTE, OPTION,
DECEMBER OPTION AND COMMON STOCK PURCHASE WARRANT WILL CAUSE IMMEDIATE AND
SUBSTANTIAL DILUTION.





The
issuance of common stock upon conversion of the Secured Convertible Note
("Note"), common stock Purchase Warrant ("Warrant"), Option and December Option
will result in immediate and substantial dilution to the interests of other
stockholders since Laurus Master Fund, Ltd., may ultimately receive and sell the
full amount issuable upon conversion and/or exercise of the Note, Warrant and
Option. Although Laurus may not convert its Note and/or exercise its Warrant,
Option and/or December Option if such conversion or exercise would cause it to
own more than 9.99% of our outstanding common stock (unless Laurus provides us
75 days notice and/or an event of default occurs, subject to Laurus' pledge
under the December Option, not to exercise any part of the December Option,
until (a) the payment in full of all obligations of the Company to Laurus under
the Convertible Note and (b) the prior exercise of the Warrant, unless an event
of default occurs and is continuing), this restriction does not prevent Laurus
from converting and/or exercising some of its holdings, selling those shares,
and then converting the rest of its holdings, while still staying below the
9.99% limit. In this way, Laurus could sell more than this limit while never
actually holding more shares than this limit prohibits. If Laurus chooses to do
this, it will cause substantial dilution to our common stock, and could cause
the value of our common stock to decline precipitously.





RISKS
RELATING TO OUR COMMON STOCK





WE
HAVE NOT PAID ANY CASH DIVIDENDS IN THE PAST AND HAVE NO PLANS TO ISSUE CASH
DIVIDENDS IN THE FUTURE, WHICH COULD CAUSE THE VALUE OF OUR COMMON STOCK TO HAVE
A LOWER VALUE THAN OTHER SIMILAR COMPANIES WHICH DO PAY CASH
DIVIDENDS.





We have
not paid any cash dividends on our common stock to date and do not anticipate
any cash dividends being paid to holders of our common stock in the foreseeable
future. While our dividend policy will be based on the operating results and
capital needs of the business, it is anticipated that any earnings will be
retained to finance our future expansion. As we have no plans to issue cash
dividends in the future, our common stock could be less desirable to other
investors and as a result, the value of our common stock may decline, or fail to
reach the valuations of other similarly situated companies who have historically
paid cash dividends in the past.





-57-


THE
MARKET FOR OUR COMMON STOCK MAY BE VOLATILE.





The
market for our common stock has historically been volatile and we anticipate
that such market will continue to be subject to wide fluctuations in response to
several factors, including, but not limited to:





(1)
actual or anticipated variations in our results of operations;





(2) our
ability or inability to generate new revenues;





(3)
increased competition; and




(4)
conditions and trends in the oil and gas exploration industry and the market for
oil and gas.





Our
common stock is traded on the over-the-counter Bulletin Board under the symbol
"NCEY." In recent years, the stock market in general has experienced extreme
price fluctuations that have oftentimes been unrelated to the operating
performance of the affected companies. Similarly, the market price of our common
stock may fluctuate significantly based upon factors unrelated or
disproportionate to our operating performance. These market fluctuations, as
well as general economic, political and market conditions, such as recessions,
interest rates or international currency fluctuations may adversely affect the
market price of our common stock.





IN
THE FUTURE, WE WILL INCUR SIGNIFICANT INCREASED COSTS AS A RESULT OF OPERATING
AS A FULLY REPORTING COMPANY IN CONNECTION WITH SECTION 404 OF THE SARBANES
OXLEY ACT, AND OUR MANAGEMENT WILL BE REQUIRED TO DEVOTE SUBSTANTIAL TIME TO NEW
COMPLIANCE INITIATIVES.





Moving
forward, we anticipate incurring significant legal, accounting and other
expenses in connection with our status as a fully reporting public company. The
Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and new rules subsequently
implemented by the SEC have imposed various new requirements on public
companies, including requiring changes in corporate governance practices. As
such, our management and other personnel will need to devote a substantial
amount of time to these new compliance initiatives. Moreover, these rules and
regulations will increase our legal and financial compliance costs and will make
some activities more time-consuming and costly. In addition, the Sarbanes-Oxley
Act requires, among other things, that we maintain effective internal controls
for financial reporting and disclosure of controls and procedures. In
particular, for this Annual Report on Form 10-KSB, we were required to perform
system and process evaluation and testing of our internal controls over
financial reporting to allow management to report on the effectiveness of our
internal controls over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act.  For fiscal year 2009, Section 404 will require us
to obtain a report from our independent registered public accounting firm
attesting to the assessment made by management.  Our testing, or the
subsequent testing by our independent registered public accounting firm, may
reveal deficiencies in our internal controls over financial reporting that are
deemed to be material weaknesses. Our compliance with Section 404 will require
that we incur substantial accounting expense and expend significant management
efforts. We currently do not have an internal audit group, and we will need to
hire additional accounting and financial staff with appropriate public company
experience and technical accounting knowledge. Moreover, if we are not able to
comply with the requirements of Section 404 in a timely manner, or if we or our
independent registered public accounting firm identifies deficiencies in our
internal controls over financial reporting that are deemed to be material
weaknesses, the market price of our stock could decline, and we could be subject
to sanctions or investigations by the SEC or other regulatory authorities, which
would require additional financial and management resources.





-58-








IF
WE ARE LATE IN FILING OUR QUARTERLY OR ANNUAL REPORTS WITH THE SEC, WE MAY BE
DE-LISTED FROM THE OVER-THE-COUNTER BULLETIN BOARD.





Pursuant
to new Over-The-Counter Bulletin Board ("OTCBB") rules relating to the timely
filing of periodic reports with the SEC, any OTCBB issuer which fails to file a
periodic report (Form 10-QSB's or 10-KSB's) by the due date of such report (not
withstanding any extension granted to the issuer by the filing of a Form
12b-25), three (3) times during any twenty-four (24) month period is
automatically de-listed from the OTCBB. Such removed issuer would not be
re-eligible to be listed on the OTCBB for a period of one-year, during which
time any subsequent late filing would reset the one-year period of de-listing.
If we are late three times in any twenty-four (24) month period and are
de-listed from the OTCBB, our securities may become worthless and we may be
forced to curtail or abandon our business plan.





OUR
COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SECURITIES AND
EXCHANGE COMMISSION WHICH LIMITS THE TRADING MARKET IN OUR COMMON STOCK, MAKES
TRANSACTIONS IN OUR COMMON STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN
INVESTMENT IN OUR COMMON STOCK.





Our
common stock is considered a "penny stock" as defined in Rule 3a51-1 promulgated
by Commission under the Securities Exchange Act of 1934. The Commission's Rule
15g-9 regarding penny stocks imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally persons with net worth in excess
of $1,000,000 or an annual income exceeding $200,000 or $300,000 jointly with
their spouse). For transactions covered by the rules, the broker-dealer must
make a special suitability determination for the purchaser and receive the
purchaser's written agreement to the transaction prior to the sale. Thus, the
rules affect the ability of broker-dealers to sell our common stock should they
wish to do so because of the adverse effect that the rules have upon liquidity
of penny stocks. Unless the transaction is exempt under the rules, under the
Securities Enforcement Remedies and Penny Stock Reform Act of 1990,
broker-dealers effecting customer transactions in penny stocks are required to
provide their customers with (i) a risk disclosure document; (ii) disclosure of
current bid and ask quotations if any; (iii) disclosure of the compensation of
the broker-dealer and its sales personnel in the transaction; (iv) monthly
account statements showing the market value of each penny stock held in the
customer's account and (v) the rules require that a broker wait two business
days after sending the risk disclosure document to an investor before effecting
a transaction in penny stocks for that investor. As a result of the penny stock
rules, the market liquidity for our common stock may be adversely affected by
limiting the ability of broker-dealers to sell our common stock and the ability
of purchasers to resell our common stock. Additionally, various state securities
laws impose restrictions on transferring "penny stocks" and as a result,
investors in the common stock may have their ability to sell their shares of the
common stock impaired.








-59-


ITEM 7. FINANCIAL
STATEMENTS
  The
Financial Statements which follow are stated in U.S. dollars and are prepared in
accordance with U.S. Generally Accepted Accounting
Principles.





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS


OF
NEW CENTURY ENERGY CORP.














Report
      of Independent Registered Public Accounting Firm
            F-2Consolidated
      Balance Sheet, December 31, 2007
            F-3Consolidated
      Statements of Operations for the years ended  December 31, 2007
      and December 31, 2006
            F-4Consolidated
      Statements of Shareholders’ Equity (Deficit) for the years
      ended  December 31, 2007 and December 31, 2006
            F-5Consolidated
      Statements of Cash Flows for the years ended  December 31, 2007
      and December 31, 2006
            F-6Notes
      to Consolidated Financial Statements
            F-8














F-1


REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and


Stockholders
of New Century Energy Corp.





We have
audited the accompanying consolidated balance sheet of New Century Energy Corp.
as of December 31, 2007, and the related consolidated statements of operations,
stockholders’ equity (deficit) and cash flows for each of the years in the
two-year period ended December 31, 2007. New Century Energy Corp.’s management
is responsible for these consolidated financial statements. 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
consolidated financial statements are free of material misstatement. New Century
Energy Corp. is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of New Century
Energy Corp.’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated 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 consolidated financial position of New Century
Energy Corp. as of December 31, 2007, and the results of its operations and its
cash flows for each of the years in the two-year period ended December 31, 2007
in conformity with accounting principles generally accepted in the United States
of America.





The
accompanying consolidated financial statements have been prepared assuming that
New Century Energy Corp. will continue as a going concern. As more fully
described in Note 2, New Century Energy Corp. has recurring operating losses, an
accumulated deficit of $32.9 million and working capital deficit of $18.2
million at December 31, 2007. These factors, among others, as discussed in Note
2 to the consolidated financial statements, raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regard
to these matters also are described in Note 2. The 2007 consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.





PMB HELIN
DONOVAN, LLP





/s/ PMB
Helin Donovan, LLP





March 28,
2008


Houston,
Texas





F-2


NEW
CENTURY ENERGY CORP.


CONSOLIDATED
BALANCE SHEET


December
31, 2007


ASSETSCurrent
      AssetsCash
      and cash equivalents
            
            $
            9,522,517Restricted
      cash
            
            
            1,964,446Certificate
      of deposit
            
            
            35,075Accounts
      receivable
            
            
            2,038,876Due
      from Laurus Master Fund, Ltd.
            
            
            8,942Inventory
            
            
            512,578Prepaid
      expenses and other
            
            
            62,560Total
      Current Assets
            
            
            14,144,994Office
      equipment, net of $84,528 accumulated depreciation
            
            
            102,303Oil
      and gas properties, using successful efforts accountingProved
      properties
            
            
            62,216,668Unproved
      properties
            
            
            903,738Wells
      and related equipment and facilities
            
            
            7,382,19270,502,598Less
      accumulated depletion and impairment
            
            
            (30,941,996
            )Net
      oil and gas properties
            
            
            39,560,602Deferred
      loan costs and other assets, net
            
            
            250,500TOTAL
      ASSETS
            
            $
            54,058,399LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      LiabilitiesAccounts
      payable
            
            $
            823,976Accrued
      liabilities
            
            
            754,258Royalty
      payments
            
            
            233,377Current
      portion of notes payable
            
            
            29,730,690Derivative
      liability for Laurus warrant
            
            
            111,753Derivative
      liability for Laurus stock option
            
            
            229,074Single
      compound embedded derivatives with convertible note
            
            
            288,966Derivative
      liability for Laurus December option
            
            
            177,074Total
      Current Liabilities
            
            
            32,349,168Notes
      payable, less current portion (net of unamortizeddiscount
      and loan costs of $2,002,812)
            
            
            44,073,786Asset
      retirement obligation
            
            
            497,704Total
      Liabilities
            
            
            76,920,658Commitments
      and Contingencies (see Note 11)
            
            
            -


Stockholders'
      DeficitPreferred
      stock, $.001 par, 20,000,000 shares authorized,Series
      A convertible preferred shares, 5,000 sharesdesignated,
      none issued
            
            
            -Series
      B convertible preferred shares, 2,000,000 sharesdesignated,
      none issued
            
            
            -Common
      stock, $.001 par value, 200,000,000 sharesauthorized,
      56,010,612 shares issued and outstanding
            
            
            56,011Additional
      paid in capital
            
            
            9,952,743Retained
      deficit
            
            
            (32,871,013
            )Total
      Stockholders' Deficit
            
            
            (22,862,259
            )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
            
            $
            54,058,399




The
accompanying notes are an integral part of these consolidated


financial
statements.


F-3


NEW
CENTURY ENERGY CORP.


CONSOLIDATED
STATEMENTS OF OPERATIONS


Years
ended December 31, 2007 and 2006





2007
            
            
            2006RevenuesOil
      and gas sales
            
            $
            13,612,303
            
            
            $
            14,863,728Gain
      on sale of oil and gas interest
            
            
            34,680
            
            
            
            44,766Gas
      operations consulting
            
            
            36,930
            
            
            
            18,708Total
      Revenues
            
            
            13,683,913
            
            
            
            14,927,202ExpensesExploration
            
            
            1,960,977
            
            
            
            1,128,134Lease
      operating
            
            
            2,964,389
            
            
            
            1,509,150Production
      taxes
            
            
            607,225
            
            
            
            704,051Depreciation,
      depletionand
      amortization
            
            
            8,138,310
            
            
            
            9,737,889Impairment
      of oil and gas properties
            
            
            10,211,390
            
            
            
            -General
      & administrative
            
            
            1,196,638
            
            
            
            1,291,295Total
      expenses
            
            
            25,078,929
            
            
            
            14,370,519Operating
      income (loss)
            
            
            (11,395,016
            )
            
            
            556,683Other
      income (expense)Net
      decrease in fair value of derivativeliabilities
            
            
            1,255,507
            
            
            
            1,296,373Loss
      on early extinguishment of debt
            
            
            --
            
            
            
            (204,170
            )Interest
      and amortization of discount on debt
            
            
            (9,368,772
            )
            
            
            (7,958,392
            )Purchase
      and write down of Vertica liabilities
            
            
            59,260
            
            
            
            60,815Loss
      on Natural Gas Put Option
            
            
            (23,460
            )
            
            
            --Interest
      and other income
            
            
            285,143
            
            
            
            154,407Other
      expenses
            
            
            --
            
            
            
            (3,284
            )Total
      other income (expense)
            
            
            (7,792,322
            )
            
            
            (6,654,251
            )Loss
      before income taxes
            
            
            (19,187,338
            )
            
            
            (6,097,568
            )Income
      tax expense (benefit)
            
            
            --
            
            
            
            --NET
      LOSS
            
            $
            (19,187,338
            )
            
            $
            (6,097,568
            )Loss
      per share, basic and diluted
            
            $
            (
      0.34
            )
            
            $
            (0.11
            )


Weighted
      average common shares used incomputing
      basic and diluted loss per share
            
            
            56,010,612
            
            
            55,909,790




The
accompanying notes are an integral part of these consolidated


financial
statements.




F-4


NEW
CENTURY ENERGY CORP.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)


Years
Ended December 31, 2007 and 2006





Common
      Stock
            
            
            Additional
              Paid
      In
            
            
            Retained
              EarningsShares
            
            
            Amount
            
            
            Capital
            
            
            (Deficit)
            
            
            TotalsBalances,December
      31, 2005
            
            
            55,710,612
            
            
            
            55,711
            
            
            
            9,873,043
            
            
            
            (7,586,107
            )
            
            
            2,342,647Settlement
      with former officer
            
            
            100,000
            
            
            
            100
            
            
            
            29,900
            
            
            
            -
            
            
            
            30,000Stock
      for contract amendment
            
            
            200,000
            
            
            
            200
            
            
            
            49,800
            
            
            
            -
            
            
            
            50,000Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (6,097,568
            )
            
            
            (6,097,568
            )Balances,December
      31, 2006
            
            
            56,010,612
            
            
            $
            56,011
            
            
            $
            9,952,743
            
            
            $
            (13,683,675
            )
            
            $
            (3,674,921
            )Net
      Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (19,187,338
            )
            
            $
            (19,187,338
            )BalancesDecember
      31, 2007
            
            
            56,010,612
            
            
            $
            56,011
            
            
            $
            9,952,743
            
            
            $
            (32,871,013
            )
            
            $
            (22,862,259
            )




The
accompanying notes are an integral part of these consolidated


financial
statements.




F-5


NEW
CENTURY ENERGY CORP.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


Years
Ended December 31, 2007 and 2006





2007
            
            
            2006Cash
      flows from operating activitiesNet
      loss
            
            $
            (19,187,338
            )
            
            $
            (6,097,568
            )Adjustments
      to reconcile net lossto
      net cash provided by operating activities:Depreciation,
      depletion and amortization
            
            
            8,138,310
            
            
            
            9,737,889Impairment
      of oil and gas properties
            
            
            10,211,390
            
            
            
            --Imputed
      interest on marketable security
            
            
            --
            
            
            
            (1,801
            )Write
      down of liabilities on Vertica reverse merger
            
            
            (59,260
            )
            
            
            (60,815
            )Gain
      on sale of oil and gas properties
            
            
            (34,680
            )
            
            
            (44,766
            )Stock
      for services
            
            
            --
            
            
            
            50,000Settlement
      with former officer
            
            
            --
            
            
            
            (25,483
            )Loss
      on natural gas put option
            
            
            23,460
            
            
            
            --Interest
      earned on restricted cash
            
            
            (154,542
            )
            
            
            (109
            )Loss
      on early extinguishment of debt
            
            
            --
            
            
            
            204,170Net
      decrease in fair value of derivatives
            
            
            (1,255,507
            )
            
            
            (1,296,373
            )Accretion
      of discount on notes to interest expense
            
            
            1,760,258
            
            
            
            1,659,441Amortization
      of deferred loan costs
            
            
            29,916
            
            
            
            108,011Asset
      retirement obligation
            
            
            106,518
            
            
            
            33,296Changes
      in working capital:Accounts
      receivable
            
            
            (115,583
            )
            
            
            454,769Inventory
            
            
            (186,486
            )
            
            
            (278,301
            )Prepaid
      expenses and other
            
            
            (1,438
            )
            
            
            11,318Accounts
      payable
            
            
            (7,115
            )
            
            
            140,603Accrued
      liabilities
            
            
            (216,115
            )
            
            
            423,556Royalty
      payments payable
            
            
            88,835
            
            
            
            144,542Net
      cash (used in) provided by operating activities
            
            
            (859,377
            )
            
            
            5,162,379Cash
      flows from investing activitiesFirst
      acquisition of Mustang Creek field
            
            
            --
            
            
            
            (28,840,360
            )Second
      acquisition of Mustang Creek field
            
            
            --
            
            
            
            (3,946,859
            )Third
      acquisition of Lindholm Hanson gas unitand
      wells, net of cash acquired
            
            
            --
            
            
            
            (1,530,874
            )Capital
      expenditures on oil and gas properties
            
            
            (2,059,483
            )
            
            
            (3,746,808
            )Decrease(increase)in
      drilling advances
            
            
            62,628
            
            
            
            199,716Proceeds
      from sale of oil and gas propertyand
      equipment
            
            
            34,680
            
            
            
            44,766Investment
      in unproved property
            
            
            (484,832
            )
            
            
            --Investment
      in drilling exploratory wells at Mustang Creek
            
            
            (4,655,289
            )
            
            
            --Investment
      in marketable securities
            
            
            19,462
            
            
            
            --Increase
      in other assets
            
            
            2,000
            
            
            
            (247,066
            )







F-6


Net
      cash used in investing activities
            
            
            (7,080,834
            )
            
            
            (38,067,485
            )Cash
      flows from financing activitiesProceeds
      from Mustang Creek financing
            
            
            --
            
            
            
            43,345,295Proceeds
      from long term debt issuance
            
            
            --
            
            
            
            15,970,000Net
      proceeds from $5.3M note financing (See Note 5)
            
            
            5,114,500
            
            
            
            --Net
      proceeds from $7.1M note financing (See Note 5)
            
            
            6,851,500
            
            
            
            --Payments
      to reduce long-term debt
            
            
            (5,183,558
            )
            
            
            (17,119,155
            )Payments
      for deferred loan costs
            
            
            --
            
            
            
            (111,421
            )Restricted
      cash released (restricted) for drilling operations
            
            
            3,156,008
            
            
            
            (4,967,000
            )Net
      cash provided by financing activities
            
            
            9,938,450
            
            
            
            37,117,610Net
      increase in cash
            
            
            1,998,239
            
            
            
            4,212,613Cash
      at beginning of the year
            
            
            7,524,278
            
            
            
            3,311,665Cash
      at end of the year
            
            $
            9,522,517
            
            
            $
            7,524,278Supplemental
      disclosures of cash flow information:Interest
      paid
            
            $
            (7,555,828
            )
            
            $
            (5,660,524
            )Income
      taxes paid
            
            $
            --
            
            
            $
            --Supplemental
      disclosures of noncash investing and financing activities(See
      Notes 11 and 12)


The
accompanying notes are an integral part of these consolidated


financial
statements.




F-7


NEW
CENTURY ENERGY CORP.


(formerly
Vertica Software, Inc.)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1 -
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





New
Century Energy Corp. ("New Century" or the "Company"), was incorporated in
Colorado on April 18, 1997 as "Perfection Development Corporation." On September
29, 1998, the Company entered into an agreement pursuant to which it would
acquire all of the outstanding capital stock of Vertica Software, Inc., a
California corporation ("Vertica California"). On December 31, 1998, Vertica
California merged with and into the Company. The Company was the surviving
corporation in the merger and the separate corporate existence of Vertica
California ceased. Concurrently with the merger, the Company changed its name
from Perfection Development Corporation to Vertica Software, Inc.
("Vertica").





On
September 30, 2004, the Company acquired 100% of the issued and outstanding
common stock of Century Resources, Inc., a Delaware Corporation ("Century"), in
exchange for 37,500,000 newly issued shares of the Company's Common Stock,
pursuant to an Agreement and Plan of Reorganization whereby Century became a
wholly-owned subsidiary of the Company (the "Exchange").





In
connection with the Exchange, the Company agreed to transfer all rights to the
existing installation of hardware and software used to develop intellectual
property, all trademarks, copyrights and marketing materials developed for sales
and distribution of such products relating to Internet/Intranet software
products and services and an Internet web site for the hazardous material to the
Company's wholly owned subsidiary, ERC Solutions, Inc. ("ERC"), and changed its
business focus to oil and gas exploration and production. On October 26, 2004,
in connection with its new business focus, the Company filed Articles of
Amendment with the Colorado Secretary of State, to change its name to New
Century Energy Corp.





Since the
date of the Exchange, the Company has focused on oil and gas exploration and
production. The Company's major business focus for the year 2006 was formation
of the Company’s newly wholly owned subsidiary, Gulf Coast Oil Corporation
(“Gulf Coast”) and its two acquisitions of developed and undeveloped oil and gas
mineral leases totaling 9,167 acres in the Mustang Creek Field area in McMullen
and Atascosa Counties, Texas. The primary reason for the two acquisitions was to
add to our proved developed and undeveloped reserves as well as generate
significant future cash flows for the Company.





Basis of
presentation and principles of consolidation





The
accompanying consolidated financial statements include the accounts of New
Century Energy Corp., its wholly owned subsidiaries, Century Resources, Inc. and
Gulf Coast Oil Corporation, and its proportionate share of the assets,
liabilities, revenues and expenses. All significant intercompany accounts and
transactions have been eliminated in consolidation.  The accompanying
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern, as further discussed in Note 2. This basis of
accounting contemplates the recovery of the Company’s assets and the
satisfaction of liabilities in the normal course of business and this does not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.





Use of
estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, as well as certain financial statement
disclosures. While management believes that the estimates and assumptions used
in the preparation of the consolidated financial statements are appropriate,
actual results could differ from these estimates.





F-8


Reclassifications





Certain
prior year amounts have been reclassified to conform to the current year
presentation.





Cash and
cash equivalents





For
purposes of the statements of cash flows, cash equivalents are considered to be
all highly liquid investments having an original maturity of three months or
less.





Concentration
of credit risk





We
maintain our cash primarily with major U.S. domestic banks. The amounts held in
these banks exceed the federal insured limit of $100,000 from time to time and
exceeded that balance at December 31, 2007 by approximately $11.3 million. The
terms of these deposits are on demand to minimize risk. The certificate of
deposit is maintained in an interest bearing account of a major U.S. domestic
bank.





Revenue
recognition and accounts receivable





Oil and
gas revenues are recognized when production is sold to a purchaser at a fixed or
determinable price, when delivery has occurred and title has transferred, and if
collectibility of the revenue is probable. Cash received relating to future
revenues is deferred and recognized when all revenue recognition criteria are
met. In certain cases, collections from customers are held by our major lender
until specific month end reporting is made, at which time the proceeds are
released for unrestricted use.





Currently
all of our working interest producing wells are located in Texas and all of our
revenue is generated in Texas.





The
Company periodically reviews its accounts receivable for collectibility, and has
determined that no allowance for doubtful accounts is warranted at December 31,
2007.





Inventory





The
Company carries small inventories of crude oil in our stock tanks located on
each oil producing property. Crude oil inventories are carried at the lower of
current market value or cost. Inventory costs include expenditures and other
charges (including depreciation) directly and indirectly incurred in bringing
the inventory to its existing condition and location. Selling expenses and
general and administrative expenses are reported as period costs and excluded
from inventory cost. Inventories of materials and supplies are valued at cost or
less.





Oil and
gas properties





We follow
the successful efforts method of accounting for our oil and gas activities,
capitalizing costs of successful exploratory wells and expensing costs of
unsuccessful exploratory wells. Exploratory geological and geophysical costs are
expensed as incurred. All developmental costs are capitalized. As of December
31, 2007, we have no capitalized costs for exploratory wells pending
determination of proved reserves. We generally pursue acquisition and
development of proved reserves as opposed to exploration activities. A
significant portion of the property costs reflected in the accompanying
consolidated balance sheet are from acquisitions of proved properties from other
oil and gas companies.





Depreciation,
depletion and amortization of proved producing properties is computed on the
unit-of-production method based on estimated proved oil and gas reserves. Other
property and equipment is generally depreciated using either the
unit-of-production method for assets associated with specific reserves or the
straight-line method over estimated useful lives which range from 3 to 40 years.
Repairs and maintenance are expensed, while renewals and betterments are
generally capitalized.





F-9


If
conditions indicate that long-term assets may be impaired, the carrying value of
the property is compared to management's future estimated pre-tax cash flow from
properties generally aggregated on a field-level basis. If impairment is
necessary, the asset carrying value is written down to fair value. Cash flow
estimates are based on existing proved reserve and production information and
pricing assumptions that management believes are reasonable. Impairment of
individually significant unproved properties is assessed on a
property-by-property basis, and impairment of other unproved properties is
assessed and amortized on an aggregate basis.





We
recognized an impairment of proved properties at December 31, 2007 of
$10,211,390 as a result of a significant reduction in proved reserves in our
Wishbone field.  During 2007, the Company’s proved gas reserves in the
Wishbone Field were decreased by 57%.  The majority of this reduction,
approximately ninety percent (90%), was due to a significant reduction in future
proved undeveloped (PUD) locations projected to be drilled.  This
reduction was based on the operator’s indication that only one more PUD may be
drilled due to current high drilling costs and lower product
prices.  In addition, the decline rate associated with the existing
proved developed producing (PDP) gas reserves was steeper than previously
projected, which contributed to approximately ten percent (10%) of the decrease
in the proved reserves in this field.    There can be no
assurance that future write-downs will not be required as a result of factors
that may negatively affect the present value of proved oil and natural gas
reserves and the carrying value of oil and natural gas properties, including
volatile oil and natural gas process, downward revisions in estimated proved oil
and natural gas reserve quantities and unsuccessful drilling activities. The
Company has not capitalized any interest in 2007 relating to expenditures for
significant exploration and development projects





Long-lived
assets





Long
lived assets to be held and used or disposed of other than by sale are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. When required, impairment losses on
assets to be held and used or disposed of other than by sale are recognized
based on the fair value of the asset. Long-lived assets to be disposed of by
sale are reported at the lower of their carrying amount or fair value less cost
to sell.





Other
assets





Other
assets primarily include deferred loan costs that are amortized to interest
expense over the term of the related debt.





Derivative
instruments





New
Century accounts for all derivative financial instruments in accordance with
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
Derivative financial instruments are recorded as liabilities in the consolidated
balance sheet and are measured at fair value. When available, quoted market
prices are used in determining fair value. However, if quoted market prices are
not available, New Century estimates fair value using either quoted market
prices of financial instruments with similar characteristics or other valuation
techniques. These derivative liabilities are marked-to-market each quarter with
the change in fair value recorded in the income statement.





New
Century utilizes the Black-Scholes option-pricing model to determine the fair
value of its freestanding derivative instruments. Key assumptions of the
Black-Scholes option-pricing model include applicable volatility rates,
risk-free interest rates and the instruments expected remaining life. We also
determined a fair value for our various embedded derivatives within our $15
million convertible note by using a layered discounted probability-weighted cash
flow model. The assumptions used in both modeling techniques required
significant management judgment and estimates of future fluctuation in stock
price as well as changes in future interest rates. The reader should reference
Notes 5 and 6 for further details in regards to our derivative
liabilities.





F-10


Extinguishment
of Debt -





We follow
the provisions of SFAS No. 140 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS No. 140") along with
related interpretations from Emerging Issues Task Force No. 96-19 ("EITF No.
96-19"). The Task Force reached a consensus that an exchange of debt instruments
with substantially different terms is a debt extinguishment and should be
accounted for in accordance with paragraph 16 of SFAS No. 140. The Task Force
also observed that a debtor could achieve the same economic effect by making a
substantial modification of terms of an existing debt instrument. Accordingly,
the Task Force reached a consensus that a substantial modification of terms
should be accounted for like, and reported in the same manner as, an
extinguishment of debt. From the debtor's perspective, an exchange of debt
instruments between or a modification of a debt instrument by a debtor and a
creditor in a non-troubled debt situation is deemed to have been accomplished
with debt instruments that are substantially different if the net present value
of the cash flows under the terms of the new debt instrument is at least 10
percent different from the present value of the remaining cash flows under the
terms of the original instrument.





New
Century Energy utilized a portion of the proceeds from the $16.2 million
December 2006 Note at 10.25% interest to repay in full the June 2006 Gulf Coast
Note, which was at 17.5% interest, in terms of present value, which resulted in
the loss on early extinguishment of debt of $204,170 on the 2006 consolidated
statement of operations. It was deemed that SFAS 140 did not apply since the
17.5% note was liquidated. The present value of the other note instruments
modified in the transaction did not change by more than the minimum of ten
percent.





Asset
retirement obligation





For asset
retirement obligations, we follow SFAS No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 requires that an asset retirement
obligation associated with the retirement of a tangible long-lived asset be
recognized as a liability in the period in which it is incurred or becomes
determinable, with an associated increase in the carrying amount of the related
long-lived asset. The cost of the tangible long-lived asset, including the asset
retirement cost, is depreciated over the useful life of the asset.





Asset
retirement obligations primarily relate to the potential abandonment of oil and
gas producing facilities. The fair value of the asset retirement obligation is
recognized in the period in which the liability is incurred if a reasonable
estimate of fair value can be made. Asset retirement obligations include costs
to dismantle and relocate wells and related structures, and restoration costs of
land, including those leased. Depreciation of the capitalized asset retirement
cost and accretion of the asset retirement obligation are recorded over time.
The depreciation on the capitalized asset will generally be determined on a
unit-of-production basis, while the accretion of the liability will be
recognized over the life of the producing assets.





Contingencies





We
account for loss contingencies in accordance with SFAS No. 5, "Accounting for
Contingencies." Accordingly, when management determines that it is probable that
an asset has been impaired or a liability has been incurred, we accrue our best
estimate of the loss if it can be reasonably estimated. Our legal costs related
to litigation are expensed as incurred.





F-11


Stock-based
compensation





We may,
from time to time, issue common stock, stock options or common stock warrants to
acquire services or goods from non-employees. Common stock, stock options and
common stock warrants issued to persons other than employees or directors are
recorded on the basis of their fair value, as required by SFAS No. 123 -
"Accounting for Stock Based Compensation", which is measured as of the date
required by EITF Issue 96-18, "Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." The stock options or common stock warrants are valued using the
Black-Scholes model on the basis of the market price of the underlying common
stock on the "valuation date," which for options and warrants related to
contracts that have substantial disincentives to non-performance, is the date of
the contract, and for all other contracts is the vesting period. Where expense
must be recognized prior to a valuation date, the expense is computed under the
Black-Scholes model on the basis of the market price of the underlying common
stock at the end of the period.





Income
taxes





The
Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes". This Statement prescribes the use of the liability method
whereby deferred tax asset and liability account balances are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. In assessing the
realization of deferred tax assets, management considers whether it is likely
that some portion or all of the deferred tax assets will be realized. The
ultimate realization of deferred tax assets is dependent upon the Company
attaining future taxable income during periods in which those temporary
differences become deductible. The effect of changes in tax rates is recognized
in the period of enactment.





Loss per
share





In
accordance with SFAS No. 128, "Earnings Per Share," we report basic loss per
common share, which excludes the effect of potentially dilutive securities, and
diluted loss per common share, which includes the effect of all potentially
dilutive securities unless their impact is antidilutive. The Company has
outstanding warrants and free-standing and embedded derivatives that were issued
with the Secured Convertible Note in June 2005 and the Third Amendment to the
Secured Convertible Note in December 2005. These are potentially dilutive
securities but their impact was antidilutive in 2007 and 2006.





Fair
Value of Financial Instruments





Our
financial instruments consist of accounts receivable, accounts payable, notes
payable and derivative liabilities. The fair values of our accounts receivable,
accounts payable, notes payable and derivative liabilities, in our opinion,
reflect their respective carrying amounts. We believe the fair value of the
Convertible Note, as amended, reflects the amount as presented in Note 5 to the
consolidated financial statements as of December 31, 2007.





Recent
accounting pronouncements




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 158 “Employers’ Accounting For Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements Nos. 87,88,106 and 132(R)”
(“SFAS 158”), which requires companies to recognize the funded status of a
defined benefit postretirement plan as an asset or liability in its balance
sheet. The Company adopted SFAS 158 on January 1, 2007. The adoption of
SFAS 158 did not have a material impact on its consolidated financial
statements.




F-12


In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”), which defines fair value, establishes a frame work for measuring fair
value in accordance with generally accepted accounting principles and expands
disclosures about fair value measurements. This Statement applies under other
accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
SFAS 157 is effective for fiscal years beginning after December 15, 2007. We
plan to adopt SFAS 157 beginning in the first quarter of fiscal 2008. We are
currently evaluating the impact, if any; the adoption of SFAS 157 will have on
our consolidated financial position, results of operations or cash
flows.







In July 2006, The Financial Accounting
Standards Board (“FASB”) issued Financial Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (“FIN
48”), to clarify certain aspects of accounting for uncertain tax positions,
including issues related to the recognition and measurement of those tax
positions.The Company
adopted FIN 48 on January 1, 2007. The adoption of FIN 48 did not
have a material impact on its consolidated financial
statements.




In March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets” (“SFAS 156”), which requires all separately recognized servicing assets
and servicing liabilities to be initially measured at fair value. SFAS 156
permits, but does not require, the subsequent measurement of servicing assets
and liabilities at fair value. The Company adopted SFAS 156 on January 1,
2007. The adoption of SFAS 156 did not have a material impact on its
consolidated financial statements.





In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments, an amendment of FASB Statements No. 133 and 140” (“SFAS
155”). SFAS 155 clarifies certain issues relating to embedded derivatives and
beneficial interests in securitized financial assets.  SFAS No. 155 was
effective for the Company for all financial instruments acquired, issued, or
subject to remeasurement after January 1, 2007, and for certain hybrid financial
instruments that have been bifurcated prior to the effective date, for which the
effect is to be reported as a cumulative-effect adjustment to beginning retained
earnings.  The adoption of SFAS No. 155 did not have an impact on the
Company's consolidated financial statements.




In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities", which permits entities to choose to
measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions.  The statement amends SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity”.   If elected,
SFAS 159 will be effective as of the beginning of the first fiscal year
that begins after November 15, 2007. The Company is currently evaluating
the impact, if any, that SFAS 159 may have on its
consolidated financial statements.





In
September 2006, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements”.  SAB 108 provides guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in
quantifying a current year misstatement. SAB 108 established a dual
approach that requires quantification of errors under two methods:
(1) roll-over method which quantifies the amount by which the current year
income statement is misstated, and (2) the iron curtain method which
quantifies the error as the cumulative amount by which the current year balance
sheet is misstated. In some situations, companies will be required to record
errors that occurred in prior years even though those errors were immaterial for
each year in which they arose. Companies may choose to either restate all
previously presented financial statements or record the cumulative effect of
such errors as an adjustment to retained earnings at the beginning of the period
in which SAB 108 is applied. SAB 108 is effective for fiscal years
ending after November 15, 2006. The adoption of this pronouncement during
2007 on our Company’s consolidated financial statements was not
material.




F-13


In
December 2006, the FASB issued the FASB Staff Position (FSP) No. EITF 00-19-2,
("FSP EITF 00-19-2"), “Accounting for Registration Payment Arrangements”. This
FSP addresses an issuer's accounting for registration payment arrangements. This
FSP specifies that the contingent obligation to make future payments or
otherwise transfer consideration under a registration payment arrangement,
whether issued as a separate agreement or included as a provision of a financial
instrument or other agreement, should be separately recognized and measured in
accordance with FASB Statement No. 5, “Accounting for Contingencies”. The
guidance in this FSP amends FASB Statements No. 133, “Accounting for Derivative
Instruments and Hedging Activities”, and No. 150, “Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity”, and
FASB Interpretation No. 45, “Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, to
include scope exceptions for registration payment arrangements. This FSP further
clarifies that a financial instrument subject to a registration payment
arrangement should be accounted for in accordance with other applicable
generally accepted accounting principles (GAAP) without regard to the contingent
obligation to transfer consideration pursuant to the registration payment
arrangement. This FSP shall be effective immediately for registration payment
arrangements and the financial instruments subject to those arrangements that
are entered into or modified subsequent to the date of issuance of this FSP, or
for financial statements issued for fiscal years beginning after December 15,
2006, and interim periods within those fiscal years. The Company adopted FSP
EITF 00-19-2 beginning in 2007. The adoption of this FSP did not have a material
effect upon the Company’s financial statements.





In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations - Revised 2007. SFAS 141 R provides guidance on improving the
relevance, representational faithfulness, and comparability of information that
a reporting entity provides in its financial reports about a business
combination and its effects. SFAS 141R applies to business combinations where is
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company is in the process of
analyzing the effects SFAS 141R will have on the Company’s consolidated
financial statements.




In
December 2007, the FASB also issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, which establishes accounting and reporting
standards to improve the relevance, comparability, and transparency of financial
information in its consolidated financial statements that include an outstanding
noncontrolling interest in one or more subsidiaries. SFAS 160 is effective for
fiscal years, and the interim periods within those fiscal years, beginning on or
after December 15, 2008. Management of the Company does not expect the adoption
of this pronouncement to have a material impact on its consolidated financial
statements.





In March
2008, the Financial Accounting Standards Board ("FASB") issued Statement No. 161
"Disclosures about Derivative Instruments and Hedging Activities, an amendment
of FASB Statement No. 133” ("SFAS 161"), which establishes new disclosure
requirements for derivative instruments and hedging activities.  We do
not engage in hedging activities, therefore, we do not expect the adoption of
SFAS 161 to have a material impact on our consolidated financial
statements.





NOTE 2 -
GOING CONCERN





As shown
in the accompanying consolidated financial statements, New Century incurred
recurring net losses chargeable to common shareholders of $19,187,338 and
$6,097,568 in fiscal 2007 and 2006, respectively, and has negative working
capital of $18,204,176 and an accumulated deficit of $32,871,013 as of December
31, 2007.





The
Company has maintained a satisfactory credit relationship with the primary
lender over the past 30 months, as it has made its principal and interest
payments when due, or has successfully negotiated amendments to its various loan
agreements providing more flexible terms if and when needed. The Company has
successfully financed four of its five acquisitions with borrowings from this
primary lender, Laurus Master Fund, Ltd. (“Laurus”) with the remaining
acquisition being a cash purchase. Accordingly, the Company believes it will be
successful in meeting its working capital requirements through the end of 2008,
including the successful negotiation of a refinancing of both its $11.1 million
balloon payment under the $15
million Secured Convertible Term Note, due June 30, 2008, and the $6.4 million
balloon payment under the $9.5 million Secured Term Note, due July 1,
2008.  However, there can be no assurance that successful refinancing
will occur.





F-14


Our
growth and continued operations could be impaired by limitations on our access
to the capital markets.  In the event that we do not generate the
amount of revenues from our oil and gas properties which we anticipate, and/or
we decide to purchase additional oil and gas properties and are required to
raise additional financing, we may be forced to scale back our operations which
would have a material adverse impact upon our ability to pursue our business
plan.  We have no commitments from officers, directors or affiliates
to provide funding.  There can be no assurance that capital from
outside sources will be available, or if such financing is available, it may
involve issuing securities senior to our common stock or equity financings which
are dilutive to holders of our common stock.  In addition, in the
event we do not raise additional capital from conventional sources, it is likely
that our growth will be restricted and we may need to scale back or curtail
implementing our business plan.





The
conditions described above create substantial doubt as to New Century’s ability
to continue as a going concern.  The 2007 consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classifications of liabilities that may result from the outcome of this
uncertainty.








NOTE 3 -
ACQUISITION OF MUSTANG CREEK I WELLS AND LEASES AND GULF COAST SECURED TERM
NOTE




On April
28, 2006, the Company's then newly formed wholly-owned subsidiary, Gulf Coast
Oil Corporation, a Delaware corporation ("Gulf Coast") entered into an Asset
Purchase Agreement with Manti Resources, Inc., a Texas corporation, Manti
Operating Company, a Texas corporation, and Manti Mustang Creek, Ltd., a Texas
limited partnership.





We
acquired a 93.75% working interest in 10 oil wells and one gas well and a 70.31%
working interest in one additional oil well, as well as revenue interests of
72.19% in 9 of the wells and 41.01% and 70.80% in the other two wells,
(collectively "Mustang Creek Assets"). The purchase price of the Assets was
$33,000,000. The effective date of the purchase was December 1,
2005.





The
following table summarizes the initial estimated fair values of the assets
acquired.





Mustang
Creek I Wells and Mineral Interests:







Leasehold
      costs
            
            $
            31,121,397Equipment
            
            
            1,878,603Total
      assets acquired
            
            $
            33,000,000






A summary
of the acquisition consideration is as follows:





Purchase
      price
            
            $
            33,000,000Closing
      costs
            
            
            65,969Mustang
      Creek revenue for 5 months
            
            
            (4,809,904
            )Mustang
      Creek expenses for 5 months
            
            
            584,295


Net
      cash paid
            
            $
            28,840,360







F-15


GULF
COAST NOTE





On April
26, 2006, Gulf Coast, entered into a Securities Purchase Agreement with Laurus
Master Fund, Ltd. ("Laurus"), whereby Gulf Coast sold Laurus a Secured Term Note
in the amount of $40,000,000 (the "Gulf Coast Note") with the following features
and is collateralized by a security interest in all cash and cash equivalents,
inventory, equipment, goods, fixtures, documents, instruments, contract rights,
commercial tort claims, general intangibles, oil and gas leases, now owed or
acquired in the future; all rights, title, interests and estates in any and all
properties or leases, now owned or acquired in the future; and any and all
agreements or future agreements entered into in the future; by New Century, Gulf
Coast or Century:







Interest
      Rate -
            Wall
      Street Journal Prime Rate plus two points but not less than eight
      percentMaturity
      Date-
            October
      28, 2009Amortizing
      Amount -
            80%
      of net production revenue from Mustang Creek Assets- with a minimum
      monthly payment of $150,000Amended
      Warrant
            To
      purchase shares from Gulf Coast following payment in full of all
      obligations and liabilities owed by Gulf Coast to Laurus equal to 49% of
      the then outstanding common stock of Gulf CoastRepayment
      -
            A
      portion of the proceeds from the issue of the New Century Energy Corp.
      December 2006 Secured Term Note (see Note 5), totaling $5,235,788, was
      used to pay principal on this note on or about December 29,
      2006.







At
December 31, 2007, the Gulf Coast Note was classified as follows:







Gross
      amount
            
            $
            29,744,569Unamortized
      discount
            
            
            (762,671
            )Net
      amount
            
            $
            28,981,898





For the
twelve months ended December 31, 2007, the accretion of discount and deferred
loan costs were $411,194 and $21,481, respectively.  The accretion of
discount and deferred loan costs related to the Gulf Coast Note for the twelve
months ended December 31, 2006 were $275,840 and $14,530,
respectively.





F-16








NOTE 4-
ACQUISITION OF MUSTANG CREEK II WELLS AND LEASES AND JUNE 2006 GULF COAST
NOTE





ACQUISITION
OF MUSTANG CREEK II WELLS AND LEASES




On June
30, 2006, Gulf Coast entered into an Asset Purchase Agreement with J&P
Family Properties, Ltd. and Lara Energy, Inc. for assets which Gulf Coast
purchased 7/8th of on April 28, 2006. The purchase price of the June 2006 Assets
was $4,450,000, which amount was paid from funds received from Gulf Coast's sale
of the June 2006 Gulf Coast Note. The effective date of the June 2006 Asset
Purchase Agreement was December 1, 2005. As a result of the June 2006 Asset
Purchase Agreement, Gulf Coast holds a 100% working interest in the producing
properties and undeveloped oil and gas mineral leases, other than one well, in
which Gulf Coast holds a 75% interest.




The
following table summarizes the initial estimated fair values of the assets
acquired.







Mustang
Creek II Wells and Mineral Interests:





Leasehold
      costs
            
            $
            4,324,760Equipment
            
            
            125,240Total
      assets acquired
            
            $
            4,450,000





A summary
of the acquisition consideration is as follows:





Purchase
      price
            
            $
            4,450,000Closing
      costs
            
            
            19,548Mustang
      Creek revenue for 7 months
            
            
            (630,176
            )Mustang
      Creek expenses for 7 months
            
            
            107,487Net
      cash paid
            
            $
            3,946,859





JUNE
2006 GULF COAST NOTE





On June
30, 2006, Gulf Coast entered into a second Securities Purchase Agreement with
Laurus Master Fund, Ltd. whereby Gulf Coast sold Laurus a Secured Term Note
(“June 2006 Gulf Coast Note”) in the amount of $5,000,000 with the following
features. The note was liquidated, in part, with proceeds from the Mustang Creek
production during the second half of 2006. In addition, a portion of the
proceeds from the issuance of the New Century Energy Corp. December 2006 Secured
Term Note (see Note 5), totaling $4,700,237 was used to pay the remaining
principal on this note on or about December 29, 2006. The amount represented
full and final settlement for the note.




F-17


NOTE 5 -
NEW CENTURY ENERGY NOTES PAYABLE




As of
December 31, 2007, the Company’s aggregate indebtedness to its primary lender,
Laurus, totaled approximately $55.3 million, plus the fair value of its
derivative liabilities of approximately $1.1 million.  The remaining
$20.6 million of aggregate indebtedness at December 31, 2007 has entered into
with or been assigned to various related parties of Laurus, as detailed
below.  Laurus has also acknowledged that none of our rights and
obligations under notes which were assigned would be affected by such
assignments.  From July to December 2007, Laurus notified us that it
had made the following assignments of which $534,743 was repaid during
2007:





Second
      Amended And
              Restated
      Secured Term
            
            $
            844,968December
      2006 Secured Term
            
            
            3,417,597Gulf
      Coast
            
            
            4,427,065Total
      assignments of notes payable
            
            $
            8,689,630








In
January and February of 2008, Laurus notified us that it had assigned an
additional $4,932,098 of the December 2006 Secured Term Note to various related
parties of Laurus.  Also, in January 2008, Laurus notified us that it
had made two sub-assignments of a prior assignment from the Gulf Coast Note
totaling $659,442 to various related parties of Laurus.  Laurus has
acknowledged that none of our rights and obligations under the notes are be
affected by such assignments.





SECOND
AMENDED AND RESTATED SECURED CONVERTIBLE TERM NOTE





In
connection with the first acquisition of a 6.2% working interest and a 5.464%
net revenue interest in the Lindholm-Hanson Gas Unit, we entered into a
Securities Purchase Agreement with Laurus Master Fund, Ltd., to sell a Secured
Convertible Term Note in the principal amount of $15,000,000. The Secured
Convertible Note as amended and restated includes the following features and is
collateralized by a security interest in all cash and cash equivalents,
inventory, equipment, goods, fixtures, documents, instruments, contract rights,
commercial tort claims, general intangibles, oil and gas leases, now owed or
acquired in the future; all rights, title, interests and estates in any and all
properties or leases, now owned or acquired in the future; and any and all
agreements or future agreements entered into in the future; by New Century, Gulf
Coast or Century:




Interest
      Rate -
            
            Wall
      Street Journal Prime Rate plus two points but not less than seven
      percentMaturity
      Date -
            
            June
      30, 2008Amortizing
              Amount
      -
            
            $100,000,
      beginning January 1, 2007. With the signing of the December 2006 Secured
      Term Note, (see below) we entered into a Second Amended and Restated
      Secured Convertible Term Note which revised the current amortization
      payments for the note. Under the Restated Convertible Note (signed
      December 2005), we were obligated to make monthly amortization payments
      under the Restated Convertible Note of $250,000 per month, beginning July
      1, 2006. The Second Restated Convertible Note revised the amortization
      payments such that, beginning January 1, 2007, through December 31, 2007,
      we are required to make monthly amortization payments of $100,000, and
      beginning January 1, 2008, through June 30, 2008, we are required to make
      monthly amortization payments of $250,000 per month.Conversion
      -
            
            Convertible
      into 24,193,548 shares of Common Stock at a conversion price of $0.62 per
      share.Warrant
      -
            
            Purchase
      up to 7,258,065 shares of Common Stock at $0.80 per
  share.Option
      -
            
            Purchase
      up to 10,222,784 shares of our Common Stock for $0.001 per share (as
      amended).







F-18


December
      Option -
            
            Purchase
      up to 5,061,392 shares of our Common Stock for $0.001 per share (as
      amended).Registration
              Rights
      -
            
            Granted
      Laurus registration rights to the shares convertible in connection with
      the Convertible Note and exercisable in connection with the Warrant and
      Option pursuant to a Registration Rights Agreement. (Such agreement has
      been subsequently amended, see below).Restrictions
      -
            
            Laurus
      is restricted to owning not more than 9.99% of the outstanding common
      stock of the Company at any time. The First Option can be exercised but
      not sold until the Note is repaid and the warrant is
      exercised.  The December Option cannot be exercised or sold
      until the Note has been repaid and the warrant is
    exercised.





The
Secured Convertible Note was deemed to have both freestanding and embedded
derivatives. The Laurus Warrant and Laurus Option have been accounted for as
freestanding derivative liabilities and are fair valued under the Black-Scholes
method. The interest rate adjustment, optional redemption, form of payment and
conversion features of the Secured Convertible Note have been bundled together
as a Single Compound Embedded Derivative Liability, and is fair valued under a
layered discounted probability-weighted expected cash flow methodology (See Note
6).





On
December 30, 2005, we entered into a Third Amendment Agreement ("Third
Amendment") to create the Restated Convertible Note and a December Option. The
December Option, provides Laurus the right to purchase up to 5,061,392 shares of
our common stock at $0.001 per share. Laurus agreed not to exercise any rights
until: (a) payment in full of all of the obligations of the Company under the
June 2005 Restated Note have been paid in full and (b) the exercise of the
Warrant by Laurus, except in the event of default (as defined in the Amended
Note), or upon 75 days notice. (See Note 6)





In
December 2006, the Company entered into the Eighth Amendment Agreement (the
"Eighth Amendment") with Laurus which amended the terms of our June 30, 2005
Common Stock Purchase Warrant ("Warrant") and June 30, 2005 and December 31,
2005 Options (the "Options") with Laurus, to add a cashless exercise feature,
whereby Laurus may exercise the Warrant and/or Options and receive an amount of
shares of our common stock equal to the number of shares exercised multiplied by
the exercise price of the security divided by the Fair Market Value of our
common stock (as defined in the Warrant and Options).





Laurus
also agreed that we would no longer be bound by the Registration Rights
Agreement entered into in connection with our June 30, 2005 closing with Laurus,
and therefore, would no longer be required to register the shares of common
stock issuable to Laurus in connection with the conversion of the Secured
Convertible Term Note or exercise of the Options.





Laurus
agreed pursuant to the Eighth Amendment that it would not be able to affect a
cashless exercise of the Warrant shares until December 4, 2007. Additionally,
Laurus agreed that it would not be able to affect a cashless exercise of the
Option shares, until the earlier of (i) the date the shares of common stock
exercisable in connection with the Warrant are registered pursuant to an
effective registration statement and (ii) December 4, 2007. Laurus also agreed
that if a registration statement covering all of the shares of common stock
issuable in connection with the exercise of the Warrant has been declared
effective and remains effective, Laurus would be required to pay cash to
exercise the Warrant, and the cashless exercise would not be available to
Laurus.





On or
about January 10, 2007, we entered into an Agreement to Rescind the Eighth
Amendment Agreement (the "Rescinding Agreement"), whereby we and Laurus agreed
to rescind the Eighth Amendment in its entirety, and that all of the provisions
of the Registration Rights Agreement, Options and Warrant which were revised by
the Eighth Amendment would be restored, and the Registration Rights Agreement,
Options and Warrant would have the same terms and conditions as they had
immediately prior to the parties entry into the Eighth Amendment
Agreement.





F-19


At
December 31, 2007 the $12.3 million unpaid principal balance of the Second
Amended and Restated Secured Convertible Term Note is a current liability and is
comprised of:





Gross
      amount
            
            $
            12,300,000Unamortized
      discount
            
            
            (659,885
            )Net
      amount
            
            $
            11,640,115





For the twelve months ended months
ended December 31, 2007 and December 31, 2006, the accretion of discounts
related to the Second Amended and Restated Secured Convertible Term Note was
$1,255,968 and $1,180,337, respectively.





THIRD
AMENDED AND RESTATED SECURED TERM





In
connection with the second acquisition of a 7.25% working interest and a 5.43%
net revenue interest of the Lindholm-Hanson Gas Unit, on September 19, 2005, the
Company executed a Secured Term note in the amount of $9,500,000, with the
following features and is collateralized by a security interest in all cash and
cash equivalents, inventory, equipment, goods, fixtures, documents, instruments,
contract rights, commercial tort claims, general intangibles, oil and gas
leases, now owed or acquired in the future; all rights, title, interests and
estates in any and all properties or leases, now owned or acquired in the
future; and any and all agreements or future agreements entered into in the
future; by New Century, Gulf Coast or Century:





Interest
      Rate -
            
            20%Maturity
      Date -
            
            July
      1, 2008Amortizing
      Amount -
            
            The
      greater of 80% of gross proceeds paid from 5.4375% net revenue interest in
      Lindholm-Hanson Gas Unit and monthly interest.Amendments
      -
            
            On
      March 30, 2006 we entered in to the Amended and Restated Secured Term Note
      agreement with Laurus. The agreement extended the maturity date of the
      note from March 19, 2006 to January 2, 2007. It also provided for monthly
      amortizing payments equal to 80% of gross proceeds paid from 5.4375% net
      revenue interest in Lindholm-Hanson Gas Unit.Concurrent
      with the signing of the December 2006 Secured Term Note, (see below) we
      entered into a Second Amended and Restated Secured Term which revised the
      current amortization payments for this note to be the greater of 80% of
      the gross proceeds paid from 5.4375% net revenue interest in
      Lindholm-Hanson Gas Unit or the current month interest. We also extended
      the maturity date of this note to July 2, 2007.
              
              On
      July 10, 2007, we entered into the Third Amended and Restated Secured Term
      Note with Laurus.  The agreement extended the maturity date of
      the Secured Term Note from July 2, 2007 to December 31, 2007.





On
      January 20, 2008, New Century Energy Corp. (“we,” “us,” and the “Company”)
      entered into a Letter Agreement (the “Letter Agreement”) with Laurus
      Master Fund, Ltd. (“Laurus”). The Letter Agreement amended the terms of
      our Third Amended and Restated Note entered into with Laurus on or about
      July 10, 2007 (“Restated Note”) to extend the maturity date to July 1,
      2008. The Letter Agreement also amended the terms of an event of
      default under the Restated Note to include an event of default under any
      other of the previous Securities Purchase Agreements (“SPAs”) or Related
      Agreements (as defined in the SPAs) entered into with Laurus by us and/or
      by Gulf Coast Oil Corporation, our wholly owned subsidiary.







F-20


At
December 31, 2007 the unpaid balance of the Third Amended and Restated Secured
Term was $6,351,391. The entire balance of this note is a current
liability.





From July
to December 2007, Laurus notified us that it had assigned approximately $844,968
of the Secured Term Note to various related parties of Laurus.  Laurus
has also acknowledged that none of our rights and obligations under the note
would be affected by such assignments.





DECEMBER 2006
SECURED TERM NOTE





On
December 28, 2006, we entered into a Securities Purchase Agreement with Laurus
in which we sold a secured term note (“December 2006 Secured Term Note”) in the
amount of $16,210,000 with features as follows and is collateralized by a
security interest in all cash and cash equivalents, inventory, equipment, goods,
fixtures, documents, instruments, contract rights, commercial tort claims,
general intangibles, oil and gas leases, now owed or acquired in the future; all
rights, title, interests and estates in any and all properties or leases, now
owned or acquired in the future; and any and all agreements or future agreements
entered into in the future; by New Century, Gulf Coast or Century:





Interest
      Rate -
            Wall
      Street Journal Prime Rate plus two points but not less than eight
      percentMaturity
      Date -
            January
      4, 2010Amortizing
      Amount -
            Monthly
      payments of $200,000, beginning on July 1, 2007





Use
      of Proceeds -




Management
      discretion
            $
            1,000,000Liquidate
      Gulf Coast
              June
      2006 note (see Note 4)
            
            4,700,237Payment
      on Gulf Coast note
              (see
      Note 3)
            
            5,235,788Interest
      on June 2006 note
            
            63,975Fees
      to Laurus
            
            240,000Escrow
      fees
            
            3,000Restricted
      Cash
            
            4,967,000$
            16,210,000








Restricted
Cash related to the December 2006 Secured Term Note is held by Laurus as
security for our obligations under the closing documents and is disbursed at
Laurus’ sole discretion. At December 31, 2007, the remaining balance of the
Restricted Cash related to the December 2006 Secured Term Note is
$513,614.




F-21


At
December 31, 2007 the details of the December 2006 Secured Term Note was as
follows:







Gross
      amount
            
            $
            15,011,328Less:
      Unamortized discount
            
            
            (160,325
            )Net
      amount
            
            $
            14,851,003




The
accretion of the discount related to the $16.2 million Secured Term note for the
twelve months ended December 31, 2007and December 31, 2006, was $79,027 and
$648, respectively.





From July
to December 2007, Laurus notified us that it had assigned approximately
$3,417,597 of the December 2006 Secured Term Note to various related parties of
Laurus.  Laurus has also acknowledged that none of our rights and
obligations under the note would be affected by such assignments.





NOVEMBER
20, 2007 SECURED TERM NOTES





On
November 20, 2007, Gulf Coast entered into a Securities Purchase Agreement with
LV Administrative Services, Inc., as administrative and collateral agent (the
“Agent”) for Valens U.S. SPV I, LLC (“Valens U.S.”) and Valens Offshore SPV
II, Corp. (“Valens Offshore,” and collectively
with Valens U.S., each a “Purchaser” and collectively the “Purchasers” and the
"November 2007 Purchase Agreement"), whereby Gulf Coast sold Valens U.S. a
Secured Term Note in the amount of $3,100,000 (the "November 2007 Valens U.S.
Note"), and Valens Offshore a Secured Term Note in the amount of $4,000,000 (the
“November 2007 Valens Offshore Note” and collectively the “November 2007 Gulf
Coast Notes”). Valens U.S. and Valens Offshore are related parties of
Laurus.





Interest
      Rate -
            Wall
      Street Journal Prime Rate plus two points but not less than eight
      percent





Maturity
      Date -
            November
      20, 2010Amortizing
      Amount -
            80%
      (subject to sharing with Laurus Master Fund, Ltd.) of the monthly
      production revenue after deduction of LOE’s or a minimum monthly amount of
      $60,000 commencing March 2008.Use
      of Proceeds -








Expansion
      of Drilling Activities
            
            $
            5,642,678Fees
      to Valens
            
            
            248,500Escrow
      fees
            
            
            93,061Past
      Development Reimbursement net of prior interest expense
            
            
            414,039Past
      Interest Expense
            
            
            701,722$
            7,100,000







F-22


At
December 31, 2007 the details of the November 20, 2007 Secured Term Notes were
as follows:




Gross
      amount
            
            $
            7,100,000Less:
      Unamortized discount
            
            
            (239,587
            )Net
      amount
            
            $
            6,860,413




The
accretion of the discount related to the $7.1 million Secured Term Notes for the
twelve months ended December 31, 2007and December 31, 2006, was $12,288 and $0,
respectively.





NOVEMBER
30, 2007 SECURED TERM NOTES





On
November 30, 2007, we entered into a Securities Purchase Agreement with the
Agent for Valens U.S. and Valens Offshore, whereby we sold Valens U.S. a Secured
Term Note in the amount of $2,300,000 (the "New Century November 2007 Valens
U.S. Note"), and Valens Offshore a Secured Term Note in the amount of $3,000,000
(the “New Century November 2007 Valens Offshore Note” and collectively the
“Valens Notes”). In connection with the November 2007 Purchase Agreement, the
Company also entered into a Consent Letter Agreement, Master Security Agreement,
a Stock Pledge Agreement, a Restricted Account Agreement, Funds Escrow
Agreement, a Net Profits Interest Agreement, a Conveyance of Net Profits
Overriding Royalty Interest, a Lockbox Account Agreement Letter, a SPA and Lien
Consent Agreement, and a Mortgage (including a Deed of Trust, Security
Agreement, Financing Statement and Assignment of Production).





Interest
      Rate -
            Wall
      Street Journal Prime Rate plus two points but not less than eight
      percentMaturity
      Date -
            November
      20, 3010





Amortizing
      Amount -
            80%
      (subject to sharing with Laurus Master Fund, Ltd.) of the monthly
      production revenue after deduction of LOE’s or a minimum monthly amount of
      $50,000 commencing March 2008.Use
      of Proceeds -








Expansion
      of Drilling Activities
            
            $
            3,595,000Fees
      to Valens
            
            
            185,500Escrow
      fees
            
            
            73,600Restricted
      Cash
            
            
            1,445,900$
            5,300,000





Restricted
Cash related to the November 30, 2007 Secured Term Note is held by Laurus as
security for our obligations under the closing documents and is disbursed at
Laurus’ sole discretion. At December 31, 2007, the remaining balance of the
Restricted Cash is $1,450,832.




At
December 31, 2007 the details of the November 30, 2007 Secured Term Notes were
as follows:




Gross
      amount
            
            $
            5,300,000Less:
      Unamortized discount
            
            
            (180,344
            )Net
      amount
            
            $
            5,119,656




The
accretion of the discount related to the $5.3 million Secured Term Notes for the
twelve months ended December 31, 2007and December 31, 2006, was $7,224 and $0,
respectively.





F-23


A recap
of the Company’s Notes Payable as of December 31, 2007 follows:




Current
      portionSecond
      Amended and Restated Secured Convertible
            
            $
            12,300,000Second
      Amended And Restated Secured Term
            
            
            6,351,391December
      2006 Secured Term
            
            
            2,400,000New
      Century November 2007 Secured Term
            
            
            143,950Gulf
      Coast
            
            
            8,414,496Gulf
      Coast November 2007 Secured Term
            
            
            120,853Total
      current portion of notes payable
            
            $
            29,730,690Noncurrent
      portion:December
      2006 Secured Term
            
            $
            12,611,328New
      Century November 2007 Secured Term
            
            
            5,156,050Gulf
      Coast
            
            
            21,330,072Gulf
      Coast November 2007 Secured Term
            
            
            6,979,148Total
      noncurrent portion of notes payable
            
            $
            46,076,598





Less:
      Unamortized discount
            
            
            (2,002,812
            )Notes
      payable, less current portion(net
      of unamortized discount)
            
            $
            44,073,786




Future payments under outstanding notes
payable at their notional amounts as of December 31, 2007 were as
follows:





2008
            
            
            29,730,6902009
            
            
            24,081,6622010
            
            
            21,994,9362011
            
            
            --2012
            
            
            --$
            75,807,288








Interest
and amortization of discount on debt expense for each of the years ended
December 31 can be broken down as follow:




2007
            
            
            2006Interest
      expense on notional balance
            
            $
            7,578,598
            
            
            $
            6,190,935Accretion
      of note discount
            
            
            1,760,258
            
            
            
            1,659,441Amortization
      of deferred loan costs
            
            
            29,916
            
            
            
            108,0119,368,772
            
            
            
            7,958,387Other
      interest expense
            
            
            -
            
            
            
            5Total
      interest expense
            
            $
            9,368,772
            
            
            $
            7,958,392







F-24


NOTE 6 -
DERIVATIVE LIABILITIES





The
following assumptions were used in the valuation of the derivative liabilities
(See Note 5) at December 31, 2007:







Probability-Weighted
      Expected Cash Flow Methodology -Assumptions:Single
      Compound Embedded Derivative within Convertible NoteRisk
      - free interest rate
            3.49%Prime
      rate
            7.25%Increasing
      .25% each quarter of first yearTimely
      registration
            100%


Default
      status
            5.00%Increasing
      by 0.1% monthlyAlternative
      financing available and exercised
            0.00%Increasing
      2.5% monthly up to 25%(Exercised
      only if the market price is greater than $0.92)Trading
      volume, gross monthly dollars
            5.00%Monthly
      increaseAnnual
      growth rate of stock price
            22.481%Future
      projected volatility
            125.00%







F-25


The
following assumptions were used in the preparation of the valuations at December
31, 2007:





Black-Scholes
Methodology:




LaurusLaurus
            
            December
            
            LaurusAssumptions
            
            Option
            
            Option
            
            WarrantDividend
      yield
            
            0.00%
            
            0.00%
            
            0.00%Risk-free
      interest rate
            
            4.50%
            
            4.50%
            
            3.45%Volatility
            
            125.00%
            
            125.00%
            
            125.00%Expected
      term
            
            20
      years
            
            20
      years
            
            4.50
      years







FAIR
VALUE OF DERIVATIVES





The fair
value of the Company's derivative liabilities comprised the following as of
December 31, 2007:





Laurus
      Warrant
            
            $
            111,753Laurus
      Stock Option
            
            
            229,074Single
      compound embedded derivativewithin
      Convertible Note
            
            
            288,966Laurus
      December Option
            
            
            177,074Total
            
            $
            806,867





The
decrease in fair value of the Company's derivative liabilities for each of the
years ended December 31, 2007 and 2006 increased were as follows:




2007
            
            
            2006Laurus
      Warrant
            
            $
            295,729
            
            
            $
            389,577Laurus
      Stock Option
            
            
            490,608
            
            
            
            392,765Single
      compound embedded derivativewithin
      Convertible Note
            
            
            89,934
            
            
            
            210,426Laurus
      December Option
            
            
            379,236
            
            
            
            303,605Decrease
      - fair value of derivative liabilities
            
            $
            1,255,507
            
            
            $
            1,296,373




The
decrease in the fair value of the derivative liabilities (mark-to-market) is due
to the increasing volatility and the wide, but mostly downward sliding,
fluctuations in the price of our common stock during the year. Prices ranged
from $0.160 per share on February 16, 2007 to $0.026 per share on December 28,
2007. The closing price of our stock and volatility assumption were $0.035 per
share and 125% at December 31, 2007, versus $0.110 and 100% at December 31,
2006. The changes in the fair value of the derivative liabilities have been
recorded under Other Income (Expense) in the accompanying consolidated
statements of operations.





The
values of the derivative liabilities relating to the Convertible Note, as
reflected in our consolidated financial statements, are subject to changes in
the trading value of the Company's common stock. As a result, our financial
statements may fluctuate quarter-to-quarter based on this factor, and the amount
of shares converted by Laurus in connection with the Convertible Note and
exercised in connection with the Laurus
Warrants and Laurus Stock Options. Consequently, our consolidated financial
position and results of operations may vary significantly from
quarter-to-quarter, based on factors other than the Company's revenues and
expenses.





F-26


We gave
Laurus registration rights to the shares issuable to Laurus in connection with
the Note, Warrant and Option, pursuant to a Registration Rights Agreement. The
Registration Rights Agreement provided for us to file a Registration Statement
with the Securities and Exchange Commission within 30 days of the Closing;
however, we were able to obtain extensions from Laurus, and as a result, the
filing of our Registration Statement did not cause an event of default to occur.
Additionally, under the Registration Rights Agreement, we agreed to give our
best efforts to obtain effectiveness of our Registration Statement within 120
days of the Closing. We along with Laurus eventually decided to withdraw our
original Registration Statement and as a result, the 120 day period to obtain
effectiveness was amended pursuant to certain amendment agreements. As a result
of the First through Seventh Amendment agreements with Laurus, the date by which
we were required to obtain effectiveness of our Registration Statement by, under
the Registration Rights Agreement, was amended to April 16, 2007.





On
January 17, 2007, we filed an amended Registration Statement with the Securities
and Exchange Commission to register 6,108,501 shares of common stock. The shares
represented a portion of the shares of common stock underlying the Laurus
Warrant to purchase shares of our common stock at an exercise price of $0.80 per
share as well as 250,000 shares of common stock held by Core Concepts, LLC. On
February 12, 2007, the Registration Statement was declared effective by the
Securities and Exchange Commission.





New
Century Energy Corp. is not in default and will not be in default under its
current contractual obligations to register shares of its common stock pursuant
to correspondence received from Laurus. In addition, New Century Energy Corp.
will not incur liquidated damages in connection with any registration
obligations at this time. It is acknowledged and agreed by Laurus, that in
the event that Laurus sells all securities which have been registered on the
registration statement, Laurus may require New Century Energy Corp. to file an
additional registration statement (or statements) to register additional shares
of common stock in the event that Laurus cannot rely on Rule 144 for the sale of
shares issuable upon conversion of its Convertible Note, issuable upon exercise
of its Warrant or Options. New Century Energy Corp. may incur significant
penalties in the future, if it is unable to file additional Registration
Statement(s), if required in the future, and/or if it is unable to gain
effectiveness of such Registration Statement(s). The liquidated damages
provision of the Registration Rights Agreement provides for a penalty of one and
a half (1 1⁄2%) per month of the outstanding balance of the Convertible Note for
each month the Company is deemed to be in default under the Agreement. We
believe, however, that the probability of making such liquidating payments is
remote due to the market price of our stock; the likelihood that Laurus can rely
on Rule 144, the quantity of shares already registered, and the positive
financial relationship we maintain with our primary lender





NOTE 7 -
THIRD ACQUISITION OF MINERAL INTERESTS IN THE LINDHOLM-HANSON GAS UNIT AND
WELLS





On
January 3, 2006, New Century acquired a 1.75% working interest and a 1.3125% net
revenue interest in the Lindholm-Hanson Gas Unit and Wells ("L-H Gas
Unit")("Third Acquisition") in the Wishbone Field in McMullen County, Texas,
located 80 miles south of San Antonio, Texas. The Third Acquisition increased
New Century's working interest and net revenue interest in production from the
L-H Gas Unit to a 15.20% working interest and a 12.2140% net revenue interest.
The effective date of the Third Acquisition was October 1, 2005, with net
revenues for October 2005 split equally between New Century and the seller of
the property, and the cost of the acquired interests was $1,890,000. The L-H Gas
Unit is engaged primarily in the exploration for, and acquisition, development,
and production of, natural gas. The L-H Gas Unit sells its gas production
primarily to domestic pipelines and refineries.




F-27


The
following table summarizes the initial estimated fair values of the assets
acquired and liabilities assumed, which may be adjusted within one year of the
purchase date for changes in estimates of their fair value.







Assets
      acquired:Accounts
      receivable
            
            
            
            
            $
            186,258Lindholm-Hanson
      Gas Unit and WellsLeasehold
      costs
            
            $
            1,567,839Equipment
            
            
            152,0351,719,874Total
      assets acquired
            
            
            
            
            
            
            1,906,132Liabilities
      assumedAccounts
      payable
            
            
            
            
            
            
            16,132Net
      assets acquired
            
            
            
            
            
            $
            1,890,000A
      summary of the acquisition consideration is as follows:Purchase
      price
            
            
            
            
            
            $
            1,890,000Closing
      costs
            
            
            
            
            
            
            16,132L-H
      Gas unit revenue for 2.5 months
            
            
            
            
            
            
            (281,089
            )L-H
      Gas unit expenses for 2.5 months
            
            
            
            
            
            
            94,831$
            1,719,874Less:
      2005 Cash deposit
            
            
            
            
            
            
            (189,000
            )Net
      cash paid in 2006
            
            
            
            
            
            $
            1,530,874







NOTE 8 - OTHER INCOME
(EXPENSE)





For each
of the periods ended December 31, 2007 and December 31, 2006, $59,260 and
$60,815 has been released into Other Income, in connection with the reverse
merger with Vertica in 2004. The release is comprised of settlements with
creditors, the expiration of the statutory four-year aging period, and the
settlement agreement with prior Vertica employees regarding disputed back wages.
As of December 31, 2007, liabilities related to the purchase of the Vertica
shell was zero.





In
February 2007, our Company invested in a natural gas put option for 20,000
thousand British Thermal Units (“Mmbtu’s”) of gas.  The option was
purchased for a "Strike Price" of $7.30 (less $0.70 commission) with
determination periods each month from February 2007 through October 2007. 
The "Floating Price" is calculated approximately three days prior to the
beginning of the determination period.  If the "Strike Price" is greater
than the "Floating Price" for a period, then our company will receive an amount
equal to the excess of the "Strike Price" over the "Floating Price" for each
Mmbtu purchased.  This natural gas put option did not qualify for hedge
accounting for financial reporting purposes, and the company has recognized a
loss on marketable securities of $23,460 for the twelve months ended December
31, 2007.








F-28








NOTE 9 -
INCOME TAXES





The
Company has a net operating loss for financial accounting purposes of
approximately $19,187,000 for the year ended December 31, 2007. The Company has
a potential deferred tax asset of approximately $8,993,166 as a result of the
tax net operating loss and percentage depletion carry forward for December 31,
2007. Due to the uncertainty surrounding the realization of the benefits of its
tax attributes, including net operating loss carry forwards, in future tax
returns, the Company has provided a 100% valuation allowance on its deferred tax
assets. The valuation allowance increased by approximately $6,754,000 for the
year ended December 31, 2007.




The following table sets forth a
reconciliation of the statutory federal income tax for the year ended December
31, 2007 and 2006.





2007
            
            
            2006Loss
      before income taxes
            
            $
            19,187,338
            
            
            $
            (6,097,568
            )Income
      tax expense(benefit)computed
      at statutory rates
            
            $
            (6,523,695
            )
            
            $
            (2,073,173
            )Net
      decrease in fair value of derivativeliabilities
            
            
            (427,902
            )
            
            
            (440,767
            )Loss
      on early extinguishment of debt
            
            
            -
            
            
            
            69,418Permanent
      differences
            
            
            (17,804
            )
            
            
            2,452Increase
      in valuation allowance
            
            
            6,754,263
            
            
            
            2,431,494Other
            
            
            215,138
            
            
            
            10,576Tax
      provision for income taxes
            
            $
            0
            
            
            $
            0




No
federal income taxes have been paid since the inception of the Company. The
Company has a net operating loss and percentage depletion carry forward for
financial reporting purposes of approximately $26,817,666 at December 31, 2007,
which will expire in 2024 through 2027 if not utilized. Section 382 of the
Internal Revenue Code limits net operating loss and tax credit carry forwards
when an ownership change of more than fifty percent of the value of the stock in
a loss corporation occurs within a three-year period.





The tax
effects of the temporary differences between income for financial and income tax
reporting purposes are recognized as a deferred tax assets and liabilities.
Significant components of deferred tax assets and liabilities as of December 31,
2007 are set out below:




2007Deferred
      tax assets:Net
      operating loss and percentage depletion carry forwards
            
            $
            8,993,166Asset
      retirement obligation
            
            
            169,219Valuation
      allowance
            
            
            (10,492,436
            )Tax
      over book amortization of loan costs
            
            
            (119,725
            )Revision
      to net operating loss carry forward
            
            
            230,451Deferred
      tax liabilities:Book
      over tax depreciation, depletionand
      capitalization methods on oiland
      gas properties
            
            
            1,219,325Net
      deferred tax asset
            
            $
            0







F-29


NOTE 10 -
ASSET RETIREMENT OBLIGATION





A summary
of the changes in the asset retirement obligation during 2007 and 2006 is as
follows:




2007
            
            
            2006Carrying
      amount of obligation at beginning of year
            
            $
            391,186
            
            
            $
            305,073Obligations
      incurred
            
            
            50,728
            
            
            
            60,325Accretion
      expense
            
            
            46,015
            
            
            
            33,296Revision
      in estimated liabilities
            
            
            9,775
            
            
            
            (7,508
            )Carrying
      amount of obligation at end of year
            
            $
            497,704
            
            
            $
            391,186







NOTE 11 -
COMMITMENTS AND CONTINGENCIES





Leases





The
Company has entered into a lease for its corporate office in Houston, Texas,
under a third party non-cancelable operating lease through September 30, 2010.
Future minimum lease commitments are as follows as of December 31,
2007:








Years
      ending December 312008
            
            
            36,5072009
            
            
            36,5072010
            
            
            27,3812011
            
            
            0Total
            
            $
            100,395







Rent
expense for 2007 and 2006 were $38,494 and $32,636, respectively.





Litigation





In
February 2005, we received correspondence from four former employees, which
alleged that we owed those former employees approximately $298,000 in accrued
and unpaid wages, payroll taxes and unpaid loans and interest. We settled with
three of the individuals in July 2005 and filed suit against the fourth
individual, our former officer and Director, Hans Nehme, in October 2005, in
Harris County, Texas, alleging that Mr. Nehme agreed to settle the claims by
exchange of written correspondence on May 10, 2005, and later agreed upon the
form of a final settlement, but failed to sign with the other three plaintiffs.
Mr. Nehme filed suit against us on October 21, 2005, which complaint was amended
on November 11, 2005, which claimed he was owed $15,000 in connection with
monies loaned to us, $113,733 in connection with accrued wages, $1,458 in 401(k)
payments that Mr. Nehme claimed he was due, and other damages.





On or
about March 20, 2006, we entered into a Settlement and Release Agreement with
Mr. Nehme (the "Nehme Settlement"). Pursuant to the Nehme Settlement, Mr. Nehme
agreed to all necessary pleadings to dismiss his previously filed lawsuit
against us, with prejudice and we agreed to pay Mr. Nehme $25,483 and to issue
him 100,000 shares of our restricted common stock.




F-30


In
February 2006, the Board of Directors approved the dissolution of ERC Solutions,
Inc., one of our former wholly owned subsidiaries. The State of Delaware
authorized the dissolution on February 9, 2006.





In
February 2008, a demand was made by letter from counsel for J & P Family
Properties, Ltd. and Lara Energy, Inc. (the “Claimants”).  The letter
relates only to Gulf Coast’s McMullen County and Atascosa County properties and
possible acquisitions, all as found in an area outlined on a plat attached to a
Geophysical Exploration Agreement dated January 8, 2004 between Manti Resources,
Inc. and the Claimants, describing an Area of Mutual
Interest.  Claimants contend that pursuant to a June 1, 2006 letter
agreement, Gulf Coast assumed Manti’s obligations to assign overriding royalties
up to 3% on future acquisitions within the referenced area.





The
demand seeks assignments of overriding royalty interest believed in no event to
exceed 3%, and in some cases less, on newly acquired (since June 1, 2006)
acreage together with various forms of information regarding operation, in the
referenced area.  We strongly disputed this claim and are engaged in
an attempt to resolve this matter without arbitration.  If such
efforts are not successful, we believe that arbitration would be the
contractually established method for resolving this dispute.





Other
than the above, the Company is not a party to, and its properties are not the
subject of, any material pending legal proceeding nor to the knowledge of the
Company, are any such legal proceedings threatened.





Employment
Agreements





On or
about December 3, 2007 the Company and Edward R. DeStefano, the Company’s Chief
Executive Officer and President, entered into a Second Amended Executive
Employment Agreement (the “Employment Agreement”).  Pursuant to the
terms of the Employment Agreement, as amended, Mr. DeStefano will receive a
yearly salary of $425,000 for the twelve month period beginning January 1, 2008
and ending December 31, 2008, and a yearly salary of $475,000 for each of the
twelve month periods beginning January 1, 2009 and January 1, 2010, and ending
December 31, 2009 and December 31, 2010, respectively.  Furthermore,
Mr. DeStefano is entitled to a one-time payment in the amount of $20,000, in
connection with Gulf Coast Oil Corporation’s November 2007 closing of the
$7,100,000 in financing for the drilling of up to fourteen wells on its
properties and the New Century closing of the $5,300,000 in financing described
above.  Mr. DeStefano will also receive twenty days of paid time off
per year, and he may be granted, at the sole discretion of the Company’s Board
of Directors, an overriding royalty interest of up to one half of one percent
(0.005%) in connection with any new wells drilled by the Company subsequent to
the date of the Employment Agreement.




In
addition, the Officer may also be granted bonus payments of cash or shares of
the Company's common stock from time to time at the discretion of the Company's
Board of Directors. The Officer may participate in any incentive, discretionary
bonus and stock option plans approved by the Board of Directors.





The
agreement also provides that, in the event the Officer terminates his employment
for good reason, as defined in the agreement, the Officer is terminated without
cause, or a change in control of the Company occurs, the Officer is entitled to
a lump-sum payment of 150% of the full yearly salary then in
effect.




Core
Concepts





On June
6, 2005, we entered into a Settlement Agreement and Mutual Release (the
"Settlement Agreement") with Core Concepts, LLC ("Core Concepts and two former
directors of our company. Pursuant to the terms of the Settlement Agreement, we
agreed to issue two hundred and fifty thousand (250,000) restricted shares of
our Common Stock to Core Concepts in return for Core Concepts and the directors
agreeing to settle their disputes with us. We also granted Core Concepts
piggyback registration rights in connection with the 250,000 shares. These
shares were included in the Registration statement that we filed on January 17,
2007.





F-31


Amended
Viking Agreement


On or
about May 30, 2006, we entered into an Agreement Modifying Prior Geophysical
Interpretation and Exploitation Agreement, with Viking International Petroleum,
L.L.C. ("Viking"), and two individuals (the "Amended Viking Agreement"). The
Amended Viking Agreement amended the terms of the Geophysical Interpretation and
Exploration Agreement dated July 13, 2005, entered into between the parties. The
Amended Viking Agreement provided that approximately $17,919 previously paid to
Viking represented the full amount of consideration owed to Viking under the
original agreement.





Pursuant
to the Amended Viking Agreement, we agreed that Viking has the right but not the
obligation to participate for between 10% and up to 50% of the working interest
on a wellbore only basis of any new production well drilled on the acreage
covered by the Amended Viking Agreement, subject to the terms and conditions of
the original agreement. Additionally, we agreed that if a well is completed in
the area covered by the agreement and a subsequent well is proposed within 1200
feet of the original well that (a) drains the same reservoir or (b) develops a
behind-pipe reservoir identified in the original well and in the same fault
block as the original well, then Viking has the right to participate in that
well under the same terms as well. Additionally, the Amended Viking Agreement
provided that such royalty interests to be assigned on any new well bores will
be subject to certain overriding royalty interests as provided in the Amended
Viking Agreement.





Additionally,
pursuant to the Amended Viking Agreement, we agreed to issue an aggregate of
200,000 restricted shares of common stock, 100,000 shares each to two
individuals. With such issuance, the individuals agreed, pursuant to a Lock-Up
Agreement not to sell their restricted shares of common stock until July 1,
2008, to comply with Laurus' Convertible Note restrictions on our ability to
issue shares of common stock without affecting the Fixed Conversion Price of the
Convertible Note (see note 5).




NOTE 12 -
OTHER STOCKHOLDERS' EQUITY TRANSACTIONS





Common
stock





In March
2006, New Century Energy Corp. issued 100,000 shares of restricted common stock
as part of a Settlement and Release Agreement with Hans Nehme, a former officer
and director. (see Note 11)





In June
2006, in connection with our entry into an amended agreement with Viking
International Petroleum, L.L.C., we issued an aggregate of 200,000 shares of our
restricted common stock to two individuals, who have agreed not to sell the
shares of common stock until after July 1, 2008. (see Note 11)





Articles
of Amendment to Our Articles of Incorporation





We filed
Articles of Amendment (the "Amendment") to our Articles of Incorporation with
the Secretary of State of Colorado, on June 12, 2006. The Amendment increased
our authorized shares to Two Hundred Million (200,000,000) shares of common
stock, re-authorized the par value of $0.001 per share of common stock,
re-authorized Twenty Million (20,000,000) shares of preferred stock, and
re-authorized the par value of $0.001 per share of preferred stock.





The
Amendment was approved at our Special Meeting of Shareholders, held on June 12,
2006 (the "Meeting"). The number of shares of our common stock outstanding as of
the record date of the Meeting, May 9, 2006, was 55,810,612.





F-32


Options
and Warrants





Activity
      in 2007
            
            Options
            
            
            WarrantsOutstanding,
      1/1/2007
            
            
            11,609,176
            
            
            
            8,158,065Granted
            
            
            0
            
            
            
            0Exercised
            
            
            0
            
            
            
            0Expired
      or cancelled
            
            
            0
            
            
            
            0Outstanding,
      end of year
            
            
            11,609,176
            
            
            
            8,158,065Exercisable,
      end of year
            
            
            11,609,176
            
            
            
            8,158,065Available
      for grant, end of year
            
            
            0
            
            
            
            0





The
weighted average option and warrant exercise price information for 2007 is as
follows:





Activity
      in 2007
            
            Options
            
            
            WarrantsOutstanding,
      beginning of year
            
            $
            0.001
            
            
            $
            0.80Granted
      during the year
            
            $
            -
            
            
            $
            -Exercised
      during the year
            
            $
            -
            
            
            $
            -Expired
      or cancelled during the year
            
            $
            -
            
            
            $
            -Outstanding
      at end of year
            
            $
            0.001
            
            
            $
            0.80Exercisable
      at end of year
            
            $
            0.001
            
            
            $
            0.80





Significant
option and warrant groups outstanding at December 31, 2007, and related weighted
average exercise price and remaining life information is as
follows:





Grant
      date
            
            Options
            
            Warrants
            
            Exercisable
            
            WeightedRemaining
      Life (Years)
            
            Outstanding
            
            Outstanding
            
            Options
            
            Warrants
            
            Exercise
      PriceJune
      30, 2005 (indefinite)
            
            
            6,547,784
            
            
            
            
            6,547,784
            
            
            
            $
            0.001June
      30, 2005 (5.50)
            
            
            
            
            7,258,065
            
            
            -
            
            7,258,065
            
            $
            0.800June
      30, 2005 (1.50)
            
            
            
            
            900,000
            
            
            -
            
            900,000
            
            $
            0.800December
      30, 2005 (indefinite)
            
            
            5,061,392
            
            
            
            
            5,061,392
            
            
            
            $
            0.001As
      ofDecember
      31, 2007
            
            
            11,609,176
            
            8,158,065
            
            
            11,609,176
            
            8,158,065





At
December 31, 2006, approximately 44.0 million shares of common stock were
reserved for issuance under the Convertible Note, the Laurus Stock Option, the
Laurus Warrant, the ECS Warrant and the Laurus December Option. Additionally, 10
million and 5.2 million shares of common stock were reserved for issuance under
the 2007 Stock Incentive Plan and the 2004 Stock Plan (see Note
14),  respectively.





On
January 17, 2007, we filed an amended Registration statement with the SEC to
register 6,108,501 shares of Common Stock. The shares represent a portion of the
shares of common stock underlying the Laurus Warrant to purchase our shares of
common stock at an exercise price of $0.80 per share pursuant to the terms of
the Secured Convertible note (see Notes 5 and 6), as well as 250,000 shares of
common stock currently
held by Core Concepts, LLC (see Note 11). On February 12, 2007, the registration
statement was declared effective by the SEC.




F-33


New
Century Energy Corp. is not in default under its current contractual obligations
to register shares of New Century Energy Corp. common stock.  In addition,
New Century Energy Corp. will not incur liquidated damages in connection with
any registration obligations at this time. It is acknowledged and agreed by
the parties, that in the event that Laurus sells all securities which have been
registered on the registration statement, Laurus may require New Century Energy
Corp. to file an additional registration statement to register additional shares
in the event that Laurus cannot rely on Rule 144 in connection with the sale of
the shares of common stock issuable in connection with the conversion of the
Convertible Note, and exercise of the Warrant, Option or December
Option. New Century Energy Corp. may incur significant penalties if it is
unable to file an additional Registration Statement and/or to gain effectiveness
of such registration statement in the future.





NOTE 13
-LOSS PER SHARE





Basic
loss per share is computed by dividing net loss attributable to common stock by
the weighted average number of common shares outstanding during each
period.





In
calculating diluted earnings per share using the “if converted” method, the
Company “adds back” to net income or loss the interest expense on its Second
Amended and Restated Convertible Note (the “Convertible Note”)(see Note 5)and
the effect of the change in the fair value of the embedded derivatives within
the Convertible Note (see Note 6). The effect of each derivative is considered
individually. The denominator can also change as the related number of weighted
average shares may be affected. Options and warrants only have a dilutive effect
if the average market price of the common stock during the period exceeds the
exercise price (“in the money”) For potential dilutive options or warrants that
are dilutive, the treasury stock method is applied to determine the number of
weighted average shares to be included as dilutive earnings or loss per
share.





In 2007
and 2006, the impact of the derivatives and interest from the Convertible Note
was antidilutive and therefore, basic and dilutive EPS were the
same.  At December 31, 2007, options and warrants to purchase
19,767,241 shares of common stock at exercise prices ranging from $0.001 to
$0.80 per share were outstanding, but were not included in the computation of
diluted earnings per share as their effect would be antidilutive.





The
following table sets forth the computation of basic and diluted loss per common
share for 2007 and 2006:







For
      the years ended December 31,
            
            2007
            
            
            2006Numerator
      for basic and dilutedloss
      per common share
            
            $
            (19,187,338
            )
            
            $
            (6,097,568
            )Denominator
      for basic and  diluted loss percommon
      share56,010,612
            
            
            
            55,909,790Basic
      and diluted loss per common share
            
            $
            (0.34
            )
            
            $
            (0.11
            )






F-34


NOTE 14 -
EMPLOYEE BENEFIT PLANS





401(k)
Plan





Our
Company has an employee benefit plan available to all full-time employees under
Section 401(k) of the Internal Revenue Code ("401(k) plan"). Employees may make
contributions up to a specified percentage of their compensation. The Company is
not obligated to make contributions under the 401(k) plan.  In
addition, the Company made $3,312 and $2,750 in matching employer contribution
to the 401(k) Plan in 2007 and 2006.





2004
Directors, Officers and Consultants Stock Option, Common Stock Warrant and Stock
Award Plan ("2004 Stock Plan")





On
December 8, 2004, the Company registered 9,700,000 shares of its common stock
for its 2004 Stock Plan. The aggregate number of shares that may be optioned
subject to conversion or issued under the 2004 Stock Plan is 13,000,000 shares
of common stock, warrants, options, preferred stock, or any combination thereof
("Company Securities"). The Company's Board of Directors administers the 2004
Stock Plan and has sole discretionary authority to describe, authorize and
designate the directors, employees and consultants who will be granted
securities under the 2004 Stock Plan. As of December 31, 2007, there were no
options or warrants granted or outstanding under the 2004 Stock
Plan.







2004
      Stock Plan activity
            
            2007
            
            2006Beginning
      of year
            
            5,150,000
            
            5,150,000Issued
      stock for services
            
            -
            
            -Remaining
      shares available toIssue
      at end of year
            
            5,150,000
            
            5,150,000




2000
Stock Incentive Plan, 2002 Stock Incentive Plan and 2004 Stock Incentive
Plan





On
October 9, 2007, at an annual meeting of stockholders of the Company, the
Company’s majority shareholder, Edward R. DeStefano, also the Company’s sole
officer and Director, ratified the Company’s 2007 Stock Incentive Plan and
approved the cancellation of the Company’s previously adopted 2000 Stock
Incentive Plan, 2002 Stock Incentive Plan and 2004 Stock Incentive Plan, without
affecting any of the securities issued or granted pursuant to such
plans.  As of December 31, 2007, there were no options or warrants
granted or outstanding under the 2000 Stock Incentive Plan, 2002 Stock Incentive
Plan and 2004 Stock Incentive Plan.





2007
Stock Incentive Plan





The
Company’s 2007 Stock Incentive Plan, which includes a total of up to ten million
(10,000,000) shares or options provides an opportunity for any employee,
officer, Director or consultant of the Company, except for instances where
services are in connection with the offer or sale of securities in a
capital-raising transaction, or they directly or indirectly promote or maintain
a market for the Company's securities, subject to any other limitations provided
by federal or state securities laws, to receive (i) incentive stock options (to
eligible employees only); (ii) nonqualified stock options; (iii) restricted
stock; (iv) stock awards; (v) shares in performance of services; or (vi) any
combination of the foregoing. In making such determinations, the Board of
Directors may take into account the nature of the services rendered by such
person, his or her present and potential contribution to the Company's success,
and such other factors as the Board of Directors in its discretion shall deem
relevant.  As of December 31, 2007, there were no options or warrants
granted or outstanding under the 2007 Stock Incentive Plan.




F-35


NOTE 15 -
CONCENTRATIONS





Major
Purchaser





During
2007, New Century’s operated properties had two purchasers who accounted for
100% of crude oil sales and two different purchasers who accounted for 100% of
sales of natural gas products. New Century’s non-operated properties had yet
another purchaser who individually accounted for 100% of sales of all natural
gas production for the same periods of 2007 and 2006.





Predominance
of Sales





In 2007
and 2006, crude oil sales accounted for 79% and 54%, respectively, and sales of
natural gas products accounted for 21% and 46%, respectively, of total revenue
from oil and gas operations.





Primary
lenders




With the
exception of $8.7 million in assignments to affiliates of Laurus, described
below, and $12.4 million in new loans during 2007, the remainder of our
outstanding notes payable totaling $55.3 million as of December 31, 2007 are
due, on various dates during the next three years to Laurus Master Fund, LTD.
and its affiliates.   Laurus and its affiliate, Valens Offshore
Fund SPV I, Ltd, accounted for 73% and 11% of the outstanding notional debt
balances at December 31, 2007, respectively.  (See Notes 3 and
5).  From July to December 2007, Laurus notified us that it had
assigned to various related parties of Laurus a portion of three of our six
notes payable as detailed below.  Laurus has acknowledged that none of
our rights and obligations under the notes which were assigned would be affected
by such assignments.





Second
      Amended And Restated Secured Term
            
            $
            844,968December
      2006 Secured Term
            
            
            3,417,597Gulf
      Coast
            
            
            4,427,065Total
      assignments of notes payable
            
            $
            8,689,630




In
January and February of 2008, Laurus notified us that it had assigned an
additional $4,932,098 of the December 2006 Secured Term Note to various related
parties of Laurus.  Also, in January 2008, Laurus notified us that it
had made two sub-assignments of a prior assignment from the Gulf Coast Note
totaling $659,442 to various related parties of Laurus.  Laurus has
acknowledged that none of our rights and obligations under the notes are be
affected by such assignments.





NOTE 16 -
SUPPLEMENTAL OIL AND GAS INFORMATION (Unaudited)





Capitalized
Costs





Capitalized
costs incurred in property acquisition, exploration, and development
activities:




December
      31, 2007Proved
      properties
            $
            62,216,668Unproved
      properties
            
            903,738Wells
      and related equipment and facilities
            
            7,382,192$
            70,502,598Less
      accumulated depreciation, depletion,


amortization
      and impairment
            
            (30,941,996
            )Net
      capitalized costs
            $
            39,560,602







F-36


Costs
incurred for property acquisition, exploration, and development
activities.




Year ended December
      31,2007
            
            
            2006Acquisition
      of properties-Proved
            
            $
            -
            
            
            $
            34,318,093-Unproved
            
            
            484,832
            
            
            
            346,416Exploration
      costs
            
            
            1,960,977
            
            
            
            1,116,058Development
      costs
            
            
            6,514,772
            
            
            
            3,465,334Total
      costs incurred for propertyacquisition,
      exploration, anddevelopment
      activities
            
            $
            8,960,581
            
            
            $
            39,245,901




Results
of Operations for oil and gas producing activities:




Year
      ended December 31,2007
            
            
            2006Oil
      and gas sales
            
            $
            13,612,303
            
            
            $
            14,863,728Gain
      on sale of oil and gas interest
            
            
            34,680
            
            
            
            44,766Gas
      operations consulting
            
            
            36,930
            
            
            
            18,708Production
      costs
            
            
            (3,571,614
            )
            
            
            (2,213,201
            )Exploration
      expenses
            
            
            (1,960,977
            )
            
            
            (1,128,134
            )Depreciation,
      depletion and amortization
            
            
            (8,138,310
            )
            
            
            (9,737,889
            )Impairment
      of oil and gas properties (a)
            
            
            (10,211,390
            )
            
            
            -(10,198,378
            )
            
            
            1,847,978Income
      tax expense, 34% rate
            
            
            -
            
            
            
            (628,313
            )Results
      of operations for oil andgas
      producing activities (excludingcorporate
      overhead and financing costs)
            
            $
            (10,198,378
            )
            
            $
            1,219,665




(a) We recognized an impairment of proved
properties at December 31, 2007 of $10,211,390 as a result of a significant
reduction in proved reserves in our Wishbone field.  During 2007, the
Company’s proved gas reserves in the Wishbone Field were decreased by
57%.  The majority of this reduction, approximately ninety percent
(90%), was due to a significant reduction in future proved undeveloped (PUD)
locations projected to be drilled.  This reduction was based on the
operator’s indication that only one more PUD may be drilled due to current high
drilling costs and lower product prices.  In addition, the decline
rate associated with the existing proved developed producing (PDP) gas reserves
was steeper than previously projected, which contributed to approximately ten
percent (10%) of the decrease in the proved reserves in this
field.





F-37


Reserve
Information





The
following estimates of proved developed reserve quantities and related
standardized measure of discounted net cash flow are estimates only, and do not
purport to reflect realizable values or fair market values of New Century's
reserves. New Century emphasizes that reserve estimates are inherently
imprecise. Accordingly, these estimates are expected to change as future
information becomes available. All of New Century's reserves are located in
Texas and Louisiana, which are considered a single geographic area.





Proved
reserves are estimated reserves of crude oil (including condensate and natural
gas liquids) and natural gas that geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved developed
reserves are those expected to be recovered through existing wells, equipment,
and operating methods.





The
standardized measure of discounted future net cash flows is computed by applying
year-end prices of oil and gas (with consideration of price changes only to the
extent provided by contractual arrangements) to the estimated future production
of proved oil and gas reserves, less estimated future expenditures (based on
year-end costs) to be incurred in developing and producing the proved reserves,
less estimated future income tax expenses (based on year-end statutory tax
rates) to be incurred on pretax net cash flows less tax basis of the properties
and available credits, and assuming continuation of existing economic
conditions. The estimated future net cash flows are then discounted using a rate
of 10 percent a year to reflect the estimated timing of the future cash
flows.




2007
            
            2006Oil
            
            Gas
            
            Oil
            
            Gas(Bbls)
            
            (MMcf)
            
            (Bbls)
            
            (MMcf)Proved
      developed and undeveloped reservesBeginning
      of year
            
            
            858,423
            
            7,187
            
            121,067
            
            8,062Revisions
      of previous estimates
            
            
            667,606
            a
            (3,693
            )c
            (45,852
            )d
            (1,022
            )Purchases
      of minerals in place
            
            
            -
            
            -
            
            952,399
            e
            1,215Production
            
            
            (146,579
            )
            (453
            )
            (190,846
            )
            (1,068
            )Extensions
      and discoveries
            
            
            233,774
            b
            -
            
            21,655
            f
            -End
      of the year
            
            
            1,613,224
            
            3,041
            
            858,423
            
            7,187Proved
      developed reservesBeginning
      of year
            
            
            790,800
            
            2,131
            
            121,067
            
            4,517End
      of year
            
            
            1,398,912
            
            2,214
            
            790,800
            
            2,131





a
            The
      upward revision of previous estimates by 667,606 net barrels is primarily
      a result of changes in three wells.  First, the Herrera #4 well
      and the Hodde #3 wells have new proved behind pipe and proved undeveloped
      reserves of 144,493 and 154,358 net barrels of oil, respectively, per the
      December 31, 2007 reserve report prepared by R.A. Lenser (the “Lenser
      Report”).  Secondly, the Hodde #1 well’s proved producing
      reserves increased from 76,525 net barrels per the December 31, 2006
      Lenser Report to 341,977 net barrels per the December 31, 2007 Lenser
      Report.b
            In
      2007, we drilled six new wells in the Mustang Creek Field which resulted
      in additions to our proved reserves at December 31, 2007.  Their
      total proved reserves per the December 31, 2007 Lenser Report were as
      follows (note that the Double K#4 and Double K#5 are combined on the
      Lenser Report):





ProvedWell
            ReservesRabke
      #2
            30,491Swaim
      58-2
            46,351Swaim
      33-2
            67,580Double
      K#4
            74,297Mahoney
      #2
            15,055Total
            233,774







F-38


c
            The
      downward revision of previous estimates by 3,693 net MMCf of gas is
      primarily the result of changes in the gas reserves in the Wishbone
      Field.  During 2007, the Company’s proved gas reserves in the
      Wishbone Field were decreased by 57%.  The majority of this
      reduction, approximately ninety percent (90%), was due to a significant
      reduction in future proved undeveloped (PUD) locations projected to be
      drilled.  This reduction was based on the operator’s indication
      that only one more PUD may be drilled due to current high drilling costs
      and lower product prices.  In addition, the decline rate
      associated with the existing proved developed producing (PDP) gas reserves
      was steeper than previously projected, which contributed to approximately
      ten percent (10%) of the decrease in the proved reserves in this
      field.d
            The
      downward revision of  previous estimates by 45,852 net barrels
      is a result of two revisions.  First, there was a downward
      revision of 112,324 net barrels resulting from the unsuccessful drilling
      of a PUD location, the Kassner #3 well.  When the Company
      acquired the Mustang Creek Field oil reserves in 2006, we attributed
      proved undeveloped reserves to this location and, as a result of the
      unsuccessful well, it is necessary to subtract these net barrels from our
      proved reserve base.  Second, there were upward revisions in the
      reserve estimates for several of our wells from our January 1, 2006
      reserve report to our December 31, 2006 reserve report which accounted for
      the remaining 66,472 net barrel increase in previous
      estimates.e
            The
      significant increase in purchase of minerals in place is attributable to
      the acquisition of the Mustang Creek assets in April and June of
      2006.f
            In
      2006, we drilled one productive exploratory well, the Rabke Maspero Unit
      Well #2.  Drilling of this well was finalized on December 14,
      2006 and the well was logged on December 14, 2006.  Due to local
      flooding, testing and completion of this new well did not take place until
      February, 2007.  Testing of this well was conducted on February
      28, 2007 and confirmed initial oil production of 72 Bopd.  The
      December 31, 2006 Lenser Report attributed 21,655 net barrels to New
      Century in this new well.




Standardized
      Measure of Discounted FutureNet
      Cash Flows at December 31, 2007 and 2006 (in $000's)2007
            
            
            2006Future
      cash inflows
            
            $
            166,693
            
            
            $
            98,529Future
      production costs
            
            
            (34,036
            )
            
            
            (18,042
            )Future
      development costs
            
            
            (2,250
            )
            
            
            (4,994
            )Future
      income tax expenses, at 34%
            
            
            (16,071
            )
            
            
            (3,743
            )Future
      gross cash flows
            
            
            114,336
            
            
            
            71,750Less:
      10% annual discount forestimated
      timing of cash flows
            
            
            (34,304
            )
            
            
            (20,184
            )Standardized
      measures of discounted future net cash flowsrelating
      to proved oil and gas reserves
            
            $
            80,032
            
            
            $
            51,566







F-39





The
following reconciles the change in the standardized measure of discounted future
net cash flow during 2007 and 2006.




2007
            
            
            2006Beginning
      of year
            
            $
            51,566
            
            
            $
            37,049Sales
      of oil and gas produced, net of production costs
            
            
            (11,035
            )
            
            
            (12,600
            )Net
      changes in sales price, net of production costs
            
            
            33,416
            
            
            
            (22,635
            )Development
      cost incurred during the periods that reduced future development
      costs
            
            
            698Extensions
      and discoveries, net of development costs
            
            
            13,815
            
            
            
            -Purchase
      of reserves in place
            
            
            -
            
            
            
            51,248Accretion
      of discount
            
            
            2,018
            
            
            
            1,686Net
      changes in estimated future development costs
            
            
            (1,271
            )
            
            
            222Revisions
      of previous quantity estimates
            
            
            2,436
            
            
            
            (8,132
            )Changes
      in future income tax expense
            
            
            (951
            )
            
            
            4,759Changes
      in production rates and other
            
            
            (10,660
            )
            
            
            (31
            )End
      of year
            
            $
            80,032
            
            
            $
            51,566







NOTE 17 -
SUBSEQUENT EVENTS





In
January and February of 2008, Laurus notified us that it had assigned an
additional $4,932,098 of the December 2006 Secured Term Note to various related
parties of Laurus.  Also, in January 2008, Laurus notified us that it
had made two sub-assignments of a prior assignment from the Gulf Coast Note
totaling $659,442 to various related parties of Laurus.  Laurus has
acknowledged that none of our rights and obligations under the notes are be
affected by such assignments.





In
February 2008, a demand was made by letter from counsel for J & P Family
Properties, Ltd. and Lara Energy, Inc. (the “Claimants”).  The letter
relates only to Gulf Coast’s McMullen County and Atascosa County properties and
possible acquisitions, all as found in an area outlined on a plat attached to a
Geophysical Exploration Agreement dated January 8, 2004 between Manti Resources,
Inc. and the Claimants, describing an Area of Mutual
Interest.  Claimants contend that pursuant to a June 1, 2006 letter
agreement, Gulf Coast assumed Manti’s obligations to assign overriding royalties
up to 3% on future acquisitions within the referenced area.





The
demand seeks assignments of overriding royalty interest believed in no event to
exceed 3%, and in some cases less, on newly acquired (since June 1, 2006)
acreage together with various forms of information regarding operation, in the
referenced area.  We strongly disputed this claim and are engaged in
an attempt to resolve this matter without arbitration.  If such
efforts are not successful, we believe that arbitration would be the
contractually established method for resolving this dispute.





F-40





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




(i)
            On
      January 22, 2007, we were informed by Helin, Donovan, Trubee &
      Wilkinson, LLP (“HDTW”), our independent registered public accounting
      firm, as follows:




(1)
            HDTW
      had consummated a merger with Pohl, McNabola, Berg & Co., LLP (“PMB”).
      PMB is located in San Francisco, California, and is also registered with
      the Public Company Accounting Oversight Board (United States). The name of
      the post-merger firm is PMB Helin Donovan, LLP
  (“PMB+HD”).




(ii)
            HDTW’s
      report on our consolidated financial statements as of and for the year
      ended December 31, 2005 did not contain an adverse opinion or a disclaimer
      of opinion, nor was either such report qualified or modified as to
      uncertainty, audit scope or accounting
  principles.




(iii)
            The
      report of HDTW on the Company’s financial statements for the most recent
      fiscal year ending December 31, 2005, did not contain an adverse opinion
      or a disclaimer of opinion, nor was such report qualified or modified as
      to uncertainty, audit scope or accounting
  principles.




(1)
            During
      the year ended December 31, 2005, and through January 22, 2007, there were
      no disagreements with HDTW on any matter of accounting principles or
      practices, financial statement disclosure, or auditing scope or procedure,
      which disagreements, if not resolved to the satisfaction of HDTW, would
      have caused them to make reference thereto in their report on the
      financial statements for such year.




(2)
            During
      the year ended December 31, 2005, and through January 22, 2007, there were
      been no reportable events (as defined in Regulation S-B
      Item 304(a)(1)(iv)(B)).




(iv)
            The
      Company has requested that HDTW furnish it with a letter addressed to the
      Securities and Exchange Commission stating whether or not HDTW agrees with
      the above statements. A copy of HDTW’s letter required by
      Item 304(a)(3) of Regulation S-B is incorporated by reference as
      exhibit 16.3 hereto.





(2)
            During
      the Company’s two most recent fiscal years and through January 22, 2007,
      neither the Company, nor anyone on its behalf, consulted with PMB
      regarding either the application of accounting principles to a specified
      transaction, either completed or proposed; or the type of audit opinion
      that might be rendered on the Company’s financial statements; or any
      matter that was either a subject of disagreement (as defined in
      Item 304(a)(1)(iv)(A) of Regulation S-B and the related instructions
      to that Item) or a reportable event (as described in
      Item 304(a)(1)(iv)(B) of Regulation
S-B).





ITEM
8A. CONTROLS AND PROCEDURES





(a)
Evaluation of disclosure controls and procedures. Our Chief Executive Officer
and Principal Financial Officer, after evaluating the effectiveness of our
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by
this Annual Report on Form 10-KSB (the "Evaluation Date"), were unable to
conclude that as of the Evaluation Date, our disclosure controls and procedures
are effective to provide reasonable assurance that information we are required
to disclose in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission rules and forms. We believe that we
will have effective internal controls to meet this requirement prior to the
filing of our annual report for the year ended December 31, 2008.





-60-


(b)
Changes in internal control over financial reporting. There were no changes in
our internal control over financial reporting during our most recent fiscal
quarter that materially affected, or were reasonably likely to materially
affect, our internal control over financial reporting.




Item 8A(T).  Controls and
Procedures





Controls
and Procedures





Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits under the Exchange Act is accumulated and
communicated to the issuer’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. As noted
below, we were unable to conclude that our disclosure controls and procedures
are effective, as of the end of the period covered by this report (December 31,
2007), in ensuring that material information that we are required to disclose in
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC rules and
forms. We believe that we will have effective internal controls to meet this
requirement prior to the filing of our annual report for the year ended December
31, 2008.





Changes
in Internal Control Over Financial Reporting





There
were no changes in our internal control over financial reporting during our most
recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.





Management’s
Annual Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
as a process designed by, or under the supervision of, a company’s principal
executive and principal financial officers and effected by a company’s board of
directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. Our internal control over financial reporting includes
those policies and procedures that: (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of consolidated financial
statements in accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the
consolidated financial statements.





As a
result of recent changes in the finance and accounting management of the Company
and other factors, we did not have a reasonable period of time to design,
implement and test compliance of our internal control over financial reporting.
As a result, this annual report does not include an assessment by our management
of our internal control over financial reporting as of December 31, 2007, as
noted above.





We are
committed to maintaining disclosure controls and procedures that are designed to
ensure that information required to be disclosed by us in the reports that we
file or submit to the Securities and Exchange Commission under the Exchange Act,
is recorded, processed, summarized and reported within the time periods
specified by the Securities and Exchange Commission’s rules and forms, and that
information is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate, to allow
timely decisions regarding required disclosure. We are in the process of
designing such internal controls and procedures over financial
reporting.





-61-


This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual
report.





ITEM 8B. OTHER
INFORMATION.





The
Company has previously received comments from the Commission regarding its oil
and gas disclosures and reserve information in its Form 10-KSB annual report for
the period ended December 31, 2006.  The Company is currently working
with the Commission to resolve those comments and anticipates filing an amended
report on Form 10-KSB for the period ended December 31, 2006, shortly after the
filing of this report.





Cautionary Note to
Investors:





We
previously became aware of a potential stock scam regarding the proposed
purchase of shares of our common stock from offshore investors. At least one
investor has been contacted by a third party offering to purchase the shares of
our common stock which that investor holds for well over the current market
price of our common stock. However, the third party also requests certain legend
removal fees and transaction fees which must be paid up front before moving
forward with the sale of the common stock. We believe these offers to buy shares
of our common stock are fraudulent and that such third parties will not honor
their sales once they receive their substantial up front costs. We urge any
investor in the Company to only make sales of common stock through licensed
broker/dealers and/or to consult with a licensed broker before signing any
unsolicited purchase agreements they may receive.





-62-





PART
III





ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT





The
following table sets forth the name, age and position of our director and
executive officers. There are no other persons who can be classified as a
promoter or controlling person of us. Our officers and director are as
follows:







Name
            Age
            PositionEdward
      R. DeStefano
            55
            Chief
      Executive Officer,President,
      Secretary, Treasurer and DirectorKen
      Cleveland
            41
            Chief
      Financial Officer







EDWARD
R. DESTEFANO


Chief
Executive Officer, President, Secretary, Treasurer and Director





Edward R.
DeStefano has served as our Chief Executive Officer, President, Secretary,
Treasurer and Director since November 2, 2004. From November 2, 2004 to January
31, 2008, Mr. DeStefano also served as Chief Financial Officer of the
Company.  Mr. DeStefano has served as the Chief Executive Officer of
Century Resources, Inc. since June 1985, which company became our wholly owned
subsidiary in connection with the Exchange, discussed below under "Description
of Business". From June 1981 to June 1985, Mr. DeStefano served as the Director
of Operations of Aracca Petroleum Corporation. From January 1976 to June 1981,
Mr. DeStefano was employed as an exploration associate with Gulf Oil
Corporation. Mr. DeStefano obtained a Bachelors of Science degree from Ithaca
College in 1975. He completed additional course work in Energy Economics at the
University of Houston in 1980. Mr. DeStefano is a member of the Houston
Geological Society, North Texas Oil and Gas Association, Society of Petroleum
Engineers, and the American Association of Petroleum Geologists.








KEN
CLEVELAND


Chief
Financial Officer





Ken
Cleveland has served as our Chief Financial Officer since January 31, 2008. Mr.
Cleveland is also currently a financial consultant for Agility Business
Partners, LLC, a provider of financial and regulatory consulting to microcap and
smaller public companies.  Mr. Cleveland has been employed by Agility
since January, 2008. Prior to joining Agility, Mr. Cleveland served as a
financial consultant with Sirius Solutions, LLP. from February 2004 until
January 2008.  From May 2002 to January 2004, Mr. Cleveland
served as Vice President of Finance and as Chief Financial Officer of RhinoPak,
L.P.  From November 1999 to May 2002, Mr. Cleveland served as
Controller of NeworkOil, Inc.  From April 1994 to November 1999, Mr.
Cleveland held various financial management positions for several private and
publicly traded companies. Prior to that, he was with the big four accounting
firm Ernst & Young for five years, from September 1989 to April 1994. Mr.
Cleveland holds a BBA degree from the Baylor University, which he received in
1989, and is a Certified Public Accountant.





Our
Director will hold office until the next annual meeting of the shareholders,
and/or until his successor has been elected and qualified. Our officers were
elected by the Board of Directors and hold office at the pleasure of the
Board.





-63-


SECOND
AMENDED EXECUTIVE EMPLOYMENT AGREEMENT WITH EDWARD R. DESTEFANO





On or
about December 3, 2007, the Company and Edward R. DeStefano, the Company’s Chief
Executive Officer and President, entered into a Second Amended Executive
Employment Agreement (the “Employment Agreement”).  Pursuant to the
terms of the Employment Agreement, as amended, Mr. DeStefano will receiver a
yearly salary of $425,000 for the twelve month period beginning January 1, 2008
and ending December 31, 2008, and a yearly salary of $475,000 for each of the
twelve month periods beginning January 1, 2009 and January 1, 2010, and ending
December 31, 2009 and December 31, 2010, respectively.  Furthermore,
Mr. DeStefano was entitled to a one-time payment in the amount of $20,000, in
connection with Gulf Coast Oil Corporation’s November 2007 closing of the
$7,100,000 in financing for the drilling of up to fourteen wells on its
properties and the New Century closing of the $5,300,000 in financing described
above.  Mr. DeStefano will also receive twenty days of paid time off
per year, and he may be granted, at the sole discretion of the Company’s Board
of Directors, an overriding royalty interest of up to one half of one percent
(0.005%) in connection with any new wells drilled by the Company subsequent to
the date of the Employment Agreement.





Under the
Employment Agreement, we agreed to indemnify and hold harmless Mr. DeStefano,
his nominees and/or assigns against any and all losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs, expenses and
disbursements (incurred in any and all actions, suits, proceedings and
investigations in respect thereof and any and all legal and other costs,
expenses and disbursements in giving testimony or furnishing documents in
response to a subpoena or otherwise), including without limitation, the costs,
expenses and disbursements, as and when incurred, of investigating, preparing or
defending any such action, suit, proceeding or investigation that is in any way
related to his employment with us (whether or not in connection with any action
in which he is a party). Such indemnification does not apply to acts performed
by Mr. DeStefano, which are criminal in nature or a violation of law. We also
agreed that he shall not have any liability (whether direct or indirect, in
contract or tort, or otherwise) to us, for, or in connection with, the
engagement of Mr. DeStefano under the Employment Agreement, except to the extent
that any such liability resulted primarily and directly from his gross
negligence and willful misconduct.





The
Employment Agreement shall terminate:




(a) in
the event Mr. DeStefano suffers an injury, illness, or incapacity of such
character as to prevent him from performing his duties without reasonable
accommodation for a period of more than thirty (30) consecutive days upon us
giving at least thirty (30) days written notice of termination to
him;





(b) upon
Mr. DeStefano's death;





(c) at
any time because of, (i) the conviction of Mr. DeStefano of an act or acts
constituting a felony or other crime involving moral turpitude, dishonesty or
theft or fraud; or (ii) his gross negligence in the performance of his duties
hereunder;





(d) Mr.
DeStefano may terminate his employment for "good reason" by giving us ten (10)
days written notice if: (i) he is assigned, without his express written consent,
any duties materially inconsistent with his positions, duties, responsibilities,
or status with us, or a change in his reporting responsibilities or titles as in
effect as of the date hereof; (ii) his compensation is reduced; or (iii) we do
not pay any material amount of compensation due hereunder and then fail either
to pay such amount within the ten (10) day notice period required for
termination hereunder or to contest in good faith such notice; or





(e) at
any time without cause.





In the
event of the termination of Mr. DeStefano's employment pursuant to (a), above,
he will be entitled to a one time lump sum payment equal to 50% of the full
Yearly Salary then in effect in addition to all payments
of salary earned through the date of termination, which shall be immediately due
and payable (plus life insurance or disability benefits).





-64-


In the
event of the termination of Mr. DeStefano's employment pursuant to (b) or (c)
above, he will be entitled only to the compensation earned by him as of the date
of such termination (plus life insurance or disability benefits).





In the
event of Mr. DeStefano's termination pursuant to (d) or (e) above, he will be
entitled to receive as severance pay, a one time lump sum payment equal to 150%
of the full Yearly Salary then in effect, in addition to all payments of salary
earned through the date of such termination, which shall be immediately due and
payable; provided however, that any severance payment is contingent upon the
execution by Mr. DeStefano of a Settlement Agreement and Mutual Release
releasing us from any and all obligations under the Employment
Agreement.





AGILITY
AGREEMENT





The
Company named Ken Cleveland as Acting Chief Financial Officer effective January
31, 2008. Mr. Cleveland is employed by Agility Financial Partners, LLC
(“Agility”), which entered into an agreement with the Company regarding the
employment of Mr. Cleveland (the “Agility Agreement”).  Pursuant to
the Agility Agreement, the Company agreed to pay Agility $150 per hour for Mr.
Cleveland’s services to the Company and to pay Agility a placement fee equal to
25% of the annualized compensation of Mr. Cleveland, should the Company hire Mr.
Cleveland as a full time employee during the first six months of the Agility
Agreement, 20% of such salary during the period from six months after the date
of the agreement until one year from the date of the agreement and 10%
thereafter.




-65-


SECTION
16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE





Section
16(a) of the securities Exchange Act of 1934, as amended, requires our
directors, executive officers and persons who own more than 10% of a class of
our equity securities which are registered under the Exchange Act to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes of ownership of such registered securities. Such executive officers,
directors and greater than 10% beneficial owners are required by Commission
regulation to furnish us with copies of all Section 16(a) forms filed by such
reporting persons.





To our
knowledge, based solely on a review of the copies of such reports furnished to
us and on representations that no other reports were required, we are of the
opinion that Edward R. DeStefano and Laurus Master Fund, Ltd.(through
Promethean(as defined herein)), are currently subject to Section 16(a) filing
requirements.








-66-


ITEM 10. EXECUTIVE
COMPENSATION







SUMMARY
      COMPENSATION TABLEName
      and principal position
              (a)
            Year
              (b)
            Salary
      ($)
              (c)
            Bonus
      ($)
              (d)
            Stock
      Awards ($)
              (e)
            Option
      Awards ($)
              (f)
            Non-Equity
      Incentive Plan Compensation ($)
              (g)
            Nonqualified
      Deferred Compensation Earnings ($)
              (h)
            All
      Other Compensation ($)
              (i)
            Total
      ($)
              (j)Edward R.
      DeStefano
              CEO,
      President Former CFO, and Secretary (5)
            2007
              (5)
            350,000
              (2)
            20,000
              (2)
            -
            -
            -
            -
            9,000
      (1)
            379,0002006
              (5)
            283,333
              (3)
            26,667
              (3)
            -
            -
            -
            -
            9,750
      (1)
            319,7502005
              (5)
            207,957
              (4)
            14,587
              (4)
            -
            -
            -
            -
            3,000
      (1)
            225,544Ken
      Cleveland
              CFO
      (6)
            2007
            -
            -
            -
            -
            -
            -
            -
            -





* Does
not include perquisites and other personal benefits in amounts less than 10% of
the total annual salary and other compensation. Other than the individuals
listed above, we have no other executive employees who have received more than
$100,000 in compensation, including bonuses and options, during each of the last
three (3) fiscal years.





(1) Since
September 1, 2005, in connection with Mr. DeStefano's Employment Agreement,
beginning September 2005, he has been receiving a car allowance.  For
the year ended December 31, 2007, such car allowance totaled approximately $750
per month, which amount represents the $9,000 of other compensation in
2007.  The $9,750 of other annual compensation in 2006 and $3,000 in
2005 was also solely due to a car allowance provided to Mr.
DeStefano.





(2) Mr.
DeStefano earned $350,000 for the fiscal year ended December 31, 2007.
Additionally, Mr. DeStefano received $20,000 in bonuses for his performance in
regards to Gulf Coast’s November 2007 closing of $7,100,000 in financing for the
drilling of up to fourteen wells on its properties and the New Century closing
of the $5,300,000 in financing described above.





-67-


(3) Mr.
DeStefano earned $283,333 for the fiscal year ended December 31, 2006 which
included $93,750 earned from January 1, 2006 to May 31, 2006, which was paid
under the terms of his Executive Employment Agreement; and $189,583 which he was
paid during the remainder of 2006 (June 1, 2006 through December 31, 2006)
pursuant to his Amended Executive Employment Agreement (see footnote 4 below).
Additionally, Mr. DeStefano received $26,667 in bonuses for his performance in
regards to completing the 2006 acquisitions described above under "Description
of Business."








(4) Mr.
DeStefano earned $207,957 for the fiscal year ended December 31, 2005 which
included $141,290 earned by Mr. DeStefano from January 1, 2005 to August 31,
2005 and $66,667 which he was paid pursuant to his Executive Employment
Agreement (see footnote 4 below), from September 1, 2005, through December 31,
2005. Additionally, Mr. DeStefano received $14,587 in bonus for his performance
in regards to completing the "Development Plan for the Prado Field" with Strong
Petroleum and for his efforts in completing the Lindholm-Hanson Gas Unit
acquisitions described above under "Description of Business."





(5) Mr.
DeStefano is employed under a three year Amended Executive Employment Agreement
with us which expires on December 31, 2008, and is described in greater detail
under "Directors, Executive Officers, Promoters and Control Persons,"
above.





(6) Mr.
Cleveland was appointed Chief Financial Officer on January 31, 2008, when Mr.
DeStefano resigned as Chief Financial Officer of the Company and was not an
executive of the Company during the fiscal year ended December 31,
2007.










-68-


COMPENSATION DISCUSSION AND
ANALYSIS





Director
Compensation





Edward R.
DeStefano, our sole officer (for the fiscal year ended December 31, 2007) and
Director, does not receive any separate consideration from the Company other
than the compensation he is paid as the Company’s Chief Executive Officer, for
his service on the Board of Directors. However; the Board of Directors reserves
the right in the future to award the members of the Board of Directors cash or
stock based consideration for services to the Company, which awards, if granted
shall be in the sole determination of the Board of Directors.





Executive
Compensation Philosophy





Our Board
of Directors, consisting solely of Edward R. DeStefano, determines the
compensation provided to our executive officers, Mr. DeStefano and Mr.
Cleveland, and/or any other executive officers we may hire in the future in
their  sole determination. Our executive compensation program is
designed to attract and retain talented executives (such as Mr. DeStefano and
Mr. Cleveland), to meet our short-term and long-term business objectives. In
doing so, we attempt to align our executive’s interests with the interests of
our shareholders by providing an adequate compensation package to such
executive. This compensation package includes a base salary, which we believe is
competitive with other companies of our relative size. Additionally, our Board
of Directors reserves the right to award incentive bonuses which are linked to
our performance, as well as to individual executive officer’s performance in the
future. This package may also include long-term, stock based compensation to our
current executive officers and/or any additional executives we may hire in the
future, which are intended to align the performance of our executives with our
long-term business strategies.





Base
Salary




The base
salary of Mr. DeStefano, our Chief Executive Officer, President, Secretary and
Treasurer, was established by our entry into a Second Amended Employment
Agreement with Mr. DeStefano, effective December  3, 2007, described
in greater detail above, Mr. DeStefano’s salary was established by evaluating
the range of responsibilities of his positions, as well as the anticipated
impact that Mr. DeStefano could have in meeting our strategic
objectives.





Pursuant
to Mr. Cleveland’s Employment Agreement, he is currently not paid any base
salary, but rather we pay Agility Financial Partners, LLC, his current full time
employer, an hourly rate for his time. If we should hire Mr. Cleveland full time
in the future, we will be required to pay a placement fee to
Agility.  This compensation arrangement is described in greater detail
above.





The
established base salary of Mr. DeStefano, any base salary of Mr. Cleveland
and/or the base salaries of any additional executive officers we may hire in the
future will be adjusted to reflect the varying levels of position
responsibilities and individual executive performance.





Incentive
Bonus





Along
with Mr. DeStefano’s base salary, the Board of Directors reserves the right to
give incentive bonuses to Mr. DeStefano, which bonuses the Board of Directors
may grant in its sole discretion, if the Board of Directors believes such
bonuses are in the Company’s best interest, after analyzing our current business
objectives and growth, if any, and the amount of revenue we are able to generate
each month, which revenue is a direct result of the actions and ability of Mr.
DeStefano in the sole discretion of the Board of Directors.





-69-





Long-term,
Stock Based Compensation





In order
to attract, retain and motivate executive talent necessary to support the
Company’s long-term business strategy we may award executives with long-term,
stock based compensation in the future, in the sole discretion of our Board of
Directors, which we do not currently have any immediate plans to
award.





Criteria
for Compensation Levels





The
Company has always sought to attract and retain qualified executives and
employees able to positively contribute to the success of the Company for the
benefit of its various stakeholders, the most important of which is its
shareholders, but also including its customers, its employees, and the
communities in which the Company operates.





The Board
of Directors (in establishing compensation levels for Mr. DeStefano and Mr.
Cleveland) and the Company (in establishing compensation levels for all
employees of the Company) consider many factors, which may include, but are not
limited to, the individual’s abilities and executed performance that results in:
the advancement of corporate goals of the Company, execution of the Company’s
business strategies, contributions to positive financial results, contributions
to the Company’s overall image and reputation in the Company’s industry, and
contributions to the development of the management team and other employees. An
employee must demonstrate his or her ability to deliver results in his or her
areas of responsibility, which can include, among other things: business
development, efficient management of operations and systems, implementation of
appropriate changes and improvements to operations and systems, personnel
management, financial management, and strategic decision making. In determining
compensation levels, the Board of Directors may also consider: competitiveness
of compensation packages relative to other comparable companies, both inside and
outside of the oil and gas exploration industries, and the experience level of
each particular individual.





Compensation
levels for executives and employees are generally reviewed upon the expiration
of such executive’s employment and/or consulting agreements (if any), and/or
annually, but may be reviewed more often as deemed appropriate.





Compensation
Philosophy and Strategy





In
addition to the “Criteria for Compensation Levels” set forth above, the Company
has a “Compensation Philosophy” for all employees of the Company (set forth
below), and a “Compensation Strategy for Key Management Personnel” (set forth
below), a substantial portion of which also applies to all employees of the
Company.





Compensation
Philosophy





The
Company’s compensation philosophy is as follows:




·
            The
      Company believes that compensation is an integral component of its overall
      business and human resource strategies. The Company’s compensation plans
      will strive to promote the hiring and retention of personnel necessary to
      execute the Company’s business strategies and achieve its business
      objectives.





·
            The
      Company’s compensation plans will be strategy-focused, competitive, and
      recognize and reward individual and group contributions and results. The
      Company’s compensation plans will strive to promote an alignment of the
      interests of employees with the interests of the shareholders by having a
      portion of compensation based on financial results and actions that will
      generate future shareholder value.







-70-





·
            In
      order to reward financial performance over time, the Company’s
      compensation programs generally will consist of: base compensation, and
      may also consist of short-term variable incentives and long-term variable
      incentives, as appropriate.





·
            The
      Company’s compensation plans will be administered consistently and fairly
      to promote equal opportunities for the Company’s
  employees.





Compensation
Strategy for Key Management Personnel





The
Company’s compensation strategy for its key management personnel is as
follows:








·
            Total
      compensation may include base salary and short-term and long-term variable
      incentives based on annual and long term performance, and long-term
      variable incentives, in each case, where
      appropriate.








·
            Compensation
      will be comparable to general and industry-specific compensation
      practices.





·
            Generally,
      base compensation, and targeted short and long-term variable compensation,
      if any, will be established within the range of compensation of similarly
      situated companies in the Company’s industry. The Company’s organization
      size and complexity will be taken into account, and therefore similarly
      situated companies include companies of similar size and complexity
      whether or not such companies are in the Company’s industry or
      not.





·
            When
      determining compensation for officers, managers and consultants, the
      Company takes into account the employee’s (and/or consultant’s) knowledge,
      experience, past employment history and connections in the industry,
      including industry specific knowledge and experience, to the extent such
      knowledge and experience contributes to the Company’s ability to achieve
      its business objectives.





·
            The
      Company reserves the right to adjust annual base salaries of employees
      and/or to award performance based bonuses if individual performance is at
      or above pre-established performance
  expectations.









-71-





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





The
following table provides the names and addresses of each person known to own
directly or beneficially more than 5% of our outstanding common stock (as
determined in accordance with Rule 13d-3 under the Exchange Act) as of March 31,
2008, and by the officers and directors, individually and as a group. Except as
otherwise indicated, all shares are owned directly.





Name
      and Address ofBeneficial
      Owner
            
            Shares
            
            Percent(1)Edward
      R. DeStefano*
            
            
            37,610,700
            
            
            67.1%Chief
      Executive Officer, President, Secretary, Treasurer and
      Director5851
      San Felipe, Suite 775


Houston,
      Texas 77057Ken
      Cleveland
            
            
            0
            
            
            0%Chief
      Financial Officer5851
      San Felipe, Suite 775
              Houston,
      Texas 77057Laurus
      Master Fund, Ltd.(2)(4)
            
            
            3,675,000
            (3)
            
            6.6%P.O.
      Box 309GT
      Ugland HouseGeorge
      TownSouth
      Church StreetGrand
      Cayman,Cayman
      IslandsAll
      of the officers and
            
            
            37,610,700
            
            
            67.1%directors
      as a group (2 persons)






* Mr.
DeStefano received 37,500,000 shares of our restricted common stock in December
2004, pursuant to a share exchange, whereby he exchanged 100% of the outstanding
shares of Century, for 37,500,000 shares of our common stock. He purchased 4,800
shares of common stock during the fourth quarter of 2006 and 105,900 shares
during fiscal 2007, in market transactions at the then value of our common
stock.





(1) Using
56,010,612 shares of common stock issued and outstanding as of March 31,
2008.





(2) The
beneficial owner of Laurus Master Fund, Ltd. is Laurus Capital Management, LLC,
a Delaware limited liability company, who manages Laurus Master Fund, Ltd.
Eugene Grin and David Grin are the sole members of Laurus Capital Management,
LLC.





(3)
Laurus currently holds 3,675,000 shares of our common stock and has
contractually agreed not to hold more than 9.99% of our issued and outstanding
common stock, unless an event of default occurs or upon providing 75 days prior
notice to us. If an event of default occurs or upon 75 days prior notice to us,
subject to Laurus' pledge under the December Option, not to exercise any part of
the December Option, until (a) the payment in full of all obligations of the
Company to Laurus under the Convertible Note and (b) the exercise of the
Warrant, unless an event of default occurs and is continuing, Laurus is able to
hold an aggregate of 46,735,789 shares of our common stock assuming full
conversion of the Note, and exercise of the Warrant, Option and December Option.
The shares of common stock issuable in connection with the conversion of the
Note (of which Laurus has transferred the rights to certain entities controlled
by Laurus), the exercise of the Warrant and exercise of the Option and the
December Option represent an aggregate of 43,060,789 shares, including
24,193,548 shares representing the full conversion of the Note, 7,258,065 shares
representing full exercise of the Warrant, 6,547,784 shares representing the
remaining amount of the Option, and 5,061,392 shares representing full exercise
of the December Option (which is subject to the limitation above), defined and
described in greater detail above under "Description of Business", and not
including any shares of our common stock for conversion of interest on the Note,
or any changes in the Fixed Conversion Price, plus the 3,675,000 shares of
common stock which Laurus already holds. Assuming full conversion of the Note
and exercise of the Warrant, Option and December Option upon an event of default
or upon 75 days prior notice to us (subject to the limitation of exercise of the
December Option, described above), Laurus could hold 46,735,789 shares of our
common stock, which would represent approximately 45.5% of our then outstanding
common stock (assuming the issuance of no additional shares of common stock
other than in connection with the conversion of the Note, Warrant and
Option).





(4) In
June 2006, Laurus provided us notice of their transfer of their rights
underlying the Warrant, Option, December Option and Gulf Coast Warrant to an
entity controlled by Laurus, Promethean Industries, Inc. ("Promethean"). For the
purposes of the table above, all references to Laurus include the ownership of
Promethean.





-72-


Changes
In Control





The
Company does not anticipate any changes in control of the Company.





ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS





Effective
June 1, 2006, we entered into an Amended Executive Employment Agreement with our
Chief Executive Officer and President, Edward R. DeStefano, which amended the
terms of the Executive Employment Agreement entered into with Mr. DeStefano
which was originally effective September 1, 2005. The Amended Executive
Employment Agreement is described in greater detail above under "Directors,
Executive Officers, Promoters and Control Persons".





In 2006,
we paid Mr. DeStefano a bonus in the amount of $26,667 in consideration for his
help and guidance in connection with Gulf Coast's acquisition of the Manti
Property (as described and defined herein) as well as his guidance in connection
with the development and expansion of our operations and assets over the course
of the year ended December 31, 2006.





During
the fourth quarter of 2006 and the first quarter of 2007, Mr. DeStefano
purchased 14,350 shares of our common stock, in market transactions at the then
value of our common stock.





From July
to December 2007, Laurus notified us that it had assigned approximately
$3,417,597 of the December 2006 Secured Term Note to various related parties of
Laurus, an aggregate of $844,968 of the Term Note to various related parties of
Laurus, and an aggregate of approximately $4,427,065 of the Gulf Coast Note to
various related parties of Laurus.  Laurus has also acknowledged that
none of our rights and obligations under notes which were assigned would be
affected by such assignments.





On August
1, 2007, with an effective date of January 1, 2007, Century Assets Corporation
(“Century Assets”), which is owned by Edward R. DeStefano, our Chief Executive
Officer and Director, entered into a Surface Lease with Century Resources, Inc.
(“Century” and the “Surface Lease”).  Pursuant to the Surface Lease,
Century Assets leased us the use of five acres of land, next to our Sargent
South Gas Field in Matagorda County, Texas for storage of equipment, pipe and
materials used in the operation of the gas field. The term of the Lease is for
one year, and shall automatically renew thereafter unless terminated by either
party with thirty (30) days prior written notice.  We agreed to pay
Century Assets $1,000 per month for use of the Lease acreage.  In
addition to the use of the leased acreage for storage, Century, our wholly owned
subsidiary agreed to operate a pipeline on the acreage, and to pay all costs
associated with such operations, and to indemnify Century Assets for all
liability in connection with the operation of such pipeline.





In
November 2007, Mr. DeStefano received a one-time bonus payment in the amount of
$20,000, in connection with Gulf Coast Oil Corporation’s November 2007 closing
of the $7,100,000 in financing for the drilling of up to fourteen wells on its
properties and the New Century closing of the $5,300,000 in financing described
above.





On or
about December 3, 2007, we entered into a Second Amended Executive Employment
Agreement with our Chief Executive Officer and President, Edward R. DeStefano,
which amended the terms of the Amended Executive Employment Agreement entered
into with Mr. DeStefano which was originally


effective
June 1, 2006. The Second Amended Executive Employment Agreement is described in
greater detail above under "Directors, Executive Officers, Promoters and Control
Persons".





From
January 2008 to the date of this report, Laurus has notified us that it had
assigned an additional approximately $4,932,098 of the December 2006 Secured
Term Note to various related parties of Laurus.  Laurus has also
acknowledged that none of our rights and obligations under the note which was
assigned would be affected by such assignments.





-73-


ITEM 13. EXHIBITS AND
REPORTS ON FORM 8-K





(a)
EXHIBITS







Exhibit
      No.
            Description
      of Exhibit10.1(1)
            Securities
      Purchase Agreement2.1(1)
            Agreement
      and Plan of Reorganization (without exhibits)3.1(2)
            Articles
      of Incorporation3.2(2)
            Articles
      of Amendment to Articles of Incorporation3.3(3)
            Articles
      of Amendment to Articles of Incorporation3.4(3)
            Articles
      of Amendment to Articles of Incorporation3.5(3)
            Certificate
      of Correction filed with the Colorado Secretary of
State3.5(25)
            Articles
      of Amendment to Articles of Incorporation filed with the Colorado
      Secretary of State3.6(2)
            Bylaws10.1(4)
            Purchase
      and Sale & Exploration Agreement with Aquatic10.2(4)
            First
      Amendment of Purchase and Sale & Exploration Agreement with
      Aquatic





10.3(5)
            Development
      Agreement with Strong (with all confidential information
      removed)10.4(6)
            Settlement
      Agreement and Mutual Release with Core Concepts, LLC10.5(7)
            Securities
      Purchase Agreement between Laurus Master Fund, Ltd. and New Century Energy
      Corp.10.6(7)
            Secured
      Convertible Term Note10.7(8)
            Amended
      and Restated Secured Convertible Note10.8(7)
            Common
      Stock Purchase Warrant10.9(7)
            Master
      Security Agreement10.10(7)
            Registration
      Rights Agreement






-74-





10.11(7)
            Option
      Agreement10.12(7)
            Purchase
      and Sale Agreement (June 2005)10.13(9)
            Finder's
      Warrant10.14(10)
            Purchase
      and Sale Agreement (September 2005)10.15(11)
            September
      2005 Securities Purchase Agreement10.16(12)
            Amended
      and Restated Secured Term Note10.17(11)
            September
      2005 Reaffirmation and Ratification Agreement10.18(11)
            Mortgage,
      Deed of Trust, Security Agreement, Financing Statement and Assignment of
      Production in Wharton County, Texas10.19(11)
            Mortgage,
      Deed of Trust, Security Agreement, Financing Statement and Assignment of
      Production in McMullen County, Texas10.20(11)
            Mortgage,
      Deed of Trust, Security Agreement Financing Statement and Assignment of
      Production in Matagorda County, Texas10.21(13)
            Purchase
      and Sale Agreement dated November 1, 2005 and exhibits10.22(13)
            Amendment
      to Purchase and Sale Agreement dated November 2, 200510.23(13)
            Amendment
      Agreement to June 2005 Securities Purchase
  Agreement





10.24(14)
            Edward
      R. DeStefano Employment Agreement10.25(31)
            Edward
      R. DeStefano Amended Employment Agreement10.26(15)
            Second
      Amendment Agreement with Laurus10.27(16)
            Third
      Amendment Agreement10.28(16)
            December
      Option10.29(16)
            Settlement
      Agreement with William F. Mason10.30(17)
            Asset
      Purchase Agreement10.31(17)
            Securities
      Purchase Agreement (Gulf Coast and Laurus)10.32(17)
            Secured
      Term Note (Gulf Coast)10.33(17)
            Common
      Stock Purchase Warrant (Gulf Coast)







-75-


10.34(17)
            Guaranty
      (New Century and Century)10.35(17)
            Guaranty
      (Gulf Coast)10.36(17)
            Stock
      Pledge Agreement (Gulf Coast)10.37(17)
            Mortgage,
      Deed of Trust, Security Agreement, Financing Statement and Assignment of
      Production, filed in Atascosa County and McMullen County,
      Texas10.38(17)
            Amended
      and Restated Mortgage, Deed of Trust, Security Agreement, Financing
      Statement and Assignment of Production, filed in Matagorda County,
      McMullen County and Wharton County, Texas10.39(17)
            Master
      Security Agreement10.40(17)
            Collateral
      Assignment10.41(17)
            Letter
      Agreement regarding Shareholder Agreement10.42(17)
            Reaffirmation,
      Ratification and Amendment Agreement10.43(17)
            Fourth
      Amendment Agreement with Laurus10.44(26)
            Fifth
      Amendment Agreement with Laurus




10.45(27)
            June
      2006 Asset Purchase Agreement10.46(27)
            June
      2006 Securities Purchase Agreement (Gulf Coast and
  Laurus)10.47(27)
            June
      2006 Secured Term Note (Gulf Coast)10.48(27)
            June
      2006 Amended and Restated Term Note (Gulf Coast)10.49(27)
            June
      2006 Amended and Restated Mortgage, Deed of Trust, Security Agreement,
      Financing Statement and Assignment of Production, filed in Matagorda
      County, McMullen County and Wharton County, Texas10.50(27)
            Collateral
      Assignment10.51(27)
            Reaffirmation
      and Ratification Agreement (Gulf Coast)10.52(27)
            Reaffirmation
      and Ratification Agreement (New Century and Century)10.53(29)
            Sixth
      Amendment Agreement10.54(30)
            Seventh
      Amendment Agreement10.55(32)
            Eighth
      Amendment Agreement









-76-


10.55(33)
            Escrow
      Agreement in connection with the June 30, 2005 closing with
      Laurus10.56(33)
            Funds
      Disbursement Letter in connection with the June 30, 2005 closing with
      Laurus10.57(34)
            Securities
      Purchase Agreement - December 200610.58(34)
            Second
      Amended and Restated Secured Term Note10.59(34)
            Second
      Amended and Restated Secured Term Convertible Note10.60(34)
            Secured
      Term Note - December 2006 10.61(34) Reaffirmation, Ratification and
      Amendment Agreement - December 200610.62(34)
            Amended
      Guaranty (Gulf Coast Oil Corporation) - December 200610.63(34)
            Master
      Security Agreement - December 200610.64(34)
            Funds
      Disbursement Letter - December 2006







10.65(34)
            Escrow
      Agreement - December 200610.66(35)
            Agreement
      to Rescind the Eighth Amendment10.67(37)
            1st
      Amendment to Energy Capital Solutions Warrant10.68(38)
            Third
      Amended and Restated Term Note10.69(39)
            Agreement
      with Century Asset Corporation10.70(40))
            November
      2007 Securities Purchase Agreement10.71(40)
            November
      2007 Secured Term Note (Gulf Coast and Valens U.S.)  (With
      Confidential Information Removed)10.72(40)
            November
      2007 Secured Term Note (Gulf Coast and Valens Offshore) (With Confidential
      Information Removed)10.73(40)
            Guaranty
      (in favor of Purchasers)10.74(40)
            Master
      Security Agreement (With Confidential Information
  Removed)10.75(40)
            Amended
      and Restated Common Stock Purchase Warrant10.76(40)
            Net
      Interest Agreement (With Confidential Information
  Removed)10.77(40)
            Conveyance
      of Net Profits Overriding Royalty Interest (With Confidential Information
      Removed)







-77-


10.78(41)
            November
      2007 Securities Purchase Agreement10.79(41)
            November
      2007 Secured Term Note (New Century and Valens U.S.)10.80(41)
            November
      2007 Secured Term Note (New Century and Valens
Offshore)10.81(41)
            Consent
      Letter Agreement10.82(41)
            Master
      Security Agreement10.83(41)
            Net
      Interest Agreement10.84(41)
            Conveyance
      of Net Profits Overriding Royalty Interest10.85(41)
            Amended
      and Restated Mortgage10.86(41)
            Second
      Amended Executive Employment Agreement with Edward R.
      DeStefano10.87(42)
            Letter
      Agreement with Laurus Amending the Third Amended and Restated Term
      Note16.1(18)
            Letter
      from Randolph Scott and Company, Certified Public
    Accountants16.2(19)
            Letter
      from Malone and Bailey, PC, Certified Public
Accountants16.3(36)
            Letter
      from Helin, Donovan, Trubee & Wilkinson, LLP21.1*
            Subsidiaries31.1*
            Certificate
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2*
            Certificate
      of the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1*
            Certificate
      of the Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2*
            Certificate
      of the Chief Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002





99.1(20)
            Glossary
      of Oil and Gas Terms





99.2(9)
            R.A.
      Lenser and Associates, Inc. Summary Letter of Reserves and Future
      Production of New Century Energy Corp.'s Oil and Gas Properties as of
      January 1, 2005









-78-


99.3(31)
            R.A.
      Lenser and Associates, Inc. Summary Letter of Reserves and Future
      Production of New Century Energy Corp.'s Oil and Gas Properties as of
      January 1, 200699.4(21)
            Financial
      Statements of the Company's first acquisition in the Lindholm-Hanson Gas
      Unit99.5(21)
            Pro
      Forma Financial Information of the Company's first acquisition in the
      Lindholm-Hanson Gas Unit99.6(22)
            Financial
      Statements of the Company's second acquisition in the Lindholm-Hanson Gas
      Unit99.7(22)
            Pro
      Forma Financial Information of the Company's second acquisition in the
      Lindholm-Hanson Gas Unit




99.8(23)
            Financial
      Statements of the Company's third acquisition in the Lindholm-Hanson Gas
      Unit99.9(23)
            Pro
      Forma Financial Information of the Company's third acquisition in the
      Lindholm-Hanson Gas Unit99.10(24)
            Financial
      Statements of Gulf Coast's 1st acquisition in the Mustang Creek
      Property99.11(24)
            Pro
      Forma Financial Information of Gulf Coast's 1st acquisition in the Mustang
      Creek Property99.10(28)
            Financial
      Statements of Gulf Coast's 2nd acquisition in the Mustang Creek
      Property99.11(28)
            Pro
      Forma Financial Information of Gulf Coast's 2nd acquisition in the Mustang
      Creek Property




99.12(43)
            New
      Century Energy Corp. 2007 Stock Incentive
Plan








* Filed
herewith.





(1) Filed
as exhibit 99 to the Form 8-K filed October 20, 2004, and incorporated by
reference herein.





(2) Filed
as exhibits 2.1, 2.2, and 2.3 to our Form 10-SB, filed January 7, 2000, and
incorporated herein by reference.





(3) Filed
as exhibits 3.1, 3.2, and 3.3 to our quarterly report for the period ended
September 30, 2004, and incorporated herein by reference.





(4) Filed
as exhibits to our 10-KSB filed on March 31, 2005, and incorporated herein by
reference.





(5) Filed
as exhibit 10.4 to our Form 10-QSB filed on May 23, 2005, and incorporated
herein by reference.





(6) Filed
as exhibit 10.1 to our Report on Form 8-K, filed on June 16, 2005, and
incorporated herein by reference.





-79-


(7) Filed
as exhibits to our Report on Form 8-K, filed on July 8, 2005, and incorporated
herein by reference.





(8) Filed
as exhibits to the Company's Report on Form 8-K filed with the Commission on
January 4, 2006, and incorporated herein by reference.





(9) Filed
as exhibits to our Form SB-2 Registration Statement filed on August 5, 2005, and
incorporated herein by reference.





(10)
Filed as exhibit 10.1 to our Report on Form 8-K filed on September 6, 2005, and
incorporated herein by reference.





(11)
Filed as exhibits to our Report on Form 8-K filed on September 22, 2005 and
incorporated herein by reference.





(12)
Filed as an exhibit to our Form 8-K filed on April 4, 2006, and incorporated
herein by reference.





(13)
Filed as exhibits to our Report on Form 8-K filed on November 7, 2005 and
incorporated herein by reference.





(14)
Filed as exhibits to the Company's Report on Form 10-QSB filed with the
Commission on December 20, 2005, and incorporated herein by
reference.





(15)
Filed as exhibit 10.1 to the Company's Report on Form 8-K filed with the
Commission on December 19, 2005, and incorporated herein by
reference.





(16)
Filed as exhibits to the Company's Report on Form 8-K filed with the Commission
on January 4, 2006, and incorporated herein by reference.





(17)
Filed as exhibits to the Company's Report on Form 8-K filed with the Commission
on May 3, 2006, and incorporated herein by reference.





(18)
Filed as exhibit 16.1 to our Form 8-K filed December 1, 2004, and incorporated
herein by reference.





(19)
Filed as exhibit 16.2 to our Form 8-K filed on April 14, 2005, and incorporated
herein by reference.





(20)
Filed as an exhibit to the Company's Form 10-KSB filed with the Commission on
March 31, 2005, and incorporated herein by reference.





(21)
Filed as exhibits to the Company's amended Report on Form 8-K/A, filed with the
Commission on May 8, 2006, and incorporated herein by reference.





(22)
Filed as exhibits to the Company's amended Report on Form 8-K/A, filed with the
Commission on May 8, 2006, and incorporated herein by reference.





(23)
Filed as exhibits to the Company's amended Report on Form 8-K/A, filed with the
Commission on May 8, 2006, and incorporated herein by reference.





(24)
Filed as exhibits to the Company's amended Report on Form 8-K/A, filed with the
Commission on July 13, 2006, and incorporated herein by reference.





-80-


(25)
Filed as an exhibit to our Report on Form 8-K, filed with the Commission on June
14, 2006, and incorporated herein by reference.





(26)
Filed as exhibit 10.1 to our Report on Form 8-K, filed with the Commission on
June 23, 2006, and incorporated herein by reference.





(27)
Filed as exhibits to our Report on Form 8-K, filed with the Commission on July
7, 2006, and incorporated herein by reference.





(28)
Filed as exhibits to the Company's amended Report on Form 8-K/A, filed with the
Commission on September 13, 2006, and incorporated herein by
reference.





(29)
Filed as an exhibit to the Company's Form 8-K, filed with the Commission on
September 13, 2006, and incorporated herein by reference.





(30)
Filed as an exhibit to the Company's Form 8-K, filed with the Commission on
October 26, 2006, and incorporated herein by reference.





(31)
Filed as an exhibit to the Company's Form SB-2, filed with the Commission on
July 18, 2006, and incorporated herein by reference.





(32)
Filed as an exhibit to the Company's Form 8-K, filed with the Commission on
December 8, 2006, and incorporated herein by reference.





(33)
Filed as exhibits to the Company's Report on Form 10-QSB, filed with the
Commission on November 16, 2006, and incorporated herein by
reference.





(34)
Filed as exhibits to the Company's Report on Form 8-K, filed with the Commission
on January 10, 2007, and incorporated herein by reference.





(35)
Filed as an exhibit to the Company's Report on Form 8-K, filed with the
Commission on January 10, 2007, and incorporated herein by
reference.





(36)
Filed as an exhibit to the Company’s Report on Form 8-K, filed with the
Commission on January 25, 2007, and incorporated herein by
reference.





(37)
Filed as an exhibit to the Company’s Report on Form 10-KSB, filed with the
Commission on April 12, 2007, and incorporated herein by reference.





(38)
Filed as an exhibit to the Company’s Report on Form 8-K, filed with the
Commission on July 12, 2007, and incorporated herein by reference.





(39)
Filed as exhibits to the Company's Report on Form 10-QSB, filed with the
Commission on November 16, 2007, and incorporated herein by
reference.




(40)
Filed as an exhibit to the Company’s Report on Form 8-K, filed with the
Commission on November 27, 2007, and incorporated herein by
reference.





(41)
Filed as an exhibit to the Company’s Report on Form 8-K, filed with the
Commission on December 4, 2007, and incorporated herein by
reference.





(42)
Filed as an exhibit to the Company’s Report on Form 8-K, filed with the
Commission on January 23, 2008, and incorporated herein by
reference.





(43)
Filed as Appendix A to the Company’s Definitive Schedule 14c filing, filed with
the Commission on September 11, 2007, and incorporated herein by
reference.





* Filed
herein





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(b)
REPORTS ON FORM 8-K





We filed
the following reports on Form 8-K during the fourth quarter of
2007:





o
            The
      Company filed a report on Form 8-K on November 27, 2007 to report its
      wholly owned subsidiary’s, Gulf Coast Oil Corporation, entry into a
      Security Purchase Agreement with LV Administrative Services, Inc., as
      administrative and collateral agent for Valens U.S. SPV I, LLC and Valens
      Offshore SPV II, Corp.





o
            The
      Company filed a report on Form 8-K on December 4, 2007 to report its entry
      into a Security Purchase Agreement with LV Administrative Services, Inc.,
      as administrative and collateral agent for Valens U.S. SPV I, LLC and
      Valens Offshore SPV II, Corp.





We filed
the following reports on Form 8-K subsequent to the period covered by this
Annual Report on Form 10-KSB:





o
            The
      Company filed a report on Form 8-K on January 23, 2008 to report its entry
      into a Letter Agreement with Laurus Master Fund,
  Ltd.





o
            The
      Company filed a report on Form 8-K on February 19, 2008 to report the
      appointment of Ken Cleveland as Chief Financial
  Officer.











ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES





AUDIT
FEES





The
aggregate fees billed by PMB Helin Donovan, LLP (“PMBHD”), previously known as
Helin, Donovan, Trubee & Wilkinson, LLP, for professional services rendered
for the audit of our annual consolidated financial statements during the fiscal
year ended December 31, 2007, and for the reviews of the consolidated
financial statements included in our quarterly reports on Form 10-QSB for that
fiscal year were $103,300.  The aggregate fees billed by PMBHD for
professional services rendered for the audit of our annual consolidated
financial statements and for the reviews of the consolidated financial
statements included in our quarterly reports on Form 10-QSB during the fiscal
year ended December 31, 2006, were $68,575.  These fees include
fees billed for professional services rendered by PMB for the review of
registration statements or services that are normally provided in connection
with statutory and regulatory filings or engagements for those fiscal
years.





AUDIT
RELATED FEES





PMBHD did
not bill us for any professional services that were reasonably related to the
performance of the audit or review of financial statements for either the fiscal
year ended December 31, 2007 that are not included under Audit Fees
above.




The
aggregate audit-related fees billed during 2006 totaled $68,575, which comprised
two acquisition audits and related Form 8-K filings, review of a registration
statement on Form SB-2, and Company responses and amendments to prior filings as
a result of comment letters received from the Securities and Exchange
Commission.





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TAX
FEES





The
aggregate fees billed in each of the last two fiscal years ended December 31,
2007 and December 31, 2006, by the principal accountant for tax compliance was
$10,330 and $11,709, respectively.





ALL OTHER
FEES





PMBHD did
not perform any services for us or charge any fees other than the services
described above for either of the fiscal years ended December 31, 2007 or
December 31, 2006








-83-


SIGNATURES





In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.




NEW
      CENTURY ENERGY CORP.Dated: 
      April 7, 2008
            By:
            /s/ 
      Edward R. DeStefanoEdward
      R. DeStefano
              Chief
      Executive Officer
              (Principal
      Executive
      Officer)








In
accordance with 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.








NAME
            
            TITLE
            
            DATE/s/
      Edward R. DeStefano
              Edward
      R. DeStefano
            
            Chief
      Executive Officer
              (Principal
      Executive
      Officer)
            
            April
      7, 2008Secretary,
      Treasurer and Director/s/
      Ken ClevelandKen
      Cleveland
            
            Chief
      Financial Officer
              (Principal
      Accounting Officer)
            
            April
      7, 2008





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