**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, 2006





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





For
      the
      transition period from __________ to ___________





Commission
      file number 000-28813





**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, 2006 were
      $14,927,202.





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 April 4, 2007, was approximately $1,479,700.





As
      of
      March 30, 2007, 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, 2006


INDEX





**PART
                I**Item
                1.
            Description
                of Business
            4Item
                2.
            Description
                of Property
            27Item
                3.
            Legal
                Proceedings
            37Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            37**PART
                II**Item
                5.
            Market
                for Common Equity and Related Stockholder Matters
            38Item
                6.
            Management's
                Discussion and Analysis or Plan of Operation
            39Item
                7.
            Financial
                Statements
            74
                -- 110Item
                8.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            111Item
                8A.
            Controls
                and Procedures
            113Item
                8B.
            Other
                Information
            114**PART
                III**Item
                9.
            Directors,
                Executive Officers, Promoters and Control Persons; Compliance with
                Section
                16(a) of the Exchange Act
            115Item
                10.
            Executive
                Compensation
            118Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            122Item
                12.
            Certain
                Relationships and Related Transactions
            124Item
                13.
            Exhibits
                and Reports on Form 8-K
            125Item
                14.
            Principal
                Accountant Fees and Services
            133








**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS**





SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS





CERTAIN
      STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-KSB (THIS "FORM 10-KSB"), INCLUDING
      STATEMENTS UNDER "ITEM 1. DESCRIPTION OF BUSINESS," AND "ITEM 6. MANAGEMENT'S
      DISCUSSION AND ANALYSIS", CONSTITUTE "FORWARD LOOKING STATEMENTS" WITHIN THE
      MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1934, AS AMENDED, AND THE
      PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (COLLECTIVELY, THE "REFORM
      ACT"). CERTAIN, BUT NOT NECESSARILY ALL, OF SUCH FORWARD-LOOKING STATEMENTS
      CAN
      BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES",
      "EXPECTS", "MAY", "SHOULD", OR "ANTICIPATES", OR THE NEGATIVE THEREOF OR OTHER
      VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY
      THAT
      INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN
      AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
      RESULTS, PERFORMANCE OR ACHIEVEMENTS OF NEW CENTURY ENERGY CORP. ("NEW CENTURY",
      THE "COMPANY", "WE", "US" OR "OUR") TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
      RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
      FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-KSB, UNLESS ANOTHER
      DATE
      IS STATED, ARE TO DECEMBER 31, 2006.





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
      January 28, 2004, the Company filed Articles of Amendment to the Company's
      Articles of Incorporation to authorize 5,000 shares of Series A Convertible
      Preferred Stock. On June 30, 2004, the Company filed Articles of Amendment
      to
      the Company's Articles of Incorporation to amend the Series A Convertible
      Preferred Stock ("Series A") designation and to authorize 2,000,000 shares
      of
      Series B Convertible Preferred Stock ("Series B"). Each share of Series A
      Preferred Stock is able to vote an amount equal to 300 shares of common stock.
      All shares of preferred stock rank prior to all other stock of the Company,
      as
      to payments of dividends and to distributions of assets upon liquidation,
      dissolution or winding up of the Corporation, whether voluntary or involuntary.
      Each share of Series B Preferred Stock is able to vote an amount equal to 2,958
      shares of common stock. Each share of Series A Preferred Stock can be converted
      into 300 shares of the Company's common stock at the option of the holder,
      provided that there are a sufficient number of shares authorized but unissued
      and unreserved. Each share of Series B Preferred Stock can be converted into
      98.6 shares of the Company's common stock at the option of the holder, provided
      that there are a sufficient number of shares authorized but unissued and
      unreserved. As of the date of the filing of this report there are no shares
      of
      Series A Preferred Stock outstanding and no shares of Series B Preferred Stock
      outstanding.





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 post 1:100 reverse split (described below) 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"). Also on September 30, 2004, the Company affected a 1:100 reverse
      stock split. Unless otherwise stated, all share amounts in this report on Form
      10-KSB are provided in post reverse split shares.





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., a Delaware corporation
      ("ERC"), and changed its business focus to oil and gas exploration and


-5-


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." which name change became effective on
      November 1, 2004.





In
      November 2004, the Company filed a Certificate of Correction to the Company's
      previously filed Articles of Amendment, to correct the number of shares the
      Company is authorized to issue. As a result of this correction, we had total
      authorized shares of 120,000,000, of which 100,000,000 were shares of Common
      Stock, par value $0.001 per share, and 20,000,000 were shares of Preferred
      Stock, par value $0.001 per share ("Preferred Stock"), prior to the filing
      of
      the June 2006 amendment to our Articles of Incorporation described
      below.





On
      June
      12, 2006, at a special meeting of shareholders, shareholders holding a majority
      of our voting shares voted to approve the filing of Articles of Amendment to
      our
      Articles of Incorporation to increase our authorized shares of common stock
      to
      200,000,000 shares of common stock, par value $0.001 per share, and to
      reauthorize 20,000,000 shares of Preferred Stock, par value $0.001 per share.
      We
      filed the Articles of Amendment on June 12, 2006, which Articles of Amendment
      became effective on June 12, 2006.





**DESCRIPTION
      OF THE COMPANY'S BUSINESS FOCUS**





**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
      2.3
      million cubic feet of gas per day (Mcfgpd) and 620 barrels of oil per day
      (Bopd). The Company's proved reserves as of December 31, 2006 are 7.1 billion
      cubic feet (Bcf) of natural gas and 858,000 barrels of crude oil. The Company's
      major areas of operations are located in the United States primarily in
      Matagorda, Wharton and McMullen counties in Texas. During 2006, the Company's
      proved oil reserves increased by over 700% due to acquisition and drilling
      success of new oil reserves in the Mustang Creek Field in McMullen County,
      Texas. Proved developed reserves on a barrel of oil equivalent (using 6 MCF’s
      equals 1 barrel of oil) comprise 55% of the Company's total proved oil reserves,
      and 30% of the Company’s total proved gas reserves.





The
      Company's estimates of proved reserves and proved undeveloped reserves at
      December 31, 2006 and 2005, 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 2006 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


-6-


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 Annual Energy Outlook 2007 reports, states, “real
      world crude oil prices, are projected to decline gradually from their 2006
      average of more than $69 per barrel to just under $50 per barrel by 2014 as
      new
      supplies enter the market.” In the EIA’s current projections regarding oil, OPEC
      increases production at a rate that keeps average prices in the $50 to $60
      per
      barrel through 2030. Regarding natural gas, the EIA’s current projection calls
      for the average U.S. wellhead price for natural gas “to decline gradually from
      the current level, as increased drilling brings on new supplies and new import
      sources become available. The average price falls to just under $5 per thousand
      cubic feet in 2015, then raises gradually to about $6 per thousand cubic feet
      in
      2030.” (EIA “Annual Energy Outlook 2007”)





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 2007 and 2008 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 2007 & 2008





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 cost through the use of 3D seismic and attribute analysis
                technologies;





5.
            maintain
                a highly experienced team of operations and exploration consultants
                using
                state of the art technology;
                and


-7-


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.





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 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.





In
      connection with the Closing, we agreed to pay Laurus Capital Management, L.L.C.,
      the manager of Laurus, a fee equal to 3.50% of the aggregate principal amount
      of
      the Note, totaling $525,000, and agreed to pay Energy Capital Solutions, LP
      $599,000, and granted Energy Capital Solutions, LP 900,000 warrants exercisable
      at $0.80 per share, with piggyback registration rights in connection with a
      finders agreement.





SUBSIDIARY
      GUARANTY AGREEMENT AND COLLATERAL ASSIGNMENT AGREEMENT





Century
      Resources, Inc., our wholly owned subsidiary, entered into a Subsidiary Guaranty
      Agreement at the Closing with Laurus on June 30, 2005, whereby it agreed to
      guaranty the prompt payment of all amounts, when due, owed to Laurus under
      the
      Note and in connection with the Closing. We also entered into a Collateral
      Assignment Agreement at the Closing, whereby we agreed to assign and to grant
      a
      security interest to Laurus in all of our rights and benefits under the Purchase
      and Sale Agreement. Additionally, at the time of the Closing, we entered into
      a
      Master Security Agreement with Laurus, whereby we agreed to grant Laurus a
      continuing security interest in all of our assets, including without limitation,
      cash, cash equivalents, accounts receivable, deposit accounts, inventory,
      equipment, goods, fixtures and other tangible and intangible assets, which
      we
      now own or at any time in the future may acquire right, title or interest
      to.


-8-




SECURED CONVERTIBLE NOTE





In
      connection with the Securities Purchase Agreement, we issued Laurus a three
      (3)
      year Secured Convertible Note in the amount of $15,000,000, which 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 10.25%, with the prime rate at 8.25% as of March
      30,
      2007, 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, commencing on September 1, 2005. Additionally, if the Registration
      Statement covering the shares which the Note and Warrant are convertible into
      has been declared effective and our common stock has traded at least 25% above
      the "Fixed Conversion Rate," initially $0.62, which is subject to adjustment
      as
      described below, 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 (for example, if our common stock has
      traded at $0.93 for the five trading days preceding the due date of a monthly
      interest payment, which amount is 50% above the current Fixed Conversion Rate
      ($0.62), the Contract Rate will be reduced by an aggregate of two percentage
      points, one percentage point for each 25% increase that our common stock traded
      above the 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.





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 (as defined below). 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.


-9-





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 125%
      of
      the outstanding principal amount of the Note during the first year the Note
      is
      outstanding, 120% of the outstanding principal amount of the Note during the
      second year the Note is outstanding, and 115% of the outstanding principal
      amount of the Note during the period of time between the second anniversary
      of
      the Note until the Maturity Date.





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. In the event that we change our common stock
      into the same or a different number of securities by reclassification or
      otherwise, Laurus shall have the right to purchase an adjusted number of
      securities and kind of securities that would have been issuable as a result
      of
      such change with respect to the common stock (i) immediately prior to or (ii)
      immediately after, such reclassification, or other change at the sole election
      of Laurus.





The
      Fixed
      Conversion Price of the Note shall be 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.





Events
      of
      default under the Note include our failure to pay amounts due under the Note;
      breach of any covenants under the Note, if not cured within 15 days; breach
      of
      any warranties found in the Note or any other Related Agreement; 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; any change or
      occurrence likely to have a material adverse effect on the business, assets,
      liabilities, financial condition, our operations or prospects; our bankruptcy;
      a
      judgment against us in excess of $100,000, which has not been vacated,
      discharged or stayed, within thirty (30) days of the date of entry; our
      insolvency; a change in control of us; an indictment or other proceedings
      against us or any executive officer; if we breach any provision of the
      Securities Purchase Agreement, or any other Related Agreement; if the SEC puts
      a
      stop trade order or otherwise suspends our common stock from trading for a
      period of five (5) consecutive days
      or
      five (5) days during a period of ten (10) consecutive days; or our failure
      to
      deliver the common stock to Laurus pursuant to and in the form required by
      the
      Note.


-10-


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.





We
      also
      granted Energy Capital Solutions, LP (“ECS”), 900,000 warrants immediately
      exercisable at $0.80 per share, under a separate warrant agreement, with
      piggyback registration rights pursuant to a finder's agreement in connection
      with the Closing. The Warrant allows Energy Capital Solutions, LP to purchase
      the shares until 5:00 p.m. CST, June 30, 2008.





On
      March
      29, 2007, we entered into the First Amendment to common stock Warrant (the
      “Agreement”) with ECS. In consideration for ECS agreeing that the shares of
      common stock which the Warrant was exercisable did not have to be registered
      on
      the same Registration Statement as the Laurus stock was registered, we agreed
      to
      extend the expiration date of the Warrant from June 30, 2008 to June 30,
      2009.





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 $10,222.78
      (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),
      or with 75 days notice to us of their intent to convert and hold more than
      9.99%
      of our outstanding common stock, 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


-11-


under
      the
      Convertible Note and (b) the exercise of the Warrant, unless an event of default
      occurs and is continuing. On the day of the Closing, June 30, 2005, Laurus
      exercised a portion of the Option and received 3,675,000 shares of our common
      stock for an aggregate of $3,675, leaving an option to purchase 6,547,784 shares
      of our common stock for $6,547.78.





Under
      the
      Option, if we effect a reorganization, consolidation, merger or dissolution,
      Laurus has the right to receive the amount of stock or other property (including
      cash) which Laurus would have been entitled, if Laurus had exercised the Option
      in full immediately prior to the reorganization, consolidation, merger or
      dissolution, and the Option shall continue to be binding upon such issuer and/or
      the person acquiring substantially all of our properties and/or assets.
      Additionally, under the Option, in the event that we issue additional shares
      of
      common stock as a dividend or other distribution on common stock or preferred
      stock, subdivide our outstanding shares of common stock, or combine our
      outstanding shares of common stock into a smaller number of shares of common
      stock, the number of shares that Laurus shall receive in connection with the
      exercise of the Option shall be increased or decreased by multiplying the number
      of shares of common stock that would be issuable prior to such event by the
      amount of our issued and outstanding common stock outstanding after such event
      and dividing that number by the issued and outstanding shares of common stock
      issued and outstanding immediately prior to such event. 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, subject to the same limitation
      as in
      the Note and Warrant, as described above.





REGISTRATION
      RIGHTS AGREEMENT





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 a one week extension from Laurus, and as a
      result, the filing of our original Registration Statement past the 30 day
      deadline 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 the Amendment Agreements, described below. As a result
      of
      the First Amendment, Second Amendment, Third Amendment, Fourth Amendment, Fifth
      Amendment, Sixth Amendment and Seventh Amendment agreements with Laurus,
      described below, 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 a 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 currently held by Core Concepts,
      LLC. On February 12, 2007, the Registration
      Statement was declared effective by the Securities and Exchange Commission.


-12-





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 the Registration Rights Agreement, as amended. 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(k) 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).





FIRST
      AMENDMENT TO THE NOTE, WARRANT AND OPTION





Effective
      as of January 10, 2007, we entered into the "First Amendment to the Note,
      Warrant and Option," with Laurus (the "First Amendment"), which First Amendment
      was consented and agreed to by Century with an effective date of June 30, 2005,
      whereby we modified the terms of the Note, Warrant and Option (as described
      and
      defined below) to adjust the limitation on the amount of our outstanding shares
      which Laurus is able to hold at any one time from 4.99% of our issued an
      outstanding stock (under the original provisions of the Note, Warrant and
      Option) to 9.99% of our issued and outstanding stock, to change the exercise
      price of the Option from an aggregate of $1.00 for 10,222,784 shares of our
      common stock (under the Options original terms) to $0.001 per share, and to
      clarify that Laurus is not able to sell any shares held in connection with
      the
      Option until both (a) payment in full of all of the obligations and liabilities
      of us to Laurus under the Securities Purchase Agreement and the Note have been
      paid in full and (b) the exercise of the Warrant by Laurus (unless an event
      of
      default occurs and continues to occur as described in greater detail above).
      The
      discussions of the Note, Warrant and Option found throughout this Form 10-KSB
      take into account the changes to the Note, Warrant and Option, which were made
      in connection with the First Amendment.





NOVEMBER
      2005 PURCHASE AND SALE AGREEMENT AND JANUARY 2006 CLOSING





On
      November 1, 2005, we entered into a Purchase and Sale Agreement ("November
      2005
      Purchase and Sale Agreement") with Mr. Gerald W. Green, the "Seller." Pursuant
      to the November 2005 Purchase and Sale 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. The interests purchased total a 1.75%
      working interest and a 1.3125% net revenue interest in the leases (the "November
      2005 Interest").


-13-





The
      effective date of the sale of the Seller's November 2005 Interest was October
      1,
      2005. The closing date for the purchase was November 22, 2005, but was
      subsequently extended to January 3, 2006, through an Amendment to Purchase
      and
      Sale Agreement dated November 2, 2005. The November 2005 Purchase and Sale
      Amendment also provided that we would equally share the net revenue of the
      November 2005 Interest with the Seller for the month of October 2005; provided
      that we would wire Seller a deposit in the amount of 10% of the purchase price
      of the November 2005 Interest at the time of closing; that we will be
      responsible for all Approval for Expenditures ("AFE") on the new proposed
      Lindholm-Hanson #9 well, which is planned to spud (begin drilling) within thirty
      days of the date of the amendment; that any monies paid by Seller in connection
      with the #9 well prior to October 1, 2005, will be repaid to Seller by us;
      that
      we will be responsible for all AFE charges from the date of the November 2005
      Purchase and Sale Amendment for the workover on the #4 well; and that Seller
      shall be refunded for all unused and prepaid expenses with U.S. Enercorp, Ltd.
      for drilling the #11 and Fee #1 wells.





Additionally,
      under the November 2005 Purchase and Sale Agreement, we agreed to assume all
      duties and obligations of the Seller, express and implied, with respect to
      the
      purchased November 2005 Interest, including those arising under any lease,
      contract, agreement, document, permit, applicable law, statute or rule,
      regulation, or order of any governmental authority and defend, indemnify and
      hold Seller harmless from and pay or reimburse Seller for any and all claims
      in
      connection with the duties and obligations of Seller in connection with the
      ownership of the November 2005 Interest, before or after the effective date,
      except (a) to the extent any such claim has been asserted against Seller prior
      to the effective date, (b) as set forth in the November 2005 Purchase and Sale
      Agreement, or (c) any claim that is expressly assumed by Seller.





We
      also
      agreed to defend, indemnify and hold Seller harmless from and pay or reimburse
      Seller for any and all claims for damage to the environment, environmental
      cleanup, remediation or compliance, or for any other relief, arising directly
      or
      indirectly from or incident to the use, occupation, operation, maintenance
      or
      abandonment of any of the November 2005 Interest, or condition of the November
      2005 Interest, whether latent or patent, including without limitation,
      contamination of the property or premises with Naturally Occurring Radioactive
      Materials ("NORM"), whether such claim was caused by Seller's negligence or
      strict liability, whether in law or equity, excluding Seller, Seller's agents,
      employees or contractors gross negligence or willful misconduct.





The
      November 2005 Purchase and Sale Agreement called for certain assets to be
      excluded from the sale of the leases including:





A)
            All
                minute books, tax returns, partnership documents of Seller and their
                business records not related to the purchased
                interests;


-14-


B)
            All
                records that were (i) proprietary in nature, (ii) covered by the
                attorney-client privilege or work product doctrine, (iii) not readily
                severable from Seller's general records, or (iv) required by applicable
                law to be retained by Seller;





C)
            All
                rights and claims arising, occurring, or existing in Seller prior
                to the
                effective date including, but not limited to, any and all contract
                rights,
                claims penalties, receivables, revenues, recoupment rights, rights
                of
                reimbursement, audit rights, recovery rights (excepting gas imbalances),
                accounting adjustments, mispayments, erroneous payments or other
                claims of
                any nature relating solely to any time period prior to the effective
                date;
                and





D)
            Any
                claims, rights and interests of Seller or any of Seller's affiliates
                in
                and to any refunds of taxes or fees of any nature whatsoever which
                relate
                solely to and arise out of the period prior to effective
                date.





All
      production of oil, gas and other minerals from the November 2005 Interest prior
      to the effective date and all proceeds from the sale of such production remained
      the property of the Seller under the November 2005 Purchase and Sale Agreement.
      All such production upon and after the effective date and all proceeds from
      the
      sale thereof (other than one-half the net revenue interest from the November
      2005 Interest granted to Seller pursuant to the November 2005 Purchase and
      Sale
      Amendment) will be our property. We assumed all rights and/or liabilities of
      Seller arising from any gas imbalances affecting the November 2005 Interest
      as
      of the effective date and thereafter.





On
      January 3, 2006, we closed the November 2005 Purchase and Sale Agreement. At
      the
      closing and in accordance with the provisions of the November 2005 Purchase
      and
      Sale Agreement, the Seller paid us the proceeds actually received by the Seller
      and attributable to production during the period between the effective date
      and
      the closing. At the time of closing, we reimbursed the Seller approximately
      $154,750 for drilling and development costs assumed by us and attributable
      to
      the ownership and operation of the purchased leases which were paid by Seller
      and incurred at or after the effective date.





THIRD
      AMENDMENT AGREEMENT WITH LAURUS





On
      December 30, 2005, we entered into a Third Amendment Agreement ("Third
      Amendment") to extend the date we were required to file a Registration Statement
      covering the securities issuable to Laurus, and obtain effectiveness of such
      Registration Statement, 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).


-15-




In
      connection with the Third Amendment, we also entered into the Restated Note,
      which replaced and superseded the Convertible Note, and which 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 the Third
      Amendment.





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 $9,000,000 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.





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.


-16-


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). 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 provides 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 Second Restated Term
      Note, described below, 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.





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.


-17-




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 10.25%, with the prime rate at 8.25% as of March 30, 2007)
      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.





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 (described in greater detail below) (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 will be equal to the product of (a) .875 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


-18-


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"). 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.





In
      the
      event the Amortization Amount payable to Laurus during any month is less than
      $150,000, then Gulf Coast is required to make a cash payment to Laurus in an
      amount equal to the difference between $150,000 and the then applicable
      Amortization Amount.





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.





GULF
      COAST WARRANT





The
      Gulf
      Coast Warrant provides Laurus the right to purchase up to 961 shares of Gulf
      Coast's common stock, representing 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.





GUARANTIES





In
      connection with the Purchase Agreement, Gulf Coast entered into a Guaranty,
      whereby it agreed to guaranty all of our obligations and liabilities owed to
      Laurus in connection with the June 30, 2005 and September 19, 2005, Securities
      Purchase Agreements (the "2005 Purchase Agreements"), and any obligations and/or
      liabilities owed to Laurus pursuant to any agreements entered into in connection
      with the 2005 Purchase Agreements.





Additionally,
      in connection with the Purchase Agreement, we and Century, entered into a
      Guaranty, whereby we agreed to guaranty all of Gulf Coast's obligations and
      liabilities owed to Laurus in connection with the Purchase Agreement, and any
      obligations and/or liabilities owed to Laurus pursuant to any agreements entered
      into in connection with the Purchase Agreement (the "New Century/Century
      Resources Guaranty").





As
      a
      result of the Gulf Coast Guaranty and the New Century/Century Resources
      Guaranty, Gulf Coast, Century and we will remain liable for the obligations
      of
      the other parties until all indebtedness is repaid to Laurus by Gulf Coast,
      New
      Century and Century,
      under the various secured term notes and related agreements entered into and/or
      made by Gulf Coast, New Century and/or Century in favor of
      Laurus.


-19-





Pursuant
      to a Reaffirmation, Ratification and Amendment Agreement, simultaneously with
      Gulf Coast's receipt of accrued production revenue paid to Gulf Coast at the
      closing of the Asset Purchase Agreement, for the period from December 1, 2005,
      the effective date of the Asset Purchase Agreement, to May 1, 2006, we made
      a
      mandatory prepayment against the outstanding balance of our September 2005
      Note
      in an amount equal to eighty percent (80%) of the net accrued production revenue
      or $2,565,386. We paid this amount to Laurus on May 1, 2006 as partial payment
      of the $9,500,000 September 30, 2005, Secured Term Note, as amended, which
      Secured Term Note had an approximate remaining balance of $7,034,614 as of
      May
      1, 2006, not including any accrued or unpaid interest, and a remaining balance
      of $6,447,157 as of June 30, 2006.





Pursuant
      to a Reaffirmation, Ratification and Amendment Agreement, simultaneously with
      Gulf Coast's receipt of accrued production revenue paid to Gulf Coast at the
      closing of the Asset Purchase Agreement, for the period from December 1, 2005,
      the effective date of the Asset Purchase Agreement, to May 1, 2006, we made
      a
      mandatory prepayment against the outstanding balance of our September 2005
      Note
      in an amount equal to eighty percent (80%) of the net accrued production revenue
      or $2,565,386. We paid this amount to Laurus on May 1, 2006 as partial payment
      of the $9,500,000 September 30, 2005, Secured Term Note, as amended, which
      Secured Term Note had an approximate remaining balance of $7,034,614 as of
      May
      1, 2006, not including any accrued or unpaid interest, and a remaining balance
      of $ 6,351,391 as of April 4, 2007 .





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").


-20-





We
      also
      entered into a Reaffirmation and Ratification Agreement (the "New Century
      Reaffirmation Agreement"), whereby Gulf Coast agreed to make a mandatory
      prepayment of the outstanding balance on the June 2006 Gulf Coast Note in an
      amount equal to $224,440.14 on July 5, 2006, which represented 80% of the
      accrued revenue Gulf Coast received in connection with the June 2006 Asset
      Purchase Agreement from December 1, 2005, the effective date of the June 2006
      Asset Purchase Agreement, until the date the payment was made.





JUNE
      2006
      GULF COAST NOTE





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 was due July 1, 2006, and each succeeding month thereafter
      including the Maturity Date (each an "Amortization Amount").





Each
      monthly Amortization Amount was equal to the product of (i) one-eighth (.125)
      times (ii) 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").





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.


-21-





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.





SEVENTH
      AMENDMENT AGREEMENT WITH LAURUS





On
      or
      about October 12, 2006, with an effective date of October 15, 2006, we entered
      into a Seventh Amendment Agreement with Laurus (the "Seventh Amendment"), which
      amended the terms of our Registration Rights Agreement with Laurus. The Seventh
      Amendment extended the date we are required to have our Form SB-2 filing
      effective with the Securities and Exchange Commission pursuant to the
      Registration Rights Agreement to April 16, 2007. From May 2, 2006 to October
      12,
      2006, the date we entered into the Seventh Amendment Agreement, we entered
      into
      a total of four Amendment Agreements with Laurus, the Fourth Amendment
      Agreement, Fifth Amendment Agreement and Sixth Amendment Agreement, which
      extended the date we were required to file our registration statement and obtain
      effectiveness of such registration statement pursuant to the Registration Rights
      Agreement.





EIGHTH
      AMENDMENT AGREEMENT





On
      or
      about December 5, 2006, we entered into the Eighth Amendment Agreement (the
      "Eighth Amendment") with Laurus, whereby we amended the terms of the Warrant
      and
      Options to add a cashless conversion feature, whereby Laurus may exercise the
      Warrant and Options and receive an amount of shares of 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).


-22-





Laurus
      also agreed that we would no longer be bound by the Registration Rights
      Agreement, and therefore no longer be required to register the shares of common
      stock issuable to Laurus in connection with the conversion of the 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 Agreement 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.





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 10.25% per annum, with the prime rate as of March 27, 2007 of 8.25%
      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.





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.


-23-





In
      connection with the December 2006 Purchase Agreement, we, Century and Gulf
      Coast, entered into a Reaffirmation and Ratification Agreement with Laurus,
      whereby we agreed to ratify and confirm the terms of the June 30, 2005 closing
      documents and related documents, the September 19, 2005 closing documents and
      relating documents, the April 2006 closing documents and related documents,
      the
      June 2006 closing documents and related agreements and the December 2006 closing
      agreements and related agreements with Laurus, including the Second Restated
      Convertible Term Note (as defined below), the Restated Term Note (as defined
      below), the December 2006 Note, the $40,000,000 April 2006 Amended and Restated
      Secured Term Note, and the $5,000,000 June 2006 Secured Term Note owed to Laurus
      by Gulf Coast (collectively the "Closing Documents"); the events of default
      under the Closing Documents and the fact that an event of default by us or
      our
      subsidiaries under one of the Closing Documents would trigger an event of
      default under every Closing Document; the grants of security interests to Laurus
      in connection with Closing Documents; and we, Century and Gulf Coast agreed
      to
      release Laurus, and Laurus' employees, agents, representatives, consultants,
      attorneys, fiduciaries, officers, directors, partners, predecessors, successors
      and assigns, from any and all actions and causes of action, judgments,
      executions, suits, debts, claims, demands, liabilities, obligations, damages
      and
      expenses of any and every character, known or unknown, direct and/or indirect,
      at law or in equity, for or because of any matter or things done, omitted or
      suffered to be done by any of the above, prior to and including the date of
      execution of the Reaffirmation and Ratification Agreement and the Closing
      Documents.





Gulf
      Coast also entered into an Amended Guaranty with Laurus in connection with
      the
      December 2006 Purchase Agreement, whereby Gulf Coast agreed to individually
      guaranty the prompt payment by us of the amounts due under the Closing
      Documents. We, Gulf Coast and Century also entered into a Master Security
      Agreement in favor of Laurus, whereby we, Century and Gulf Coast granted Laurus
      a continuing blanket security interest in all of Gulf Coast's, Century's and
      our
      assets, including all of Gulf Coast's, Century's and our cash and cash
      equivalents, all rights to oil and gas leases and contracts currently owned,
      and
      any other oil and gas interests or contracts obtained by Gulf Coast, Century
      and
      us in the future, all property, hydrocarbons, operating equipment and well
      data,
      to secure the repayment of the Closing Documents and all other obligations
      and
      liabilities owing to Laurus.





The
      $16,210,000 received pursuant to the December 2006 Note was disbursed as
      follows:





o
            $1,000,000
                to us to be used as our management determines is in the best interest
                of
                the Company;





o
            $10,000,000
                to Laurus for repayment of the amount owing under the $5,000,000
                June 2006
                Gulf Coast Secured Term Note, with the
                remaining


-24-


balance
      to be applied to the principal of the April 2006 $40,000,000 Amended and
      Restated Secured Term Note;





o
            $210,000
                to Laurus Capital Management, L.L.C. for management
                fees;





o
            $30,000
                to Laurus for due diligence and document
                fees;





o
            $3,000
                to Loeb & Loeb LLP, as an escrow fee;
                and





o
            $4,967,000
                to our restricted bank account with Laurus at North Fork Bank, which
                amount is to be held by the bank as security for our obligations
                under the
                Closing Documents, with $1,500,000 payable to us every ninety days
                until
                the entire amount of the $4,967,000 is received by us, which amount
                shall
                be disbursed to us in Laurus' sole
                discretion.





In
      connection with the closing of the December 2006 Purchase Agreement, we and
      Laurus entered into a Second Amended and Restated Secured Term Note (the "Second
      Restated Term Note"), which amended the terms of our $9,500,000 Secured Term
      Note with Laurus, as amended and restated (the "Restated Convertible Note"),
      and
      a Second Amended and Restated Secured Convertible Term Note (the "Second
      Restated Convertible Note"), which amended the terms of our $15,000,000 Secured
      Convertible Term Note with Laurus, as amended and restated (the "Term
      Note").





The
      Second Restated Term Note revised the amortization payments required under
      the
      original Amended and Restated Secured Convertible Term Note (the "Restated
      Convertible Note"). Under the Restated Convertible Note, we were obligated
      to
      make monthly amortization payments under the Restated Convertible Note of
      $250,000 per month until the Restated Convertible Note was due and payable
      on
      June 30, 2008. The Second Restated Convertible Note revised the amortization
      payments we are required to make such that, beginning January 1, 2007, though
      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.





The
      Second Restated Term Note amended the maturity date of the Restated Term Note
      from January 2, 2007, until July 2, 2007, and revised the amortization language
      of the Restated Term Note, to provide for the monthly amortization amount due
      under the note to equal the greater of (i) eighty percent (80%) of the gross
      proceeds paid to us in respect of oil, gas and/or other hydrocarbon production
      arising from our 7.15% working interest in the Wishbone Field in the
      Lindholm-Hanson Gas Unit located in McMullen County, Texas, and (ii) the monthly
      interest payment, equal to 20% per annum, payable monthly in
      arrears.




-25-




RESEARCH AND DEVELOPMENT




We
      currently own licenses to 3-D seismic surveys and data over the South Sargent
      Field, Prado Field, the San Miguel Creek Field, and Mustang Creek Field which
      we
      plan to continue reprocessing and interpretation efforts on.





EMPLOYEES





We
      have
      six (6) contract employees, four (4) 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, Chief Financial
      Officer, 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


-26-





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.





**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 August 17, 2005 (the "Lease"). The Lease encompasses
      approximately 1,032 square feet of office space. The Lease term is until
      September 30, 2010. The monthly rent under the Lease is $1,952 per month from
      September 1, 2005 until March 31, 2006; $2,959 per month from April 1, 2006
      to
      June 30, 2006; 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 subsidiariy of the Company. Century Resources,
      Inc. 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 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
      five (5) producing wells on the Hamill Lease; Hamill #2, Hamill #10, Hamill
      #11,
      Hamill #14 and Hamill #17, with daily production in excess of approximately
      1,000 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.


-27-


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 2007, the Company may attempt
      a possible deepening outside of the casing.





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. The final reprocessing work was completed in the second quarter
      of 2006. Interpretation of the data is underway and a result of this
      interpretation project is expected to be completed in the second quarter of
      2007. New drilling locations have been identified on this lease for drilling
      in
      2007. The seismic and geological 3-D interpretation project process will be
      an
      ongoing process, over 2007 and 2008. 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;
      and is currently producing gas at the rate of approximately 100 MCF per day
      on
      an 8/64 inch choke. Additional probable and proven behind pipe gas sands have
      been identified in the Hamill #17 well for future recompletion attempts, when
      the current completion at 4,230 feet depletes.





During
      June 2005, work over operations commenced on the Hamill #14 well, which had
      also
      been shut-in since 2001. The wellhead and surface equipment were repaired and
      remedial operations commenced to drill out and remove a number of cement and
      cast iron bridge plugs set inside the well casing by previous operators. The
      well bore was cleaned out to a depth of 5,905 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; and is currently
      producing gas at the rate of 100 MCF per day on an 8/64 inch choke with a
      flowing tubing pressure of 460  pounds
      per square inch ("psi").  Additional probable
      and proven behind pipe gas sands have been identified in the Hamill #17 well
      for
      future recompletion attempts, if and when the current completion at 4,230 feet
      depletes.


-28-





During
      August 2006, a third workover operation commenced on the Hamill #10 well after
      the well ceased producing gas during August 2006. Remedial operations commenced
      to clean out produced sand from the well bore and a sand control screen and
      gravel pack were installed in the well. Production was restored on September
      5,
      2006 to 3,270 feet. Additional probable and proven reserves behind pipe gas
      sands have been identified in the Hamill #10 well for future recompletion
      attempts, when the current completion at 3,270 feet depletes. This well is
      currently producing at the rate of approximately 345 MCF per day on a 7/64
      inch
      choke, with a flowing pressure of 650 psi.





During
      August 2005 work over operations commenced on the Hamill #2 well. This well
      was
      a marginal producer and we removed a number of cast iron bridge plugs set inside
      the well casing by previous operators. The well was cleaned out to a depth
      of
      6,170 feet. In October of 2005, the Hamill #2 was recompleted in the 5,940
      foot
      sand at the rate of 950 MCF per day. During the first quarter of 2006 the Hamill
      #2 well was shut in due to the formation sand entering the well bore. The well
      was cleaned out and gravel packed in March of 2006 and the well is currently
      producing at the rate of approximately 320 MCF per day on a 7/64 inch choke,
      with a flowing tubing pressure of 550 psi.





During
      November of 2005, work over operations commenced on the Hamill #11 well. This
      well was a marginal producer and we removed a number of cast iron bridge plugs
      set inside the well casing by previous operators. The well was cleaned out
      to a
      depth of 6,000 feet. 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 producing
      at the rate of 55 MCF per day on a 7/64 inch choke, with a flowing tubing
      pressure of 240 psi.





During
      August of 2006, re-entry operations commenced on-Hamill #1-R well, that was
      originally drilled by Gulf Oil Corporation 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.





Compression
      was installed in the Sargent Field during July of 2006. Presently three
      producing wells are on compression, wells numbers 11, 14 and 17.  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 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 & 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.


-29-


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. A new 3D
      seismic survey was recently completed in this field, and this data will help
      identify further drilling locations in the Wilcox formation at 6,000 feet and
      possibly deeper targets down to 14,000 feet on our acreage. We acquired
      approximately a 30 square mile portion of this new 3-D seismic survey, and
      interpretation of the data is underway. We believe the 3D seismic will help
      us
      delineate additional drilling prospects on our acreage. To date two new drilling
      locations have been identified and the Herrera #9 well was drilled in February
      2007 and completed as an oil producer.





**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, Gulf Coast now
      owns a combined 100% working interest in 10 oil wells and one gas well and
      a 75%
      working interest in one additional oil well. 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 June 30, 2006:





Schedule
      of Acquired and Recently Drilled Wells and Mineral Interests in Mustang Creek
      Area Wells:





WORKING
              
              NET
                  REVENUEWELL
                  NAME
              
              INTEREST
              
              INTERESTHODDE
                  #1
              
              100
                  %
              
              0.7700
                  %DOUBLE
                  K #2
              
              100
                  %
              
              0.7700
                  %DOUBLE
                  K #3
              
              100
                  %
              
              0.7700
                  %KASSNER
                  #1
              
              100
                  %
              
              0.7700
                  %KASSNER
                  #2
              
              100
                  %
              
              0.7700
                  %TYLER
                  RANCH UNIT WELL #1
              
              100
                  %
              
              0.77375
                  %PEACOCK
                  #1
              
              100
                  %
              
              0.7700
                  %POWERS-SWAIM
                  UNIT WELL #1
              
              100
                  %
              
              0.7700
                  %SWAIM
                  58-1
              
              100
                  %
              
              0.7700
                  %WHEELER
                  #1
              
              75
                  %
              
              0.4375
                  %RABKE/MASPERO
                  UNIT #1
              
              100
                  %
              
              0.77375
                  %CAJUN
                  CAPER UNIT #1
              
              100
                  %
              
              0.75517154
                  %RABKE#2
              
              100
                  %
              
              0.75
                  %RABKE/MASPERO
                  UNIT #2
              
              100
                  %
              
              0.75
                  %
 
 
 -30-
  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 35 square miles of the new 3-D
        seismic
        data and has commenced an interpretation project to further delineate additional
        Wilcox drilling opportunities and possibly drilling targets at deeper
        depths.
 
 During
        the third quarter of 2006, we identified approximately twenty (20) un-drilled
        seismic anomalies based on our 3-D seismic interpretation project. We have
        contracted with an independent drilling company for drilling approximately
        ten
        (10) locations. As of March 31, 2007, we had drilled three successful wells,
        the
        Swaim 58-2, Rabke #2 and the Rabke Maspero Unit #2 wells. We had also drilled
        two dry holes, the Kassner #3 and the Rabke #1. We are continuing our drilling
        program into 2007. In July 2006, Tyler Ranch Well Unit #1, the only gas well
        on
        Mustang Creek field ceased producing, it remains shut in and non operational.
 
 During
        the first quarter of 2007, work over operations were completed on the Kassner
        #2. This well was non operating at the time it was purchased in 2006.  As
        of
        March 31, 2007, current daily 8/8ths production from the producing wells
        listed
        above was approximately 550 barrels of oil equivalent per day (BOPD) from
        thirteen 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. A newer 3-D seismic survey has been shot over the field
        and
        the surrounding area and we are in discussions to acquire a portion of the
        survey to reprocess and interpret, of which there can be no assurance. There
        are
        mapped attic oil locations on our leases and we anticipate drilling a new
        well
        location(s) in 2007, of which there can be no assurance.
  -31-
 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 Linholm-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 Linholm-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 January 1, 2006, there are ten (10) producing
        wells in the 640 acre unitized Linholm-Hanson Gas Unit. Cumulative production
        in
        the field has been approximately 21 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 with in 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 2,980 MCFGPD with a flowing tubing pressure of 2,500 psi.
 
 The
        following chart represents the net revenue interest to the Company in L-H
        Gas
        Unit and Lindholm Fee #1 for the year ended December 31, 2006.
 Well
              
              Revenue
              
              Production
                  Taxes
              
              Lease
                    Operating Expenses
              
              Net
                  RevenueLH-Gas
                  Unit #1
              
              $
              124,914
              
              $
              (6,786
              )
              $
              (13,684
              )
              $
              104,444LH-Gas
                  Unit #2
              
              
              527,245
              
              
              (29,910
              )
              
              (43,908
              )
              
              453,427LH-Gas
                  Unit #3
              
              
              361,682
              
              
              (20,449
              )
              
              (26,982
              )
              
              314,251LH-Gas
                  Unit #4
              
              
              661,482
              
              
              (35,998
              )
              
              (46,116
              )
              
              579,368LH-Gas
                  Unit #5
              
              
              692,748
              
              
              (39,095
              )
              
              (42,596
              )
              
              611,057LH-Gas
                  Unit #7
              
              
              -
              
              
              -
              
              
              (1,831
              )
              
              (1,831
              )LH-Gas
                  Unit #8
              
              
              125,502
              
              
              (5,217
              )
              
              (12,917
              )
              
              107,368LH-Gas
                  Unit #9
              
              
              705,279
              
              
              (40,698
              )
              
              (30,531
              )
              
              634,050LH-Gas
                  Unit #10
              
              
              497,049
              
              
              (27,633
              )
              
              (32,715
              )
              
              436,701LH-Gas
                  Unit #11
              
              
              953,391
              
              
              (58,092
              )
              
              (46,471
              )
              
              848,828Lindholm
                  Fee #1
              
              
              22,147
              
              
              (664
              )
              
              (6,231
              )
              
              15,252Total
              
              $
              4,671,439
              
              $
              (264,542
              )
              $
              (303,982
              )
              $
              4,102,915


Current
          well status in the Lindholm-Hanson Gas Unit and Lindholm Fee #1 at March
          1,
          2007:
  Well
                
                Status
                
                Daily
                    8/8THS
                  Production
                    (Mcf)
                
                Net
                      RevenueInterest(Mcf)LH-Gas
                    Unit #1
                
                Producing
                
                2,980
                
                364LH-Gas
                    Unit #2
                
                Producing
                
                1,186
                
                145LH-Gas
                    Unit #3
                
                Producing
                
                904
                
                110LH-Gas
                    Unit #4-C
                
                Producing
                
                290
                
                35LH-Gas
                    Unit #4-T
                
                Producing
                
                567
                
                69LH-Gas
                    Unit #5
                
                Producing
                
                1,470
                
                179LH-Gas
                    Unit #7
                
                Shut-in
                
                0
                
                0LH-Gas
                    Unit #8
                
                Producing
                
                510
                
                62LH-Gas
                    Unit #9
                
                Producing
                
                928
                
                113LH-Gas
                    Unit #10
                
                Producing
                
                745
                
                91LH-Gas
                    Unit #11
                
                Producing
                
                1,293
                
                158Lindholm
                    Fee #1
                
                Producing
                
                90
                
                8Daily
                    totals in MCF ofGas
                
                
                
                10,963
                
                1,334




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.
 
 On
        April
        26, 2005, the Company and Aquatic Cellulose (a co-owner in the Prado Field
        leases) entered into a Development Agreement relating to the Prado Field
        interests with Strong Petroleum Group, Inc. (a Texas corporation hereinafter
        "Strong") to invest and participate in the re-development of the Company's
        Prado
        field interests (the "Prado Assets" and the "Development Agreement"). The
        Development Agreement had an effective date of April 1, 2005 under which
        Strong
        was entitled to receive a Partial Assignment of the interests in the Prado
        Field, if Strong completed the Work Program before
        September 21, 2006. However, none of the required tasks were completed by
        Strong
        in accordance with the required schedule.
  -32-
  
 Strong
        did not earn any assignment in the Prado Assets and as a result of its
        non-performance, Strong redelivered to the Company all of the property and
        documents associated with the Prado Assets and, Strong's rights terminated
        with
        respect to any and all producing wells associated with the Prado Assets,
        effective September 21, 2006, and Strong has executed a Release of Rights
        indicating that it does not own or claim any interest in the Prado Assets.
 
 Also,
        in
        September of 2006, the Company purchased the 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 and we are also finalizing a seismic and geological
        interpretation of the field for possible future drilling and exploitation.
 
 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, Vikings 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.
 
 -33-
  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:
  2006
                
                
                2005
                
                
                2004AVERAGE
                    SALE PRICE OF OIL(Per
                    bbl.)
                
                $
                62.87
                
                $
                53.63
                
                $
                39.78AVERAGE
                    SALE PRICE OF GAS(PER
                    MCF)
                
                $
                5.99
                
                $
                7.10
                
                $
                5.08
   ANNUAL
          8/8THS GROSS OIL PRODUCTION FROM COMPANY OPERATED PROPERTIES FOR THE LAST
          THREE
          FISCAL YEARS:
 
 2006
                
                2005
                
                2004Barrels
                
                Barrels
                
                BarrelsMUSTANG
                    CREEK FIELD
                
                
                239,543
                
                
                --
                
                
                --SAN
                    MIGUEL CREEK FIELD
                
                
                12,461
                
                
                12,704
                
                
                14,756TENNA
                    FIELD
                
                
                10,085
                
                
                11,710
                
                
                9,066ANNUAL
                    TOTALS
                
                
                262,089
                
                
                24,414
                
                
                23,822
 
 ANNUAL
          8/8THS GAS PRODUCTION FROM COMPANY OPERATED PROPERTIES FOR THE LAST THREE
          FISCAL
          YEARS:
  2006
                  
                  2005
                  
                  2004SARGENT
                      SOUTH FIELD (MCF)
                  
                  
                  493,278
                  
                  
                  255,758
                  
                  
                  236,671TYLER
                      RANCH GAS UNIT #1 (MCF)*
                  
                  
                  14,320
                  
                  
                  --
                  
                  
                  --TOTAL
                  
                  
                  507,598
                  
                  
                  255,758
                  
                  
                  236,671
   *In
            July
            2006 the TYLER RANCH GAS UNIT #1 well stopped producing and in now shut-in
            and
            non operational.
 
 ANNUAL
            8/8THS GAS PRODUCTION FROM NON-OPERATED PROPERTIES FOR THE LAST THREE
            FISCAL
            YEARS:
 2006
                    
                    2005
                    
                    2004WISHBONE
                        FIELD-LINDHOLM
                        HANSONGAS
                        UNIT(MCF)
                    
                    
                    5,400,252
                    
                    
                    11,255,571
                    
                    
                    5,137,646
  -34-
  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 subsidiary’s acreage position at December 31, 2006:
  DEVELOPED
                    
                    UNDEVELOPEDGROSS
                    
                    NET
                    
                    GROSS
                    
                    NETGoliad
                        County, TX
                    
                    
                    269
                    
                    
                    269
                    
                    
                    183
                    
                    
                    183Jim
                        Hogg County, TX
                    
                    
                    1,280
                    
                    
                    640
                    
                    
                    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
                    
                    
                    4,156
                    
                    
                    4,136
                    
                    
                    5,011
                    
                    
                    5,011(Mustang
                        Creek Field)Wharton
                        County, TX
                    
                    
                    100
                    
                    
                    100
                    
                    
                    0
                    
                    
                    0Total
                    
                    
                    10,410
                    
                    
                    8,410
                    
                    
                    6,804
                    
                    
                    6,482




The
        Company's net undeveloped acreage, subject to expiration in 2007 is 0 acres,
        the
        expiration of the balance of undeveloped acreage is 5,194 acres in 2008;
        and
        1,288 acres in 2011.
 
 **PRODUCTIVE
        WELLS**
 
 The
        following table sets forth our gross and net productive oil and natural gas
        wells at December 31, 2006:




PRODUCING
              
              OIL
                  WELLS
              
              PRODUCING
              
              GAS
                  WELLSGROSS
              
              NET
              
              GROSS
              
              NETJim
                  Hogg County, TX
              
              
              2
              
              
              2
              
              
              0
              
              
              0Matagorda
                  County, TX
              
              
              0
              
              
              0
              
              
              5
              
              
              4McMullen
                  County, TX
              
              
              17
              
              
              16.75
              
              
              12
              
              
              2.647Wharton
                  County, TX
              
              
              2
              
              
              2
              
              
              0
              
              
              0TOTAL
              
              
              21
              
              
              20.75
              
              
              17
              
              
              6.647






-35-




**DRILLING
        ACTIVITY:**
 
 The
        following table sets forth the results of our drilling activities over the
        year
        ending December 31, 2006:


OIL
              
              WELLS
              
              GAS
              
              WELLSGROSS
              
              NET
              
              GROSS
              
              NETExploratory
                  Wells-Productive(1)(2)
              
              
              1
              
              
              1
              
              
              0
              
              
              0Exploratory
                  Wells-Non-productive(1)(3)
              
              
              1
              
              
              1
              
              
              0
              
              
              0Development
                  Wells
              
              
              0
              
              
              0
              
              
              0
              
              
              02
              
              
              2
              
              
              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 quarter ended December 31, 2006, 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. Three separate purchasers individually accounted for 100% of sales
        of
        natural gas products, Harvest Pipeline Company in the Company operated Sargent
        South gas field, and Magnus Energy Marketing, Ltd. on the Company operated
        Tyler
        Ranch Gas Unit well. (The Tyler Ranch Gas Unit ceased producing in July 2006
        and
        our gas contract on this property has terminated due to non-production).
        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, 2006.
  -36-
  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.
 
 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**
 
 We
        are
        not a party to, and our properties are not the subject of, any material pending
        legal proceeding nor to our knowledge are any such legal proceedings threatened
        against us.
 
 
 **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 None.
 
  -37-
  **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."
 
  **BID
                  PRICES****QUARTER
                  ENDED**
              
              **HIGH**
              
              **LOW**December
                  31, 2006
              
              $
              0.20
              
              $
              0.090September
                  30, 2006
              
              $
              0.27
              
              $
              0.140June
                  30, 2006
              
              $
              0.32
              
              $
              0.170March
                  31, 2006
              
              $
              0.32
              
              $
              0.170December
                  31, 2005
              
              $
              0.50
              
              $
              0.150September
                  30, 2005
              
              $
              0.57
              
              $
              0.325June
                  30, 2005
              
              $
              1.70
              
              $
              0.530March
                  31, 2005
              
              $
              1.75
              
              $
              0.700




There
        were approximately 475 holders of record of the common stock as of March
        30,
        2007. 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
  -38-
  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
        or
        about December 28, 2006, in connection with our entry into a Securities Purchase
        Agreement with Laurus, we sold Laurus a Secured Term Note in the amount of
        $16,210,000. We claim an exemption from registration afforded by Regulation
        S of
        the Act ("Regulation S") for the above issuances since the issuances were
        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
 
 During
        2006, our operations grew externally through two successful acquisitions
        of
        mineral interests in proved producing and undeveloped oil and gas leases
        in the
        Mustang Creek Field area ("Mustang Creek"), located in McMullen County, Texas.
        We formed a new wholly owned subsidiary, Gulf Coast Oil Corporation (“Gulf
        Coast” or “GCOC”)for financing these acquisitions. The formation of this
        subsidiary has contributed to the significant increase in our total assets
        of
        approximately $66 million on the consolidated balance sheet of New Century
        Energy, as of December 31, 2006, of which $29 million related to our new
        subsidiary Gulf Coast. Our total oil and gas proved reserves as of January
        1,
        2007, are estimated to total 2,055,000 equivalent barrels. Proved reserves
        for
        oil is estimated at 858,000 barrels, of which 719,000 barrels are expected
        from
        Gulf Coast leases. The 1,197,000 equivalent barrels of proved gas reserves
        are
        expected to be contributed by the Lindholm Hanson Gas Units and Wells ("L-H
        Gas
        Unit") acquired by New Century Energy in three acquisitions during 2005 and
        2006
        and our proved producing and proved undeveloped reserves associated with
        our
        Hamill & Hamill lease in the South Sargent Field in Matagorda County,
        Texas.
  -39-
   We
        achieve production and proved reserve growth primarily through producing
        property acquisitions, followed by low-risk development drilling generally
        funded by cashflow from production and outside financing. An unstable world
        market for gas and oil coupled with a mild winter in the fourth quarter of
        2006
        caused the prices of both gas and oil to drop significantly for the year
        ended
        December 31, 2006, as compared to the steady rise in gas and oil prices over
        the
        two prior years. The fluctuating market prices have not been reflected in
        the
        cost of operating the field. We continue to be challenged with rising cost
        trends that have put pressure not only on our operating costs, but also on
        our
        capital costs.
 
 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.
 
 During
        2006, we secured three additional debt instruments to finance acquisition
        growth
        and development of existing fields. A $40 million April 2006 note and a $5
        million June 2006 note were issued by Gulf Coast Oil Corporation, to finance
        the
        acquisitions in the Mustang Creek Area. In late December 2006, New Century
        signed a $16.2 million note to refinance a portion of the Gulf Coast high
        interest debt and to make funds available for development in existing fields.
        In
        addition, amendments were signed to extend the maturity date of the $9.5
        million
        2005 Secured Term Note, which is now due July 2, 2007; and to reduce the
        monthly
        principal payment due on the 2005 $15 million Amended Convertible Note.
 
 Our
        goal
        for 2007 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 2007 development drilling budget is approximately $8,000,000.
        While an acquisition budget has not been formalized, we plan to actively
        review
        additional acquisition opportunities during 2007. 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.
 
 -40-
 OPERATED
          PROPERTIES:
 
 As
          of
          December 31, 2006, we estimated that our daily deliverability was approximately
          2,300 Mcf of gas per day, and 620 Bpd of crude oil per day on Company operated
          properties. In the fourth quarter of 2006, we commenced our drilling program
          in
          McMullen County and as of March 30, 2007, we had drilled six prospects
          and set
          production casing in four (4) new wells. This drilling program will continue
          through the second quarter of 2007, and into the third quarter of 2007,
          as we
          continue to drill our prospects in McMullen County. 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 2007 and beyond.
          Our gas
          production declined in the South Sargent Field due to natural depletion
          of
          reservoirs over time. We have identified 5 new locations to be drilled
          in this
          field and its surrounding area in 2007 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 2007, to exploit probable undeveloped gas reserves
        associated with this prospect.
 
 During
        2006, we continued interpretation of our 3-D seismic data base in Matagorda
        County, Texas. We received results of our first reprocessed seismic data
        in the
        first quarter of 2005 and completed the first phase of our structural and
        stratigraphic interpretation in the fourth quarter of 2005. We believe that
        the
        reprocessed 3-D seismic data allows us to better locate and optimize the
        structural placement of our new drilling locations.
 
 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 production growth potential and will be an important source
        of
        our reserve growth for the foreseeable future, of which there can be no
        assurance.
 
 During
        2006 we acquired additional licenses to 2D and 3D seismic data in McMullen
        and
        Matagorda Counties. We also purchased two new 3D computer workstations and
        software packages to evaluate and interpret these 2D and 3D seismic data
        sets.
        We also hired two (2) fulltime exploration professionals to guide these
        interpretation projects.
 
 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."
  -41-
  As
        of
        December 31, 2006, we estimate that daily gas deliverability from Wishbone
        Field
        was approximately 11 MMCF of gas per day to the 8/8ths interest, with net
        production to the Company's working interest (13.45%) of approximately 1.4
        MMCF
        of gas per day.
 
 As
        of
        January 1, 2007, our third party engineers have attributed over 6.184 billion
        cubic feet of total proved gas reserves in the Wishbone Field to our net
        interest, with approximately $32 million of undiscounted future net income
        attributed to our interests in the Wishbone Field. The acquisition of the
        Wishbone interest helped to increase our proved gas reserves
        significantly.
 
 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 2,980 MCFGPD with a flowing tubing pressure of 2,500 psi.
 
 We
        currently have development plans in the Wishbone Field to drill additional
        new
        well locations to exploit proven, probable and possible gas reserves in 2007
        or
        2008 as the price of gas and cost of drilling allow.
 
 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 could 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.
  -42-
  
 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
        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.
  -43-
  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.
  -44-
  
 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.
 
 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 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.
 
 With
        the
        Third Amendment to the 2005 Amended Convertible Note and the December Option,
        the Company has determined that a greater than 10% difference in the net
        present
        value of the remaining cash flows of both the original Convertible Note and
        the
        New Convertible Note has occurred. Therefore, the original Convertible Note,
        along with the related unamortized discounts and deferred loan costs, has
        been
        extinguished and a New Convertible Note has been recorded at its fair value
        on
        December 30, 2005. The extinguishment required the Company to record an
        extinguishment debt expense of $8,309,759.
  -45-
  
 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.
 
 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.
 
 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.
  -46-
  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) will be effective for us on
        January 1, 2006.
 
 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".
 
 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 intends to adopt FSP EITF 00-19-2 beginning in 2007. The adoption
        of
        this FSP upon the Company's financial statements has not been
        determined.
 
 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. SFAS 158 is effective for fiscal years ending after December 15, 2006.
        We
        have no defined benefit plans; therefore we do not expect the adoption of
        SFAS
        158 to have an impact on our consolidated financial position, results of
        operations or cash flows.
  -47-
   
 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. This interpretation is
        effective for fiscal years beginning after December 15, 2006. We are in the
        process of evaluating the impact of the adoption of this interpretation on
        our
        consolidated financial position, results of operations or cash
        flows.
 
 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. Adoption is required as of the beginning of
        the
        first fiscal year that begins September 15, 2006. Early adoption is permitted.
        The adoption of SFAS 156 is not expected to have a material effect on our
        consolidated financial position, results of operation or cash
        flows.
 
 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. The provisions of SFAS
        155
        are effective for all financial instruments acquired or issued after fiscal
        years beginning after September 15, 2006. We are currently assessing the
        impact
        that the adoption of SPAS 155 will have on our consolidated financial position,
        results of operations or cash flows.
 
   -48-
  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 on our
        Company’s financial statements has not yet been determined.
  -49-
  **RESULTS
        OF OPERATIONS:**
 
 **COMPARISON
        OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2006 AND
        2005**
 
 Revenues
        -
 
 Our
        revenues are summarized as follows for the year ended December 31:
  2006
                
                2005
                
                %
                    ChangeOil
                    sales
                
                $
                8,065,927
                
                $
                1,064,801
                
                
                658
                %Gas
                    sales
                
                
                6,797,801
                
                
                5,854,083
                
                
                16Oil
                    and gas
                
                
                14,863,728
                
                
                6,918,884
                
                
                115Gain
                    on sale of oil and gas interest
                
                
                44,766
                
                
                98,181
                
                
                (54
                )Gas
                    operations consulting
                
                
                18,708
                
                
                --
                
                
                100Total
                    revenues
                
                $
                14,927,202
                
                $
                7,017,065
                
                
                113
                %
  Oil
            sales
            rose $7 million in 2006 primarily due to the Mustang Creek acquisitions,
            which
            increased our oil well capacity by 10 wells. Revenue of $6,849,266 (105,625
            barrels) was generated from the Mustang Creek field in 2006. Also contributing
            to the significant increase in 2006 oil revenue was the increase in the
            price of
            oil in the first three quarters of 2006, compared to oil prices in 2005.
            The
            average price of oil for our operated and non operated properties was
            $62.87 per
            barrel in 2006 compared to $53.63 during 2005. Beginning in the third
            quarter of
            2006, oil prices became unstable and started to rapidly decline. The
            price of
            oil per barrel averaged $71.82 during July 2006 but dropped to an average
            of
            $57.93 per barrel by the end of the year.
 
 The
            major
            contributor of the $943,718 increase in gas sales in 2006 was a 93% increase
            in
            production (493,277 Mcf’s) at the South Sargent Field. The higher production,
            and revenue increase of $687,368, reflects the benefits of recompletion
            done to
            the Hamill wells during 2005. The lone gas well of the Mustang Creek
            acquisitions, Tyler Ranch Unit #1 contributed $214,196 to our increase
            in 2006
            gas sales with production at 32,943 Mcf’s. Gas sales from our 2005 and 2006
            acquisitions of the Lindholm-Hanson Gas Unit (the "L-H Gas Unit") yielded
            an
            increase of $56,105 in gas revenue. Offsetting the positive effect of
            increased
            production during the year ended December 31, 2006, was the impact of
            decreasing
            gas prices. The average price of gas dropped from $8.14 per MMBTU in
            January
            2006 to $6.51 per MMBTU in December 2006.
 
 In
            October 2006 we sold our 14% working interest in the University # 103
            well
            located in Lancaster Hill Strawn Field, Crockett County, Texas for $44,766.
  -50-
  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:
  2006
                  
                  2005
                  
                  %
                      ChangeExploration
                  
                  $
                  1,128,134
                  
                  $
                  134,579
                  
                  
                  738
                  %Lease
                      Operating
                  
                  
                  1,509,150
                  
                  
                  640,455
                  
                  
                  136Production
                      Taxes
                  
                  
                  704,051
                  
                  
                  393,090
                  
                  
                  79Depreciation,
                      depletion and amortization
                  
                  
                  9,737,889
                  
                  
                  2,177,485
                  
                  
                  347General
                      and administrative
                  
                  
                  1,291,295
                  
                  
                  2,296,879
                  
                  
                  (44
                  )Total
                      expenses
                  
                  $
                  14,370,519
                  
                  $
                  5,642,488
                  
                  
                  155
                  %
  
 Exploration
            expenses rose $993,555 in 2006, compared with expenses in 2005, due mainly
            to
            the write-off of the McAdams #1 and Kassner #3 dry wells during the year
            and the
            purchase of seismic data computer software programs.
 
 The
            added
            costs associated with operating the wells in the Mustang Creek acquisitions
            gave
            rise to $541,150 of the $868,695 increase in lease operating expenses
            for the
            year ended December 31, 2006, compared to the year ended December 31,
            2005.
            Also, due to the rising cost of doing business, there was a slight increase
            in
            lease operating expense for all the oil and gas wells owned by our Company
            in
            2006, compared to 2005. The $310,961 increase in production taxes in
            2006 when
            compared to 2005 is a reflection of our increased sales during the reported
            periods. The production tax rates have not changed during any of the
            periods
            presented.
 
 Depreciation,
            depletion and amortization increased by $7,560,404 for the year ended
            December
            31, 2006, compared to the year ended December 31, 2005, primarily due
            to the
            $36,036,970 increase in our depletable asset base in oil and gas properties
            as a
            result of our two acquisitions in the Mustang Creek area and the third
            acquisition at the Lindholm Hanson Gas Unit during the year ended December
            31,
            2006.
 
 General
            and administrative expenses decreased by $1,005,584, or 44%, for the
            year ended
            December 31, 2006, compared to the year ended December 31, 2005, which
            decrease
            was primarily associated with a $1.6 million stock based compensation
            charge for
            consulting services incurred during 2005, which charge was not represented
            during the year ended December 31, 2006.
  
 -51-
  Other
            Income (Expense)-
 Other
            income (expense) consisted of the following for the year ended December
            31:
  2006
                    
                    2005Net
                        decrease in fair valueof
                        derivative liabilities
                    
                    $
                    1,296,373
                    
                    $
                    7,117,882Loss
                        on early extinguishment of debt
                    
                    
                    (204,170
                    )
                    
                    (8,309,759
                    )Interest
                        and amortization of discounton
                        debt expense
                    
                    
                    (7,958,392
                    )
                    
                    (3,872,265
                    )All
                        other, net
                    
                    
                    211,937
                    
                    
                    290,741Other
                        income (expense), net
                    
                    $
                    (6,654,252
                    )
                    $
                    (4,773,401
                    )
  The
                Convertible Note for the first acquisition of 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. On December 30, 2005, we executed a Third Amendment
                to the
                Convertible Note, whereby additional options were granted to the
                lender (the
                December Option, as described above) as consideration for extending
                the date we
                were required to have our registration statement filed and declared
                effective
                with the SEC, pursuant to the Registration Rights Agreement, as described
                in
                greater detail above. 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, 2006 and
                2005, the net
                decrease in fair value, or increase in income, by derivative was
                as
                follows:
  2006
                      
                      2005Laurus
                          Warrant
                      
                      $
                      389,577
                      
                      $
                      2,871,240Laurus
                          Stock Option
                      
                      
                      392,765
                      
                      
                      3,571,005Single
                          compound embedded derivativewithin
                          Convertible Note
                      
                      
                      210,426
                      
                      
                      675,637Laurus
                          December Option
                      
                      
                      303,605
                      
                      
                      --Decrease
                          in fair value of derivative liabilities
                      
                      $
                      1,296,373
                      
                      $
                      7,117,882
  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 since the issuance of
                  the note, the
                  fair value of these derivative liabilities has decreased sharply,
                  as shown by
                  the table above. A layered discounted probability-
  -52-
  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 representing only one component of the methodology, resulted
                  in the effect
                  on income not being as great as 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. The
                  extinguishment
                  amount is equal to the unamortized discount and deferred loan costs
                  on the June
                  2006 Gulf Coast Note.
 
 On
                  December 30, 2005, the execution of the Third Amendment to the
                  Convertible Note,
                  triggered an early extinguishment of the Convertible Note for financial
                  reporting purposes, and resulted in a loss of $8,309,759. The extinguishment
                  amount was comprised of the fair value of the additional Laurus
                  December Option
                  granted, the change in fair value of the single compound embedded
                  derivative and
                  the extinguishment of the related unamortized discounts to the
                  note and the
                  related deferred financing costs.
 
 Interest
                  and amortization of discount on debt for each of the years ended
                  December 31,
                  2006 and 2005 can be broken down as follows:
 
  2006
                        
                        2005Interest
                            expense on notional balance
                        
                        $
                        6,190,935
                        
                        $
                        1,215,556Accretion
                            of note discount
                        
                        
                        1,485,791
                        
                        
                        2,034,910Amortization
                            of deferred loan costs
                        
                        
                        281,661
                        
                        
                        558,6277,958,387
                        
                        
                        3,809,093Other
                            interest expense
                        
                        
                        5
                        
                        
                        63,172Total
                            interest expense
                        
                        $
                        7,958,392
                        
                        $
                        3,872,265
  The
                    interest on notional balances during the years ended December
                    31, 2006 and 2005,
                    represents the stated interest on the Restated and Amended Convertible
                    Note and
                    the two Secured Term Notes held by us and the two Secured Term
                    Notes held by
                    Gulf Coast Oil Corporation, our wholly owned subsidiary, using
                    the effective
                    interest method. Each discount is amortized over the original
                    life of the
                    notes.
 
 The
                    accretion of note discount for the periods presented refers to
                    the accretion of
                    the unamortized discount on the four Secured Term Notes of the
                    consolidated
                    entity using the effective interest method. Each discount is
                    amortized over the
                    original life of the note.
  -53-
  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 Secured
                    Term Note
                    financings. Such costs are capitalized as deferred loan costs
                    and amortized over
                    the respective life of the note.
 
 Also
                    included in other income (expense), are the following line items:
 
  2006
                          
                          2005Release
                              of Vertica liabilities
                          
                          $
                          60,815
                          
                          $
                          509,028Other
                              Vertica expenses
                          
                          
                          --
                          
                          
                          (196,133
                          )Other
                              income
                          
                          
                          154,407
                          
                          
                          64,708Other
                              expenses
                          
                          
                          (3,284
                          )
                          
                          (104,492
                          )Gain
                              on sale of equipment
                          
                          
                          --
                          
                          
                          17,630Total
                              all other, net
                          
                          $
                          211,938
                          
                          $
                          290,741
  
 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 $6,097,568 for the year ended December
                    31, 2006, as
                    compared to a net loss of $3,398,824 for the year ended December
                    31, 2005. The
                    Mustang Creek acquisitions were a significant part of the $7.9
                    million increase
                    in revenue in 2006 over 2005; however such increase had a corresponding
                    cost as
                    our depletion expense increased $7.6 million, and we had a higher
                    interest cost
                    of $4.1 million, which mitigated many of the advantages of these
                    acquisitions in
                    2006. Additionally, the derivative accounting of our Laurus Convertible
                    Note,
                    Warrant and Options, as described below, and the resulting increase
                    in interest
                    expense for the year ended December 31, 2006, compared to the
                    year ended
                    December 31, 2005, which resulted from the accounting treatment
                    associated with
                    such derivative accounting due to the decrease in the value of
                    our shares of
                    common stock was a significant factor in our increase in net
                    loss for the year
                    ended December 31, 2006, compared to the prior year’s period.
 
 -54-
 
 **LIQUIDITY
                    AND CAPITAL RESOURCES**
 
 Cash
                    and
                    cash equivalents -
 
 We
                    believe our cash and cash equivalents balance of $7,524,278,
                    plus restricted
                    cash of $4,967,109, as of December 31, 2006, is sufficient to
                    meet our working
                    capital requirements in 2007. Since October 2006, we have been
                    actively drilling
                    successful exploratory oil wells. We believe that three of these
                    wells will
                    begin producing during 2007, of which there can be no assurance.
                    It is
                    anticipated that the cash flow from the additional capacity these
                    wells will
                    create, along with the positive cash flow from current operations
                    and a short
                    term reliance by consumers for our products will provide the
                    cash flow required
                    to meet our operating needs. Furthermore, the reduction of principal
                    payments
                    under the Convertible Note will have a favorable effect on our
                    projected 2007
                    cash flows. We also plan to pursue attractive financing opportunities
                    to enable
                    us to pursue our oil and gas exploration and production program,
                    including
                    external growth through acquisition.
 
 Total
                    Assets -
 
 We
                    had
                    total assets of $66,045,681 as of December 31, 2006, which included
                    $15,116,923
                    of current assets, mainly comprised of $7,524,278 of cash, $4,967,109
                    of
                    restricted cash and $1,932,235 of accounts receivable; $150,453
                    of equipment,
                    net of $36,378 of accumulated depreciation; $50,662,548 of oil
                    and gas
                    properties net of accumulated depletion of $12,640,446; and deferred
                    loan costs
                    and other assets of $115,757.
 
 Working
                    capital -
 
 At
                    December 31, 2006, we had a working capital deficit of $531,295.
                    Additionally,
                    as of December 31, 2006, we had current liabilities of $15,648,218,
                    which
                    included $11,580,577 of current portion of notes payable due
                    in 2007 and
                    $2,062,374 in derivative liabilities which are subject to wide
                    fluctuations from
                    quarter-to-quarter. The classification of our derivative liabilities
                    may change
                    when FASB Staff Position (FSP) No. EITF 00-19-2 becomes effective
                    in 2007. We
                    are currently evaluating the impact this accounting pronouncement
                    will have on
                    our financial statements which has not yet been determined. Our
                    current assets
                    of $15,116,923 at December 31, 2006, are substantially liquid
                    as they comprise
                    cash and cash equivalents of $7,524,278, restricted cash of $4,967,109,
                    and
                    accounts receivable of $1,932,235. We believe these current assets
                    are
                    sufficient, together with our anticipated positive cash flows
                    from operations in
                    2007, to enable us to meet our financial obligations in 2007.
 
  
 -55-
  Liabilities
                    -
 Total
                    liabilities as of December 31, 2006 were $69,720,602, and included
                    current
                    liabilities of $15,648,218; notes payable in connection with
                    amounts loaned to
                    us by Laurus, less current portion of $53,681,198; and asset
                    retirement
                    obligation of $391,186.
 
 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-
  2006
                            
                            2005Net
                                cash provided by /(used in)Operating
                                activities
                            
                            $
                            5,162,488
                            
                            $
                            2,044,147Investing
                                activities
                            
                            
                            (43,034,594
                            )
                            
                            (21,762,897
                            )Financing
                                activities
                            
                            
                            42,084,719
                            
                            
                            22,577,634Increase/(decrease)
                                in cash andcash
                                equivalents
                            
                            $
                            4,212,613
                            
                            $
                            2,858,884Year
                                ended December 31,
                            
                            
                            2006
                            
                            
                            2005Cash
                                and cash equivalents
                            
                            $
                            7,524,278
                            
                            $
                            3,311,665
  
 Operating
                      activities -
 
 Year
                      ended December 31, 2006
 
 Cash
                      flows from operating activities of $5,162,488 for the year
                      ended December 31,
                      2006, were adversely impacted by a net loss for the year of
                      $6,097,568 and other
                      non-cash adjustments of $82,865. Offsetting the negative impacts
                      were the
                      benefits of non-cash charges for depletion, depreciation and
                      amortization of
                      $9,737,889; non-cash financing cost adjustments, which netted
                      to $ 675,249 (net
                      decrease in fair value of derivative liabilities, the loss
                      on early
                      extinguishment of debt and accretion of discount and loan cost
                      on debt); changes
                      in working capital components which totaled $ 896,487 and $33,296
                      for the asset
                      retirement obligation for
                      the
                      year ended December 31, 2006.
 
 -56-
 
 Year
                      ended December 31, 2005
 
 Cash
                      flows from operating activities of $2,044,147 for the year
                      ended December 31,
                      2005, were adversely impacted by a net loss for the year of
                      $3,398,824, changes
                      in working capital components which netted to $1,508,846 driven
                      by an increase
                      in accounts receivable, and other non-cash adjustments netting
                      to $613,582. The
                      Company benefited from non cash charges for depletion, depreciation
                      and
                      amortization of $2,177,485 and stock for services of $1,602,500.
                      The Company
                      also benefited from positive cash flows in regards to the Convertible
                      Note-related non-cash adjustments netting to $3,785,414 (net
                      increase in fair
                      value of derivative liabilities, the loss on early extinguishment
                      of debt and
                      accretion of discount and loan cost on debt).
 
 Investing
                      Activities -
 
 Year
                      ended December 31, 2006
 
 Cash
                      flows used in investing activities of $43,034,594 for the year
                      ended December
                      31, 2006, were primarily attributed to the Mustang Creek area
                      acquisitions which
                      totaled $32,787,219. We completed a third acquisition of the
                      L-H Gas Unit for
                      $1,530,874 in cash, excluding an initial deposit of $189,000
                      paid in 2005. We
                      made additional investments in oil and gas properties totaling
                      $3,746,808. Other
                      investing activities netted to a cash outflow of $2,584 during
                      the year ended
                      December 31, 2006. A portion of the proceeds totaling $4,967,000
                      from the
                      December 2006 $16.2 million note was restricted for our drilling
                      program by our
                      lender. On March 30, 2007, we requested a $1,500,000 tranche
                      from this
                      restricted account, which funds have not been released to date.
 
 Year
                      ended December 31, 2005
 
 Cash
                      flows used in investing activities of $21,762,897 for the year
                      ended December
                      31, 2005, were primarily attributed to the first and second
                      acquisitions of the
                      L-H Gas Unit, which totaled $18,840,592. Additionally, we made
                      capital
                      expenditures for other oil and gas properties of $2,639,997
                      during 2005 in
                      accordance with our exploration and production program. Other
                      investing
                      activities netted to a cash outflow of $282,308 during the
                      year ended December
                      31, 2005.
 
 Financing
                      activities -
 
 Year
                      ended December 31, 2006
 
 Cash
                      flows from financing activities of $42,084,719 for the year
                      ended December 31,
                      2006, were generated from net proceeds (after $1,654,705 discount
                      paid to
                      lender) totaling $43,345,295 on the Gulf Coast 2006 Note and
                      the June 2006 Note
                      issued to acquire the Mustang Creek Area. In addition, the
                      Secured Note issued
                      in December 2006 generated $15,970,000 cash (after $240,000
                      discount paid to
                      lender). Offsetting the positive cash flows from financings
                      was $17,119,155 in
                      debt payments and $111,421 to pay deferred loan costs for notes
                      issued in
                      2006.
 
 -57-
 
  
 Year
                      ended December 31, 2005
 
 Cash
                      flows from financing activities of $22,577,634 for the year
                      ended December 31,
                      2005, were generated from proceeds totaling $24,500,000 on
                      the Convertible Note
                      and Secured Term Note in connection with the first and second
                      acquisitions of
                      the L-H Gas Unit. These proceeds were reduced by the deferred
                      financing costs
                      paid at closing of $1,805,156, and retirement of existing long-term
                      debt of
                      $776,158. Additionally, our sale of unregistered common stock
                      netted $655,273 of
                      proceeds during the year.
 
 **Outlook:**
 
 Our
                      objective in 2007 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
                      three 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.
 
 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 2007
                      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 2007 development drilling budget is approximately $8,000,000.
                      While an
                      acquisition budget has not been formalized, we plan to actively
                      review
                      additional acquisition opportunities during 2007. 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.
 
 -58-
 
 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.
 
 **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**
 
 **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;
                      $9,500,000 from the sale of a separate Secured Term Note to
                      Laurus in 2005; and
                      $16,210,000 from the sale of a Secured Term Note in December
                      2006. 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"). As
                      a result, as of
                      December 30, 2006, we had $7,524,387 of cash on hand and $4,967,000
                      in
                      restricted cash.
 
 
 -59-
 
 We
                        believe our cash on hand as of December 31, 2006, and the
                        revenues which we
                        expect to generate from the sale of oil and gas this year
                        will allow us to pay
                        our outstanding liabilities and continue our business operations
                        for at least
                        the next twelve months. However, 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.
                        As such, we may need to
                        raise additional capital much sooner than the twelve month
                        estimate which our
                        management currently feels is reasonable. 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 10.25% per year (as of March 30, 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
                      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 2,
                      2007.
 
 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% (currently 10.25%, with the prime
                      rate at 8.25% as
                      of March 31, 2007) 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).
 
 -60-
 
 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%, until paid, currently equal to 10.25% 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.
 
 While,
                      we
                      do have sufficient cash on hand to pay the April 1, 2007 payment
                      of $100,000 of
                      principal on the Note and the July 1, 2007 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 cannot make any assurances
                      that we will have
                      funds available to repay the full $15,000,000 remaining on
                      the Note, 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
                      a
                      result as of March 30, 2007, we will need to raise or otherwise
                      generate
                      approximately $13,200,000 to repay the Note (not including
                      any adjustments for
                      payment of principal or conversion into shares of our common
                      stock) by June 30,
                      2008, $16,210,000 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 $32,189,731 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 2, 2007 and October 28, 2009, respectively. If we fail
                      to raise this
                      money, we could be forced to abandon or curtail our business
                      operations.
 
 -61-
 
 **WE
                      MAY FACE DELAYS AND/OR MAY BE PREVENTED FROM EXECUTING OUR
                      CURRENTLY PLANNED
                      DRILLING ACTIVITIES IF WE DO NOT RECEIVE THE APPROXIMATELY
                      $5,000,000 IN CASH
                      HELD IN A RESTRICTED ACCOUNT, WHICH LAURUS HAS SOLE DISCRETION
                      IN RELEASING TO
                      US.**
  We
                      currently have restricted cash of $4,967,109, which cash is
                      restricted by Laurus
                      and held in a bank account for use by us in connection with
                      future drilling
                      operations on the Manti Property by Gulf Coast. The restricted
                      cash must be
                      released by Laurus for our and Gulf Coast’s use, and although Laurus has agreed
                      to release $1,500,000 of the restricted cash every ninety (90)
                      days after the
                      closing date of the December 2006 Note (December 28, 2006),
                      until such funds
                      have been fully dis bursed ,
                      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, and although we have requested our first $1,500,000
                      tranche of funds
                      to date, we have not received those funds from Laurus.  If we do not
                      receive the $1,500,000 from the restricted bank account, which
                      we have requested
                      to date, and/or 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.
  
 **WE
                      RELY HEAVILY ON EDWARD R. DESTEFANO, OUR SOLE 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,
                      Chief Financial
                      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 August 30, 2008; 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.
 
 -62-
 
 **EDWARD
                      R. DESTEFANO OWNS APPROXIMATELY 67.0% 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 sole executive officer, holds
                      37,514,350 shares
                      of our common stock, representing approximately 67.0% of the
                      outstanding shares
                      of our common stock (and which will represent approximately
                      37.8% 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.
 
 **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 with Laurus (described
                      in greater
                      detail below), 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.
 
 -63-
  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.
 
 -64-
 
 **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.
 
 -65-
 
 **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, 2006 (on a BOE using 6 MCF equals 1 barrel
                      of oil) more than
                      approximately 73% 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 gas and gas
                      prices are likely to affect us more than oil prices because
                      as of December 31,
                      2006 (on a BOE using 6 MCF equals 1 barrel of oil) more than
                      approximately 58%
                      of our Total Proved reserves (PDP, PDNP and PUD reserves) for
                      the Company and
                      its subsidiary Gulf Coast Oil Corporation were gas. The prices
                      for oil and
                      natural gas are subject to a variety of additional factors
                      that are beyond our
                      control. These factors include:
 
 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.
 
 -66-
 
 
 **OUR
                      ESTIMATES OF RESERVES COULD HAVE FLAWS, OR MAY NOT ULTIMATELY
                      TURN OUT TO BE
                      100% CORRECT OR COMMERCIALLY EXTRACTABLE AND AS A RESULT, OUR
                      FUTURE REVENUES
                      AND PROJECTIONS COULD BE INCORRECT.**
 
 Estimates
                      of reserves and of future net revenues prepared by different
                      petroleum engineers
                      may vary substantially depending, in part, on the assumptions
                      made and may be
                      subject to adjustment either up or down in the future. Our
                      actual amounts of
                      production, revenue, taxes, development expenditures, operating
                      expenses, and
                      quantities of recoverable oil and gas reserves may vary substantially
                      from the
                      engineers' estimates. Oil and gas reserve estimates are necessarily
                      inexact and
                      involve matters of subjective engineering judgment. In addition,
                      any estimates
                      of our future net revenues and the present value thereof are
                      based on
                      assumptions derived in part from historical price and cost
                      information, which
                      may not reflect current and future values, and/or other assumptions
                      made by us
                      that only represent our best estimates. If these estimates
                      of quantities, prices
                      and costs prove inaccurate, we may be unsuccessful in expanding
                      our oil and gas
                      reserves base with our acquisitions. Additionally, if declines
                      in and
                      instability of oil and gas prices occur, then write downs in
                      the capitalized
                      costs associated with our oil and gas assets may be required.
                      Because of the
                      nature of the estimates of our reserves and estimates in general,
                      we can provide
                      no assurance that additional or further reductions to our estimated
                      proved oil
                      and gas reserves and estimated future net revenues will not
                      be required in the
                      future, and/or that our estimated reserves will be present
                      and/or commercially
                      extractable. If our reserve estimates are incorrect, the value
                      of our common
                      stock could decrease and we may be forced to write down the
                      capitalized costs of
                      our oil and gas properties.
 
 **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.
 
 -67-
 
 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.
 
 **OUR
                      FINANCIAL STATEMENTS, INCLUDING OUR QUARTERLY LIABILITIES AND
                      STATEMENT OF
                      OPERATIONS ARE SUBJECT TO QUARTER BY QUARTER 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 quarter to quarter 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 quarter to quarter,
                      based on
                      factors other than the Company's revenues and expenses.
 
 -68-
 
 
 **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, OR GULF COAST'S NOTE, 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, are secured by Laurus 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 or the Gulf Coast Note or we fail to pay any amounts
                      due to Laurus,
                      Laurus 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(k) 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.
 
 -69-
 
 
 **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.
 
 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 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 and Gulf
                      Coast Notes (collectively the "Notes") include provisions whereby
                      Laurus Master
                      Fund, Ltd., 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;
 
 -70-
 
 
 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.
 
 **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 30, 2007, 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.
 
 -71-
 
 **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.
 
 
 **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:
 
 -72-
 
 
 (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.
 
 **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.
 
 
 -73-
 
 **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.
 
 
 **ITEM
                      7. FINANCIAL STATEMENTS**
  The
                      Financial Statements required by Item 310 of Regulation S-B
                      are stated in U.S.
                      dollars and are prepared in accordance with U.S. Generally
                      Accepted Accounting
                      Principles.
 
 
 -74-
 
 
 REPORT
                      OF
                      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 The
                      Board
                      of Directors and Shareholders
 New
                      Century Energy Corp.
 
 We
                      have
                      audited the accompanying consolidated balance sheet of New
                      Century Energy Corp.
                      (the Company) as of December 31, 2006, and the related consolidated
                      statements
                      of operations, stockholders' equity (deficit), and cash flows
                      for the years
                      ended December 31, 2006 and 2005. These consolidated financial
                      statements are
                      the responsibility of the Company's management. Our responsibility
                      is to express
                      an opinion on these consolidated financial statements based
                      on our
                      audits.
 
 We
                      conducted our audits in accordance with the standards of the
                      Public Company
                      Accounting Oversight Board (United States). Those standards
                      require that we plan
                      and perform the audits to obtain reasonable assurance about
                      whether the
                      financial statements are free of material misstatement. An
                      audit includes
                      examining, on a test basis, evidence supporting the amounts
                      and disclosures in
                      the financial statements. An audit also includes assessing
                      the accounting
                      principles used and significant estimates made by management,
                      as well as
                      evaluating the overall financial statement presentation. We
                      believe that our
                      audits provide a reasonable basis for our opinion.
 
 In
                      our
                      opinion, the consolidated financial statements referred to
                      above present fairly,
                      in all material respects, the consolidated financial position
                      of New Century
                      Energy Corp. as of December 31, 2006, and the results of their
                      operations and
                      their cash flows for the years ended December 31, 2006 and
                      2005, in conformity
                      with generally accepted accounting principles in the United
                      States of
                      America.
 
 
 PMB
                      HELIN
                      DONOVAN, LLP
 
 /s/
                      PMB
                      Helin Donovan, LLP
 
 March
                      17,
                      2007
 Houston,
                      Texas
   -75-
  PART
          I.
          FINANCIAL INFORMATION
  ITEM
          1.
          FINANCIAL STATEMENTS
 
 NEW
          CENTURY ENERGY CORP.
 CONSOLIDATED
          BALANCE SHEET
 December
          31, 2006
 ASSETSCurrent
                    AssetsCash
                    and cash equivalents
                $
                7,524,278Restricted
                    cash
                
                4,967,109Certificate
                    of deposit
                
                76,801Accounts
                    receivable
                
                1,347,480Due
                    from Laurus Master Fund, Ltd.
                
                584,755Inventory
                
                326,091Drilling
                    and completion advances
                
                62,628Prepaid
                    expenses and other
                
                227,781Total
                    Current Assets
                
                15,116,923Office
                    equipment, net of $36,378 accumulated depreciation
                
                150,453Oil
                    and gas properties, using successful efforts accountingProved
                    properties
                
                57,492,445Unproved
                    properties
                
                418,906Wells
                    and related equipment and facilities
                
                5,391,64363,302,994Less
                    accumulated depletion and impairment
                
                (12,640,446
                )Net
                    oil and gas properties
                
                50,662,548Deferred
                    loan costs and other assets, net
                
                115,757TOTAL
                    ASSETS
                $
                66,045,681LIABILITIES
                    AND STOCKHOLDERS' DEFICITCurrent
                    LiabilitiesAccounts
                    payable
                $
                831,091Accrued
                    liabilities
                
                970,374Liabilities
                    related to purchase of Vertica shell
                
                59,260Royalty
                    payments
                
                144,542Current
                    portion of notes payable
                
                11,580,577Derivative
                    liability for Laurus warrant
                
                407,482Derivative
                    liability for Laurus stock option
                
                719,683Single
                    compound embedded derivatives with convertible note
                
                378,900Derivative
                    liability for Laurus December option
                
                556,309Total
                    Current Liabilities
                
                15,648,218Notes
                    payable, less current portion (net of unamortizeddiscount
                    and loan costs of $3,329,070)
                
                53,681,198Asset
                    retirement obligation
                
                391,186Total
                    Liabilities
                
                69,720,602Commitments
                    and Contingencies (see Note 14)
                
                -Stockholders'
                    DeficitPreferred
                    stock, $.001 par, 20,000,000 shares authorized,Series
                    A convertible preferred shares, no sharesissued
                    and outstanding
                
                -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
                
                (13,683,675
                )Total
                    Stockholders' Deficit
                
                (3,674,921
                )TOTAL
                    LIABILITIES AND STOCKHOLDERS’ DEFICIT
                $
                66,045,681
  The
            accompanying notes are an integral part of these consolidated
 financial
            statements.
 
  -76-
  NEW
            CENTURY ENERGY CORP.
 CONSOLIDATED
            STATEMENTS OF OPERATIONS
 Years
            ended December 31, 2006 and 2005
 2006
                    
                    2005RevenuesOil
                        and gas sales
                    
                    $
                    14,863,728
                    
                    $
                    6,918,884Gain
                        on sale of oil and gas interest
                    
                    
                    44,766
                    
                    
                    98,181Gas
                        operations consulting
                    
                    
                    18,708
                    
                    
                    --Total
                        Revenues
                    
                    
                    14,927,202
                    
                    
                    7,017,065ExpensesExploration
                    
                    
                    1,128,134
                    
                    
                    134,579Lease
                        operating
                    
                    
                    1,509,150
                    
                    
                    640,455Production
                        taxes
                    
                    
                    704,051
                    
                    
                    393,090Depreciation,
                        depletionand
                        amortization
                    
                    
                    9,737,889
                    
                    
                    2,177,485General
                        & administrative
                    
                    
                    1,291,295
                    
                    
                    2,296,879Total
                        expenses
                    
                    
                    14,370,519
                    
                    
                    5,642,488Operating
                        income
                    
                    
                    556,683
                    
                    
                    1,374,577Other
                        income (expense)Net
                        decrease in fair value of derivativeliabilities
                    
                    
                    1,296,373
                    
                    
                    7,117,882Loss
                        on early extinguishment of debt
                    
                    
                    (204,170
                    )
                    
                    (8,309,759
                    )Interest
                        and amortization of discount on debt
                    
                    
                    (7,958,392
                    )
                    
                    (3,872,265
                    )Purchase
                        and write down of Vertica liabilities
                    
                    
                    60,815
                    
                    
                    509,028Other
                        Vertica expenses
                    
                    
                    --
                    
                    
                    (196,133
                    )Interest
                        and other income
                    
                    
                    154,
                        407
                    
                    
                    64,708Other
                        expenses
                    
                    
                    (3,284
                    )
                    
                    (104,492
                    )Gain
                        on sale of equipment
                    
                    
                    --
                    
                    
                    17,630Total
                        other income (expense)
                    
                    
                    (6,654,251
                    )
                    
                    (4,773,401
                    )Loss
                        before income taxes
                    
                    
                    (6,097,568
                    )
                    
                    (3,398,824
                    )Income
                        tax expense (benefit)
                    
                    
                    --
                    
                    
                    --NET
                        LOSS
                    
                    $
                    (6,097,568
                    )
                    $
                    (3,398,824
                    )Loss
                        per share
                    
                    $
                    (0.11
                    )
                    $
                    (0.07
                    )Weighted
                        average common shares used incomputing
                        basic loss per share
                    
                    
                    55,909,790
                    
                    
                    50,961,205Diluted
                        loss per share
                    
                    $
                    (0.11
                    )
                    $
                    (0.13
                    )Weighted
                        average common shares used incomputing
                        diluted loss per share
                    
                    
                    55,909,790
                    
                    
                    54,275,225
  The
                accompanying notes are an integral part of these consolidated
 financial
                statements.
  -77-




NEW
        CENTURY ENERGY CORP.
 CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
 Years
        Ended December 31, 2006 and 2005


Series
                    APreferred
                  Stock
              
              Common
                  Stock
              
              Additional
                Paid
                  In
              
              Retained
                EarningsShares
              
              Amount
              
              Shares
              
              Amount
              
              Capital
              
              (Deficit)
              
              TotalsBalances,December
                  31, 2004
              
              
              5,000
              
              $
              5
              
              
              45,489,666
              
              $
              45,490
              
              $
              4,753,761
              
              $
              (4,186,188
              )
              $
              613,068Stock
                  for cash
              
              
              
              
              
              
              
              
              1,721,946
              
              
              1,722
              
              
              653,551
              
              
              -
              
              
              655,273Stock
                  for services
              
              
              -
              
              
              -
              
              
              2,300,000
              
              
              2,300
              
              
              1,600,200
              
              
              -
              
              
              1,602,500Stock
                  for debt
              
              
              -
              
              
              -
              
              
              46,000
              
              
              46
              
              
              29,954
              
              
              -
              
              
              30,000Stock
                  for property
              
              
              -
              
              
              -
              
              
              1,320,000
              
              
              1,320
              
              
              830,280
              
              
              -
              
              
              831,600Warrant
                  issued as finder’s fee
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              326,577
              
              
              -
              
              
              326,577Options
                  exercised
              
              
              -
              
              
              -
              
              
              3,675,000
              
              
              3,675
              
              
              1,653,258
              
              
              -
              
              
              1,656,933Stock
                  for legal settlement
              
              
              -
              
              
              -
              
              
              58,000
              
              
              58
              
              
              25,462
              
              
              -
              
              
              25,520Conversion
                  of preferred stock
              
              
              (5,000
              )
              
              (5
              )
              
              1,100,000
              
              
              1,100
              
              
              -
              
              
              (1,095
              )
              
              -Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,398,824
              )
              
              (3,398,824
              )Balances,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
              )




The
        accompanying notes are an integral part of these consolidated
 financial
        statements.
   -78-




NEW
        CENTURY ENERGY CORP.
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 Years
        Ended December 31, 2006 and 2005


2006
              
              2005Cash
                  flows from operating activitiesNet
                  loss
              $
              (6,097,568
              )
              $
              (3,398,824
              )Adjustments
                  to reconcile net lossto
                  net cash provided by operating activities:Depreciation,
                  depletion and amortization
              
              9,737,889
              
              
              2,177,485Imputed
                  interest on marketable security
              
              (1,801
              )
              
              --Release
                  of Vertica shell liabilities
              
              (60,815
              )
              
              (509,028
              )Gain
                  on sale of oil and gas properties
              
              (44,766
              )
              
              (98,181
              )Gain
                  on sale of equipment
              
              -
              
              
              (17,630
              )Stock
                  for services
              
              50,000
              
              
              1,602,500Settlement
                  with former officer
              
              (25,483
              )
              
              -Loss
                  on early extinguishment of debt
              
              204,170
              
              
              8,309,759Net
                  decrease in fair value of derivatives
              
              (1,296,373
              )
              
              (7,117,882
              )Accretion
                  of discount and loan cost ondebt
                  to interest expense
              
              1,767,452
              
              
              2,593,537Asset
                  retirement obligation
              
              33,296
              
              
              11,257Changes
                  in working capital:Accounts
                  receivable
              
              454,769
              
              
              (2,293,664
              )Inventory
              
              (278,301
              )
              
              17,913Prepaid
                  expenses and other
              
              11,318
              
              
              (174,716
              )Accounts
                  payable
              
              140,603
              
              
              427,113Accrued
                  liabilities
              
              423,556
              
              
              514,508Royalty
                  payments payable
              
              144,542
              
              
              -Net
                  cash provided by operating activities
              
              5,162,488
              
              
              2,044,147Cash
                  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
              )
              
              --First
                  acquisition of Lindholm Hanson gas unitand
                  wells, net of cash acquired
              
              --
              
              
              (10,394,361
              )Second
                  acquisition of Lindholm Hanson gas unitand
                  wells, net of cash acquired
              
              --
              
              
              (8,446,231
              )Capital
                  expenditures on oil and gas properties
              
              (3,746,808
              )
              
              (2,639,997
              )Decrease(increase)in
                  drilling advances
              
              199,716
              
              
              (262,343
              )Proceeds
                  from sale of oil and gas propertyand
                  equipment
              
              44,766
              
              
              115,811Cash
                  restricted for drilling operations
              
              (4,967,109
              )Increase
                  in other assets
              
              (247,066
              )
              
              (135,776
              )Net
                  cash used in investing activities
              
              (43,034,594
              )
              
              (21,762,897
              )Cash
                  flows from financing activitiesProceeds
                  from acquisition financing
              
              43,345,295
              
              
              24,500,000Proceeds
                  from long term debt issuance
              
              15,970,000
              
              
              --Proceeds
                  from the sale of common stock
              
              --
              
              
              655,273Proceeds
                  from the exercise of Laurus options
              
              --
              
              
              3,675Payments
                  to reduce long-term debt
              
              (17,119,155
              )
              
              (776,158
              )Payments
                  for deferred loan costs
              
              (111,421
              )
              
              (1,805,156
              )Net
                  cash provided by financing activities
              
              42,084,719
              
              
              22,577,634Net
                  increase in cash
              
              4,212,613
              
              
              2,858,884Cash
                  at beginning of the year
              
              3,311,665
              
              
              452,781Cash
                  at end of the year
              $
              7,524,278
              
              $
              3,311,665Supplemental
                  disclosures of cash flow information:Interest
                  paid
              $
              (5,660,524
              )
              $
              (1,100,220
              )Income
                  taxes paid
              $
              --
              
              $
              --Supplemental
                  disclosures of noncash investing and financing activities(See
                  Notes 14 and 15)


The
      accompanying notes are an integral part of these consolidated


financial
        statements.
  -79-




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
 
 The
        consolidated financial statements include the accounts of New Century Energy
        Corp., its wholly owned subsidiaries, and its proportionate share of the
        assets,
        liabilities, revenues and expenses. All significant intercompany accounts
        and
        transactions have been eliminated in consolidation.
 
 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.
  -80-
  
 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, 2006 by $12,718,070. 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,
        2006.
 
 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, 2006, 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.
  -81-
 
 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.
 
 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. The Company has not capitalized
        any interest in 2006 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.
  -82-
 
 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.
 
 With
        the
        Third Amendment to the 2005 Amended Convertible Note and the December Option,
        the Company has determined that a greater than 10% difference in the net
        present
        value of the remaining cash flows of both the original Convertible Note and
        the
        New Convertible Note had occurred. Therefore, the original Convertible Note,
        along with the related unamortized discounts and deferred loan costs, was
        extinguished and a New Convertible Note was recorded at its fair value on
        December 30, 2005. The extinguishment required the Company to record a loss
        on
        early extinguishment of debt of $8,309,759.
 
 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.
  -83-
 
 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.
 
 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 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 2006. The unexercised portion of the Laurus
        Stock Option had a dilutive effect on loss per share and, therefore, a dual
        presentation was made in 2005.
  -84-
 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, 2006.
 
 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. SFAS 158 is effective for fiscal years ending after December 15, 2006.
        We
        have no defined benefit plans; therefore we do not expect the adoption of
        SFAS
        158 to have an impact on our consolidated financial position, results of
        operations or cash flows.
 
 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. This interpretation is
        effective for fiscal years beginning after December 15, 2006. We are in the
        process of evaluating the impact of the adoption of this interpretation on
        our
        consolidated financial position, results of operations or cash
        flows.
 
 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. Adoption is required as of the beginning of
        the
        first fiscal year that begins after September 15, 2006. Early adoption is
        permitted. The adoption of SFAS 156 is not expected to have a material effect
        on
        our consolidated financial position, results of operation or cash
        flows.
  -85-
  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. The provisions of SFAS
        155
        are effective for all financial instruments acquired or issued after fiscal
        years beginning after September 15, 2006. We are currently assessing the
        impact
        that the adoption of SPAS 155 will have on our consolidated financial position,
        results of operations or cash flows.
 
 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”.
 
 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 on our
        company’s financial statements was not material.
 
 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 intends
        to
        adopt FSP EITF 00-19-2 beginning in 2007. The effect of the adoption of this
        FSP
        has not been determined.
  -86-
  NOTE
        2 -
        LIQUIDITY
 
 The
        Company incurred net losses of approximately $6.1 million and $3.4 million
        in
        2006 and 2005, respectively, resulting in a stockholders’ deficit of $3.7
        million at December 31, 2006. The Company has a balloon payment under its
        Secured Term Note agreement for the remaining principal balance, which was
        approximately $6.4 million at December 31, 2006, due in July 2007, with an
        aggregate indebtedness to this primary lender totaling approximately $65
        million, plus the fair value of its derivative liabilities (approximately
        $2.1
        million at December 31, 2006).
 
 The
        Company’s aggregate indebtedness to its primary lender is secured by its oil and
        gas properties, which had a net present value (at 10% discount) of approximately
        $52 million as of December 31, 2006. The Company has approximately $12.5
        million
        in cash at December 31, 2006, of which $5.0 million is restricted for use
        by its
        primary lender for its drilling program or as specified by the lender, which
        could possibly include reduction of its indebtedness to the lender. The Company
        has approximately $1.9 million in accounts receivable, including approximately
        $0.6 million due from its lender, which can also be used to reduce its
        indebtedness or for other working capital requirements.
 
 The
        Company has maintained a satisfactory credit relationship with the lender
        over
        the past 18 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 lender,
        with
        the remaining acquisition being a cash purchase. Accordingly, the Company
        believes it will be successful in meeting its working capital requirements
        in
        2007, including the successful negotiation of a refinancing of its July 2007
        balloon payment under the Secured Term Note to a date beyond 2007.
 NOTE
          3 -
          ACQUISITION OF MUSTANG CREEK I WELLS AND LEASES AND GULF COAST SECURED
          TERM NOTE
  On
          April
          28, 2006, the Company's 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
   -87-




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
              
              
              584,295Net
                  cash paid
              
              $
              28,840,360
 
 **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:
  Interest
                    Rate -
                Wall
                    Street Journal Prime Rate plus two points but not less than eight
                    percentMaturity
                    Date-
                April
                    26, 2009Amortizing
                    Amount -
                80%
                    of net production revenue from Mustang Creek Assets- with a minimum
                    monthly payment of $150,000Warrant
                    -
                to
                    purchase up to 49% of the shares of Gulf Coast Stock - exercisable
                    at a
                    price of $.001 per share only after this debt is paidRepayment
                    -
                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, 2006, the Gulf Coast Note was classified as
        follows:




Gross
                  amount
              
              $
              32,529,454Unamortized
                  discount
              
              
              (1,173,865
              )Net
                  amount
              
              $
              31,355,589
 
 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.
 
 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.
  -88-
 
 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.
  Interest
                      Rate -
                  17.5%,
                      due beginning July 1, 2006Maturity
                      Date -
                  October
                      30, 2009Amortizing
                      Amount -
                  12.5
                      percent of 80% of net production revenue from Mustang Creek
                      assets with a
                      minimum monthly payment of $25,000Amendment
                      -
                  With
                      the issuance of the June 2006 Gulf Coast Note, the amortizing
                      amount for
                      the Gulf Coast Note (See Note 3) was amended to be 87.5 percent
                      of 80% of
                    net
                      production revenue from Mustang Creek Assets with a minimum
                      monthly
                      payment of $150,000. When this note was liquidated, at the
                      end of 2006,
                      the
                    Gulf
                      Coast Note was amended back to the original terms.Right-
                  Laurus
                      was granted 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.Liquidation
                      -
                  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 principal on this
                      note on or about December 29, 2006. The amount represented
                      full and final
                      settlement for the note. At the time of liquidation the note
                      had a
                      carrying amount as follows:






-89-




Unpaid
                  principal
              
              $
              4,700,237Unamortized
                  discount
              
              
              (176,034
              )Unamortized
                  deferred loan cost
              
              
              (28,136
              )Total
                  liability
              
              $
              4,496,067Cash
                  paid
              
              
              (4,700,237
              )Loss
                  on extinguishment of debt
              
              $
              (204,170
              )




The
        loss
        on extinguishment of debt is recorded in the Statement of Operations - Other
        Expenses.
 
 The
        accretion of discount and deferred loan costs related to the June 2006 Gulf
        Coast Note (up to repayment) for the twelve months ended December 31, 2006
        were
        $28,966 and $4,990, respectively.
 
 Note
        5 -
        NEW CENTURY ENERGY NOTES PAYABLE
  In
        addition to the Gulf Coast Note (Note 3), New Century Energy has three other
        notes outstanding to Laurus.
 
 **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:




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).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. Options can only be exercised
                  after debt
                  is paid in full and the Laurus warrant has been
                  exercised.






-90-




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 7)
 
 The
        Restated Convertible Note adopted the First and Second amendments of the
        Secured
        Convertible Note with respect to events of default and extended the date
        on
        which the Company was required to begin making monthly principal payments
        of
        $250,000 from January 1, 2006 to July 1, 2006.
 
 During
        2006 we entered into the Fourth, Fifth, Sixth and Seventh Amendment Agreements
        with Laurus which amended the June 30, 2005 Registration Rights Agreement,
        extending the dates that a registration statement was required to be filed
        with
        the Securities Exchange Commission (“the Commission”) to register the shares
        convertible under the terms of the June 2005 Amended and Restated Convertible
        Note and to amend the date on which such statement was required to be declared
        effective. On January 17, 2007, an amended registration statement was filed
        with
        the SEC with 6,108,501 shares registered and on February 12, 2007, the
        registration statement was declared effective by the Commission. Of these
        shares, only 250,000 were held by a third party and are therefore not available
        for the share conversion under the June 2005 Amended and Restated Convertible
        Note.


-91-
  New
            Century Energy Corp. is not in
            default and will not be 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(k) 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 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.
 
 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.
 
 At
        December 31, 2006 the details of the Second Amended and Restated Secured
        Convertible Term Note were as follows:
 Gross
                    amount
                
                $
                13,500,000Unamortized
                    discount
                
                
                (1,915,853
                )Net
                    amount
                
                $
                11,584,147
 -92-
  For
          the
          twelve months ended months ended December 31, 2006 and December 31, 2005,
          the
          accretion of discounts related to the Second Amended and Restated Secured
          Convertible Term Note was $1,180,337 and $2,034,910, respectively. Deferred
          loan
          costs related to the issue of Note of $220,201 were fully accreted in 2005.
  **SECOND
            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:
 
 Interest
                      Rate -
                  20%Maturity
                      Date -
                  July
                      2, 2007Amortizing
                      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.
 
 At
            December 31, 2006 the details of the Second Amended and Restated Secured
            Term
            was as follows:
 
 Gross
                        amount
                    
                    $
                    6,351,391Unamortized
                        discount
                    
                    
                    ---Net
                        amount
                    
                    $
                    6,351,391
 The
            entire balance of this note is a current liability.
 
 The
            accretion of deferred loan costs related to the $9.5 million Secured
            Term Note
            for the twelve months ended December 31, 2006 and the twelve months ended
            December 31, 2005 were $262,133 and $338,426, respectively. There was
            not any
            accretion of discount related to the $9.5 million Secured Term
            Note.
 
 -93-
 **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:
 
 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, 2007Use
                      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 is held by Laurus as security for our obligations under the closing
              documents and is payable in $1,500,000 increments every ninety days,
              until the
              entire amount is disbursed, at Laurus’ sole discretion.
  At
              December 31, 2006 the details of the December 2006 Secured Term Note
              was as
              follows:
  Gross
                        amount
                    
                    $
                    16,210,000Unamortized
                        discount
                    
                    
                    (239,352
                    )Net
                        amount
                    
                    $
                    15,970,648
  The
                accretion of discount and deferred loan costs related to the $16.2
                million
                Secured Term note for the twelve months ended December 31, 2006,
                were
                insignificant.
 
 A
                recap
                of the Company’s Notes Payable as of December 31, 2006
                follows:
  Current
                          portionSecond
                          Amended and Restated Secured Convertible
                      
                      $
                      1,200,000Second
                          Amended And Restated Secured Term
                      
                      
                      6,351,391December
                          2006 Secured Term
                      
                      
                      1,200,000Gulf
                          Coast
                      
                      
                      2,829,186Total
                          current portion of notes payable
                      
                      $
                      11,580,577Noncurrent
                          portionSecond
                          Amended and Restated Secured Convertible
                      
                      $
                      12,300,000December
                          2006 Secured Term
                      
                      
                      15,010,000Gulf
                          Coast
                      
                      
                      29,700,268Total
                          noncurrent portion of notes payable
                      
                      $
                      57,010,268Less:
                          Unamortized discount
                      
                      
                      (3,329,070
                      )Notes
                          payable, less current portion(net
                          of unamortized discount)
                      
                      $
                      53,681,198






-94-




Future
        payments under outstanding notes payable at their notional amounts as of
        December 31, 2006 were as follows:
 
 2007
              
              $
              11,580,5772008
              
              
              16,408,1182009
              
              
              30,392,1502010
              
              
              10,210,0002011
              
              
              --$
              68,590,845
 
 
 Interest
        and amortization of discount on debt expense for each of the years ended
        December 31 can be broken down as follow:
  2006
                
                2005Interest
                    expense on notional balance
                
                $
                6,190,935
                
                $
                1,215,556Accretion
                    of note discount
                
                
                1,485,791
                
                
                2,034,910Amortization
                    of deferred loan costs
                
                
                281,661
                
                
                558,6277,958,387
                
                
                3,809,093Other
                    interest expense
                
                
                5
                
                
                63,172Total
                    interest expense
                
                $
                7,958,392
                
                $
                3,872,265
 
 Note
          6 -
          DERIVATIVE LIABILITIES
 
 The
          following assumptions were used in the valuation of the derivative liabilities
          (See Note 5) at December 31,2006:
  Probability-Weighted
                      Expected Cash Flow Methodology -Assumptions:Single
                      Compound Embedded Derivative within Convertible NoteRisk
                      - free interest rate
                  5.01%Prime
                      rate
                  8.50%Increasing
                      .25% each quarter of first yearTimely
                      registration
                  95.00%Increasing
                      by 1% monthly up to 99%Default
                      status
                  5.00%Increasing
                      by 0.1% monthlyAlternative
                      financing available and exercised
                  00.00%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
                  31.715%Future
                      projected volatility
                  100.00%
 
 -95-




The
        following assumptions were used in the preparation of the valuations at December
        31, 2006:
 
 Black-Scholes
        Methodology:




LaurusLaurus
              
              December
              
              LaurusAssumptions
              
              Option
              
              Option
              
              WarrantDividend
                  yield
              
              0.00%
              
              0.00%
              
              0.00%Risk-free
                  interest rate
              
              4.90%
              
              4.90%
              
              4.69%Volatility
              
              100.00%
              
              100.00%
              
              100.00%Expected
                  term
              
              20
                  years
              
              20
                  years
              
              5.50
                  years




FAIR
        VALUE OF DERIVATIVES
 
 The
        fair
        value of the Company's derivative liabilities comprised the following as
        of
        December 31, 2006:
 Laurus
                    Warrant
                
                $
                407,482Laurus
                    Stock Option
                
                
                719,683Single
                    compound embedded derivativewithin
                    Convertible Note
                
                
                378,900Laurus
                    December Option
                
                
                556,309Total
                
                $
                2,062,374
 
 The
          decrease in fair value of the Company's derivative liabilities for each
          of the
          years ended December 31, 2006 and 2005 increased were as follows:
  2006
                  
                  2005Laurus
                      Warrant
                  
                  $
                  389,577
                  
                  $
                  2,871,240Laurus
                      Stock Option
                  
                  
                  392,765
                  
                  
                  3,571,005Single
                      compound embedded derivativewithin
                      Convertible Note
                  
                  
                  210,426
                  
                  
                  675,637Laurus
                      December Option
                  
                  
                  303,605
                  
                  
                  --Decrease
                      - fair value of derivative liabilities
                  
                  $
                  1,296,373
                  
                  $
                  7,117,882







The
      decrease in the fair value of the derivative liabilities (mark-to-market)is
      due
      to the wide, but mostly downward sliding, fluctuations in the price of our
      common stock during the year. Prices ranged from $0.32 per share on April 27,
      2006 to $0.09 per share on October 11, 2006. The closing price of our stock
      was
      $0.11 per share December 31, 2006, versus $0.17 at December 31, 2005. The
      changes in
      the
      fair value of the derivative liabilities have been recorded under Other
      Income(Expense) in the accompanying consolidated statements of
      operations.





-96-




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.
 
 NOTE
        7 -
        THIRD AMENDMENT AGREEMENT TO THE CONVERTIBLE NOTE AND EXTINGUISHMENT OF
        DEBT
 
 On
        December 30, 2005, New Century entered into a Third Amendment Agreement ("Third
        Amendment") with Laurus. The Third Amendment amended the Registration Rights
        Agreement to provide for the December Option; further deferred the date which
        we
        are required to obtain effectiveness of our Registration Statement, to July
        1,
        2006, from January 31, 2006; and added a provision whereby we are required
        to
        file a Registration Statement covering the shares exercisable in connection
        with
        the December Option, no later than ten (10) business days after the date
        which
        we file our Form 10-KSB for the year ended December 31, 2005, or April 25,
        2006,
        whichever is earlier.
 
 The
        Third
        Amendment of the Convertible Note as described above was accounted for as
        an
        extinguishment of debt in accordance with EITF 96-19 "Debtor's Accounting
        for a
        Modification or Exchange of Debt Instruments." The Company determined a
        substantial difference in the net present value of the cash flows (including
        changes in the fair value of our single compound embedded derivatives of
        the
        Convertible Note) under the terms of the Third Amendment was more than 10
        percent different from the present value of the remaining cash flows under
        the
        terms of the original Convertible Note. Due to the substantial difference,
        the
        Company determined an extinguishment of debt had occurred with the Third
        Amendment. As such, it was necessary to reflect the Convertible Note at its
        fair
        market value.
 
 Accordingly,
        the change in the fair value from pre-modification to post-modification of
        the
        Convertible Note for the compound embedded derivative aggregating $451,456,
        and
        the fair value of the December Option issued in connection with the Third
        Amendment, amounting to $859,914, were included in the Company's determination
        of the debt extinguishment loss recorded in the fourth quarter of fiscal
        year
        2005. The $8,309,759 aggregate loss from these transactions, accounted for
        as an
        extinguishment of debt, is included in Other expenses for the year ended
        December 31, 2005. In addition to the fair value change from pre-modification
        to
        post-modification of the Convertible Note for the compound embedded derivative
        offset by the fair value of the December Option (both noted above), the
        approximately $8.3 million aggregate loss also includes $10,483,291 and $514,200
        for the unamortized discounts and deferred financing costs related to the
        Convertible Note, offset by the establishment of the discounts to the new
        note
        of $589,327 for the fair value of the compound embedded derivative and
        $2,506,863 for the current market yield.
 
 The
        following table shows the basis for the debt extinguishment:
  -97-
  
 Extinguishment
        of Convertible Note at December 30, 2005:
 Convertible
                    Note
                
                $
                (15,000,000
                )Unamortized
                    discount of Laurus Warrant
                
                
                3,019,907Unamortized
                    discount of Laurus Stock Option
                
                
                5,325,279Unamortized
                    discount of Single Compound EmbeddedDerivatives
                    of Convertible Note
                
                
                1,397,910Unamortized
                    discount of ECS Warrant
                
                
                270,054Unamortized
                    discount of Laurus closing costs
                
                
                470,141Unamortized
                    discount of Non-Laurus closing costs
                
                
                514,200Subtotal
                
                
                10,997,491Extinguishment
                    of Convertible Note
                
                $
                (4,002,509
                )


Record
                  New Convertible Note at December 30, 2005:Convertible
                  Note
              
              $
              15,000,000Unamortized
                  discount of Single Compound EmbeddedDerivatives
                  of Convertible Note
              
              
              (589,327
              )Unamortized
                  discount for market yield based on 20% rate
              
              
              (2,506,863
              )Subtotal
              
              
              (3,096,190
              )Fair
                  value of the new Convertible Note
              
              $
              11,903,810Other
                  items relating to the extinguishment:Extinguishment
                  loss on the December Option
              
              $
              859,914Change
                  in fair value from pre-modificationto
                  post-modification of the ConvertibleNote
                  for the compound embedded derivative
              
              
              (451,456
              )Other
                  items relating to the extinguishment
              
              
              408,458Extinguishment
                  of Convertible Note
              
              
              (4,002,509
              )Fair
                  value of the new Convertible Note
              
              
              11,903,810


Loss
                on early extinguishment of debt
            
            $
            8,309,759


NOTE
      8 -
      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.


-98-







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
        9
        -SECOND ACQUISITION OF MINERAL INTERESTS IN THE LINDHOLM HANSON GAS UNIT
        AND
        WELLS
 
 Acquisition
        -
 
 On
        September 19, 2005, New Century entered into a Purchase and Sale Agreement
        with
        certain "Sellers" whereby New Century agreed to purchase certain mineral
        interests that have been pooled together in the L-H Gas Unit for an aggregate
        purchase price of $8,750,000. The interests purchased total a 7.25 percent
        working interest and a 5.4375 percent net revenue interest in the leases.
        The
        effective date of the agreement regarding the L-H Gas Unit's revenues and
        expenses was agreed upon by both New Century and the Sellers as July 1, 2005.
        These revenues and expenses, which netted to $300,941, were accounted for
        as an
        adjustment to the purchase price.






-99-




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
              
              
              
              
              $
              902,083L-H
                  Gas UnitLeasehold
                  costs
              
              $
              7,669,451Equipment
              
              
              779,6088,449,059Total
                  assets acquired
              
              
              
              
              
              9,351,142Liabilities
                  assumedAccounts
                  payable
              
              
              
              
              
              341,453Accrued
                  liabilities
              
              
              
              
              
              259,689Net
                  assets acquired
              
              
              
              
              $
              8,750,000This
                  acquisition was financed by the Secured Term Note (See Note
                  5)A
                  summary of the acquisition consideration at December 31, 2005 is
                  as
                  follows:Purchase
                  price
              
              
              
              
              $
              8,750,000Cash
                  received from the net of revenues andexpenses
                  from July 1 to September 19, 2005
              
              
              
              
              
              (300,941
              )Remaining
                  payable for acquisition
              
              
              
              
              
              (2,828
              )Total
                  acquisition consideration
              
              
              
              
              $
              8,446,231




NOTE
        10 -
        FIRST ACQUISITION OF MINERAL INTERESTS IN THE LINDHOLM HANSON GAS UNIT
        AND
        WELLS
 
 We
        acquired certain working interests, overriding royalty interests, and term
        royalty interests, which together entitled New Century to a 6.2% working
        interest and a 5.464% net revenue interest in production from the L-H Gas
        Unit.
        New Century paid the sellers $10,753,255 in cash and also issued 1,320,000
        shares of common stock towards the purchase price of the L-H Gas Unit. The
        fair
        market common share price was $0.63 a share for this transaction. The common
        shares issued for the purchase were valued at $831,600. Also, the effective
        date
        of the agreement regarding the L-H Gas Unit's revenue and expenses was agreed
        upon by both New Century and the sellers as April 1, 2005. These revenues
        and
        expenses, which netted to $683,662, were accounted for as an adjustment to
        the
        purchase price.
 
 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:Cash
                
                
                
                
                $
                246,745Accounts
                    receivable
                
                
                
                
                
                470,585L-H
                    Gas UnitLeasehold
                    costs
                
                $
                10,438,692Equipment
                
                
                787,26911,225,961Total
                    assets acquired
                
                
                
                
                
                11,943,291Liabilities
                    assumedAccounts
                    payable
                
                
                
                
                
                107,299Accrued
                    liabilities
                
                
                
                
                
                4,392Net
                    assets acquired
                
                
                
                
                $
                11,831,600This
                    acquisition was financed by the Secured Convertible Note (See
                    Note
                    5)A
                    summary of the acquisition consideration at December 31, 2005
                    is as
                    follows:Purchase
                    price
                
                
                
                
                $
                11,831,600Common
                    stock issued (1,320,000 shares at $.63 per share)
                
                
                
                
                
                (831,600
                )Cash
                    received from the net of revenues andexpenses
                    from April 1 to June 30, 2005
                
                
                
                
                
                (683,662
                )Other
                    closing costs
                
                
                
                
                
                78,023Total
                    acquisition consideration
                
                
                
                
                $
                10,394,361






NOTE
        11 -
        OTHER INCOME (EXPENSE)
 
 For
        each
        of the periods ended December 31, 2006 and December 31, 2005, $60,815 and
        $509,028 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, 2006, liabilities related to the purchase of the Vertica
        shell were $59,260.
 
 
 NOTE
        12 -
        INCOME TAXES
 
 The
        Company has net operating loss for financial accounting purposes of
        approximately $6,097,568 for the year ended December 31, 2006. The Company
        has a
        potential deferred tax asset of approximately $4,205,798 as a result of the
        tax
        net operating loss and percentage depletion carry forward for December 31,
        2006.
        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 $2,431,000 for the year
        ended
        December 31, 2006.
  The
        following table sets forth a reconciliation of the statutory federal income
        tax
        for the year ended December 31, 2006 and 2005.
  2006
                
                2005Loss
                    before income taxes
                
                $
                (6,097,568
                )
                $
                (3,398,824
                )Income
                    tax expense(benefit)computed
                    at statutory rates
                
                $
                (2,073,173
                )
                $
                (1,155,600
                )Net
                    decrease in fair value of derivativeliabilities
                
                
                (440,767
                )
                
                (1,728,229
                )Loss
                    on early extinguishment of debt
                
                
                69,418
                
                
                2,825,318Permanent
                    differences
                
                
                2,452
                
                
                (163,503
                )Increase
                    in valuation allowance
                
                
                2,431,494
                
                
                220,729Other
                
                
                10,576
                
                
                1,285Tax
                    provision for income taxes
                
                $
                0
                
                $
                0
  -100-





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 $12,209,000 at December 31,
        2006
        and December 31, 2005, respectively, which will expire in 2024 through 2026
        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,
        2006 are set out below:
  2006Deferred
                    tax assets:Net
                    operating loss and percentage depletion carry forwards
                
                $
                4,205,798Asset
                    retirement obligation
                
                
                133,003Valuation
                    allowance
                
                
                (3,683,362
                )Tax
                    over book amortization of loan costs
                
                
                678,353Revision
                    to net operating loss carry forward
                
                
                (449,858
                )Deferred
                    tax liabilities:Book
                    over tax depreciation, depletionand
                    capitalization methods on oiland
                    gas properties
                
                
                (883,934
                )Net
                    deferred tax asset
                
                $
                0




NOTE
        13 -
        ASSET RETIREMENT OBLIGATION
 
 A
        summary
        of the changes in the asset retirement obligation during 2006 and 2005 is
        as
        follows:
  2006
                
                2005Carrying
                    amount of obligation at beginning of year
                
                $
                305,073
                
                $
                293,816Obligations
                    incurred
                
                
                60,325
                
                
                7,508Accretion
                    expense
                
                
                33,296
                
                
                22,200Revision
                    in estimated liabilities
                
                
                (7,508
                )
                
                (18,451
                )Carrying
                    amount of obligation at end of year
                
                $
                391,186
                
                $
                305,073




-101-
  NOTE
          14 -
          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,
        2006:
 
  Years
                  ending December 312007
              
              
              36,0002008
              
              
              36,5002009
              
              
              36,5002010
              
              
              27,400Total
              
              $
              136,400




Rent
        expense for 2006 and 2005 was $32,636 and $20,089, 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 $25,483.09 and
        to
        issue him 100,000 shares of our restricted common stock.
 
 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.
 
 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
 
 The
        Company's Chief Executive Officer and President (the "Officer") signed a
        three
        year employment agreement with us on June 1,2006 with an effective date of
        June
        1, 2006 which runs through December 31, 2008. Under this agreement, the Officer
        receives a different annual salary for each period covered by the employment
        agreement, including the following:
  For
                    the year ended:2006
                
                $
                283,333*2007
                
                
                350,000*2008
                
                
                350,000*Total
                
                $
                983,333*
   -102-




*
        Solely
        for the periods covered by the employment agreement and does not include
        amounts
        the Officer was paid prior to the entry into the employment agreement, or
        which
        he may be paid after the expiration of the employment agreement. Additionally,
        these amounts do not include any bonuses the Officer may be paid.
 
 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.
  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.
  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.
 
 -103-
  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
            15 -
            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 14)
 
 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 14)
  **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.
  **Options
                  and Warrants**
  Activity
                              in 2006
                          
                          Options
                          
                          WarrantsOutstanding,
                              1/1/2006
                          
                          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
 
 -104-
 The
                  weighted average option and warrant exercise price information
                  for 2006 is as
                  follows:
 Activity
                            in 2006
                        
                        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, 2006, 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, 2006
                  
                  
                  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, 5.2
        million, 70,000 and 30,000 shares of common stock were reserved for issuance
        under the 2004 Plan (see Note 17), 2002 Employee Stock Purchase Plan and
        2000
        Employee Stock Purchase Plan, respectively.
 
 On
        January 17, 2007, we filed a 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 14). On February
        12,
        2007, the registration statement was declared effective by the SEC.
  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(k) 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.
  -105-
  NOTE
        16
        -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
        2006,
        the impact of the derivatives and interest from the Convertible Note was
        antidilutive and therefore, basic and dilutive EPS were the same. However,
        in
        2005 the unexercised portion of the Laurus Stock Option for 6,547,784 common
        shares had a diluted impact on earnings.
 
 The
        following table sets forth the computation of basic and diluted loss per common
        share for 2006 and 2005:
  For
                    the years ended December 31,
                
                2006
                
                2005Numerator
                    for basic loss percommon
                    share-Net loss, as reported
                
                $
                (6,097,568
                )
                $
                (3,398,824
                )Effect
                    of dilutive securities
                
                
                --
                
                
                (3,571,005
                )Numerator
                    for diluted loss percommon
                    share
                
                $
                (6,097,568
                )
                $
                (6,969,829
                )Denominator
                    for basic lossper
                    common share-weighted averagecommon
                    shares
                
                
                55,909,790
                
                
                50,961,205Effect
                    of dilutive securities
                
                
                --
                
                
                3,314,020Denominator
                    for diluted loss percommon
                    share-adjusted weightedshares
                    and assumed conversions
                
                
                55,909,790
                
                
                54,275,225Basic
                    loss per common share
                
                $
                (0.11
                )
                $
                (0.07
                )Diluted
                    loss per common share
                
                $
                (0.11
                )
                $
                (0.13
                )






-106-




NOTE
        17 -
        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. At the end of
        2006
        and 2005 the total plan assets were $36,222 and $23,390, respectively. In
        addition, the Company made $2,750 in matching employer contribution to the
        401(k) Plan in 2006 while not making any matching contributions in
        2005.
 
 2004
        Directors, Officers and Consultants Stock Option, Common Stock Warrant and
        Stock
        Award Plan ("2004 Plan")
 
 On
        December 8, 2004, the Company registered 9,700,000 shares of its common stock
        for its 2004 Plan. The aggregate number of shares that may be optioned subject
        to conversion or issued under the 2004 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 Plan
        and has
        sole discretionary authority to describe, authorize and designate the directors,
        employees and consultants who will be granted securities under the 2004 Plan.
        As
        of December 31, 2006, there were no options or warrants granted or outstanding
        under the 2004 Plan.




2004
                  Plan activity
              
              
              2006
              
              
              2005Beginning
                  of year
              
              
              5,150,000
              
              
              7,450,000Issued
                  stock for services
              
              
              -
              
              
              (2,300,000
              )Remaining
                  shares available to issueat
                  end of year
              
              
              5,150,000
              
              
              5,150,000




NOTE
        18 -
        CONCENTRATIONS
 
 Major
        Purchaser
 
 During
        2006, 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 2006 and 2005.
 
 Predominance
        of Sales
 
 In
        2006
        and 2005, crude oil sales accounted for 54% and 16%, respectively, and sales
        of
        natural gas products accounted for 46% and 84%, respectively, of total revenue
        from oil and gas operations.
 
 Single
        lender
  All
        of
        our outstanding notes payable are due, on various dates during the next four
        years to Laurus Master Fund, LTD. (see notes 3 and 5)
  -107-
  NOTE
        19 -
        SUPPLEMENTAL OIL AND GAS INFORMATION (Unaudited)
 
 Capitalized
        Costs
 
 Capitalized
        costs incurred in property acquisition, exploration, and development activities:
  December
                    31, 2006Proved
                    properties
                
                $
                57,492,445Unproved
                    properties
                
                
                418,906Wells
                    and related equipment and facilities
                
                
                5,391,643$
                63,302,994Less
                    accumulated depreciation, depletion,amortization
                    and impairment
                
                
                (12,640,446
                )Net
                    capitalized costs
                
                $
                50,662,548




Costs
        incurred for property acquisition, exploration, and development activities.
  Year
                    ended December 31,2006
                
                2005Acquisition
                    of properties-Proved
                
                $
                34,318,093
                
                $
                19,675,020-Unproved
                
                
                346,416
                
                
                -Exploration
                    costs
                
                
                1,116,058
                
                
                134,579Development
                    costs
                
                
                3,465,334
                
                
                2,650,666Total
                    costs incurred for propertyacquisition,
                    exploration, anddevelopment
                    activities
                
                $
                39,245,901
                
                $
                22,460,265




Results
        of Operations for oil and gas producing activities:




Year
                  ended December 31,2006
              
              
              2005Oil
                  and gas sales
              
              $
              14,863,728
              
              $
              6,918,884Gain
                  on sale of oil and gas interest
              
              
              44,766
              
              
              98,181Gas
                  operations consulting
              
              
              18,708Production
                  costs
              
              
              (2,213,201
              )
              
              (1,033,545
              )Exploration
                  expenses
              
              
              (1,128,134
              )
              
              (134,579
              )Depreciation,
                  depletion and amortization
              
              
              (9,737,889
              )
              
              (2,177,485
              )1,847,978
              
              
              3,671,456Income
                  tax expense, 34% rate
              
              
              (628,313
              )
              
              (1,248,295
              )Results
                  of operations for oil andgas
                  producing activities (excludingcorporate
                  overhead and financing costs)
              
              $
              1,219,665
              
              $
              2,423,161






-108-


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.




2006
              
              2005Oil
              
              Gas
              
              Oil
              
              Gas(Bbls)
              
              (MMcf)
              
              (Bbls)
              
              (MMcf)Proved
                  developed and undeveloped reservesBeginning
                  of year
              
              
              121,067
              
              
              8,062
              
              
              113,000
              
              
              1,116Revisions
                  of previous estimates
              
              
              (120,619
              )
              
              (1,022
              )
              
              23,309
              
              
              182Purchases
                  of minerals in place
              
              
              982,349
              
              
              1,215
              
              
              -
              
              
              5,447Production
              
              
              (124,374
              )
              
              (1,068
              )
              
              (15,242
              )
              
              (643
              )Extensions
                  and discoveries
              
              
              -
              
              
              -
              
              
              -
              
              
              1,960End
                  of the year
              
              
              858,423
              
              
              7,187
              
              
              121,067
              
              
              8,062Proved
                  developed reservesBeginning
                  of year
              
              
              121,067
              
              
              4,517
              
              
              98,858
              
              
              151End
                  of year
              
              
              117,959
              
              
              2,131
              
              
              121,067
              
              
              4,517






Standardized
                  Measure of Discounted FutureNet
                  Cash Flows at December 31, 2006 and 2005 (in $000's)2006
              
              2005Future
                  cash inflows
              
              $
              98,529
              
              $
              75,281Future
                  production costs
              
              
              (18,042
              )
              
              (13,467
              )Future
                  development costs
              
              
              (4,994
              )
              
              (3,146
              )Future
                  income tax expenses, at 34%
              
              
              (3,743
              )
              
              (9,985
              )Future
                  gross cash flows
              
              
              71,750
              
              
              48,683Less:
                  10% annual discount forestimated
                  timing of cash flows
              
              
              (20,184
              )
              
              (11,634
              )Standardized
                  measures of discounted future net cash flowsrelating
                  to proved oil and gas reserves
              
              $
              51,566
              
              $
              37,049






-109-




The
        following reconciles the change in the standardized measure of discounted future
        net cash flow during 2006 and 2005.
  2006
                
                2005Beginning
                    of year
                
                $
                37,049
                
                $
                2,423Sales
                    of oil and gas produced, net of production costs
                
                
                (12,600
                )
                
                (5,825
                )Net
                    changes in sales price, net of production costs
                
                
                (22,635
                )
                
                3,660Extensions
                    and discoveries, net of development costs
                
                
                -
                
                
                10,911Purchase
                    of reserves in place
                
                
                51,248
                
                
                23,290Accretion
                    of discount
                
                
                1,686
                
                
                154Net
                    changes in estimated future development costs
                
                
                222
                
                
                1,517Revisions
                    of previous quantity estimates
                
                
                (8,132
                )
                
                1,606Changes
                    in future income tax expense
                
                
                4,759
                
                
                (4,607
                )Changes
                    in production rates and other
                
                
                (31
                )
                
                3,920End
                    of year
                
                $
                51,566
                
                $
                37,049




NOTE
        20 -
        SUBSEQUENT EVENTS
 
 On
        or
        about March 16, 2007 we signed a partial assignment of oil and gas lease
        and
        bill of sale with our working interest owner in the South Sargent field,
        Aquatic
        Cellulose International Corporation (“Aquatic”). Under the terms of the
        assignment, Aquatic conveyed all of its rights, title and interest in Hamill
        well Nos. 2, 9, 20 , 11, 14 and 17 below 7,000 feet below the surface to
        us. In
        addition, all of Aquatic’s rights, title and interests in Hamill Nos. 19 and 1-R
        at all depths were transferred in the contract.
 
 On
        March
        29, 2007, we entered into the First Amendment to Common Stock Warrant (the
        “Agreement”) with Energy Capital Solutions, LP (“ECS”). In consideration for ECS
        agreeing that the shares of common stock which their Warrant (originally
        issued
        with the Secured Convertible Note, see Note 5) was exercisable did not have
        to
        be registered on the same Registration Statement as the Laurus stock were
        registered, we agreed to extend the expiration date of the Warrant from June
        30,
        2008 to June 30, 2009.
 -110-
 **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.
 
  -111-
  
 (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).
 
  Our
        consolidated financial statements for the year ended December 31, 2004 were
        audited by Malone & Bailey, PC, Certified Public Accountants (“Malone”).
        Effective April 11, 2005, the client auditor relationship between us and
        Malone
        ceased as the former accountant was dismissed. Effective April 11, 2005,
        we
        engaged HDTW as our principal independent public accountant for the fiscal
        year
        ended December 31, 2005. The decision to change accountants from Malone to
        HDTW
        was recommended and approved by the Company’s Board of Directors on
        April 11, 2005. Malone had been engaged by the Company on June 2, 2004.
 
 During
        the period beginning June 2, 2004 (the date that the Company engaged Malone)
        up
        to and including the date the relationship with Malone ceased, there were
        no
        disagreements with Malone on any matters of accounting principles or practices,
        financial statement disclosure, or auditing scope or procedure, which
        disagreement(s), if not resolved to the satisfaction of Malone would have
        caused
        Malone to make reference to the subject matter of the disagreement(s) in
        connection with its report on the Company’s financial statements. There have
        been no reportable events as defined in Item 304(a)(1)(iv)(B) of Regulation
        S-B
        during the interim period up to and including the date the relationship with
        Malone ceased.
   Malone
        audited the balance sheet of the Company as of December 31, 2004, and the
        related consolidated statements of operations, stockholders' equity and cash
        flows for the fiscal years ended December 31, 2004 and 2003. Malone's report
        on
        the Company's financial statements for the fiscal years ended December 31,
        2004
        and 2003 did not contain any adverse opinion or disclaimer of opinion and
        was
        not qualified or modified as to uncertainty, audit scope or accounting
        principles.
 
 The
        Company authorized Malone to respond fully to any inquiries of any new auditors
        hired by the Company relating to their engagement as the Company's principal
        independent accountant. The Company has requested that Malone review the
        disclosure and Malone has been given an opportunity to furnish the Company
        with
        a letter addressed to the Commission containing any new information,
        clarification of the Company's expression of its views, or the respect in
        which
        it does not agree with the statements made by the Company herein. Such letter
        is
        filed as an exhibit to this report.
  -112-
  
 The
        Company did not previously consult with HDTW regarding either (i) the
        application of accounting principles to a specified transaction, either
        completed or proposed; or (ii) the type of audit opinion that might be rendered
        on the Company's financial statements; or (iii) any matter that was either
        the
        subject matter of a disagreement (as defined in Item 304(a)(1)(iv)(A) of
        Regulation S-B) between the Company and Malone, the Company's previous principal
        independent accountants, as there were no such disagreements, or an other
        reportable event (as defined in Item 304(a)(1)(iv)(B) of Regulation S-B)
        during
        the interim period up to an including the date the relationship with Malone
        ceased. Neither has the Company received any written or oral advice concluding
        there was an important factor to be considered by the Company in reaching
        a
        decision as to an accounting, auditing, or financial reporting
        issue.
 
 **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"), has concluded
        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, and that such information is accumulated
        and communicated to our management, including our Chief Executive Officer
        and
        Chief Accounting Officer, as appropriate, to allow timely decisions regarding
        required disclosure.
 
 (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.
 
  -113-
  **ITEM
        8B. OTHER INFORMATION.**
 
 We
        have
        recently become 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.
  -114-
  **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 officer. There are no other persons who can be classified as a
        promoter or controlling person of us. Our officer and director is as
        follows:
 
 **Name**
                **Age**
                **Position**Edward
                    R. DeStefano
                54
                Chief
                    Executive Officer,President,
                    Chief Financial Officer,Secretary,
                    Treasurer and Director
 **EDWARD
          R. DESTEFANO**
 *Chief
          Executive Officer, President, Chief Financial Officer, Secretary, Treasurer
          and
          Director*
 
 Edward
          R.
          DeStefano has served as our Chief Executive Officer, President, Chief Financial
          Officer, Secretary, Treasurer and Director since November 2, 2004. 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.
 
 Our
          Director will hold office until the next annual meeting of the shareholders,
          and/or until his successor has been elected and qualified. Our officer
          was
          elected by the Board of Directors and holds office at the pleasure of the
          Board.
 
 **EMPLOYMENT
          AGREEMENT**
 
 Mr.
          DeStefano serves as our Chief Executive Officer and President under a three
          year
          Executive Employment Agreement effective from September 1, 2005 to August
          31,
          2008, which was amended, effective June 1, 2006, and which is renewable
          for
          successive one (1) year terms upon its expiration. Under the Executive
          Employment Agreement, Mr. DeStefano shall receive a different "Yearly Salary"
          depending on the year which Mr. DeStefano is employed,
          including:
  -115-
  (i)
          a
          Yearly Salary of $200,000 for the year ended December 31, 2005, of which
          he was
          paid the pro rata amount of approximately $66,667 for the four month period
          beginning on September 1, 2005 and ending on December 31, 2005;
 
 (ii)
          a
          Yearly Salary of $225,000 for the five month period beginning on January
          1, 2006
          and ending on May 31, 2006 of which approximately $93,750 was paid to Mr.
          DeStefano during such five month period (which period represents the Yearly
          Salary Mr. DeStefano was to earn under the original Executive Employment
          Agreement, from January 1, 2006 until the June 1, 2006, the date the Amended
          Executive Employment Agreement took effect (the "Executive Employment
          Agreement");
 
 (iii)
          a
          Yearly Salary of $325,000 for the seven month period beginning on June
          1, 2006,
          and ending on December 31, 2006, of which approximately $189,583 is payable
          to
          Mr. DeStefano during such seven month period; and
 
 (vi)
          a
          Yearly Salary of $350,000 for the twelve month period beginning January
          1, 2007
          and ending December 31, 2008.
 
 In
          addition to Mr. DeStefano's Yearly Salary under the Executive Employment
          Agreement, he may be granted bonus payments of cash or shares of our common
          stock from time to time at the discretion of our Board of Directors; he
          shall be
          reimbursed for business expenses incurred in connection with his employment;
          he
          shall be allotted a car allowance of $750.00 per month to be spent on obtaining
          and maintaining transportation; he shall be entitled to fourteen (14) days
          of
          paid time off (PTO) per year which shall roll-over into the next year if
          unused;
          and he shall be entitled to participate in any stock option plan of the
          Company
          which may be approved in the future by the Board of Directors.
 
 Under
          the
          Executive 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 Executive Employment Agreement, except
          to
          the extent that any such liability resulted primarily and directly from
          his
          gross negligence and willful misconduct.
 
 -116-
  The
          Executive 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).
 
 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 Executive Employment
          Agreement.
 
 **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.
  -117-
 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 William Mason failed to make a Form 4 filing and a Schedule
          13d
          filing in connection with his ownership of 5,000 shares of our Series A
          Convertible Preferred Stock, which were converted into 1,100,000 shares
          of our
          common stock in December 2005. Based on stockholder filings with the SEC,
          Edward
          R. DeStefano and Laurus Master Fund, Ltd.(through Promethean(as defined
          herein)), are currently subject to Section 16(a) filing
          requirements.
 
 
 **ITEM
          10. EXECUTIVE COMPENSATION**
 **Other(1)****Annual****Name
                      & Principal**
                  
                  
                  
                  
                  
                  **Compen-**
                  
                  **Options**
                  
                  
                  
                  **Total****Position**
                  
                  **Year**
                  
                  **Salary
                      ($)**
                  
                  **sation($)**
                  
                  **SARs**
                  
                  **Bonus($)**
                  
                  **Compensation
                      ($)****Edward
                      R. DeStefano**
                  
                  
                  2006(2
                  )
                  
                  283,333
                  
                  
                  9,750
                  
                  
                  --
                  
                  
                  26,667
                  
                  $
                  319,750CEO,
                      President CFO,
                  
                  
                  2005(3
                  )
                  
                  207,957
                  
                  
                  3,000
                  
                  
                  --
                  
                  
                  14,587
                  
                  $
                  225,544Treasurer
                      and
                  
                  
                  2004
                  
                  
                  76,340
                  
                  
                  --
                  
                  
                  --
                  
                  
                  --
                  
                  $
                  76,340Secretary
                      (4)**William
                      F. Mason**(5)
                  
                  
                  2004
                  
                  
                  --
                  
                  
                  --
                  
                  
                  --
                  
                  
                  --
                  
                  
                  --CEO
                      and President




*
        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)
        No
        Executive Officer received any LTIP payouts, non-equity incentive plan
        compensation, non-qualified deferred compensation earnings, or restricted
        stock
        awards during the years ended 2003, 2004, or 2005, and no salaries are being
        accrued. since September 1, 2005, in connection with Mr. DeStefano's Employment
        Agreement, beginning September 2005, he has been receiving approximately
        $750
        per month as a car allowance, which amount represents the $9,750 of other
        annual
        compensation in 2006 and $3,000 in 2005.
 
 (2)
        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."
  -118-
  
 (3)
        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."
 
 (4)
        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.
 
 (5)
        William F. Mason served as our Chief Executive Officer and President from
        October 19, 2001 to November 2, 2004, at which time he resigned and Mr.
        DeStefano was appointed Chief Executive Officer, President, Chief Financial
        Officer, Treasurer and Secretary of the Company.
 
 **COMPENSATION
        DISCUSSION AND ANALYSIS**
 
 **Director
        Compensation**
 
 Edward
        R.
        DeStefano, our sole officer and Director, does not receive any separate
        consideration from the Company other than the compensation he is paid as
        the
        Company’s sole 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 sole executive officer, Mr. DeStefano, and/or
        any
        other executive officers we may hire in the future in its sole determination.
        Our executive compensation program is designed to attract and retain talented
        executives (such as Mr. DeStefano), 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 Mr. DeStefano 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.
  -119-
  
 **Base
        Salary**
  The
        base
        salary of Mr. DeStefano, our Chief Executive Officer, Chief Financial Officer,
        President, Secretary and Treasurer, was established by our entry into an
        Amended
        Employment Agreement with Mr. DeStefano, effective June 1, 2006, 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. The
        established base salary of Mr. DeStefano. Mr. DeStefano’s base salary 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.
 
 **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
        the
        Company (in establishing compensation levels for all employees of the Company)
        consider many factors, including, but 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 also considers: 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.
  -120-
 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.
 
 ·
              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:
  -121-
  ·
              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.
 
 
 **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
        30,
        2007, and by the officers and directors, individually and as a group. Except
        as
        otherwise indicated, all shares are owned directly.
 **Name
                    and Address of****Beneficial
                    Owner******
                
                **Shares******
                
                **Percent(1)******Edward
                    R. DeStefano*
                
                
                37,514,350
                
                
                67.0%5851
                    San Felipe, Suite 775Houston,
                    Texas, 77057Laurus
                    Master Fund, Ltd.(2)(4)
                
                
                3,675,000(3
                )
                
                6.6%P.O.
                    Box 309GT
                    Ugland HouseGeorge
                    TownSouth
                    Church StreetGrand
                    Cayman,Cayman
                    Islands**All
                    of the officers and**
                
                
                37,514,350
                
                
                67.0%**directors
                    as a group (1 person)**






-122-




*
        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
        14,350 shares of common stock during the fourth quarter of 2006 and the first
        quarter of 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 30,
        2007.
 
 (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, 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).
  -123-
  (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.
 
 **Changes
        In Control**
 
 The
        Company does not anticipate any changes in control of the Company.
 
 **ITEM
        12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
 
 Throughout
        2004, $169,123 was repaid to our Chief Executive Officer, Edward R. DeStefano,
        in consideration of monies he loaned to us.
 
 In
        October 2004, we loaned $5,000 which was non-interest bearing to Century
        Assets
        Corporation, a company owned solely by our Chief Executive Officer, Edward
        R.
        DeStefano which is not affiliated with us. The $5,000 was repaid to us in
        the
        second quarter of 2005.
 
 In
        December 2004, we issued 37,500,000 shares of restricted common stock to
        our
        Chief Executive Officer, Edward R. DeStefano, pursuant to the
        Exchange.
 
 On
        March
        7, 2005, we entered into an amended agreement with Aquatic (as described
        and
        defined above under "Description of Property") under the original Aquatic
        Agreement, our Chief Executive Officer, Edward R. DeStefano, was to receive
        15%
        of Aquatic's outstanding common stock. Under the Amendment, that percentage
        was
        changed to 7.5%, and Mr. DeStefano transferred his right to the 7.5% of
        Aquatic's common stock to us, which will be issued upon Aquatic's reorganization
        and re-capitalization.
 
 Throughout
        2005, $10,000 was repaid to our Chief Executive Officer, Edward R. DeStefano,
        in
        consideration of monies he loaned us.
 
 Effective
        September 1, 2005, we entered into an Executive Employment Agreement with
        our
        Chief Executive Officer and President, Edward R. DeStefano, whereby Mr.
        DeStefano agreed to serve as our Chief Executive and President for a period
        of
        three years, until August 31, 2008 under the Executive Employment Agreement
        (described in greater detail above under "Directors, Executive Officers,
        Promoters and Control Persons").
 
 In
        2005,
        we granted our Chief Executive Officer, Edward R. DeStefano $14,587 in bonus
        consideration 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.
  -124-
  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.
 
 **ITEM
        13. EXHIBITS AND REPORTS ON FORM 8-K**
 
 (a)
        EXHIBITS




**Exhibit
                  No.**
              **Description
                  of Exhibit**10.1(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
   -125-
  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 Agreement10.11(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
  -126-
  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)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
   -127-
  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 Agreement10.55(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
  -128-
  10.65(34)
              Escrow
                  Agreement - December 200610.66(35)
              Agreement
                  to Rescind the Eighth Amendment10.67*
              1stAmendment to Energy Capital Solutions Warrant16.1(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*
              Subsidiaries
                  of New Century Energy Corp.31.1*
              Certificate
                  of the Chief Executive Officer and Chief Financial Officer pursuant
                  to
                  Section 302 of the Sarbanes-Oxley Act of 200232.1*
              Certificate
                  of the Chief Executive Officer of Chief Financial Officer pursuant
                  to
                  Section 906 of the Sarbanes-Oxley Act of 200299.1(20)
              Glossary
                  of Oil and Gas Terms99.2(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, 200599.3(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
   -129-
 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




*
        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.
 
 (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.
  -130-
  
 (11)
        Filed as exhibits to our Report on Form 8-K filed on September 22, 2005 and
        incorporated herein by reference.
 
 (12)
        Filed as exhibit 16.2 to our Form 8-K filed on April 14, 2005, 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.
 
 (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.
  -131-
  (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.
 
 *
        Filed
        herein
 
 (b)
        REPORTS ON FORM 8-K
 
 We
        filed
        the following reports on Form 8-K during the fourth quarter of
        2006:
 
 o
              The
                  Company filed a report on Form 8-K on October 26, 2006 to report
                  its entry
                  into a Seventh Amendment Agreement with Laurus Master Fund, Ltd.
                  which
                  amended the terms of our Registration Rights Agreement with Laurus.
 
 o
              The
                  Company filed a report on Form 8-K on October 26, 2006 to report
                  its entry
                  into a Letter of Intent with two third parties to purchase oil
                  and gas
                  interests totaling a 30.35% working interest and a 22.1555% net
                  revenue
                  interest in the Javelina Field, in Hidalgo County,
                  Texas.
  -132-
  
 o
              The
                  Company filed a report on Form 8-K on December 1, 2006 to report
                  its
                  decision not to move forward with the Javelina Field
                  acquisition.
 
 o
              The
                  Company filed a report on Form 8-K on December 8, 2006 to report
                  its entry
                  into an Eighth Amendment Agreement with Laurus Master Fund, Ltd.,
                  which
                  Eighth Amendment was later repealed and rescinded by the
                  parties.
 
 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 10, 2007 to report
                  its sale
                  of a Secured Term Note in the aggregate principal amount of $16,210,000
                  to
                  Laurus Master Fund, Ltd. In connection with the closing of a Purchase
                  Agreement in December 2006, as well as our entry into a Second
                  Amended and
                  Restated Secured Term Note; and a Second Amended and Restated Secured
                  Convertible Term Note with Laurus.
 
 o
              The
                  Company filed a report on Form 8-K on January 10, 2007 to report
                  its entry
                  into an Agreement to Rescind the Eighth Amendment Agreement, whereby
                  we
                  and Laurus agreed to rescind the Eighth Amendment Agreement in
                  its
                  entirety.
 
 o
              The
                  Company filed a report on Form 8-K on January 25, 2007 to report
                  that its
                  independent registered public accounting firm HDTW consummated
                  a merger
                  with Pohl, McNabola, Berg & Co., LLP
                  (“PMB”).
 
 **ITEM
        14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
 
 AUDIT
        FEES
 
 The
        aggregate fees billed for each of the fiscal years ended December 31, 2006
        and
        2005 for professional services rendered by the principal accountant for the
        audit of the Company's annual financial statements and the review of the
        financial statements included in the registrant's Form 10-QSB or for services
        that are normally provided by the accountant in connection with statutory
        and
        regulatory filings or engagements for those fiscal years was approximately
        $68,575 and $40,900, respectively.
 
 AUDIT
        RELATED FEES
 
 The
        aggregate audit-related fees billed during 2006 totaled $79,115, which comprised
        three acquisition audits and related Form 8-K filings, review of a registration
        statement on Form SB-2 and two amendments to the Form SB-2, and Company
        responses to comment letters received from the Securities and Exchange
        Commission.
  The
        aggregate audit-related fees billed during 2005
        totaled $64,750, 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.
  -133-
  TAX
        FEES
 
 The
        aggregate fees billed in each of the last two fiscal years ended December
        31,
        2006 and December 31, 2005, by the principal accountant for tax compliance
        was
        $11,709 and $6,250, respectively.
 
 ALL
        OTHER
        FEES
 
 None.
 
  -134-
  **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  12, 2007
                By:
                /s/ 
Edward
                  R. DeStefanoEdward
                    R. DeStefano
                  Chief Executive Officer and
                  Chief Financial Officer
                  (Principal Accounting
                    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
                
                Chief
                    Executive Officer
                
                April
                    12, 2007Edward
                    R. DeStefano
                
                Chief
                    Financial Officer
                  (Principal Accounting Officer),
                  Secretary, Treasurer and Director
 -135-