**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON
      D.C. 20549**







**FORM
      10-KSB/A**


(Mark
      One)





x
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
                1934





For
      the
      fiscal year ended December 31, 2007





o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
                1934





For
      the
      transition period from ________________ to _____________________





Commission
      File Number **000-52470**




**Knight
                  Energy Corp.**(Name
                  of Small Business Issuer in Its
                  Charter)




Maryland
            
            87-0583192(State
                or Other Jurisdiction of
            
            (I.R.S.
                Employerof
                Incorporation or Organization)
            
            Identification
                No.)





909
                  Lake Carolyn Parkway, Suite 850, Irving, TX
            
            75039(Address
                of Principal Executive Offices)
            
            (Zip
                Code)





(972)-401-1133(Issuer’s
                Telephone Number, Including Area
                Code)





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





Title
                of Each Class
            
            Name
                of Each Exchange on Which RegisteredNone
            
            None





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





Common
                Stock, $0.0001 Par Value Per Share(Title
                of Class)





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o





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





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of small business issuer’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 small business issuer is a shell company (as defined
      in Rule 12b-2 of the Exchange Act). Yes o
      No x





State
      Issuer’s revenues for its most recent fiscal year.  $1,153,160





As
      of
      March 15, 2008, the aggregate market value of our common stock, $0.0001 par
      value, held by non-affiliates was approximately $9,850,384, based on 9,752,855
      shares outstanding at $1.01 per share, which was the last reported sales price
      of the Company’s common stock on the Pink Sheets for such date). (See definition
      of affiliate in Rule 12b-2 of the Exchange Act.)




As
      of
      March 15, 2008, there were 25,497,855 shares of our common stock issued and
      outstanding.





Transitional
      Small Business Disclosure Format (check one): Yes o
      No x







**EXPLANATORY
        NOTE**
 
 This
        Amendment No. 1 to Form 10-KSB includes an executed copy of the opinion letter
        from the Company’s Independent Registered Public Accounting firm, Whitley Penn
        LLP. An executed copy of this letter was inadvertently omitted from the Form
        10-KSB the Company filed on March 31, 2008. No other changes were made to
        the
        document.





2


**TABLE
      OF CONTENTS**





**Page****PART
                I**Item
                1.
            Description
                of Business
            5Item
                2.
            Description
                of Property
            25Item
                3
            Legal
                Proceedings
            26Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            26**PART
                II**Item
                5.
            Market
                for Common Equity,andRelated Stockholder Matters and Small Business Issuer Purchases of
                Equity
                Securities
            26Item
                6.
            Management’s
                Discussion and Analysis or Plan of Operation
            28Item
                7.
            Financial
                Statements
            39Item
                8.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            39Item
                8A. (T)
            Controls
                and Procedures
            39Item
                8B.
            Other
                Information
            41**PART
                III**Item
                9.
            Directors,
                Executive Officers, Promoters and Control Persons and Corporate
                Governance; Compliance with Section 16(a) of the Exchange
                Act
            41Item
                10.
            Executive
                Compensation
            43Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            45Item
                12.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            47Item
                13.
            Exhibits
            48Item
                14.
            Principal
                Accountant Fees and Services
            50**SIGNATURES**
            
            51




3


**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





In
      addition to historical information, this Annual Report contains statements
      that
      plan for or anticipate the future, including without limitation statements
      under
      the captions “Description of Business,” “Risk Factors” and “Management’s
      Discussion and Analysis or Plan of Operation.” These forward-looking statements
      include statements about our future business plans and strategies, future
      actions, future performance, costs and expenses, interest rates, outcome of
      contingencies, financial condition, results of operations, liquidity, objectives
      of management, and other such matters, as well as certain projections and
      business trends, and most other statements that are not historical in nature,
      that are “forward-looking”.





Because
      we are a “penny stock”, you cannot rely on the Private Securities Litigation
      Reform Act of 1995. Forward-looking information may be included in this Annual
      Report or may be incorporated by reference from other documents we have filed
      with the Securities and Exchange Commission (the “SEC”). You can identify these
      forward-looking statements by the use of words such as “may,” “will,” “could,”
“should,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,”
“forecast,” “potential,” “intend,” “continue” and variations of these words or
      comparable words. Forward-looking statements do not guarantee future
      performance, and because forward-looking statements involve future risks and
      uncertainties, there are factors that could cause actual results to differ
      materially from those expressed or implied. These risks and uncertainties
      include, without limitation, those described under “RISK FACTORS” in Item 1 of
      this Annual Report and those detailed from time to time in our filings with
      the
      SEC.





We
      have
      based the forward-looking statements relating to our operations on management’s
      current expectations, estimates, and projections about us and the industry
      in
      which we operate. These statements are not guarantees of future performance
      and
      involve risks, uncertainties and assumptions that we cannot predict. In
      particular, we have based many of these forward-looking statements on
      assumptions about future events that may prove to be inaccurate. Because
      forward-looking statements involve future risks and uncertainties, there are
      factors that could cause actual results to differ materially from those
      anticipated by these forward-looking statements. For example, a few of the
      uncertainties that could affect the accuracy of forward-looking statements
      include:




·
            Changes
                in general economic and business conditions affecting
                us;


·
            Changes
                in the assumptions used in making forward-looking
                statements;


·
            Legal
                or policy developments that diminish our
                appeal;


·
            Changes
                in our business strategies;


·
            Our
                limited operating history;


·
            The
                degree and nature of our
                competition;


·
            Our
                ability to employ and retain qualified employees;
                and


·
            The
                other factors referenced in this Annual Report, including without
                limitation, under the captions “Description of Business,” “Risk Factors”
                and “Management’s Discussion and Analysis or Plan of
                Operation.”





These
      risks are not exhaustive. Other sections of this Annual Report include
      additional factors which could adversely impact our business and financial
      performance. Moreover, we operate in a competitive and changing environment.
      New
      risk factors emerge from time to time and it is not possible for our management
      to predict all risk factors, nor can we assess the impact of all factors on
      our
      business or to the extent to which any factor, or combination of factors, may
      cause actual results to differ materially from those contained in any
      forward-looking statements. Given these risks and uncertainties, we caution
      you
      not to place undue reliance on forward-looking statements as a prediction of
      actual results. All forward-looking statements are made only as of the date
      of
      this Annual Report. Except for our ongoing obligation to disclose material
      information as required by federal securities laws, we do not intend to update
      you concerning any future revisions to any forward-looking statements to reflect
      events or circumstances occurring after the date of this Annual Report. We
      undertake no obligation to publicly update or revise any forward-looking
      statements, whether as a result of new information or future
      events.


4




**PART
      I**





**Item
      1.**  **Description
      of Business**


The
        business of Knight Energy Corp. (“Knight”, “we”, “us”, “our”, “its”), is to
        acquire, develop, own, operate and otherwise be involved and invest in
        energy-related businesses, assets and investments, including, without
        limitation, the acquisition, exploration and development of natural gas and
        crude oil, the acquisition and operation of drilling rigs and/or gathering
        systems and/or pipelines for natural gas and/or crude oil, and other related
        businesses, assets and investments. The Company’s website is
www.knightenergycorp.com.




**History
      of Company Development**




We
      were
      originally formed as a Nevada corporation on May 8, 1998 with the name "The
      Living Card Corporation." On June 14, 2000, we changed our name to Integrated
      Technology Group, which we refer to herein as ITG. From formation and until
      approximately July 2000, we engaged in the creation, development and marketing
      of unique, educational and low-cost greeting cards.




During
      2000, ITG's management decided to exit the greeting card business. Subsequently,
      in July 2000 ITG acquired all of the issued and outstanding shares of Safe
      Tire
      Disposal Corp., a Delaware corporation whose subsidiaries were engaged in the
      tire recycling business in Texas and Oklahoma. We engaged in this business
      between July 2000 and early 2003, when we halted operations. In August 2003,
      we
      filed a Form 15 with the SEC suspending our reporting obligations, and we were
      inactive between August 2003 and February 2006.




On
      March
      2, 2006, Knight Energy Corp., a Delaware corporation ("Knight Delaware") was
      formed. Knight Delaware's business plan is to acquire, develop, own, operate
      and
      otherwise be involved and invest in energy-related businesses, assets and
      investments, including, without limitation, the acquisition, exploration and
      development of natural gas and crude oil, the acquisition and operation of
      drilling rigs and/or gathering systems and/or pipelines for natural gas and/or
      crude oil, and other related businesses, assets and investments.




In
        June
        2006, Knight Delaware and ITG consummated a stock exchange pursuant to which
        ITG
        issued shares of its common stock for al of the outstanding shares of Knight
        Delaware, and Knight Delaware became a wholly-owned subsidiary of ITG. After
        the
        stock exchange agreement was signed in June 2006, ITG changed its name to
        Knight
        Energy Corp., a Nevada corporation ("Knight Nevada"), and when this transaction
        closed, Knight Delaware became a wholly-owned subsidiary of Knight
        Nevada.




In
      April
      2007, the Knight Nevada Board of Directors and a majority of the stockholders
      approved an amendment to the Knight Nevada Articles of Incorporation increasing
      the Company's authorized capital to a total of 550,000,000 shares of stock,
      consisting of 50,000,000 shares of series A preferred stock, $0.0001 par value
      per share, and 500,000,000 shares of common stock, $0.0001 par value per
      share.




5




On
        April
        11, 2007 and April 12, 2007, respectively, the Board of Directors and the
        stockholders approved the reincorporation of the Company as a Maryland
        corporation ("Knight Maryland"), which was effective on April 30,
        2007.




**Our
      Strategy**




Management
      believes that:




·
            Natural
                gas is an environmentally friendly fuel that will be increasingly
                valued
                in the United States;




·
            There
                are a number of natural gas and/or oil and development projects that
                we
                are pursuing which will require significant capitalization to complete,
                explore and develop;




·
            We
                have the ability to assemble the technical and commercial and resources
                needed to pursue these potential projects; and




·
            Our
                successful development of one or more large potential natural gas
                or oil
                projects will create substantial shareholder value.




The
      principal elements of our strategy to maximize shareholder value are:




*Generate
      growth through drilling* .
      We
      expect to generate long-term reserve and production growth predominantly through
      our drilling activities. We anticipate the substantial majority of our future
      capital expenditures will be directed toward the drilling of wells, although
      we
      expect to continue to acquire additional leasehold interests. Initially, we
      anticipate reserve growth will be our primary focus with a more balanced reserve
      and production growth profile as we continue to execute our growth strategy.




*Manage
      costs by maximizing operational control* .
      We seek
      to exert control over our exploration, exploitation and development activities.
      As the operator of our projects, we have greater control over the amount and
      timing of the expenditures associated with those activities. As we manage our
      growth, we are focused on reducing lease operating expenses and general and
      administrative costs, and finding and development costs on a per mcfe basis.
      As
      of December 31, 2007, we operated 100% of our wells, although we may not be
      able to be operator of all our future projects.




*Pursue
      complementary leasehold interests and property acquisitions* .
      We
      intend to attempt to supplement our drilling strategy with complementary
      leasehold interests and property acquisitions.




**Current
      Natural Gas and Oil Projects**




We
      are in
      the process of building our portfolio of exploration and exploitation projects
      targeting both oil and natural gas. We believe that there is potential for
      commercial development in areas where historical drilling attempts resulted
      in
      indications of oil and gas but ultimate development was not pursued, and we
      intend to continue to focus our activities in areas having this profile. We
      believe that the application of advanced drilling, completion and stimulation
      technologies combined with a strong commodity pricing environment could make
      development of our project areas economically viable.




Through
      Charles Hill Drilling, Inc. (“CHD”), our wholly-owned subsidiary, we control oil
      and gas leases on approximately 2,200 acres located in Stephens County and
      Eastland County, Texas. Additionally, we have a right of first refusal on oil
      and gas leases for approximately 2,600 acres in the same counties. On these
      leases, we have a total of sixty-six (66) wells with twenty (20) of them
      producing. As of March 15, 2008, we were receiving an aggregate of approximately
      35 barrels of oil and 500,000 mcf of natural gas per day from these 20 producing
      wells.




6




In
      November 2006, we acquired an oil and gas lease covering approximately 1,000
      undeveloped acres in the Salt Creek Prospect area of Oklahoma. We intend to
      conduct a satellite imaging program to further evaluate this acreage. We also
      intend to pursue acquisitions and/or investment in other energy-related
      businesses, assets, and/or investments, as opportunities, time and available
      capital will permit.




**Natural
      Gas and Oil Reserves**




The
      following tables present information as of December 31, 2007 and 2006 with
      respect to our estimated proved reserves.




***Net
                Proved Reserve Summary and PV-10 Forecast from December 31,
                2007*****Reserve**
              **Categories**
            
            **Oil**
              **(MBO)**
            
            **Gas**
              **(MMCF)**
            
            **Cash
                Flow**
              **(000’s)**
            
            **PV-10
                (000’s)**
              (c)PDP
                (b)
            
            
            66.7
            
            
            430.2
            
            $
            6,704
            
            $
            3,542PDBP/PDNP
                (b)
            
            
            47.5
            
            
            188.5
            
            
            4,355
            
            
            2,524PUD
                (b)
            
            
            50.6
            
            
            196.3
            
            
            3,999
            
            
            1,945**Total
                Proved**(a)
            
            
            **164.8**
            
            
            **815.0**
            
            **$**
            **15,058**
            
            **$**
            **8,011**





***Net
                Proved Reserve Summary and PV-10 Forecast from December 31,
                2006*****Reserve**
              **Categories**
            
            **Oil**
              **(MBO)**
            
            **Gas**
              **(MMCF)**
            
            **Cash
                Flow**
              **($000’s)**
            
            **PV-10 ($000’s)**
              (c)PDP
                (b)
            
            
            -
            
            
            -
            
            $
            -
            
            $
            -PDBP/PDNP
                (b)
            
            
            1.4
            
            
            137.9
            
            
            959
            
            
            648PUD
                (b)
            
            
            -
            
            
            127.5
            
            
            459
            
            
            201**Total
                Proved**(a)
            
            
            **1.4**
            
            
            **265.4**
            
            **$**
            **1,418**
            
            **$**
            **849**




Changes
      in the Company's proved crude oil and natural gas reserves for the year ended
      December 31, 2007 were as follows:




**Crude
                Oil**
              **(MBO)**
            
            **Natural
                Gas**
              **(MMCF)**Proved
                reserves:Beginning
                of the period - December 31, 2006
            
            
            1.4
            
            
            265.4Other
            
            
            0.6
            
            
            (138.1
            )Revisions
                of previous estimates
            
            
            -
            
            
            (104.8
            )Improved
                recovery
            
            
            -
            
            
            -Purchase
                of minerals in place
            
            
            69.3
            
            
            -Extensions
                and discoveries
            
            
            104.1
            
            
            885.5Production
            
            
            (10.6
            )
            
            (93.0
            )Sale
                of minerals in place
            
            
            -
            
            
            -End
                of the period - December 31, 2007
            
            
            164.8
            
            
            815.0


7




(a)
            Proved
                reserves are those quantities of gas that, by analysis of geological
                and
                engineering data, can be estimated with reasonable certainty to be
                commercially recoverable from known reservoirs and under current
                economic
                conditions, operating methods and government regulations.




(b)
            PDP
                are developed reserves that are expected to be recovered from existing
                wells. PDBP are proved developed behind pipe and PDNP are proved
                non-producing reserves which are proved reserves that are expected
                to be
                recovered from existing wells. PUD are provided undeveloped reserves,
                which are expected to be recovered: (i) from new wells on undrilled
                acreage; (ii) from deepening existing wells to a different reservoir;
                or
                (iii) where a relatively large expenditure is required to re-complete
                an existing well or install production or transportation facilities
                for
                primary or improved recovery
                projects.




(c)
            PV-10
                represents the present value, discounted at 10% per annum, of estimated
                future net revenue before income tax of our estimated proved reserves.
                The
                estimated future net revenues were determined by using reserve quantities
                of proved reserves and the periods in which they are expected to
                be
                developed and produced based on economic conditions prevailing at
                December
                31, 2007 and 2006. PV-10 is a non-GAAP financial measure because
                it
                excludes income tax effects. Management believes that the presentation
                of
                the non-GAAP financial measure of PV-10 provides useful information
                to
                investors because it is widely used by professional analysts and
                sophisticated investors in evaluating oil and natural gas companies.
                PV-10
                is not a measure of financial or operating performance under GAAP.
                PV-10
                should not be considered as an alternative to the standardized measure
                as
                defined under GAAP. We have included a reconciliation of PV-10 to
                the most
                directly comparable GAAP measure — standardized measure of discounted
                future net cash flow — in the following
                table:




**December 31,****2007**
            
            **2006**($000’s)
            
            ($000’s)PV-10
                measure of discounted future net cash flows
            
            $
            8,011.4
            
            $
            848.7St
                Standardized measure of discounted future net cash flows
                (d)
            
            
            5,287.5
            
            
            560.1Difference
                between PV-10 and Standardized measures
            
            $
            2,723.9
            
            $
            288.6




(d)
            The
                standardized measure represents the present value of estimated future
                cash
                inflows from proved oil and natural gas reserves, less future development,
                abandonment, production and income tax expenses, discounted at 10%
                per
                annum to reflect timing of future cash flows and using the same pricing
                assumptions as were used to calculate PV-10. Standardized measure
                differs
                from PV-10 because standardized measure includes the effect of future
                income taxes.




**Acreage**




The
      following table sets forth as of December 31, 2007 and 2006 the gross and net
      acres of both developed and undeveloped oil and gas leases that we hold. “Gross”
acres are the total number of acres in which we own a working interest. “Net”
acres refer to gross acres multiplied by our fractional working interest.
      Acreage numbers do not include our options to acquire additional leaseholds
      which have not been exercised.




8


**December
      31, 2007**




**Developed(a)**
            
            **Undeveloped(b)**
            
            **Total****Play/Trend**
            
            
            **Gross**
            
            
            **Net**
            
            
            **Gross**
            
            
            **Net**
            
            
            **Gross**
            
            
            **Net**Texas
            
            
            1,532
            
            
            1,532
            
            
            640
            
            
            640
            
            
            2,172
            
            
            2,172




**December
      31, 2006**




**Developed(a)**
            
            **Undeveloped(b)**
            
            **Total****Play/Trend**
            
            
            **Gross**
            
            
            **Net**
            
            
            **Gross**
            
            
            **Net**
            
            
            **Gross**
            
            
            **Net**Texas
            
            
            0
            
            
            0
            
            
            160
            
            
            160
            
            
            160
            
            
            160




(a)
            Developed
                refers to acres that are allocated or assignable to producing wells
                or
                wells capable of production. Developed acreage includes acreage having
                wells shut-in awaiting the addition of
                infrastructure.




(b)
            Undeveloped
                refers to lease acreage on which wells have not been developed or
                completed to a point that would permit the production of commercial
                quantities of oil or natural gas regardless of whether such acreage
                contains proved reserves.




(c)
            In
                addition to the acreage shown on this table, in November 2006, we
                acquired
                a lease covering approximately 1,000 undeveloped acres in
                Oklahoma.




**Production
      and Price Information**




The
      following tables summarize sales volumes, sales prices, and production cost
      information for the periods indicated:




**Year
                Ended December 31,**
            
            **From Inception Date
                of March 2, 2006 to December 31,****2007**
            
            **2006****Production**Oil
                (bbls)
            
            
            10,591
            
            
            356Natural
                gas (mcf)
            
            
            93,030
            
            
            4,825Natural
                gas equivalent (mcfe)
            
            
            15,505
            
            
            804Total
                equivalent (bbls)
            
            
            26,096
            
            
            1,160**Oil
                and natural gas sales**Oil
                sales
            
            $
            750,456
            
            $
            20,125Natural
                gas sales
            
            
            653,140
            
            
            29,125Total
            
            $
            1,403,596
            
            $
            49,250**Average
                sales price**Oil
                ($ per bbl)
            
            $
            70.86
            
            $
            56.53Natural
                gas ($ per mcf)
            
            
            7.02
            
            
            6.04Natural
                gas equivalent ($ per mcfe)
            
            
            42.12
            
            
            36.24**Average
                production cost**Total
                equivalent ($ bbls)
            
            $
            9.94
            
            $
            2.90




9




The
      following table sets forth information at December 31, 2007 and 2006 relating
      to
      the productive wells in which we owned a working interest as of that date.
      Productive wells consist of producing wells and wells capable of production,
      including natural gas wells awaiting pipeline connections to commence deliveries
      and oil wells awaiting connection to production facilities. Gross wells are
      the
      total number of productive wells in which we have an interest, and net wells
      are
      the sum of our fractional working interests owned in gross wells.




**December
                31, 2007**
            
            **Natural
                Gas**
            
            **Oil****Play/Trend**
            
            **Gross**
              **Wells**
            
            **Net**
              **Wells**
            
            **Gross**
              **Wells**
            
            **Net**
              **Wells**Texas
            
            
            14
            
            
            14
            
            
            19
            
            
            19





**December
                31, 2006**
            
            **Natural
                Gas**
            
            **Oil****Play/Trend**
            
            **Gross**
              **Wells**
            
            **Net**
              **Wells**
            
            **Gross**
              **Wells**
            
            **Net**
              **Wells**Texas
            
            
            6
            
            
            6
            
            
            6
            
            
            6





**Drilling
      Activities**




The
      following table sets forth information with respect to wells drilled and
      completed during the periods indicated. The information should not be considered
      indicative of future performance, nor should it be assumed that there is
      necessarily any correlation between the number of productive wells drilled,
      quantities of reserves found and economic value. Productive wells are those
      that
      produce commercial quantities of hydrocarbons, regardless of whether they
      produce a reasonable rate of return.




**Gross
                Wells**
            
            **Net
                Wells****Period**
            
            **Type
                of Well**
            
            **Productive(b)**
            
            **Dry(c)**
            
            **Total**
            
            **Productive(b)**
            
            **Dry(c)**
            
            **Total**Year
                Ended December 31, 2007
            
            Exploratory(a)
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0TexasDevelopment(a)
            
            
            20
            
            
            0
            
            
            20
            
            
            20
            
            
            0
            
            
            20Texas




10





**Gross
                Wells**
            
            **Net
                Wells****Period**
            
            **Type
                of Well**
            
            **Productive(b)**
            
            **Dry(c)**
            
            **Total**
            
            **Productive(b)**
            
            **Dry(c)**
            
            **Total**From
                Inception Date of March 2, 2006 to December 31, 2006
            
            
            Exploratory(a)
            
            
            2
            
            
            0
            
            
            2
            
            
            2
            
            
            0
            
            
            2Development(a)
            
            
            4
            
            
            0
            
            
            4
            
            
            4
            
            
            0
            
            
            4Texas




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




(b)
            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.




(c)
            A
                dry well is an exploratory or development well that is not a producing
                well or a well that has either been plugged or has been converted
                to
                another use.




**Markets
      and Customers**




The
      success of our operations is dependent upon prevailing prices for natural gas
      and oil. The markets for natural gas and oil have historically been volatile
      and
      may continue to be volatile in the future. Natural gas and oil prices are beyond
      our control. However, rising demand for natural gas to fuel power generation
      and
      meet increasing environmental requirements has led some industry observers
      to
      indicate that long term demand for natural gas is increasing.




We
      may
      use different strategies for gas sales depending on the location of the field
      and the local markets. In some locations, we may use proprietary CO2 reduction
      units to process our own gas and sell it to nearby local markets. In other
      cases, we may connect to nearby high pressure transmission pipelines. We are
      not
      currently aware of any restraints with respect to pipeline availability.
      However, because of the nature of natural gas development, there may be periods
      of time when pipeline capacity is inadequate to meet our transportation needs.
      It is often the case that as new development comes on-line, pipelines are near
      or at capacity before new pipelines are built.




We
      have
      no firm delivery contract for the delivery of our natural gas
      sales.




To
      the
      extent that we bring new wells on-line and our production volume increases,
      of
      which there is no assurance, we will sell the new production in the spot markets
      or under new monthly base contracts. We expect that we will usually sell in
      this
      fashion, partly through firm gas delivery contracts and partly in the spot
      markets.




11




Prices
      for oil and natural gas fluctuate fairly widely based on supply and demand.
      Supply and demand are influenced by weather, foreign policy and industry
      practices. For example, demand for natural gas has increased in recent years
      due
      to a trend in the power plant industry to move away from using oil and coal
      as a
      fuel source to using natural gas, because natural gas is a cleaner fuel.
      Nonetheless, in light of historical fluctuations in prices, there can be no
      assurance at what price we will be able to sell our oil and natural gas. It
      is
      possible that prices will be low at the time periods in which the wells are
      most
      productive, thereby reducing overall returns.




**Other
      Properties**




In
      addition to our properties in Stephens County, Texas, we are currently
      considering oil and gas drilling opportunities in the Salt Creek Prospect area
      of Oklahoma. In November 2006, we acquired an oil and gas lease covering
      approximately 1,000 undeveloped acres in this area, and we intend to conduct
      a
      satellite imaging program to further evaluate this acreage. ****




**Competition**




The
      natural gas and oil industry is intensely competitive and speculative in all
      of
      its phases. We encounter competition from other natural gas and oil companies
      in
      all areas of our operations. In seeking suitable natural gas and oil properties
      for acquisition, we compete with other companies operating in our areas of
      interest, including medium and large natural gas and oil companies and other
      independent operators, which have greater financial resources and have been
      engaged in the exploration and production business for a much longer time than
      we have. Many of our competitors also have substantially larger operating staffs
      than we do. Many of these competitors not only explore for and produce natural
      gas and oil but also market natural gas and oil and other products on a
      regional, national or worldwide basis. These competitors may be able to pay
      more
      for productive natural gas and oil properties and exploratory prospects, and
      define, evaluate, bid for and purchase a greater number of properties and
      prospects than we are able to. In addition, these competitors may have a greater
      ability to continue exploration activities during periods of low market prices.
      Our ability to acquire additional properties and to discover reserves in the
      future will depend on our ability to evaluate and select suitable properties
      and
      to finance and consummate transactions in a highly competitive environment.




The
      prices of our natural gas and oil production will be controlled by market
      forces. However, competition in the natural gas and oil exploration industry
      also exists in the form of competition to acquire leases and obtain favorable
      transportation prices. We are extremely small, with limited financial resources
      and may have difficulty acquiring additional acreage and/or projects and may
      have difficulty arranging for the transportation of our production. We also
      face
      competition in obtaining natural gas and oil drilling rigs and in sourcing
      the
      manpower to run them and provide related services.




**Government
      Regulation of the Oil and Gas Industry**




***General*** *.*




Our
      business is affected by numerous laws and regulations, including energy,
      environmental, conservation, tax and other laws and regulations relating to
      the
      energy industry. Failure to comply with these laws and regulations may result
      in
      the assessment of administrative, civil and criminal penalties, the imposition
      of injunctive relief or both. Moreover, changes in any of these laws and
      regulations could have a material adverse effect on our business. In view of
      the
      many uncertainties with respect to current and future laws and regulations,
      including their applicability to us, we cannot predict the overall effect of
      such laws and regulations on our future operations.




12




We
      currently operate one property. We believe that operations where we own
      interests comply in all material respects with applicable laws and regulations
      and that the existence and enforcement of these laws and regulations have no
      more restrictive an effect on our operations than on other similar companies
      in
      the energy industry.




The
      following discussion contains summaries of certain laws and regulations and
      is
      qualified in its entirety by the foregoing and by reference to the full text
      of
      the laws and regulations described.




***Federal
      Regulation of the Sale and Transportation of Oil and
      Gas.*** ****




Various
      aspects of our oil and gas operations are or will be regulated by agencies
      of
      the federal government. The Federal Energy Regulatory Commission, or FERC,
      regulates the transportation and sale for resale of natural gas in interstate
      commerce pursuant to the Natural Gas Act of 1938, or NGA, and the Natural Gas
      Policy Act of 1978, or NGPA. In the past, the federal government has regulated
      the prices at which oil and gas could be sold. While ”first sales” by producers
      of natural gas, and all sales of crude oil, condensate and natural gas liquids
      can currently be made at uncontrolled market prices, Congress could reenact
      price controls in the future. Deregulation of wellhead sales in the natural
      gas
      industry began with the enactment of the NGPA in 1978. In 1989, Congress enacted
      the Natural Gas Wellhead Decontrol Act.




The
      Decontrol Act removed all NGA and NGPA price and non-price controls affecting
      wellhead sales of natural gas effective January 1, 1993, and resulted in a
      series of orders being issued by FERC requiring interstate pipelines to provide
      transportation services separately, or “unbundled”, from the pipelines’ sales of
      gas and to provide open access transportation on a nondiscriminatory basis
      that
      is equal for all natural gas shippers.




We
      do not believe that we will be affected by these or any other FERC rules or
      orders materially differently than other natural gas producers and marketers
      with which we compete.




The
      FERC
      also has issued numerous orders confirming the sale and abandonment of natural
      gas gathering facilities previously owned by interstate pipelines and
      acknowledging that if the FERC does not have jurisdiction over services provided
      on those facilities, then those facilities and services may be subject to
      regulation by state authorities in accordance with state law. A number of states
      have either enacted new laws or are considering the adequacy of existing laws
      affecting gathering rates and/or services. Other state regulation of gathering
      facilities generally includes various safety, environmental, and in some
      circumstances, nondiscriminatory take requirements, but does not generally
      entail rate regulation. Thus, natural gas gathering may receive greater
      regulatory scrutiny of state agencies in the future. Our anticipated gathering
      operations could be adversely affected should they be subject in the future
      to
      increased state regulation of rates or services, although we do not believe
      that
      we would be affected by such regulation any differently than other natural
      gas
      producers or gatherers. In addition, the FERC’s approval of transfers of
      previously-regulated gathering systems to independent or pipeline affiliated
      gathering companies that are not subject to FERC regulation may affect
      competition for gathering or natural gas marketing services in areas served
      by
      those systems and thus may affect both the costs and the nature of gathering
      services that will be available to interested producers or shippers in the
      future.




We
      conduct certain operations on federal oil and gas leases, which are administered
      by the Minerals Management Service, or MMS. Federal leases contain relatively
      standard terms and require compliance with detailed MMS regulations and orders,
      which are subject to change. Among other restrictions, the MMS has regulations
      restricting the flaring or venting of natural gas, and has proposed to amend
      those regulations to prohibit the flaring of liquid hydrocarbons and oil without
      prior authorization. Under certain circumstances, the MMS may require any of
      our
      operations on federal leases to be suspended or terminated. Any such suspension
      or termination could materially and adversely affect our financial condition,
      cash flows and operations. The MMS issued a final rule that amended its
      regulations governing the valuation of crude oil produced from federal leases.
      This rule, which became effective June 1, 2000, provides that the MMS will
      collect royalties based on the market value of oil produced from federal leases,
      and was further modified by amendments to the June 2000 MMS rules,
      effective July 1, 2004. Also, the MMS promulgated new Federal Gas Valuation
      rules, effective June 1, 2005 (70FR 11869, March 10, 2005) concerning
      calculation of transportation costs, including the allowed rate of return in
      the
      calculation of actual transportation costs in non-arm’s length arrangements and
      addresses various other related matters. We cannot predict whether this new
      gas
      rule will become effective, nor can we predict whether the MMS will take further
      action on oil and gas valuation matters. However, we do not believe that any
      such rules will affect us any differently than other producers and marketers
      of
      crude oil with which we will compete.




13




Additional
      proposals and proceedings that might affect the oil and gas industry are pending
      before Congress, the FERC, the MMS, state commissions and the courts. We cannot
      predict when or whether any such proposals may become effective. In the past,
      the natural gas industry has been heavily regulated. There is no assurance
      that
      the regulatory approach currently pursued by various agencies will continue
      indefinitely. Notwithstanding the foregoing, we do not anticipate that
      compliance with existing federal, state and local laws, rules and regulations
      will have a material or significantly adverse effect upon our capital
      expenditures, earnings or competitive position. No material portion of our
      business is subject to re-negotiation of profits or termination of contracts
      or
      subcontracts at the election of the federal government.




***State
      Regulation.*** ****




Our
      operations also are subject to regulation at the state and, in some cases,
      county, municipal and local governmental levels. This regulation includes
      requiring permits for the drilling of wells, maintaining bonding requirements
      in
      order to drill or operate wells and regulating the location of wells, the method
      of drilling and casing wells, the surface use and restoration of properties
      upon
      which wells are drilled, the plugging and abandonment of wells and the disposal
      of fluids used and produced in connection with operations. Our operations also
      are or will be subject to various conservation laws and regulations. These
      include (1) the size of drilling and spacing units or proration units,
      (2) the density of wells that may be drilled, and (3) the unitization
      or pooling of oil and gas properties. In addition, state conservation laws,
      which frequently establish maximum rates of production from oil and gas wells,
      generally prohibit the venting or flaring of gas and impose certain requirements
      regarding the ratability of production. State regulation of gathering facilities
      generally includes various safety, environmental and, in some circumstances,
      nondiscriminatory take requirements, but (except as noted above) does not
      generally entail rate regulation. These regulatory burdens may affect
      profitability, but we are unable to predict the future cost or impact of
      complying with such regulations.




***Environmental
      Matters.*** ****




Operations
      on properties in which we have an interest are subject to extensive federal,
      state and local environmental laws that regulate the discharge or disposal
      of
      materials or substances into the environment and otherwise are intended to
      protect the environment. Numerous governmental agencies issue rules and
      regulations to implement and enforce such laws, which are often difficult and
      costly to comply with and which carry substantial administrative, civil and
      criminal penalties and in some cases injunctive relief for failure to comply.
      Some laws, rules and regulations relating to the protection of the environment
      may, in certain circumstances, impose ”strict liability” for environmental
      contamination. These laws render a person or company liable for environmental
      and natural resource damages, cleanup costs and, in the case of oil spills
      in
      certain states, consequential damages without regard to negligence or fault.
      Other laws, rules and regulations may require the rate of oil and gas production
      to be below the economically optimal rate or may even prohibit exploration
      or
      production activities in environmentally sensitive areas. In addition, state
      laws often require some form of remedial action, such as closure of inactive
      pits and plugging of abandoned wells, to prevent pollution from former or
      suspended operations. Legislation has been proposed in the past and continues
      to
      be evaluated in Congress from time to time that would reclassify certain oil
      and
      gas exploration and production wastes as ”hazardous wastes.” This
      reclassification would make these wastes subject to much more stringent storage,
      treatment, disposal and clean-up requirements, which could have a significant
      adverse impact on operating costs. Initiatives to further regulate the disposal
      of oil and gas wastes are also proposed in certain states from time to time
      and
      may include initiatives at the county, municipal and local government levels.
      These various initiatives could have a similar adverse impact on operating
      costs. The regulatory burden of environmental laws and regulations increases
      our
      cost and risk of doing business and consequently affects our profitability.




14




The
      federal Comprehensive Environmental Response, Compensation and Liability Act,
      or
      CERCLA, also known as the ”Superfund” law, imposes liability, without regard to
      fault, on certain classes of persons with respect to the release of a ”hazardous
      substance” into the environment. These persons include the current or prior
      owner or operator of the disposal site or sites where the release occurred
      and
      companies that transported, disposed or arranged for the transport or disposal
      of the hazardous substances found at the site. Persons who are or were
      responsible for releases of hazardous substances under CERCLA may be subject
      to
      joint and several liability for the costs of cleaning up the hazardous
      substances that have been released into the environment and for damages to
      natural resources, and it is not uncommon for the federal or state government
      to
      pursue such claims. It is also not uncommon for neighboring landowners and
      other
      third parties to file claims for personal injury or property or natural resource
      damages allegedly caused by the hazardous substances released into the
      environment. Under CERCLA, certain oil and gas materials and products are,
      by
      definition, excluded from the term ”hazardous substances.” At least two federal
      courts have held that certain wastes associated with the production of crude
      oil
      may be classified as hazardous substances under CERCLA. Similarly, under the
      federal Resource, Conservation and Recovery Act, or RCRA, which governs the
      generation, treatment, storage and disposal of ”solid wastes” and ”hazardous
      wastes,” certain oil and gas materials and wastes are exempt from the definition
      of ”hazardous wastes.” This exemption continues to be subject to judicial
      interpretation and increasingly stringent state interpretation. During the
      normal course of operations on properties in which we have an interest, exempt
      and non-exempt wastes, including hazardous wastes, that are subject to RCRA
      and
      comparable state statutes and implementing regulations are generated or have
      been generated in the past. The federal Environmental Protection Agency and
      various state agencies continue to promulgate regulations that limit the
      disposal and permitting options for certain hazardous and non-hazardous wastes.




Our
      operations will involve the use of gas fired compressors to transport collected
      gas. These compressors are subject to federal and state regulations for the
      control of air emissions. Title V status for a facility results in
      significant increased testing, monitoring and administrative and compliance
      costs. To date, other compressor facilities have not triggered Title V
      requirements due to the design of the facility and the use of state-of-the-art
      engines and pollution control equipment that serve to reduce air emissions.
      However, in the future, additional facilities could become subject to
      Title V requirements as compressor facilities are expanded or if regulatory
      interpretations of Title V applicability change. Stack testing and
      emissions monitoring costs will grow as these facilities are expanded and if
      they trigger Title V. The U.S. Environmental Protection Agency and some
      other state environmental agencies have increased their focus on control of
      minor gas emission leaks from pipelines, compressors, tanks, and related oil
      and
      gas production and storage equipment in response to ozone non-attainment
      requirements increasing the costs and complexity of our operations. We believe
      that the operator of the properties in which we have an interest is in
      substantial compliance with applicable laws, rules and regulations relating
      to
      the control of air emissions at all facilities on those properties.




15




Although
      we maintain insurance against some, but not all, of the risks described above,
      including insuring the costs of clean-up operations, public liability and
      physical damage, there is no assurance that our insurance will be adequate
      to
      cover all such costs, that the insurance will continue to be available in the
      future or that the insurance will be available at premium levels that justify
      our purchase. The occurrence of a significant event not fully insured or
      indemnified against could have a material adverse effect on our financial
      condition and operations.




Compliance
      with environmental requirements, including financial assurance requirements
      and
      the costs associated with the cleanup of any spill, could have a material
      adverse effect on our capital expenditures, earnings or competitive position.
      We
      do believe, however, that our operators are in substantial compliance with
      current applicable environmental laws and regulations. Nevertheless, changes
      in
      environmental laws have the potential to adversely affect operations. At this
      time, we have no plans to make any material capital expenditures for
      environmental control facilities.




**Our
      Employees**





As
      of
      December 31, 2007, we have 19 full-time employees and no part-time employees.
      We
      are not a party to any collective bargaining agreements. We believe that our
      relations with our employees are good.




**RISK
      FACTORS**





Any
      investment in our common stock involves a high degree of risk. In addition
      to
      the other information contained in this report, including risks and
      uncertainties described elsewhere, you should carefully consider the following
      risk factors and all of the information contained in this Annual Report in
      evaluating us or deciding whether to purchase our common stock. The risks and
      uncertainties described below or elsewhere in this Annual Report are not the
      only ones we face. Additional risks and uncertainties not presently known to
      us
      or that we currently deem immaterial also may impair our business and
      operations. The following list of risk factors should not be considered as
      all
      inclusive. If any of the following risks were to occur, our business, financial
      condition, operating results and cash flows could be materially affected, all
      of
      which might cause the trading price of our common stock to decline, and you
      could lose all or part of any investment you may make in our common
      stock.





Our
      actual results may differ materially from those anticipated in our
      forward-looking statements. We operate in a market environment that is difficult
      to predict and that involves significant risks and uncertainties, many of which
      will be beyond our control. Refer also to “SPECIAL NOTE REGARDING
      FORWARD-LOOKING STATEMENTS” at the beginning of this Annual Report.





***Risks
      related to our industry, business and strategy.***




**We
      have had limited operations in the past and there is no guarantee that we will
      be profitable.**





Our
      business was established pursuant to transactions which closed in March and
      November 2006, and we have a limited operating history. An investment in
      our securities is subject to all of the risks involved in a newly established
      business venture, including unanticipated problems, delays, expenses and other
      difficulties. The development of our business plan will require substantial
      capital expenditures. Our future financial results will depend primarily on
      our
      ability to locate profitable assets and business opportunities, which in turn
      will be dependent on our ability to manage those activities profitably, on
      the
      market prices for oil and natural gas, and on general economic conditions.
      There
      can be no assurance that we will achieve or sustain profitability or positive
      cash flows from our operating activities.




16




**Our
      operations require large amounts of capital and we may be unable to obtain
      needed capital or financing on satisfactory terms, which could lead to a loss
      of
      properties and a decline in our natural gas and oil
      reserves.**




Our
      current plans require us to make large capital expenditures for the exploration
      and development of our existing acreage. We expect to spend approximately
      $3,000,000 on additional drilling and development activities for our fiscal
      year
      ending December 31, 2008. We also anticipate that we will need substantial
      additional capital to pursue other potential projects. Historically, we have
      funded our capital expenditures through the issuance of equity.




There
      are
      no commitments from any source to provide any equity or debt financing. Even
      if
      we are able to obtain equity or debt financing, of which there is no assurance,
      issuing equity securities to satisfy our financing requirements could cause
      substantial dilution to our existing stockholders. Debt financing, if obtained,
      could lead to:




·
            a
                substantial portion of our operating cash flow being dedicated to
                the
                payment of principal and interest,


·
            our
                being more vulnerable to competitive pressures and economic downturns,
                and


·
            restrictions
                on our operations.




If
      we are
      not able to obtain capital through an equity or debt financing or otherwise,
      our
      ability to execute our business plans could be greatly limited. Moreover, we
      will need to increase our sources of revenue, funding or both to sustain
      operations for the long run. There is no assurance that this will occur.




**We
      may not discover commercially productive oil and gas reserves, which will impact
      our ability to meet our business goals.**




Our
      ability to locate reserves is dependent upon a number of factors, including
      our
      participation in multiple exploration projects and our technological capability
      to locate oil and gas in commercial quantities. We cannot predict that we will
      have the opportunity to participate in projects that economically produce
      commercial quantities of oil and gas in amounts necessary to create a positive
      cash flow for the Company or that the projects in which we elect to participate
      will be successful. There can be no assurance that our planned projects will
      result in significant reserves or that we will have future success in drilling
      productive wells at economical reserve replacement costs.




**Oil
      and gas prices are volatile and an extended decline in prices can significantly
      affect our financial results, impede our growth and hurt our business
      prospects**




Our
      future profitability and rate of growth and the anticipated carrying value
      of
      our oil and gas properties could be affected by the then prevailing market
      prices for oil and gas. We expect the markets for oil and gas to continue to
      be
      volatile. If we are successful in continuing to establish production, any
      substantial or extended decline in the price of oil or gas could:




·
            have
                a material adverse effect on our results of
                operations,


·
            limit
                our ability to attract capital,


·
            make
                the formations we are targeting significantly less economically
                attractive,


·
            reduce
                our cash flow and borrowing capacity,
                and


·
            reduce
                the value and the amount of any future
                reserves.




17


Various
      factors beyond our control will affect prices of oil and gas,
      including:




·
            worldwide
                and domestic supplies of oil and
                gas,


·
            the
                ability of the members of the Organization of Petroleum Exporting
                Countries to agree to and maintain oil price and production
                controls,


·
            political
                instability or armed conflict in oil or gas producing
                regions,


·
            the
                price and level of foreign imports,


·
            worldwide
                economic conditions,


·
            marketability
                of production,


·
            the
                level of consumer demand,


·
            the
                price, availability and acceptance of alternative
                fuels,


·
            the
                availability of processing and pipeline
                capacity,


·
            weather
                conditions, and


·
            actions
                of federal, state, local and foreign
                authorities.




These
      external factors and the volatile nature of the energy markets make it difficult
      to estimate future prices of oil and gas. In addition, sales of oil and gas
      are
      seasonal in nature, leading to substantial differences in cash flow at various
      times throughout the year.




**Our
      exploration and development activities are subject to reservoir and operational
      risks which may lead to increased costs and decreased
      production.**




The
      marketability of our oil and gas production, if any, will depend in part upon
      the availability, proximity and capacity of gas gathering systems, pipelines
      and
      processing facilities. Federal and state regulation of oil and gas production
      and transportation, general economic conditions, changes in supply and changes
      in demand all could adversely affect our ability to produce and market our
      oil
      and natural gas. If market factors were to change dramatically, the financial
      impact could be substantial because we would incur expenses without receiving
      revenues from the sale of production. The availability of markets is beyond
      our
      control.




Even
      when
      oil and gas is found in what is believed to be commercial quantities, reservoir
      risks, which may be heightened in new discoveries, may lead to increased costs
      and decreased production. These risks include the inability to sustain
      deliverability at commercially productive levels as a result of decreased
      reservoir pressures, large amounts of water, or other factors that might be
      encountered. As a result of these types of risks, most lenders will not loan
      funds secured by reserves from newly discovered reservoirs, which would have
      a
      negative impact on our future liquidity. Operational risks include hazards
      such
      as fires, explosions, craterings, blowouts (such as the blowout experienced
      at
      our initial exploratory well), uncontrollable flows of oil, gas or well fluids,
      pollution, releases of toxic gas and encountering formations with abnormal
      pressures. In addition, we may be liable for environmental damage caused by
      previous owners of property we own or lease. As a result, we may face
      substantial liabilities to third parties or governmental entities, which could
      reduce or eliminate funds available for exploration, development or acquisitions
      or cause us to incur substantial losses. The occurrence of any one of these
      significant events, if it is not fully insured against, could have a material
      adverse effect on our financial condition and results of
      operations.




**We
      face risks related to title to the leases we enter into that may result in
      additional costs and affect our operating results.**




It
      is
      customary in the oil and gas industry to acquire a leasehold interest in a
      property based upon a preliminary title investigation. If the title to the
      leases acquired is defective, we could lose the money already spent on
      acquisition and development, or incur substantial costs to cure the title
      defect, including any necessary litigation. If a title defect cannot be cured,
      we will not have the right to participate in the development of or production
      from the leased properties. In addition, it is possible that the terms of our
      oil and gas leases may be interpreted differently depending on the state in
      which the property is located. For instance, royalty calculations can be
      substantially different from state to state, depending on each state’s
      interpretation of lease language concerning the costs of production. We cannot
      guarantee that there will be no litigation concerning the proper interpretation
      of the terms of our leases. Adverse decisions in any litigation of this kind
      could result in material costs or the loss of one or more leases.




18




**To
      the extent that we undertake exploratory drilling, it is a high risk activity
      with many uncertainties that could adversely affect our business, financial
      condition or results of operations.**




Exploratory
      drilling involves numerous risks, including the risk that we will not find
      any
      commercially productive oil or gas reservoirs. The cost of drilling, completing
      and operating wells is often uncertain, and a number of factors can delay or
      prevent drilling operations, including:




·
            unexpected
                drilling conditions,


·
            pressure
                or irregularities in formations,


·
            equipment
                failures or accidents,


·
            adverse
                weather conditions,


·
            compliance
                with governmental requirements,


·
            shortages
                or delays in the availability of drilling rigs and the delivery of
                equipment, and


·
            shortages
                of trained oilfield service
                personnel.




Our
      future drilling activities may not be successful, nor can we be sure that our
      overall drilling success rate or our drilling success rate for activities within
      a particular area will not decline. Unsuccessful drilling activities could
      have
      a material adverse effect on our results of operations and financial condition.
      Also, we may not be able to obtain any options or lease rights in potential
      drilling locations that we identify. Although we have identified a number of
      potential exploration projects, we cannot be sure that we will ever drill them
      or that we will produce oil or gas from them or any other potential exploration
      projects.




**Accounting
      rules may require write-downs, which may result in a charge to
      earnings.**




We
      follow
      the successful efforts method of accounting, capitalizing costs of successful
      exploratory wells and expensing costs of unsuccessful exploratory wells. All
      developmental costs are capitalized. We are predominately engaged in exploration
      and production activities.




Depreciation
      and depletion of producing properties is computed on the units-of-production
      method based on estimated proved oil and natural gas reserves. Depreciation
      of
      non-oil and gas properties is over their estimated useful life of three years,
      using the straight line method. Repairs and maintenance are expensed, while
      renewals and betterments are generally capitalized. Expenditures less than
      $1,000, including contract labor, are expensed to operations in the year
      incurred.




At
      least
      quarterly, or more frequently if conditions indicate that long-term assets
      may
      be impaired, the carrying value of property is compared to management’s future
      estimated pre-tax cash flow from the properties. In accordance with Statement
      of
      Financial Accounting Standards No. 144, Accounting for Impairment or Disposal
      Of
      Long-Lived Assets, if impairment is necessary, the asset carrying value is
      written down to fair value. Cash flow pricing 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 and amortized on an aggregate basis. Based
      upon
      the Company’s evaluation, no impairment was determined for the period from March
      2, 2006 (Inception Date) through December 31, 2006. However, based upon the
      Company’s evaluation, an impairment of $387,317 was determined as of December
      31, 2007 related to several of the Company’s oil and gas leases.




19




**The
      oil and gas exploration and production industry is highly competitive and many
      of our competitors have more resources than we do.**




We
      compete in oil and gas exploration with a number of other companies. Many of
      these competitors have financial and technological resources vastly exceeding
      those available to us. We cannot be sure that we will be successful in acquiring
      and developing profitable properties in the face of this competition. In
      addition, from time to time, there may be competition for, and shortage of,
      exploration, drilling and production equipment. These shortages could lead
      to an
      increase in costs and delays in operations that could have a material adverse
      effect on our business and our ability to develop our properties. Problems
      of
      this nature also could prevent us from producing any oil and gas we discover
      at
      the rate we desire to do so.




**The
      oil and gas industry is heavily regulated and costs associated with such
      regulation could reduce our profitability.**




Federal,
      state and local authorities extensively regulate the oil and gas industry.
      Legislation and regulations affecting the industry are under constant review
      for
      amendment or expansion, raising the possibility of changes that may affect,
      among other things, the pricing or marketing of oil and gas production. State
      and local authorities regulate various aspects of oil and gas drilling and
      production activities, including the drilling of wells (through permit and
      bonding requirements), the spacing of wells, the unitization or pooling of
      oil
      and gas properties, environmental matters, safety standards, the sharing of
      markets, production limitations, plugging and abandonment, and restoration.
      The
      overall regulatory burden on the industry increases the cost of doing business,
      which, in turn, decreases profitability.




**Our
      oil and gas operations must comply with complex environmental regulations and
      such compliance is costly.**




Our
      oil
      and gas operations are subject to complex and constantly changing environmental
      laws and regulations adopted by federal, state and local governmental
      authorities. New laws or regulations, or changes to current requirements, could
      have a material adverse effect on our business. We will continue to be subject
      to uncertainty associated with new regulatory interpretations and inconsistent
      interpretations between state and federal agencies. We could face significant
      liabilities to the government and third parties for discharges of oil, natural
      gas, produced water or other pollutants into the air, soil or water, and we
      could have to spend substantial amounts on investigations, litigation and
      remediation. We cannot be sure that existing environmental laws or regulations,
      as currently interpreted or enforced, or as they may be interpreted, enforced
      or
      altered in the future, will not have a material adverse effect on our results
      of
      operations and financial condition.




**Technological
      changes could put us at a competitive disadvantage.**




The
      oil
      and gas industry is characterized by rapid and significant technological
      advancements and introductions of new products and services using new
      technologies. As new technologies develop, we may be placed at a competitive
      disadvantage, and competitive pressures may force us to implement those new
      technologies at a substantial cost. If other oil and gas exploration and
      development companies implement new technologies before we do, those companies
      may be able to provide enhanced capabilities and superior quality compared
      with
      what we are able to provide. We may not be able to respond to these competitive
      pressures and implement new technologies on a timely basis or at an acceptable
      cost. If we are unable to utilize the most advanced commercially available
      technologies, our business could be materially and adversely
      affected.




20




**Oil
      and gas sales are seasonal leading to varying cash flow during the
      year.**




Sales
      of
      oil and natural gas are seasonal in nature, leading to substantial differences
      in cash flow at various times throughout the year. The marketability of our
      oil
      and gas production, if any, will depend in part upon the availability, proximity
      and capacity of gas gathering systems, pipelines and processing facilities.
      Federal and state regulation of oil and gas production and transportation,
      general economic conditions, changes in supply and changes in demand all could
      negatively affect our ability to produce and market oil and natural gas. If
      market factors were to change dramatically, the financial impact could be
      substantial because we would incur expenses without receiving revenues from
      sales of production. The availability of markets and the volatility of product
      prices are beyond our control and represent a significant risk to
      us.




**Our
      oil and gas business depends on transportation facilities owned by
      others.**




The
      marketability of our potential oil and gas production depends in part on the
      availability, proximity and capacity of pipeline systems owned or operated
      by
      third parties. Federal and state regulation of oil and gas production and
      transportation, tax and energy policies, changes in supply and demand and
      general economic conditions could adversely affect our ability to produce,
      gather and transport oil and natural gas.




**Oil
      and gas reserve estimates may not be accurate.**




There
      are
      numerous uncertainties inherent in estimating quantities of proved oil and
      natural gas reserves and in projecting future rates of production and timing
      of
      development expenditures, including many factors beyond our control. Reserve
      engineering is a subjective process of estimating underground accumulations
      of
      oil and natural gas that cannot be measured in any exact way, and the accuracy
      of any reserve estimate is a function of the quality of available data and
      of
      engineering and geological interpretation and judgment. As a result, estimates
      made by different engineers often vary from one another. In addition, results
      of
      drilling, testing and production subsequent to the date of an estimate may
      justify revisions of such estimates, and such revisions, if significant, would
      change the schedule of any further production and development drilling.
      Accordingly, reserve estimates are generally different, and often materially
      so,
      from the quantities of oil and natural gas that are ultimately recovered.
      Furthermore, estimates of quantities of proved reserves and their PV-10 value
      may be affected by changes in crude oil and natural gas prices because the
      Company’s quantity estimates are based on prevailing prices at the time of their
      determination.




**Attempts
      to grow our business could have an adverse effect**




Because
      of our small size, we desire to grow rapidly in order to achieve certain
      economies of scale. Although there is no assurance that this rapid growth will
      occur, to the extent that it does occur, it will place a significant strain
      on
      our financial, technical, operational and administrative resources. As we
      increase our services and enlarge the number of projects we are evaluating
      or in
      which we are participating, there will be additional demands on our financial,
      technical and administrative resources. The failure to continue to upgrade
      our
      technical, administrative, operating and financial control systems or the
      occurrence of unexpected expansion difficulties, including the recruitment
      and
      retention of geoscientists and engineers, could have a material adverse effect
      on our business, financial condition and results of operations.




21




**We
      are controlled by a small number of large stockholders who may exercise a
      proportionately larger influence on our strategies and business activities
      than
      stockholders with smaller holdings.**




We
        are
        controlled by a small number of large stockholders who may engage in acts
        that
        may be in conflict with the interests of our stockholders with smaller holdings.
        Collectively, William J. Bosso and Bruce A. Hall, who are officers and directors
        of the Company, beneficially own 29% of our Common Stock. Accordingly, it
        is
        likely that these two officers, directors and stockholders will have a
        significant influence on the election of our directors and on our management,
        operations and affairs, with the ability to prevent or cause a change in
        control.




**The
      failure to complete future acquisitions successfully could reduce earnings
      and
      slow growth.**




We
      may
      not be able to identify properties for acquisition or may not be able to make
      acquisitions on terms that we consider economically acceptable. There is intense
      competition for acquisition opportunities in the oil and gas industry.
      Competition for acquisitions may increase the cost of, or cause us to refrain
      from, completing acquisitions. Our strategy of completing acquisitions is
      dependent upon, among other things, our ability to obtain debt and equity
      financing and, in some cases, regulatory approvals. Our ability to pursue our
      growth strategy may be hindered if we are not able to obtain financing or
      regulatory approvals.




**Shortages
      of supplies, equipment and personnel may adversely affect our
      operations.**




Our
      ability to conduct operations in a timely and cost effective manner depends
      on
      the availability of supplies, equipment and personnel. The oil and gas industry
      is cyclical and experiences periodic shortages of drilling rigs, supplies and
      experienced personnel. Shortages can delay operations and materially increase
      operating and capital costs.




**Our
      ability to market the oil and gas that we produce will be essential to our
      business.**




Several
      factors beyond our control may adversely affect our ability to market the oil
      and gas that we discover. These factors include the proximity, capacity and
      availability of oil and gas pipelines and processing equipment, market
      fluctuations of prices, taxes, royalties, land tenure, allowable production
      and
      environmental protection. The extent of these factors cannot be accurately
      predicted, but any one or a combination of these factors may result in our
      inability to sell our oil and gas at prices that would result in an adequate
      return on our invested capital. We currently distribute the oil that we produce
      through a single pipeline. If this pipeline were to become unavailable, we
      would
      incur additional costs to secure a substitute facility in order to deliver
      the
      gas that we produce. In addition, although we currently have access to firm
      transportation for the majority of our current gas production, there is no
      assurance that we will be able to procure additional transportation on terms
      satisfactory to us, or at all, to the extent we increase and expand the area
      or
      areas of our production.




**Shortages
      of supplies, equipment and personnel may adversely affect our
      operations.**




Our
      ability to conduct operations in a timely and cost effective manner depends
      on
      the availability of supplies, equipment and personnel. The oil and gas industry
      is cyclical and experiences periodic shortages of drilling rigs, supplies and
      experienced personnel. Shortages can delay operations and materially increase
      operating and capital costs.




22




**We
      will have limited control over the activities on properties we do not
      operate.**




We
      currently are operator over the oil and gas activities on our properties, but
      in
      the future other companies may operate some or many of the properties in which
      we have an interest. We will have limited ability to influence or control the
      operation or future development of these non-operated properties. Our dependence
      on the operator and other working interest owners for these projects and our
      limited ability to influence or control the operation and future development
      of
      these properties could materially adversely affect the realization of our
      targeted returns on capital in these drilling or acquisition activities.




**Hedging
      our production may result in losses.**




We
      currently have no hedging agreements in place. However, we may in the future
      enter into arrangements to reduce our exposure to fluctuations in the market
      prices of oil and natural gas. We may enter into oil and gas hedging contracts
      in order to increase credit availability. Hedging will expose us to risk of
      financial loss in some circumstances, including if:




·
            production
                is less than expected,


·
            the
                other party to the contract defaults on its obligations,
                or


·
            there
                is a change in the expected differential between the underlying price
                in
                the hedging agreement and actual prices
                received.




In
      addition, hedging may limit the benefit we would otherwise receive from
      increases in the prices of oil and gas. Further, if we do not engage in hedging,
      we may be more adversely affected by changes in oil and gas prices than our
      competitors who engage in hedging.




**Our
      officers and directors are engaged in other businesses that result in conflicts
      of interest with us.**




Both
      of
      our officers and directors also serve as directors of other companies or have
      significant shareholdings in other companies. For example, our Chief Executive
      Officer, William J. Bosso, is the CEO, director and largest shareholder of
      Nortia Capital Partners, Inc., a former business development company that is
      now
      focusing on merchant banking-type services to small, private companies seeking
      to become publicly held and traded. In addition, our Chief Financial Officer,
      Bruce A. Hall, is the Chief Financial Officer of Nortia Capital
      Partners.




Because
      of Nortia Capital’s ownership of a large amount of our stock, our directors have
      a conflict of interest in certain situations, and could have additional
      conflicts of interest in other situations. To the extent that Nortia
      participates in ventures in which we may participate, or provides us with
      possible financial resources, these officers and directors will have a conflict
      of interest in negotiating and concluding terms relating to the extent of such
      participation. In the event that such a conflict of interest arises at a meeting
      of the board of directors, a director who has such a conflict must disclose
      the
      nature and extent of his interest to the board of directors. In accordance
      with
      the laws of the State of Nevada, our officers and directors are required to
      act
      honestly and in good faith with a view to the best interests of the
      Company.




**We
      have limited senior management resources, and we need to attract and retain
      highly skilled personnel; we may be unable to effectively manage growth with
      our
      limited resources.**





Our
      limited senior management requires them to handle an increasingly large and
      more
      diverse amount of responsibility. Expansion of our business would place a
      significant additional strain on our limited managerial, operational, and
      financial resources. In such event, we will be required to expand our
      operational and financial systems and to expand, train, and manage our work
      force in order to manage the expansion of our operations. Our failure to fully
      integrate our new employees into our operations could have a material adverse
      effect on our business, prospects, financial condition, and results of
      operations. Our ability to attract and retain highly skilled personnel is
      critical to our operations and expansion. We face competition for these types
      of
      personnel from other oil and gas companies and more established organizations,
      many of which have significantly larger operations and greater financial,
      marketing, human, and other resources than we have. We may not be successful
      in
      attracting and retaining qualified personnel on a timely basis, on competitive
      terms, or at all. If we are not successful in attracting and retaining these
      personnel, our business, prospects, financial condition, and results of
      operations will be materially adversely affected. Our future success will be
      dependent on our ability to attract and retain key personnel


23





**We
      do not have a full time Controller**




In
        addition to the other time commitments of our Chief Financial officer and
        Chief
        Executive officer, currently do not have a full time Controller. Rather,
        we
        utilize an external consultant for recording our accounting information and
        for
        assisting in preparing our required SEC reporting requirements including
        this
        Form 10-KSB. In
        addition, compliance with Section 404 of the Sarbanes-Oxley Act of 2002 has
        and
        will continue to place additional strain on our limited managerial, operational,
        and financial resources which we believe will be very significant and could
        have
        a material adverse effect on our business, prospects, financial condition
        and
        results of operations. Our future success will be dependent on our ability
        to
        attract and retain key personnel




***Risks
      related to our common stock.***




**There
      is no active trading market or other liquidity for investors in the common
      stock.**




Although
      our common stock is currently traded on Pink Sheets, it is a thinly traded
      stock. There is no active trading market for the common stock and an investor
      cannot expect to liquidate his or her investment in an orderly manner regardless
      of the necessity of doing so. Investors should recognize the illiquidity of
      an
      investment in the Company.




**Even
      if an active trading market develops, stock prices may be
      volatile.**




It
      is
      currently anticipated that even if the trading volume in our common stock
      increases, the price of the common stock will be low and also may be volatile.
      Many brokerage firms may not effect transactions and may not deal with low
      priced securities as it may not be economical for them to do so. This could
      have
      an adverse effect on developing and sustaining a market for our securities.
      In
      addition, there is no assurance that an investor will be able to use our
      securities as collateral.




There
      is
      no assurance that our common stock will continue to meet the criteria necessary
      to qualify for listing on the Pink Sheets. Further, there is no assurance that
      our common stock can be made to meet the criteria necessary to qualify for
      listing on the NASDAQ or the American Stock Exchange. Even if our common stock
      does meet the criteria, there is no assurance that our common stock would be
      accepted for listing on NASDAQ or the American Stock Exchange.




**Our
      common stock is subject to penny stock regulation.**




As
      a
      penny stock, our common stock is subject to additional disclosure requirements
      for penny stocks mandated by the Penny Stock Reform Act of 1990. The SEC
      Regulations generally define a penny stock to be an equity security that is
      not
      traded on the NASDAQ Stock Market or another recognized stock exchange and
      has a
      market price of less than $5.00 per share. Depending upon our stock price,
      we
      may be included within the SEC Rule 3(a)(51) definition of a penny stock and
      have our common stock considered to be a “penny stock,” with trading of our
      common stock covered by Rule 15g-9 promulgated under the Securities Exchange
      Act
      of 1934. Under this rule, broker-dealers who recommend such securities to
      persons other than established customers and accredited investors must make
      a
      special written disclosure to, and suitability determination for, the purchaser
      and receive the purchaser’s written agreement to a transaction prior to sale.
      The regulations on penny stocks limit the ability of broker-dealers to sell
      our
      common stock and thus may also limit the ability of purchasers of our common
      stock to sell their securities in the secondary market. Our common stock will
      not be considered a “penny stock” if our net tangible assets exceed $2,000,000
      or our average revenue is at least $6,000,000 for the previous three years.




24




**Raising
      additional capital would dilute existing shareholders.**




In
      order
      to pursue our business plans, we will need to raise additional capital. If
      we
      are able to obtain additional funding through the sale of common stock, the
      financing would dilute the equity ownership of existing
      stockholders.




**Our
      Board of Directors can issue preferred stock with terms that are preferential
      to
      our common stock.**




Our
      Board
      of Directors may issue up to 50,000,000 shares of preferred stock without action
      by our stockholders. Rights or preferences could include, among other things:




·
            the
                establishment of dividends which must be paid prior to declaring
                or paying
                dividends or other distributions to our common
                stockholders;


·
            greater
                or preferential liquidation rights which could negatively affect
                the
                rights of common stockholders; and


·
            the
                right to convert the preferred stock at a rate or price which would
                have a
                dilutive effect on the outstanding shares of common
                stock.




See
      “Description of Securities—Preferred Stock”.




In
      addition, any preferred stock that is issued may have rights, including as
      to
      dividends, liquidation preferences and voting, that are superior to those of
      holders of Common Stock.




**We
      have not and do not anticipate paying dividends on our Common
      Stock.**




We
      have
      not paid any cash dividends to date with respect to our common stock. We do
      not
      anticipate paying dividends on our common stock in the foreseeable future since
      we will use all of our earnings, if any, to finance expansion of our operations.
      However, we are authorized to issue preferred stock and may in the future pay
      dividends on our preferred stock that may be issued.




**Item
      2.**  **Description
      of Property.**




We
        do not
        own any real estate or other physical properties materially important to
        our
        operation. Effective
        February 18, 2008, the Company commenced a lease for Knight’s new headquarters
        located at 909 Lake Carolyn Parkway, Suite 850, Irving, Texas 75019. The
        lease
        term is thirty seven (37) months with base rent monthly payments of $4,913
        for
        year 1, $5,013 for year 2 and $5,111 for year 3 plus payment for the Company’s
        share of pro-rata operating expenses. The Company paid a security deposit
        of
        $20,445 for the lease and was granted a $12 per foot tenant finish out allowance
        for office changes with an option for the Company to utilize up to $7 per
        foot
        as abatement of rent, which the Company will choose.


25




We
        also
        have offices located at 400 Hampton View Court, Alpharetta, Georgia 30004.
        We do
        not have a lease and we are not paying rent for this office spaces. It is
        being
        provided to the Company by an officer/director free of charge. Usage of this
        office space and the related value is de minimis. Therefore, no expense has
        been
        recorded in the accompanying financial statements.
 
 We
        believe that our office facilities are suitable and adequate for our business
        as
        it is contemplated to be conducted.





**Item
      3.**  **Legal
      Proceedings.**





During
      the period covered by this Annual Report, and as of the present date, we were
      not and are not a party to any material legal proceedings, nor were or are
      we
      aware of any threatened litigation of a material nature against us, except
      as
      set forth below.





Charles
      Hill Drilling, Inc. (“CHD”), a wholly-owned subsidiary of the Company, sued two
      former employees in 2007 in the 298 th Judicial
      District Court of Dallas County, Texas, in Cause No. DC-06463-M, for claims
      arising from the defendants’ acquisition of an oil and gas lease which CHD was
      intending to acquire for itself. The two defendants worked for CHD prior to
      the
      Company’s acquisition of CHD and continued to work for CHD until approximately
      June 2007.




In
      or
      about May 2007, one of the defendants disclosed to CHD’s principal that he had
      acquired the subject lease in his own name, and conveyed a royalty interest
      in
      the lease to the co-defendant, notwithstanding the fact that CHD had been
      negotiating with the landowner to acquire the lease in CHD’s name. While
      investigating these developments, CHD also learned that the defendants had
      made
      disparaging statements about CHD and its principal to the
      landowner.




CHD’s
      claims against the defendants in the lawsuit include breach of contract, fraud,
      breach of fiduciary duty, tortuous interference with prospective relations,
      theft of trade secrets and violation of the Texas Civil Theft Liability Act,
      unfair competition, defamation, civil conspiracy and unjust enrichment under
      Texas law. CHD is requesting a judgment that it is the lawful owner of the
      lease, and it is seeking to recover all proceeds or funds attributable to the
      lease. CHD may also seek to recover shares of the Company that were issued
      to
      the defendants in connection with their employment by CHD. CHD is also seeking
      to recover punitive damages and attorney’s fees as allowed under Texas
      law. At this
      point in the litigation, CHD believes that the amount of damages it seeks
      exceeds $25,000.




**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders.**


None





**PART
      II**





**Item 5.**
            **Market
                for Common Equity****and****Related
                Stockholder Matters and Small Business Issuer Purchases of Equity
                Securities.******


26





**Market
      Information**





Our
      common stock is quoted by Pink Sheets LLC under the symbol “KNEC.” The following
      table sets forth the high and low bid prices for our common stock for the
      periods indicated, as reported by Pink Sheets LLC. Such quotations reflect
      inter-dealer prices, without retail mark-up, mark-down, or commissions, and
      may
      not necessarily represent actual transactions.





**High**
            
            **Low**Fiscal
                  Year Ended December 31, 2007First
                Quarter
            
            $
            2.45
            
            $
            1.70Second
                Quarter
            
            $
            2.65
            
            $
            2.10Third
                Quarter
            
            $
            2.65
            
            $
            2.00Fourth
                Quarter
            
            $
            2.40
            
            $
            1.60Fiscal
                  Year Ended December 31, 2006First
                Quarter
            
            $
            0.06
            
            $
            0.04Second
                Quarter
            
            $
            1.85
            
            $
            0.04Third
                Quarter
            
            $
            2.60
            
            $
            1.46Fourth
                Quarter
            
            $
            2.75
            
            $
            1.90





For
      the
      fiscal year ending 2006 high and low bid prices above, the first quarter
      commenced March 2, 2006 (Date of Inception).




On
        March
        28, 2008, the closing bid price for a share our common stock, as reported
        by
        Pink Sheets LLC, was $0.84.




**Holders**




As
        of
        March 28, 2008, there were approximately 184 stockholders of record of our
        common stock, which does not include shareholders whose shares are held in
        street or nominee names. No shares of our preferred stock were issued or
        outstanding as of December 31, 2007.




**Dividends**





No
      cash
      dividends have been declared or paid on our common stock since our inception.
      No
      restrictions limit our ability to pay dividends on our common stock. We do
      not
      expect to pay any dividends in the near future.





**Securities
      Authorized For Issuance Under Equity Compensation Plans**





The
      Company has no shares of our common stock authorized for issuance under any
      equity compensation plan.





**Recent
      Sales of Unregistered Securities**





In
      May
      2007, the Company commenced a second private placement offering of the Company’s
      common stock. For the year ended December 31, 2007, the Company sold 3,615,030
      shares of common stock at $1.00 per share and raised $3,615,032 in gross
      proceeds. As of December 31, 2007 the Company had 3,615,030 shares of common
      stock recorded as common stock issuable from this $1.00 per share private
      placement offering. Pursuant
      to this private placement ,
      between
      January 1 and March 26, 2008, the Company sold 1,232,900 shares of common stock
      at $1.00 per share and raised approximately $1,232,810 in net
      proceeds . These
      issuances were granted based on
      exemptions from registration under the
      Securities Act of 1933, as amended (the “Securities Act”), and applicable state
      laws pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation
      D. These issuances qualified for this exemption from registration because
      (i )
      the
      Company did not engage in any general solicitation or advertising to market
      the
      securities; (ii) all
      the Company’s reports filed under the Securities Exchange Act of 1934 were made
      available to the recipients; (iii) each recipient was provided the opportunity
      to ask questions and receive answers from the Company regarding the offering;
      (iv) the securities were issued to persons with knowledge and experience in
      financial and business matters so that he or she is capable of evaluating the
      merits and risks of an investment in the Company; and (v) the recipients
      received “restricted securities” that include a restrictive legend on the
      certificate.


27




**Item
      6.**  **Management’s
      Discussion and Analysis or Plan of Operation.**





The
      following discussion and analysis of our financial condition and results of
      operations is qualified by reference to, and should be read in conjunction
      with,
      our audited consolidated financial statements included in this Annual Report
      (the “ *Financial
      Statements* ”),
      and
      the accompanying notes thereto, and the other financial information appearing
      elsewhere in this Annual Report. The analysis set forth below is provided
      pursuant to applicable SEC regulations and is not intended to serve as a basis
      for projections of future events. As discussed above, our actual results may
      differ materially from those anticipated in our forward-looking statements.
      Please also refer to “SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS”
beginning on page 4 of this Annual Report and “RISK FACTORS” beginning on page 8
      of this Annual Report.





**OVERVIEW**





For
      a
      description of the historical development of our business, please refer to
“Item
      1. Description of Business - History of Company Development” beginning on page 6
      of this Annual Report.





**RECENT
      DEVELOPMENTS**





As
      discussed in Item 5: “Recent Sales of Unregistered Securities” of this Annual
      Report, between January
      1 and March 26, 2008, the Company sold 1,232,900 shares of common stock at
      $1.00
      per share , and
      raised approximately $1,232,810 in net proceeds pursuant
      to a private
      placement .





On
      January 10, 2008, the Company paid the $30,000 fee on the November 9, 2007
      third-party note payable and renewed the original note for an additional two
      months for an additional 15% fee or $230,000 payback, for working capital
      purposes.





Effective
      February 18, 2008, the Company commenced a lease for Knight’s new headquarters
      in Texas. The lease term is thirty seven (37) months with base rent monthly
      payments of $4,913 for year 1, $5,013 for year 2 and $5,111 for year 3 plus
      payment for the Company’s share of pro-rata operating expenses. The Company paid
      a security deposit of $20,445 for the lease and was granted a $12 per foot
      tenant finish out allowance for office changes with an option for the Company
      to
      utilize up to $7 per foot as abatement of rent, which the Company will
      choose.




In
      March
      2008, the Company agreed to extend the expiration date of warrants held by
      Nortia Capital Partners, Inc. and Lake Capital, AG to purchase in total,
      2,500,000 shares of the Company’s common stock at an exercise price of $.50 and
      2,500,000 shares of the Company’s common stock at an exercise price of $1.00.
      For all of the warrants, the exercise period was extended two years through
      March 2010.




28




**Critical
      Accounting Estimates and Policies**




The
      methods, estimates and judgment we use in applying our most critical accounting
      policies have a significant impact on the results we report in our financial
      statements. The SEC has defined the most critical accounting policies as the
      ones that are most important to the portrayal of our financial condition and
      results, and require us to make our most difficult and subjective judgments,
      often as a result of the need to make estimates of matters that are inherently
      uncertain. Based upon this definition, our most critical estimates include oil
      and
      gas properties, property and equipment, the evaluation of whether our assets
      are
      impaired, asset retirement obligations, revenue recognition, the valuation
      allowance for deferred tax assets, and the estimate of reserves of oil and
      gas
      that are used to develop projected income whereby an appropriate discount rate
      has been used. We also
      have other key accounting estimates and policies, but we believe that these
      other policies either do not generally require us to make estimates and
      judgments that are as difficult or as subjective, or it is less likely that
      they
      would have a material impact on our reported results of operations for a given
      period. For additional information, see Note 3 "Nature of Operations and Summary
      of Significant Accounting Policies" in the notes to our audited consolidated
      financial statements contained in this Annual Report. Although we believe that
      our estimates and assumptions are reasonable, they are based upon information
      presently available. Actual results may differ significantly from these
      estimates.




*Accounting
      Estimates*




When
        preparing financial statements in conformity with GAAP, management must make
        estimates based on future events that affect the reported amounts of assets
        and
        liabilities, the disclosure of contingent assets and liabilities as of the
        date
        of the financial statements, and revenues and expenses during the reporting
        period. Actual results could differ from these estimates. Significant estimates
        in the accompanying consolidated financial statements include allocation
        of the
        purchase price of assets and liabilities acquired from Charles Hill Drilling
        Inc., valuation of common stock for services, the impairment of long-lived
        assets, valuation of the asset retirement obligation and the valuation allowance
        for deferred tax assets. The actual amounts could differ materially from
        such
        estimates.





*Oil
      and Gas Properties*





The
      Company uses the successful efforts method of accounting for its oil and gas
      properties. Costs incurred by the Company related to the acquisition of oil
      and
      gas properties and the cost of drilling successful wells are capitalized. Costs
      to maintain wells and related equipment and lease and well operating costs
      are
      charged to expense as incurred. Gains and losses arising from sales of
      properties are included in income. Unproved properties are assessed periodically
      for possible impairment.





*Property
      and Equipment*





The
      Company’s oil and gas rig is depreciated over its estimated useful life of ten
      years, using the straight line method. Vehicles are depreciated over their
      estimated useful life of three years, using the straight line method.
      Maintenance, repairs and minor replacements are charged to operations in the
      year incurred.





*Asset
      Retirement Obligations*




We
      account for asset retirement obligations in accordance with Statement of
      Financial Accounting Standards (“SFAS”) No. 143, *Accounting
      for Asset Retirement Obligations* .
      The
      asset retirement obligations represent the estimated present value of the
      amounts expected to be incurred to plug, abandon, and remediate the producing
      properties at the end of their productive lives, in accordance with state laws,
      as well as the estimated costs associated with the reclamation of the
      surrounding property. The Company determines the asset retirement obligations
      by
      calculating the present value of estimated cash flows related to the liability.
      The asset retirement obligations are recorded as a liability at the estimated
      present value as of the asset’s inception, with an offsetting increase to
      producing properties. Periodic accretion of the discount related to the
      estimated liability is recorded as an expense in the statement of
      operations.




29




The
      estimated liability is determined using significant assumptions, including
      current estimates of plugging and abandonment costs, annual inflation of these
      costs, the productive lives of wells, and a risk-adjusted interest rate. Changes
      in any of these assumptions can result in significant revisions to the estimated
      asset retirement obligations. Revisions to the asset retirement obligations
      are
      recorded with an offsetting change to producing properties, resulting in
      prospective changes to depletion and depreciation expense and accretion of
      the
      discount. Because of the subjectivity of assumptions and the relatively long
      lives of most of the wells, the costs to ultimately retire the Company’s wells
      may vary significantly from prior estimates.




*Accounting
      for the Impairment of Long-Lived Assets*




We
      account for the impairment of long-lived assets in accordance with SFAS No.
      144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* ,
      which
      requires that long-lived assets be reviewed for impairment whenever events
      or
      changes in circumstances indicate that the book value of the asset may not
      be
      recoverable. Recoverability of the asset is measured by comparison of its
      carrying amount to the undiscounted cash flow that the asset or asset group
      is
      expected to generate. If such assets or asset groups are considered to be
      impaired, the loss recognized is the amount by which the carrying amount of
      the
      property, if any, exceeds its fair market value. Based upon the Company’s
      evaluation, no impairment was determined for the period from March 2, 2006
      (Inception Date) through December 31, 2006. However, based upon the Company’s
      evaluation, an impairment of $387,317 was determined as of December 31, 2007
      related to several of the Company’s oil and gas leases.




*Revenue
      Recognition*




Revenues
      from sales of crude oil and natural gas are recorded when deliveries have
      occurred and legal ownership of the commodity transfers to the customer.
      Revenues from the production of oil and natural gas properties in which the
      Company shares an undivided interest with other producers are recognized based
      on the actual volumes sold by the Company during the period.




*Fair
      Value of Financial Instruments*





We
      define
      the fair value of a financial instrument as the amount at which the instrument
      could be exchanged in a current transaction between willing parties. The
      carrying value of trade receivable, other receivables, other assets and accounts
      payable approximates fair value because of the short maturity of those
      instruments. The estimated fair value of our other obligations is estimated
      based on the current rates offered to us for similar maturities. Based on
      prevailing interest rates and the short-term maturity of all of our
      indebtedness, management believes that the fair value of our obligations
      approximates book value at December 31, 2007 and 2006.





*Valuation
      of Common Stock Issued for Services*





The
      Company issued common stock for services during the year ended December 31,
      2007
      and the period from March 2, 2006 (Inception Date) through December 31, 2006.
      For all of these issuances, valuation was determined based upon the valuation
      of
      common stock sold in a recent private placement offering.





*Stock-Based
      Compensation*




Effective
      March 2, 2006 (Inception Date), the Company adopted the fair value recognition
      provisions of SFAS No. 123(R), *Share-Based
      Payments* ,
      and
      recognizes compensation expense for all stock-based payments based on the
      grant-date fair value.




30




The
      Company accounts for stock options or warrants issued to non-employees for
      goods
      or services in accordance with the fair value method of SFAS 123 and Emerging
      Issues Task Force 96-18, *Accounting
      for Equity Instruments that Are issued to Other Than Employees For Acquiring,
      or
      in Conjunction with Selling, Goods or Services* .
      Under
      this method, the Company records an expense equal to the fair value of the
      options or warrants issued. The fair value is computed using an options pricing
      model.




*Income
      Taxes*





Income
      taxes are accounted for under the asset and liability method of SFAS No. 109, *Accounting
      for Income Taxes* (“SFAS
      109”). Under SFAS 109, deferred tax assets and liabilities are recognized for
      the future tax consequences attributable to differences between the financial
      statement carrying amounts of existing assets and liabilities and their
      respective tax bases. Deferred tax assets and liabilities are measured using
      enacted tax rates expected to apply to taxable income in the years in which
      those temporary differences are expected to be recovered or settled. Under
      SFAS
      109, the effect on deferred tax assets and liabilities of a change in tax rates
      is recognized in income in the period that includes the enactment
      date.





*Net
      Income (Loss) per Common Share*





Basic
      earnings per share are computed only on the weighted average number of common
      shares outstanding during the respective periods. There were no additional
      items
      to adjust the numerator or denominator in the EPS computations as a result
      of
      net losses for all periods presented. Therefore, diluted EPS equals basic EPS.
      There were 5,000,000 outstanding warrants that could potentially dilute earnings
      per share in the future, but were not included in the computation of diluted
      earnings per share for the period presented because their impact was
      anti-dilutive for the period presented.





*Impact
      of Recently Issued Accounting Standards*




In
      2006,
      the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in
      Income Taxes — an Interpretation of FASB Statement No. 109 Accounting for Income
      Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes
      recognized in an enterprise’s financial statements in accordance with SFAS 109. FIN
      48
      also prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN
      48
      provides guidance on de-recognition, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. The
      Company adopted FIN 48 as of January 1, 2007, as required.




The
      current Company policy classifies any interest recognized on an underpayment
      of
      income taxes as interest expense and classifies any statutory penalties
      recognized on a tax position taken as selling, general and administrative
      expense. There
      were no interest or selling, general and administrative expenses accrued or
      recognized related to income taxes for the year ended December 31, 2007. The
      Company has not taken a tax position that would have a material effect on the
      financial statements or the effective tax rate for the year ended December
      31,
      2007 or during the prior three years applicable under FIN 48. It
      is
      determined not to be reasonably possible for the amounts of unrecognized tax
      benefits to significantly increase or decrease within 12 months of the
      adoption.




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS
      157 defines fair value, establishes a market-based framework or hierarchy for
      measuring fair value, and expands disclosures about fair value measurements.
      SFAS 157 is applicable whenever another accounting pronouncement requires or
      permits assets and liabilities to be measured at fair value. SFAS 157 does
      not
      expand or require any new fair value measures; however the application of this
      statement may change current practice. The requirements of SFAS 157 are first
      effective for the Company’s fiscal year beginning January 1, 2008. However, in
      February 2008 the FASB decided that an entity need not apply this standard
      to
      nonfinancial assets and liabilities that are recognized or disclosed at fair
      value in the financial statements on a nonrecurring basis until the subsequent
      year. Accordingly, the Company’s adoption of this standard on January 1, 2008 is
      limited to financial assets and liabilities. The Company does not believe the
      initial adoption of SFAS 157 will have a material effect on its financial
      condition or results of operations. However, the Company is still in the process
      of evaluating this standard with respect to its effect on nonfinancial assets
      and liabilities and therefore has not yet determined the impact that it will
      have on the Company’s financial statements upon full adoption.




31




In
      February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities Including an Amendment of FASB Statement No.
      115.” The fair value option permits entities to choose to measure eligible
      financial instruments at fair value at specified election dates. The entity
      will
      report unrealized gains and losses on the items on which it has elected the
      fair
      value option in earnings. SFAS 159 is effective beginning in fiscal year 2008.
      The Company is currently evaluating the effect of adopting SFAS 159, but does
      not expect it to have a material impact on its consolidated results of
      operations or financial condition.




In
      December 2007, the SEC issued Staff Accounting Bulletin (“SAB”) 110 “Share-Based
      Payment”. SAB 110 amends and replaces Question 6 of Section D.2 of Topic 14,
“Share-Based Payment,” of the Staff Accounting Bulletin series. Question 6 of
      Section D.2 of Topic 14 expresses the views of the staff regarding the use
      of
      the “simplified” method in developing an estimate of the expected term of “plain
      vanilla” share options and allows usage of the “simplified” method for share
      option grants prior to December 31, 2007. SAB 110 allows public companies which
      do not have historically sufficient experience to provide a reasonable estimate
      to continue use of the “simplified” method for estimating the expected term of
“plain vanilla” share option grants after December 31, 2007. SAB 110 is
      effective January 1, 2008. The Company currently uses the “simplified” method to
      estimate the expected term for share option grants as it does not have enough
      historical experience to provide a reasonable estimate. The Company will
      continue to use the “simplified” method until it has enough historical
      experience to provide a reasonable estimate of expected term in accordance
      with
      SAB 110. The Company does not expect SAB 110 will have a material impact on
      its
      consolidated balance sheets, statements of operations and cash
      flows.




In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement No. 141R, “Business Combinations”, and Statement No. 160,
“Non-Controlling Interests in Consolidated Financial Statements”, an amendment
      of ARB No. 51. Statement No. 141R modifies the accounting and disclosure
      requirements for business combinations and broadens the scope of the previous
      standard to apply to all transactions in which one entity obtains control over
      another business. Statement No. 160 establishes new accounting and reporting
      standards for non-controlling interests in subsidiaries. The Company will be
      required to apply the provisions of the new standards in the first quarter
      of
      2009. Early adoption is not permitted for these new standards.




32


**Results
      of Operations**




**Year
                Ended**
              **December 31, 2007**
            
            **From Inception Date of
                March 2, 2006 thru
                December 31, 2006****Revenues,
                net of royalties**
            
            $
            1,153,160
            
            $
            40,736**Operating
                expenses:**Lease
                operating costs
            
            
            259,292
            
            
            20,157Exploration
            
            
            9,964
            
            
            47,091Repair
                and maintenance
            
            
            229,619
            
            
            159,710General
                and administrative
            
            
            1,285,207
            
            
            316,252Rent
            
            
            8,795
            
            
            7,048Consulting
            
            
            282,333
            
            
            1,062,669Professional
            
            
            313,801
            
            
            241,349Impairment
                expense
            
            
            387,317
            
            
            -Depreciation,
                depletion, and accretion
            
            
            1,862,735
            
            
            112,080**Total
                operating expenses**
            
            
            4,639,063
            
            
            1,966,356**Operating
                loss**
            
            
            (3,485,903
            )
            
            (1,925,620
            )**Other
                income (expense):**Forgiveness
                of debt
            
            
            -
            
            
            10,000Interest
                income
            
            
            784
            
            
            -Interest
                expense
            
            
            (59,104
            )
            
            -Interest
                expense - related party
            
            
            (5,000
            )
            
            (7,373
            )**Total
                other income (expense)**
            
            
            (63,320
            )
            
            2,627**Net
                loss**
            
            $
            (3,549,223
            )
            $
            (1,922,993
            )**Net
                loss per share - basic and diluted**
            
            $
            (0.13
            )
            $
            (0.09
            )**Weighted
                average shares - basic and diluted**
            
            
            27,668,185
            
            
            20,365,129





**Year
      Ended December 31, 2007 compared to the Period from March 2, 2006 (Inception
      Date) to December 31, 2006**





*Revenues* *:*




Revenues
      increased $1,112,424, or 2,731%, to $1,153,160 for the year ended December
      31,
      2007, from $ 40,736 for the
      period from Inception Date of March 2, 2006 to December 31, 2006. Revenues
      for the year ended December 31, 2007 were comprised of $750,456 of oil sales
      less $130,645 of oil royalties and $653,141 of natural gas sales less $119,792
      of natural gas royalties. Revenues for the period from Inception Date of March
      2, 2006 to December 31, 2006 comprised of $20,792 of oil sales less $3,719
      of
      oil royalties and $29,124 of natural gas sales less $5,461 of natural gas
      royalties.




33




*Operating
      Expenses* *:*




Operating
      expenses increased $2,672,707 or 136%, to $4,639,063 for the year ended December
      31, 2007 from $1,966,356 for the period from Inception Date of March 2, 2006
      to
      December 31, 2006. The
      increase was primarily the result of  a $1,750,655 increase in
      depreciation, depletion and accretion expense, a $387,317 increase in impairment
      expense and a $968,955 increase in general and administration expense, offset
      by
      a $780,336 decrease in consulting expense. The increase in depreciation,
      depletion and accretion expense was primarily from a $1,393,798 increase in
      depletion expense as a result of the December 31, 2007 estimated proved reserves
      related to certain leases and wells. The increase in impairment expense is
      related to the Company’s December 31, 2007 impairment analysis for oil and gas
      leases and wells performed in accordance with SFAS
      No.
      144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* .
      The
      increase in general and administration expense is primarily related to an
      increase in compensation and travel expenses. The decrease in consulting is
      primarily related to 2006 stock issued for consulting for $111,250 and a warrant
      issued for consulting for $574,000, with no corresponding amount in 2007.




*Other
      Expense* *:*




Other
      income (expense) increased $65,947 of expense or 2,510%, to $63,320 of expense
      for the year ended December 31, 2007 from $2,627 of income for the period from
      March 2, 2006 (Inception Date) to December 31, 2006. The increase was primarily
      from an increase in interest expense of $64,104 for the year ended December
      31,
      2007 from $7,373 for the period from March 2, 2006 (Inception Date) to December
      31, 2006. The
      increase in
      interest expensewas primarily the result of increased borrowings on
      notes payable for the year ended December 31, 2007.




*Liquidity
      and Capital Resources:*





Cash
      and
      cash equivalents were $11,915 at December 31, 2007 as compared to $15,544 at
      December 31, 2006 and
      working capital deficit was $1,568,835 at December 31, 2007 as compared to
      a
      working capital deficit of $410,275 at December 31, 2006. The increase in the
      working capital deficit was primarily from a $637,821 increase in accounts
      payable and a $320,544 increase in accrued expenses.




Although
      we believe that our oil and gas operations and the sale of our common stock
      or
      issuance of indebtedness will be sufficient for our capital requirements, we
      cannot provide assurance that this will occur. The consolidated financial
      statements do not include any adjustments to reflect the possible effects on
      recoverability and classification of assets or the amounts and classification
      of
      liabilities, which may result from our inability to continue as a going
      concern.




Operating
      Activities: Net cash
      used in operating activities was $968,987 for the year ended December 31, 2007
      compared to $786,250 of cash used in operating activities for the period from
      March 2, 2006 (Inception Date) to December 31, 2006. The increase was primarily
      from an increase in the net loss from 2006 to 2007 of $1,626,230, a $96,222
      increase in trade accounts receivable a $574,000 decrease in warrant issued
      for
      consulting and a $111,250 decrease in stock issued for consulting, offset by
      $1,613,858 increase in depreciation and depletion expense, a $136,797 increase
      in accretion expense and a $387,317 increase in impairment expense.




Investing
        Activities: Net cash
        used in investing activities was $2,988,070 for the year ended December 31,
        2007
        compared to $1,779,481 of cash used in investing activities for the period
        from
        March 2, 2006 (Inception Date) to December 31, 2006. The increase was from
        an
        increase of $1,761,949 of investment in oil and gas properties, offset by
        a
        $203,371 decrease in purchase of property and equipment and a $349,989 decrease
        from cash paid as a result of the acquisition of Hill in 2006.




34




Financing
      Activities: Net
      cash
      provided by financing activities was $3,953,428 for the year ended December
      31,
      2007 compared to $2,581,275 of cash provided by financing activities for the
      period from March 2, 2006 (Inception Date) to December 31, 2006. The increase
      was primarily from a $736,903 increase in proceeds from the sale of common
      stock
      and a $100,000 increase in proceeds from the issuance of notes payable, net
      of
      repayments.




**Debt**




**NOTES
      PAYABLE**




Note
      Payable - at December 31, 2007 and 2006 consisted of the following:





December
                31,2007
            
            2006Note
                Payable due January 2008, interest and fees at 15%.
            
            $
            200,000
            
            $
            -




In
      March
      2007, a third party loaned the Company $60,000 for working capital purposes.
      The
      loan had a ten
      percent (10%) fee for interest and was to be repaid from the proceeds from
      the
      sale of common stock. In
      June
      2007, the Company repaid this $60,000 loan to the third
      party. The payment was $66,000, representing the $60,000 principal and a $6,000
      charge for interest and fees.




In
      March
      2007, a third party loaned our wholly-owned subsidiary Charles Hill Drilling,
      Inc. (“CHD”) $150,000 for working capital purposes. The loan was repaid within
      45 days from the sale of common stock and included a $15,000 charge representing
      interest and fees for the loan. In
      May
      2007, CHD repaid this $150,000 loan. The payment was $165,000 representing
      the
      $150,000 principal and a $15,000 charge for interest and fees.




In
      July
      2007, a third party loaned the Company $125,000, for working capital purposes.
      Repayment of the loan was due in
      30 days with a 10% fee, resulting in a total $137,500 payback. In
      September 2007, CHD repaid this loan. The payment was $137,500 representing
      the
      $125,000 principal and a $12,500 charge for interest and fees.




In
      November 2007, a third party loaned the Company $200,000, for working capital
      purposes. Repayment of the loan was due in
      60 days or in January 2008 with a 15% fee, resulting in a total $230,000
      payback. At December 31, 2007, the outstanding principal balance is
      $200,000.




**NOTES
      PAYABLE, RELATED PARTY**




Note
      Payable - Related Party at December 31, 2007 and 2006 is as
      follows:





December
                31,2007
            
            2006Note
                Payable to President of Charles Hill Drilling, Inc.
            
            $
            -
            
            $
            100,000




In
      March
      2006, the Company acquired CHD and the purchase price included a $700,000
      promissory note due and payable 90 days after closing and $200,000 note payable.
      In relation to the $700,000 promissory note from the acquisition, in April
      2006,
      the Company paid the first installment due of $234,000 to the note holder.
      In
      May 2006, the note holder requested that if the Company made the $233,000 second
      payment earlier than required, the third and final installment of $233,000
      would
      be forgiven. The Company made the second payment early ($215,000 in cash and
      $18,000 in form of a truck) and as a result, the final $233,000 payment was
      forgiven and was recorded as an adjustment to the purchase price. Accordingly,
      there is no longer an amount outstanding for the $700,000 promissory
      note.




35




In
      relation to the $200,000 of cash payments paid quarterly over a one year payment
      after closing, the first installment was due June 30, 2006 and the remaining
      three payments due September 30, 2006, December 31, 2006 and March 30, 2007.
      Knight paid the first $100,000 installments due as of June 30, 2006 and
      September 30, 2006 for the acquisition described above resulting in an
      outstanding balance of $100,000 as of December 31, 2006. The Company has
      recorded the required payments as Note Payable - Related Party as of December
      31, 2006.




On
        September 15, 2006, the Company’s obligation of $10,000 to a related party and
        the previous largest shareholder of ITGI was forgiven and was recorded as
        forgiveness of debt


In
      July
      2007, the Company’s Chief Financial Officer loaned the Company $50,000 which was
      due in 30 days with a 10% fee or $55,000 payback. In September 2007, the Company
      repaid this $50,000 loan to the Company’s Chief Financial Officer. The payment
      was $55,000 representing the $50,000 principal and a $5,000 charge for interest
      and fees.





**Equity
      Financing**




In
      March
      2006, our current officers and directors and certain other persons purchased
      13,750,000 common shares of Knight Delaware for $.001 per share. In November
      2006, we exchanged shares of our common stock on a one-to-one basis for these
      13,750,000 Knight Delaware shares. These sales were completed
      in reliance on exemptions from registration under section 4(2) of the Exchange
      Act and Rule 506 of Regulation D promulgated thereunder. The shares purchased
      in
      March 2006 by our current officers, directors and five percent shareholders
      are
      set forth below under
“Certain Relationships and Related Transactions.”




In
      September 2006, the Company issued 75,000 shares of common stock in exchange
      for
      financial consulting services owed to a third party to be performed over a
      six
      month period beginning September 24, 2006. The share price of $0.50 per share
      based on the price of common stock sold in a recent private placement offering.
      This transaction was recorded as $37,500 of prepaid expense and was amortized
      to
      consulting expense over a six month period.




As
      a
      result of the acquisition of CHD discussed previously, the Company was to issue 1,500,000 shares of common stock
      as a portion of the purchase price. These shares were issued in December 2006.
      The share
      price of $0.50 per share based on the price of common stock sold in a recent
      private placement offering.




In
      March
      2006, the Company agreed to issue 100,000 shares of common stock to a consultant
      for equity consulting services related to assisting the Company during the
      inception and start up of its operations. The Company has valued these shares
      at
      $0.50 per share, which represents the Company’s private placement offering price
      as of the consulting contract date. Accordingly, the Company has recorded
      $50,000 in consulting expense. These shares were issued in December
      2006.




In
      May
      2006, the Company agreed to issue 35,000 shares of common stock to a consultant
      for consulting services. The Company has valued these shares at $0.50 per share,
      which represents the Company’s private placement offering price as of the
      consulting contract date, or $17,500, based upon the same price utilized for
      the
      private placement offering discussed previously. Accordingly, the Company has
      recorded $17,500 of consulting expense in the consolidated financial statements.
      These shares were issued in December 2006.




36




In
      December 2006, the Company issued 50,000 shares of common stock to a consultant
      for accounting consulting services. The Company has valued these shares at
      $0.50
      per share, which represents the Company’s private placement offering price as of
      the consulting contract date. Accordingly, the Company has recorded $25,000
      of
      consulting expense in the consolidated financial statements.




In
      March
      2006, the Company commenced a private placement offering of the Company’s common
      stock , which was
      completed in April 2007. For the year ended December 31, 2007, the Company
      sold
      1,686,800 shares of common stock at $0.50 per share and raised $842,787 in
      net
      proceeds. In total for the offering, the Company sold 7,735,350 shares of common
      stock at $0.50 per share and raised approximately $3,866,345 in net proceeds
      from this placement. As of December 31, 2007 the Company had 1,499,800 shares
      of
      common stock recorded as common stock issuable from this $0.50 per share private
      placement offering.





In
      March
      2007, the Company agreed to issue 40,000 shares of common stock to an employee
      for an employment bonus. The Company valued these shares at $0.50 per share,
      which represented the
      Company’s most recent private placement offering price as of the consulting
      contract date, or $20,000, based upon the same price utilized for the private
      placement offering discussed previously. Accordingly, the Company recorded
      $20,000 of general and administrative expense in the consolidated financial
      statements. These shares were issued in April 2007.





In
      May
      2007, the Company commenced a second private placement offering of the Company’s
      common stock. For the year ended December 31, 2007, the Company sold 3,615,030
      shares of common stock at $1.00 per share and raised $3,615,032 in gross
      proceeds. As of December 31, 2007 the Company had 3,615,030 shares of common
      stock recorded as common stock issuable from this $1.00 per share private
      placement offering. Subsequently,
      between January 1 and March 26, 2008, the Company sold 1,232,900 shares
      of
      common stock at $1.00 per share and raised approximately $1,232,810 in net
      proceeds in this private
      placement .





**Liquidity**




At
      December 31, 2007, the Company had a working capital deficit of $1,568,835
      and
      for the year ended December 31, 2007 and for the period from march 2, 2006
      (Inception Date) to December 31, 2006, the Company incurred net losses of
      $3,549,223 and $1,922,993.






Subsequent
      to year end, from January to March 26, 2008, the Company has obtained
      approximately $1,232,900 in cash proceeds from a private placement of common
      stock in order to provide adequate working capital. Additionally, on March
      28,
      2008, the Company received a firm commitment from a third party for up to
      $5,000,000 of capital to be received during the fiscal year ended December
      31,
      2008.




As
      a
      result of the additional capital, the Company will utilize the funds for the
      development of existing leases and wells and as a result, increase oil and
      gas
      revenue. Based upon these conditions any substantial doubt about the Company’s
      ability to continue as a going concern has been alleviated for a reasonable
      period of time.




37




**Off-Balance
      Sheet Arrangements**





We
      have
      no off-balance sheet arrangements that have or are reasonably likely to have
      a
      current or future effect on our financial condition, changes in financial
      condition, revenues or expenses, results of operations, liquidity, capital
      expenditures or capital resources that is material to investors.





**Recent
      Accounting Developments**





In
      2006,
      the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in
      Income Taxes — an Interpretation of FASB Statement No. 109 Accounting for Income
      Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes
      recognized in an enterprise’s financial statements in accordance with SFAS 109.
      FIN 48 also prescribes a recognition threshold and measurement attribute for
      the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN 48 provides guidance on
      de-recognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. The Company adopted FIN 48 as of January
      1,
      2007, as required.




The
      current Company policy classifies any interest recognized on an underpayment
      of
      income taxes as interest expense and classifies any statutory penalties
      recognized on a tax position taken as selling, general and administrative
      expense. There were no interest or selling, general and administrative expenses
      accrued or recognized related to income taxes for the year ended December 31,
      2007. The Company has not taken a tax position that would have a material effect
      on the financial statements or the effective tax rate for the year ended
      December 31, 2007 or during the prior three years applicable under FIN 48.
      It is
      determined not to be reasonably possible for the amounts of unrecognized tax
      benefits to significantly increase or decrease within 12 months of the adoption




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      157”). SFAS 157 defines fair value, establishes a market-based framework or
      hierarchy for measuring fair value, and expands disclosures about fair value
      measurements. SFAS 157 is applicable whenever another accounting pronouncement
      requires or permits assets and liabilities to be measured at fair value. SFAS
      157 does not expand or require any new fair value measures; however the
      application of this statement may change current practice. The requirements
      of
      SFAS 157 are first effective for the Company’s fiscal year beginning January 1,
      2008. However, in February 2008 the FASB decided that an entity need not apply
      this standard to nonfinancial assets and liabilities that are recognized or
      disclosed at fair value in the financial statements on a nonrecurring basis
      until the subsequent year. Accordingly, the Company’s adoption of this standard
      on January 1, 2008 is limited to financial assets and liabilities. The Company
      does not believe the initial adoption of SFAS 157 will have a material effect
      on
      its financial condition or results of operations. However, the Company is still
      in the process of evaluating this standard with respect to its effect on
      nonfinancial assets and liabilities and therefore has not yet determined the
      impact that it will have on the Company’s financial statements upon full
      adoption.




In
      February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities Including an Amendment of FASB Statement No.
      115.” The fair value option permits entities to choose to measure eligible
      financial instruments at fair value at specified election dates. The entity
      will
      report unrealized gains and losses on the items on which it has elected the
      fair
      value option in earnings. SFAS 159 is effective beginning in fiscal year 2008.
      The Company is currently evaluating the effect of adopting SFAS 159, but does
      not expect it to have a material impact on its consolidated results of
      operations or financial condition.




In
      December 2007, the SEC issued Staff Accounting Bulletin (“SAB”) 110 “Share-Based
      Payment”. SAB 110 amends and replaces Question 6 of Section D.2 of Topic 14,
“Share-Based Payment,” of the Staff Accounting Bulletin series. Question 6 of
      Section D.2 of Topic 14 expresses the views of the staff regarding the use
      of
      the “simplified” method in developing an estimate of the expected term of “plain
      vanilla” share options and allows usage of the “simplified” method for share
      option grants prior to December 31, 2007. SAB 110 allows public companies which
      do not have historically sufficient experience to provide a reasonable estimate
      to continue use of the “simplified” method for estimating the expected term of
“plain vanilla” share option grants after December 31, 2007. SAB 110 is
      effective January 1, 2008. The Company currently uses the “simplified” method to
      estimate the expected term for share option grants as it does not have enough
      historical experience to provide a reasonable estimate. The Company will
      continue to use the “simplified” method until it has enough historical
      experience to provide a reasonable estimate of expected term in accordance
      with
      SAB 110. The Company does not expect SAB 110 will have a material impact on
      its
      consolidated balance sheets, statements of operations and cash
      flows.




38




In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement No. 141R, “Business Combinations”, and Statement No. 160,
“Non-Controlling Interests in Consolidated Financial Statements”, an amendment
      of ARB No. 51. Statement No. 141R modifies the accounting and disclosure
      requirements for business combinations and broadens the scope of the previous
      standard to apply to all transactions in which one entity obtains control over
      another business. Statement No. 160 establishes new accounting and reporting
      standards for non-controlling interests in subsidiaries. The Company will be
      required to apply the provisions of the new standards in the first quarter
      of
      2009. Early adoption is not permitted for these new standards.





**Item
      7.**  **Financial
      Statements.**





Our
      Financial Statements are attached as Appendix A (following the Exhibits) and
      are
      hereby incorporated by reference and included as part of this Annual Report.
      An
      index to our Financial Statements is provided in response to Item 13 of this
      Annual Report.





**Item
      8.**  **Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.**





None.





**Item
      8A (T). Controls and Procedures.**





**Disclosure
      Controls and Procedures**





We
      maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and
      15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”), that are designed to ensure that information required to be disclosed by
      us in reports we file or submit under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the SEC’s rules and
      forms, and that such information is accumulated and communicated to our
      management, including our principal executive officer and principal financial
      officer, as appropriate, to allow timely decisions regarding required
      disclosure. In designing and evaluating our disclosure controls and procedures,
      management recognized that disclosure controls and procedures, no matter how
      well conceived and operated, can provide only reasonable assurance of achieving
      the desired control objectives, and we necessarily are required to apply our
      judgment in evaluating the cost-benefit relationship of possible disclosure
      controls and procedures.





Our
      management, including our principal executive officer and principal financial
      officer, evaluated the effectiveness of the design and operation of our
      disclosure controls and procedures as of December 31, 2007 and concluded that
      the disclosure controls and procedures were not effective, because certain
      deficiencies involving internal controls constituted a material weakness as
      discussed below. The material weakness identified did not result in the
      restatement of any previously reported financial statements or any other related
      financial disclosure, nor does management believe that it had any effect on
      the
      accuracy of the Company’s financial statements for the current reporting
      period.


39




**Management’s
      Annual Report on Internal Control over Financial
      Reporting.**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting, as such term is defined in Rules 13a-15(f)
      and
      15d-15(f) of the Exchange Act. Our internal control system was designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes, in accordance
      with generally accepted accounting principles. Because of inherent limitations,
      a system of internal control over financial reporting may not prevent or detect
      misstatements. Also, projections of any evaluation of effectiveness to future
      periods are subject to the risk that controls may become inadequate due to
      change in conditions, or that the degree of compliance with the policies or
      procedures may deteriorate.





Our
      management, including our principal executive officer and principal accounting
      officer, conducted an evaluation of the effectiveness of our internal control
      over financial reporting using the criteria set forth by the Committee of
      Sponsoring Organizations of the Treadway Commission (COSO) in Internal
      Control—Integrated Framework. Based on its evaluation, our management concluded
      that there is a material weakness in our internal control over financial
      reporting. A material weakness is a deficiency, or a combination of control
      deficiencies, in internal control over financial reporting such that there
      is a
      reasonable possibility that a material misstatement of the Company’s annual or
      interim financial statements will not be prevented or detected on a timely
      basis.


The
      material weakness(s) identified are:





1.
            The
                Company does not have a full time accounting controller and utilizes
                a
                part time consultant to perform these critical responsibilities.
                This lack
                of full time accounting staff results in a lack of segregation of
                duties
                and accounting technical expertise necessary for an effective system
                of
                internal control.


2.
            The
                Company does not have the required technical expertise to properly
                calculate complex oil and gas required disclosures including impairment
                of
                properties, depletion and accretion expense, FAS 109 income taxes
                and FAS
                69 supplemental oil and gas disclosures. As a result, during the
                audit of
                the Company’s December 31, 2007 financial statements, the Company’s
                independent registered public accounting firm proposed several material
                adjustments to the financial statements of the
                Company.





Additionally,
      management determined during its internal control assessment the following
      weakness(s), while not considered material, are items that should be considered
      by the Board of Directors for resolution in the near future:





1.
            The
                management of oil and gas leases including a schedule of oil and
                gas lease
                agreementsand
                related documents to ensure that the Company has rights to oil and
                gas,
                expiration and renewal dates, contractual payments regarding royalties,
                taxes, improvements, etc. This ensures correct oil and gas capital
                accounts, revenues and related expenses are calculated correctly
                by
                Accounting. Additionally, the Chief Financial Officer should review
                all
                oil and gas lease agreements.


2.
            The
                Company should take steps to require that oil and gas expenditures
                are
                properly classified into the proper categories such as acquisition
                costs
                and intangible and tangible drilling costs. Without this, the Company
                cannot properly determine the proper recording and disclosure of
                oil and
                gas expenditures.


3.
            The
                Company should take steps to ensure that oil and gas inventory is
                calculated and properly recorded and valued in the general ledger
                and
                financial statements. During the audit of the December 31, 2007 financial
                statements, the independent registered public accounting firm determined
                that this had not been performed by the Company and proposed an adjustment
                of approximately $8,000 to the financial
                statements.


40





4.
            The
                Company should take steps to enhance the security for bank wire transfers.
                Currently, the CFO and CEO provide instruction to the part time consultant
                to initiate a wire transfer. As a security enhancement, the Bank
                should be
                required to obtain approval from the CEO or CFO to make the wire
                transfer.


5.
            The
                Company should take steps to implement a policies and procedures
                manual.


6.
            The
                Company utilizes an IT remote access server to store of all of the
                Company’s financial data. Although the data has proper firewall and other
                security measures implemented, the information is critical for the
                Company
                and an internal server at the Company headquarters should be
                considered.





In
      order
      to mitigate all of the above weaknesses(s), to the fullest extent possible,
      all
      financial reports are reviewed by the Chief Executive Officer as well as the
      Board of Directors for reasonableness. All unexpected results are investigated.
      At any time, if it appears that any control can be implemented to continue
      to
      mitigate such weaknesses, it is immediately implemented. Effective immediately,
      the Company has retained a third party accounting and financial consulting
      firm
      to assist with the complex technical oil and gas issues and as soon as our
      finances allow, we will hire sufficient accounting staff and implement
      appropriate procedures as described above.





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





This
      report shall not be deemed to be filed for purposes of Section 18 of the
      Securities Exchange Act of 1934, or otherwise subject to the liabilities of
      that
      section, and is not incorporated by reference into any filing of the Company,
      whether made before or after the date hereof, regardless of any general
      incorporation language in such filing.





**Changes
      in Internal Control over Financial Reporting**





There
      were no changes in our internal control over financial reporting that occurred
      during the quarter ended December 31, 2007 that have materially affected, or
      are
      reasonable likely to materially affect, our internal control over financial
      reporting.





**Item
      8B. Other Information.**





None.





**PART
      III**





**Item 9.**
            **Directors,
                Executive Officers, Promoters, Control Persons and Corporate Governance;
                Compliance with Section 16(a) Of the Exchange
                Act.**





**Directors
      and Executive Officers**





The
      principal occupations of each of our executive officers and directors for at
      least the past five years are as follows:




41




**Name**
            
            **Age**
            
            **Positions
                Held With The Company**
            
            **Director
                Since**William
                J. Bosso
            
            59
            
            Chief
                Executive Officer, President and Director
            
            March
                2006Bruce
                A. Hall
            
            51
            
            Chief
                Financial Officer, Treasurer, Secretary and Director
            
            March
                2006





Each
      director of the Company holds such position until the next annual meeting of
      the
      Company's stockholders and until his successor is duly elected and qualified.
      The officers hold office until the first meeting of the board of directors
      following the annual meeting of stockholders and until their successors are
      chosen and qualified, subject to early removal by the board of
      directors.




*William
        J. Bosso* has
        served as chief executive officer and a director of the Company since March
        2006
        Since December 2004, Mr. Bosso has served as chief executive officer of Nortia
        Capital Partners, Inc., a publicly reporting company. Mr. Bosso has served
        as a
        director of Nortia capital Partners, Inc. since October 2004. Mr. Bosso has
        served as a consultant to privately and publicly held corporations for the
        past
        15 years. From 1992 to 1993, he served as vice president of OCG Technologies,
        Inc., a medical appliance, healthcare software and medical billing company,
        and
        from 1994 to 1997, he served as president and CEO of Affinity Entertainment,
        Inc., a television and movie company. Prior to that, Mr. Bosso was an account
        executive with Paine Webber. Mr. Bosso has been a consultant to businesses
        in
        the telecommunications, insurance, airline, medical, entertainment, stock
        transfer, financial communications, restaurant, and golf equipment industries.
  *Bruce
        A. Hall* has
        served as chief financial officer and a director of the Company since March
        2006. Since May 2003, Mr. Hall has been a consultant providing financial
        and
        management services for several public and private companies. Since January
        2006, Mr. Hall has been the chief financial officer and a director of Nortia
        Capital Partners, Inc., a publicly reporting company. From May 2004, to June
        207, Mr. Hall, as a consultant, was the interim Chief Financial Officer of
        RG
        America, Inc., a publicly traded company that provides a broad array of
        synergistic products and services that addresses several key financial aspects
        of the commercial real estate market. From January 2005 to March 2006, Mr.
        Hall,
        as a consultant, was the interim Chief Executive Officer and Chief Financial
        Officer of Dent Zone International, Inc., a private company providing after
        market services for the automobile market. From May 1999 through May 2003,
        Mr.
        Hall was the Chief Financial Officer of Probex Corp., a formerly publicly
        traded
        used oil recycling company that filed for protection under Chapter 7 of the
        United States Bankruptcy Code in May 2003. Previously, he held senior level
        positions at Recognition Equipment, Inc. , and Harris
        Adacom Corporation, and
        he was
        a
        multi-family housing developer .
        Mr.
        Hall began
        his career in public accounting with Arthur Young & Company, a predecessor
        of Ernst & Young LLP.




**The
      Audit Committee**




The
      Audit
      Committee operates pursuant to a charter approved by the Board of Directors.
      The
      charter sets forth the responsibilities of the Audit Committee. The primary
      function of the Audit Committee is to serve as an independent and objective
      party to assist the Board of Directors in fulfilling its responsibilities for
      overseeing and monitoring the quality and integrity of the Company ’ s
      financial statements, the adequacy of the Company ’ s
      system
      of internal controls, the review of the independence, qualifications and
      performance of the Company ’ s
      independent registered public accounting firm, and the performance of the
      Company ’ s
      internal audit function. The
      Company does not currently have a separately designated standing audit
      committee. Instead, the Company’s entire Board of Directors is acting
      as the
      Company’s Audit Committee. The
      Company has determined that Mr. Hall qualifies as an “audit committee financial
      expert.” Mr. Hall is not independent. In
      connection with its search for independent directors, the Company’s Board of
      Directors anticipates that it
      will
      appoint a separately designated Audit
      Committee comprised of independent directors ,
      and at
      least one of the independent directors also will qualify as a n “audit
      committee financial expert” as defined under Item 407 of
      Regulation S- B of the
      1934 Act.




42




**Section
      16(a) Beneficial Ownership Reporting Compliance**




Pursuant
      to Section 16(a) of the 1934 Act, the Company's directors and executive
      officers, and any persons holding more than 10% of its common stock, are
      required to report their beneficial ownership and any changes therein to the
      SEC
      and the Company. Specific due dates for those reports have been established,
      and
      the Company is required to report herein any failure to file such reports by
      those due dates. Based on the Company's review of Forms 3, 4 and 5 filed by
      such
      persons, the Company believes that during the fiscal year ended December 31,
      2007, all Section 16(a) filing requirements applicable to such persons were
      met
      in a timely manner.




**Code
      of Ethics**




On
      October 1, 2007, the Company adopted a Code of Ethics (the
      “Code of Ethics”) that applies to its
      Principal Executive Officer and Principal Financial Officer .
      A copy
      of the Code of Ethics is filed as Exhibit 10.1 to this Form 10-KSB. The Code
      of
      Ethics is also available free of charge by writing to the Company at 836
      Blue
      Jay Lane, Coppell, Texas 75019. The Code
      of Ethics establishes procedures for personal investment and restricts certain
      transactions by our personnel. The Code of Ethics generally does not permit
      investment by our employees in securities that may be purchased or held by
      us.
      Any updates to the Code of Ethics will be disclosed by the Company on a Form
      8-K.




**Family
      Relationships**




We
      are
      unaware of any family relationships within the Company.





**Item
      10.**  **Executive
      Compensation.**





We
      provide named executive officers and our other employees with a salary to
      compensate them for services rendered during the fiscal year. Salary amounts
      for
      the named executive officers are determined for each executive based on his
      or
      her position and responsibility, and on past individual performance. Salary
      levels are typically considered annually as part of our performance review
      process. Merit based increases to salaries of the named executive officers
      are
      based on our board of directors’ assessment of the individual’s
      performance.





The
      following table shows for the year
      ended December 31, 2007 and for the period from March 2, 2006 (Inception Date)
      to December 31, 2006 , the
      compensation awarded (earned) or paid by the Company to its Chief Executive
      Officer and its
      named
      executive officers as that term is defined in Item 402(a)(2) of Regulation
      S-B. For
      the
      year ended December 31, 2007, Mr.
      Bosso
      and Mr. Hall were our only named executive officers.


43




**Summary
      Compensation Table**





Name
                and
              Principal
              Position(1)
            
            Year
            
            Salary
              ($)
                (2)
            
            Bonus
              ($)
            
            Stock
                Awards ($)
            
            Option
                Awards ($)
            
            Non-
              Equity
                Incentive
              Plan
                Compensation ($)
            
            Change
                in Pension Value and Nonqualified Deferred Compensation Earnings
            
            All
                Other Compensation ($) (3)
            
            Total
              ($)William
                J. Bosso,
              Chief
                Executive Officer
            
            
            2007
              2006
            
            
            250,000
              62,500
            
            
            -
              -
            
            
            -
              -
            
            
            -
              -
            
            
            -
              -
            
            
            -
              -
            
            
            69,200
              9,000
            
            
            319,200
              71,500Bruce
                A. Hall,
              Chief
                Executive Officer
            
            
            2007
              2006
            
            
            150,000
              37,500
            
            
            -
              -
              -
            
            
            -
              -
            
            
            -
              -
            
            
            -
              -
            
            
            -
              -
            
            
            41,565
              9,000
            
            
            191,565
              46,500


1 Mr.
      Bosso and Mr. Hall also serve as the sole directors on the Company’s board of
      directors. Neither Mr. Bosso nor Mr. Hall receives any compensation for these
      director roles.




2 Salary
      is total base salary earned, either unpaid and accrued or paid.




3
      Mr.
      Bosso’s “All Other Compensation” for 2007 consisted of (i)
      $36,000 of expense allowance, (ii) $18,200
      of travel
      expense allowance and (iii) $15,000
      of country club dues .
      For
      2006, his “All Other Compensation” consisted of $9,000
      of expense allowance. Mr.
      Hall’s “All Other Compensation” for 2007 consisted of  $36,000
      of expense allowance , and
      $5,565 for health insurance benefits .
      For
      2006, his “All Other Compensation” consisted of $9,000 of
      expense allowance.







We
      do not
      have a stock option, stock warrant, retirement, pension, or profit-sharing
      program for the benefit of directors, officers, or other employees.


No
      director received any type of compensation from the Company for serving in
      such
      capacity during the year ended December 31, 2007 or the period from March 2,
      2006 (Inception Date) to December 31, 2006.





**Option
      Grants in Last Fiscal Year**





We
      have
      no stock options at December 31, 2007 and we do not have a stock option program
      for the benefit of directors, officers, or other employees.





**Aggregated
      Option Exercises** **in
      Last Fiscal Year and Fiscal Year End Option Values**





We
      have
      no stock options at December 31, 2007 and we do not have a stock option program
      for the benefit of directors, officers, or other employees.




**Outstanding
      Equity Awards at Fiscal Year-End**





We
      do not
      have a stock option, stock warrant, retirement, pension, or profit-sharing
      program for the benefit of directors, officers, or other employees and no equity
      awards are outstanding at December 31, 2007.




**Director** **Compensation**





We
      do not
      have a formal plan for director compensation.  No
      director received any type of compensation from the Company for serving in
      such
      capacity for the year ended December 31, 2007.


44





**Employment
      Contracts and Termination of Employment, and Change-in-Control Arrangements**





Effective
      October 1, 2006, we entered into an employment agreement with William J. Bosso
      relating to his service as our Chief Executive Officer. This agreement provides
      for a term of five years and an annual salary of $250,000 per year. In the
      event
      Mr. Bosso is terminated prior to the completion of the five-year term, he is
      entitled to receive a one time net termination fee of $1,000,000. This
      employment agreement also provides for Mr. Bosso to receive $3,000 per month
      for
      car and local travel related expenses, and, until such time as the Company
      makes
      a company-sponsored health insurance plan available to its employees,
      reimbursement of up to $1,750 per month for health insurance
      expenses.




Effective
      October 1, 2006, we entered into an employment agreement with Bruce A. Hall
      relating to his service as our Chief Financial Officer. This agreement provides
      for a term of five years and an annual salary of $150,000 per year. In the
      event
      Mr. Hall is terminated prior to the completion of the five year-term, he is
      entitled to receive a one-time net termination fee of $1,000,000. This
      employment agreement also provides for Mr. Hall to receive $3,000 per month
      for car and local travel related expenses, and, until such time as the Company
      makes a company-sponsored health insurance plan available to its employees,
      reimbursement of up to $1,750 per month for health insurance
      expenses.




In
      the
      future we may implement a retirement savings plan and medical insurance plan
      covering our officers and other employees.




We
      do not
      have any other contractual arrangements with our executive officers or
      directors, nor do we have any compensatory arrangements with our executive
      officers other than as described above. Except as described above with respect
      to Messrs. Bosso and Hall, we have not agreed to make any payments to our named
      executive officers because of resignation, retirement or any other termination
      of employment with us or our subsidiaries, or from a change in control of us,
      or
      a change in the executive’s responsibilities following a change in
      control.




**Item
      11.**  **Security
      Ownership of Certain Beneficial Owners and Management and Related Stockholder
      Matters.**





**Security
      Ownership of Certain Beneficial Owners**





The
      following table summarizes certain information as of March 15, 2008 **** with
      respect to the beneficial ownership of our common stock by (1) our directors
      and
      executive officers, (2) stockholders known by us to own 5% or more of the shares
      of our Common Stock, and (3) all of our executive officers and directors as
      a
      group.




Beneficial
      ownership is determined in accordance with the Rule 13d-3(a) of the
      Securities Exchange Act of 1934, as amended, and generally includes voting
      or
      investment power with respect to securities. Except as indicated by footnote,
      and subject to community property laws, where applicable, the person named
      below
      has voting and investment power with respect to all shares of our common stock
      shown as beneficially owned by him.


45





**Title
                of**
              **Class**
            
            **Name
                and Address of**
              **Beneficial
                Owner**(a)
            
            **Amount
                and**
              **Nature
                of**
              **Beneficial**
              **Ownership**
            
            **Percent
                of**
              **Class**Common
                Stock
            
            
            William
                J. BossoKnight
                Energy Corp. 400 Hampton View Court Alpharetta GA 30004
            
            
            6,150,000
                (b
            )
            
            20
            %Common
                Stock
            
            
            Bruce
                A. HallKnight
                Energy Corp. 400 Hampton View Court Alpharetta GA 30004
            
            
            5,000,000
                (b
            )
            
            16
            %Common
                Stock
            
            
            All
                officers and directors as a group (two persons)
            
            
            7,400,000
                (b
            )
            
            29
            %Common
                Stock
            
            
            Eckerd
                Krsch
              
              Verlaengerte
              
              Triebstrasse
                1
              
              Heddesheim,
                68542
              
              Germany
            
            
            5,930,000
                (c
            )
            
            19
            %Common
                Stock
            
            
            Nortia
                Capital Partners, Inc.Knight
                Energy Corp. 400 Hampton View Court Alpharetta GA 30004
            
            
            3,750,000
                (b) (g
            )
            
            12
            %Common
                Stock
            
            
            Matthew
                HenningerKnight
                Energy Corp. 400 Hampton View Court Alpharetta GA 30004
            
            
            2,400,000
                (d
            )
            
            8
            %Common
                Stock
            
            
            Harrysen
                MittlerKnight
                Energy Corp. 400 Hampton View Court Alpharetta GA 30004
            
            
            2,300,000
                (e
            )
            
            8
            %




(a)
            Under
                Rule 13d-3 under the Securities Exchange Act of 1934, a beneficial
                owner of a security includes any person who, directly or indirectly,
                through any contract, arrangement, understanding, relationship, or
                otherwise has or shares: (i) voting power, which includes the power
                to vote, or to direct the voting of shares; and (ii) investment
                power, which includes the power to dispose or direct the disposition
                of
                shares. Certain shares may be deemed to be beneficially owned by
                more than
                one person (if, for example, persons share the power to vote or the
                power
                to dispose of the shares). In addition, shares are deemed to be
                beneficially owned by a person if the person has the right to acquire
                the
                shares (for example, upon exercise of an option) within 60 days of
                the
                date as of which the information is provided. In computing the percentage
                ownership of any person, the number of shares outstanding is deemed
                to
                include the number of shares beneficially owned by such person (and
                only
                such person) by reason of these acquisition rights. As a result,
                the
                percentage of outstanding shares of any person as shown in this table
                does
                not necessarily reflect the person’s actual ownership or voting power with
                respect to the number of shares of common stock actually outstanding
                on
                the date of this Offering. As of March 28, 2008, the Company had
                25,497,855 shares of common stock issued and outstanding and warrants
                to
                purchase 5,300,000 shares of our common stock.




46





(b)
            Includes
                  the 1,250,000 shares and 2,500,000 warrants owned by Nortia Capital
                  Partners, Inc. (“Nortia”), of which Messrs. Bosso, Hall, and Mittler may
                  be considered to be affiliates. The shares of Nortia Capital Partners,
                  Inc. are included six times in this table. In the case of shares
                  owned by
                  Nortia, the named person (other than Nortia) does not have sole
                  voting and
                  investment power.




(c)
            Includes
                1,250,000 shares and 2,500,000 warrants to purchase shares in the
                name of
                Lake Capital AG. Eckerd Kirsch is the natural person with the power
                to
                vote and dispose of the securities held by Lake Capital AG. Mr. Kirsch
                provided assistance to the Company in relation to its
                formation


and
                the raising of capital.




(d)
            Mr.
                Henninger is the former President and a former director of Nortia
                Capital
                Partners, Inc.




(e)
            Mr.
                Mittler is the former chief financial officer and a former director
                of
                Nortia Capital Partners, Inc.




(g)
            William
                J. Bosso and Bruce A. Hall serve as the chief executive officer and
                chief
                financial officer, respectively, of Nortia Capital Partners, Inc.
                Mr.
                Bosso and Mr. Hall, are the natural persons with the power to vote
                and
                dispose of the securities held by Nortia Capital Partners,
                Inc.




We
      do not
      have any outstanding equity security plans. We currently have no outstanding
      options or rights outstanding.





**Item
      12.**  **Certain
      Relationships and Related Transactions** **and
      Director Independence**




Effective
      March 1, 2007, the Company commenced a consulting contract with Nortia Capital
      Partners, Inc. (“Nortia”), a related company. Pursuant
      to the consulting contract , Nortia provides financial consulting services to the Company for a consulting fee of $20,000
      monthly .
      For the year
      ended December 31, 2007, Nortia invoiced the Company $200,000, and the Company
      paid Nortia, for consulting services. Additionally,
      the Company has prepaid Nortia $9,215 of consulting fees and
      classified this as a prepaid consulting - related party at December 31, 2007. The
      Company’s Chief Executive Officer and Chief Financial Officer are officers and
      directors of Nortia.




In
      July
      2007, the Company’s Chief Financial Officer loaned the Company $50,000 which was
      due in 30 days with a 10% fee or $55,000 payback. In
      September 2007, the Company repaid this $50,000 loan to the Company’s Chief
      Financial Officer. The payment was $55,000 representing the $50,000 principal
      and a $5,000 charge for interest and fees.




We
        currently do not have a lease and we are not paying rent for one of our offices,
        which is located in our Chief Executive Officer’s home in Georgia. With the
        exception of direct out-of-pocket costs, such as long distance telephone
        costs,
        these offices are being provided to the Company free of charge. The value
        of the
        use of this office space and the related value is de minimis. Therefore,
        with
        the exception of the direct out-of-pocket expenses being reimbursed by the
        Company, no expense has been recorded in the consolidated financial statements
        for the year ended December 31, 2007 or the period from March 2, 2006 (Inception
        Date) to December 31, 2006.




Effective
      February 18, 2008, the Company commenced a lease for Knight’s new headquarters
      located in Texas. The lease term is thirty seven (37) months with base rent
      monthly payments of $4,913 for year 1, $5,013 for year 2 and $5,111 for year
      3
      plus payment for the Company’s share of pro-rata operating expenses. The Company
      paid a security deposit of $20,445 for the lease and was granted a $12 per
      foot
      tenant finish out allowance for office changes with an option for the Company
      to
      utilize up to $7 per foot as abatement of rent, which the Company will
      choose.


47





Other
      than the transactions described above, we have not entered into any agreements
      with our officers, directors or stockholders owning five percent or more of
      our
      outstanding common stock.




**Director
      Independence**





Our
      common stock trades on the Pink Sheets. As such, we are not currently subject
      to
      corporate governance standards of listed companies, which require, among other
      things, that the majority of the board of directors be independent.





We
      are
      not currently subject to corporate governance standards defining the
      independence of our directors, and we have chosen to define an “independent”
director in accordance with the NASDAQ Global Market's requirements for
      independent directors (NASDAQ Marketplace Rule 4200). Under this definition,
      we
      have determined that none of our directors currently qualify as independent
      directors. We do not list the “independent” definition we use on our Internet
      website.





**Item
      13.**  **Exhibits**





Exhibits
      are incorporated herein by reference or are filed with this Form 10-KSB as
      indicated below (numbered in accordance with Item 601 of
      Regulation S-B):





**Exhibit
                No.**
            
            **Exhibit
                Description**2.1
            
            Agreement
                and Plan of Merger between Knight Energy Corp., a Nevada corporation,
                and
                Knight Energy Corp., a Maryland corporation, dated April 25, 2007.
                (2)2.2
            
            Stock
                Exchange Agreement by and among Integrated Technology Group, a Nevada
                Corporation, and Knight Energy Corp., a Delaware corporation, effective
                as
                of June 26, 2006. (1)2.3
            
            Stock
                Purchase Agreement between Knight Energy Corp. and the Shareholders
                of
                Charles Hill Drilling Inc. dated March 16, 2006.
                (1)2.4
            
            April
                24, 2006 Waiver and Release amending certain payment terms of the
                March 16, 2006 Stock Purchase Agreement between Knight Energy Corp.
                and Charles Hill Drilling Inc. (4)3.1
            
            Articles
                of Incorporation of Knight Energy Corp. filed with the Maryland Secretary
                of State on April 25, 2007. (2)3.2
            
            Bylaws
                for Knight Energy Corp., formerly known as Integrated Technology
                Group,
                filed with the Maryland Secretary of State on April 25, 2007.
                (2)4.1
            
            Specimen
                common stock certificate. (1)9.1
            
            Voting
                trust agreement between Knight Energy Corp. and Nortia Capital Partners,
                Inc. dated January 1, 2007. (3)10.1
            
            Employment
                Agreement by and between Knight Energy Corp. and William J. Bosso
                effective October 1, 2006. (1)




48





10.2
            
            Employment
                Agreement by and between Knight Energy Corp. and Bruce A. Hall
                effective October 1, 2006. (1)10.3
            
            Consulting
                Service Agreement by and between Knight Energy Corp. and Nortia Capital
                Partners, Inc. dated March 3, 2006. (1)10.4
            
            Consulting
                Agreement by and between Knight Energy Corp. and Crescent Fund, LLC
                dated
                September 24, 2006. (1)10.5
            
            Consulting
                Agreement by and between Knight Energy Corp. and Crescent Fund, LLC
                dated
                September 24, 2006. (1)10.6
            
            Consulting
                Agreement by and between Knight Energy Corp. and Lake Capital AG,
                effective as of March 3, 2006. (3)10.7
            
            Consulting
                Agreement by and between Knight Energy Corp. and Com-Advice AG, dated
                October 2, 2007. (4)14.1
            
            Code
                of Ethics *20.1
            
            Oil
                and Gas Valuation for Flournoy Lease, Stephens Co., TX, dated
                October 9, 2006. (3)20.2
            
            Table
                from Pinnacle Energy Services, LLC summarizing 2007 reserve estimates
                for
                Charles Hill Drilling Inc. (4)20.3
            
            August 15,
                2007 Addendum/Update Summary from Pinnacle Energy Services, LLC to
                October
                2006 Report regarding the Valuation of Charles Hill Drilling, Inc.'s
                Working Interest in Flournoy, Lea & Marcom Leases, Stephens Co., TX.
                (5)20.4
            
            June
                2007 Reserve Update for Charles Hill Drilling, Inc., a wholly owned
                subsidiary of Knight Energy Corp., regarding Flournoy, Lea, Marcom
                Lease
                Evaluation. (2)20.5
            
            Oil
                and Gas Property valuation from Pinnacle Energy Services, LLC for
                Charles
                Hill Drilling, Inc. as of December 31, 2007 *21.1
            
            Subsidiary
                of Knight Energy Corp. *31.1
            
            Certification
                of the Chief Executive Officer of Knight Energy Corp. pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
            
            Certification
                of the Chief Financial Officer of Knight Energy Corp. pursuant to
                Section 302 of the Sarbanes-Act of 2002.*32.1
            
            Certification
                of the Chief Executive Officer of Knight Energy Corp. pursuant to
                Section 906 of the Sarbanes- Act of 2002.*32.2
            
            Certification
                of the Chief Financial Officer of Knight Energy Corp. pursuant to
                Section 906 of the Sarbanes-Act of
                2002.*





*  Filed
      herewith


49





(1)
            Incorporated
                by reference to the Registrant's registration statement on Form 10-SB
                filed with the Commission on February 12,
                2007.





(2)
            Incorporated
                by reference to the Registrant's 8-K filed with the Commission on
                May 1,
                2007.





(3)
            Incorporated
                by reference to the Registrant's Amendment No. 1 to its registration
                statement on Form 10-SB filed with the Commission on May 11,
                2007.





(4)
            Incorporated
                by reference to the Registrant's Amendment No. 2 to its registration
                statement on Form 10-SB filed with the Commission on July 13,
                2007.





(5)
            Incorporated
                by reference to the Registrant's Amendment No. 3 to its registration
                statement on Form 10-SB filed with the Commission on August 20,
                2007.




**Item
      14.**  **Principal
      Accountant Fees And Services**





In
      November 2006, Hein & Associates LLP ("Hein") declined to stand for
      reelection as the Company's principal public accountant, and the Company engaged
      Whitley Penn LLP. This change was not the result of any disagreements with
      Hein,
      and Hein's report on the financial statements for either of the Company's past
      two years did not contain an adverse opinion or disclaimer of opinion, nor
      was
      it modified as to uncertainty, audit scope, or accounting principals. The
      decision to engage Whitley Penn LLP was approved by the Company's Board of
      Directors.




**Audit
      Fees** :
      Audit
      fees consist of fees billed for professional services rendered for the audit
      of
      our year-end financial statements and services that are normally provided by
      Whitley Penn LLP, in connection with statutory and regulatory filings. For
      the
      year ended December 31, 2007 and for the period from March 2, 2006 (Inception
      Date) to December 31, 2006, fees incurred by the Company were an aggregate
      of
      $80,000 and $53,000 respectively, for each quarterly review associated with
      our
      Form 10-QSB filings and any amendments thereto and for the annual audit of
      the
      Company's financial statements included as part of our Form 10-KSB
      filing.




**Audit-Related
      Fees** :
      Audit-related services consist of fees billed for assurance and related services
      that are reasonably related to the performance of the audit or review of our
      financial statements and are not reported under “Audit Fees.” These services
      include attest services that are not required by statute or regulation and
      consultations concerning financial accounting and reporting standards. There
      were no audit-related fees for the year ended December 31, 2007 and for the
      period from March 2, 2006 (Inception Date) to December 31, 2006.




**Tax
      Services Fees** :
      Tax
      fees consist of fees billed for professional services for tax compliance. These
      services include assistance regarding federal, state, and local tax compliance.
      For the year ended December 31, 2007 and for the period from March 2, 2006
      (Inception Date) to December 31, 2006, tax service fees incurred by the Company
      were $8,000 and $7,000 respectively.




**All
      Other Fees** :
      Other
      fees would include fees for products and services other than the services
      reported above. There were no other fees during the year ended December 31,
      2007
      and for the period from March 2, 2006 (Inception Date) to December 31,
      2006.




50


**SIGNATURES**





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





NORTIA
                CAPITAL PARTNERS, INC.By:
            /s/
                William J. BossoWilliam
                J. BossoChief
                Executive OfficerBy:
            /s/
                Bruce A. HallBruce
                A. HallChief
                Financial OfficerDate:
            March
                31, 2008





In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the small business issuer and in the capacities
      and on the dates indicated.





**Signature**
            
            **Title**
            
            **Date**/s/
                William J. Bosso
            
            Chief
                Executive Officer (Principal Executive
            
            March
                31, 2008William
                J. Bosso
            
            Officer)
                and Director/s/
                Bruce A. Hall
            
            Chief
                Financial Officer (Principal Financial
            
            March
                31, 2008Bruce
                A. Hall
            
            Officer)
                and Director




51





**Knight
      Energy Corp. and Subsidiary**





Page
                No.Report
                of Independent Registered Public Accounting Firm
            F-1Consolidated
                Balance Sheets at December 31, 2007 and December 31, 2006
            F-2Consolidated
                Statements of Operations for the Year Ended December 31, 2007 and
                the
                Period from March 2, 2006 (Inception Date) to December 31,
                2006
            F-3Consolidated
                Statements of Changes in Stockholders’ Equity for the Year Ended December
                31, 2007 and the Period from March 2, 2006 (Inception Date) to December
                31, 2006
            F-4Consolidated
                Statements of Cash Flows for the Year Ended December 31, 2007 and
                the
                Period from March 2, 2006 (Inception Date) to December 31,
                2006
            F-5Notes
                to Consolidated Financial Statements
            F-6Supplemental
                Oil and Gas Data (Unaudited)
            F-22


52


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Stockholders of


Knight
      Energy Corp.


We
        have
        audited the accompanying consolidated balance sheets of Knight Energy, Corp.
        and
        subsidiary, as of December 31, 2007 and 2006, and the related consolidated
        statements of operations, changes in stockholders’ equity, and cash flows for
        the year ended December 31, 2007 and for the period from March 2, 2006
        (Inception) through December 31, 2006. These financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. The Company is not required
        to
        have, nor were we engaged to perform, an audit of its internal control over
        financial reporting. An audit includes consideration of internal control
        over
        financial reporting as a basis for designing audit procedures that are
        appropriate in the circumstances, but not for the purpose of expressing an
        opinion on the effectiveness of the Company's internal control over financial
        reporting. Accordingly, we express no such opinion. An audit also includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements, 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 Knight Energy,
        Corp. and subsidiary as of December 31, 2007 and 2006, and the consolidated
        results of their operations and their cash flows for the year ended December
        31,
        2007 and for the period from March 2, 2006 (Inception) through December 31,
        2006
        in conformity with accounting principles generally accepted in the United
        States
        of America.
 
 /s/
        Whitley Penn LLP
 Dallas,
        Texas
 March
        31,
        2008


F-1


**Knight
      Energy Corp. and Subsidiary**


**Consolidated
      Balance Sheets**





**December 31, 2007**
            
            **December 31, 2006****ASSETS****Current
                assets:**Cash
                and cash equivalents
            
            $
            11,915
            
            $
            15,544Trade
                receivables
            
            
            123,831
            
            
            27,609Prepaid,
                related party
            
            
            9,215
            
            
            2,040Inventory
            
            
            7,634
            
            
            -Other
                current assets
            
            
            33,091
            
            
            48,478**Total
                current assets**
            
            
            185,686
            
            
            93,671**Land,
                property and equipment:**Land
            
            
            24,596
            
            
            -Oil
                and gas properties, successful efforts method
            
            
            3,784,459
            
            
            1,105,398Other
                property and equipment
            
            
            2,619,506
            
            
            2,140,442Accumulated
                depreciation and depletion
            
            
            (1,831,120
            )
            
            (108,631
            )**Land,
                property and equipment, net**
            
            
            4,597,441
            
            
            3,137,209**Total
                assets**
            
            $
            4,783,127
            
            $
            3,230,880**LIABILITIES****Current
                liabilities:**Accounts
                payable
            
            $
            753,555
            
            $
            115,734Accrued
                expenses
            
            
            608,756
            
            
            288,212Note
                payable
            
            
            200,000
            
            
            -Note
                payable – related party
            
            
            -
            
            
            100,000Current
                portion, asset retirement obligations
            
            
            192,210
            
            
            -**Total
                current liabilities**
            
            
            1,754,521
            
            
            503,946**Long
                term portion, asset retirement obligations**
            
            
            57,746
            
            
            80,279**Total
                liabilities**
            
            
            1,812,267
            
            
            584,225**Commitments
                and contingencies****STOCKHOLDERS'
                EQUITY**Preferred
                    stock, $0.0001 par value, 50,000,000 shares authorized zero shares
                    issued
                    and outstanding
            
            
            -
            
            
            -Common
                    stock, $0.0001 par value, 500,000,000 shares authorized 25,497,855
                    and
                    18,522,505 shares issued and outstanding at December 31, 2007
                    and December
                    31, 2006, respectively
            
            
            2,550
            
            
            1,852Common
                stock issuable, $0.0001 par value, 4,415,030 and 6,235,550 shares
                issuable
                at December 31, 2007 and December 31, 2006, respectively
            
            
            442
            
            
            624Additional
                paid in capital
            
            
            8,441,334
            
            
            4,568,422Accumulated
                deficit
            
            
            (5,472,216
            )
            
            (1,922,993
            )Stock
                subscription receivable
            
            
            (1,250
            )
            
            (1,250
            )**Total
                stockholders' equity**
            
            
            2,970,860
            
            
            2,646,655**Total
                liabilities and stockholders' equity**
            
            $
            4,783,127
            
            $
            3,230,880





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


F-2


**Knight
      Energy Corp. and Subsidiary**


**Consolidated
      Statements of Operations**





**Year Ended**
              **December 31, 2007**
            
            **From Inception Date of**
              **March 2, 2006 thru**
              **December 31, 2006****Revenues,
                net of royalties**
            
            $
            1,153,160
            
            $
            40,736**Operating
                expenses:**Lease
                operating costs
            
            
            259,292
            
            
            20,157Exploration
            
            
            9,964
            
            
            47,091Repair
                and maintenance
            
            
            229,619
            
            
            159,710General
                and administrative
            
            
            1,285,207
            
            
            316,252Rent
            
            
            8,795
            
            
            7,048Consulting
            
            
            282,333
            
            
            1,062,669Professional
            
            
            313,801
            
            
            241,349Impairment
                expense
            
            
            387,317
            
            
            -Depreciation,
                depletion, and accretion
            
            
            1,862,735
            
            
            112,080**Total
                operating expenses**
            
            
            4,639,063
            
            
            1,966,356**Operating
                loss**
            
            
            (3,485,903
            )
            
            (1,925,620
            )**Other
                income (expense):**Forgiveness
                of debt
            
            
            -
            
            
            10,000Interest
                income
            
            
            784
            
            
            -Interest
                expense
            
            
            (59,104
            )
            
            -Interest
                expense – related party
            
            
            (5,000
            )
            
            (7,373
            )**Total
                other income (expense)**
            
            
            (63,320
            )
            
            2,627**Net
                loss**
            
            $
            (3,549,223
            )
            $
            (1,922,993
            )**Net
                loss per share - basic and diluted**
            
            $
            (0.13
            )
            $
            (0.09
            )**Weighted
                average shares - basic and diluted**
            
            
            27,668,185
            
            
            20,365,129





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


F-3


**Knight
      Energy Corp. and Subsidiary**


**Consolidated
      Statements of Changes in Stockholders’ Equity**


**Year
      Ended December 31, 2007 and Period from March 2, 2006 (Inception Date) to
      December 31, 2006**





Additional
            
            
            
            Stock
            
            TotalPreferred Stock
            
            Common Stock
            
            Common Stock Issuable
            
            Paid-In
            
            Accumulated
            
            Subscription
            
            Stockholders'Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Deficit
            
            Receivable
            
            Equity**BALANCE
                AT MARCH 2, 2006 (INCEPTION DATE)**
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Common
                stock issued for founders shares - $0.0001 per share
            
            
            -
            
            
            -
            
            
            13,750,000
            
            
            1,375
            
            
            -
            
            
            -
            
            
            12,375
            
            
            -
            
            
            -
            
            
            13,750Common
                stock issued for consulting - $0.50 per share
            
            
            -
            
            
            -
            
            
            260,000
            
            
            26
            
            
            -
            
            
            -
            
            
            129,974
            
            
            -
            
            
            -
            
            
            130,000Common
                stock issued for acquisition - $0.50 per share
            
            
            -
            
            
            -
            
            
            1,500,000
            
            
            150
            
            
            -
            
            
            -
            
            
            749,850
            
            
            -
            
            
            -
            
            
            750,000Net
                purchase price adjustment for acquisitions
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (22,000
            )
            
            -
            
            
            -
            
            
            (22,000
            )To
                record imputed interest on shareholder note
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            7,373
            
            
            -
            
            
            -
            
            
            7,373Common
                stock issued for private placement - $0.50 per share
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            6,235,550
            
            
            624
            
            
            3,117,151
            
            
            -
            
            
            (1,250
            )
            
            3,116,525Recapitalization
                adjustment
            
            
            -
            
            
            -
            
            
            3,012,505
            
            
            301
            
            
            -
            
            
            -
            
            
            (301
            )
            
            -
            
            
            -
            
            
            -Stock
                warrant issued for consulting services
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            574,000
            
            
            -
            
            
            -
            
            
            574,000Net
                loss, March 2, 2006 (Inception Date) to December 31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,922,993
            )
            
            -
            
            
            (1,922,993
            )**BALANCE
                AT DECEMBER 31, 2006**
            
            
            -
            
            $
            -
            
            
            18,522,505
            
            $
            1,852
            
            
            6,235,550
            
            $
            624
            
            $
            4,568,422
            
            $
            (1,922,993
            )
            $
            (1,250
            )
            $
            2,646,655





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


F-4


**Knight
      Energy Corp. and Subsidiary**


**Consolidated
      Statements of Changes in Stockholders’ Equity** ***(Continued)***


**Year
      Ended December 31, 2007 and Period from March 2, 2006 (Inception Date) to
      December 31, 2006**





Additional
            
            
            
            Stock
            
            TotalPreferred Stock
            
            Common Stock
            
            Common Stock Issuable
            
            Paid-In
            
            Accumulated
            
            Subscription
            
            Stockholders'Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Deficit
            
            Receivable
            
            Equity**BALANCE
                AT DECEMBER 31, 2006**
            
            
            -
            
            $
            -
            
            
            18,522,505
            
            $
            1,852
            
            
            6,235,550
            
            $
            624
            
            $
            4,568,422
            
            $
            (1,922,993
            )
            $
            (1,250
            )
            $
            2,646,655Subscribed
                stock issued
            
            
            -
            
            
            -
            
            
            6,975,350
            
            
            698
            
            
            (6,975,350
            )
            
            (698
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Common
                stock issued for employee bonus - $0.50 per share
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            40,000
            
            
            4
            
            
            19,996
            
            
            -
            
            
            -
            
            
            20,000Common
                stock issued for private placement - $0.50 per share
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,499,800
            
            
            150
            
            
            749,749
            
            
            -
            
            
            -
            
            
            749,899Common
                stock issued for private placement - $1.00 per share
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,615,030
            
            
            362
            
            
            3,614,670
            
            
            -
            
            
            -
            
            
            3,615,032Equity
                placement fees
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (511,503
            )
            
            -
            
            
            -
            
            
            (511,503
            )Net
                loss, year ended December 31, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,549,223
            )
            
            -
            
            
            (3,549,223
            )**BALANCE
                AT DECEMBER 31, 2007**
            
            
            -
            
            $
            -
            
            
            25,497,855
            
            $
            2,550
            
            
            4,415,030
            
            $
            442
            
            $
            8,441,334
            
            $
            (5,472,216
            )
            $
            (1,250
            )
            $
            2,970,860





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


F-5


**Knight
      Energy Corp. and Subsidiary**


**Consolidated
      Statements of Cash Flows**





**Year Ended**
              **December 31, 2007**
            
            **From Inception Date of**
              **March 2, 2006 thru**
              **December 31, 2006****Cash
                Flows From Operating Activities:**Net
                loss
            
            $
            (3,549,223
            )
            $
            (1,922,993
            )Adjustments
                to reconcile net loss to net cash used in operations:Depreciation
                and depletion expense
            
            
            1,722,489
            
            
            108,631Accretion
                expense
            
            
            140,246
            
            
            3,449Forgiveness
                of debt
            
            
            -
            
            
            (10,000
            )Impairment
                expense
            
            
            387,317
            
            
            -Stock
                issued for consulting
            
            
            -
            
            
            111,250Stock
                issued for employee bonus
            
            
            20,000
            
            
            -Stock
                warrant issued for consulting
            
            
            -
            
            
            574,000Imputed
                interest on shareholder note
            
            
            -
            
            
            7,373Changes
                in operating assets and liabilities:Trade
                receivables
            
            
            (96,222
            )
            
            (27,609
            )Other
                receivables
            
            
            -
            
            
            (2,040
            )Prepaid,
                related party
            
            
            (7,175
            )
            
            -Inventory
            
            
            (7,634
            )
            
            -Other
                current assets
            
            
            15,387
            
            
            (15,748
            )Accounts
                payable
            
            
            85,284
            
            
            99,225Accrued
                expenses
            
            
            320,544
            
            
            288,212Net
                cash used in operating activities
            
            
            (968,987
            )
            
            (786,250
            )**Cash
                Flows From Investing Activities:**Cash
                for acquisition of Charles Hill Drilling, Inc.,net
                of cash acquired
            
            
            -
            
            
            (349,989
            )Investment
                in oil and gas properties
            
            
            (2,485,525
            )
            
            (723,576
            )Purchase
                of property and equipment
            
            
            (502,545
            )
            
            (705,916
            )Net
                cash used in investing activities
            
            
            (2,988,070
            )
            
            (1,779,481
            )**Cash
                Flows From Financing Activities:**Repayment
                of note payable - related party
            
            
            (150,000
            )
            
            (719,000
            )Proceeds
                from issuance of note payable - related party
            
            
            50,000
            
            
            170,000Proceeds
                from issuance of note payable
            
            
            535,000
            
            
            -Repayment
                of note payable
            
            
            (335,000
            )
            
            -Proceeds
                from sale of common stock
            
            
            3,853,428
            
            
            3,116,525Proceeds
                from sale of founders' common stock
            
            
            -
            
            
            13,750Net
                cash provided by financing activities
            
            
            3,953,428
            
            
            2,581,275**Net
                Increase (Decrease) in Cash**
            
            $
            (3,629
            )
            $
            15,544**Cash
                at Beginning of year / period**
            
            
            15,544
            
            
            -**Cash
                at End of year / period**
            
            $
            11,915
            
            $
            15,544





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





F-6





**Knight
      Energy Corp. and Subsidiary**


**Consolidated
      Statement of Changes in Cash Flows** ***(Continued)***





**Year Ended December 31,**
              **2007**
            
            **From Inception Date of**
              **March 2, 2006 thru**
              **December 31, 2006****Supplemental
                Disclosure of Cash Flow Information:**Cash
                paid during the period for:Interest
            
            $
            39,605
            
            $
            -Taxes
            
            $
            -
            
            $
            -**Supplemental
                Disclosure of Non-Cash Investing and Financing
                Transactions**Net
                assets acquired from acquisition , net of cash acquired
            
            $
            -
            
            $
            1,767,000Common
                stock issued for acquisition
            
            
            -
            
            
            750,000Note
                payable issued for acquisition
            
            
            -
            
            
            667,000Accrued
                and unpaid property additions
            
            
            552,537
            
            
            -Note
                payable assumed from recapitalization
            
            
            -
            
            
            10,000Capitalized
                asset retirement obligation
            
            
            29,431
            
            
            76,831Common
                stock issued for prepaid consulting services
            
            
            -
            
            
            18,750Prepayment
                of note payable in property and equipment
            
            
            -
            
            
            18,000Stock
                subscription receivable
            
            
            -
            
            
            1,250





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


F-7


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**





**1.** **HISTORY
      AND NATURE OF BUSINESS**





Knight
      Energy Corp. (“Knight”, “we”, “us”, “our”, or the “Company”) is a Maryland
      company formed in March 2006. The Company’s business plan is to acquire,
      develop, own, operate and otherwise be involved and invest in energy-related
      businesses, assets and investments, including, without limitation, the
      acquisition, exploration and development of natural gas and crude oil, the
      acquisition and operation of drilling rigs and/or gathering systems and/or
      pipelines for natural gas and/or crude oil, and other related businesses, assets
      and investments.




We
      were
      originally formed as a Nevada corporation on May 8, 1998 with the name "The
      Living Card Corporation." On June 14, 2000, we changed our name to Integrated
      Technology Group, which we refer to herein as ITG. From formation and until
      approximately July 2000, we engaged in the creation, development and marketing
      of unique, educational and low-cost greeting cards.




During
      2000, ITG's management decided to exit the greeting card business. Subsequently,
      in July 2000 ITG acquired all of the issued and outstanding shares of Safe
      Tire
      Disposal Corp., a Delaware corporation whose subsidiaries were engaged in the
      tire recycling business in Texas and Oklahoma. We engaged in this business
      between July 2000 and early 2003, when we halted operations. In August 2003,
      we
      filed a Form 15 with the SEC suspending our reporting obligations, and we were
      inactive between August 2003 and February 2006.




On
      March
      2, 2006, Knight Energy Corp., a Delaware corporation ("Knight Delaware") was
      formed. Knight Delaware's business plan is to acquire, develop, own, operate
      and
      otherwise be involved and invest in energy-related businesses, assets and
      investments, including, without limitation, the acquisition, exploration and
      development of natural gas and crude oil, the acquisition and operation of
      drilling rigs and/or gathering systems and/or pipelines for natural gas and/or
      crude oil, and other related businesses, assets and investments.




Commencing
      March 16, 2006 and finalized on May 31, 2006, Knight acquired a 100% interest
      in
      Charles Hill Drilling, Inc. (“Hill”), an independent oil and gas services
      company that owns an executed lease agreement among other assets in Stephens
      County, Texas. The lease agreement contains approximately 160 acres that include
      proved, developed non-producing natural gas wells. Hill is now a wholly owned
      subsidiary of Knight, and is operating as an oil and gas services
      company.




In
      June
      2006, Knight Delaware executed a definitive stock exchange agreement with ITG.
      Upon the closing of this agreement in November 2006, Knight Delaware was merged
      into ITG with ITG as the survivor. The business purpose of this agreement was
      to
      merge Knight Delaware into an entity that had been subject to the SEC's periodic
      reporting requirements so that the incorporators of Knight Delaware could
      reinitiate these periodic reporting requirements, and subsequently report Knight
      Delaware's operations in SEC periodic reports. After the agreement was signed
      in
      June 2006, ITG changed its name to Knight Energy Corp., a Nevada corporation
      ("Knight Nevada"), and when this transaction closed, Knight Delaware became
      a
      wholly owned subsidiary of Knight Nevada. The transaction was treated as a
      recapitalization of the Company and is further discussed in Note 5 -
      Recapitalization.





In
      April
      2007, the Knight Nevada Board of Directors and a majority of the stockholders
      approved an amendment to the Knight Nevada Articles of Incorporation increasing
      the Company's authorized capital to a total of 550,000,000 shares of stock,
      consisting of 50,000,000 shares of series A preferred stock, $0.0001 par value
      per share, and 500,000,000 shares of common stock, $0.0001 par value per
      share.


F-8


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**





Additionally,
      on April 11, 2007 and April 12, 2007, respectively, the Board of Directors
      and
      the stockholders approved the reincorporation of the Company as a Maryland
      corporation ("Knight Maryland"), which was effective on April 30, 2007. The
      shares converted in this transaction were exempt from registration under the
      Securities Act of 1933 (the "Securities Act") by virtue of Rule 145(a)(2) of
      the
      Securities Act.





**2.** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**




*Basis
      of Presentation*




The
      accompanying consolidated financial statements have been prepared in accordance
      with United States Generally Accepted Accounting Principles (“U.S. GAAP”) for
      annual financial information and with the instructions to Form 10-KSB of
      Regulation S-B.




At
      December 31, 2007, the Company had a working capital deficit of $1,568,835
      and
      for the year ended December 31, 2007 and for the period from march 2, 2006
      (Inception Date) to December 31, 2006, the Company incurred net losses of
      $3,549,223 and $1,922,993.




Subsequent
      to year end, from January to March 26, 2008, the Company has obtained
      approximately $1,232,900 in cash proceeds from a private placement of common
      stock in order to provide adequate working capital (see Note 9- Stockholders’
Equity and Note 13 - Subsequent Events). Additionally, on March 28, 2008, the
      Company received a firm commitment from a third party for up to $5,000,000
      of
      capital to be received during the fiscal year ended December 31, 2008.




As
      a
      result of the additional capital, the Company will utilize the funds for the
      development of existing leases and wells and as a result, increase oil and
      gas
      revenue. Based upon these conditions any substantial doubt about the Company’s
      ability to continue as a going concern has been alleviated for a reasonable
      period of time.




*Principles
      of Consolidation*





The
      accompanying consolidated financial statements include the general accounts
      of
      Knight and its wholly-owned subsidiary Hill, as of December 31, 2007 and all
      significant intercompany transactions, accounts and balances have been
      eliminated.





*Trade
      Receivables*




The
      Company performs ongoing credit evaluations of its customers’ financial
      condition and extends credit to virtually all of its customers. Credit losses
      to
      date have not been significant and have been within management’s expectations.
      In the event of complete non-performance by the Company’s customers, the maximum
      exposure to the Company is the outstanding accounts receivable balance at the
      date of non-performance.





*Accounting
      Estimates*





When
      preparing financial statements in conformity with U.S. GAAP, management must
      make estimates based on future events that affect the reported amounts of assets
      and liabilities, the disclosure of contingent assets and liabilities as of
      the
      date of the financial statements, and revenues and expenses during the reporting
      period. Actual results could differ from these estimates. Significant estimates
      in the accompanying financial statements include allocation of the purchase
      price of assets and liabilities acquired from Hill, valuation of common stock
      for services, the impairment of long-lived assets, valuation of the asset
      retirement obligation and the valuation allowance for deferred tax assets.
      The
      actual amounts could differ materially from such estimates.


F-9


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**





*Cash
      and Cash Equivalents*





Cash
      and
      cash equivalents include all highly liquid investments with a maturity date
      of
      three months or less when purchased.





*Oil
      and Gas Properties*




The
      Company uses the successful efforts method of accounting for its oil and gas
      properties. Costs incurred by the Company related to the acquisition of oil
      and
      gas properties and the cost of drilling successful wells are capitalized. Costs
      to maintain wells and related equipment and lease and well operating costs
      are
      charged to expense as incurred. Gains and losses arising from sales of
      properties are included in income. Unproved properties are assessed periodically
      for possible impairment.




*Property
      and Equipment*





The
      Company’s oil and gas rig is depreciated over its estimated useful life of ten
      years, using the straight line method. Vehicles are depreciated over their
      estimated useful life of three years, using the straight line method.
      Maintenance, repairs and minor replacements are charged to operations in the
      year incurred.




*Asset
      Retirement Obligations*




The
      Company accounts for asset retirement obligations in accordance with Statement
      of Financial Accounting Standards (“SFAS”) No. 143, *Accounting
      for Asset Retirement Obligations* .
      The
      asset retirement obligations represent the estimated present value of the
      amounts expected to be incurred to plug, abandon, and remediate the producing
      properties at the end of their productive lives, in accordance with state laws,
      as well as the estimated costs associated with the reclamation of the
      surrounding property. The Company determines the asset retirement obligations
      by
      calculating the present value of estimated cash flows related to the liability.
      The asset retirement obligations are recorded as a liability at the estimated
      present value as of the asset’s inception, with an offsetting increase to
      producing properties. Accretion of the discount related to the estimated
      liability is recorded as an expense in the statement of operations.




The
      estimated liability is determined using significant assumptions, including
      current estimates of plugging and abandonment costs, annual inflation of these
      costs, the productive lives of wells, and a risk-adjusted interest rate. Changes
      in any of these assumptions can result in significant revisions to the estimated
      asset retirement obligations. Revisions to the asset retirement obligations
      are
      recorded with an offsetting change to producing properties, resulting in
      prospective changes to depletion and depreciation expense and accretion of
      the
      discount. Because of the subjectivity of assumptions and the relatively long
      lives of most of the wells, the costs to ultimately retire the Company’s wells
      may vary significantly from prior estimates.




*Accounting
      for the Impairment of Long-Lived Assets*




The
      Company accounts for the impairment of long-lived assets in accordance SFAS
      No.
      144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* ,
      which
      requires that long-lived assets be reviewed for impairment whenever events
      or
      changes in circumstances indicate that the book value of the asset may not
      be
      recoverable. Recoverability of the asset is measured by comparison of its
      carrying amount to the undiscounted cash flow that the asset or asset group
      is
      expected to generate. If such assets or asset groups are considered to be
      impaired, the loss recognized is the amount by which the carrying amount of
      the
      property, if any, exceeds its fair market value. Based upon the Company’s
      evaluation, no impairment was determined for the period from March 2, 2006
      (Inception Date) through December 31, 2006. Based upon the Company’s evaluation,
      an impairment of $387,317 was recorded as of December 31, 2007 related to
      several of the Company’s oil and gas leases.


F-10


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**





*Revenue
      Recognition*




Revenues
      from sales of crude oil and natural gas products are recorded when deliveries
      have occurred and legal ownership of the commodity transfers to the customer.
      Revenues from the production of oil and natural gas properties in which the
      Company shares an undivided interest with other producers are recognized based
      on the actual volumes sold by the Company during the period.





*Fair
      Value of Financial Instruments*




The
      Company defines the fair value of a financial instrument as the amount at which
      the instrument could be exchanged in a current transaction between willing
      parties. The carrying value of trade receivables, other receivables, other
      assets and accounts payable approximates fair value because of the short
      maturity of those instruments. The estimated fair value of our other obligations
      is estimated based on the current rates offered to us for similar maturities.
      Based on prevailing interest rates and the short-term maturity of all of our
      indebtedness, management believes that the fair value of our obligations
      approximates book value at December 31, 2007.




*Valuation
      of Common Stock Issued for Services*




The
      Company issued common stock for an employee bonus and for equity services during
      the year ended December 31, 2007 and 2006. For all of these issuances, valuation
      was determined based upon the Company’s most recent private placement offering
      price.




*Stock-Based
      Compensation*




Effective
      March 2, 2006 (Inception Date), the Company adopted the fair value recognition
      provisions of SFAS No. 123(R), *Share-Based
      Payments* ,
      and
      recognizes compensation expense for all stock-based payments based on the
      grant-date fair value.





The
      Company accounts for stock options or warrants issued to non-employees for
      goods
      or services in accordance with the fair value method of SFAS 123(R) and Emerging
      Issues Task Force 96-18, *Accounting
      for Equity Instruments that are issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services* .
      Under
      this method, the Company records an expense equal to the fair value of the
      options or warrants issued. The fair value is computed using an options pricing
      model. See Note 9 - Stockholders’ Equity for further discussion of
      warrants.




*Concentration
      of Risk*




Our
      financial instruments that are potentially exposed to credit risk consist
      primarily of cash, trade receivables and other receivables for which the
      carrying amounts approximate fair value. At certain times, our demand deposits
      held in banks exceeded the federally insured limit of $100,000. The Company
      has
      not experienced any losses related to these deposits.


F-11


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**





*Income
      Taxes*




Income
      taxes are accounted for under the asset and liability method of SFAS No. 109, *Accounting
      for Income Taxes* (“SFAS
      109”). Under SFAS 109, deferred tax assets and liabilities are recognized for
      the future tax consequences attributable to differences between the financial
      statement carrying amounts of existing assets and liabilities and their
      respective tax bases. Deferred tax assets and liabilities are measured using
      enacted tax rates expected to apply to taxable income in the years in which
      those temporary differences are expected to be recovered or settled. Under
      SFAS
      109, the effect on deferred tax assets and liabilities of a change in tax rates
      is recognized in income in the period that includes the enactment
      date.




*Impact
      of Recently Issued Accounting Standards*





In
      2006,
      the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in
      Income Taxes — an Interpretation of FASB Statement No. 109 Accounting for Income
      Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes
      recognized in an enterprise’s financial statements in accordance with SFAS 109. FIN
      48
      also prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN
      48
      provides guidance on de-recognition, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. The
      Company adopted FIN 48 as of January 1, 2007, as required.




The
      current Company policy classifies any interest recognized on an underpayment
      of
      income taxes as interest expense and classifies any statutory penalties
      recognized on a tax position taken as selling, general and administrative
      expense. There
      were no interest or selling, general and administrative expenses accrued or
      recognized related to income taxes for the year ended December 31, 2007. The
      Company has not taken a tax position that would have a material effect on the
      financial statements or the effective tax rate for the year ended December
      31,
      2007 or during the prior three years applicable under FIN 48. It
      is
      determined not to be reasonably possible for the amounts of unrecognized tax
      benefits to significantly increase or decrease within twelve months of the
      adoption




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS
      157 defines fair value, establishes a market-based framework or hierarchy for
      measuring fair value, and expands disclosures about fair value measurements.
      SFAS 157 is applicable whenever another accounting pronouncement requires or
      permits assets and liabilities to be measured at fair value. SFAS 157 does
      not
      expand or require any new fair value measures; however the application of this
      statement may change current practice. The requirements of SFAS 157 are first
      effective for the Company’s fiscal year beginning January 1, 2008. However, in
      February 2008 the FASB decided that an entity need not apply this standard
      to
      nonfinancial assets and liabilities that are recognized or disclosed at fair
      value in the financial statements on a nonrecurring basis until the subsequent
      year. Accordingly, the Company’s adoption of this standard on January 1, 2008,
      is limited to financial assets and liabilities. The Company does not believe
      the
      initial adoption of SFAS 157 will have a material effect on its financial
      condition or results of operations. However, the Company is still in the process
      of evaluating this standard with respect to its effect on nonfinancial assets
      and liabilities and therefore has not yet determined the impact that it will
      have on the Company’s financial statements upon full adoption.


F-12


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**





In
      February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities Including an Amendment of FASB Statement No.
      115.” The fair value option permits entities to choose to measure eligible
      financial instruments at fair value at specified election dates. The entity
      will
      report unrealized gains and losses on the items on which it has elected the
      fair
      value option in earnings. SFAS 159 is effective beginning in fiscal year 2008.
      The Company is currently evaluating the effect of adopting SFAS 159, but does
      not expect it to have a material impact on its consolidated results of
      operations or financial condition.




In
      December 2007, the SEC issued Staff Accounting Bulletin (“SAB”) 110 Share-Based
      Payment. SAB 110 amends and replaces Question 6 of Section D.2 of Topic 14,
      “Share-Based Payment,” of the Staff Accounting Bulletin series. Question 6 of
      Section D.2 of Topic 14 expresses the views of the staff regarding the use
      of
      the “simplified” method in developing an estimate of the expected term of “plain
      vanilla” share options and allows usage of the “simplified” method for share
      option grants prior to December 31, 2007. SAB 110 allows public companies which
      do not have historically sufficient experience to provide a reasonable estimate
      to continue use of the “simplified” method for estimating the expected term of
“plain vanilla” share option grants after December 31, 2007. SAB 110 is
      effective January 1, 2008. The Company currently uses the “simplified” method to
      estimate the expected term for share option grants as it does not have enough
      historical experience to provide a reasonable estimate. The Company will
      continue to use the “simplified” method until it has enough historical
      experience to provide a reasonable estimate of expected term in accordance
      with
      SAB 110. The Company does not expect SAB 110 will have a material impact on
      its
      consolidated balance sheets, statements of operations and cash
      flows.




In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement No. 141R, Business Combinations, and Statement No. 160,
      Non-controlling Interests in Consolidated Financial Statements, an amendment
      of
      ARB No. 51. Statement No. 141R modifies the accounting and disclosure
      requirements for business combinations and broadens the scope of the previous
      standard to apply to all transactions in which one entity obtains control over
      another business. Statement No. 160 establishes new accounting and reporting
      standards for non-controlling interests in subsidiaries. The Company will be
      required to apply the provisions of the new standards in the first quarter
      of
      2009. Early adoption is not permitted for these new standards.




*Net
      Income (Loss) per Common Share*




Basic
      earnings per share are computed only on the weighted average number of common
      shares outstanding during the respective periods.




There
      were 5,300,000 outstanding warrants that could potentially dilute earnings
      per
      share in the future, but were not included in the computation of diluted
      earnings per share for the period presented because their impact was
      anti-dilutive for the periods presented.





**3.**
            **PROPERTY
                AND EQUIPMENT**


Property
        and equipment at December 31 is comprised of the following:


December 31,2007
            
            2006Land
            
            $
            24,596
            
            $
            -Oil
                and gas properties, developed producing
            
            
            3,068,529
            
            
            850,556Oil
                and gas properties, undeveloped
            
            
            715,930
            
            
            254,842Rig
                and field equipment
            
            
            2,340,561
            
            
            1,929,119Computer
                equipment
            
            
            1,646
            
            
            -Vehicles
            
            
            277,299
            
            
            211,303Total
            
            
            6,428,561
            
            
            3,245,820Less:
                Accumulated depreciation and depletion
            
            
            1,831,120
            
            
            108,611Property
                and equipment, net
            
            $
            4,597,441
            
            $
            3,137,209


F-13


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**





**4.** **ACQUISITION**




On
      March
      16, 2006, Knight acquired a 75% interest in Charles Hill Drilling, Inc.
      (“ CHD”),
      an
      independent oil and gas services company that owns an executed lease agreement
      among other assets in Stephens County, Texas, for an aggregate purchase price
      of
      $1,500,000. The payment terms included (1) a cash payment of $350,000 at
      closing, (2) $250,000 paid by the issuance of five hundred thousand (500,000)
      restricted shares of the Company's $0.001 par value Common Stock ("Common
      Stock"), based upon a share price of fifty cents ($0.50) per share (3) $700,000
      in the form of an uncollateralized promissory note paid in equal monthly
      installments over a ninety (90) day period after closing and (4) $200,000 in
      cash payments paid quarterly over a one year period after closing. The $0.50
      per
      share price used for the Common Stock was reflective of the price utilized
      by
      the Company in a recent private placement offering to accredited investors.





On
      May
      31, 2006, Knight acquired the remaining 25% interest in CHD for an aggregate
      purchase price of $500,000. The payment term was the issuance of one million
      (1,000,000) restricted shares of Common Stock, based upon a share price of
      fifty
      cents ($0.50) per share. The $0.50 per share price used for the Common Stock
      was
      reflective of the price utilized by the Company in a recent private placement
      offering to accredited investors.





In
      relation to the $700,000 promissory note from the acquisition discussed above,
      in April 2006, the Company paid the first installment due of $234,000 to the
      note holder. In May 2006, the note holder requested that if the Company made
      the
      $233,000 second payment earlier than required, the third and final installment
      of $233,000 would be forgiven. The Company made the second payment early
      ($215,000 in cash and $18,000 in form of a truck) and as a result, the final
      $233,000 payment was forgiven and was recorded as an adjustment to the purchase
      price. Accordingly, there is no amount outstanding for the $700,000 promissory
      note.




In
      relation to the $200,000 of cash payments paid quarterly over a one year payment
      after closing, the first installment was due June 30, 2006 and the remaining
      three payments due September 30, 2006, December 31, 2006 and March 31, 2007. Knight
      paid the first $100,000 installments due as of June 30, 2006 and September
      31,
      2006 for the acquisition described above resulting in an outstanding balance
      of
      $100,000 as of December 31, 2006, recorded as Note Payable - Related
      Party .
      In June
      2007, the remaining $100,000 balance was paid.





As
      a
      result of the two transactions discussed above, CHD is now a 100% wholly-owned
      subsidiary of Knight. The aggregate $1,767,000 acquisition cost, net of the
      $233,000 purchase price adjustment discussed above was allocated to the assets
      and liabilities acquired as follows:


F-14


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**





Working
                capital
            
            $
            9,352Other
                non-current assets
            
            
            318,685Rig
                and related equipment
            
            
            1,438,963Total
                acquisition cost
            
            $
            1,767,000




**5.** **RECAPITALIZATION**




In
      June
      2006, the Company consummated a definitive share exchange agreement
      (“Agreement”) with ITGI, whereby the Company became a wholly-owned subsidiary of
      ITGI. Subsequently, the Company was merged into ITGI with ITGI as the survivor
      and assumed the SEC reporting responsibilities of ITGI and changed its name
      to
      Knight Energy Corp., a Nevada corporation. Pursuant to the terms of the
      Agreement, the shareholders of the Company received an aggregate of 13,750,000
      newly issued shares of ITGI common stock and 4,511,500 shares that are
      subscribed but not issued which represents a one-for-one share exchange of
      the
      Company’s stock for ITGI stock (the "Transaction"). Additionally, the existing
      6,025,000 ITGI shares were reverse split on a 1 for 2 basis, resulting in
      3,012,500 ITGI shares outstanding. Accordingly, since the Company’s shareholders
      obtained voting and management control, this transaction is treated as a
      recapitalization of the Company.





The
      consolidated financial statements after the closing of the Agreement include
      the
      Balance Sheet of both companies at historical cost and the historical operations
      of the Company and the operations of ITGI from the Transaction
      Date.




**6.** **NOTES
      PAYABLE**




Note
      Payable – at December 31, 2007 and 2006 consisted of the
      following:





December 31,2007
            
            2006Note
                Payable due January 2008, interest and fees at 15%.
            
            $
            200,000
            
            $
            -




In
      March
      2007, a third party loaned the Company $60,000 for working capital purposes.
      The
      loan had a ten
      percent (10%) fee for interest and was to be repaid from the proceeds from
      the
      sale of common stock. In
      June
      2007, the Company repaid this $60,000 loan to the third
      party. The payment was $66,000 representing the $60,000 principal and a $6,000
      charge for interest and fees.




In
      March
      2007, a third party loaned our wholly-owned subsidiary Charles Hill Drilling,
      Inc. (“CHD”) $150,000 for working capital purposes. The loan was repaid within
      45 days from the sale of common stock and included a $15,000 charge representing
      interest and fees for the loan. In
      May
      2007, CHD repaid this $150,000 loan. The payment was $165,000 representing
      the
      $150,000 principal and a $15,000 charge for interest and fees.




In
      July
      2007, a third party loaned the Company $125,000, for working capital purposes.
      Repayment of the loan was due in
      30 days with a 10% fee, resulting in a total $137,500 payback. In
      September 2007, CHD repaid this loan. The payment was $137,500 representing
      the
      $125,000 principal and a $12,500 charge for interest and fees.


F-15


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**





In
      November 2007, a third party loaned the Company $200,000, for working capital
      purposes. Repayment of the loan was due in
      60 days or in January 2008 with a 15% fee, resulting in a total $230,000
      payback. At December 31, 2007, the outstanding principal balance is $200,000
      (See Note 13- Subsequent Events),




**7.** **NOTES
      PAYABLE, RELATED PARTY**




Note
      Payable – Related Party at December 31, 2007 and 2006 is as
      follows:





December
                31,2007
            
            2006Note
                Payable to President of Charles Hill Drilling, Inc.
            
            $
            -
            
            $
            100,000





As
      discussed previously under Note 4 – Acquisition, in March 2006, the Company
      acquired CHD and the purchase price included a $700,000 promissory note due
      and
      payable 90 days after closing and $200,000 note payable. In
      relation to the $700,000 promissory note from the acquisition, in April 2006,
      the Company paid the first installment due of $234,000 to the note holder.
      In
      May 2006, the note holder requested that if the Company made the $233,000 second
      payment earlier than required, the third and final installment of $233,000
      would
      be forgiven. The Company made the second payment early ($215,000 in cash and
      $18,000 in form of a truck) and as a result, the final $233,000 payment was
      forgiven and was recorded as an adjustment to the purchase price. Accordingly,
      there is no longer an amount outstanding for the $700,000 promissory
      note.




In
      relation to the $200,000 of cash payments paid quarterly over a one year payment
      after closing, the first installment was due June 30, 2006 and the remaining
      three payments due September 30, 2006, December 31, 2006 and March 30, 2007. Knight
      paid the first $100,000 installments due as of June 30, 2006 and September
      30,
      2006 for the acquisition described above resulting in an outstanding balance
      of
      $100,000 as of December 31, 2006 and th e
      Company
      recorded the amount as Note Payable - Related Party as of December 31, 2006. In
      June
      2007, the $100,000 outstanding balance was repaid.





On
      September 15, 2006, the Company’s obligation of $10,000 to a related party and
      the previous largest shareholder of ITGI was forgiven as was recorded as
      forgiveness of debt




In
      July
      2007, the Company’s Chief Financial Officer loaned the Company $50,000 which was
      due in 30 days with a 10% fee or $55,000 payback. In
      September 2007, the Company repaid this $50,000 loan to the Company’s Chief
      Financial Officer. The payment was $55,000 representing the $50,000 principal
      and a $5,000 charge for interest and fees.





**8** **.** **ASSET
      RETIREMENT OBLIGATIONS**





The
      following represents a reconciliation of the asset retirement obligations for
      the years ended December 31, 2007 and 2006:


December
                  31,2007
              
              2006Asset
                  retirement obligations at beginning of period
              
              $
              80,279
              
              $
              -Revision
                  to estimate and additions
              
              
              29,431
              
              
              76,870Liabilities
                  settled during the period
              
              
              -
              
              
              -Accretion
                  of discount
              
              
              140,246
              
              
              3,409Asset
                  retirement obligations at end of year / period
              
              $
              249,956
              
              $
              80,279


F-16


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**





**9.** **STOCKHOLDERS’
      EQUITY**




In
      April
      2007, (i) the Company increased its authorized capital to a total of 550,000,000
      shares of stock, consisting of 50,000,000 shares of A preferred stock, $0.0001
      par value per share, and 500,000,000 shares of common stock, $0.0001 par value
      per share; and (ii) reincorporated
      as a Maryland corporation (“Knight Maryland”).




*Capital
      Structure*




The
      Company is authorized to issue up to 500,000,000 shares of common stock, $0.0001
      par value per share, of which 25,497,855 shares were issued and outstanding
      at
      December 31, 2007. The holders of the common stock do not have any preemptive
      right to subscribe for, or purchase, any shares of any class of stock.
      Additionally, the Company has 4,415,030 shares that are issuable as of December
      31, 2007. Including issuable shares, as if they were outstanding, the Company
      has 29,912,885 shares outstanding as of December 31, 2007. See Subsequent
      Events.




The
      Company is also authorized to issue 50,000,000 shares of Series A preferred
      stock, of which none are issued and outstanding as of December 31,
      2007.




*Common
      Stock*




On
      March
      3, 2006, the Company issued to our founding investors, including our management
      team, 13,750,000 shares (the “Initial Shares”) of Common Stock at a purchase
      price of $.001 per share. The Initial Shares are “restricted” under the U.S.
      securities laws and, pursuant to the U.S. securities laws, cannot be sold,
      transferred or otherwise disposed of in the absence of a registration statement
      or an exemption from registration.




As
      a
      result of the recapitalization described previously (see Note 5 -
      Recapitalization), ITGI had 6,025,000 shares of common stock immediately prior
      to the Transaction. As required under the Transaction terms, the 6,025,000
      shares were split on a reverse 1 for 2 basis, resulting in 3,012,500
      shares.




In
      September 2006, the Company issued 75,000 shares of common stock in exchange
      for
      financial consulting services owed to a third party to be performed over a
      six
      month period beginning September 24, 2006. The share price of $0.50 per share
      based on the price of common stock sold in a recent private placement offering.
      This transaction was recorded as $37,500 of prepaid expense and was amortized
      to
      consulting expense over a six month period.




As
      a
      result of the acquisition of Hill discussed previously (see Note 4 -
      Acquisitions), the Company was to issue 1,500,000 shares of common stock as
      a
      portion of the purchase price. These shares were issued in December 2006. The
      share price of $0.50 per share based on the price of common stock sold in a
      recent private placement offering.




In
      March
      2006, the Company agreed to issue 100,000 shares of common stock to a consultant
      for equity consulting services related to assisting the Company during the
      inception and start up of its operations. The Company has valued these shares
      at
      $0.50 per share, which represents the Company’s most recent private placement
      offering price as of the consulting contract date. Accordingly, the Company
      has
      recorded $50,000 in consulting expense. These shares were issued in December
      2006.


F-17


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**





In
      May
      2006, the Company agreed to issue 35,000 shares of common stock to a consultant
      for consulting services. The Company has valued these shares at $0.50 per share,
      which represents the Company’s most recent private placement offering price as
      of the consulting contract date, or $17,500, based upon the same price utilized
      for the private placement offering discussed previously. Accordingly, the
      Company has recorded $17,500 of consulting expense in the consolidated financial
      statements. These shares were issued in December 2006.




In
      December 2006, the Company issued 50,000 shares of common stock to a consultant
      for accounting consulting services. The Company has valued these shares at
      $0.50
      per share, which represents the Company’s most recent private placement offering
      price as of the consulting contract date. Accordingly, the Company has recorded
      $25,000 of consulting expense in the consolidated financial statements.




*Common
      Stock Issuable*




In
      March
      2006, the Company commenced a private placement offering of the Company’s common
      stock , which was
      completed in April 2007. For the one year ended December 31, 2007, the Company
      sold 1,686,800 shares of common stock at $0.50 per share and raised $842,787
      in
      net proceeds. In total for the offering, the Company sold 7,735,350 shares
      of
      common stock at $0.50 per share and raised approximately $3,866,345 in net
      proceeds from this placement. As of December 31, 2007 the Company had 800,000
      shares of common stock recorded as common stock issuable from this $0.50 per
      share private placement offering. These
      sales were completed in reliance on exemptions from registration under Section
      4(2) of the Act and Rule 506 of Regulation D promulgated under the Act. These
      sales qualified for exemption from registration because (i) the securities
      were
      purchased by accredited investors only; (ii) the Company did not engage in
      any
      general solicitation or advertising to market the securities; (iii) each
      purchaser was provided the opportunity to ask questions and receive answers
      from
      the Company regarding the offering; and (iv) the purchasers received "restricted
      securities."





In
      March
      2007, the Company agreed to issue 40,000 shares of common stock to an employee
      for an employment bonus. The Company valued these shares at $0.50 per share,
      which  represented  the
      Company’s most recent private placement offering price as of the consulting
      contract date, or $20,000, based upon the same price utilized for the private
      placement offering discussed previously. Accordingly, the Company recorded
      $20,000 of general and administrative expense in the consolidated financial
      statements. These shares were issued in April 2007. This
      issuance was completed in reliance on exemptions from registration under Section
      4(2) of the Act and Rule 506 of Regulation D promulgated under the Act. This
      issuance qualified for exemption from registration because (i) the securities
      were issued to an accredited investor only; (ii) the Company did not engage
      in
      any general solicitation or advertising to market the securities; (iii) the
      employee was provided the opportunity to ask questions and receive answers
      from
      the Company regarding the offering; and (iv) the employee received "restricted
      securities."





In
      May
      2007, the Company commenced a second private placement offering of the Company’s
      common stock. For the year ended December 31, 2007, the Company sold 3,615,030
      shares of common stock at $1.00 per share and raised $3,615,032 in gross
      proceeds. As of December 31, 2007 the Company had 3,615,030 shares of common
      stock recorded as common stock issuable from this $1.00 per share private
      placement offering. These sales were completed in reliance on exemptions from
      registration under Section 4(2) of the Act and Rule 506 of Regulation D
      promulgated under the Act. These
      sales qualified for exemption from registration because (i) the securities
      were
      purchased by accredited investors only; (ii) the Company did not engage in
      any
      general solicitation or advertising to market the securities; (iii) each
      purchaser was provided the opportunity to ask questions and receive answers
      from
      the Company regarding the offering; and (iv) the purchasers received "restricted
      securities" (see
      Note
      13 - Subsequent Events).


F-18


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**





As
      a
      result of the above transactions, the Company has 4,415,030 shares of common
      stock recorded as common stock issuable as of December 31, 2007.





*Warrants*




In
      connection with the organization of the Company in March 2006, the Company
      executed an agreement with Nortia Capital Partners, Inc. (“Nortia”), a related
      party and one of the founding shareholders, whereby Nortia shall provide
      merchant banking services that include advice on mergers & acquisitions,
      capital markets, public markets strategies and raising capital. In exchange
      for
      the services to be provided, the Company granted Nortia warrants to purchase,
      1,250,000 shares of Knight common stock at an exercise price of $.50 and
      1,250,000 shares of Knight common stock at an exercise price of $1.00. For
      both
      warrants, the exercise period is two years through March 2008. (See Note 13
      -
      Subsequent Events).




The
      Company also executed an agreement with Lake Capital AG (“Lake”), a related
      party and one of the founding shareholders, whereby Lake shall provide certain
      consulting services. In exchange for the consulting services to be provided,
      the
      Company granted Lake warrants to purchase, 1,250,000 shares of Knight common
      stock at an exercise price of $.50 and 1,250,000 shares of Knight common stock
      at an exercise price of $1.00. For both warrants, the exercise period is two
      years through March 2008. (See Note 13 - Subsequent Events).




The
      Company evaluated the warrant issuances in accordance with SFAS 123R and
      utilized the Black Scholes method to determine valuation, which resulted in
      a
      total value for all warrants of $574,000. As a result of its evaluation, $0.17
      and $0.06 per share was assigned to the warrants to purchase shares of Knight
      common stock at an exercise price of $0.50 and $1.00, respectively. The Company
      used the following in the calculation:





Stock
                Price (date of grant)
            
            $
            0.50Expected
                Life (between vesting period and term of warrants)
            
            
            1.00Volatility
            
            
            81
            %Annual
                Rate of Quarterly Dividends
            
            
            0.00
            %Risk
                Free Interest Rate (T-bill rate)
            
            
            4.76
            %




Since
      there was no trading volume for the Knight common shares, the Company utilized
      a
      selected comparable company whose common shares were trading to determine the
      volatility of 81% above.




On
      October 1, 2007 the Company also executed an agreement with a third party for
      certain equity consulting services. In exchange for the equity consulting
      services to be provided, the Company granted the third party warrants for the
      purchase of 300,000 shares of Knight common stock at an exercise price of $3.00.
      The warrant exercise period is for one year through September 30,
      2008.




The
      Company evaluated the warrant issuance in accordance with SFAS 123R and utilized
      the Black Scholes method to determine valuation, which resulted in a total
      value
      of $36,000. As a result of its evaluation, $0.12 per share was assigned to
      the
      warrants to purchase shares of Knight common stock at an exercise price of
      $3.00. The Company used the following in the calculation:


F-19


**Knight
        Energy Corp.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


Stock
                Price (date of grant)
            
            $
            2.05Expected
                Life (between vesting period and term of warrants)
            
            
            0.50Volatility
            
            
            56
            %Annual
                Rate of Quarterly Dividends
            
            
            0.00
            %Risk
                Free Interest Rate (T-bill rate)
            
            
            4.11
            %





The
      following table summarizes activity related to warrants for the period from
      March 2, 2006 (Inception Date) to December 31, 2007:




**Number of Shares**
            
            **Weighted Average**
              **Exercise Price**Balance
                at March 2, 2006 (Inception Date)
            
            
            -
            
            $
            -Granted
            
            
            5,000,000
            
            
            .75Exercised
            
            
            -
            
            
            -Forfeited
            
            
            -Balance
                at December 31, 2006
            
            
            5,000,000
            
            
            .75Granted
            
            
            300,000
            
            
            3.00Exercised
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -Balance
                at December 31, 2007
            
            
            5,300,000
            
            $
            .88




All
      warrants to purchase our common stock were issued with exercise prices equal
      to
      or greater than fair market value on the date of issuance.




The
      terms
      of warrants to purchase our common stock are summarized below:




**----------------------------Warrants
      Outstanding---------------------  ---Warrants
      Exercisable-----**




Range of Exercise
              Prices
            
            Number
              Outstanding at
              December 31,
              2007
            
            Weighted
              Average
              Remaining
              Contractual
              Life
            
            Weighted
              Average
              Exercise
              Price
            
            Number
              Exercisable at
              December 31,
              2007
            
            Weighted
              Average
              Exercise
              Price$0.50
                to $3.00
            
            
            5,300,000
            
            
            0.23
                years
            
            $
            0.88
            
            
            5,300,000
            
            $
            0.88




**10.** **INCOME
      TAXES**




There
      was
      no income tax during the year ended December 31, 2007 or the period from March
      2, 2006 (Inception Date) to December 31, 2006 due to the Company’s net loss and
      valuation allowance position.





The
      Company’s tax expense differs from the “expected” tax expense (benefit) for the
      year period ended December 31, 2007 and the period from March 2, 2006 (Inception
      Date) to December 31, 2006 (computed by applying the Federal Corporate tax
      rate
      of 34% to loss before taxes), as follows:


F-20


**Knight
        Energy Corp.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


Year Ended
              December 31,
              2007
            
            From Inception Date
              of March 2, 2006 to
              December 31, 2006Computed
                “expected” tax benefit
            
            $
            (1,206,737
            )
            $
            (653,818
            )State
                income taxes
            
            
            (35,492
            )
            
            (57,689
            )Change
                in tax rate
            
            
            51,816
            
            
            -Other
            
            
            (8,501
            )
            
            -Valuation
                allowance
            
            
            1,178,231
            
            
            692,795Non-deductible
                items
            
            
            20,683
            
            
            18,712Net
                taxable benefit
            
            $
            -
            
            $
            -





The
      tax
      effects of temporary differences that gave rise to significant portions of
      deferred tax assets and liabilities at December 31 are as follows:





2007
            
            2006**Deferred
                tax assets:**Net
                operating loss carryforward
            
            $
            2,346,430
            
            $
            1,025,362Accrued
                bonus
            
            
            85,941
            
            
            -Other
            
            
            1,190
            
            
            -Asset
                retirement obligations
            
            
            89,228
            
            
            1,275Total
                deferred tax assets
            
            
            2,522,789
            
            
            1,026,637**Deferred
                tax liabilities:**Oil
                and gas properties and other property and equipment, principally
                due to
                depletion and depreciation
            
            
            (960,595
            )
            
            (265,430
            )Net
                deferred tax asset
            
            
            1,562,194
            
            
            761,207Valuation
                allowance
            
            
            (1,562,194
            )
            
            (761,207
            )Net
                deferred taxes
            
            $
            -
            
            $
            -




In
      assessing the recognition of deferred tax assets, management estimates it is
      more likely than not that the Company will be in a net loss position for the
      year ended December 31, 2007, the Company’s fiscal year end. As a result, the
      valuation allowance has been recorded for the entire amount of the net deferred
      tax asset.  Net
      operating loss carry-forwards aggregate approximately $6,904,000 and expire
      in
      years 2027 through 2028; however the NOL may be limited due to change in control
      conditions.




**11.** **COMMITMENTS
      AND CONTINGENCIES**




From
      time
      to time the Company may become subject to proceedings, lawsuits and other claims
      in the ordinary course of business including proceedings related to
      environmental and other matters. Such matters are subject to many uncertainties,
      and outcomes are not predictable with assurance. The Company is unaware of
      any
      claim or lawsuit as of December 31, 2007.




The
      Company has one office location, our corporate office in Atlanta, Georgia,
      and
      we currently do not have a lease and are not paying rent for our office space.
      It is being provided to the Company by an officer/director free of charge.
      Usage
      of this office space and the related value is de minimis. Therefore, no expense
      has been recorded in the accompanying consolidated financial statements. The
      Company expects to have additional corporate office space in the near future
      and
      that the cost of the space may be material to our operations. (See
      Note
      13 – Subsequent Events).


F-21


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**





The
      Company is utilizing a vehicle for its operations and making monthly payments
      of
      $336 to Chase Auto Finance. The vehicle is owned by a third party and the
      Company has agreed to make the monthly payments while it utilizes the vehicle.
      However, there is no specific lease agreement and the payments are on a
      month-to-month basis and can be cancelled by the Company at any time.





**12.** **RELATED
      PARTY TRANSACTIONS**




Effective
      March 1, 2007, the Company commenced a consulting contract with Nortia Capital
      Partners, Inc. (“Nortia”), a related company. Pursuant
      to the consulting contract , Nortia provides financial consulting services to the Company for a consulting fee of $20,000
      monthly .
      For the year
      ended December 31, 2007, Nortia invoiced the Company $200,000, and the Company
      paid Nortia $200,000, for consulting services. Additionally,
      the Company has prepaid Nortia $9,215 of consulting fees and
      classified this as a prepaid consulting - related party at December 31, 2007. The
      Company’s Chief Executive Officer and Chief Financial Officer are officers and
      directors of Nortia.




See
      Notes
      4 and 7 for additional related party transactions.




**13.** **SUBSEQUENT
      EVENTS**




Between January 1
      and March
      26, 2008, the
      Company sold 1,232,900 shares of common stock at $1.00 per share and raised
      approximately $1,232,810 in net proceeds in the private placement described
      above under Note 9.





On
      January 10, 2008, the Company paid the $30,000 fee on the November 9, 2007
      third
      party note payable and renewed the original note for an additional two months
      for an additional 15% fee or $230,000 payback, for working capital
      purposes.





Effective
      February 18, 2008, the Company commenced a lease for Knight’s new headquarters
      in Texas. The lease term is thirty seven (37) months with base rent monthly
      payments of $4,913 for year 1, $5,013 for year 2 and $5,111 for year 3 plus
      payment for the Company’s share of pro-rata operating expenses. The Company paid
      a security deposit of $20,445 for the lease and was granted a $12 per foot
      tenant finish out allowance for office changes with an option for the Company
      to
      utilize up to $7 per foot as abatement of rent, which the Company will
      choose.




In
      March
      2008, the Company agreed to extend the expiration date of warrants held by
      Nortia and Lake to purchase in total , 2,500,000 shares of Knight common stock
      at an exercise price of $.50 and 2,500,000 shares of Knight common stock at
      an
      exercise price of $1.00. (See Note 9 - Stockholders’ Equity). For all of the
      warrants, the exercise period was extended two years through March 2010.





**SUPPLEMENTAL
      OIL AND GAS DATA (UNAUDITED)**





The
      following tables set forth supplementary disclosures for oil and gas producing
      activities in accordance with SFAS No. 69, *Disclosures
      about Oil and Gas Producing Activities* .


F-22


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**




**Capitalized
      Costs Relating to Oil and Gas Producing Activities**


As of December 31,2007
              
              2006Proved
                  propertiesLeases
              
              $
              3,455,846
              
              $
              850,545Wells,
                  equipment and facilities
              
              
              2,617,861
              
              
              2,140,442Total
                  proved properties
              
              
              6,073,707
              
              
              2,990,987Unproved
                  propertiesLeases
              
              
              715,930
              
              
              254,852Uncompleted
                  wells, equipment and facilities
              
              
              —
              
              
              —Total
                  unproved properties
              
              
              715,930
              
              
              254,852Less
                  accumulated depreciation, depletion, amortization and
                  impairment
              
              
              (2,218,437
              )
              
              (108,632
              )Net
                  Capitalized Costs
              
              $
              4,571,200
              
              $
              3,137,207




**Costs
      Incurred in Oil and Gas Producing Activities**




Year Ended
              December 31,
              2007
            
            From March 2,
              2006 (Inception
              Date to December 31,
              2006Acquisition
                of proved properties
            
            $
            304,482
            
            $
            304,991Acquisition
                of unproved properties
            
            
            131,075
            
            
            56,519Development
                costs
            
            
            2,602,505
            
            
            667,057Exploration
                costs
            
            
            9,964
            
            
            47,091Total
                Costs Incurred
            
            $
            3,048,026
            
            $
            1,075,658




F-23


**Knight
        Energy Corp.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


**Results
      of Operations from Oil and Gas Producing Activities**




Year Ended
              December 31,
              2007
            
            From March 2,
              2006 (Inception
              Date) to December 31,
              2006Oil and
                gas revenues
            
            $
            1,153,160
            
            $
            40,736Production
                costs
            
            
            (259,292
            )
            
            (20,157
            )Exploration
                expenses
            
            
            (9,964
            )
            
            (47,091
            )Depletion,
                depreciation, and impairment
            
            
            (2,109,486
            )
            
            (108,632
            )Result
                of oil and gas producing operations before income taxes
            
            
            (1,225,582
            )
            
            (135,144
            )Provision
                for income taxes
            
            
            —
            
            
            —Results
                of Oil and Gas Producing Operations
            
            $
            (1,225,582
            )
            $
            (135,144
            )





**Proved
      Reserves**




The
      Company’s proved oil and natural gas reserves have been estimated by independent
      petroleum engineers. Proved reserves are the estimated quantities that geologic
      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 the quantities expected to be
      recovered through existing wells with existing equipment and operating methods.
      Due to the inherent uncertainties and the limited nature of reservoir data,
      such
      estimates are subject to change as addition information becomes available.
      The
      reserves actually recovered and the timing of production of these reserves
      may
      be substantially different from the original estimate. Revisions result
      primarily from new information obtained from development drilling and production
      history; acquisitions of oil and natural gas properties; and changes in economic
      factors. The fiscal 2007 and 2006 proved reserves are summarized in the table
      below:


Crude
                  Oil
                Bbls
              
              Natural
                  Gas
                Mcf2007
              
              2006
              
              2007
              
              2006Proved
                  reserves as of December 31:Beginning
                  of the period
              
              
              1,444
              
              
              —
              
              
              265,375
              
              
              —Other
              
              
              562
              
              
              
              
              
              (138,085
              )Revisions
                  of previous estimates
              
              
              (7
              )
              
              —
              
              
              (104,783
              )
              
              —Improved
                  recovery
              
              
              —
              
              
              —
              
              
              —
              
              
              —Purchase
                  of minerals in place
              
              
              69,247
              
              
              1,800
              
              
              —
              
              
              270,200Extensions
                  and discoveries
              
              
              104,145
              
              
              —
              
              
              885,523
              
              
              —Production
              
              
              (10,591
              )
              
              (356
              )
              
              (93,030
              )
              
              (4,825
              )Sale
                  of minerals in place
              
              
              —
              
              
              —
              
              
              —
              
              
              —End
                  of the period
              
              
              164,800
              
              
              1,444
              
              
              815,000
              
              
              265,375


F-24


**Knight
      Energy Corp.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**





**Standardized
      Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas
      Reserves**




The
      following information is based on the Company’s best estimate of the required
      data for the Standardized Measure of Discounted Future Net Cash Flows as of
      December 31, 2007 and 2006 in accordance with SFAS No. 69, “Disclosures About
      Oil and Gas Producing Activities” which requires the use of a 10% discount rate.
      This information is not the fair market value, nor does it represent the
      expected present value of future cash flows of the Company’s proved oil and gas
      reserves.




December 31,2007
            
            2006Future
                cash inflows
            
            $
            21,770,490
            
            $
            2,426,856Future
                production costs(1)
            
            
            (5,636,480
            )
            
            (1,008,943
            )Future
                development costs
            
            
            (1,075,000
            )
            
            —Future
                income tax expenses
            
            
            (5,120,063
            )
            
            (482,090
            )Future
                net cash flows
            
            
            9,938,937
            
            
            935,82310%
                annual discount for estimated timing of cash flows
            
            
            (4,651,420
            )
            
            (375,742
            )Standardized
                measure of discounted future net cash flows at the end of the
                year
            
            $
            5,287,527
            
            $
            560,081




(1)
            Production
                costs include oil and gas operations expense, production ad valorem
                taxes,
                transportation costs and general and administrative expense supporting
                the
                Company’s oil and gas
                operations.


F-25


**Knight
        Energy Corp.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


Future
      cash inflows are computed by applying year-end prices, adjusted for location
      and
      quality differentials on a property-by-property basis, to year-end quantities
      of
      proved reserves, except in those instances where fixed and determinable price
      changes are provided by contractual arrangements at year-end. The discounted
      future cash flow estimates do not include the effects of the Company’s
      derivative instruments, if any. See the following table for average prices.




December 31,2007
            
            2006Average
                crude oil price per Bbl
            
            $
            89.73
            
            $
            45.00-76.17Average
                natural gas price per Mcf
            
            $
            8.49
            
            $
            6.50-9.23




Future
      production and development costs, which include dismantlement and restoration
      expense, are computed by estimating the expenditures to be incurred in
      developing and producing the Company’s proved crude oil and natural gas reserves
      at the end of the year, based on year-end costs, and assuming continuation
      of
      existing economic conditions.




Future
      income tax expenses are computed by applying the appropriate year-end statutory
      tax rates to the estimated future pretax net cash flows relating to the
      Company’s proved crude oil and natural gas reserves, less the tax bases of the
      properties involved. The future income tax expenses give effect to tax credits
      and allowances, but do not reflect the impact of general and administrative
      costs and exploration expenses of ongoing operations relating to the Company’s
      proved crude oil and natural gas reserves.




**Sources
      of Changes in Discounted Future Net Cash Flows**




Principal
      changes in the aggregate standardized measure of discounted future net cash
      flows attributable to the Company’s proved crude oil and natural gas reserves,
      as required by SFAS No. 69, at year end are set forth in the table below.




Year ended
              December 31,
              2007
            
            From March 2,
              2006 (Inception
              Date ) to
              December 31,
              2006Standardized
                measure of discounted future net cash flows at the beginning of the
                year
            
            $
            560,081
            
            $
            —Other
            
            
            (317,786
            )
            
            —Extensions,
                discoveries and improved recovery, less related costs
            
            
            6,121,070
            
            
            —Revisions
                of previous quantity estimates
            
            
            (202,279
            )
            
            —Changes
                in estimated future development costs
            
            
            —
            
            
            (1,008,943
            )Purchases
                (sales) of minerals in place
            
            
            1,888,620
            
            
            2,447,435Net
                changes in prices and production costs
            
            
            5,211
            
            
            —Accretion
                of discount
            
            
            (372
            )
            
            (375,742
            )Sales
                of oil and gas produced, net of production costs
            
            
            (43,140
            )
            
            (20,579
            )Development
                costs incurred during the period
            
            
            —
            
            
            —Change
                in timing of estimated future production and other
            
            
            —
            
            
            —Net
                change in income taxes
            
            
            (2,723,878
            )
            
            (482,090
            )Standardized
                measure of discounted future net cash flows at the end of the
                year
            
            $
            5,287,527
            
            $
            560,081





F-26