**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**FORM
      10-KSB/A**





**AMENDMENT
      NO. 1**





Mark
                One:x
            Annual
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934For
                the Fiscal Year Ended**December
                31, 2006**oro
            Transition
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of1934
              For the Transition Period from--------
              ------____________to_____________.Commission
              File Number 0-9997





**BREK
      ENERGY CORPORATION**


*(Exact
      name of registrant as specified in its charter)*





**NEVADA**
            **98-0206979**(State
                of Incorporation)
            (IRS
                Employer Identification No.)**3388
                Via Lido, Fourth Floor, Newport Beach, CA
                92663**(Address
                of principal executive offices)**(888)
                472-7987**(Registrant’s
                telephone number, including area
                code)





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





Securities
      registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par
      value





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act during the past 12 months (or for such
      shorter period that the registrant was required to file such reports) and (2)
      has been subject to such filing requirements for the past 90 days.
      Yes x No 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 registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. x





Indicate
      by checkmark whether the registrant is a shell company as defined in Rule 12b-2
      of the Exchange Act. Yes o No x





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








**EXPLANATORY
      NOTE**





This
      Amendment No. 1 to Annual Report on Form 10-KSB (the “Amendment”) is being filed
      by Brek Energy Corporation in response to a letter received from the Securities
      and Exchange Commission dated August 2, 2007. The Amendment expands the
      discussion included in the notes to our audited financial statements, included
      at Item 7, Financial Statements, as follows:





·
            We
                revised our revenue recognition, long lived asset and oil and gas
                policies
                in Note 2 (Significant Accounting
                Policies);





·
            We
                provided additional information in Note 8 (Stock Options) regarding
                the
                vesting of stock options we
                granted;




·
              We
                  provided additional information in Note 9 (Warrants) regarding
                  the
                  estimated fair value of warrants we issued;
                  and,




·
            We
                expanded the discussion of our discontinued operations in Note 14
                (Discontinued Operations).





We
      also revised Item 3, Legal Proceedings, by including additional information
      relating to the effect of the legal action discussed and we revised Item 8A,
      our
      report on our controls and procedures.





No
      other changes have been made to our Annual Report on Form 10-KSB which was
      filed
      with the Securities and Exchange Commission on April 16, 2007 (the “Original
      Report”). We have made no attempt in this Amendment to modify or update the
      disclosures presented in the Original Report, except as identified
      above.





The
      disclosures in this Amendment continue to speak as of the date of the Original
      Report, and do not reflect events occurring after the filing of the Original
      Report. Accordingly, this Amendment should be read in conjunction with our
      other
      filings made with the Securities and Exchange Commission subsequent to the
      filing of the Original Report, including any amendments to those filings. The
      filing of this Amendment shall not be deemed an admission that the Original
      Report when made included any untrue statement of a material fact or omitted
      to
      state a material fact necessary to make a statement not misleading.









**ITEM
      3.**  **LEGAL
      PROCEEDINGS**





We
      are
      not a party to any pending legal proceedings and, to the best of our knowledge,
      none of our property or assets are the subject of any pending legal proceedings;
      except for the following:





*Transworld
      Payment Solutions N.V. et al. vs. Brek Energy Corporation et
      al.*





On
      February 25, 2003, Transworld Payment Solutions N.V. and First Curacao
      International Bank N.V. (referred to in this discussion as the “plaintiffs”),
      which are the debtor and the guarantor respectively of a note receivable,
      commenced legal action against Brek and others in the Supreme Court of Bermuda
      claiming that Brek and its former subsidiary, First Ecom Systems Limited, had
      promised to develop and supply the plaintiffs with certain software pursuant
      to
      three license agreements dated October 19, 2001. The plaintiffs were seeking
      rescission of all agreements between the parties or, alternatively, damages
      for
      misrepresentation and breach of the agreements. The plaintiffs commenced the
      lawsuit approximately one week before they were required to make their first
      installment payment pursuant to a share purchase agreement dated October 19,
      2001. At that time, the plaintiffs were obligated to make an installment payment
      in the amount of $1,901,107. The plaintiffs have not made any of the installment
      payments required by the terms and conditions of the agreements.





Brek
      and
      the other defendants, as cross-claimants, filed an answer to the complaint
      and a
      counterclaim on May 8, 2003 with the Supreme Court of Bermuda. In their
      counterclaim, the cross-claimants were seeking specific performance of the
      agreements or, alternatively, damages for breach of contract. The plaintiffs,
      as
      cross-defendants, filed a reply and answer to the counterclaim on May 21, 2003.
      Although the directors believe that the cross-defendants’ claims were without
      merit, due to a lack of financial resources Brek did not pursue its
      counterclaim. No party took any further action after Brek filed its answer
      and
      counterclaim.





On
      March
      28, 2007, Brek and its subsidiary, Feds Acquisition Corporation, reached a
      settlement with the plaintiffs/cross-defendants whereby the agreements giving
      rise to the litigation were rescinded, and the parties mutually released each
      other from any claims under the agreements and consented to the dismissal of
      the
      action filed in the Bermuda court. The consent order dismissing the action
      was
      filed in the Bermuda court on April 19, 2007. This leaves only Brek’s inactive
      Hong Kong subsidiary, First Ecommerce Asia Limited, referred to as “FEAL”,
      subject to the Transworld agreements and litigation. Although FEAL was
      originally to be a party to the settlement, the High Court of the Hong Kong
      Special Administrative Region in November 2003 ordered that FEAL be wound up
      and
      in April 2005 appointed liquidators for this purpose. As a result of the winding
      up proceeding, FEAL was not released because the liquidators refused to respond
      to requests to approve the settlement agreement.





Brek
      does
      not believe that it is exposed to a potential loss contingency related to this
      matter. Because all of the other parties to the litigation have settled, the
      liability - to the extent that any exists - is now that of FEAL, which has
      no
      assets. Brek has been advised that Hong Kong’s Companies Ordinance provides
      limited liability to stockholders of a Hong Kong corporation. The liability
      to
      stockholders extends to the paid up value of the stockholder’s shares. In this
      case, the paid up value was $2.00. Based on the foregoing, Brek does not believe
      that the plaintiffs would be successful in holding Brek, as FEAL’s stockholder,
      accountable if FEAL incurred any liability as a result of this
      action.





Furthermore,
      Brek believes that it and its subsidiaries, including FEAL, were made parties
      to
      this action in bad faith. Brek believes that the action was filed so that the
      plaintiffs could avoid making the payment that was due on October 19, 2001.
      Brek
      believes that if the action were to continue to be prosecuted, which is unlikely
      given that it was filed four and a half years ago and all of the parties, with
      the exception of FEAL, which has no assets, have signed settlement agreements,
      FEAL would prevail in its defense.





The
      plaintiffs sought rescission of the purchase agreement or, alternatively,
      damages for misrepresentation and breach of the purchase agreement. Because
      there has been no discovery done and no preparations for trial have been made,
      it is not possible for Brek to make an estimate of the loss or range of loss
      that FEAL might be liable for in the event the action was resolved against
      FEAL.
      However, given that FEAL was originally to be included in the settlement, that
      the action was settled by rescission without the payment of any damages by
      the
      remaining parties, and that no facts have changed which would make this method
      of settling the action between FEAL and the plaintiffs unattractive to either
      party, Brek believes that the likelihood of a judgment being entered against
      FEAL is remote.









**ITEM
      7.** **FINANCIAL
      STATEMENTS**





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








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




**BREK
      ENERGY CORPORATION**




**CONSOLIDATED
      FINANCIAL STATEMENTS**





**FOR
      THE YEARS ENDED DECEMBER 31, 2006 and 2005**










TABLE
      OF
      CONTENTS




Report
                of Independent Registered Public Accounting Firm
            F-2Consolidated
                Balance Sheets
            F-3Consolidated
                Statements of Operations
            F-5Consolidated
                Statement of Changes in Stockholders’ Equity and Accumulated
                Deficit
            F-7Consolidated
                Statements of Cash Flows
            F-8Notes
                to Consolidated Financial Statements
            F-10





F-1




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




***To
      the Board of Directors and Stockholders***


Brek
      Energy Corporation





We
      have
      audited the accompanying consolidated balance sheets of Brek Energy Corporation,
      as of December 31, 2006 and 2005, and the related consolidated statements of
      operations, stockholders’ deficit and comprehensive loss, and cash flows for the
      years then ended. These consolidated financial statements are the responsibility
      of the Company’s management. Our responsibility is to express an opinion on
      these consolidated financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      consolidated 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. Our audits included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Brek Energy
      Corporation as of December 31, 2006 and 2005, and the results of its
      consolidated operations and its cash flows for the years then ended in
      conformity with accounting principles generally accepted in the United States
      of
      America.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As more fully described in Note
      3,
      the Company has incurred recurring operating losses and has an accumulated
      deficit. These conditions raise substantial doubt about the Company’s ability to
      continue as a going concern. Management’s plans in regard to these matters are
      also described in Note 3. The consolidated financial statements do not include
      any adjustments to reflect the possible future effects on the recoverability
      and
      classification of assets or the amounts and classification of liabilities that
      may result from the outcome of this uncertainty.




**Mendoza
      Berger & Company, LLP**





/s/Mendoza
      Berger & Company, LLP





Irvine,
      California


March
      23,
      2007





F-2


**BREK
                ENERGY CORPORATION****CONSOLIDATED
                BALANCE SHEETS****DECEMBER
                31, 2006 AND 2005**




**2006**
            
            **2005**AssetsCurrent
                assetsCash
            
            $
            1,415,996
            
            $
            58,113Accounts
                receivable
            
            
            82,014
            
            
            120,110Prepaids
            
            
            -
            
            
            3,415Total
                current assets
            
            
            1,498,010
            
            
            181,638Oil
                and gas properties (full cost method) (Note 4)Proved
                properties
            
            
            22,658,882
            
            
            22,630,474Unproved
                properties
            
            
            7,918
            
            
            300Total
            
            
            22,666,800
            
            
            22,630,774Less
                accumulated depletion and impairment
            
            
            (21,241,828
            )
            
            (16,716,564
            )1,424,972
            
            
            5,914,210Total
                assets
            
            $
            2,922,982
            
            $
            6,095,848





F-3


Liabilities
                and Stockholders' EquityCurrent
                liabilitiesAccounts
                payable
            
            $
            256,940
            
            $
            575,390Accrued
                liabilities
            
            
            124,309
            
            
            80,390Accrued
                wages payable
            
            
            80,105
            
            
            100,595Due
                to related parties (Note 5)
            
            
            12,258
            
            
            455,750Total
                current liabilities
            
            
            473,612
            
            
            1,212,125Noncurrent
                liabilitiesAsset
                retirement obligation
            
            
            23,304
            
            
            -Total
                liabilities
            
            
            496,916
            
            
            1,212,125Commitments
                and contingencies (Notes 3 and 12)Minority
                interest
            
            
            39,954
            
            
            74,916Stockholders'
                equity (Note 6)Common
                stock, $0.001 par value, 300,000,000 authorized; 79,973,062 and 59,498,090
                issued and outstanding at December 31, 2006 and 2005,
                respectively
            
            
            79,973
            
            
            59,498Additional
                paid-in-capital
            
            
            69,360,165
            
            
            65,364,249Common
                stock purchase warrants
            
            
            25,000
            
            
            977,973Accumulated
                deficit
            
            
            (67,079,026
            )
            
            (61,592,913
            )Total
                stockholders' equity
            
            
            2,386,112
            
            
            4,808,807Total
                liabilities and stockholders' equity
            
            $
            2,922,982
            
            $
            6,095,848The
                accompanying notes are an integral part of these consolidated financial
                statements





F-4




**BREK
                ENERGY CORPORATION****CONSOLIDATED
                STATEMENTS OF OPERATIONS****FOR
                THE YEARS ENDED DECEMBER 31, 2006 AND
                2005**




**2006**
            
            **2005**Revenue
            
            $
            440,537
            
            $
            764,802Operating
                expensesGeneral
                and administrative
            
            
            1,193,534
            
            
            932,856Lease
                operating
            
            
            126,535
            
            
            -Gathering
                operations
            
            
            78,681
            
            
            -Depletion
                and accretion
            
            
            77,939
            
            
            82,377Charges
                for impairment of oil and gas properties
            
            
            4,452,754
            
            
            -Total
                operating expenses
            
            
            5,929,443
            
            
            1,015,233Net
                loss from continuing operations before franchise tax,discontinued
                operations and minority interest
            
            
            (5,488,906
            )
            
            (250,431
            )Franchise
                Tax
            
            
            (5,834
            )
            
            -Net
                loss from continuing operations before discontinuedoperations
                and minority interest
            
            
            (5,494,740
            )
            
            (250,431
            )Loss
                from discontinued operations
            
            
            (26,335
            )
            
            (1,859
            )Net
                loss before minority interest
            
            
            (5,521,075
            )
            
            (252,290
            )Minority
                interest
            
            
            34,962
            
            
            (4,915
            )Net
                loss
            
            $
            (5,486,113
            )
            $
            (257,205
            )




F-5




Net
                loss per share - basic and diluted:Continuing
                operations
            
            $
            (0.09
            )
            $
            (0.01
            )Discontinued
                operations
            
            
            (0.00
            )
            
            (0.00
            )Net
                loss per share
            
            $
            (0.09
            )
            $
            (0.01
            )Weighted
                average number of shares outstanding -basic
                and diluted
            
            
            63,467,561
            
            
            58,980,007The
                accompanying notes are an integral part of these consolidated financial
                statements




F-6




**BREK
                ENERGY CORPORATION****CONSOLIDATED
                STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND ACCUMULATED
                DEFICIT****FOR
                THE YEARS ENDED DECEMBER 31, 2006 AND
                2005**




**Common
                Stock Issued**
            
            **Additional**
            
            **Common
                Stock****Number
                of**
            
            
            
            **Paid
                in**
            
            **Purchase**
            
            **Accumulated****Shares**
            
            **Amount**
            
            **Capital**
            
            **Warrants**
            
            **Deficit**
            
            **Total**Balance,
                January 1, 2005
            
            
            55,331,420
            
            $
            55,331
            
            $
            56,706,041
            
            $
            8,515,348
            
            $
            (61,335,708
            )
            $
            3,941,012Units
                issued for cash
            
            
            3,333,336
            
            
            3,334
            
            
            746,666
            
            
            250,000
            
            
            -
            
            
            1,000,000Units
                issued for debt
            
            
            333,334
            
            
            333
            
            
            74,667
            
            
            25,000
            
            
            -
            
            
            100,000Warrants
                exercised for cash
            
            
            500,000
            
            
            500
            
            
            124,500
            
            
            -
            
            
            -
            
            
            125,000Finders
                fees
            
            
            -
            
            
            -
            
            
            (100,000
            )
            
            -
            
            
            -
            
            
            (100,000
            )Common
                stock purchase warrants, exercised
            
            
            -
            
            
            -
            
            
            18,750
            
            
            (18,750
            )
            
            -
            
            
            -Common
                stock purchase warrants, expired
            
            
            -
            
            
            -
            
            
            7,793,625
            
            
            (7,793,625
            )
            
            -
            
            
            -Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (257,205
            )
            
            (257,205
            )Balance,
                December 31, 2005
            
            
            59,498,090
            
            
            59,498
            
            
            65,364,249
            
            
            977,973
            
            
            (61,592,913
            )
            
            4,808,807Units
                issued for cash
            
            
            800,000
            
            
            800
            
            
            299,200
            
            
            100,000
            
            
            -
            
            
            400,000Common
                stock issued for debt
            
            
            300,922
            
            
            301
            
            
            144,955
            
            
            -
            
            
            -
            
            
            145,256Warrants
                exercised for cash
            
            
            16,804,236
            
            
            16,804
            
            
            2,143,451
            
            
            -
            
            
            -
            
            
            2,160,255Warrants
                exercised for debt
            
            
            2,569,814
            
            
            2,570
            
            
            355,337
            
            
            -
            
            
            -
            
            
            357,907Common
                stock purchase warrants, exercised
            
            
            -
            
            
            -
            
            
            1,052,973
            
            
            (1,052,973
            )
            
            -
            
            
            -Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,486,113
            )
            
            (5,486,113
            )Balance,
                December 31, 2006
            
            
            79,973,062
            
            $
            79,973
            
            $
            69,360,165
            
            $
            25,000
            
            $
            (67,079,026
            )
            $
            2,386,112The
                accompanying notes are an integral part of these consolidated financial
                statements





F-7


**BREK
                ENERGY CORPORATION****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****FOR
                THE YEARS ENDED DECEMBER 31, 2006 AND
                2005**




**2006**
            
            **2005**Cash
                flows from operating activities:Net
                loss
            
            
            (5,486,113
            )
            $
            (257,205
            )Adjustments
                to reconcile net loss to net cash used in operating activities:Depletion
            
            
            72,510
            
            
            82,377Accretion
                of asset retirement obligation
            
            
            5,429
            
            
            -Charges
                for impairment of oil and gas properties
            
            
            4,452,754
            
            
            -Minority
                interest
            
            
            (34,962
            )
            
            4,915Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            38,096
            
            
            (63,308
            )Prepaids
            
            
            3,415
            
            
            (2,177
            )Due
                from related party
            
            
            -
            
            
            116,594Accounts
                payable
            
            
            (318,450
            )
            
            (359,180
            )Accrued
                liabilities
            
            
            43,919
            
            
            98,495Accrued
                wages payable
            
            
            (20,490
            )
            
            (9,098
            )Due
                to related parties
            
            
            59,671
            
            
            287,017Net
                cash used in operating activities
            
            
            (1,184,221
            )
            
            (101,570
            )Cash
                flows from investment activities:Cash
                spent on oil and gas properties
            
            
            (38,151
            )
            
            (1,196,165
            )Proceeds
                from sale of oil and gas property
            
            
            20,000
            
            
            -Net
                cash used in investment activities
            
            
            (18,151
            )
            
            (1,196,165
            )Cash
                flows from financing activities:Units
                issued for cash
            
            
            400,000
            
            
            1,000,000Warrants
                exercised for cash
            
            
            2,160,255
            
            
            125,000Net
                cash provided by financing activities
            
            
            2,560,255
            
            
            1,125,000Increase
                (decrease) in cash
            
            
            1,357,883
            
            
            (172,735
            )Cash,
                beginning of the year
            
            
            58,113
            
            
            230,848Cash,
                end of the year
            
            $
            1,415,996
            
            $
            58,113




F-8


Supplemental
                disclosure of non-cash investing and financing activities:Cash
                paid during the year:Interest
            
            $
            -
            
            $
            -Taxes
            
            $
            4,033
            
            $
            -Non-cash
                financing transactions:Asset
                retirement obligation
            
            $
            23,304
            
            $
            -Issuance
                of common stock to related parties in settlement of debt
            
            $
            145,256
            
            $
            -Exercise
                of warrant offset against amount due to directors
            
            $
            282,251
            
            $
            -Exercise
                of warrant offset against amount due to a related party
            
            $
            75,656
            
            $
            -Issuance
                of units to an officer in payment of finders fees
            
            $
            -
            
            $
            100,000The
                accompanying notes are an integral part of these consolidated financial
                statements





F-9


**BREK
      ENERGY CORPORATION**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      1 - ORGANIZATION AND PRINCIPAL ACTIVITIES**





**Organization**





First
      Ecommerce Asia Limited (“FEAL”) was incorporated in Hong Kong on September 16,
      1998. On January 28, 1999, FEAL, entered into an agreement and plan of merger
      with JRL Resources Corp., (“JRL Resources”) a company incorporated in the State
      of Florida on November 13, 1996. Pursuant to the terms of the agreement, plan
      of
      merger and related agreements, 3,015,000 newly issued shares of JRL Resources
      and 985,000 shares held by existing shareholders of JRL Resources were exchanged
      for two shares of FEAL. As a result of this business combination FEAL became
      a
      wholly-owned subsidiary of JRL Resources.





The
      merger between JRL Resources and FEAL was a merger of a private operating
      company, (FEAL) into a public shell corporation, with nominal net assets, that
      resulted in the owners and management of the private company (FEAL) obtaining
      operating control of the combined company after the transaction. For accounting
      purposes, the transaction has been treated as a reverse merger, of JRL Resources
      by FEAL with FEAL deemed to be the accounting acquirer.





Pursuant
      to an agreement and plan of merger dated February 12, 1999, JRL Resources was
      merged with and into Brek Energy Corporation (formerly First Ecom.com, Inc.)
      (“BREK” or the Company”), a company incorporated in the State of Nevada on
      February 12, 1999, with no shares issued and outstanding. Pursuant to the
      agreement and plan of merger, all of the 12,040,000 outstanding common shares
      of
      JRL Resources were exchanged on a one-for-one basis for newly issued shares
      of
      BREK, with BREK being the surviving corporation. For accounting purposes, this
      merger was treated as a re-incorporation of JRL Resources as BREK.





**Principal
      Activities**





The
      Company is an independent energy company engaged in the exploration, development
      and acquisition of crude oil and natural gas in the United States. “Our”, “we”,
“us” as used herein also refer to Brek Energy Corporation.





During
      2001, the Company changed its primary business from electronic payment
      processing to that of oil and gas exploration. On July 19, 2001, the Company
      acquired a 26% non-dilutable voting interest in Gasco Energy, Inc., (“Gasco”).
      On July 16, 2002, the Company exchanged all of its shareholdings in Gasco for
      an
      undivided interest in all of Gasco’s undeveloped mineral leases in Utah,
      Wyoming, and California. At the same time, the Company acquired an additional
      undivided interest in Gasco’s undeveloped mineral leases from certain third
      parties in exchange for the issuance of 4,125,000 shares of the Company. The
      main focus of the Company’s oil and gas exploration business has been centered
      in the United States. (Note 11)





In
      March
      2002, the Company acquired a 26% non-dilutable voting interest in Vallenar
      Energy Corp. (“Vallenar Energy”) another company engaged in oil and gas
      exploration. On June 28, 2002, the Company increased its ownership of Vallenar
      Energy to 51.53%. On August 24, 2006 the Company exchanged its 51.53% interest
      in Vallenar Energy for a 100% interest in Rock City Energy Corp. (“Rock City”),
      a company incorporated in the state of Nevada on August 10, 2006. Rock City
      is
      involved in the oil and gas exploration business. (Notes 4, 13, 14 and 16)





F-10


**BREK
      ENERGY CORPORATION**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Principles
      of Consolidation**





The
      Company’s consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States.





These
      consolidated financial statements include the financial statements of Brek
      Energy Corp. and its wholly owned subsidiaries. All significant intercompany
      balances and transactions have been eliminated from the financial results.





Certain
      amounts in the prior years’ consolidated financial statements and notes have
      been reclassified to conform to the current years’ presentation.





**Cash
      and Cash Equivalents**





Brek
      considers all highly liquid instruments with an original maturity or remaining
      maturity at the date of purchase of three months or less to be cash equivalents.
      At December 31, 2006 and 2005, the Company did not have any cash equivalents.





**Accounting
      Estimates**





The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Actual results could differ from those
      estimates.





The
      Company’s consolidated financial statements are based on a number of significant
      estimates, including oil and gas reserve quantities which is the basis for
      the
      calculation of depletion, the fair value of the oil and gas properties which
      value is based on the results of an independent reserves study, and the
      estimates and assumptions used for the fair value of equity
      instruments.





**Accounts
      Receivable**





Receivables
      represent valid claims against debtors for sales arising on or before the
      balance sheet date and are reduced to their estimated net realizable value.
      An
      allowance for doubtful accounts is based on an assessment of the collectibility
      of all past due accounts. At December 31, 2006 and 2005, all of the accounts
      receivable were considered collectable.





**Segmented
      Reporting**





The
      Company has only one business, an oil and gas business in the United States
      of
      America. There is no activity within any of Brek’s foreign subsidiaries and as
      such, no summarization of financial data is necessary or has been used by
      management for decision making.




F-11


**BREK
      ENERGY CORPORATION**




**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**





**Revenue
      Recognition**




The
      Company records revenues from the sales of natural gas and crude oil when
      pervasive evidence of an arrangement exists, delivery to the customer has
      occurred and risk of ownership or title has transferred, and collectibility
      is
      reasonably assured. In general, this occurs when oil or gas has been delivered
      to a pipeline or a tank lifting has occurred.





The
      Company may have an interest with other producers in certain properties, in
      which case the Company uses the sales method to account for gas imbalances.
      Under this method, revenue is recorded on the basis of gas actually sold by
      the
      Company. Any differences between volumes sold and entitlement volumes, based
      on
      our net working interest, which are deemed to be non-recoverable through
      remaining production, are recognized as accounts receivable or accounts payable,
      as appropriate. Cumulative differences between volumes sold and entitlement
      volumes generally are not significant. Brek did not have any gas imbalances
      at
      December 31, 2006 and 2005.





**Foreign
      Currency Translation**





The
      functional currency for Brek’s foreign subsidiaries is the respective local
      currency. These subsidiaries consist of entities in Canada and Hong Kong. Brek
      translates assets and liabilities to US dollars using period-end exchange rates
      and translates revenues and expenses using average exchange rates during the
      period. Exchange gains and losses arising from translation of foreign entity
      financial statements are included as a component of other comprehensive income
      (loss).





Transactions
      denominated in currencies other than the functional currency of the legal entity
      are re-measured to the functional currency of the legal entity at the period-end
      exchange rates. Any associated currency re-measurement gains and losses are
      recognized in current operations.





**Comprehensive
      Income**





Comprehensive
      income reflects changes in equity that results from transactions and economic
      events from non-owner sources. The Company had no comprehensive income for
      the
      years ended December 31, 2006 and 2005.





**Financial
      Instruments**





***Foreign
      Exchange Risk***





The
      Company is subject to foreign exchange risk for sales and purchases denominated
      in foreign currencies. Foreign currency risk arises from the fluctuation of
      foreign exchange rates and the degree of volatility of these rates relative
      to
      the United States dollar. The Company does not believe that it has any material
      risk due to foreign currency exchange.





F-12




**BREK
      ENERGY CORPORATION**




**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**





**Financial
      Instruments, continued**





***Fair
      Value of Financial Instruments***





The
      Company’s financial instruments include cash, accounts receivable, accounts
      payable and accrued liabilities and equity instruments. The fair value of these
      financial instruments approximates their carrying values due to their short
      maturities.





***Concentration
      of Credit Risk***





Financial
      instruments that potentially subject the Company to significant concentrations
      of credit risk consist principally of cash and trade accounts
      receivable.





The
      Company places its cash with various high quality financial institutions and,
      by
      policy, limits the amount of credit exposure with any one financial institution.
      As part of its cash management process, the Company performs periodic
      evaluations of the relative credit standing of these financial
      institutions.





Receivables
      arising from sales to customers are not collateralized. Management continually
      monitors the financial condition of its customers to reduce the risk of loss.
      All of the Company’s sales were to the Company’s oil and gas operator.
      Substantially all of the Company’s accounts receivable is due from the Company’s
      oil and gas operator. Accounts receivable from oil and gas operators are
      generally paid within 60 days. At December 31, 2006 and 2005, the Company had
      $82,014 and $120,110, respectively in trade accounts receivable due from their
      oil and gas operators.





**Long-lived
      Assets**





At
      December 31, 2006 and 2005, the Company’s only long-lived assets were its proved
      and unproved oil and gas properties. Unproved properties whose costs are
      individually significant are assessed individually. Where it is not practicable
      to assess individually, such properties may be grouped for an assessment of
      impairment. Impairment of unproved properties is estimated based on primary
      lease terms, geologic data and average holding periods. The Company’s unproved
      properties are evaluated quarterly for the possibility of potential impairment.
      The Company has no other long-lived assets and has not recognized any impairment
      losses with respect to its unproved properties. See related disclosures under
      the caption “Oil and Gas Properties.”





**Advertising**





Advertising
      costs amounted to $0 and $11,916, respectively for the years ended December
      31,
      2006 and 2005. **




F-13


**BREK
      ENERGY CORPORATION**




**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**





**Income
      Taxes**





Income
      tax expense is based on pre-tax financial accounting income. 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,
      including tax loss and credit carryforwards, 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. 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. Deferred income tax
      expense represents the change during the period in the deferred tax assets
      and
      deferred tax liabilities. The components of the deferred tax assets and
      liabilities are individually classified as current and non-current based on
      their characteristics. Deferred tax assets are reduced by a valuation allowance
      when, in the opinion of management, it is more likely than not that some portion
      or all of the deferred tax assets will not be realized.





**Oil
      and Gas Properties**





The
      Company follows the full cost method of accounting whereby all costs related
      to
      the acquisition and development of oil and gas properties are capitalized into
      a
      single cost centre (“full cost pool”). Such costs include lease acquisition
      costs, geological and geophysical expenses, overhead directly related to
      exploration and development activities and costs of drilling both productive
      and
      non-productive wells. Proceeds from property sales are generally credited to
      the
      full cost pool without gain or loss recognition unless such a sale would
      significantly alter the relationship between capitalized costs and the proved
      reserves attributable to these costs. A significant alteration would typically
      involve a sale of 25% or more of the proved reserves related to a single full
      cost pool. The Company did not capitalize any internal costs during the years
      ended December 31, 2006 or 2005. Costs associated with production and general
      corporate activities are expensed in the period incurred.





Depletion
      of exploration and development costs is computed using the units of production
      method based upon estimated proven oil and gas reserves. The costs of unproved
      properties are withheld from the depletion base until such time as either they
      are developed or abandoned. During the year ended December 31, 2006, no unproved
      property amounts were reclassified to proved properties. The properties are
      reviewed quarterly for impairment.





Total
      well costs are transferred to the depletable pool even when multiple targeted
      zones have not been fully evaluated. For depletion purposes, relative volumes
      of
      oil and gas production and reserves are converted at the energy equivalent
      rate
      of six thousand cubic feet of natural gas to one barrel of crude oil.





Under
      the
      full cost method of accounting, capitalized oil and gas property costs less
      accumulated depletion and net of deferred income taxes (full cost pool) may
      not
      exceed an amount equal to the present value, discounted at 10%, of estimated
      future net revenues from proved oil and gas reserves less the future cash
      outflows associated with the asset retirement obligations that have been accrued
      in the balance sheet plus the cost, or estimated fair value, if lower of
      unproved properties and the costs of any properties not being amortized, if
      any.
      Should the full cost pool exceed this ceiling, an impairment is recognized.
      During the year ended December 31, 2006, based on the results of the Company’s
      reserves study, the full cost pool exceeded the ceiling and an impairment charge
      was taken against our oil and gas properties of $4,452,754. The present value
      of
      estimated future net revenues is computed by applying current oil and gas prices
      to estimated future production of proved oil and gas reserves as of period-end,
      less estimated future expenditures to be incurred in developing and producing
      the proved reserves assuming the continuation of existing economic
      conditions.




F-14


**BREK
      ENERGY CORPORATION**




**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**





**Oil
      and Gas Properties, continued**





However,
      subsequent commodity price increases may be utilized to calculate the ceiling
      value and any increase in the value of the unamortized capitalized costs over
      the ceiling value are not reinstated but are charged to expense as incurred.
      Commodity price increases, subsequent to December 31, 2006, were not sufficient
      to eliminate the need for the $4,452,754 impairment expense that was recorded
      at
      December 31, 2006.





**Asset
      Retirement Obligation**





The
      Company follows Statement of Financial Accounting Standards (“SFAS”) No. 143, *“Accounting
      for Asset Retirement Obligations”* ,
      which
      requires that the fair value of a liability for an asset retirement obligation
      be recognized in the period in which it is incurred if a reasonable estimate
      of
      fair value can be made. The associated asset retirement costs are capitalized
      as
      part of the carrying amount of the long-lived asset. The increase in carrying
      value of a property associated with the capitalization of an asset retirement
      cost is included in proved oil and gas properties in the consolidated balance
      sheets. The Company depletes the amount added to proved oil and gas property
      costs. The future cash outflows for oil and gas properties associated with
      settling the asset retirement obligations that have been accrued in the
      accompanying balance sheets are excluded from the ceiling test calculations.
      The
      Company’s asset retirement obligation consists of costs related to the plugging
      of wells and removal of facilities and equipment on its oil and gas properties.
      The asset retirement liability is allocated to operating expenses using a
      systematic and rational method. At December 31, 2005, the asset retirement
      obligation of $21,380 and accretion expense of $3,505 were not booked because
      these amounts were not considered to be material. The information below
      reconciles the value of the asset retirement obligation at December 31,
      2006.





**2006**Balance,
                beginning of the year
            
            **$**
            **-**Liabilities
                incurred
            
            
            17,875Accretion
                expense
            
            
            5,429Balance,
                end of year
            
            $
            23,304





**Basic
      and Diluted Net Loss Per Common Share (“EPS”)**





Basic
      net
      loss per share is computed by dividing net loss attributable to the common
      stockholders by the weighted average number of common shares outstanding during
      the reporting period. The shares of restricted common stock granted to certain
      officers, directors and employees of the Company are included in the computation
      only after the shares become fully vested. Diluted net income per common share
      includes the potential dilution that could occur upon exercise of the options
      and warrants to acquire common stock computed using the treasury stock method
      which assumes that the increase in the number of shares is reduced by the number
      of shares which could have been repurchased by the Company with the proceeds
      from the exercise of the options and warrants (which were assumed to have been
      made at the average market price of the common shares during the reporting
      period).





F-15





**BREK
      ENERGY CORPORATION**




**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**





**Basic
      and Diluted Net Loss Per Common Share (“EPS”), continued**





Potential
      common shares are excluded from the diluted loss per share computation in net
      loss periods as their inclusion would have been anti-dilutive.





As
      of
      December 31, 2006, the Company had 79,973,062 shares of common stock issued
      and
      outstanding. At December 31, 2006, the Company also had 370,000 shares of common
      stock issuable upon exercise of outstanding options and 200,000 shares of common
      stock issuable upon exercise of outstanding warrants. Additional options or
      warrants may be granted to purchase up to 4,580,000 shares of common stock
      under
      the Company’s 2001 stock option plan.





**Stock-based
      Compensation**





In
      December 2004, the Financial
      Accounting Standards Board (“ FASB”)
      issued SFAS No. 123(R), *“Share-Based
      Payment”* (“SFAS
      123(R)”), which is a revision of SFAS No. 123, *“Accounting
      for Stock-Based Compensation”* .
      SFAS
      123(R) is effective for public companies for the first fiscal year beginning
      after June 15, 2005, supersedes Accounting Principles Board Opinion No. 25
      (“APB
      25”), *“Accounting
      for Stock Issued to Employees”,* and
      amends SFAS 95, *“Statement
      of Cash Flows”* .
      SFAS
      123(R) eliminates the option to use APB 25’s intrinsic value method of
      accounting and requires recording expense for stock compensation based on a
      fair
      value based method.





On
      July
      1, 2005, the Company adopted the “modified prospective method” which requires
      the Company to recognize compensation costs, for all share-based payments
      granted, modified or settled, in financial statements issued subsequent to
      July
      1, 2005, as well as for any awards that were granted prior to the adoption
      date
      for which the required service has not yet been performed. The adoption of
      SFAS
      123(R) did not have a material effect on the Company’s financial condition or
      results of operations because subsequent to July 1, 2005, the Company did not
      enter into any share-based transactions.





Prior
      to
      July 1, 2005, the Company accounted for its stock-based compensation using
      APB
      25 and related interpretations. Under APB 25, compensation expense was
      recognized for stock options with an exercise price that was less than the
      market price on the grant date of the option. For stock options with exercise
      prices at or above the market value of the stock on the grant date, the Company
      adopted the disclosure-only provisions of SFAS No. 123 *“Accounting
      for Stock-Based Compensation”* (“SFAS
      123”) for the stock options granted to the employees and directors of the
      Company. Accordingly, no compensation cost was recognized for these options
      prior to June 30, 2005.





The
      Company accounts for equity instruments issued to non-employees in accordance
      with the provisions of SFAS 123R, and Emerging Issues Task Force No. 96-18
      (“EITF 96-18”). All transactions in which goods or services are consideration
      received for the issuance of equity instruments are accounted for based on
      the
      fair value of the consideration received or the fair value of the equity
      instrument, whichever is more reliably measurable.





The
      Company did not grant any options during 2006 or 2005.





F-16


**BREK
      ENERGY CORPORATION**




**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**





**Discontinued
      Operations**





SFAS
      No.
      146 “Accounting for Costs Associated with Exit or Disposal Activities” requires
      that costs associated with exit or disposal activities be recognized when the
      costs are incurred, rather than at the date of commitment of an exit or disposal
      plan. Under SFAS No. 146, a liability related to an exit or disposal activity
      is
      not recognized, or measured initially at fair value, until such liability has
      actually been incurred.





On
      August
      24, 2006, the Company exchanged all of their shares in Vallenar Energy (a 51.53%
      interest) for all of the issued and outstanding shares of Rock City (4,000,000
      common shares). This transaction resulted in the Company reclassifying and
      disclosing Vallenar Energy’s net operating losses, separately on the Statements
      of Operations for the years ended December 31, 2006 and 2005 (Notes 1, 13 and
      14).





**Recent
      Accounting Pronouncements**





As
      previously discussed, the Company adopted SFAS No. 123(R) related to share
      based payments.





In
      December 2004, the FASB issued SFAS No. 153 (“SFAS 153”), “ *Exchanges
      of Nonmonetary Assets* ”,
      which
      changes the guidance in APB 29, “ *Accounting
      for Nonmonetary Transactions* ”.
      This
      statement amends APB 29 to eliminate the exception for nonmonetary exchanges
      of
      similar productive assets and replaces it with a general exception for exchanges
      of nonmonetary assets that do not have commercial substance. A nonmonetary
      exchange has commercial substance if the future cash flows of the entity are
      expected to change significantly as a result of the exchange. The provisions
      of
      this SFAS 153 are to be applied prospectively and are effective for fiscal
      years
      beginning after June 15, 2005. Adoption of SFAS 153 did not have a material
      impact on the Company’s consolidated financial statements.





In
      May
      2005, the FASB issued SFAS No. 154 (“SFAS 154”), “ *Accounting
      Changes and Error Corrections* ”.
      This
      statement, which replaces APB Opinion No. 20, “Accounting Changes”, and FASB
      Statement No. 3, “ *Reporting
      Accounting Changes in Interim Financial Statements* ”,
      requires that a voluntary change in accounting principle be applied
      retrospectively to all prior period financial statements presented, unless
      it is
      impracticable to do so. SFAS 154 also provides that a change in method of
      depreciating or amortizing a long-lived non-financial asset be accounted for
      as
      a change in estimate effected by a change in accounting principle, and also
      provides that correction of errors in previously issued financial statements
      should be termed a “restatement”. SFAS 154 is effective for fiscal years
      beginning after December 15, 2005. The adoption of SFAS 154 did not have a
      material impact on the Company’s consolidated financial statements.


In
      July 2006, the FASB issued FASB Interpretation No. 48 ("Interpretation
      No. 48"), *"Accounting
      for Uncertainty*  *in
      Income Taxes"* .
      Interpretation No. 48 clarifies the accounting for uncertainty in income
      taxes recognized in an enterprise's financial statements in accordance with
      SFAS
      No. 109, *"Accounting
      for Income Taxes”.* Interpretation No. 48 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. Interpretation
      No. 48 also provides guidance on derecognition, classification, interest
      and penalties, accounting in interim periods, disclosure and transition.
      Interpretation No. 48 is effective beginning January 1, 2007. The
      adoption of Interpretation No. 48 is not expected to have a material impact
      on the Company’s consolidated financial statements.





F-17


**BREK
      ENERGY CORPORATION**




**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**





**Recent
      Accounting Pronouncements, continued**





In
      February 2006, the FASB issued SFAS No. 155 (“SFAS 155”), “ *Accounting
      for Certain Hybrid Financial Instruments - an amendment of FASB Statements
      No.
      133 and 140”.* This
      Statement amends FASB Statements No. 133, “ *Accounting
      for Derivative Instruments and Hedging Activities* ”,
      and
      No. 140, “ *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* ”.
      This
      Statement resolves issues addressed in Statement 133 Implementation Issue No.
      D1, “ *Application
      of Statement 133 to Beneficial Interests in Securitized Financial
      Assets* .”
This
      statement is effective for all financial instruments acquired or issued after
      the beginning of an entities first fiscal year that begins after September
      15,
      2006. Adoption of SFAS 155 is not expected to have a material impact on the
      Company’s consolidated financial statements.





In
      March
      2006, the FASB issued SFAS No. 156 (“SFAS 156”), “ *Accounting
      for Servicing of Financial Assets - an amendment of FASB Statement No.
      140* ”.
      SFAS
      156 amends SFAS No. 140, “ *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishment of
      Liabilities* ,”
with
      respect to accounting for separately recognized servicing assets and servicing
      liabilities. SFAS 156 is effective for fiscal years that begin after September
      15, 2006, with early adoption permitted as of the beginning of an entity’s
      fiscal year. The Company does not have any servicing assets or servicing
      liabilities and, accordingly, the adoption of SFAS 156 is not expected to have
      a
      material impact on the Company’s consolidated financial statements.





In
      September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), *"Fair
      Value Measurements”.* SFAS
      157
      defines fair value, establishes a framework for measuring fair value and expands
      disclosure requirements about fair value measurements. SFAS 157 will be
      effective for the Company January 1, 2008. Adoption of SFAS 157 is not
      expected to have a material impact on the Company’s consolidated financial
      statements.





In
      September 2006, the Securities and Exchange Commission staff published
      Staff Accounting Bulletin SAB No. 108 (“SAB 108”), *"Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements."* SAB 108
      addresses quantifying the financial statement effects of misstatements,
      specifically, how the effects of prior year uncorrected errors must be
      considered in quantifying misstatements in the current year financial
      statements. SAB 108 is effective for fiscal years ending after November 15,
      2006. The Company adopted SAB 108 in the fourth quarter of 2006, adoption did
      not have a material impact on Company’s consolidated financial
      statements.





In
      February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), *"The
      Fair Value Option for Financial Assets and Financial Liabilities—Including an
      amendment of FASB Statement No. 115”.* SFAS
      159
      permits entities to choose to measure many financial instruments and certain
      other items at fair value. Unrealized gains and losses on items for which the
      fair value option has been elected will be recognized in earnings at each
      subsequent reporting date. SFAS 159 will be effective for the Company
      January 1, 2008. Adoption of SFAS 159 is not expected to have a material
      impact on the Company’s consolidated financial statements.





**NOTE
      3 - GOING CONCERN**





During
      the year ended December 31, 2006, the Company has been focusing on developing
      its oil and gas business. As such, the Company has accumulated a deficit of
      approximately $67 million to date and additional debt or equity financing will
      be required by the Company, to support development of its oil and gas
      properties, until such time as the Company increases its cash flow from
      operations or completes its merger with Gasco. (Note 13) These factors raise
      substantial doubt about the Company’s ability to continue as a going
      concern.




F-18


**BREK
      ENERGY CORPORATION**




**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      3 - GOING CONCERN, continued**





The
      Company’s ability to achieve and maintain profitability and increased cash flow
      is dependent upon its ability to locate profitable oil and gas properties,
      generate revenues from its oil and gas production and control production costs.
      Based upon current plans, the Company expects to incur operating losses in
      future periods. There is no assurance that the Company will be able to generate
      revenues in the future. The accompanying financial statements do not include
      any
      adjustments that might be necessary if the Company is unable to continue as
      a
      going concern.





**NOTE
      4 - OIL AND GAS PROPERTIES**





The
      Company has an approximate 15% interest in 112,188 gross acres (16,750 net
      acres) in the Uinta Basin region in Utah, an approximate 13% interest in 52,573
      gross acres (6,807 net acres) in the Greater Green River Basin of Wyoming,
      an
      approximate 7% interest in 3,315 gross acres (219 net acres) in Kern County
      and
      San Luis Obispo County in California and an approximate 89% interest in 9,191
      gross acres (8,211 net acres) in Edwards County in Texas. (Note 1, 2,13 and
      16)





The
      following table presents information regarding the Company’s net costs incurred
      in the purchase of proved and unproved properties and in exploration and
      development activities:





For
                the years ended December 312006
            
            2005Property
                acquisition costs:Proved
            
            $
            -
            
            $
            885,804Exploration
                costs
            
            
            37,649
            
            
            10,061Development
                costs
            
            
            502
            
            
            300,300Totals
            
            $
            38,151
            
            $
            1,196,165





The
      above
      table excludes the following transactions:





On
      September 18, 2006, the Company rescinded their consent to participate in the
      drilling of a well, resulting in the reversal of $560,294 in development
      expenditures that were accrued during the year. In July 2006, the Company sold
      one of its proven oil and gas properties for $20,000.





Depletion
      and impairment expense related to the proved properties per equivalent Mcf
      of
      production for the years ended December 31, 2006 and 2005 were $57.59 and $0.84
      respectively.





At
      December 31, 2006 and 2005, the Company’s unproved properties consist of
      leasehold acquisition and exploration costs in the following areas:





**2006**
            
            
            
            **2005**Wyoming
            
            $
            100
            
            $
            100California
            
            
            7,718
            
            
            
            
            
            100Texas
            
            
            100
            
            
            
            
            
            100$
            7,918
            
            $
            300





F-19




The
      following table sets forth a summary of oil and gas property costs not being
      amortized as of December 31, 2006, by the year in which such costs were
      incurred:





Costs
                Incurred During Years Ended December 31Balance
              12/31/06
            
            2006
            
            2005
            
            2004
            
            PriorAcquisition
                costs
            
            $
            300
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            300Exploration
                costs
            
            
            7,618
            
            
            7,618Total
            
            $
            7,918
            
            $
            7,618
            
            $
            -
            
            $
            -
            
            $
            300





The
      costs
      associated with the Company’s drilling projects will be transferred to proved
      properties as the wells are drilled during the next five to ten years.





The
      Company’s proven and unproven properties are evaluated periodically for the
      possibility of potential impairment. Based on reserve studies completed at
      December 31, 2006 and 2005, impairment charges of $4,452,754 and $0
      respectively, were recorded against the Companies oil and gas properties. The
      2006 charge for impairment was primarily due to the reduction in natural gas
      prices, which caused some reserves to no longer be economically viable. The
      December 31, 2006 and 2005, reserve studies reported the present value,
      discounted at 10% of estimated future net revenues from proved oil and gas
      reserves plus the cost or estimated fair value, if lower of unproven properties
      was approximately $1.35 million and $9.2 million (calculated, based on estimated
      net revenues of $3.2 million and $26.5 million). The present value of estimated
      future net revenues was computed by applying current prices of oil and gas
      to
      estimated future production of proved oil and gas reserves as of December 31,
      2006 and 2005, assuming the continuation of existing economic conditions.





On
      May 8,
      2006, the Company entered into a letter agreement dated April 3, 2006, with
      a
      Texas oil and gas company (the “operator”) for the development of the Company’s
      oil and gas properties in Texas. Under the agreement, the operator can earn
      a
      100% interest in the leases to depths below 1,500 feet in exchange for drilling
      until it has completed a well capable of producing hydrocarbons in commercial
      quantities. When the operator has completed the first 10 wells and recovered
      100% of the costs to drill the wells (“payout”), the Company can back in for a
      25% working interest in the wells. On future wells, the Company can either
      participate from the outset to earn a 25% working interest, or back in after
      payout to earn a 6.25% working interest.




Pursuant
      to an assignment of oil and gas leases agreement, dated June 9, 2006, the
      Company assigned all of its Texas oil and gas leases, so far as they cover
      depths below 1,500 feet, to the operator in exchange for the operator’s
      initiating drilling operations on the land covered by the leases before the
      primary terms of the leases expire. If the operator successfully completes
      a
      well capable of producing hydrocarbons in commercial quantities, this assignment
      of oil and gas leases will become permanent. (Note 16)





Overriding
      royalty interests in the Texas oil and gas leases totaling between 5% and 8.33%
      of all oil, gas and other minerals produced, were assigned to three parties
      between October 4, 2002 and April 21, 2006. (Note 5)





F-20


**BREK
      ENERGY CORPORATION**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      5 - RELATED PARTY TRANSACTIONS**





**Due
      to Related Parties**





The
      following amounts were due to related parties at December 31, 2006 and
      2005:





2006
            
            2005Amount
                due to a director, 246,926 common shares at $0.50 per share were
                issued
                during the year in repayment of debt (Note 6)
            
            $
            -
            
            $
            123,463Amounts
                due to directors and companies controlled by directors (a)
            
            
            1,852
            
            
            30,856Administration
                fees payable to a company controlled by an officer (b)
            
            
            5,406
            
            
            22,845Administrative
                fees payable to a director (c)
            
            
            -
            
            
            232,586Rent
                payable to a company controlled by a director (d)
            
            
            -
            
            
            21,000Professional
                fees due to a relative of a director (e)
            
            
            5,000
            
            
            25,000Total
                Related Party Payables
            
            $
            12,258
            
            $
            455,750





(a)
            
            During
                the year ended December 31, 2006, 38,806 common shares where issued
                at
                $0.50 in payment of $19,403 in debt. (Note 6)




(b)
              
              During the years ended December 31,
                2006 and
                2005, the Company has paid or accrued $357,904 and $225,334 respectively,
                in administrative fees to a company controlled by an
                officer.
  (c)
                
                During
                  the years ended December 31, 2006 and 2005, the Company has paid
                  or
                  accrued $166,000 and $88,000 respectively, in administrative fees
                  to a
                  director. During the years ended December 31 2006 and 2005 this
                  director
                  received shares in payment of finder’s fees of $0 and $100,000
                  respectively. During the years ended December 31, 2006 and 2005,
                  this
                  director exercised 4,762,501 and 500,000 respectively, share purchase
                  warrants for cash and debt. (Notes 6 and 9)  This director also had
                  an overriding royalty interests in all oil, gas and other minerals
                  produced of 3.17%, in eight of the Texas oil and gas leases and
                  1.5%, in
                  one of the Texas oil and gas leases. (Note
                  4)
  (d)
                  
                  During the years ended December
                    31, 2006 and
                    2005, the Company has paid or accrued $14,000 and $77,000 respectively,
                    in
                    rent to a company controlled by a
                    director.
  (e)
                    
                    During the years ended December
                      31, 2006 and
                      2005, the Company has paid or accrued $60,000 and $55,000 respectively,
                      in
                      professional fees to a relative of a
                      director.





During
      the year ended December 31, 2006, the Company issued 4,780 common shares at
      $0.50 per share in payment of $2,309 in debt to a company controlled by a
      director. (Note 6)





During
      the year ended December 31, 2006, directors and companies controlled by
      directors exercised 10,624,457 share purchase warrants (including the 4,762,501
      in (e) above). (Notes 6 and 9)





F-21




**BREK
      ENERGY CORPORATION**




**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      6 - COMMON STOCK**





On
      January 18, 2005, the Company issued a total of 2,166,668 units at $0.30 per
      unit by way of a private placement for cash of $650,000. Each unit comprises
      one
      common share and one common share purchase warrant entitling the holder to
      purchase one common share for $0.50. The warrants have a term of two years
      and
      will expire on January 18, 2007. The fair value of the warrants was estimated
      to
      be $162,500 and has been recorded as a separate component of stockholders’
equity. (Note 9)





On
      January 18, 2005, the Company issued, to an officer of the Company, a total
      of
      216,667 units at $0.30 per unit for finders’ fees of $65,000. Each unit
      comprises one common share and one common share purchase warrant entitling
      the
      holder to purchase one common share for $0.50. The warrants have a term of
      two
      years and will expire on January 18, 2007. The fair value of the warrants was
      estimated to be $16,250 and has been recorded as a separate component of
      stockholders’ equity. (Notes 5 and 9)





On
      January 24, 2005, the Company issued a total of 1,000,000 units at $0.30 per
      unit by way of a private placement for cash of $300,000. Each unit comprises
      one
      common share and one common share purchase warrant entitling the holder to
      purchase one common share for $0.50. The warrants have a term of two years
      and
      will expire on January 27, 2007. The fair value of the warrants was estimated
      to
      be $75,000 and has been recorded as a separate component of stockholders’
equity. (Note 9)





On
      January 24, 2005, the Company issued, to an officer of the Company, a total
      of
      100,000 units at $0.30 per unit for finders’ fees of $30,000. Each unit
      comprises one common share and one common share purchase warrant entitling
      the
      holder to purchase one common share for $0.50. The warrants have a term of
      two
      years and will expire on January 24, 2007. The fair value of the warrants was
      estimated to be $7,500 and has been recorded as a separate component of
      stockholders’ equity. (Notes 5 and 9)





On
      February 7, 2005, the Company issued a total of 133,334 units at $0.30 per
      unit
      by way of a private placement for cash of $40,000. Each unit comprises one
      common share and one common share purchase warrant entitling the holder to
      purchase one common share for $0.50. The warrants have a term of two years,
      40,000 warrants will expire January 17, 2007 and 93,334 warrants will expire
      on
      February 7, 2007. The fair value of the warrants was estimated to be $10,000
      and
      has been recorded as a separate component of stockholders’ equity. (Note 9)





On
      July
      7, 2005, the Company issued a total of 33,334 units at $0.30 per unit by way
      of
      a private placement for cash of $10,000. Each unit comprises one common share
      and one common share purchase warrant entitling the holder to purchase one
      common share for $0.50. The warrants have a term of two years and will expire
      on
      July 7, 2007. The fair value of the warrants was estimated to be $2,500 and
      has
      been recorded as a separate component of stockholders’ equity. (Note 9)




F-22


**BREK
      ENERGY CORPORATION**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      6 - COMMON STOCK, continued**





On
      July
      7, 2005, the Company issued a total of 16,667 units at $0.30 per unit to an
      officer for finders’ fees of $5,000. Each unit comprises one common share and
      one common share purchase warrant entitling the holder to purchase one common
      share for $0.50. The warrants have a term of two years and will expire on July
      7, 2007. The fair value of the warrants was estimated to be $1,250 and has
      been
      recorded as a separate component of stockholders’ equity. (Notes 5 and 9)




On
      July
      29, 2005, the Company issued 400,000 common shares at $0.25 per share for
      $100,000 cash when an officer of the Company exercised 400,000 share purchase
      warrants. (Notes 5 and 9)





On
      September 28, 2005, the Company issued 100,000 common shares at $0.25 per share
      for cash of $25,000 when an officer of the Company exercised 100,000 share
      purchase warrants. (Notes 5 and 9)





On
      January 31, 2006, the Company issued 800,000 common shares at $0.25 per share
      in
      exchange for debt of $200,000 when a director of the Company exercised 800,000
      share purchase warrants. (Notes 5 and 9)




Between
      February and March 2006, the Company issued a total of 800,000 units at $0.50
      per unit by way of private placements for cash of $400,000. Each unit comprises
      one common share and one common share purchase warrant entitling the holder
      to
      purchase one common share for $0.90. The warrants have a term of one year and
      will expire between February 7, 2007 and March 2, 2007. The fair value of the
      warrants was estimated to be $100,000 which has been recorded as a separate
      component of stockholders’ equity. (Note 9)




On
      May
      19, 2006, the Company issued 250,000 common shares at $0.30 per share for cash
      of $75,000 when 250,000 share purchase warrants were exercised. (Note 9)





On
      September 27, 2006, the Company issued 300,922 common shares at $0.50 per share,
      to directors and companies controlled by directors in settlement of debt in
      the
      amount of $150,461. (Note 5)





On
      November 7, 2006, the Company issued 8,510,003 common shares for $1,221,084
      in
      cash when 8,510,003 share purchase warrants with exercise prices between $0.25
      and $0.90 per share, were exercised at prices between $0.08 and $0.30 per share.
      (Note 9)





On
      November 7, 2006, the Company issued 2,544,414 common shares for $263,873 in
      cash when 2,544,414 share purchase warrants with exercise prices between $0.30
      and $0.50 per share, were exercised by directors of the Company at prices
      between $0.10 and $0.17 per share. (Notes 5 and 9)





On
      November 7, 2006, the Company issued 5,499,819 common shares for $600,299 in
      cash when 5,499,819 share purchase warrants with exercise prices between $0.30
      and $0.50 per share, were exercised by a relative of a director and limited
      partnerships controlled by directors or relatives of directors of the Company
      at
      prices between $0.10 and $0.17 per share. (Notes 5 and 9)





On
      November 7, 2006, the Company issued 1,493,087 common shares to offset debt
      of
      $124,412 when 1,493,087 share purchase warrants with an exercise prices between
      $0.25 and $0.50 per share, were exercised by a director of the Company at
      between $0.08 and $0.17 per share. (Notes 5 and 9)




F-23


**BREK
      ENERGY CORPORATION**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      6 - COMMON STOCK, continued**





On
      November 7, 2006, the Company issued 287,137 common shares to offset debt of
      $33,496 when 287,137 share purchase warrants with an exercise price of $0.35
      per
      share, was exercised by a limited partnership controlled by directors and
      relatives of directors of the Company for $0.12 per share. (Notes 5 and
      9)





On
      November 21, 2006, a director returned 10,410 shares that he received in
      settlement of $5,205 in debt, in exchange for cash. The returned shares were
      cancelled by the Company. (Note 5)





**NOTE
      7 - STOCKHOLDER RIGHTS PLAN**





On
      March
      1, 2002, the Company approved a Rights Agreement whereby a dividend was declared
      of one right for each share of the Company’s common stock issued and outstanding
      on March 20, 2002, including any shares issued subsequent to March 20, 2002.
      Each right entitles the holder to purchase five shares of the Company’s common
      stock at an exercise price of $0.01 per right, if certain events occurred
      relating to a person or group acquiring or attempting to acquire 10% or more
      of
      the outstanding common shares of the Company without the approval of the
      Company’s board of Directors. The rights are exercisable until December 31,
      2020.





At
      December 31, 2006 and 2005, the Company had reserved 399,865,310 and 297,490,450
      shares for the exercise of these rights for the issued and outstanding shares
      and 2,850,000 and 101,822,300 for the potential exercise of outstanding options
      and warrants. At December 31, 2006, the Company would not be able to implement
      the Rights Plan unless the number of authorized shares of common stock increased
      to satisfy share issuances for all issued and outstanding shares and the
      exercise of all warrants and stock options.





**NOTE
      8 - STOCK OPTIONS**





The
      Company’s 2001 stock option/warrant plan provides for the granting of up to
      5,000,000 stock options or warrants to officers, consultants, directors and
      key
      employees. All share options/warrants granted under the 2001 option/warrant
      plan
      either vest immediately, at 25% per quarter over a period of one year or on
      a
      performance basis. The options do not cancel upon termination of employment
      and
      all unexercised options expire five years after the date of issue.





During
      the years ended December 31, 2006 and 2005 no stock options were issued.




The
      following is a summary of the activity of the Company’s 2001 stock
      option/warrant plan for the year ended December 31, 2006:





Shares
                Under
            
            Weighted
                AverageOption
            
            Exercise
                PriceOutstanding,
                December 31, 2005
            
            
            1,580,000
            
            $
            0.44Expired
            
            
            (1,210,000
            )
            
            0.40Outstanding,
                December 31, 2006
            
            
            370,000
            
            $
            0.55





At
      December 31, 2006 and 2005 the weighted-average remaining contractual life
      of
      the outstanding options was .54 and .64 years.




F-24


**BREK
      ENERGY CORPORATION**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      8 - STOCK OPTIONS, continued**





All
      of
      the outstanding stock options were fully vested by July 14, 2003.





During
      the years ended December 31, 2006 and 2005, the Company did not record any
      compensation costs.





**NOTE
      9 - WARRANTS**





All
      of
      the Company's warrants were issued in connection with the issuance of units
      (one
      common share and one common share purchase warrant). When the units were issued
      the Company allocated 25% of the proceeds of the issuance to the estimated
      fair
      value of the warrants. The Company considers the fair value amount to be
      reasonable and this allocation has been consistently applied





During
      the years ended December 31, 2006 and 2005, the following share purchase
      warrants were granted, exercised and expired:





**2006**
            
            **2005**Balance
                at beginning of year
            
            
            18,784,460
            
            
            27,944,805Warrants
                granted
            
            
            800,000
            
            
            3,666,670Warrants
                exercised
            
            
            (19,384,460
            )
            
            (500,000
            )Warrants
                expired
            
            
            -
            
            
            (12,327,015
            )Balance
                at end of year
            
            
            200,000
            
            
            18,784,460





On
      September 28, 2006, the directors of the Company passed a resolution whereby
      all
      warrant holders were offered the opportunity to exercise their share purchase
      warrants, wholly or partially, at an exercise price equal to 33.33% of the
      exercise price stated in their warrants, until October 31, 2006. Pursuant to
      this resolution 18,334,460 share purchase warrants were exercised. (Notes 6
      and
      5)





**Warrants
      Outstanding**





At
      December 31, 2006, the Company had the following share purchase warrants
      outstanding: (Note 16)





**Number
                of Shares**
            **Exercise
                Price Per Share**
            **Expiration
                Date**100,000
            0.90
            February
                9, 2007100,000
            0.90
            February
                17, 2007200,000




F-25


**BREK
      ENERGY CORPORATION**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      10 - INCOME TAXES**





Income
      tax expense has not been recognized for the years ended December 31, 2006 and
      2005 and no taxes were payable at December 31, 2006 or 2005, because the Company
      has incurred losses since its inception.





The
      components of the Company’s net operating losses for the year ending December
      31, 2006 and 2005 are as follows:





2006
            
            2005United
                States of America
            
            $
            (797,493
            )
            $
            (4,690,568
            )Hong
                Kong
            
            
            328
            
            
            -Other
                countries (British Virgin Islands, Bermuda and Canada)
            
            
            (1
            )
            
            (829
            )$
            (797,166
            )
            $
            (4,691,397
            )





As
      of
      December 31, 2006 and 2005, the Company had the following deferred tax assets
      that primarily relate to net operating losses. A 100% valuation allowance has
      been established, as management believe it is more likely than not that the
      deferred tax assets will not be realized.





2006
            
            2005Federal
                loss carryforwards
            
            $
            5,624,817
            
            $
            11,360,810State
                loss carryforwards, Nevada
            
            
            -
            
            
            -Foreign
                loss carryforwards
            
            
            2,991,744
            
            
            2,991,796Less:
                Valuation allowance
            
            
            (8,646,561
            )
            
            (14,352,606
            )$
            -
            
            $
            -





The
      Company’s valuation allowance decreased during 2006 by $5,735,993. During 2005
      the valuation allowance increased by $1,313,591.





At
      December 31, 2006 and 2005 the Company had the following net operating loss
      carryforwards (“NOL’s”):





2006
            
            2005United
                States
            
            $
            18,822,948
            
            $
            39,479,529Foreign
                (Hong Kong, Bermuda and BritishVirgin
                Islands)
            
            
            20,517,836
            
            
            20,518,163$
            39,340,784
            
            $
            59,997,692





The
      United States federal and Canadian NOLs expire through December 31, 2026 and
      the
      Hong Kong NOLs can be carried forward indefinitely.





F-26


**BREK
      ENERGY CORPORATION**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      11 - SEGMENTED INFORMATION**





The
      Company only has one business, an oil and gas business in the United States
      of
      America.





**NOTE
      12 - COMMITMENTS AND CONTINGENCIES**





**Contingent
      liability**





In
      February 2003 the debtor and guarantor of a note receivable commenced legal
      action against the Company, in Bermuda, claiming that the Company and its former
      subsidiary, First Ecom Systems Limited, had promised to develop and supply
      them
      with certain software. As a result of this litigation the debtor ceased making
      the required installment payments on March 1, 2003. The directors believed
      that
      this lawsuit is without merit, as there was no condition to develop software
      for
      the debtor, and filed a defense and counterclaim on May 8, 2003. The debtor
      filed a reply and defence on May 21, 2003. No further action by either party
      has
      transpired since May 21, 2003.





**Commitments**





As
      is
      customary in the oil and gas industry, the Company may at times have commitments
      in place to reserve or earn certain acreage positions or wells. If the Company
      does not pay such commitments, the acreage positions or wells may be lost.





**NOTE
      13 - BUSINESS ACQUISITIONS AND SALE OF SUBSIDIARY**





**Rock
      City Energy Corp.**





Pursuant
      to a share exchange agreement dated August 24, 2006, the Company acquired 100%
      of the issued and outstanding shares (4,000,000 common shares) of Rock City
      by
      exchanging its 51.53% interest in Vallenar Energy (which consisted of 5,312,500
      common shares and 733,333 preferred shares of Vallenar Energy) with Rock City.
      The Company’s investment in Rock City has been accounted for as related party
      transaction, with the value of the 4,000,000 common shares of Rock City being
      recorded on the Company’s books at the historical cost of $755,552, or the same
      value that the Company’s 51.53% investment in Vallenar Energy was recorded at
      prior to the share exchange. As a result of this business combination, the
      Company has included the accounts of Rock City (including their operating losses
      from August 24, 2006 through December 31, 2006), into their financial statements
      at December 31, 2006. Rock City’s financial statements include the accounts of
      Vallenar Energy (including their operating losses from August 24, 2006 through
      December 31, 2006) and a 48.47% adjustment for minority interest shareholders.
      Vallenar Energy’s losses before August 24, 2006 have been reclassified to losses
      from discontinued operations. (Notes 1, 2, 4, 14 and 16)





**Gasco
      Energy, Inc.**





Proposed
      Acquisition





On
      September 20, 2006, Gasco entered into an agreement to purchase the Company
      for
      equity consideration of 11,000,000 shares of the Gasco’s common stock valued at
      approximately $30,000,000 based on the closing price of Gasco's stock on
      September 20, 2006. As a result of the acquisition, Gasco will acquire
      approximately 17,095 net acres in the Uinta Basin of Utah and approximately
      12,495 net acres in the Green





F-27


**BREK
      ENERGY CORPORATION**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      13 - BUSINESS ACQUISITIONS AND SALE OF SUBSIDIARY,
      continued**





**Gasco
      Energy, Inc., continued**





River
      Basin of Wyoming. The acquisition is expected to simplify Gasco's acreage
      portfolio by absorbing a working interest that Brek previously owned of
      approximately 14% of Gasco's undeveloped acreage in Utah and Wyoming. The
      Company does not expect to incur any additional overhead expenses as a result
      of
      the proposed business acquisition. The boards of directors of both the Company
      and Gasco have each approved the terms of the transaction, which is expected
      to
      close during the second quarter of 2007. The completion of the transaction
      is
      subject to the approval of the stockholders of the Company and the completion
      of
      a distribution of certain subsidiaries of the Company to its
      stockholders.





Under
      the
      terms of the transaction, a wholly-owned subsidiary of Gasco will merge with
      and
      into the Company. As a result of the merger, the Company will become a
      wholly-owned subsidiary of Gasco and stockholders of the Company in the
      aggregate will receive a number of shares of common stock of Gasco equal to
      11,000,000 divided by the total number of shares of common stock of the Company
      outstanding on the date of the merger, calculated on a fully diluted basis.
      Gasco may issue additional shares of their common stock upon exercise of certain
      Brek options and warrants that they intend to assume in connection with the
      Brek
      acquisition. As part of the transaction, the directors of the Company, who
      collectively own approximately 24% of the Company’s outstanding stock, have
      entered into an agreement to vote their shares in favor of the transaction.
      In
      addition, the Company’s President and CEO, who owns approximately 18% of the
      outstanding common stock of the Company, has agreed to deposit 550,000 shares
      of
      Gasco common stock acquired in the transaction in escrow to satisfy any claims
      with respect to breaches of representations and warranties of the Company.
      (Notes 3 and 4)





If
      the
      Company breaches the terms of the merger agreement they may be liable to pay
      a
      cancellation fee to Gasco of $1million, plus costs.





**NOTE
      14 - DISCONTINUED OPERATIONS**





On
      August
      24, 2006, the Company exchanged their 51.53% interest in Vallenar Energy (which
      consisted of 5,312,500 common shares and 733,333 preferred shares of Vallenar
      Energy) with Rock City, for 100% of the issued and outstanding shares (4,000,000
      shares) of Rock City.





Brek
      formed Rock City to be the vehicle through which the shares of Vallenar Energy
      held by Brek would be distributed to its shareholders in order to satisfy the
      terms of Brek’s merger agreement with Gasco. (Note 13)





As
      a
      result of this exchange the Company reclassified Vallenar Energy’s net operating
      losses, up to August 24, 2006, in losses from discontinued operations. For
      the
      years ended December 31, 2006 and 2005, the Company recorded losses from
      discontinued operations of $26,335 and $1,859, respectively. No gain or loss
      on
      the Company’s investment in Vallenar Energy (of $755,552) was recorded on this
      exchange of shares. (Notes 1, 2, 13 and 16)





F-28


**BREK
      ENERGY CORPORATION**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      15 - SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)**





The
      following reserve quantity and future net cash flow information for the Company
      represents proved reserves located in the State of Utah in the United States.
      The reserves as of December 31, 2006 and 2005 have been estimated by Netherland,
      Sewell and Associates, Inc., independent petroleum engineers. The Company did
      not have any proved reserves in the State of Utah at December 31, 2003. The
      determination of oil and gas reserves is based on estimates, which are highly
      complex and interpretive. The estimates are subject to continuing change as
      additional information becomes available.





The
      standardized measure of discounted future net cash flows is prepared under
      the
      guidelines set forth by the Securities and Exchange Commission (SEC) that
      require the calculation to be performed using year-end oil and gas prices.
      The
      oil and gas prices used as of December 31, 2006 and 2005 were $61.05 per bbl
      of
      oil and $4.41 per mcf of gas and $59.84 per bbl of oil and $7.45 per Mcf of
      gas,
      respectively. Future production costs are based on year-end costs and include
      severance taxes. Each property that is leased by the Company is also charged
      with field-level overhead in the reserve calculation. The present value of
      future cash inflows is based on a 10% discount rate.





Reserve
      Quantities


Gas
            
            OilMcf
            
            BblsBalance,
                December 31, 2003
            
            
            -
            
            
            -Extensions
                and discoveries
            
            
            5,002,987
            
            
            36,747Purchases
            
            
            1,909,231
            
            
            15,582Production
            
            
            (58,908
            )
            
            (834
            )Balance,
                December 31, 2004
            
            
            6,853,310
            
            
            51,495Extensions
                and discoveries
            
            
            3,434,640
            
            
            13,518Revisions
                of previous estimates (a)
            
            
            (4,542,355
            )
            
            (36,659
            )Production
            
            
            (91,983
            )
            
            (949
            )Balance,
                December 31, 2005
            
            
            5,653,612
            
            
            27,405Extensions
                and discoveries
            
            
            125,366
            
            
            1,064Revisions
                of previous estimates (b)
            
            
            (4,464,760
            )
            
            (18,284
            )Production
            
            
            (72,581
            )
            
            (999
            )Balance,
                December 31, 2006
            
            
            1,241,637
            
            
            9,186Proved
                Developed ReservesBalance,
                December 31, 2006
            
            
            1,241,637
            
            
            9,186Balance,
                December 31, 2005
            
            
            1,971,975
            
            
            11,044Balance,
                December 31, 2004
            
            
            984,442
            
            
            10,007





F-29


**BREK
      ENERGY CORPORATION**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      15 - SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED),
      continued**





(a)
      The
      majority of the revisions of previous estimates during 2005 are comprised of
      the
      following:





-
      Four
      proved undeveloped locations were omitted from the 2005 reserve report because
      these locations required a higher capital investment than originally estimated
      due to drilling and completion problems and due to the lack of historical data
      related to recent completions and recompletions in this area.


-
      Six
      proved undeveloped locations were omitted from the 2005 reserve report because
      recent drilling activity indicates that these locations may be outside of or
      on
      the edge of a previously identified zone.


-
      Four
      proved developed non-producing completions significantly underperformed previous
      forecasts.


-
      Reduced
      interest in some proved undeveloped locations due to lower interest from farmout
      versus higher proved undeveloped interest in prior year.





(b)
      The
      majority of the revisions of previous estimates during 2006 are comprised of
      the
      following:





-
      Revisions to the reserve quantities were primarily due to lower prices for
      oil
      and gas at the end of 2006 as compared to 2005.


-
      Some
      acreage is no longer economically viable at the lower prices


-
      Reserves from farmout wells were reduced because, with the lower prices, there
      will be less gas remaining in the reservoir when payout for the farmee has
      been
      reached and the Company is able to back in.


-
      Increased operating costs have reduced the economic viability of some acreage.





Standardized
      Measure of Discounted Future Net Cash Flows




December
                  312006
              
              2005Future
                  cash flows
              
              $
              5,288,400
              
              $
              45,994,700Future
                  production and development costs
              
              
              (1,811,300
              )
              
              (17,145,00
              )Future
                  income taxes
              
              
              (273,600
              )
              
              (2,389,700
              )Future
                  net cash flows before discount
              
              $
              3,203,500
              
              
              26,460,00010%
                  discount to present value
              
              
              (1,853,900
              )
              
              (17,275,000
              )Standardized
                  measure of discountedfuture
                  net cash flows
              
              $
              1,394,600
              
              $
              9,185,000


F-30


**BREK
      ENERGY CORPORATION**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**





**NOTE
      15 - SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED),
      continued**





Changes
      in the Standardized Measure of Discounted Future Net Cash Flows




For
                the Years Ended December 312006
            
            2005Standardized
                measure of discounted future netcash
                flows at the beginning of year
            
            $
            9,185,000
            
            $
            5,712,500Sales
                of oil and gas produced,net
                of production costs
            
            
            (440,058
            )
            
            (764,804
            )Extensions
                and discoveries, net of futureproduction
                and development costs
            
            
            53,200
            
            
            4,592,200Revisions
                of previous quantity estimates
            
            
            (7,448,542
            )
            
            (354,896
            )Purchases
                of reserves in place
            
            
            -
            
            
            -Standardized
                measure of discountedfuture
                net cash flows at the end of year
            
            $
            1,349,600
            
            $
            9,185,000





**NOTE
      16 - SUBSEQUENT EVENTS**





**Texas
      Oil and Gas Property**





Subsequent
      to December 31, 2006, the Company’s operator performed sufficient work on the
      Texas oil and gas properties to extend and maintain all of the leases in good
      standing except for one lease, comprising 790 gross and net acres, which expired
      in February 2007. (Notes 4 and 13)





**Utah
      Oil and Gas Property**





Subsequent
      to December 31, 2006, the Company transferred working interests in three wells
      and wellbores to a limited partnership controlled by directors or relatives
      of
      directors of the Company for $20,000, which approximated fair value on the
      date
      of the transaction. (Note 4)





**Investment**





Subsequent
      to December 31, 2006, Company purchased an additional 4,000,000 unregistered
      and
      restricted common shares of Rock City for $600,000 ($0.15 per share). (Note
      13)





**Warrants**





Subsequent
      to December 31, 2006, 200,000 share purchase warrants exercisable at $0.90
      expired. (Note 9)





F-31




**ITEM
      8A.**  **CONTROLS
      AND PROCEDURES**





We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our Chief Executive Officer, who is also our Chief
      Financial Officer, of the effectiveness of the design and operation of our
      disclosure controls and procedures as of the end of the period covered by this
      report. The evaluation was undertaken in consultation with our accounting
      personnel. Based on that evaluation, the Chief Executive Officer/Chief Financial
      Officer concluded that our disclosure controls and procedures are effective
      to
      ensure that information required to be disclosed by us in the reports that
      we
      file or submit under the Securities Exchange Act of 1934 is recorded, processed,
      summarized and reported within the time periods specified in the Securities
      and
      Exchange Commission’s rules and forms.





During
      the period covered by this report there was no significant change in our
      internal control over financial reporting that materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting.





4


**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this Amendment No. 1 to Annual Report
      on
      Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly
      authorized.




Date:
              September 27, 2007
            BREK ENERGY CORPORATIONBy:
            /s/ Richard N. JeffsRichard
              N. Jeffs,Chief Executive Officer