UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.   20549



FORM 10-KSB





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|[ X ] | ANNUAL REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended December 31, 2006



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|[    ] | TRANSITION REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from  to



Commission file number 000-27753





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|BREK ENERGY CORPORATION                       
|(Name of Small Business Issuer in its charter)





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|Incorporated in the State of Nevada                            |  | 98-0206979                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|3388- Via Lido, 4th Floor, Newport Beach, California           |  | 92663                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



Issuers telephone number:  1-866-472-7987





Securities registered pursuant to Section 12(b) of the Act:





Securities registered pursuant to Section 12(g) of the Act:

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|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
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|None                |  | N/A                                      





Securities registered pursuant to Section 12(g) of the Act:





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|shares of common stock - $0.001 par value
|(Title of Class)                         



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



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|Brek Energy Corporation | Form 10-KSB - 2006 | Page 1





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Note  Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the last 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.     [ X ] Yes         [    ]  No



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 check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[   ] Yes         [ X ]  No



State issuers revenues for its most recent fiscal year.

$440, 537



State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days: $12,055,372 as of April 12, 2007 ($0.20(close) X 60,276,864 shares)



State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date.



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|----------------------------------------- | -----------------------------
|Class                                     | Outstanding at April 12, 2007
|shares of common stock - $0.001 par value | 79,973,062                   



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





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|Brek Energy Corporation | Form 10-KSB - 2006 | 2





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PART I



Item 1.

Description of Business.



(a)

Business Development



Brek Energy Corporation is a Nevada corporation in the oil and gas business and was incorporated on September 16, 1998 under the original name First Ecom.com, Inc.  On January 31, 2002, Brek changed its name to its current name Brek Energy Corporation.  When used in this report, the terms we, us, our, and the Company mean Brek Energy and its subsidiaries.



We were in the business of developing electronic payment processing systems from our inception until July 2001 when we acquired 500 shares of Series A Convertible Redeemable Preferred Stock and 4,750,000 shares of common stock of Gasco Energy, Inc., an oil and gas exploration company.  In 2002, we acquired a 51.53% equity interest in Vallenar Energy Corp., a Nevada corporation with properties in Texas; we exchanged all of our shares in Gasco for a leasehold interest in 25% of Gascos undeveloped properties in Utah, Wyoming and California; and we sold our electronic payment processing subsidiary.  Since then, we have focused on the development of our natural gas and oil properties.  On August 24, 2006, we acquired a 100% interest in Rock City Energy Corp. in exchange for all of the shares we owned in Vallenar Energy Corp. which was 51.53% of Vallenar Energy Corp.  See Item 1.(b) Business of Brek and Item 6 Managements Discussion and Analysis or Plan of Operations.



We have an authorized capital of 300,000,000 shares of common stock with a par value of $0.001 of which 79,973,062 shares are issued and outstanding at December 31, 2006.



We have undergone no material reclassifications, mergers, consolidations or purchases or sales of significant assets not in the ordinary course of business except that on August 24, 2006 we exchanged all of our shares in Vallenar Energy for four million shares of common stock of Rock City Energy Corp., thereby converting our 51.53% interest in Vallenar Energy to a 100% interest in Rock City Energy.



(b)

Business of Brek



We are a natural gas and petroleum exploitation, development, and production company engaged in the acquisition, operation and development of unconventional hydrocarbon prospects, primarily in the Rocky Mountain region.  Our principal business is the acquisition of leasehold interests in petroleum and natural gas rights, either directly or indirectly; and the development and exploitation of the properties subject to these leases.  We are focused on drilling efforts in the Riverbend Project located in the Unita Basin of northeastern Utah, targeting the Wasatch, Mesaverde and Blackhawk formations.  See Item 2. Description of Property below for more information.



We own all of the issued shares of Rock City Energy Corp., an oil and gas exploration company incorporated in the state of Nevada on August 10, 2006.



Through our wholly owned subsidiary, Rock City Energy Corp., we own 51.53% of the issued shares of Vallenar Energy Corp., an oil and gas company with a strategy of structuring and developing an economically viable enhanced oil recovery project in Texas.  See Item 2. Description of Property below for more information.



We are in the early stages of fully implementing our business plan and have insufficient operating history on which to base an evaluation of our business and prospects.  Any evaluation must be made in light of the risks frequently encountered by companies in their early stages of development, particularly for companies in high risk sectors such as natural gas and oil.



Products and Services



The discovery of natural gas or oil and the ability to produce either one in commercial quantities is very speculative.  Even assuming that we obtain the necessary financing for drilling, if we or our operator do not discover and produce commercial quantities of natural gas or oil, we will not have any products or services to offer and our business could fail.  The principal uses for natural gas and oil are heating, manufacturing, power, and transportation.



Natural gas is gathered through connections between our natural gas wells and the pipeline transmission system.  Natural gas sales are by contract, and through our operator, we enter into contracts with a natural gas company that purchases most of the natural gas produced in the area.



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|Brek Energy Corporation | Form 10-KSB - 2006 | 3





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Natural gas purchasers pay well operators 100% of the sale proceeds of natural gas on or about the 25th of each month for sales two prior months.  The operator is responsible for all distributions to the working interest and royalty owners.



There is no standard price for natural gas and prices fluctuate with the seasons and the general market conditions. We sell our gas to the operator under a Natural Gas Purchase Agreement that governs the gathering transportation, marketing and sale of our gas.



Our primary product is natural gas, but we also produce condensate (oil).  During the fiscal year ended December 31, 2006, we produced 72,581 Mcf (one Mcf equals 1,000 cubic feet) of natural gas and 999 barrels(Bbl) of oil.  We sell our product to purchasers in the geographic area of the properties.  Natural gas, after processing, is distributed through pipelines.  We recognize revenue from the sale of natural gas when it reaches the customers point of purchase in the gas transmission system.  The amount we recognize for each well is based on the percentage of our net revenue interest in the well, and the remainder is allocated to other persons holding a net revenue interest.



Market



We derive our revenue principally from the sale of natural gas.  As a result, our revenues are determined, to a large degree, by prevailing natural gas prices.  We sell the majority of our natural gas on the open market at prevailing market prices.  The market price for natural gas is dictated by supply and demand, and we cannot accurately predict or control the price we receive for our natural gas.  Under our  agreement with the operator, the operator buys our gas for a purchase price equal to the amount per MMBtu (million British thermal units) that the operator or any of its subsidiaries or affiliates is paid for all gas sold during the same timeframe from the same points of delivery.  The purchase price equals the gross sales price of the gas sold minus (a) a gathering and transportation fee of not more than $0.23 per MMBtu; (b) fuel, line loss, shrinkage and unaccounted for gas not to exceed 6% under normal operating conditions; and (c) compression charges in an amount not to exceed $0.07 per MMBtu per stage of compression from the points of delivery to the receipt point(s) on the Questar mainline.  These deductions may temporarily exceed 6% due to unavoidable losses resulting from construction, maintenance and other necessary and appropriate operations on the gathering system, but cannot exceed 6% for more than 15 consecutive days or 30 days in the aggregate during any 12 month period or a maximum of 8%.  We also pay our proportionate share on a leasehold basis of the meter fees equal to $250 per month per well for each well up to the first fifty wells connected to the operators gas gathering system, and $150 per month per well for each well after the first fifty wells.  The gathering and transportation fee, the compression charges, and the metering fee are adjusted annually in proportion to the percentage change in the Consumer Price Index for All Urban Consumers as it existed for January of the immediately preceding year but cannot in any year be less than a 2% or more than a 4% increase over the previous years fees.  The adjustments are effective January 1 of each year beginning January 1, 2006.  We pay the operator $0.03 per MMBtu as a marketing fee for the marketing of our gas and reimburse the operator for our proportionate share of any of the operators third party marketing fees up to $0.05 per MMBtu, for a combined total of not more than $0.08 per MMBtu..



The market for natural gas and oil production is regulated by both state and federal governments. The overall market is mature and, with the exception of natural gas, all producers in a producing region receive the same price.



The availability of a ready market for any natural gas or oil that we produce depends on numerous factors beyond our control, including, but not limited to, the extent of domestic production and imports of oil, the proximity and capacity of natural gas pipelines, the availability of skilled labor, materials and equipment, the effect of state and federal regulation of natural gas and oil production, and federal regulation of natural gas sold in interstate commerce.  Natural gas and oil that we or our operators produce in Utah is sold to various purchasers who service the areas where our wells are located.  During the fiscal year ended December 31, 2006, our wells were not subject to any agreements that would prevent us from either selling our production on the spot market or committing such gas to a long-term contract; however, we can give no assurance that we will continue to have ready access to suitable markets for our future natural gas and oil production.



The marketability of our natural gas has not posed a problem for us.  Natural gas can be easily sold wherever it is produced in the states in which we operate, subject to the availability and cost of transportation.  However, the natural gas produced by us can be difficult to sell since transportation requires a pipeline.  Where we are pursuing new drilling activity for natural gas, other companies have been delayed up to a year because of the unavailability of a pipeline.  We cannot assure that natural gas wells that we drill can be placed on line within a year after the well is drilled and completed.



Distribution Methods of Products and Services



The operators gathers our natural gas and delivers it to the purchaser via gathering lines into the main gas transmission line or pipeline under the  Natural Gas Purchase Agreement.



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|Brek Energy Corporation | Form 10-KSB - 2006 | 4





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We believe that we can sell our products to any number of purchasers in the area of our properties, but we cannot assure that we will be able to make such sales or that, if we do, the purchaser will pay us a price that is sufficient to make our operations profitable.



Competition



Our natural gas and oil exploration activities take place in a highly competitive and speculative business atmosphere.  In seeking suitable natural gas and oil properties for acquisition, we compete with a number of other companies operating in our areas of interest, including large oil and gas companies and other independent operators with greater financial resources.  We do not believe that our competitive position in the natural gas and oil industry will be significant.



Competition in the natural gas and oil exploration industry also exists in the form of competition to acquire the most promising acreage blocks and obtaining the most favorable prices for transporting the product.  We are relatively small compared to other natural gas and oil exploration companies and may have difficulty acquiring additional acreage or projects, and may have difficulty arranging for the transportation of product if we are successful in our exploration efforts.



The natural gas industry is very competitive, particularly with respect to the acquisition of drilling rigs and natural gas exploration services from independent contractors.  We anticipate a tight market for obtaining drilling rigs and services, and the manpower to run them.  The current high level of drilling activity in our areas of exploration may have a significant adverse impact on the timing and profitability of our operations. In addition, Gasco Energy, Inc., the operator on the properties, will be required to obtain drilling permits for its wells, and there is no assurance that such permits will be available in a timely manner or at all.



The price of natural gas is affected by continuous shifts in supply and demand and is controlled by domestic and world markets.  Natural gas is becoming the preferred source of energy over other fossil fuels because it is an environmentally friendlier source of energy.  The demand for natural gas is increasing and whether or not there will be an adequate supply is very uncertain.  Numerous well-established companies are focusing significant resources on exploration.  These companies may be able to compete more effectively than us.  Due to these factors, we expect competition to intensify in the natural gas industry in general and for the acquisition of drilling rigs and natural gas exploration services from independent contractors.



Government Controls and Regulations



We, or a venture in which we participate, will be required to obtain local government and other permits for drilling oil or gas wells.



We and our operators are subject to stringent federal, state, and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection.  These laws and regulations could require that we obtain permits before we begin drilling, could limit or prohibit our operations on environmentally sensitive lands such as wetlands or wilderness areas, could result in our having to make capital expenditures to limit or prevent emissions or discharges, and could place restrictions on our management of wastes.  Our failure to comply with these laws and regulations could result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, and the issuance of injunctive relief.  Any changes in environmental laws and regulations that result in more stringent and costly waste handling, disposal or cleanup requirements could have a material adverse effect on our operations.  While we believe that we and our operators are in substantial compliance with current environmental laws and regulations and that continued compliance with existing requirements would not materially affect us, we cannot assure that this trend will continue.



The Comprehensive Environmental Response, Compensation and Liability Act, as amended, also known as CERCLA or Superfund, and comparable state laws impose liability without regard to fault or the legality of the original conduct, on certain classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. Under CERCLA, these responsible persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources, and for the costs of certain health studies, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances into the environment.



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|Brek Energy Corporation | Form 10-KSB - 2006 | 5





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We may also incur liability under the Resource Conservation and Recovery Act, also known as RCRA, which imposes requirements relating to the management and disposal of solid and hazardous wastes.  While there exists an exclusion from the definition of hazardous wastes for drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas or geothermal energy, we could, in the course of our operations, generate ordinary industrial wastes, including paint wastes, waste solvents, and waste compressor oils that are regulated as hazardous waste.



We own or lease, and have in the past owned or leased, through our operators, properties that for a number of years have been used for the exploration and production of natural gas and oil.  Although we and our operators have used operating and disposal practices that were standard in the industry at the time, hydrocarbons or other wastes may have been disposed of or released on or under the properties owned or leased by us or on or under other locations where such wastes have been taken for disposal.  Some of these properties may have been operated by third parties whose disposal or release of hydrocarbons or other wastes was not under our control.  These properties and the wastes disposed on them may be subject to CERCLA, RCRA, and analogous state laws.  Under such laws, we could be required to remove or remediate previously disposed wastes or property contamination or to perform remedial operations to prevent future contamination.



The Federal Water Pollution Control Act of 1972, as amended, also known as the Clean Water Act and analogous state laws impose restrictions and strict controls regarding the discharge of pollutants, including produced waters and other oil and natural gas wastes, into state or federal waters.  The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by EPA or the state.  The Clean Water Act provides civil and criminal penalties for any discharge of oil in harmful quantities and imposes liabilities for the costs of removing an oil spill.



The Clean Air Act, as amended (the CAA), restricts the emission of air pollutants from many sources, including natural gas and oil operations.   The CAA could require that we obtain permits before we begin work on new facilities, and could require that we incur capital costs in order to maintain our existing facilities in compliance.

More stringent regulations governing emissions of toxic air pollutants are being developed by the EPA.  These could increase our compliance costs for some facilities.



Under the National Environmental Policy Act (the NEPA), a federal agency, in conjunction with a permit holder, may be required to prepare an environmental assessment or a detailed environmental impact statement, also known as an EIS, before it issues a permit for work that could significantly affect the quality of the environment.  We or our operators are negotiating with the U.S. Bureau of Land Management or BLM about the preparation of an EIS in connection with certain proposed exploration and production operations in the Uinta Basin of Utah.  We expect that the EIS will take approximately 18 to 24 months to complete.  Until the BLM completes and issues the EIS, the number of natural gas and oil wells that we or our operator can drill in the areas of the EIS review is limited.  While we do not expect that the EIS process will result in a significant curtailment in future natural gas and oil production from this particular area, we can provide no assurance regarding the outcome of the EIS process.



We comply with the foregoing legislation and will use our best efforts to continue to comply with the legislation.  We believe that compliance with the foregoing legislation will not adversely affect our business operations in the future or our competitive position.



Effect of Existing or Probable Governmental Regulations on Breks Business



Our business is subject to various levels of government controls and regulations, which are supplemented and revised from time to time, including various laws and regulations of the United States, the State of Utah, the State of Wyoming, the State of California, the State of Texas, and the municipalities in which it operates that govern the exploration, development and production of natural gas and oil.  We will have to abide and follow the procedures established by the entities in those jurisdictions.  For instance, the Texas Railroad Commission determines all procedures and regulations that concern oil and natural gas exploration and production activities in the State of Texas.  We are unable to predict what additional legislation or revisions may be proposed that might affect its business or when any such proposals, if enacted, might become effective.  Such changes, however, could require increased capital and operating expenditures and could prevent or delay certain operations by us.



Dependence on One or a Few Major Customers



We do not independently market our production: we depend entirely upon the operators of our wells to market and sell all of our production.



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|Brek Energy Corporation | Form 10-KSB - 2006 | 6





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As we do not yet rely upon the revenue from our production, an operators refusal to market and sell the production on our behalf would not have a material adverse affect on our business, except to the extent that we do not have storage facilities and would be obligated to take delivery of our production.  We do not believe that any of our operators are likely to refuse to market and sell our production.



Patents/Trade Marks/Licences/Franchises/Concessions/Royalty Agreements or Labour Contracts



We do not own any patents or trade marks and are not a party to any license or franchise agreements, concessions, royalty agreements or labor contracts arising from any patents or trade marks, with the exception of overriding royalty interests of 25% payable in all oil, gas and other minerals produced in the Texas oil and gas leases.



Our web site is copyrighted upon loading.  www.brekenergy.com is our registered domain name.  We will seek further trademark protection for any associated domain names.



Estimate of Exploration and Development Costs



We did not perform any research activities in the two fiscal years ended 2006 and 2005.  We spent $38,151 and $310,361 on exploration and development activities during the two fiscal years ended 2006 and 2005 respectively.  We did not spend any funds on geological and economical evaluations of our properties during the same time period, with the exception of $30,173 and $38,331 that we spent on reserves studies at December 31, 2006 and 2005.



Number of Total Employees and Number of Full-Time Employees



As of December 31, 2006 we had no employees.



RISK FACTORS



We are in the early stages of development and an investment in our business involves a high degree of risk.  You should consider each of the following risk factors and the other information in this annual report, including our consolidated financial statements and the related notes, in evaluating our business and prospects.  The risks and uncertainties described below are not the only ones that impact on our business.  Other risks and uncertainties not now known to us or that we consider immaterial today could also impair our business operations.  If any of the following risks actually occurs, our business and financial results could be harmed.  In that case, the trading price of our shares of common stock could decline.



Risks associated with our business and properties:



1.

We are in the early stages of fully implementing our business plan and may not be able to continue as a going concern or be able to raise additional financing.



These consolidated financial statements have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business.  We have never paid any dividends.  We are unlikely to pay dividends in the immediate or foreseeable future.  We cannot guarantee that we will be able to raise any equity financing.  We have accumulated losses of $67,079,026 since inception.  This factor raises substantial doubt about our ability to continue as a going concern.



This factor is not viewed favorably by analysts or investors and could make it more difficult for us to raise additional equity or debt financing needed to run our business.  We urge potential investors to review this report before making a decision to invest in Brek.



2.

We have a limited operating history.



We have a limited operating history upon which you can evaluate our future success or failure.  You should be aware of the difficulties normally encountered by new natural gas exploration companies similarly situated and the high rate of failure of such enterprises.  Many of these risks and uncertainties are described in more detail elsewhere in this Risk Factors section.  You must consider the likelihood of our success in light of the problems, expenses, difficulties, complications and delays encountered in connection with our planned exploration of our properties.  These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates.



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|Brek Energy Corporation | Form 10-KSB - 2006 | 7





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You should consider that the likelihood of our future success is highly speculative in view of our limited operating history and the complications frequently encountered by companies in the early stages of their development.  Any problems, additional costs, difficulties, complications or delays that we realize in connection with our exploration activities will have a material adverse effect on our business operations, results of operations and financial condition, and as a result, our business could be suspended or fail.



We have limited financial resources to support us.  Our accumulated net losses since inception on September 16, 1998, are $67,079,026.  For the 12 months ended December 31, 2006, operating expenses increased by $4,914,210.  We expect to incur approximately $90,000 per month in operating losses over the next 18 months, primarily due to expenses associated with the natural gas and oil exploration programs proposed for our properties.



We cannot guaranty that we will be successful in generating revenues in the future or that we will be able to raise any working capital for operating funds.  Our failure to generate sufficient revenues or raise any financing could cause us to suspend or cease operations.



Our ability to achieve profitability and maintain positive cash flow is dependent upon our ability to generate revenues from our planned business operations and to control our operating costs.



3.

We have limited control over activities on properties that we do not operate, and depend on Gasco Energy, Inc. to manage, drill and operate the wells, which could negatively impact on the exploration and development of our properties and on our business operations.



Substantially all of our business operations are conducted through operating agreements under which we own partial interests in natural gas and oil properties.  If we do not operate the properties in which we own an interest, we do not have control over normal operating procedures, expenditures or future development of underlying properties. The failure of an operator of our wells to adequately perform operations, or an operators breach of the applicable agreements, could reduce our production and revenues and have a negative impact on our business operations.  The success and timing of our drilling and development activities on properties operated by others therefore depends upon a number of factors outside of our control, including the operators timing and amount of capital expenditures, expertise and financial resources, inclusion of other participants in drilling wells, and use of technology.  Because we do not have a majority interest in most wells, we may not be in a position to remove the operator in the event of poor performance.



4.

Our partners and third party operators could suffer financial hardship, which could negatively impact on the exploration and development of our properties.



Liquidity and cash flow problems encountered by our partners or the co-owners of our properties may prevent or delay the drilling of a well or the development of a project.  Our partners and working interest co-owners may be unwilling or unable to pay their share of the costs of projects as they become due.  In the case of a farm-out partner, we would have to find a new farm-out partner or obtain alternative funding in order to complete the exploration and development of the prospects subject to the farm-out agreement.  In the case of a working interest owner, we could be required to pay the working interest owners share of the project costs.  We cannot assure you that we would be able to obtain the capital necessary to fund either of these contingencies or that we would be able to find a new farm-out partner.



5.

Our estimated reserves are based on many assumptions, which may be inaccurate, and any material inaccuracies in the estimated reserve or underlying assumptions will materially affect the quantities and present value of our reserves and negatively impact our business operations.



Estimating accumulations of gas and oil is complex and is inexact because of the numerous uncertainties inherent in the process.  The process relies on interpretations of available geological, geophysical, engineering and production data.  The extent, quality and reliability of these technical data can vary.  The process also requires certain economic assumptions, some of which are mandated by the SEC, such as gas and oil prices, drilling and operating expenses, capital expenditures, taxes and availability of funds.



Actual future production, gas and oil prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable gas and oil reserves most likely will vary from our estimates.  Any significant variance could materially affect the quantities and present value of our reserves.  In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development, and prevailing gas and oil prices.  If the estimated reserves are materially inaccurate, this will negatively impact our business operations.



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|Brek Energy Corporation | Form 10-KSB - 2006 | 8





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6.

Because our reserves and production are concentrated in a small number of properties, any production problems or significant decrease in reserve estimates related to any property could negatively impact our business operations.



Our current reserves and production primarily come from producing properties in Utah and Wyoming.  If mechanical problems, depletion or other events reduced a substantial portion of the production, our cash flows would be adversely affected.  If the actual reserves associated with our fields are less than our estimated reserves, our business operations and financial condition could be negatively impacted.



7.

The exploration and development of our oil and gas properties require substantial capital, which we may not be able to obtain, which in turn could lead to a loss of our interest in certain oil & gas properties and a decline in our natural gas and oil reserves.



Our current operating funds are less than necessary to complete our proposed oil & gas exploration programs, and we will need to obtain additional financing in order to complete each of the proposed oil & gas exploration programs.  As of December 31, 2006, we had cash in the amount of $1,415,996.  Our natural gas and oil exploration programs call for significant expenses in connection with the exploration of the respective natural gas and oil properties.  While we do not need to participate in every well that the operator decides to drill, if we do not participate in the well and pay our portion of the costs of drilling, we will lose some interest in that well.  If we decide to participate in every well that is drilled, we will need to raise approximately $1 million for each well that we decide to participate in to maintain our interest in the natural gas and oil properties.



We have relied in the past primarily on the sale of equity capital to fund working capital and the acquisition of our prospects and related leases. Our failure to generate operating cash flow or to obtain additional financing could result in substantial dilution of our property interests, or delay or cause indefinite postponement of further exploration and development of our prospects with the possible loss of our oil & gas properties.



We will require significant additional capital to fund our future activities and to service current and any future indebtedness.  In particular, we face uncertainties relating to our ability to generate sufficient cash flows from operations to fund the level of capital expenditures required for our natural gas and oil exploration and production activities and our obligations under various agreements with third parties relating to exploration and development of certain prospects.  Our failure to find the financial resources necessary to fund our planned activities and service our debt and other obligations could adversely affect our ability to continue as a going concern.



We can provide no assurance that we will be able to find the required capital.  Obtaining additional and acceptable financing is subject to a number of factors, including the market prices for natural gas and oil, investor acceptance of our natural gas and oil properties, and investor sentiment.  These factors may make the timing, amount, terms or conditions of the financing unavailable and unacceptable to us.  The most likely source of future capital presently available to us is through the sale of equity capital.  However, any sale of share capital will result in dilution to existing shareholders.  The only other anticipated alternatives for the financing of our proposed natural gas and oil exploration programs would be private loans or the offering by us of an interest in our natural gas and oil properties to be earned by another party or parties carrying out further exploration thereof, which is not presently contemplated.



8.

Our ability and the operators ability to market and transport the natural gas and oil that is discovered on our properties is essential to our business operations, but is subject to certain requirements.



Several factors beyond our control could adversely affect our ability to market the natural gas and oil that we discover.  These factors include the proximity, capacity and availability of natural gas and oil pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production, and environmental protection.  We cannot accurately predict the extent of these factors, but any one or a combination of them could affect our inability to sell our natural gas and oil at prices that would result in an adequate return on our invested capital.



All of the natural gas that we produce is transported and delivered via pipelines that are owned and controlled by the operator of the property or by a third party.  The pipeline owners have set gas quality requirements for the transportation of gas through their pipelines.  These requirements could and most likely would be imposed on all companies delivering gas into their main pipeline.  If pipeline owners require companies to meet more strict quality requirements, there is no assurance that we could meet the new requirements in the short term future or secure a substitute facility in order to deliver the gas that is produced.



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|Brek Energy Corporation | Form 10-KSB - 2006 | 9





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We might have to make significant capital expenditures to meet the new gas quality requirements or transport the gas.  In either case, our business operations would be negatively impacted in both time and capital expenditures.



9.

Because substantially all of our producing properties are located in the Rocky Mountains, we are vulnerable to certain risks associated with primarily operating in one geographical area.



All of our production is located in, and all of our future production is anticipated to be located in, the Rocky Mountain and West Texas regions of the United States.  The natural gas prices that we and other companies in the Rocky Mountain region have received and are receiving are at a discount to natural gas prices in other parts of the United States.  Factors that can cause price volatility for natural gas and crude oil within this region are:

  the availability of gathering systems with sufficient capacity to handle local production

  seasonal fluctuations in local demand for production

  local and national gas storage capacity

  interstate pipeline capacity

  the availability and cost of gas transportation facilities from the Rocky Mountain region



10.

Our business operations could negatively be impacted if there is a shortage of supplies, equipment and personnel for the exploration and development on our properties.



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



11.

Seasonal weather conditions and lease stipulations adversely affect our ability to conduct drilling activities in some of the areas where our properties are located.



Natural gas and oil operations in the Rocky Mountains are adversely affected by seasonal weather conditions and lease stipulations designed to protect various wildlife.  In certain areas, including the Uinta Basin, drilling and other natural gas and oil activities can only be conducted during the spring and summer months.  This limits us or our operators ability to operate in those areas and can intensify competition during those months for drilling rigs, oil field equipment, services, supplies and qualified personnel, which could lead to periodic shortages.  These constraints and the resulting shortages or high costs could delay us or our operators operations and materially increase our operating and capital costs.



12.

We may suffer losses or incur liability for events that we or the operator of a property have chosen not to insure against.



Although we believe the operator of any property in which we acquire interests will acquire and maintain appropriate insurance coverage in accordance with standard industry practice, we may suffer losses from uninsurable hazards or from hazards that we or the operator have chosen not to insure against because of high premium costs or for other reasons.  We could become liable for pollution, fire, explosion, blowouts, cratering and oil spills against which we cannot insure or against which we may elect not to insure.  Such events could result in substantial damage to natural gas and oil wells, producing facilities and other property and personal injury.  The payment of any such liabilities may have a material adverse effect on our financial position and business operations.



13.

We may incur losses or a reduction in our reservesas a result of title deficiencies in the oil and gas properties we invest in, which could negatively impact our business operations.



If an examination of the title history of a property that we have purchased reveals a natural gas or petroleum lease that has been purchased in error from a person who is not the owner of the mineral interest desired, our interest would be worthless.  In such an instance, we would lose the amount paid for the natural gas or petroleum lease, our estimated or proven reserves would decrease, and our business would be negatively impacted.



It is our practice, in acquiring natural gas and petroleum leases, or undivided interests in natural gas and petroleum leases, not to undertake the expense of retaining lawyers to examine the title to the mineral interest to be placed under lease or already placed under lease.  Rather, we rely upon the judgment of natural gas and petroleum lease brokers or landmen who perform the fieldwork in examining records in the appropriate governmental office before attempting to acquire a lease in a specific mineral interest.



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 10





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The normal practice of operators in the natural gas and petroleum industry is to obtain, before they begin to drill a well, a preliminary title review of the spacing unit in which they propose to drill the well to ensure there are no obvious deficiencies in title to the well.  Frequently, as a result of such examinations, certain work must be done to correct deficiencies in the marketability of the title, and such curative work entails expense.  The work might include obtaining affidavits of heirship or causing an estate to be administered.



14.

We may not be able manage growth of our business operations effectively, which could result in a negative impact on our business operations and financial condition.



If we are unable to manage growth effectively, our business, financial condition, and results of operations will be negatively affected.  Because of our small size, growth in accordance with our plan of operations, if achieved, will place a significant strain on our financial, technical, operational and management resources.  The expansion of our activities and an increase in the number of projects we are evaluating or in which we participate will place additional demands on our financial, technical and management resources.  Our systems, procedures or controls may not be adequate to support our business operations and we may not be able to achieve the execution necessary to successfully implement our plan of operations.  Our failure to continue to upgrade our technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties, including the recruitment and retention of experienced managers, geoscientists and engineers, could have a negative impact on our business, financial condition, and results of operations and our ability to execute our plan of operations.



Risks associated with our industry:



15.

Due to the speculative nature of natural gas exploration, there is substantial risk that we will be unable to locate commercial quantities of natural gas, which in turn will negatively impact our business operations.



The search for commercial quantities of natural gas as a business is extremely risky.  The properties may not contain commercially exploitable quantities of natural gas.  Our exploration expenditures might not result in the discovery of commercial quantities of natural gas.  Problems such as unusual or unexpected formations and other conditions involved in natural gas exploration often result in unsuccessful exploration efforts.  We may not be able to discover and produce commercial quantities of natural gas from our properties.  If we do not discover and produce commercial quantities of natural gas, we will not have any products or services to offer and our business could fail.



16.

The natural gas and oil markets are volatile markets that have a direct impact on our revenues and profits, and market conditions will affect our ability to continue our operations.



Our revenues, operating results, cash flow and future rate of growth depend upon prevailing prices for natural gas and oil.  Historically, natural gas and oil prices and markets have been volatile and not predictable, and they are likely to continue to be volatile in the future.  Prices for natural gas and oil are subject to wide fluctuations in response to relatively minor changes in the supply of and demand for natural gas and oil, market uncertainty and a variety of additional factors that are beyond our control, including:

  political conditions in both natural gas and oil producing and exporting countries

  the supply and price of both domestic and foreign natural gas and oil

  the worldwide and regional demand for energy

  the effect of domestic and foreign government regulation of production and transportation

  the price and availability of alternative energy sources

  weather conditions

  acts of war, terrorism and vandalism

  market manipulation



Lower natural gas and oil prices could not only decrease our revenues on a per unit basis but could also reduce the amount of natural gas and oil that we can produce economically.  A substantial or extended decline in natural gas and oil prices could materially and adversely affect our business operations, financial condition, and ability to finance planned capital expenditures.



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 11





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17.

Competition in the natural gas and oil industry is intense and we may not be able to compete effectively with our competitors.



Our ability to acquire additional natural gas and oil properties and develop new and existing properties in the future depends on our ability to conduct operations, to evaluate and select suitable properties, to attract qualified personnel, and to consummate transactions in this intensely competitive environment.  We compete with other natural gas and oil companies and other independent operators possessing greater financial resources and technical facilities than we have in seeking to acquire natural gas and oil properties and recruit and retain qualified personnel.  There is significant competition for the limited number of natural gas and oil opportunities and, as a result, we may be unable to acquire an interest in attractive natural gas and oil exploration properties on terms we consider acceptable on a continuing basis.  We also compete for the equipment and labor required to operate and develop natural gas and oil properties.  We do not believe that we have a competitive advantage in the natural gas and oil industry at this time.



Larger competitors may be able to absorb the burden of changes in federal, state and local laws and regulations more easily than we can, which could adversely affect our competitive position.  These competitors might be able to pay more for natural gas and oil properties and be more able to define, evaluate, bid for and acquire a greater number of properties than we can.   Some of our competitors have been operating in the natural gas and oil industry for longer than we have and have been able to operate through industry cycles.



18.

We are subject to complex laws and regulations, including environmental regulations, which could negatively impact our business operations and financial condition.



The development, production and sale of natural gas and oil in the United States are highly regulated.  We could be required to spend a lot to comply with environmental and other governmental regulations.  Matters subject to regulation include:

 the location and density of wells

  the handling of drilling fluids and obtaining discharge permits for drilling operations

  emissions into the environment

  accounting for and paying royalties on production from state, federal and Indian lands

  bonds for ownership, development and production of natural gas and oil properties

 the transportation of natural gas and oil

 the storage and disposition of hazardous waste

 the operation of wells and reports concerning operations

  taxation



Under the various complex laws and regulations, we could be liable for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other environmental damages.  Failure to comply with these laws and regulations could result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties.  These laws and regulations could change in ways that substantially increase our costs.  Any of these liabilities, penalties, suspensions, terminations or regulatory changes could negatively impact our business operations and financial condition.



19.

The natural gas and oil industry involves numerous uncertainties and operating risks that could negatively impact our business operations and financial condition.



Our development, exploitation and exploration activities could be unsuccessful for many reasons, including weather, cost overruns, equipment shortages and mechanical difficulties.  The successful drilling of a natural gas well or an oil well does not ensure a profit on investment.  A variety of factors, both geological and market-related, can cause a well to become uneconomical or only marginally economical.  In addition to their cost, unsuccessful wells can impede our efforts to replace reserves.



The natural gas and oil business involves a variety of operating risks, including:

  fires

  explosions

  blow-outs and surface cratering

  uncontrollable flows of oil, natural gas, and formation water

  natural disasters, such as adverse weather conditions

  pipe, cement, or pipeline failures



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 12





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  casing collapses

  embedded oil field drilling and service tools

  abnormally pressured formations

  environmental hazards, such as natural gas leaks, oil spills, pipeline ruptures, and discharge of toxic gases



Encountering any of these problems could affect well bores, gathering systems and processing facilities, which could adversely affect us or our operators ability to conduct operations.  We could also incur substantial losses as a result of:

  injury or loss of life

  severe damage to and destruction of property, natural resources, and equipment

  pollution and other environmental damage

  clean-up responsibilities

  regulatory investigation and penalties

  suspension of business operations

  repairs to resume business operations



We do not carry business interruption insurance at levels that would provide enough funds for us to continue operating without access to other funds.  For some risks, we may not obtain insurance if we believe the cost exceeds the risks presented.  Pollution and environmental risks generally are not fully insurable.  A significant accident or the occurrence of another event not fully covered by insurance could negatively impact our business operations enough to force us to cease business operations.



Risks associated with Brek and its subsidiaries:



20.

Our stock price is volatile and may fluctuate, which will have a direct impact on your investment in Brek.



The stock markets in general, and the stock prices of natural gas and oil companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of any specific public company.  Factors unrelated or disproportionate to our operating performance could affect our stock price, and the trading price of our shares of common stock might not be an accurate reflection of their value.  The market price of our common stock could fluctuate significantly in response to a number of factors, some of which are beyond our control, such as interest rates, increased competition, general economic, political and market conditions, recessions, or changes in government regulations, including environmental regulations; and some of which are within our control, such as actual or anticipated variations in our operating results, announcements of new projects and properties, new customers, acquisition of potential natural gas and oil entities and prospects, our ability or inability to generate new revenues, and results of exploration and development.  These market fluctuations could adversely affect the market price of our shares of common stock.



21.

A small number of our stockholders own a substantial amount of our shares of common stock: if they were to sell their shares in the public market within a short period of time, the price of our shares of common stock could drop significantly.



Because a small number of our stockholders own a substantial number of our shares of common stock, those shareholders may be able to decide who will be directors, and other stockholders may not be able to elect any directors.   Sales of a large number of our shares of common stock or even the availability of a substantial number of shares of common stock for sale could have the effect of reducing the price per share of our common stock, especially if the shares of common stock continue to be thinly traded.



As of April 10, 2007, 79,973,062 shares of common stock were issued and outstanding, of which 45,134,292 shares were freely tradeable and 15,963,798 shares were, to the best of our knowledge, subject to Rule 144.  The remaining 18,874,972 shares of common stock were restricted from trading.  As of April 10, 2007, 370,000 stock options, exercisable into one share of common stock each, were outstanding.  An additional 4,580,000 stock options could be granted under our 2001 Stock Option Plan.  At April 10, 2007, if all the granted options were exercised, the number of issued and outstanding shares of common stock would increase by 370,000 to 80,343,062.



22.

A change in control of Brek can be delayed, impeded or effected by the directors and management, who collectively own 24.6% of the outstanding shares or by the implementation of Breks rights agreement by the board of directors.



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 13





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Breks directors and management own an aggregate of 19,696,198 shares of common stock and as a result have the ability to influence the vote for a change of voting control of the Company or the vote to approve or reject any offer for the purchase and sale of the Companys assets.



Upon the happening of certain events, the board of directors could vote to implement the Companys rights agreement, which would delay, impede or effect a change in control of Brek or could impede a merger, consolidation, takeover or other business combination involving Brek or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of Brek.  See Item 5 (c) Dividends.



23.

Brek is unable to implement its rights agreement at this time and as a result may be unable to delay, impede, or effect a change of control of Brek.



As of April 10, 2007, Brek has 79,973,062 shares of common stock issued and outstanding and is authorized to issue up to 300 million shares of common stock.  If the rights agreement were implemented today, we could be required to issue an additional 399,865,310 shares of common stock on a non-diluted basis, assuming all rights under the rights agreement were exercised.  As a result, we would not have enough shares in treasury to issue rights to all shareholders.  This does not include any shares that may be issued upon exercise of warrants or stock options.  Effectively, our board of directors will not be able to implement the rights agreement until the number of authorized shares of common stock is increased to satisfy share issuances for the exercise of all warrants and stock options and for the implementation of the rights agreement.  As a result, we will not be able to discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of Brek by implementing the rights agreement.  See Item 5 (c) Dividends.



24.

We may not be able to attract and retain qualified personnel necessary to implement our plan of operations and exploration programs.



Our management is inexperienced in operating a natural gas and oil business.  We may need to hire or retain qualified management, employees or consultants with expertise in natural gas and oil exploration and development.  Our success depends on our ability to attract, retain and motivate qualified personnel.  Our limited financial resources seriously inhibit our ability to attract qualified personnel.  Key personnel represent a significant asset, and the competition for these personnel is intense in the natural gas and oil industry.  We do not maintain key person life insurance on any of our personnel.  The loss of one or more of our key employees or our inability to attract, retain and motivate qualified personnel could negatively impact our ability to implement our plan of operations and to complete our natural gas and oil programs.



25.

Our officers and directors have conflicts of interest in that they are officers and directors of other companies which will prevent them from devoting full-time to our business operations and could negatively impact our business operations.



Our officers and directors have conflicts of interest in that they are officers and directors of other companies.  Managements other activities prevent them from devoting full-time to the Companys business operations.  This will impede our growth and business operations and may reduce our financial results because of the slow down in operations.



26.

We have not paid and do not expect to pay dividends in the foreseeable future.



We have never paid cash dividends on our shares of common stock and have no plans to do so in the foreseeable future.  We intend to retain earnings, if any, to develop and expand our business operations.



27.

Penny Stock rules could make buying or selling our shares of common stock difficult and could severely limit their market and liquidity.



Trading in Breks shares of common stock is subject to certain regulations adopted by the SEC commonly known as the penny stock rules.  Our shares of common stock qualify as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934, which imposes additional sales practice requirements on broker-dealers who sell the shares of common stock in the aftermarket.  The penny stock rules govern how broker-dealers can deal with their clients and penny stocks.  If you want to buy shares of Breks common stock, your broker-dealer must make a special suitability determination and you must deliver a written agreement before he will execute your buy order.



These additional burdens imposed upon broker-dealers by the penny stock rules may discourage broker-dealers from effecting transactions in Breks shares of common stock, which could severely limit their market price and liquidity.



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 14





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This could prevent you from reselling your shares and cause the price of the shares to decline.  See Penny Stock rules on page 25 for more details.



Item 2.

Description of Property.



Corporate Headquarters



We operate from an office located at 3388 Via Lido 4th floor, Newport Beach, California 92663.  Our telephone number is 1-866-472-7987.   We provide the president with a budget of $20,000 per month to cover his services and administrative costs.



Property



A.

Petroleum and Natural Gas Properties



Riverbend Project, Utah



The Riverbend Project comprises approximately 112,190 gross acres in the Uinta Basin of northeastern Utah, of which we hold a 15% leasehold interest in approximately 16,750 net acres as of December 31, 2006.  Our interest is concentrated on three tight-sand formations in the Uinta basin: the Wasatch, Mesaverde and Blackhawk formations.



During the year ended December 31, 2006, we did not participate in the drilling and completion of any wells in the Riverbend project.  We farmed out the drilling of another fifteen wells in November, 2006, and did not participate in the drilling of thirteen proposed wells.  So far in 2007, we have declined to participate in the drilling of ten proposed wells.  See Item 6 Managements Discussion and Analysis.



On April 8, 2004, we exercised our rights under the July 16, 2002 purchase agreement with Gasco Energy, Inc. to acquire 3,266 net acres located in the Uinta Basin in Utah for approximately $800,000.  This purchase included six wells producing nominal amounts of natural gas that the former owner had drilled to earn the acreage.



In January 2005, we exercised our rights under the July 16, 2002 purchase agreement with Gasco Energy, Inc. to acquire 344 net acres located in the Uinita Basin in Utah for approximately $60,000 and 3,545 net acres in Riverbend area for a purchase price of approximately $830,000



We completed these three purchases by exercising our right to acquire 25% of any oil and gas interest that Gaso acquired in the area of mutual interest by paying 25% of Gascos acquisition costs, including brokerage, legal and title costs, as provided in the July 16, 2006 purchase agreement.



In July 2004, Gasco Energy, Inc. expanded its gas gathering system in the Riverbend area to carry the gas produced in this area to a major pipeline.  Gasco gathers the majority of the natural gas that we produce in the Riverbend area, markets it and sells it.



Greater Green River Basin Project, Wyoming



As of December 31, 2006, we had a 13% leasehold interest in approximately 52,573 gross acres (6,807 net acres) in this area, and non-operated interests in one shut in well and one producing well .  We may consider other proposals for this area such as the farm-out or unitization of some of our acreage if necessary to extend leases.  We did not consent to participate in the drilling of one well in 2006 and the completion of one well so far in 2007.



Crocker Canyon Prospect, California



We have a 7% leasehold interest in approximately 3,250 gross acres (203 net acres) in San Luis Obispo County and 65 gross (16 net) acres in Kern County of Southern California.  In 2004 we farmed out the drilling of one well to preserve acreage but did not participate in any drilling or development on this acreage during 2005. We agreed to a farmout by an agreement effective May 1, 2005, between Brek and Gasco as Farmor, and Venoco, Inc. as Farmee whereby Venoco earned an undivided 75% working interest in the San Luis Obispo farmout lands by drilling a test well on the property. The test well did not produce and is shut in. We plan to continue paying our portion of the leasehold rentals and other minimum geological expenses to preserve acreage on these prospects.



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|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 15





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Rocksprings Prospect, Edwards County, Texas



Through Rock City Energy Corp., we own a controlling interest in Vallenar Energy Corp., which holds leases covering approximately 8,401 gross and 7,421 net acres in the Rocksprings Prospect in the Val Verde Basin of Edwards County, Texas.  Vallenar acquired the properties for their heavy oil play potential, however, during 2005, three nearby Ellenburger natural gas discovery wells have caused us to consider the natural gas potential underlying Vallenars leases.



We first acquired an interest in Vallenar in March 2002, when we bought 2,512,500 shares of Vallenars outstanding common stock from third parties and 733,333 preferred shares, convertible into 733,333 common shares at our option, directly from Vallenar.  These shares together represented approximately 30% of Vallenar Energy Corp.s equity.  On June 28, 2002, we bought another 2 million shares of outstanding common stock from third parties for $10,000 and 800,000 shares at $0.50 per share ($400,000) directly from Vallenar.   At December 31, 2002, we held a 51.53% equity interest in Vallenar Energy Corp.  On August 24, 2006, we acquired a 100% interest in Rock City by exchanging our 51.53% interest in Vallenar Energy for a 100% interest in Rock City.  For as long as at least one-half of the preferred stock is outstanding, we are entitled to at least 26% of the total voting power of Vallenar Energy.  We are entitled to designate one director who must sit on the executive committee of the board or additional voting rights accrue to the preferred stock.  All decisions of this executive committee must be unanimous.  We have been playing an active role in the management of Vallenar Energy Corp. since 2002.



On May 8, 2006, we entered into a letter agreement dated April 3, 2006 with Chesapeake Exploration Limited Partnership (the operator) for the development of oil and gas properties in Texas.  Under the Chesapeake agreement, the operator can earn a 100% leasehold 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), we can back in for a 25% working interest in the wells.  On future wells, we 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, dated June 9, 2006 (Chesapaeke assignment), we assigned all of our 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.



The operator has performed sufficient work on the 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 of 2007. Under the letter agreement, the operator must use reasonable efforts to extend leases at expiry or obtain new ones if they do not perform the work required by the leases.



B.

Oil and Gas Reserve Information (unaudited)



The reserve quantity and future net cash flow information in Tables 1, 2 and 3 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.  We 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 us 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.



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|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 16





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Reserve Quantities

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



(a) The majority of the revisions of previous estimates during 2005 comprise 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 comprise 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 we are able to back in.

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



Standardized Measure of Discounted Future Net Cash Flows

|                                        |                                 |  |              
|--------------------------------------- | ------------------------------- |  | -------------
|                                        | For the Years Ended December 31
|Table 2                                 | 2006                            |  | 2005         
|Future cash flows                       | $ 5,288,400                     |  | $ 45,994,700 
|Future production and development costs | (1,811,300)                     |  | (17,145,000) 
|Future income taxes                     | (  273,600)                     |  | (2,389,700)  
|Future net cash flows before discount   | $ 3,203,500                     |  | 26,460,000   
|10% discount to present value           | (1,853,900)                     |  | (17,275,000) 
|Standardized measure of discounted      |                                 |  |              
|future net cash flows                   | $ 1,349,600                     |  | $   9,185,000



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 17





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Changes in the Standardized Measure of Discounted Future Net Cash Flows

|                                              |                                 |  |            
|--------------------------------------------- | ------------------------------- |  | -----------
|                                              | For the Years Ended December 31
|Table 3                                       | 2006                            |  | 2005       
|Standardized measure of discounted future net |                                 |  |            
|cash flows at the beginning of year           | $ 9,185,000                     |  | $ 5,712,500
|Sales of oil and gas produced,                |                                 |  |            
|net of production costs                       | (440,058)                       |  | (764,804)  
|Extensions and discoveries, net of future     |                                 |  |            
|production and development costs              | 53,200                          |  | 4,592,200  
|Revisions of previous quantity estimates      | (7,448,542)                     |  | (354,896)  
|Standardized measure of discounted            |                                 |  |            
|future net cash flows at the end of year      | $ 1,349,600                     |  | $ 9,185,000



C.

Volumes, Prices and Operating Expenses



Table 4 presents information regarding the production volumes, average sales prices received and average production costs associated with our sales of natural gas and oil for the periods indicated.



|                                  |                                 |        |  |        | 
|--------------------------------- | ------------------------------- | ------ |  | ------ | 
|Table 4
Production and Sales Data
|                                  | For the years ended
December 31
|                                  |                                 | 2006   |  | 2005   | 
|Natural gas production (Mcf)      |                                 | 72,581 |  | 91,983 | 
|Average sales price per Mcf       |                                 | $5.52  |  | $7.70  | 
|Oil production (Bbl)              |                                 | 999    |  | 949    | 
|Average sales price per Bbl       |                                 | $39.45 |  | $59.44 | 
|Total production in Mcfe          |                                 | 78,575 |  | 97,674 | 
|Expenses per Mcfe                 |                                 |        |  |        | 
|Lease operating                   |                                 | $1.61  |  | $Nil   | 
|Gathering                         |                                 | $1.00  |  | $Nil   | 
|General and administrative        |                                 | $15.19 |  | $9.57  | 
|Depletion and accretion           |                                 | $.99   |  | $0.84  | 
|Impairment                        |                                 | $56.67 |  | $Nil   | 
|                                  |                                 |        |  |        | 



D.

Development, Exploration and Acquisition Capital Expenditures



During the year ended December 31, 2006, we spent $38,151in development and exploration activities.  During the year ended December 31, 2005, we spent $310,361 on development and exploration activities and $885,804 on the acquisition of acreage in the Riverbend area. As of December 31, 2006, we held a working interest of approximately 14% in 168,076 gross acres (23,776 net acres) located in Utah, Wyoming and California.  As of December 31, 2006, we held an interest in ten gross (1.51 net) producing gas wells and one gross (0.14 net) shut-in gas well located on these properties.



Table 5 presents information regarding our net costs incurred in the purchase of proved and unproved properties and in exploration and development activities:



|                            |  |              |        |  |   |           | 
|--------------------------- |  | ------------ | ------ |  | - | --------- | 
|Table 5                     |  | December 31, |       
|                            |  |              | 2006   |  |   | 2005      | 
|Property acquisition costs: |  |              |        |  |   |           | 
|Unproved                    |  | $            | -      |  | $ | -         | 
|Proved                      |  |              | -      |  |   | 885,804   | 
|Exploration                 |  |              | 37,649 |  |   | 10,061    | 
|Development                 |  |              | 502    |  |   | 300,300   | 
|                            |  |              |        |  |   |           | 
|                            |  | $            | 38,151 |  | $ | 1,196,165 | 



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 18





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E.

Productive Wells and Acreage



Table 6 summarizes our productive and shut-in gas wells as of December 31, 2006.  Productive wells are producing wells and wells capable of production.  Shut-in wells are wells that are capable of production but are not producing.  Gross wells are the total number of wells in which we have an interest.  Net wells are the sum of our fractional interests owned in the gross wells.



|                             |                      |     
|---------------------------- | -------------------- | ----
|Table 6
Productive Gas Wells
|                             | Productive gas wells
|                             | Gross                | Net 
|Producing gas wells          | 10.0                 | 1.51
|Shut-in gas wells            | 1.0                  | 0.14



F.

Undeveloped Acreage



Table 7 summarizes the undeveloped and developed leasehold acreage, by area, that we hold as of December 31, 2006.  Undeveloped acres are acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and gas, regardless of whether or not the acreage contains proved reserves.  Developed acres are acres that are spaced or assignable to productive wells.  Gross acres are the total number of acres in which we have a working interest.  Net acres are the sum of our fractional interests owned in the gross acres.  The table does not include acreage that we have a contractual right to acquire or to earn through drilling projects, or any other acreage for which we have not yet received leasehold assignments.  In certain leases, our ownership is not the same for all depths.  The net acres in these leases are calculated using the greatest ownership interest at any depth.  Generally, this greater interest represents our ownership in the primary objective formation.



|                           |                   |  |                 |  |       |  |    
|-------------------------- | ----------------- |  | --------------- |  | ----- |  | ---
|Table 7
Summary of Acreage
|                           | Undeveloped acres |  | Developed acres
|                           | Gross             |  | Net             |  | Gross |  | Net
|Utah                       | 111,828           |  | 16,699          |  | 360   |  | 51 
|Wyoming                    | 52,493            |  | 6,798           |  | 80    |  | 9  
|California                 | 3,316             |  | 219             |  |      |  |   
|Texas (1)                  | 9,191             |  | 8,211           |  |      |  |   
|                           |                   |  |                 |  |       |  |    
|Total acres                | 176,828           |  | 31,927          |  | 440   |  | 60 



(1)

A lease covering 790 gross and net acres expired in February 2007.



G.

Drilling Activity



Table 8 summarizes our drilling activity during the years ended December 31, 2006 and 2005.   In the table, gross refers to the total wells in which we have a working interest, and net refers to gross wells multiplied by our working interest.  A productive well is an exploratory or a development well that is not a dry well.



|                          |                                 |       |  |      |  |       |  |     | 
|------------------------- | ------------------------------- | ----- |  | ---- |  | ----- |  | --- | 
|Table 8
Drilling Activity
|                          | For the years ended December 31
|                          |                                 | 2006  |  | 2005 | 
|                          |                                 | Gross |  | Net  |  | Gross |  | Net | 
|Exploratory wells         |                                 |       |  |      |  |       |  |     | 
|Productive                |                                 | 0.0   |  | 0.0  |  | 0.0   |  | 0.0 | 
|Dry                       |                                 | 0.0   |  | 0.0  |  | 0.0   |  | 0.0 | 
|Inconclusive              |                                 | 0.0   |  | 0.0  |  | 0.0   |  | 0.0 | 
|Development wells         |                                 |       |  |      |  |       |  |     | 
|Productive                |                                 | 0.0   |  | 0.0  |  | 0.0   |  | 0.0 | 
|Dry                       |                                 | 0.0   |  | 0.0  |  | 0.0   |  | 0.0 | 
|                          |                                 |       |  |      |  |       |  |     | 
|Total wells               |                                 | 0.0   |  | 0.0  |  | 0.0   |  | 0.0 | 



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 19





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H.

Current Activity



We are not participating in any drilling as of the date of this filing, as we do not have sufficient oil and gas revenues to satisfy our ongoing working capital needs.  We plan to continue to review drilling proposals that we receive from the operators and participate if our financial resources permit.



I.

Delivery Commitments



We are not obligated to provide a fixed and determinable quantity of oil or gas in the near future under existing contracts or agreements



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:



Bermuda lawsuit  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., 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 them 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 agreements.  The plaintiffs commenced the lawsuit approximately one week before they had to make their first instalment payment pursuant to a share purchase agreement dated October 19, 2001.  At that time, the plaintiffs were obligated to make an instalment payment in the amount of $1,901,107.  The plaintiffs have not made any instalment payments as required by the terms and conditions of the share purchase agreement.



Brek and the other defendants filed a defence and counterclaim on May 8, 2003 with the Supreme Court of Bermuda.  In their counterclaim, the defendants were seeking specific performance of the share purchase agreement or, alternatively, damages for breach of contract.  Although the directors believed that the plaintiffs claims were without merit as there was no condition to develop software for the plaintiffs, due to lack of financial resources Brek did not pursue its counterclaim.  No party has taken any action since Brek filed its defence and counterclaim.



On March 28, 2007, Brek and its subsidiary, Feds Acquisition Corporation, reached a settlement with the plaintiffs 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.  We have instructed our counsel to file the consent order dismissing the action but do not have confirmation that it is filed as of the date of this filing.  This leaves only our inactive Hong Kong subsidiary, First Ecommerce Asia Limited, subject to the Transworld agreements and litigation.  The High Court of the Hong Kong Special Administrative Region in November 2003 ordered that First Ecommerce Asia be wound up and in April 2005 appointed liquidators for this purpose.  We do not know the status of the winding up, as the liquidators have not responded to our requests for a report.



Item 4.

Submission of Matters to a Vote of Security Holders.



We did not submit any matter to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year covered by this report.



PART II



Item 5.

Market for Common Equity and Related Stockholder Matters.



(a)

Market Information



Our common stock traded on the Nasdaq National Market System under the symbol FECC from June 6, 2000 until February 19, 2002 when the symbol was changed to BREK.



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 20





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Before then, our common stock traded on the NASD OTC Bulletin Board under the symbol FECC since March 8, 1999.  On December 3, 2002, Brek was removed from the Nasdaq National Market System for failing to maintain minimum listing requirements.



Our common stock has also traded on the Berlin over-the-counter stock exchange since January 27, 2000 and has been listed on the Bermuda Stock Exchange since December 23, 1999.



Our shares of common stock were quoted on the NASD OTC Bulletin Board under the symbol BREK from December 3, 2002 until May 23, 2003, when our shares ceased to be quoted on the NASD OTC Bulletin Board. Since May 23, 2003 our common stock has been quoted on the gray market under the same symbol, BREK.



Table 9 gives the high and low bid information for each fiscal quarter for the last two fiscal years and for the interim period ended March 29, 2007.  The bid information was obtained from Pink Sheets LLC and reflects inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.



|                          |        |       |                
|------------------------- | ------ | ----- | ---------------
|Table 9
High and Low Bids
|                         
|Period ended              | High   | Low   | Source         
|29 March 2007             | $0.29  | $0.18 | Pink Sheets LLC
|31 December 2006          | $0.39  | $0.25 | Pink Sheets LLC
|30 September 2006         | $0.43  | $0.17 | Pink Sheets LLC
|30 June 2006              | $0.575 | $0.40 | Pink Sheets LLC
|31 March 2006             | $0.75  | $0.45 | Pink Sheets LLC
|31 December 2005          | $0.72  | $0.55 | Pink Sheets LLC
|30 September 2005         | $0.68  | $0.34 | Pink Sheets LLC
|30 June 2005              | $0.44  | $0.29 | Pink Sheets LLC
|31 March 2005             | $0.47  | $0.33 | Pink Sheets LLC



(b)

Holders of Record



We have 472 registered holders of our common stock.



(c)

Dividends



We have never declared or paid dividends on our shares of common stock, except for the Right declared as a dividend under the Rights Plan disclosed below.  We intend to follow a policy of retaining earnings, if any, to finance the growth of the business and do not anticipate paying any cash dividends in the foreseeable future.  The declaration and payment of future dividends on the shares of common stock will be the sole discretion of the board of directors and will depend on our profitability and financial condition, capital requirements, statutory and contractual restrictions, future prospects and other factors deemed relevant by the board of directors.



On December 5, 2001, our board of directors adopted a shareholder rights plan (the Rights Plan).  The purpose of the Rights Plan is to deter, and protect our shareholders from, certain coercive and otherwise unfair takeover tactics and enable the directors to represent effectively the interests of shareholders in the event of a takeover attempt.  The Rights Plan does not deter negotiated mergers or business combinations that the directors determine to be in the best interests of Brek and its shareholders.  In connection with the adoption of the Rights Plan, Brek entered into a rights agreement with U.S. Bank, N.A. dated as of March 1, 2002.  At the date of this filing, we would not be able to implement the Rights Plan unless the number of authorized shares of common stock is increased to satisfy share issuances for all issued and outstanding shares and the exercise of all warrants and stock options.



On March 20, 2002, the board of directors declared a dividend of one common share purchase right (a Right) for each outstanding share of common stock, par value $0.001 per share, of Brek.  The dividend was payable on March 20, 2002 to the stockholders of record on that date.  Upon the happening of certain events, the directors could vote to implement the rights



plan, which would delay, impede or effect a change in control of Brek, or could impede a merger, consolidation, takeover or other business combination involving Brek, or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of Brek.  Once the Rights become exercisable, each Right entitles the registered holder to purchase from Brek five shares of common stock at a price of $0.01 per share, subject to adjustment.



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 21





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(d)

Recent Sales of Unregistered Securities



We have sold no unregistered securities within the last three years that would require disclosure pursuant to Item 701 of Regulation S-B, except for the following:



January 15, 2004 - $0.05 Offering



On January 15, 2004, the board of directors authorized the issuance of up to 11,000,000 units at an offering price of $0.05 per unit.  Each unit consisted of one restricted share of common stock and one restricted warrant.  Each restricted warrant was convertible into one restricted share of common stock.  The restricted warrant was exercisable for 12 months at an exercise price of $0.35 per warrant.  We set the value of the units arbitrarily without reference to our assets, book value, revenues or other established criteria of value.  All the restricted units issued in this offering were issued for investment purposes in a private transaction.



In March 2004, we raised $437,500 in cash from this offering and issued an aggregate 8,750,000 restricted units to six non-US subscribers outside the United States and an additional 875,000 restricted units as a finders fee to Richard N. Jeffs, Breks CEO and president.



In March 2004 and in May 2004, as part of this same offering, we issued an aggregate 1,375,000 restricted units as settlement of $68,750 of debt owed to five of our creditors who had provided services to us.  Of the five creditors, two were non-US persons outside the United States and three were accredited investors in the United States.  One of these creditors was Richard N. Jeffs, an executive officer and one was Michael Nazmack, a director of Brek.



For the non-US subscribers outside the United States, we relied upon Section 4(2) of the Securities Act of 1933 and Rule 903 of Regulation S promulgated pursuant to that Act by the Securities and Exchange Commission for the private placement in March 2004 and two of the debt settlements.  We are satisfied that we complied with the requirements of the exemption from the registration and prospectus delivery of the Securities Act of 1933.  The offering was not a public offering and was not accompanied by any general advertisement or any general solicitation.  We received from each subscriber a completed and signed subscription agreement containing certain representations and warranties, including, among others, that (a) the subscriber was not a U.S. person, (b) the subscriber subscribed for the shares for their own investment account and not on behalf of a U.S. person, and (c) there was no prearrangement for the sale of the shares with any buyer.  No offer was made or accepted in the United States, and the share certificates representing the shares were issued bearing a legend with the applicable trading restrictions.



Finally, for the accredited subscribers in the United States, Brek relied upon Section 4(2) of the Securities Act of 1933 and Rule 506 Regulation D promulgated pursuant to that Act by the Securities and Exchange Commission for the other three debt settlements.  We are satisfied that we complied with the requirements of the exemption from the registration and prospectus delivery of the Securities Act of 1933.  Specifically, we made the offer only to accredited investors as that term is defined under applicable federal and state securities laws.  The share certificates representing the shares were issued bearing a legend with the applicable trading restrictions.



January 29, 2004 - $0.20 Offering



On January 29, 2004, the board of directors authorized the issuance of up to 7,500,000 units at an offering price of $0.20 per unit.  Each unit consisted of one restricted share of common stock and one restricted warrant.  Each restricted warrant is convertible into one restricted share of common stock.  The restricted warrant is exercisable for three years at an exercise price of $0.30 per warrant.  We set the value of the units arbitrarily without reference to our assets, book value, revenues or other established criteria of value.  All the restricted units issued in this offering were issued for investment purposes in a private transaction.



On May 24, 2004, we raised $700,000 in cash from this offering and issued an aggregate 3,500,000 restricted units to 10 accredited subscribers in the United States and an additional 350,000 restricted units as a finders fee to Richard N. Jeffs, Breks CEO and president.



On May 28, 2004, we raised an additional $50,000 in cash from this offering and issued an additional 250,000 restricted units to one non-US subscriber outside the United States and an additional 25,000 restricted units as a finders fee to Richard N. Jeffs, Breks CEO and president.



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 22





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On November 30, 2004, we raised an additional $110,000 in cash from this offering and issued an additional 550,000 restricted units to two non-US subscribers outside the United States and one accredited subscriber in the United States, and an additional 55,000 restricted units as a finders fee to Richard N. Jeffs, Breks CEO and president.



For the accredited subscribers in the United States, we are satisfied that we complied with the requirements of the exemption from the registration and prospectus delivery of the Securities Act of 1933 as specified by the provisions of Section 4(2) of that Act and Rule 506 Regulation D promulgated pursuant to that Act by the Securities and Exchange Commission.  Specifically, we made the offer only to accredited investors, as that term is defined under applicable federal and state securities laws.  The share certificates representing the shares were issued bearing a legend with the applicable trading restrictions.



For the non-US subscribers outside the United States, Brek relied upon Section 4(2) of the Securities Act of 1933 and Rule 903 of Regulation S promulgated pursuant to that Act by the Securities and Exchange Commission.  We are satisfied that we complied with the requirements of the exemption from the registration and prospectus delivery of the Securities Act of 1933.  The offering was not a public offering and was not accompanied by any general advertisement or any general solicitation.  We received from each subscriber a completed and signed subscription agreement containing certain representations and warranties, including, among others, that (a) the subscriber was not a U.S. person, (b) the subscriber subscribed for the shares for their own investment account and not on behalf of a U.S. person, and (c) there was no prearrangement for the sale of the shares with any buyer.  No offer was made or accepted in the United States and the share certificates representing the shares were issued bearing a legend with the applicable trading restrictions.



May 2004 - $0.15 Offering



On May 3, 2004, the board of directors authorized the issuance of up to 5,000,000 units at an offering price of $0.15 per unit.  Each unit consisted of one restricted share of common stock and one restricted warrant.  Each restricted warrant is convertible into one restricted share of common stock.  The restricted warrant is exercisable for three years at an exercise price of $0.25 per warrant.  We set the value of the units arbitrarily without reference to our assets, book value, revenues or other established criteria of value.  All the restricted units issued in this offering were issued for investment purposes in a private transaction.



On May 6, 2004, we raised $700,000 in cash from this offering and issued an aggregate 4,666,667 restricted units to two non-US subscribers outside the United States, one of which was an executive officer of Brek, and an additional 66,667 restricted units as a finders fee to Richard N. Jeffs, Breks CEO and president.



We relied upon Section 4(2) of the Securities Act of 1933 and Rule 903 of Regulation S promulgated pursuant to that Act by the Securities and Exchange Commission.  We are satisfied that we complied with the requirements of the exemption from the registration and prospectus delivery of the Securities Act of 1933.  The offering was not a public offering and was not accompanied by any general advertisement or any general solicitation.  We received from each subscriber a completed and signed subscription agreement containing certain representations and warranties, including, among others, that (a) the subscriber was not a U.S. person, (b) the subscriber subscribed for the shares for their own investment account and not on behalf of a U.S. person, and (c) there was no prearrangement for the sale of the shares with any buyer.  No offer was made or accepted in the United States and the share certificates representing the shares were issued bearing a legend with the applicable trading restrictions.



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 23





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October 1, 2004  $0.20 Offering



On October 14, 2004, we raised $279,392 in cash from this offering and issued 1,396,956 restricted units to First Griffin Group LLC at an offering price of $0.20 per unit.  Each unit consisted of one restricted share of common stock and one restricted warrant.  Each restricted warrant is convertible into one restricted share of common stock.  The restricted warrant is exercisable for two years at an exercise price of $0.35 per warrant.  We set the value of the units for the offering arbitrarily without reference to our assets, book value, revenues or other established criteria of value.  All the restricted units issued in this offering were issued for investment purposes in a private transaction.  For this offering, Brek relied upon Section 4(2) of the Securities Act of 1933.  We are satisfied that we complied with the requirements of the exemption from the registration and prospectus delivery of the Securities Act of 1933.  The offering was not a public offering and was not accompanied by any general advertisement or any general solicitation.  The share certificates representing the shares were issued bearing a legend with the applicable trading restrictions.



October 27, 2004 - $0.20 Offering



On October 27, 2004, the board of directors authorized the issuance of up to 6,000,000 units at an offering price of $0.20 per unit.  Each unit consisted of one restricted share of common stock and one restricted warrant.  Each restricted warrant is convertible into one restricted share of common stock.  The restricted warrant is exercisable for two years at an exercise price of $0.35 per warrant.  We set the value of the units arbitrarily without reference to our assets, book value, revenues or other established criteria of value.  All the restricted units issued in this offering were issued for investment purposes in a private transaction.



On November 30, 2004, we raised $765,000 in cash from this offering and issued an aggregate 3,825,000 restricted units to three accredited subscribers in the United States, one of which was a director of Brek, and an additional 382,500 restricted units as a finders fee to one non-US finder outside the United States, who was an executive officer of Brek.



On December 21, 2004, we raised an additional $100,000 in cash from this offering and issued an additional 500,000 restricted units to one accredited subscriber in the United States and an additional 50,000 restricted units as a finders fee to Richard N. Jeffs, Breks CEO and president.



For the accredited subscribers in the United States, we are satisfied that we complied with the requirements of the exemption from the registration and prospectus delivery of the Securities Act of 1933 as specified by the provisions of Section 4(2) of that Act and Rule 506 Regulation D promulgated pursuant to that Act by the Securities and Exchange Commission.  Specifically, the offer was made to only accredited investors, as that term is defined under applicable federal and state securities laws.  The share certificates representing the shares were issued bearing a legend with the applicable trading restrictions.



December 2004 - $0.30 Offering



On December 22, 2004, the board of directors authorized the issuance of up to 3,666,667 units at an offering price of $0.30 per unit.  Each unit consisted of one restricted share of common stock and one restricted warrant.  Each restricted warrant is convertible into one restricted share of common stock.  The restricted warrant is exercisable for two years at an exercise price of $0.50 per warrant.  We set the value of the units arbitrarily without reference to our assets, book value, revenues or other established criteria of value.  All the restricted units issued in this offering were issued for investment purposes in a private transaction.



We raised $1,000,000 in cash from this offering, which had five closings between January 2005 and July 2005, and issued an aggregate 3,333,336 restricted units to six accredited subscribers in the United States, and four non-US subscribers outside the United States and an additional 333,334 restricted units as a finders fee to Richard N. Jeffs, Breks CEO and president.



For the accredited subscribers in the United States, we are satisfied that we complied with the requirements of the exemption from the registration and prospectus delivery of the Securities Act of 1933 as specified by the provisions of Section 4(2) of that Act and Rule 506 Regulation D promulgated pursuant to that Act by the Securities and Exchange Commission.  Specifically, the offer was made to only accredited investors, as that term is defined under applicable federal and state securities laws.  The share certificates representing the shares were issued bearing a legend with the applicable trading restrictions.



For the non-US subscribers outside the United States, we relied upon Section 4(2) of the Securities Act of 1933 and Rule 903 of Regulation S promulgated pursuant to that Act by the Securities and Exchange Commission.  We are satisfied that we complied with the requirements of the exemption from the registration and prospectus delivery of the Securities Act of 1933.



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 24





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The offering was not a public offering and was not accompanied by any general advertisement or any general solicitation.  Brek received from each subscriber a completed and signed subscription agreement containing certain representations and warranties, including, among others, that (a) the subscriber was not a U.S. person, (b) the subscriber subscribed for the shares for their own investment account and not on behalf of a U.S. person, and (c) there was no prearrangement for the sale of the shares with any buyer.  No offer was made or accepted in the United States and the share certificates representing the shares were issued bearing a legend with the applicable trading restrictions.



July 2005  Exercise of Warrants



On July 29, 2005, we issued 400,000 shares of common stock to Richard N. Jeffs, the CEO and president of Brek, for the exercise of warrants at an exercise price of $0.25 per warrant.  We received $100,000 for the exercise of these warrants.  These warrants were issued as part of the May 3, 2004 offering at $0.15 per unit.



September 2005  Exercise of Warrants



On September 28, 2005, we issued 100,000 shares of common stock to Richard N. Jeffs, the CEO and president of Brek for the exercise of warrants at an exercise price of $0.25 per warrant.  Brek received $25,000 for the exercise of these warrants.  These warrants were issued as part of the May 3, 2004 offering at $0.15 per unit.



January 2006  Exercise of Warrants



On January 30, 2006, we issued 800,000 shares of common stock to Richard N. Jeffs, the CEO and president of Brek for the exercise of warrants at an exercise price of $0.25 per warrant.  We converted $200,000 of advances payable to Mr. Jeffs as consideration for the exercise of these warrants.  These warrants were issued as part of the May 3, 2004 offering at $0.15 per unit.



January 6, 2006 - $0.50 Offering



On January 6, 2006, the board of directors authorized the issuance of up to 2,000,000 units at an offering price of $0.50 per unit.  Each unit consisted of one restricted share of common stock and one restricted warrant.  Each restricted warrant is convertible into one restricted share of common stock.  The restricted warrant is exercisable for 12 months at an exercise price of $0.90 per warrant.  We set the value of the units arbitrarily without reference to our assets, book value, revenues or other established criteria of value.  All the restricted units issued in this offering were issued for investment purposes in a private transaction.



On February 7, 2006, we raised $150,000 in cash from this offering and issued an aggregate 300,000 restricted units to two accredited subscribers in the United States.



On February 8, 2006, we raised an additional $100,000 in cash from this offering and issued an aggregate 200,000 restricted units to one accredited subscriber in the United States.



On February 9, 2006, we raised an additional $50,000 in cash from this offering and issued an aggregate 100,000 restricted units to one accredited subscriber in the United States.



On February 17, 2006, we raised an additional $50,000 in cash from this offering and issued an aggregate 100,000 restricted units to one accredited subscriber in the United States.



On March 2, 2006, we raised an additional $50,000 in cash from this offering and issued an aggregate 100,000 restricted units to one accredited subscriber in the United States.



For the accredited subscribers in the United States, we are satisfied that we complied with the requirements of the exemption from the registration and prospectus delivery of the Securities Act of 1933 as specified by the provisions of Section 4(2) of that Act and Rule 506 Regulation D promulgated pursuant to that Act by the Securities and Exchange Commission.  Specifically, the offer was made to only accredited investors, as that term is defined under applicable federal and state securities laws.  The share certificates representing the shares were issued bearing a legend with the applicable trading restrictions.



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 25





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May 2006  Exercise of Warrants



On May 19, 2006, we issued 250,000 shares of common stock to one non-US subscriber outside the United States for the exercise of warrants at an exercise price of $0.30 per warrant.  We received $75,000 for the exercise of these warrants.  These warrants were issued as part of the January 29, 2004 offering at $0.20 per unit.



September 2006  Settlement of Debt with Directors



On September 11, 2006, we approved the issuance of 300,922 shares of common stock at $0.50 per share to three directors to settle $150,461 of debt due to the directors.  On September 27, 2006, we issued 257,336 shares of common stock to Greg Pek, 24,000 shares of common stock to Ian Robinson, 14,586 shares of common stock to Robinson Management Ltd., a company controlled by Ian Robinson, and 5,000 shares of common stock to Mike Nazmack. The shares issued to Mr. Pek included 10, 410 shares to repay debt of $5,205 that Mr. Pek had received in cash. We cancelled the certificate representing the shares issued to Mr. Pek, returned the shares to treasury and reissued a certificate representing 246,926 common shares on November 21, 2006,



November 2006  Exercise of Discounted Warrants



On September 28, 2006, the board of directors approved an offering to its warrant-holders who were accredited investors to allow the warrant-holders to exercise their warrants, in whole or in part, at a discounted exercise price equal to 33.33% of the initial exercise price stated in their warrant provided they exercised their warrants by October 31, 2006.  At that time, there were 18,534,460 warrants outstanding with various exercise prices.



On November 7, 2006, we issued a total of 18,334,460 shares of common stock for the exercise of the discounted warrants to a total of 35 subscribers, of which six were non-US subscriber outside the United States and 29 were accredited subscribers in the United States.



●

3,433,334 of the warrants were exercised at an exercise price of $0.083325 per warrant.  These warrants were issued as part of the May 3, 2004 offering at $0.15 per unit with the initial exercise price of $0.25 per warrant.  1,493,087 of these shares were issued to settle $124,412 of debt.





●

4,480,000 of the warrants were exercised at an exercise price of $0.09999 per warrant.  These warrants were issued as part of the January 29, 2004 offering at $0.20 per unit with the initial exercise price of $0.30 per warrant.





●

6,154,456 of the warrants were exercised at an exercise price of $0.116655 per warrant.  These warrants were issued as part of the October 2004 offerings at $0.20 per unit with the initial exercise price of $0.35 per warrant.  287,137 of these shares were issued to settle $33,496 of debt.



●

3,666,670 of the warrants were exercised at an exercise price of $0.16665 per warrant.  These warrants were issued as part of the December 22, 2004 offering at $0.30 per unit with the initial exercise price of $0.50 per warrant.



●

600,000 of the warrants were exercised at an exercise price of $0.29997 per warrant.  These warrants were issued as part of the January 6, 2006 offering at $0.50 per unit with the initial exercise price of $0.90 per warrant.



For the exercise of these warrants, we received a total of $2,085,255 in cash and settled a total of $157,908 in debt.  Of the cash we received, $1,221,084 came from unrelated parties, $600,299 came from relatives of directors, companies controlled by directors or companies controlled by relatives of directors and $263,873 came from directors.  For the exercise of warrants, we settled $82,251 in debt with Richard N. Jeffs, our CEO and president, and $75,657 in debt with Susan Jeffs, the spouse of Rick Jeffs.



Item 6.

Managements Discussion and Analysis or Plan of Operation.



The following discussion and analysis of our financial condition and the results of our operations (MD&A) is intended to help the reader understand Brek Energy Corporation, our operations and our present business environment.



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|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 26





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Our MD&A is provided as a supplement to  and should be read in conjunction with  our consolidated financial statements and the accompanying notes contained within this report.



Uncertainties relating to forward-looking statements



This MD&A contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  You can identify these statements where we have used words such as plan, expect, aim, believe, project, anticipate, intend, estimate, will, should, could and other expressions that indicate future events and trends.  All statements that address expectations or projections about the future, including statements about our strategy for participating in drilling programs, increasing revenues, and raising capital from external sources are forward-looking statements.



We have made all of our forward-looking statements as of the date of the filing of this MD&A and we disclaim any duty to update these statements.



Certain parts of this MD&A may contain forward-looking statements within the meaning of the Securities Exchange Act of 1934 based on current managements expectations.  Our actual results could differ materially from those in our forward looking statements due to a number of uncertainties, including, but not limited to, those discussed in this section.  Factors that could cause our future results to differ from these expectations include general economic conditions, particularly as they affect our ability to raise sufficient working capital, the costs of bringing our oil and gas properties into production, and the market for our production.  As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives requires the exercise of judgment.  To the extent that the assumed events do not occur, our outcome may vary substantially from our anticipated or projected results, and accordingly, we express no opinion on the achievability of those forward-looking statements and give no assurance that any of the assumptions relating to the forward-looking statements are accurate.



Our Business



We are in the oil and gas exploration business in the United States.  We have properties in Utah, Wyoming, California and Texas.  Our primary focus is on our operations in Utah.



We have participated in the drilling or re-completion of twelve wells and have ten producing wells in which we have net revenue interests of between 8% and 20%.  We have thirty-one farmouts, all in Utah except for one in California, and we have not consented to participate in the drilling of twenty-six wells: six in 2005, thirteen in 2006, and eleven to date in 2007.



On June 16, 2006, we signed farmout agreements with Gasco for ten non-consent wells as we had agreed in December 2005.  Under the farmout agreements, we agreed to forfeit 100% of our interest in all of the wells and wellbores, and to relinquish our leasehold interest in 188 net acres surrounding the wells (800 gross acres) in exchange for the right to back in to a 10% working interest in nine wells and wellbores and a 4.09% working interest in one well and wellbore when Gasco has recovered 100% of its drilling and operating costs.  In November 2006, we signed another fifteen farmout agreements with Gasco.  Under the agreements, we agreed to forfeit 100% of our interest in all of the wells and wellbores, and to relinquish our leasehold interest in 292 net acres surrounding the wells (1,600 gross acres) in exchange for the right to back in to a 30% working interest in the wells and wellbores after 100% payout.  All of these farmouts are in Utah.



Gasco has drilled (or will drill) the non-consent wells bearing 100% of the costs and is entitled to all of the revenue generated from the sale of oil and gas until they have recovered 300% of their drilling costs, 150% of the costs of newly acquired equipment in the well, and 100% of the operating costs and the costs of any newly acquired surface equipment beyond the wellhead connections, at which time we are entitled to our percentage of the revenue.  The average cost of these non-consent wells is almost $4 million, so we do not expect to see any revenue from them for some time, if ever.  We have not, however, forfeited any leasehold interests, other than those associated with the farmouts discussed above, and can participate in future drilling that is proposed for other locations on the same leases.



Our oil and gas production decreased by approximately 20% during the year ended December 31, 2006, as compared with the year ended December 31, 2005.  During 2006, on a combined basis, our proved oil and gas reserve quantities decreased by approximately 78%, primarily because we agreed to farm out fifteen wells to Gasco and did not consent to participate in the drilling of thirteen wells, and because some proved properties were removed from the total proved reserves as they were not deemed to be economically viable at current oil and natural gas prices.



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|Brek Energy Corporation | Form 10-KSB - 2006 | 27





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Our reserve and production information as of December 31, 2006 and 2005 is set out in Table 10.



Table 10

|                                                    |                                 |  |          
|--------------------------------------------------- | ------------------------------- |  | ---------
|Production and reserves                            
|                                                    | For the years ended
December 31
|                                                    | 2006                            |  | 2005     
|Natural gas production (Mcf)                        | 72,581                          |  | 91,983   
|Average sales price per Mcf                         | $5.52                           |  | $7.70    
|Year-end proved gas reserves (Mcf)                  | 1,241,637                       |  | 5,653,612
|                                                    |                                 |  |          
|Oil production (Bbl)                                | 999                             |  | 949      
|Average sales price per Bbl                         | $39.45                          |  | $59.44   
|Year-end proved oil reserves (Bbl)                  | 9,186                           |  | 27,405   
|                                                    |                                 |  |          
|Production (Mcfe)*                                  | 78,575                          |  | 97,674   
|Year-end proved reserves (Mcfe)*                    | 1,296,753                       |  | 5,818,042
|*Assumes a conversion of 6 Mcf for each Bbl of oil.



Vallenar Energy Corp. (Vallenar Energy), through its subsidiary, Nathan Oil Partners LP, in May 2006 reached an agreement with Chesapeake Exploration Limited Partnership, an American oil and gas company with operations in Texas for the development and operation of the Texas properties.  Under the agreement, the operator can earn a 100% leasehold interest in the 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 ten wells and recovered 100% of the costs to drill and operate the wells, Nathan Oil can back in for a 25% working interest in the wells.  On future wells, Nathan Oil can either participate from the outset to earn a 25% working interest or back in after payout to earn a 6.5% working interest.



On August 24, 2006, we transferred our 51.53% interest in Vallenar Energy to Rock City Energy Corp. (formerly Vallenar Holdings, Inc.) in exchange for 4,000,000 common shares of Rock City.  We own all of the issued and outstanding shares of Rock City.  As a result of the business combination, we have consolidated the accounts of Rock City into our financial statements at December 31, 2006.  We accounted for our investment in Rock City as a purchase and valued our 4,000,000 shares of Rock City at $755,552.  This transaction did not result in any gain or loss on our or Vallenar Energys books at December 31, 2006.  In March, 2007, we subscribed for another 4,000,000 shares of Rock City for $600,000 cash.  We intend to distribute all of these shares to our shareholders as part of the merger agreement with Gasco Energy, discussed below.



As a result of this exchange of shares, Vallenar Energy Corp. ceased to be our subsidiary and we included Vallenar Energys operating losses ($26,335) in our consolidated statements of operations to August 24, 2006, as a loss from discontinued operations.  After August 24, 2006, any income or loss from Vallenar Energy, and the resulting minority interest, will be included in Rock Citys financial statements which have been consolidated in our financial statements.  We will continue to consolidate the Rock City financial statements in our financial statements until we have distributed the shares of Rock City to our shareholders.



On September 18, 2006, with the operators consent, we rescinded our consent to participate in the drilling of one well.  The operator credited our account for $560,294 for our portion of the costs billed to us.



Between January 1, 2006, and the end of this year, we received $75,000 in cash from the exercise of 250,000 warrants at $0.30 per unit, and $400,000 in cash from the private placement of 800,000 units at $0.50 per unit.  We used this cash to cover operating expenses.



In January of 2006 a director exercised 800,000 share purchase warrants in payment of advances payable of $200,000.



On September 28, 2006, our board resolved to offer all warrant holders a 66.67% discount if they exercised their outstanding warrants before October 31, 2006.  This offer was made to encourage the warrant holders to exercise their warrants prior to the Gasco merger.  We are using the proceeds to pay our accounts payable and any other liabilities that we must satisfy to close the merger discussed below, to provide working capital to cover our operating and administrative costs over the next year and for the purchase an additional 4,000,000 shares of Rock City for $600,000.



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|Brek Energy Corporation | Form 10-KSB - 2006 | 28





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By October 31, 2006, all except two warrant-holders accepted the offer and exercised their warrants to buy 16,554,236 common shares in exchange for $2,085,255 in cash, and 1,780,224 common shares to retire $157,908 of debt.  At December 31, 2006, 200,000 common stock purchase warrants remained outstanding.  These warrants expired in February 2007.



Merger



On September 20, 2006, we agreed, subject to our stockholders approval, to merge with Gasco Energy, Inc. (Gasco) for equity consideration of 11 million shares of Gasco's common stock valued at approximately $30 million based on the closing price of Gasco's common stock on September 20, 2006.



The directors of Brek and Gasco have approved the terms of the transaction, which we expect to close in early in 2007.  The completion of the merger is subject to the approval of our stockholders and the completion of the distribution and disposition of certain of our subsidiaries to our stockholders and others, leaving only the California, Utah and Wyoming assets in Brek.  Under the terms of the agreement, we will merge with and become a wholly owned subsidiary of Gasco.  Our stockholders will receive the number of shares of Gasco's common stock that is equal to 11 million divided by the total number of shares of Brek's common stock outstanding, fully diluted, on the date of the merger.



As part of the merger, our directors have agreed to vote their shares in favor of the transaction; our president and CEO has agreed to deposit 550,000 of the shares of Gasco's common stock that he will acquire in the transaction in escrow for one year to satisfy any claims resulting from breaches of our representations and warranties; and in consideration for pledging the 550,000 Gasco shares, our board of directors approved a fee payable to our president equal to 20% of the value of the Gasco shares on the date his 550,000 Gasco shares are deposited in escrow.



If we breach the terms of the merger agreement we may be liable to pay a cancellation fee to Gasco of $1 million plus costs.



Critical Accounting Policies and Estimates



An appreciation of our critical accounting policies is necessary to understand our financial results.  These policies may require that we make difficult and subjective judgments regarding uncertainties, and as a result, such estimates may significantly impact our consolidated financial results.  The precision of these estimates and the likelihood of future changes depend on a number of underlying variables and a range of possible outcomes.  Other than our accounting for our revenue, inventory, prepaid expenses and deposits, financial instruments and intangible asset, our critical accounting policies do not involve the choice between alternative methods of accounting.  We have applied our critical accounting policies and estimation methods consistently.



Oil and gas Properties



We follow 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 center (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. We did not capitalize any internal costs during the years ended December 31, 2006 and 2005.  Costs associated with production and general corporate activities are expenses in the period incurred.  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.



Depletion of 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 they are either developed or abandoned. The properties are reviewed periodically 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.



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|Brek Energy Corporation | Form 10-KSB - 2006 | 29





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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.  However, subsequent commodity price increases may be utilized to calculate the ceiling value.



As of December 31, 2006, based on oil and gas prices of $45.53 per barrel and $4.47 per mcf, the full cost pool was the same as the ceiling because of an impairment charge of $4,452,754 that was taken against our oil and gas properties.



Long-Lived Assets



At December 31, 2006 and 2005 our only long lived asset was our oil and gas properties. As a result of a reserves study, it was determined that the carrying amount of the oil and gas properties exceeded their fair value by $4,452,754 at December 31, 2006.  At December 31, 2006 and 2005 we recorded $4,452,754 and $0, respectively in charges for impairment of oil and gas properties, to reflect a decline in value of these properties, due primarily the lower prices for natural gas and a reduction of leased acreage.  The cost of our unproved properties is withheld from the depletion base as described above until the properties are either developed or abandoned.  We review these properties periodically for possible impairment.



Revenue recognition



We derive our revenue by selling the oil and gas produced from our wells.  We recognize this revenue as income when we sell the oil and gas.  We generally receive payment for the oil and gas sold one to three months after the month in which we sell it.  For this reason, we must estimate the revenue that we have earned but not yet received as of our reporting date.  We use actual production reports to estimate the quantities sold and the estimated average wellhead prices from the Natural Gas Weekly Update bulletin to estimate the price of the production.  We record variances between our estimates and the amounts we actually receive in the month that we receive the payment.



Stock-Based Compensation



On July 1, 2005, we adopted the modified prospective method of Statement of Financial Accounting Standards 123R SFAS 123(R) which requires that we recognize the compensation costs of all share-based payments granted, modified or settled in financial statements issued after July 1, 2005, as well as for any awards that we granted before the adoption date for which the required service has not yet been performed.  Our adoption of SFAS 123(R) did not have a material effect on our financial condition or results of operations because all required services had been performed before July 1, 2005.  We did not enter into any share-based transactions during this period.



Before July 1, 2005, we accounted for our stock-based compensation using APB 25 and related interpretations.  Under APB 25, we recognized compensation expense for stock options with an exercise price that was less than the market price on the date that we granted the option.  For stock options with exercise prices at or above the market value of the stock on the grant date, we adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 Accounting for Stock-Based Compensation (SFAS 123) for the stock options granted to our employees and directors.  Accordingly, we have recognized no compensation cost for these options before June 30, 2005.



We use the Black-Scholes option valuation model to calculate the fair value of compensation expense under SFAS 123(R).  This model requires that we estimate a risk-free interest rate and the volatility of the price of our common stock.  The use of a different estimate for any one of these components could have a material impact on the amount of calculated compensation expense.



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, we exchanged all of our shares in Vallenar Energy (a 51.53% interest) for all of the issued and outstanding shares of Rock City (4,000,000 common shares).  As a result of this exchange we reclassified Vallenar Energys net operating losses, up to August 24, 2006, in losses from discontinued operations in our consolidated financial statements.  For the years ended December 31, 2006 and 2005, we recorded losses from discontinued operations of $26,335 and $1,859, respectively.  No gain or loss on our investment in Vallenar Energy (of $755,552) was recorded on this exchange of shares.



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|Brek Energy Corporation | Form 10-KSB - 2006 | 30





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Recent Accounting Pronouncements



Refer to Note 2, of our Notes to Consolidated Financial Statements for a discussion of recent accounting standards and pronouncements.



Operations Review



We had a net loss of $5,486,113 during the year ended December 31, 2006.  As of December 31, 2006, we had a cash balance of $1,415,996 and trade accounts receivable of $82,014.  When these current assets are offset against our current obligations of $256,940 in accounts payable, $124,309 in accrued liabilities, $80,105 in accrued wages and $12,258 in amounts due to related parties, we are left with working capital of $1,024,398 at December 31, 2006.



We believe that our cash and cash equivalents as of the date of this filing, which include the proceeds from the recent exercise of warrants, are adequate to satisfy our working capital needs.  As our oil and gas revenues are not yet sufficient to satisfy our ongoing operational and working capital requirements, for the foreseeable future we must continue to raise funds through private loans, private placements of our common shares, or the issuance of shares for debt.



Our independent registered public accounting firm have added an explanatory paragraph to their audit opinion issued in connection with our consolidated financial statements for the fiscal years 2006 and 2005, which related to our ability to continue as a going concern depends upon our ability to resolve our liquidity problems, principally by obtaining capital and generating sufficient revenues to become profitable.  Our ability to achieve and maintain profitability and positive cash flow depends upon our ability to develop our oil and gas properties, generate revenues from our oil and gas production, and control drilling, completion and production costs.  As we have a minority interest in our oil and gas properties and are not the operator, we can do little to affect the generation of revenue or control drilling, completion and production costs, and we do not have the expertise to initiate development independently of the owner of the majority interest, who is also the operator.  With our current plans, we expect to incur operating losses in future periods, and cannot assure that we will continue to generate revenues.  The accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.



Related-Party Transactions



We owed $12,258 to related parties at December 31, 2006.  This sum includes $10,406 in professional and administrative fees that were unpaid at December 31, 2006.  None of the amounts due to related parties bear interest or have any fixed terms of repayment.



On January 31, 2006, one of our directors exercised 800,000 warrants at full exercise price to extinguish $200,000 in debt that we owed to him.



On September 27, 2006, we issued 300,922 common shares at $0.50 per share in payment of $150,461 in debt to three directors and a company controlled by a director.  In November 2006, one of the directors returned 10,410 shares of this commons stock to us in exchange for $5,205 in cash.  Prior to December 31, 2006, we cancelled the 10,410 shares.



During October 2006, directors, relatives of directors, companies controlled by directors and companies controlled by relatives of directors exercised 8,044,233 common stock purchase warrants at a 66.67% discount for cash of $864,172.



During October 2006, directors and a company controlled by directors and relatives of directors exercised 1,780,224 common stock purchase warrants at a 66.67% discount in exchange for debt of $157,908.



During the year ended December 31, 2006, related parties charged $597,904 in fees for administrative fees, professional services and rent.



In 2004, we transferred to First Griffin Group 50% of our working interest in two wells and wellbores and 100% of our working interest in one well and wellbore.  In January 2007, we agreed to transfer to First Griffin a pro rata leasehold interest in 40 acres surrounding each well in exchange for $20,000 and the costs of the transfer.  Two of our directors and two relatives of directors have an interest in First Griffin.



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|Brek Energy Corporation | Form 10-KSB - 2006 | 31





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In May 2004, we granted to Griffin Asset Management, LLC, a drilling fund in which two directors have an interest, an option which gave the drilling fund the right to contribute 50% of the drilling and completion costs of any well in which we participate in Utah and Wyoming in exchange for 50% of our production and working interest in the well.  The drilling fund has not exercised any rights under this agreement and irrevocably terminated it on March 12, 2007.



Comparison of the Years Ended December 31, 2006 and 2005



Overall Results of Operations



For the year ended December 31, 2006, we had a net loss of $5,486,113, or $0.09 per share, which was an increase of $5,228,908 from our net loss of $257,205 or $0.01 per share for the year ended December 31, 2005.  The increase in net loss for the year ended December 31, 2006 as compared to the year ended December 31, 2005, was primarily due to an impairment of oil and gas properties, increases in administrative expenses, lease operating expenses, gathering operations, professional fees, and a decrease in revenues.  These amounts were offset primarily by decreases in advertising, rent and minority interest in losses.



Revenue



Total revenue for the year ended December 31, 2006 was $440,537 compared to $764,802 for the year ended December 31, 2005.  The $324,265 decrease in revenue for 2006 was due to reduced production and lower prices for gas and oil.



Operating expenses



For the year ended December 31, 2006, our total operating expenses were $5,929,443, which was an increase of $4,914,210 from our total expenses of $1,015,233 for the year ended December 31, 2005.  The increase in expenses for the year ended December 31, 2006 as compared to the year ended December 31, 2005 was primarily due to an impairment charge of $4,452,754 against our oil and gas properties.  The major reason for the impairment was a reduction in our proved reserves, due to some reservoirs being excluded from the total, because at current prices they were no longer considered economically viable.  During the year our administrative fees increased by approximately $265,000 and professional fees by approximately $92,000, lease operating expenses by approximately $127,000 and gathering expenses by approximately $79,000.   Increases on our operating expenses were offset primarily by a decreases in advertising and promotion of approximately $25,000 and rent of $59,000.



Our administrative, professional fees and regulatory expenses increased during the year ended December 31, 2006 due to the increasing amount of work required to meet our SEC, Sarbanes-Oxley and tax filing obligations, and to the increase in legal and other advisers fees incurred in negotiating the Gasco merger agreement.  During the next year we expect our operating costs to stabilize.



Other expenses



We have filed all of our corporate income tax returns, which resulted in our paying franchise taxes of approximately $5,834 as of December 31, 2006.



Loss from discontinued operations



On August 24, 2006, we exchanged all of our 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 reclassification and separate disclosure of Vallenar Energys net operating losses of $26,335 and $1,859, for the years ended December 31, 2006 and 2005, respectively.



Liquidity, Capital Resources and Financial Position



As of December 31, 2006, we had a cash balance of $1,415,996 and a negative cash flow from operations of $1,184,221 for the year then ended.  During the year ended December 31, 2006, we funded our operations through revenue from our oil and gas properties of $440,537, the exercise of 250,000 warrants, at full warrant exercise price, from which we received cash of $75,000 and the private placement of 800,000 units for which we received cash of $400,000.  Each unit consists of one common share and one common share purchase warrant.  In October 2006 we raised $2,085,255 in cash upon the exercise of 16,554,236 warrants under an offer made on September 28, 2006 which allowed warrant holders to exercise their warrants at 33.33% of the exercise price.



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|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 32





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In the notes to our consolidated financial statements as of December 31, 2006, we caution that our ability to continue as a going concern is uncertain.  We have not generated sufficient revenues to cover our expenses, and we have an accumulated deficit of $67,079,026.  As of December 31, 2006, we had $473,612 in current liabilities.  When this is offset against our current assets of $1,498,010, we are left with working capital $1,024,398.  Although we have sufficient cash from the exercise of the warrants to satisfy our liabilities, we cannot assure that we will succeed in developing our business and achieving a profitable level of operations sufficient to meet our ongoing cash needs.  We have, however, successfully generated sufficient working capital and liquidity through oil and gas revenues and the private placement of our shares until the date of this filing, and believe that we can continue to do so for the next twelve months or as necessary until the merger completes.



Table 11 summarizes our sources and uses of cash for the years ended December 31, 2006 and 2005.

Table 11

|                                          |                                 |                |               
|----------------------------------------- | ------------------------------- | -------------- | --------------
|Sources and uses of cash                 
|                                          | For the years ended December 31
|                                          | 2006                            | 2005          
|                                          |                                 |               
|Net cash used in operating activities     | $ (1,184,221)                   | $    (101,570)
|Net cash used in investing activities     | (18,151)                        | (1,196,165)   
|Net cash provided by financing activities | 2,560,255                       | 1,125,000     
|                                          | Net cash increase, (decrease)   | $ 1,357,883    | $    (172,735)



Net cash used in operating activities



The cash used in operations of $1,184,221 was primarily due to our expenses exceeding our revenue by $5,486,113.  The net loss was primarily due to a $4,452,754 impairment of our oil and gas properties, depletion of our oil and gas properties and accretion of our asset retirement liability totaling $77,939 and a minority interest adjustment of $34,962. We also paid down our trade accounts payable by $318,450 and our accrued wages payable by $20,490 as required under our merger agreement with Gasco.    Our expenditures were funded by the collection of trade accounts receivable of $38,096, increases in accrued liabilities of $43,919 and an increase of $59,671 in amounts due to related parties.



Net cash used in investing activities



During the year ended December 30, 2006, we spent $38,151 on exploration and development of our oil and gas properties and we received net proceeds of $20,000 on the sale of our Prickly Pear acreage in Utah.



Net cash provided by financing activities



During the year we entered into the private placement of 800,000 units at $0.50 per unit in exchange for $400,000 cash.  Each unit consists of one share and one share purchase warrant, exercisable at $0.90 per share for one year.



During the year we issued 250,000 shares of our commons stock on the exercise of 250,000 share purchase warrants for $75,000 cash.



On September 28, 2006, we resolved to offer our warrant-holders the opportunity to exercise their warrants at a discounted price equal to 33.33% of the original exercise price of their warrants if they exercised them by October 31, 2006.  As of October 31, 2006, 16,554,236 warrants were exercised for cash under this offer and 16,554,236 of our common shares were issued in exchange for $2,085,255 in cash.



We used this cash to pay operating expenses and to cover exploration and development expenses.



Contingencies and commitments



We had no contingencies or long-term commitments at December 31, 2006, except for:

(a)

the Transworld litigation which is disclosed in Note 12 Commitments and Contingencies of the notes to our consolidated financial statements appearing elsewhere in this report and

(b)

our agreement and plan of merger with Gasco that is disclosed in Note 13 Business Acquisitions and Sale of Subsidiary, of the notes to our consolidated financial statements, appearing elsewhere in this report, in the merger section of this report and under contractual obligations below.



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|Brek Energy Corporation | Form 10-KSB - 2006 | 33





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As is customary in the oil and gas industry, we may at times have agreements to reserve or earn acreage or wells.  If we do not pay as required by the agreements, we may lose the acreage or wells.



Contingent liability



In February 2003, the debtor and guarantor of a note receivable took legal action against us in Bermuda, claiming that our former subsidiary, First Ecom Systems Limited, had promised to develop and supply them with certain software.  The debtor then failed to pay the note installment that was due on March 1, 2003.  The directors believe that this lawsuit is without merit, as there was no promise to develop software for the debtor, and filed a defense and counterclaim on May 8, 2003.  The debtor-plaintiff filed a reply and defense on May 21, 2003.  In March 2007, Brek and our subsidiary, Feds Acquisition Corporation, settled with the debtor and guarantor, agreed to rescind the agreements giving rise to the litigation, and consented to the dismissal of the litigation from the Bermuda court.  This leaves only our inactive Hong Kong subsidiary, First Ecommerce Asia Limited, subject to the Transworld agreements and litigation. The High Court of the Hong Kong Special Administrative Region in November 2003 ordered that First Ecommerce Asia be wound up and in April 2005 appointed liquidators for this purpose. We do not know the status of the winding up, as the liquidators have not responded to our requests for a report.



Contractual obligations



On September 20, 2006 we entered into an agreement and plan of merger with Gasco Energy, Inc. whereby we agreed to merge with a subsidiary of Gasco in exchange for 11 million shares of Gasco's common stock.  The merger agreement is subject to our shareholders approval.



If we breach the terms of the merger agreement we may be liable to pay a cancellation fee to Gasco of $1million plus costs.



Income taxes



Table 12 sets out our deferred tax assets as of December 31, 2006 and 2005.  These relate primarily to net operating losses.  We have established a 100% valuation allowance, as we believe it is more likely than not that the deferred tax assets will not be realized.



Table 12

Deferred Tax Assets

|                                 |                                |                      
|-------------------------------- | ------------------------------ | ---------------------
|                                 | For the year ended December 31
|                                 | 2006                           | 2005                 
|Federal loss carryforwards       | $ 5,624,817                    | $11,360,810          
|State loss carryforwards, Nevada | -                              | -                    
|Foreign loss carryforwards       | 2,991,744                      | 2,991,796            
|Less: valuation allowance        | (8,646,561)                    | (14,352,606)         
|                                 |                                |                      
|                                 | $                 -            | $                   -



We based the establishment of a 100% valuation allowance against our deferred tax assets on our current operating results.  If our operating results increase significantly, we might have to record our deferred taxes in our financial statements, which could have a material impact on our financial results.



Off-balance sheet arrangements



We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.  We do not have any non-consolidated, special-purpose entities.





Internal and external sources of liquidity



We have funded our operations principally through the private placement of common shares, the exercise of share purchase warrants, the issuance of shares for debt and the sale of natural gas and oil.



Inflation



We do not believe that inflation will have a material impact on our future operations.



Uncertainties relating to forward-looking statements



This Form 10-KSB annual report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  You can identify these statements where we have used words such as plan, expect, aim, believe, project, anticipate, intend, estimate, will, should, could and other expressions that indicate future events and trends.  All statements that address expectations or projections about the future, including statements about our strategy for participating in drilling programs, increasing revenues, and raising capital from external sources are forward-looking statements.



We have made all of our forward-looking statements as of the date of the filing of this Form 10-KSB and we disclaim any duty to update these statements.



Certain parts of this Form 10-KSB may contain forward-looking statements within the meaning of the Securities Exchange Act of 1934 based on current managements expectations.  Our actual results could differ materially from those in our forward looking statements due to a number of uncertainties, including, but not limited to, those discussed in this section.  Factors that could cause our future results to differ from these expectations include general economic conditions, particularly as they affect our ability to raise sufficient working capital, the costs of bringing our oil and gas properties into production, and the market for our production.  As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives requires the exercise of judgment.  To the extent that the assumed events do not occur, our outcome may vary substantially from our anticipated or projected results, and accordingly, we express no opinion on the achievability of those forward-looking statements and give no assurance that any of the assumptions relating to the forward-looking statements are accurate.



|                        |                    |   
|----------------------- | ------------------ | --
|Brek Energy Corporation | Form 10-KSB - 2006 | 34





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Item 7.

Financial Statements







BREK ENERGY CORPORATION





CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2006 and 2005



















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TABLE OF CONTENTS

















|                                                                                              |  
|--------------------------------------------------------------------------------------------- | -
|Report of Independent Registered Public Accounting Firm.               | 1
|                                                                                              |  
|Consolidated Balance Sheets..                              | 2
|                                                                                              |  
|Consolidated Statements of Operations.                         | 3
|                                                                                              |  
|Consolidated Statement of Changes in Stockholders Equity and Accumulated Deficit. | 4
|                                                                                              |  
|Consolidated Statements of Cash Flows                                                         | 5
|                                                                                              |  
|Notes to Consolidated Financial Statements.                      | 6



















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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



|                        |                    |       
|----------------------- | ------------------ | ------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 1





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|                                                                                                                                                      |                       |                     
|----------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | --------------------
|BREK ENERGY CORPORATION                                                                                                                              
|CONSOLIDATED BALANCE SHEETS                                                                                                                          
|DECEMBER 31, 2006 AND 2005                                                                                                                           
|                                                                                                                                                     
|                                                                                                                                                      | 2006                  | 2005                
|Assets                                                                                                                                                |                       |                     
|Current assets                                                                                                                                        |                       |                     
|Cash                                                                                                                                                  | $          1,415,996  | $             58,113
|Accounts receivable                                                                                                                                   | 82,014                | 120,110             
|Prepaids                                                                                                                                              | -                     | 3,415               
|                                                                                                                                                      |                       |                     
|                                                                                                                                                      |                       |                     
|Total current assets                                                                                                                                  | 1,498,010             | 181,638             
|                                                                                                                                                      |                       |                     
|                                                                                                                                                      |                       |                     
|Oil and gas properties (full cost method)  (Note 4)                                                                                                   |                       |                     
|Proved properties                                                                                                                                     | 22,658,882            | 22,630,474          
|Unproved properties                                                                                                                                   | 7,918                 | 300                 
|                                                                                                                                                      |                       |                     
|                                                                                                                                                      |                       |                     
|Total                                                                                                                                                 | 22,666,800            | 22,630,774          
|Less accumulated depletion and impairment                                                                                                             | (21,241,828)          | (16,716,564)        
|                                                                                                                                                      |                       |                     
|                                                                                                                                                      |                       |                     
|                                                                                                                                                      | 1,424,972             | 5,914,210           
|                                                                                                                                                      |                       |                     
|                                                                                                                                                      |                       |                     
|Total assets                                                                                                                                          | $           2,922,982 | $         6,095,848 
|                                                                                                                                                      |                       |                     
|Liabilities and Stockholders' Equity                                                                                                                  |                       |                     
|Current liabilities                                                                                                                                   |                       |                     
|Accounts payable                                                                                                                                      | $             256,940 | $           575,390 
|Accrued liabilities                                                                                                                                   | 124,309               | 80,390              
|Accrued wages payable                                                                                                                                 | 80,105                | 100,595             
|Due to related parties  (Note 5)                                                                                                                      | 12,258                | 455,750             
|                                                                                                                                                      |                       |                     
|                                                                                                                                                      |                       |                     
|Total current liabilities                                                                                                                             | 473,612               | 1,212,125           
|                                                                                                                                                      |                       |                     
|Noncurrent liabilities                                                                                                                                |                       |                     
|Asset retirement obligation                                                                                                                           | 23,304                | -                   
|                                                                                                                                                      |                       |                     
|                                                                                                                                                      |                       |                     
|Total liabilities                                                                                                                                     | 496,916               | 1,212,125           
|                                                                                                                                                      |                       |                     
|                                                                                                                                                      |                       |                     
|Commitments and contingencies  (Notes 3 and 12)                                                                                                       |                       |                     
|Minority interest                                                                                                                                     | 39,954                | 74,916              
|                                                                                                                                                      |                       |                     
|                                                                                                                                                      |                       |                     
|Stockholders' 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                | 59,498              
|                                                                                                                                                      |                       |                     
|Additional paid-in-capital                                                                                                                            | 69,360,165            | 65,364,249          
|Common stock purchase warrants                                                                                                                        | 25,000                | 977,973             
|Accumulated deficit                                                                                                                                   | (67,079,026)          | (61,592,913)        
|                                                                                                                                                      |                       |                     
|Total stockholders' equity                                                                                                                            | 2,386,112             | 4,808,807           
|                                                                                                                                                      |                       |                     
|Total liabilities and stockholders' equity                                                                                                            | $           2,922,982 | $         6,095,848 
|                                                                                                                                                      |                       |                     
|The accompanying notes are an integral part of these consolidated financial statements                                                               



|                        |                    |       
|----------------------- | ------------------ | ------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 2





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|                                                                                       |                                                  |                     |                    
|-------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------- | -------------------
|BREK ENERGY CORPORATION                                                               
|CONSOLIDATED STATEMENTS OF OPERATIONS                                                 
|FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005                                        
|                                                                                       |                                                  |                     |                    
|                                                                                       |                                                  | 2006                | 2005               
|                                                                                       |                                                  |                     |                    
|Revenue                                                                                | $        440,537                                 | $        764,802   
|                                                                                       |                                                  |                     |                    
|                                                                                       |                                                  |                     |                    
|Operating expenses                                                                     |                                                  |                    
|                                                                                       | General and administrative                       | 1,193,534           | 932,856            
|                                                                                       | Lease operating                                  | 126,535             | -                  
|                                                                                       | Gathering operations                             | 78,681              | -                  
|                                                                                       | Depletion and accretion                          | 77,939              | 82,377             
|                                                                                       | Charges for impairment of oil and gas properties | 4,452,754           | -                  
|                                                                                       |                                                  |                     |                    
|                                                                                       |                                                  |                     |                    
|                                                                                       | Total operating expenses                         | 5,929,443           | 1,015,233          
|                                                                                       |                                                  |                     |                    
|                                                                                       |                                                  |                     |                    
|Net 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 discontinued                                |                                                  |                    
|                                                                                       | operations 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)      
|                                                                                       |                                                  |                     |                    
|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          | 58,980,007         
|                                                                                       |                                                  |                     |                    
|                                                                                       |                                                  |                     |                    
|The accompanying notes are an integral part of these consolidated financial statements





|                        |                    |       
|----------------------- | ------------------ | ------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 3





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|                                                                                       |                     |               |                   |                         |                        |               
|-------------------------------------------------------------------------------------- | ------------------- | ------------- | ----------------- | ----------------------- | ---------------------- | --------------
|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) | $    3,941,012
|                                                                                       |                     |               |                   |                         |                        |               
|Units issued for cash                                                                  | 3,333,336           | 3,334         | 746,666           | 250,000                 | -                      | 1,000,000     
|Units issued for debt                                                                  | 333,334             | 333           | 74,667            | 25,000                  | -                      | 100,000       
|Warrants exercised for cash                                                            | 500,000             | 500           | 124,500           | -                       | -                      | 125,000       
|Finders 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)           | 4,808,807     
|                                                                                       |                     |               |                   |                         |                        |               
|Units issued for cash                                                                  | 800,000             | 800           | 299,200           | 100,000                 | -                      | 400,000       
|Common stock issued for debt                                                           | 300,922             | 301           | 144,955           | -                       | -                      | 145,256       
|Warrants exercised for cash                                                            | 16,804,236          | 16,804        | 2,143,451         | -                       | -                      | 2,160,255     
|Warrants exercised for debt                                                            | 2,569,814           | 2,570         | 355,337           | -                       | -                      | 357,907       
|Common 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) | $    2,386,112
|                                                                                       |                     |               |                   |                         |                        |               
|The accompanying notes are an integral part of these consolidated financial statements



|                        |                    |       
|----------------------- | ------------------ | ------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 4





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|                                                                        |                                                                                        |                             |                           
|----------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | --------------------------- | --------------------------
|                                                                        | 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                      | 82,377                    
|                                                                        | Accretion of asset retirement obligation                                               | 5,429                       | -                         
|                                                                        | Charges for impairment of oil and gas properties                                       | 4,452,754                   | -                         
|                                                                        | Minority interest                                                                      | (34,962)                    | 4,915                     
|                                                                        | Changes in operating assets and liabilities:                                           |                             |                           
|                                                                        | Accounts receivable                                                                    | 38,096                      | (63,308)                  
|                                                                        | Prepaids                                                                               | 3,415                       | (2,177)                   
|                                                                        | Due from related party                                                                 | -                           | 116,594                   
|                                                                        | Accounts payable                                                                       | (318,450)                   | (359,180)                 
|                                                                        | Accrued liabilities                                                                    | 43,919                      | 98,495                    
|                                                                        | Accrued wages payable                                                                  | (20,490)                    | (9,098)                   
|                                                                        | Due to related parties                                                                 | 59,671                      | 287,017                   
|                                                                        |                                                                                        |                             |                           
|                                                                        | Net 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                     | 1,000,000                 
|                                                                        | Warrants exercised for cash                                                            | 2,160,255                   | 125,000                   
|                                                                        |                                                                                        |                             |                           
|                                                                        | Net cash provided by financing activities                                              | 2,560,255                   | 1,125,000                 
|                                                                        |                                                                                        |                             |                           
|                                                                        |                                                                                        |                             |                           
|Increase (decrease) in cash                                             | 1,357,883                                                                              | (172,735)                  
|                                                                        | Cash, beginning of the year                                                            | 58,113                      | 230,848                   
|                                                                        |                                                                                        |                             |                           
|                                                                        |                                                                                        |                             |                           
|Cash, end of the year                                                   | $          1,415,996                                                                   | $               58,113     
|                                                                        |                                                                                        |                            
|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                             | $                         - | $            100,000      
|                                                                        | The accompanying notes are an integral part of these consolidated financial statements



|                        |                    |       
|----------------------- | ------------------ | ------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 5





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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)





|                        |                    |       
|----------------------- | ------------------ | ------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 6





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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.



Revenue Recognition



Oil and gas revenue is recognized as income when the oil and gas is produced and sold.





|                        |                    |       
|----------------------- | ------------------ | ------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 7





---

BREK ENERGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued



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.



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.



|                        |                    |       
|----------------------- | ------------------ | ------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 8





---

BREK ENERGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued



Long-Lived Assets



At December 31, 2006 and 2005 the Companys only long lived asset was its oil and gas properties. As a result of a reserves study, it was determined that the carrying amount of the oil and gas properties exceeded their fair value by $4,452,754 at December 31, 2006.  At December 31, 2006 and 2005 the Company recorded $4,452,754 and $0, respectively in charges for impairment of oil and gas properties, to reflect a decline in value of these properties, due primarily to the lower prices for natural gas and a reduction of leased acreage.  The cost of the unproved properties is withheld from the depletion base as described above until the properties are either developed or abandoned.  The Company reviews these properties periodically for possible impairment.



Advertising



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



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 were 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. The properties are reviewed periodically for impairment.





|                        |                    |       
|----------------------- | ------------------ | ------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 9





---

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



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. 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. However, subsequent commodity price increases may be utilized to calculate the ceiling value.



As of December 31, 2006, based on oil and gas prices of $45.53 per barrel and $4.47 per mcf, the full cost pool was the same as the ceiling because of an impairment charge that was taken against our oil and gas properties of $4,452,754.



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           | 17,875     
|Accretion expense              | 5,429      
|Balance, end of year           | $  23,304  





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 10





---

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)



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).



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.





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 11





---

BREK ENERGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued



Stock-based Compensation, continued



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.



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.



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 12





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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 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.

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.



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 13





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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 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.  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)





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 14





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BREK ENERGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



NOTE 4 - OIL AND GAS PROPERTIES, continued



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 31
|                                | 2006         | 2005        
|Property acquisition costs:     |              |             
|Proved                          | $          - | $    885,804
|Exploration costs               | 37,649       | 10,061      
|Development costs               | 502          | 300,300     
|Totals                          | $ 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   |  | $ | 100 |  |     
|California |   | 7,718 |  |   |     |  | 100 
|Texas      |   | 100   |  |   |     |  | 100 
|           |   |       |  |   |     |  |     
|           | $ | 7,918 |  | $ | 300 |  |     



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 31
|                                              | Balance
12/31/06 | 2006       | 2005 | 2004 | Prior
|                                              |                  |            |      |      |      
|Acquisition costs                             | $    300         | $        - | $  - | $  - | $ 300
|Exploration costs                             | 7,618            | 7,618      |      |      |      
|                                              |                  |            |      |      |      
|Total                                         | $ 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.



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 15





---

BREK ENERGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



NOTE 4 - OIL AND GAS PROPERTIES, continued



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 totalling 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)





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 16





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





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 17





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BREK ENERGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



NOTE 5 - RELATED PARTY TRANSACTIONS, continued



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)



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)





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 18





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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)



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 19





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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.





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 20





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BREK ENERGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



NOTE 8  STOCK OPTIONS, continued



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 Average
|                               | Option       | Exercise Price  
|                               |              |                 
|Outstanding, December 31, 2005 | 1,580,000    | $         0.44  
|Expired                        | (1,210,000)  | 0.40            
|                               |              |                 
|Outstanding, 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.



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



NOTE 9  WARRANTS



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   | 27,944,805  
|Warrants granted             | 800,000      | 3,666,670   
|Warrants 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, 2007 
|100,000          | 0.90                     | February 17, 2007
|200,000          |                          |                  





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 21





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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         |  | 2005         
|                                                             |              |  |              
|United 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               |  | 2005                
|                                 |                    |  |                     
|Federal loss carryforwards       | $  5,624,817       |  | $  11,360,810       
|State loss carryforwards, Nevada | -                  |  | -                   
|Foreign loss carryforwards       | 2,991,744          |  | 2,991,796           
|                                 |                    |  |                     
|Less:  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         |  | 2005        
|                                                        |              |  |             
|United States                                           | $ 18,822,948 |  | $ 39,479,529
|Foreign (Hong Kong, Bermuda and British Virgin Islands) | 20,517,836   |  | 20,518,163  
|                                                        |              |  |             
|                                                        | $ 39,340,784 |  | $ 59,997,692



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



NOTE 11  SEGMENTED INFORMATION



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



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 22





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BREK ENERGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



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)





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|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 23





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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



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  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.



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)





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 24





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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.



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 25





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BREK ENERGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



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



Reserve Quantities

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



(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.





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 26





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BREK ENERGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005



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



Standardized Measure of Discounted Future Net Cash Flows



|                                        |             |             |   |             
|--------------------------------------- | ----------- | ----------- | - | ------------
|                                        | December 31
|                                        |             | 2006        |   | 2005        
|Future cash flows                       | $           | 5,288,400   | $ | 45,994,700  
|Future 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   |   | 26,460,000  
|10% discount to present value           |             | (1,853,900) |   | (17,275,000)
|Standardized measure of discounted      |             |             |   |             
|future net cash flows                   | $           | 1,394,600   | $ | 9,185,000   



Changes in the Standardized Measure of Discounted Future Net Cash Flows



|                                              |                                 |             |   |          
|--------------------------------------------- | ------------------------------- | ----------- | - | ---------
|                                              | For the Years Ended December 31
|                                              |                                 | 2006        |   | 2005     
|Standardized measure of discounted future net |                                 |             |   |          
|cash flows at the beginning of year           | $                               | 9,185,000   | $ | 5,712,500
|Sales of oil and gas produced,                |                                 |             |   |          
|net of production costs                       |                                 | (440,058)   |   | (764,804)
|Extensions and discoveries, net of future     |                                 |             |   |          
|production and development costs              |                                 | 53,200      |   | 4,592,200
|Revisions of previous quantity estimates      |                                 | (7,448,542) |   | (354,896)
|Purchases of reserves in place                |                                 | -           |   | -        
|Standardized measure of discounted            |                                 |             |   |          
|future 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)



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 27





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Item 8.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.



We have had no changes in and disagreements with our accountants on accounting and financial disclosure.  Our principal independent accountant since February 21, 2006 to the current date is Mendoza Berger & Company, L.L.P., 9838 Research Drive, Irvine California, 92618.



Effective February 21, 2006, our board of directors approved a change in our independent auditors.  None of the reports of our former auditors, Hall & Company, Certified Public Accountants Inc., on our consolidated financial statements for the fiscal years ended December 31,  2004, 2003, and 2002, and the interim period ended February 21, 2006, contained any adverse opinion or disclaimer of opinion, but did contain an uncertainty about the Company ability to continue as a going concern.  Although audited statements prepared by Hall & Company, Certified Public Accountants Inc. contained a going concern qualification, the financial statements did not contain any adjustments for uncertainties stated in them, nor have we had, at any time, disagreements with Hall & Company, Certified Public Accountants Inc., on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.



We retained and the board approved the appointment of the certified public accounting firm of Mendoza Berger & Company, L.L.P., to serve as our independent accountants to audit our financial statements beginning with the year ended December 31, 2005.  This engagement became effective February 21, 2006.  We had not consulted Mendoza Berger & Company, L.L.P. before their engagement about the application of accounting principles to a specific transaction or the type of audit opinion that they might render on our financial statements or on any other matter that was the subject of any disagreement between ourselves and our former certifying accountants.



We elected to remain with our current audit engagement partner, who changed independent certified public accounting firms.  We are pleased with the audit engagement partners past services and think the audit engagement partners familiarity with the Companys activities from 2002 merited the transition to the new firm.



Item 8A.    Controls and Procedures.



DISCLOSURE CONTROLS AND PROCEDURES

Richard N. Jeffs, our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as the term is defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the Exchange Act )) as of the end of the period covered by this annual report (the Evaluation Date).  Based on his evaluation, Mr. Jeffs has concluded that, as of the Evaluation Date, Breks disclosure controls and procedures are effective in alerting Brek on a timely basis to material information required to be included in its reports filed or submitted under the Exchange Act.



CHANGES IN INTERNAL CONTROLS

During the quarter of the fiscal year covered by this report, we implemented no changes in our internal controls, or, to our knowledge, in other factors that have materially affected, or are reasonably likely to materially affect, these controls and procedures after the date we carried out this evaluation.



PART III



Item 9.

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



(a)

Identify Directors and Executive Officers



Each of our directors holds office until (i) the next annual meeting of the stockholders, (ii) his successor has been elected and qualified, or (iii) the director resigns.



Table 13 describes our management.



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 28





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|                    |                               |                                   |                                                |                                   |                              
|------------------- | ----------------------------- | --------------------------------- | ---------------------------------------------- | --------------------------------- | -----------------------------
|Table 13
Management
|                    | Brek Energy Corporation       | Brek
Petroleum Inc.               | Brek Petroleum (California), Inc.              | Vallenar
Energy Corp.             | Rock City
Energy Corp.       
|Richard N. Jeffs    | Director, CEO, president, CFO | Director, president               | Director,  president, CFO,
corporate secretary | Director, president               | Director,
President,
CFO     
|Gregory Pek         | Director                      | n/a                               | n/a                                            | n/a                               | Director                     
|Ian Robinson        | Director                      | n/a                               | n/a                                            | n/a                               | Director                     
|Michael L. Nazmack  | Director                      | n/a                               | n/a                                            | n/a                               | Director                     
|Eugene Sweeney      | Director                      | n/a                               | n/a                                            | n/a                               | Director                     
|Shawne Malone       | Director                      | n/a                               | n/a                                            | n/a                               | Director,
corporate secretary
|John daCosta        | Treasurer                     | Treasurer and
corporate secretary | n/a                                            | Treasurer and
corporate secretary | Treasurer                    
|Anne McFadden       | Corporate secretary           | n/a                               | n/a                                            | n/a                               | n/a                          



Richard N. Jeffs.   Mr. Jeffs (61) has been our president and chief executive officer since February 2004 and a director and our chief financial officer since January 2005.  Mr. Jeffs has been the sole director and president of Brek Petroleum Inc, since February 2004, and the sole director and officer of Brek Petroleum (California), Inc. since July 2004.  In the past five years, Mr. Jeffs has been a self-employed businessman (since 1990) and a director of a private venture capital company (since 1999).



Gregory Pek.   Mr. Pek (52) has been a director of Brek since March 1999.  Mr. Pek was a co-founder of Brek and was our president and chief executive officer from March 1999 until June 2000.  Mr. Pek was the chairman of the board of Brek from June 2000 until November 2000.  Mr. Pek was the president and co-chief executive officer of Brek from October 2000 until August 2001.  From August 2001 until October 2002, Mr. Pek was the chief executive officer of Brek.  Finally, from November 2003 until January 2005, Mr. Pek was the chief financial officer of Brek.  Since December 2002, Mr. Pek has been a director and officer of Global Financial Network Limited, a private Hong Kong company.  From 1994 to 1999, Mr. Pek was an executive officer of both David Resources Company Limited, a petroleum and wine trading company, and Kong Tai International Holdings Company Limited, a real property investment company.  From September 1998 to February 1999, Mr. Pek was a director of Singapore Hong Kong Properties Investment Limited, another real property investment company.  Mr. Pek obtained a Bachelor of Commerce from the University of British Columbia in 1978.  In 1981, Mr. Pek received his chartered accountant designation after articling with Clarkson Gordon.



Ian Robinson.   Mr. Robinson (67) has been a director of Brek since April 2001.  Since 1995, Mr. Robinson has been the owner and managing director of Robinson Management, Ltd., a business consulting firm.  In 1962, Mr. Robinson received his CPA designation from the Institute of Chartered Accountants of Australia.



Michael L. Nazmack.   Mr. Nazmack (56) has been a director of Brek since March 31, 2003.  Mr. Nazmack, a graduate of Penn State University with degrees in Mechanical and Civil and Structural Engineering, was granted his Professional Engineers Certificate from the states of California and Alaska in 1979.  From 1977 until 1984 he worked for Santa Fe International Corporation on a number of oil and gas related projects and was the Project Engineer for the North Slope of Alaskas oil field development, responsible for the planning, engineering and construction of over one billion dollars worth of oil and gas pipelines.  From 1986 to 2003, Mr. Nazmack was the president of Longstown Development Corporation, a developer of 300 retirement condominium units.  From 1993 to 2002, Mr. Nazmack was also the vice-president of York Condominium Constructors, Inc., which built another 300 retirement condominium units. For both these projects, Mr. Nazmack designed the units and the site layout, did the construction surveying, personally handled the permitting, sales, and the business, legal, and engineering matters on a daily basis.  From February 1997 to May 2005, Mr. Nazmack was the Chairman of the board of York Industries, Inc.  Mr. Nazmack was responsible for executive decisions such as purchasing of new machinery and computers and deciding to build a new facility.  Once the decision was made Mr. Nazmack was responsible for the design and managed the construction of the new 60,000 square foot factory building, which York Condominium Constructors, Inc. built in 2001.



Eugene Sweeney.  Mr. Sweeney (39) has been a director of Brek since October 2004.  Mr. Sweeney has been an investment strategist for Griffin Asset Management LLC since September 2004. Mr. Sweeney was an equity and options trader from September 1999 to September 2004, working for Bushwood Trading until November 2001, then Stafford Trading until June 2002, and the TD Securities until September 2004.



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 29





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Shawne Malone.  Mr. Malone (38) has been a director of Brek since October 2004.  In the past five years, Mr. Malone was an options specialist for TD Options LLC in New York, a subsidiary of TD Bank, a large multinational bank with headquarters in Toronto, Canada, from March 1999 to June 2004.  Mr. Malone has experience trading options on a variety of assets from equities to commodities to convertible bonds.  Mr. Malone is a co-founder of, and since July 2004, has been the Co-CEO of Griffin Asset Management LLC, a money management firm headquartered in Chicago.  Mr. Malone graduated from The Pennsylvania State University in 1997 with a BS in Finance and International Business.



(b)

Identify Significant Employees



We have no employees.



(c)

Family Relationships



There are no family relationships among the directors, executive officers or persons nominated or chosen by the Company to become directors or executive officers, with the exception that Anne McFadden is the sister-in-law of Richard N. Jeffs.



(d)

Involvement in Certain Legal Proceedings



(1)

No bankruptcy petition has been filed by or against any business of which any director was a general partner or an executive officer either at the time of the bankruptcy or within the two years before that time



(2)

No director has been convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offences).



(3)

No director has been subject to any order, judgement or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.



(4)

No director has been found by a court of competent jurisdiction (in a civil action), the Securities Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, that has not been reversed, suspended, or vacated.



(e)

Compliance with Section 16(a) of the Exchange Act.



All reports were filed with the SEC on a timely basis and we are not aware of any failures to file a required report during the period covered by this annual report, with the exception of the following.  Michael L. Nazmack filed his Form 3 and Form 4 late and filed the required disclosure in a Form 5, which was filed on time.  Richard Jeffs and Eugene Sweeney failed to file a Form 5 or to provide the Company with a written representation that a Form 5 was not required.  The other affiliates filed a Form 5 or, in lieu of filing a Form 5, provided the Company with a written representation that a Form 5 was not required.



(f)

Nomination Procedure for Directors



We do not have a standing nominating committee; recommendations for candidates to stand for election as directors are made by the board of directors.  We have not adopted a policy that permits shareholders to recommend candidates for election as directors or a process for shareholders to send communications to the board of directors.



(g)

Audit Committee Financial Expert



We have no financial expert.  We believe that the cost related to retaining a financial expert at this time is prohibitive and that, because, of our limited operations, the services of a financial expert are not warranted.



(h)

Identification of Audit Committee



Our audit committee consists of Gregory Pek, Ian Robinson and Eugene Sweeney. The audit committee is responsible for (i) reviewing the scope of and the fees for the annual audit, (ii) reviewing with the independent auditors the corporate accounting practices and policies, (iii) reviewing with the independent auditors their final report, and (iv) being available to the independent auditors during the year for consultation purposes.  Each member of the audit committee is independent within the meaning of Rule 4200(a)(15) of the NASD listing standards.



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 30





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As of December 31, 2006, we did not have a written audit committee charter or similar document.



(i)

Code of Ethics



We have adopted a code of ethics that applies to all of the executive officers and employees, including our CEO and CFO.  A copy of our adopted code of ethics is attached to this annual report.  See Exhibit 14  Code of Ethics for more information.  We have posted our code of ethics on our website at www.brekenergy.com.  We undertake to provide any person with a copy of our code of ethics free of charge.  Please contact Rene Daignault at (604) 648-0527 to request a copy of our code of ethics.  We believe that our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.



Item 10.  Executive Compensation



We paid compensation to our named executive officers during the 2005 and 2006 fiscal year as set out in Table 14.



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |            |                                 |                 | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ------------------------------- | --------------- | 
|Table 14
Summary Compensation Table                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Name and
principal position

(a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Year


(b) | All other compensation
($)

(i) | Total
($)

(j) 
|Richard N. Jeffs
CEO, president
Oct 2002Nov 2002
Feb 2004present
CFO
Jan 2005present                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 2005
2006  | 265,000[1][2]
180,000 [3]       | 265,000
180,000
|Ian Robinson
Chairman
Jan 2001-present                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 2005
2006  | nil
nil                         | nil
nil        
|John daCosta
Treasurer
Feb 2005present                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 2005
2006  | 225,334 [4]
357,904[5]          | 225,334
357,904
|Gregory M. Pek
CEO, president
Mar 1999-Oct 2000
Aug 2001-Oct 2002
Co-CEO, president
Oct 2000-Aug 2001
CFO
Nov 2003-Jan 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 2005
2006  | nil
nil                         | nil
nil        
|[1]Richard N. Jeffs was paid 333,334 units valued at $100,000 for finders fee.  The fair market value of Breks shares of common stock at the time of the issuances of these shares ranged from $0.34 per share to $0.44 per share.  See Item 5.(d) Recent Sale of Unregistered Securities above for more details.
[2]A company controlled by Richard N. Jeffs was paid $77,000 for rent and $88,000 in administrative fees in 2005.
[3]A company controlled by Richard N. Jeffs was paid $14,000 for rent and $166,000 in administrative fees in 2006.
[4]A company controlled by John daCosta was paid $225,334 in administrative fees in 2005.
[5]A company controlled by John daCosta was paid $357,904 in administrative fees in 2006.



Grant of Stock Options



We did not grant any stock options or stock appreciation rights during the last completed fiscal year.



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 31





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Existing Stock Options



No stock options or stock appreciation rights were exercised during the last completed fiscal year.  Stock options in the hands of named executive officers and senior management as of December 31, 2006, are set out in Table 15.



|                       |                                 |                    |                                                                        |                                                              |   |  
|---------------------- | ------------------------------- | ------------------ | ---------------------------------------------------------------------- | ------------------------------------------------------------ | - | -
|Table 15
Stock Options
|Name                   | Shares acquired on exercise
(#) | Value realized
($) | Number of securities underlying unexercised options/SARs at FY-end
(#) | Value of unexercised
in-the-money
options/SARs at FY-end
($)
|Exercisable            | Unexercisable                   | Exercisable        | Unexercisable                                                         
|Gregory M. Pek         | 0                               | Nil                | 25,000                                                                 | 0                                                            | 0 | 0
|Ian Robinson           | 0                               | Nil                | 25,000                                                                 | 0                                                            | 0 | 0



Long Term Incentive Plan Awards



We did not award any long term incentive plans during the last completed fiscal year.



Director Compensation



We have no written arrangements with any of our directors or between any of our subsidiaries and any of their directors whereby the directors are compensated for any services provided as directors.  From time to time, we may grant certain directors, who are not employees, options to purchase our shares of common stock.



Termination of Employment



Neither we nor our subsidiaries have any employment agreements with any of our named executive officers, nor do we have any employment agreements or other compensating plans or arrangements with any named executive officer that provide for specific compensation if the officer resigns, retires or otherwise has his employment terminated, control of Brek changes, or the officers responsibilities change following a change in control.



Compensation Committee



Our compensation committee was established on January 31, 2005.  Ian Robinson, Michael L. Nazmack and Eugene Sweeney were appointed to the compensation committee and will serve for one year or until they resign or are removed from the committee by a majority vote of the board of directors.  Each member is a director and none is an employee.

The compensation committee reviews and determines our executive compensation objectives and policies, administers our stock plans, and grants stock options.



Item 11.  Security Ownership of Certain Beneficial Holders and Management.



(a)

Security Ownership of Certain Beneficial Owners (more than 5%)



Table 16 summarizes the beneficial ownership of shareholders with more than five percent of the Companys common stock.



|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                              |                                               |                         
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | --------------------------------------------- | ------------------------
|Table 16
Security Ownership                                                                                                                                                                                                                                                                                                                                                                                                                       
|(1)
Title of class                                                                                                                                                                                                                                                                                                                                                                                                                                 | (2)
Name and address of beneficial owner                     | (3)
Number and nature of
beneficial ownership | (4)
Percent
of class [1]
|shares of common stock                                                                                                                                                                                                                                                                                                                                                                                                                             | Richard N. Jeffs
Flat 1, 49 Pont Street
London, UK, SW1X 0BD | 13,971,358 [2]                                | 17.47%                  
|[1]Based on 79,973,062 shares of common stock issued and outstanding as of April 10, 2007, unless indicated otherwise.
[2]Includes 1,267,389 shares of common stock that are beneficially owned indirectly through West Coast Management Corp., a company 100% owned or controlled by Mr. Jeffs, and 26, 000 shares of common stock that are beneficially owned indirectly by 435013 B.C. Ltd., a company 100% owned or controlled by Mr. Jeffs. .



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 32





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(b)

Security Ownership of Management



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                           |                                               |                         
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | --------------------------------------------- | ------------------------
|Table 17
Managements Security Ownership                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(1)
Title of class                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | (2)
Name and address of beneficial owner                                  | (3)
Number and nature of beneficial ownership | (4)
Percent of class [1]
|shares of common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Richard N. Jeffs
Flat 1, 49 Pont Street
London, SW1X 0BD                  | 13,971,358 [2]                                | 17.47%                  
|shares of common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Gregory M. Pek
902 Henley Building 5
Queens Road Central, Hong Kong       | 1,562,204 [3]                                 | 1.95% [4]               
|shares of common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Ian Robinson
902 Henley Boulevard
5 Queen Road
Central, Hong Kong         | 879,882 [5] [6]                               | 1.10% [7]               
|shares of common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Michael L. Nazmack
3280 Forrest Lane
York, Pennsylvania,  17402           | 824,980 [8]                                   | 1.03%                   
|shares of common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Eugene Sweeney
345 N. Lasalle
Chicago, Illinois, 60610                    | 2,000,814 [9]                                 | 2.50%                   
|shares of common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Shawne Malone
151 W. Burton Place
Coach House #2
Chicago, Illinois, 60610 | 456,960 [10]                                  | 0.57%                   
|shares of common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Directors and executive officers
(as a group)                             | 19,696,198 [11]                               | 24.6% [12]              
|[1]Based on 79,973,062 shares of common stock issued and outstanding as of April 10, 2007, unless indicated otherwise.
[2]Includes 1,241,389 shares of common stock that are beneficially owned indirectly through Wet Coast Management Corp., a company owned or controlled by Mr. Jeffs, and 26,000 shares of common stock that are beneficially owned indirectly by 435013 B.C. Ltd., a company owned or controlled by Mr. Jeffs.
[3]Includes 25,000 stock options that can be exercised into one share of common stock per stock option.
[4]Based on 79,998,062 shares of common stock on the assumption that all stock options in footnote #3 above are exercised.
[5]Includes 185,882 shares of common stock that are beneficially owned indirectly through Robinson Management, Ltd. and Patarin Ltd., companies owned or controlled by Mr. Robinson.
[6]Includes 25,000 stock options that can be exercised into one share of common stock per stock option.
[7]Based on 79,998,062 shares of common stock on the assumption that all stock options in footnote #6 above are exercised.
[8]Includes 9,000 shares of common stock that Mr. Nazmack holds as a custodian for his children.
[9]Includes 585,365 shares of common stock that are beneficially owned indirectly through First Griffin Group, LLC and Griffin Asset Management, LLC over which Mr. Sweeney exercises direct control.
[10]Includes 267,368 shares of common stock that are beneficially owned indirectly through First Griffin Group, LLC and Griffin Asset Management, LLC over which Mr. Malone exercises direct control.
[11]Includes 50,000 stock options that can be exercised into one share of common stock per stock option.
[12]Based on 80,023,062 shares of common stock on the assumption that all stock options listed above in footnote 11 are exercised.



Richard N. Jeffs, the CEO and president of Brek, beneficially owns 1,877,000 common shares of Vallenar Energy Corp., a majority-owned subsidiary of Brek.  See Item 1- Description of Business and Item 2  Description of Property above for more details on the subsidiary.  Mr. Jeffs beneficial interest in Vallenar Energy Corp. represents a 17.06% voting interest.  Mr. Jeffs also is entitled to a royalty on Vallenars production equal to 3.166665% of all oil, gas and other minerals produced and saved for our benefit from all the leases except for one lease covering approximately 7,749 acres, in which case the royalty is equal to 1.5% of all oil, gas and other minerals produced and saved for our benefit from below 1,500 feet.



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 33





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(c)

Changes in Control



We are not aware of any arrangement that could result in a change in control of the Company, except the proposed merger with Gasco Energy, Inc.



Merger with Gasco



On September 20, 2006, we, Gasco Energy, Inc., and Gasco Acquisition, Inc., a Nevada corporation and a direct, wholly owned subsidiary of Gasco, entered into an Agreement and Plan of Merger (the Merger Agreement) pursuant to which Gasco will acquire all of the outstanding shares of Brek in a stock transaction.  Subject to the terms and conditions of the Merger Agreement, we will merge with Gasco Acquisition and continue as the surviving corporation of the Merger and as a wholly owned subsidiary of Gasco.  Gasco has agreed to issue an aggregate of 11 million shares of its common stock in exchange for all our outstanding shares of common stock as of the closing of the Merger, calculated on a fully diluted basis.



Consummation of the transactions contemplated by the Merger Agreement is subject to customary conditions, including, among others, the approval of the shareholders of our common stock.  The Merger Agreement contains certain termination rights for both Gasco and us, and provides that, if the Merger Agreement is terminated under specified circumstances, we could be required to pay Gasco a termination fee of $1.0 million plus expenses of Gasco not to exceed $1.0 million.  In addition, our President and CEO, who owns approximately 18% of our outstanding common stock, has agreed to deposit 550,000 shares of Gascos common stock acquired in the transaction in escrow to satisfy any claims with respect to breaches of our representations and warranties.



Simultaneously with the execution of the Merger Agreement, Richard N. Jeffs, Gregory Pek, Ian Robinson, Michael L. Nazmack, Eugene Sweeney and Shawne Malone as shareholders entered into a voting agreement with Gasco dated September 20, 2006, pursuant to which each of them has agreed, among other things, to vote their shares of common stock for the approval and adoption of the Merger Agreement and the transactions contemplated by the Merger Agreement.



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



(a)

Transactions with Related Persons



Since January 1, 2005, no director, executive officer, security holder, or any immediate family of such director, executive officer, or security holder has had any direct or indirect material interest in any transaction or currently proposed transaction, which we were or are to be a participant, that exceeded the lesser of (1) $120,000 or (2) one percent of the average of Breks total assets at year-end for the last three completed fiscal years, except for the following:



(a)

We paid Richard Jeffs, our president, $166,000 in administrative fees in 2006, $88,000 in 2005, and have paid him at the rate of $15,000 per month in 2007; and we paid him $100,000 in finders fees in 2005 by issuing 333,334 units.

(b)

We paid Perfume Limited, a company controlled by Richard Jeffs, our president, $14,000 in rent in 2006 and $77,000 in 2005.

(c)

We paid Susan Jeffs, Richard Jeffs wife, $60,000 in consulting fees in 2006 and $55,000 in 2005 and have paid her at the rate of $5,000 per month in 2007.

(d)

We paid DaCosta Management Corp. a company controlled by John da Costa, one of our executive officers, $357,904 in administrative fees in 2006, $225,334 in 2005, and have paid him at the rate of $29,000 per month in 2007.

(e)

We settled debts totaling $145,256 by issuing shares of our common stock at $0.50 per share to three directors: 246,926 shares to Gregory Pek for $123,463 of debt, 24,000 shares to Ian Robinson for $12,000 of debt, 14,586 shares to Robinson Management, Ltd., a company controlled by Mr. Robinson, for $7,293 of debt, and 5,000 shares to Michael Nazmack for $2,500 of debt.



(b)

Promoters and control persons



During the past five fiscal years, Richard N. Jeffs and Gregory Pek have been promoters of our present business.  None of these promoters have received anything of value from us or our subsidiaries nor is any person entitled to receive anything of value from us or our subsidiaries for services provided as a promoter of us or our subsidiaries.



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 34





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(c)

Director independence



Our shares of common stock are not listed on a national securities exchange or in an inter-dealer quotation system that has requirements that directors be independent.  As a result, our board of directors has adopted, pursuant to Item 407(a)(1)(ii) of Regulation S-B of the Securities Act, the independence standards of the NASDAQ, as set forth in Rule 4200(a)(15) of the NASDAQ Manual, to determine the independence of our directors and those directors serving on our committees, if any.  These standards provide that a person will be considered an independent director if he or she is not an officer of us or our subsidiaries and, in the view of our board of directors, is free of any relationship that would interfere with the exercise of independent judgment.  In summary, an independent director means a person other than an officer or employee of us or our subsidiaries or any other individual having a relationship which, in the opinion of our board of directors, would interfere with the exercise of independent judgement in carrying out the responsibilities of a director, and includes any director who accepted any compensation from is in excess of $200,000 during any period of 12 consecutive months with the three past fiscal years.  Also, the ownership of our stock will not preclude a director from being independent.



Our board of directors has determined that all of our directors meet these standards, and therefore, would be considered to be independent, with the exception of Richard N. Jeffs, who is our President and CEO.



As of the date of the report, we did not maintain a separately designated nominating committee.  We have also adopted this definition for the independence of the members of our audit committee and our compensation committee.  Gregory Pek, Ian Robinson, and Eugene Sweeney serve on our audit committee and Mr. Robinson, Mr. Sweeney and Michael L. Nazmack serve on our compensation committee .  Our board of directors has determined that each of the members of the audit committee and the compensation committee are independent for purposes of Rule 4200(a)(15) of the NASDAQ Manual, applicable to audit, compensation and nominating committee members, and are therefore independent for purposes of Section 10A(m)(3) of the Securities Exchange Act.



Item 13.  Exhibits.



(a)

Index to and Description of Exhibits.

|        |                                                                                                                                                                                                                                                                                                                     |       
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------
|Exhibit | Description                                                                                                                                                                                                                                                                                                         | Status
|2.1     | Agreement and Plan of Merger, dated as of September 20, 2006, by and among Gasco Energy, Inc., Gasco Acquisition, Inc. and Brek Energy Corporation, filed as an Exhibit to Breks Form 8-K (Current Report) filed on September 21, 2006, and incorporated herein by reference.                                      | Filed 
|3.1     | Amended and Restated Articles of Incorporation filed as an Exhibit to Breks Form 10-K/A filed on May 14, 2002, and incorporated herein by reference.                                                                                                                                                               | Filed 
|3.2     | Bylaws filed as an Exhibit to Breks registration statement on Form 10 filed on October 21, 1999, and incorporated herein by reference.                                                                                                                                                                             | Filed 
|4.1     | Rights Agreement dated March 1, 2002 between Brek Energy Corporation and U.S. Bank N.A., filed as an Exhibit to Breks Form 8-K (Current Report) filed on March 6, 2002, and incorporated herein by reference.                                                                                                      | Filed 
|4.2     | 2001 Employee Stock Option / Warrant Plan, filed as an Exhibit to Breks Form S-8 (Registration Statement) filed on July 10, 2002, and incorporated herein by reference.                                                                                                                                            | Filed 
|4.3     | Voting Agreement, dated September 20, 2006, by and among Gasco Energy, Inc., Richard N. Jeffs, Gregory Pek, Ian Robinson, Michael L. Nazmack, Eugene Sweeney and Shawne Malone, filed as an Exhibit to Breks Form 8-K (Current Report) filed on September 21, 2006, and incorporated herein by reference.          | Filed 
|10.1    | Stock Purchase Agreement dated March 16, 2000 among Brek Energy Corporation, Balaji Exports Ltd., Rajan Chellarm Mahboobani, Ravi Kishinchand Daswani, and Asia Internet Limited, filed as an attached exhibit to Breks Form 10-KSB (Annual Report) filed on March 29, 2000, and incorporated herein by reference. | Filed 
|10.2    | Stock Purchase Agreement dated March 12, 2002 between Vallenar Energy Corp. and Brek Energy Corporation, filed as an attached exhibit to Breks Form 10-K/A (Annual Report) filed on September 18, 2002, and incorporated herein by reference.                                                                      | Filed 



|                        |                    |        
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|Brek Energy Corporation | Form 10-KSB - 2006 | Page 35





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|      |                                                                                                                                                                                                                                                                                                                                                                                          |         
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------
|10.3  | Purchase Agreement dated July 16, 2002 among Gasco Energy, Inc., Pannonian Energy Inc., San Joaquin Oil & Gas Ltd., Brek Energy Corporation, Brek Petroleum Inc., Brek Petroleum (California), Inc. and certain stockholders, filed as an attached exhibit to Breks Form 8-K (Current Report) filed on July 31, 2002, and incorporated herein by reference.                             | Filed   
|10.4  | Share purchase agreement dated October 19, 2001 among First Ecom.com, Inc., First Commerce Asia Limited, FEDS Acquisition Corporation, First Ecom Systems Limited, Transworld Payment Solutions NV, and First Curacao International Bank NV, filed as an attached exhibit to Breks Form 10-KSB (2002 - Annual Report) filed on November 21, 2005, and incorporated herein by reference. | Filed   
|10.5  | License agreements dated October 19, 2001 among First Ecom.com, Inc., First Ecom Systems Limited, and Transworld Payment Solutions NV, filed as an attached exhibit to Breks Form 10-KSB (2002 - Annual Report) filed on November 21, 2005, and incorporated herein by reference.                                                                                                       | Filed   
|10.6  | Option to Acquire Interests in Oil and Gas Properties dated May 1, 2004 between Brek Petroleum Inc. and Griffin Asset Management, LLC, filed as an attached exhibit to Breks Form 10-KSB (2004 - Annual Report) filed on November 21, 2005, and incorporated herein by reference.                                                                                                       | Filed   
|10.7  | Natural Gas Purchase Agreement dated December 23, 2004 between Brek Petroleum Inc. and Riverbend Gas Gathering, L.L.C., filed as an attached exhibit to Breks Form 10-KSB (2004 - Annual Report) filed on November 21, 2005, and incorporated herein by reference.                                                                                                                      | Filed   
|10.8  | First Amendment To Agreement and Plan of Merger, dated as of January 31, 2007, by and between Gasco Energy, Inc. and Brek Energy Corporation, filed as an Exhibit to Breks Form 8-K (Current Report) filed on February 1, 2007, and incorporated herein by reference.                                                                                                                   | Filed   
|10.9  | Letter Agreement dated April 3, 2006, between Chesapeake Exploration Limited Partnership and Nathan Oil Partners LP filed as an exhibit to Breks Form 8K filed on May 30, 2006                                                                                                                                                                                                          | Filed   
|10.10 | Settlement Agreement and Mutual Release dated March 29, 2007 among Brek Energy Corporation, Feds Acquisition Corporation, First Curacao Banking Corporation N.V., and First Curacal International Bank N.V.                                                                                                                                                                              | Included
|14    | Code of Ethics, filed as an Exhibit to Breks Form 10-KSB (2004 - Annual Report) filed on November 21, 2005, and incorporated herein by reference.                                                                                                                                                                                                                                       | Filed   
|21    | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                    | Included
|31    | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                | Included
|32    | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                  | Included



Documents incorporated by reference:  Exhibit 2.1 (Agreement and Plan of Merger) filed on September 21, 2006 as an Exhibit to Breks Form 8-K (Current Report); Exhibit 4.1 (Rights Agreement) filed on March 6, 2002 as an Exhibit to Breks Form 8-K (Current Report); Exhibit 4.3 (Voting Agreement) filed on September 21, 2006 as an Exhibit to Breks Form 8-K (Current Report); Exhibit 10.3 (Purchase Agreement) filed on July 31, 2002 as an Exhibit to Breks Form 8-K (Current Report); Exhibit 10.7 (Natural Gas Purchase Agreement) filed on November 21, 2005 as an Exhibit to Breks Form 10-KSB (2004 Annual Report); Exhibit 10.8 (First Amendment To Agreement and Plan of Merger) filed on February 1, 2007 as an Exhibit to Breks Form 8-K (Current Report); and Exhibit 14 (Code of Ethics) filed on November 21, 2005 as an Exhibit to Breks Form 10-KSB (2004 Annual Report).



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|Brek Energy Corporation | Form 10-KSB - 2006 | Page 36





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ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES



(1)  Audit Fees

The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for Breks audit of annual financial statements and for review of financial statements included in Breks Form 10-QSBs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were:

2006 - $94,327  Mendoza Berger & Company, L.L.P

2005 - $21,525  Mendoza Berger & Company, L.L.P



2006 - $1,249  Hall & Company, Certified Public Accountants Inc.

2005 - $11,168 Hall & Company, Certified Public Accountants Inc.



2006 - $0  Dale Matheson Carr-Hilton Labonte, Chartered Accountants
2005 - $8,025  Dale Matheson Carr-Hilton Labonte, Chartered Accountants



(2)  Audit-Related Fees

The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of Breks financial statements and are not reported in the preceding paragraph were:

2006 - $0  Mendoza Berger & Company, L.L.P

2005 - $0  Mendoza Berger & Company, L.L.P



2006 - $0 Hall & Company, Certified Public Accountants Inc.

2005 - $0  Hall & Company, Certified Public Accountants Inc.



(3)  Tax Fees

The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were:

2006 - $15,395  Mendoza Berger & Company, L.L.P

2005 - $5,000  Mendoza Berger & Company, L.L.P



2006 - $19,573  Hall & Company, Certified Public Accountants Inc.

2005 - $0,  Hall & Company, Certified Public Accountants Inc.



(4)  All Other Fees

The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) above were:

2006 - $6,038  Mendoza Berger & Company, L.L.P

2005 - $0  Mendoza Berger & Company, L.L.P



2006 - $0 Hall & Company, Certified Public Accountants Inc.

2005 - $0  Hall & Company, Certified Public Accountants Inc.



2006 - $0  Deloitte Touche Tohmatsu, Chartered Accountants
2005 - $0  Deloitte Touche Tohmatsu, Chartered Accountants



(5)  Breks audit committees pre-approval policies and procedures described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor.

(6)  The percentage of hours expended on the principal accountants engagement to audit Breks financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountants full time, permanent employees was nil %.



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|Brek Energy Corporation | Form 10-KSB - 2006 | Page 37





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SIGNATURES



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





BREK ENERGY CORPORATION



/s/ Richard N. Jeffs

By:



Name:

Richard N. Jeffs

Title:

Director and CEO

Dated:

April  12, 2007





Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of Brek and in the capacities and on the dates indicated have signed this report below.





|                       |                                                                                                                      |              
|---------------------- | -------------------------------------------------------------------------------------------------------------------- | -------------
|Signature              | Title                                                                                                                | Date         
|/s/ Richard N. Jeffs   | President, CEO, Principal Executive Officer, CFO, Principal Financial Officer
and a member of the Board of Directors | 12 April 2007
|/s/ Gregory M. Pek     | Member of the Board of Directors                                                                                     | 11 April 2007
|/s/ Ian Robinson       | Member of the Board of Directors                                                                                     | 11 April 2007
|/s/ Michael L. Nazmack | Member of the Board of Directors                                                                                     | 10 April 2007
|/s/ Eugene Sweeney     | Member of the Board of Directors                                                                                     | 10 April 2007
|/s/ Shawne Malone      | Member of the Board of Directors                                                                                     | 12 April 2007





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 38





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_________________________________________



Exhibit 31



___________________________________________





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|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 39





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BREK ENERGY CORPORATION 
CERTIFICATIONS PURSUANT TO 
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Richard N. Jeffs, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Brek Energy Corporation;

2.  Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4.  The small business issuers other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the small business issuers disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the small business issuers internal control over financial reporting that occurred during the small business issuers most recent fiscal quarter (the small business issuers fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuers internal control over financial reporting; and

5.  The small business issuers other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuers auditors and the audit committee of the small business issuers board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuers ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuers internal control over financial reporting.

Date:  April 12, 2007



/s/ Richard N. JeffsRichard N. Jeffs 
Chief Executive Officer



|                        |                    |        
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|Brek Energy Corporation | Form 10-KSB - 2006 | Page 40





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BREK ENERGY CORPORATION 
CERTIFICATIONS PURSUANT TO 
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Richard N. Jeffs, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Brek Energy Corporation;

2.  Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4.  The small business issuers other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the small business issuers disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the small business issuers internal control over financial reporting that occurred during the small business issuers most recent fiscal quarter (the small business issuers fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuers internal control over financial reporting; and

5.  The small business issuers other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuers auditors and the audit committee of the small business issuers board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuers ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuers internal control over financial reporting.

Date:  April 12, 2007



/s/ Richard N. JeffsRichard N. Jeffs
Chief Financial Officer



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 41





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_________________________________________



Exhibit 32



_________________________________________







|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 42





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CERTIFICATION PURSUANT TO 
18 U.S.C. SECTION 1350, 
AS ADOPTED PURSUANT TO 
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report of Brek Energy Corporation (the Company) on Form 10-KSB for the period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Richard N. Jeffs, President and Chief Executive Officer of Brek and a member of the Board of Directors, certify, pursuant to s.906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly represents, the financial condition and result of operations of the Company.





/s/ Richard N. JeffsRichard N. Jeffs 
Chief Executive Officer
April  12, 2007



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 43





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CERTIFICATION PURSUANT TO 
18 U.S.C. SECTION 1350, 
AS ADOPTED PURSUANT TO 
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report of Brek Energy Corporation (the Company) on Form 10-KSB for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Richard N. Jeffs, Chief Financial Officer of Brek and a member of the Board of Directors, certify, pursuant to s.906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly represents, the financial condition and result of operations of the Company.





/s/ Richard N. JeffsRichard N. Jeffs
Chief Financial Officer
April  12, 2007



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 44





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_________________________________________



Exhibit 10.10

Settlement Agreement



_________________________________________



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 45





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SETTLEMENT AGREEMENT AND MUTUAL RELEASE



THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE (this Agreement) is entered into by and among Brek Energy Corporation (formerly First Ecom.com, Inc.), a Nevada corporation (Brek), Feds Acquisition Corporation, a Nevada corporation (FEDS Acquisition"), First Curacao Banking Corporation N.V. (formerly Transworld Payment Solutions N.V.), a Netherlands Antilles company ("FCBC) and First Curacao International Bank N.V., a Netherlands Antilles company (FCIB) (Brek, FEDS Acquisition, FCIB and FCBC being herein sometimes referred to as the Parties).



WHEREAS, Brek, FEDS Acquisition, First Ecommerce Asia Limited, a Hong Kong corporation ("First Asia), First Ecom Systems Limited (formerly First Ecom Data Services Asia Limited), a Hong Kong corporation (FESL) and FCIB entered into that certain Share Purchase Agreement dated effective as of  19 October 2001 (the "FEDS Purchase Agreement"), which among other things provided for the acquisition by FCIB of all of the issued and outstanding shares of Transworld Payment Solutions Limited (formerly First ECommerce Data Services Limited), a Bermuda company,  from Brek, FEDS Acquisition, FESL and First Asia, and



WHEREAS, FCIB assigned its rights under the FEDS Purchase Agreement to FCBC effective as of 19 October 2001 but remained responsible for FCBC's performance of its obligations as Purchaser under the FEDS Purchase Agreement as per the terms of Section 10.7 of the FEDS Purchase Agreement and that certain letter to Brek from FCIB dated 19 October 2001 and issued in connection therewith, and pursuant to said assignment, Brek, FEDS Acquisition, FESL and First Asia consummated the closing of the transactions contemplated by the FEDS Purchase Agreement with FCBC as Purchaser thereunder, including without limitation the execution and delivery by the named parties thereto of the following additional agreements and instruments (the Original Agreements):



(i)

Software License Agreement for Merchant Accounting and Reporting System entered into effect as of Octoboer 19, 2001 by and among Brek and FESL (as Licensor) and FCBC (as Licensee) (the MARS License),



(ii)

Software License Agreement for Payment Gateway entered into effective as of October 19, 2001 by and among Brek and FFSL (as "Licensor") and FCBC (asLicensee) (the Payment Gateway License"),



(iii)

Software Development License Agreement entered into effective as of October 19, 2001 by and among Brek and FESL (as Licensor) and FCBC (as Licensee) (the Development License),



(iv)

End User Support Agreement entered into effective as of October 19, 2001 by and among Brek and FESL (as Licensor) and FCBC (as Licensee) (the Support Agreement), and



WHEREAS, there have arisen among the Parties, Stunning Technology Limited, a British Virgin Islands corporation, FESL and First Asia certain disputes out of or in connection with the aforesaid agreements and undertakings, resulting in certain litigation styled Transworld Payment Solutions N.V. et al v. Brek Energy Corporation et alcurrently pending in the Supreme Court of Bermuda, Civil Jurisdiction, 2003: No. 83 (the



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 46





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Proceeding), and the Parties have now agreed to resolve their disputes on the terms and conditions set forth herein;



NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which the Parties hereby acknowledge, and in consideration of the following mutual covenants and agreements, the Parties hereby agree as follows:



1.

Certain Definitions. As used in this Agreement, the following terms shall have the meanings specified below:



Affiliate of a person or entity means any other person or entity controlled by, controlling, or under common control with said person or entity, and control for this purpose is understood to include the ownership or voting control of more than 50% of the outstanding securities of any such person carrying the power to vote with respect to the direction or management of the person or entity.



Documentation means all technical documents in any stage of development, pertaining to the Software, including without limitation all specifications, instructions, technical descriptions, programmers and users manuals, flow charts, pseudo-code, state diagrams, interim versions or parts thereof, comments to source code, initial product blueprint and other tangible notes or records pertaining to the development of the Software.



Mediameans the original physical materials (if any) furnished to FCBC, FCIB and/or any of their respective Affiliates containing the Software and/or Documentation.



Product means collectively the Media, Software, and Documentation.



Software means all source code (i.e., human readable), object code (i.e., machine readable) or other compiled or executable code, programs, sub-programs, subroutines, macros, applications, libraries, files and other data expressing, embodying, used by or otherwise comprising all or any portion of:



(i)

the financial transaction management and reporting computer software product known as Merchant Accounting and Reporting System or MARS, which was the subject of the MARS License (herein, the MARS product),



(ii)

the electronic internet payment gateway computer software product known as "Payment Gateway that translates various types of financial transaction data, including but not limited to transaction data originating from credit, debit and check payment methods, into a format that can be read by other proprietary processing systems, which was the subject of the Payment Gateway License (herein, the Payment Gateway product),



(iii)

any "Visa 3D Secure Protocol-compatible, java-enabled version of the MARS and Payment Gateway products intended to conform to the specifications and requirements of Visas 3D Secure Protocol for the new password-enabled Visa Payer Authentication System, including without limitation both the enhanced MARS and Payment Gateway platform sometimes referred to as the E-Acquirer Platform' and the related so-called Visa 3D Secure Plug-In module, and



|                        |                    |        
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|Brek Energy Corporation | Form 10-KSB - 2006 | Page 47





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(iv)

any and all updates, revisions, enhancements, modifications, and other derivative works of the foregoing products heretofore created or developed by or on behalf of Brek, Feds Acquisition or any of their respective Affiliates., including without limitation any subsequent, partial, incomplete, preliminary, experimental, alpha or "beta" version thereof in any stage of development as it exists on the date hereof,



including without limitation the original computer files (including all computer programs and data stored in such files), and all whole or partial copies thereof and modified copies and portions merged into other programs.



2.

Rescission of Certain Existing Agreements Effective upon consummation of all the acts and deeds required at or promptly following Closing as provided in Section 4 below, but subject to the provisions of Section 5 below, Brek and Feds Acquisition, on the one hand, and FCBC and FCIB, on the other hereby agree that, as between themselves, the FEDS Acquisition Agreement and each of the Original Agreements, namely, the MARS License, the Payment Gateway License, the Development Agreement and the Support Agreement, be and hereby am rescinded and declared null and voidab initio in their entirety, and each of said Parties be and hereby are released and discharged from any and all obligations to one another thereunder arising, whether before or after the date of this Agreement; provided, that the foregoing shall not act to unwind" any action or transaction already consummated pursuant to any such agreement.



3.

Mutual Release and Indemnity.



3.1

Release by Rick and Feds Acquisition. Effective upon consummation of all the acts and deeds required at-or promptly following Closing as provided in Section 4 below, each of Brek and Feds Acquisition, on its own behalf and on behalf of each and all of its Affiliates, subsidiaries, and any other person or entity who nay be entitled to make a claim for, in lieu of, through or on its behalf, hereby fully, finally, irrevocably and completely releases and forever discharges and covenants not to sue FCBC and FCIB and each of their respective Affiliates, subsidiaries, parent companies, shareholders, officers, directors, employees, agents, attorneys, representatives, predecessors, successors and assigns. from and with respect to any and all claims, demands, causes of action, suits, contracts, agreements, warranties, covenants, debts, dues, damages, demands and rights, in law or in equity, which Brek and/or Feds Acquisition directly or indirectly ever had, or now has, from the beginning of time and through the consummation of Closing by reason of any facts, whether known or unknown, arising out of or connected in any way, whether directly or indirectly, with



(i)

the FEDS Purchase Agreement, the MARS License Agreement, the Payment Gateway License Agreement, the Development Agreement, the Support Agreement or any instrument delivered or obligation undertaken pursuant to or in connection with said documents and agreements, or any facts or circumstances connected with the entry into or the performance or non-performance of those agreements by the parties thereto, or



(ii)

any use, possession or other dealings with or disposition of the Product by FCBC or FCIB and/or any of its or their respective Affiliates at any time prior to consummation of the Closing hereunder.



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 48





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3.2

Release by FCBC and FCIB. Effective upon consummation of all the acts and deeds required at or promptly following Closing as provided in Section 4 below, but subject to the provisions of section 5 below, each of FCBC and FCIB, on its own behalf and on behalf of each and all of its Affiliates, subsidiaries, and any other person or entity who may be entitled to make a claim for, in lieu of, through or on its behalf, hereby fully, finally, irrevocably and completely releases and forever discharges and covenants not to sue Brek and Feds Acquisition and each of their respective Affiliates, subsidiaries, parent companies, shareholders, officers, directors, employees, agents, attorneys, representatives, predecessors, successors and assigns, from and with respect to any and all claims, demands, causes of action, suits, contracts, agreements, warranties, covenants, debts, dues, damages, demands and rights, in law or in equity, which FCBC and/or FCIB directly or indirectly ever had, or now lies, from the beginning of time and through the consummation of Closing, by reason of any facts, whether known or unknown, arising out of or connected in any way, whether directly or indirectly, with



(i)

the FEDS Purchase Agreement, the MARS License Agreement, the Payment Gateway License Agreement, the Development Agreement, the Support Agreement or any instrument delivered or obligation undertaken pursuant to or in connection with said documents and agreements, or any facts or circumstances connected with the entry into or the performance or non-performance of those agreements by the parties thereto, or



(ii)

any use, possession or other dealings with or disposition of the Product by FCBC or FCIB and/or any of its or their respective Affiliates at any time prior to consummation of the Closing hereunder.



4.

Closing.



4.1

Closing. The closing of the transactions contemplated under this Agreement (the Closing) shall take place on the date hereof, at the offices of Wakefield Quin at Chancery Hall, 52 Reid Street. Hamilton (the Closing Date").



4.2

Preparation and fling of Consent Order. At or promptly following the Closing (and in any event within no more than three business days thereafter), Brek, Feds Acquisition, FCBC and FCIB shall instruct their respective legal counsel to take the steps necessary or appropriate to cause to be entered a Consent Order in the form of Exhibit A attached hereto and made a part hereof for all purposes by the Bermuda Court having jurisdiction over the Proceeding, for the purpose of dismissing all mutual claims against one another previously asserted by the Parties in said Proceeding.



5.

No Release of Claims against First Asia. Anything to the contrary contained in this Agreement or any document or instrument delivered in connection herewith notwithstanding, FCBC and FCIB do not release, discharge or covenant not to sue, and they hereby expressly reserve all claims, demands, causes of action, suits, contracts, agreements, warranties, covenants, debts, dues, damages, demands and rights, in law or in equity, they may currently have or hereafter acquire against, First Asia in respect of the subject matter of this Agreement or the Proceeding.



6.

Miscellaneous. This Agreement, together with each other agreement and each schedule and exhibit referenced herein, represents the entire agreement among the Parties with respect to the subject matter hereof and supersedes any earlier written or oral agreements that any of the Parties might have with another of the Parties concerning the subject matter hereof. No amendment to this Agreement is effective unless it is written and signed by all Parties.



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 49





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This Agreement shall inure to the benefit of each Party, its successors and assigns. Each Party will bear its own costs incurred in connection with the negotiation, execution, delivery and performance of this Agreement. This Agreement shall be governed by and construed in accordance with the laws of Bermuda. This Agreement may be executed in multiple counterparts, each of which when so executed shall be deemed to be an original copy, and all of which together shall constitute one agreement binding on all Parties hereto, notwithstanding that all Parties shall not have signed the same counterpart.



IN WITNESS WHEREOF, the Parties have set their hands hereto, effective as of the date on which all five Parties have signed this Agreement as evidenced under their signatures in the spaces provided below.



|                                       |                  |                                       |        |                 
|-------------------------------------- | ---------------- | ------------------------------------- | ------ | ----------------
|First Curacao Banking Corporation N.V. |                  | First Curacao International Bank N.V.
|                                       |                  |                                      
|By:                                    | /s/ signed       |                                       | By:    | /s/ signed      
|Name:                                  | M. Neuman-Rovira |                                       | Name:  | M. Neuman-Rovira
|Title:                                 | Proxy Holder     |                                       | Title: | Proxy Holder    
|Date                                   | March 20, 2007   |                                       | Date   | March 20, 2007  



|       |                     |  |        |                    
|------ | ------------------- |  | ------ | -------------------
|By:    | /s/ signed          |  | By:    | /s/ signed         
|Name:  | Nasr (Victor) Farag |  | Name:  | Nasr (Victor) Farag
|Title: | Proxy Holder        |  | Title: | Proxy Holder       
|Date   | March 20, 2007      |  | Date   | March 20, 2007     







|                        |  |                              |        | 
|----------------------- |  | ---------------------------- | ------ | 
|Brek Energy Corporation |  | Feds Acquisition Corporation
|                        |  |                             
|By:                     |  |                              | By:    | 
|Name:                   |  |                              | Name:  | 
|Title:                  |  |                              | Title: | 
|Date                    |  |                              | Date   | 





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 50





---

with respect to the subject matter hereof and supersedes any earlier written or oral agreements  that any of the Parties might have with another of the Parties concerning the subject matter  hereof.  No amendment to this Agreement is effective unless it is written and signed by all Parties.  This Agreement shall inure to the benefit of each Party, its successors and assigns.  Each Party will bear its own costs incurred in connection with the negotiation, execution, delivery and performance of this Agreement.  This Agreement shall be governed by and construed in accordance with the laws of Bermuda.  This Agreement may be executed in multiple counterparts, each of which when so executed shall be deemed to be an original copy, and all of which together shall constitute one agreement binding on all Parties hereto, notwithstanding that all Parties shall not have signed the same counterpart.



IN WITNESS WHERE OF, the Parties have set their hands hereto, effective as of the date on which all five Parties have signed this Agreement as evidenced under their signatures in the spaces provided below.



|                                       |                                      
|-------------------------------------- | -------------------------------------
|First Curacao Banking Corporation N.V. | First Curacao International Bank N.V.





|                        |               |                              |        |              
|----------------------- | ------------- | ---------------------------- | ------ | -------------
|                        |               |                             
|By:                     |               |                              | By:    |              
|Name:                   |               |                              | Name:  |              
|Title:                  |               |                              | Title: |              
|Date:                   |               |                              | Date:  |              
|                        |               |                             
|Brek Energy Corporation |               | Feds Acquisition Corporation
|                        |               |                             
|By:                     | /s/ signed    |                              | By:    | /s/ signed   
|Name:                   | R.N. Jeffs    |                              | Name:  | R.N. Jeffs   
|Title:                  | President     |                              | Title: | President    
|Date:                   | 29 March 2007 |                              | Date:  | 29 March 2007





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 51





---







EXHIBIT A



PROPOSED FORM OF CONSENT ORDER









|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 52





---









IN THE SUPREME COURT OF BERMUDA

CIVIL JURISDICTION



2003   No.83



BETWEEN:



TRANSWORLD PAYMENT SOLUTIONS N.V.



- and 



FIRSTCURACAO INTERNATIONAL BANK N.V.



Plaintiffs





- and -



BREK ENERGY CORPORATION



- and -



FEDS ACQUISITION CORPORATION



- and -



FIRST ECOM SYSTEMS LIMITED



- and -



FIRST ECOMMERCE ASIA LIMITED



-and-



STUNNING TECHNOLOGY LIMITED



Defendants





| |               | 
| | ------------- | 
| | CONSENT ORDER | 



UPON HEARING Counsel for the Plaintiffs and for the Defendants Brek Energy Corporation and Feds Acquisition Corporation;



AND UPON it appearing that the Plaintiffs and the Defendants Brek Energy Corporation and Feds Acquisition Corporation have settled their disputes in this action;



|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 53





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IT IS HEREBY ORDERED BY CONSENT that the Plaintiffs action against the Defendants Brek Energy Corporation and Feds Acquisition Corporation and the counterclaims of Brek Energy Corporation and Feds Acquisition Corporation against the Plaintiffs be and are hereby dismissed with no order as to costs.



DATED this     day of         2007



| |                           
| | --------------------------
| |                           
| | CHIEF JUSTICE/PUISNE JUDGE











We, Wakefield Quin, attorneys for the Plaintiffs herein, hereby consent to an Order in the above terms.





| |               
| | --------------
| |               
| | WAKEFIELD QUIN









We, Williams Barristers & Attorneys, attorneys for Brek Energy Corporation and Feds Acquisition Corporation herein, hereby consent to an Order in the above terms









| |                                
| | -------------------------------
| |                                
| | WILLIAMS BARRISTERS & ATTORNEYS





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 54





---



| |                                                                                                                                                                                  |            |  | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- |  | 
| | IN THE SUPREME COURT OF BERMUDA
CIVIL JURISIDCTION
2003 : No.83                                                                                                                  |           
| | BETWEEN:                                                                                                                                                                         |           
| |                                                                                                                                                                                  |           
| | TRANSWORLD PAYMENT SOLUTIONS N.V.

- and -

FIRST CURACAO INTERNATIONAL BANK N.V.                                                                                                |           
| |                                                                                                                                                                                  | Plaintiffs
| | - and -                                                                                                                                                                          |           
| | BREK ENERGY CORPORATION

- and -

FEDS ACQUISITION CORPORATION

- and -

FIRST ECOM SYSTEMS LIMITED

- and -

FIRST ECOMMERCE ASIA LIMITED

- and -

STUNNING TECHNOLOGY LIMITED |           
| |                                                                                                                                                                                  | Defendants
| |                                                                                                                                                                                  |           
| | CONSENT ORDER                                                                                                                                                                    |           
| |                                                                                                                                                                                  |           
| | Wakefield Quinn
Chancery Hall
52 Reid Street
Hamilton HM 12

Attorneys for the Plaintiffs
JP/pi/3572-001                                                                         |           







|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 55





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_________________________________________



Exhibit 21

List of Subsidiaries

_________________________________________





|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 56





---









Exhibit 21



LIST OF SUBSIDIARIES



|                                 |                               |                       
|-------------------------------- | ----------------------------- | ----------------------
|Name of Subsidiary               | Jurisdiction of Incorporation | Business Names        
|Brek Petroleum Inc.              | Nevada                        | n/a                   
|Brek Petroleum (California) Inc. | California                    | n/a                   
|Rock City Energy Corp.           | Nevada                        | n/a                   
|Vallenar Energy Corp.            | Nevada                        | Nathan Oil Partners LP
|                                 |                               |                       









|                        |                    |        
|----------------------- | ------------------ | -------
|Brek Energy Corporation | Form 10-KSB - 2006 | Page 57