**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**








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





For
      the
      fiscal year ended  **December
      31, 2005**





**[ 
                 ]**
            **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**








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








Incorporated
                in the State of Nevada
            **98-0206979**(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification
                No.)Third
                Floor, 346 Kensington High Street, London, UK
            W14
                8NS(Address
                of principal executive offices)
            (Zip
                Code)





Issuer’s
      telephone number: **011-44-0776-420-0334.**








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


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








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








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





Indicate
      by check mark 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. **[
      ] Yes [ X ] No**





Indicate
      by check mark if disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not 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. **[ 
      ]**




***Page
          - 1***





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.   $764,802





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: **$24,670,287
      as of March 29, 2006 ($0.525 average X 46,991,023)**





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





**Class**
            **Outstanding
                at March 29, 2006**shares
                of common stock - $0.001 par value
            61,098,090





Documents
      incorporated by reference: Exhibit 3.1 (Amended and Restated Articles of
      Incorporation) filed on May 14, 2002 as an Exhibit to Brek’s Form 10-K/A (Annual
      Report); Exhibit 3.2 (By-laws) filed on October 21, 1999 as an Exhibit to Brek’s
      Form 10 (Registration Statement); Exhibit 4.1 (1999 Employee Stock Option /
      Warrant Plan) filed on September 11, 2000 as an Exhibit to Brek’s Form S-8
      (Registration Statement); Exhibit 4.2 (Rights Agreement) filed on March 6,
      2002
      as an Exhibit to Brek’s Form 8-K (Current Report); Exhibit 4.3 (2001 Employee
      Stock Option / Warrant Plan) filed on July 10, 2002 as an Exhibit to Brek’s Form
      S-8 (Registration Statement); Exhibit 10.1 (Stock Purchase Agreement) filed
      on
      March 29, 2000 as an Exhibit to Brek’s Form 10-KSB (Annual Report); Exhibit 10.2
      (Stock Purchase Agreement) filed on September 18, 2002 as an attached Exhibit
      to
      Brek’s Form 10-K/A (Annual Report); Exhibit 10.3 (Purchase Agreement) filed on
      July 31, 2002 as an Exhibit to Brek’s Form 8-K (Current Report); Exhibit 10.4
      (Share Purchase Agreement) filed on November 21, 2005 as an Exhibit to Brek’s
      Form 10-KSB (Annual Report); and Exhibit 10.5 (License Agreements) filed on
      November 21, 2005 as an Exhibit to Brek’s Form 10-KSB (Annual
      Report).





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





***Page
          - 2***


**PART
      I**





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





**(a)**
            **Business
                Development**





Brek
      Energy Corporation is a Nevada corporation in the oil and gas business. 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 shares in Gasco Energy, Inc., an
      oil
      and gas exploration company. In 2002, we acquired a 51.53% interest in Vallenar
      Energy Corp., an oil and gas exploration company with properties in Texas;
      we
      exchanged 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. S ee
      “Business of Brek” and “Management’s Discussion and Analysis or Plan of
      Operations” below for more information.





We
      have
      an authorized capital of 300,000,000 shares of common stock with a par value
      of
      $0.001 of which 61,098,090 shares are issued and outstanding.





Neither
      Brek nor any of its subsidiaries have been involved in any bankruptcy,
      receivership or similar proceedings. We have undergone no material
      reclassifications, mergers, consolidations or purchases or sales of significant
      assets not in the ordinary course of business.





**(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 focussed 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 a
      majority 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 development 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. 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. See Exhibit 10.7 - Natural Gas Purchase Agreement for more
      details.





Our
      primary product is natural gas, but we also produce condensate (oil). During
      the
      fiscal year ended December 31, 2005, we produced 91,983 Mcf of natural gas
      and
      948.61 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.




***Page
          - 3***





**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. See
      Exhibit 10.7 - Natural Gas Purchase Agreement for more details.





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, 2005, 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**





Natural
      gas is delivered to the purchaser via gathering lines into the main gas
      transmission line or pipeline. See Exhibit 10.7 - Natural Gas Purchase Agreement
      for more details.





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.





***Page
          - 4***


**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.





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 accord 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.





***Page
          - 5***


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. 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.





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 Research and Development Costs**





We
      did
      not perform any research activities in the past two fiscal years ended 2005
      and
      2004. We spent $310,875 and $1,661,077 on exploration and development activities
      during the two fiscal years ended 2005 and 2004 respectively. We did not spend
      any funds on geological and economical evaluations of our properties during
      the
      same time period, with the exception of $38,331 and $39,457 that we spent on
      reserves studies at December 31, 2005 and 2004.





**Number
      of Total Employees and Number of Full-Time Employees**





As
      of
      December 31, 2005 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.





***Page
          - 6***


**Risks
      associated with our business and properties:**





**1.**  **We
      are** **in the early stages of development and may not be able to continue as a going
      concern or be able to raise additional financing.**





We
      have a
      working capital deficiency. This factor raises substantial doubt about our
      ability to continue as a going concern. 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 a working capital deficit of $1,030,487
      and
      have accumulated losses of $61,592,913 since inception. These factors raise
      substantial doubt regarding our ability to continue as a going
      concern.





These
      factors are 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. 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 $61,592,913. For the 12 months ended
      December 31, 2005, operating expenses increased by $665,192. We expect to incur
      approximately $16,000 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. See “Management Discussion and Analysis”
on page 24 for more details.





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 maintain profitability and positive cash flow is dependent upon our ability
      to generate revenues from our planned business operations and to control our
      operating costs. If we do not generate revenues or complete an equity or debt
      financing, we will run out of operating funds within nine months.





**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 .





***Page
          - 7***


**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.





**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, 2005, we had cash in the amount of $58,113. 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.





***Page
          - 8***


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.
      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 Region 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.





***Page
          - 9***


**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 reserves** **** **as
      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.





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.





***Page
          - 10***


**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.





**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





***Page
          - 11***


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


•
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.





***Page
          - 12***


**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
      March 29, 2006, 61,098,090 shares of common stock were issued and outstanding,
      of which 15,100,008 shares were freely tradeable and 35,973,912 shares were, to the
      best
      of our knowledge, subject to Rule 144. The remaining 10,024,170 shares of common
      stock were restricted from trading. As of March 29, 2006, 18,784,460 share
      purchase warrants exercisable into one share of common stock each were
      outstanding; and 1,580,000 stock options, exercisable into one share of common
      stock each, were outstanding. An additional 3,320,000 stock options could be
      granted under our 2001 Stock Option Plan. At March 29, 2006, if all the share
      purchase warrants and all the granted options were exercised, the number of
      issued and outstanding shares of common stock would increase by 20,364,460
      to
      81,462,550.





**22.**  **A
      change in control of Brek can be delayed, impeded or effected by the directors
      and management, who collectively own 23.1% of the outstanding shares or by
      the
      implementation of Brek’s rights agreement by the board of directors.**





Brek’s
      directors and management own an aggregate of 14,107,067 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
“Dividends” on page 19 and Exhibit 4.2 - Rights Agreement for more
      details





**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
      March 29, 2006, Brek
      has
      61,098,090 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 305,490,450
      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
“Dividends” on page 19 and Exhibit 4.2 - Rights Agreement for more
      details





**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.





***Page
          - 13***


**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. This could
      prevent you from reselling your shares and cause the price of the shares to
      decline. See “Penny Stock rules” on page 24 for more details.





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





**Corporate
      Headquarters**





We
      operate out of the president’s own office located at Third Floor, 346 Kensington
      High Street, London, United Kingdom, W14 8NS. Our telephone number is
      011-44-20-7471-9898. We provide the president with a budget of $20,000 per
      month
      to cover his office and related costs.





**Property**





**A.**
            **Petroleum
                and Natural Gas Properties**





Riverbend
      Project, Utah





The
      Riverbend Project comprises approximately 114,428 gross acres in the Uinta
      Basin
      of northeastern Utah, of which we hold leasehold interests in approximately
      17,115 net acres as of December 31, 2005. 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, 2005, we did not participated in the drilling and
      completion of any wells in the Riverbend area except for the completion of
      a
      zone in one well that was drilled in 2004 and the re-completion of two older
      wells. We farmed out the drilling of four wells, and did not participate in
      the
      drilling of nineteen proposed wells. So far in 2006, we have participated in
      the
      drilling of one well, and did not participate in the drilling of three proposed
      wells. The operator has notified us that it proposes to drill one well in Utah.
      We have until April 6, 2006 to decide whether to participate. See Management’s
      Discussion and Analysis on page 25.





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.
      See Exhibit 10.3 - Purchase Agreement for more details.





***Page
          - 14***


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.





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 Unita Basin
      in
      Utah for approximately $60,000. See Exhibit 10.3 - Purchase Agreement for more
      details.





During
      January 2005, we exercised our rights under the July 16, 2002 purchase agreement
      with Gasco Energy, Inc. to acquire 3,545 net acres in the Riverbend Area for
      a
      purchase price of approximately $830,000. See Exhibit 10.3 - Purchase Agreement
      for more details.





Greater
      Green River Basin Project, Wyoming





As
      of
      December 31, 2005, we had a leasehold interest in approximately 89,745 gross
      acres and 14,109 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.





Crocker
      Canyon Prospect, California





We
      have a
      leasehold interest in approximately 3,315 gross acres and 828 net acres in
      Kern
      and San Luis Obispo Counties 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 plan to continue paying leasehold
      rentals and other minimum geological expenses to preserve acreage on these
      prospects.





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 can earn an undivided working
      interest in the farmout lands by drilling a test well on the property. Venoco
      began drilling on this property in February 2006.





Rocksprings
      Prospect, Edwards County, Texas





We
      own a
      controlling interest in Vallenar Energy Corp., which holds leases covering
      approximately 9,191 gross and 8,865 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. Vallenar plans to pursue options to test the
      Ellenburger formation during 2006.





We
      first
      acquired an interest in Vallenar in March 2002, when we bought 2,512,500 shares
      of Vallenar’s common stock. We then acquired 733,333 preferred shares
      convertible to 733,333 common shares. These shares together represented
      approximately 25% of Vallenar Energy Corp.’s equity. On June 28, 2002, we
      acquired an additional 2 million shares from third parties for $10,000 and
      subscribed for an additional 800,000 shares at $0.50 per share ($400,000).
      At
      December 31, 2002, we held a 51.53% equity interest in Vallenar Energy Corp.
      For
      as long as at least one-half of the preferred stock is outstanding, we are
      entitled to at least 29.69% of the total voting power. 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.




***Page
          - 15***





**B.**
            **Reserve
                Estimates**





Table
      1
      summarizes our estimated reserve data as of December 31, 2005, as estimated
      by
      Netherland, Sewell & Associates, Inc., independent petroleum engineers. The
      present value of future net cash flows is based on prices at December 31, 2005,
      of $7.45 per Mcf of natural gas and $59.84 per bbl of oil. All of the Company’s
      proved reserves are located within the state of Utah.


Table
                1
              Reserve
                EstimatesProved
                reserve quantities
            
            Present
                value of future net cash flows
            TotalProvedMcf
                of gas
            Bbls
                of oil
            Undeveloped
            Developed5,653,612
            27,405
            
            $3,421,400
            $5,763,600
            $9,185,000





Actual
      future prices and costs could be materially higher or lower than the prices
      and
      costs as of the date of any estimate. We have not included estimates of proved
      reserves comparable to these in reports to any federal agency other than the
      Securities and Exchange Commission.





**C.**
            **Volumes,
                Prices and Operating
                Expenses**





The
      following table 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
                2
              Production
                and Sales DataFor
                the years ended
              December
                312005
            
            2004Natural
                gas production (Mcf)
            
            91,983
            
            58,908Average
                sales price per Mcf
            
            $7.70
            
            $5.54Oil
                production (Bbl)
            
            949
            
            834Average
                sales price per Bbl
            
            $59.44
            
            $43.66Total
                production in Mcfe
            
            97,674
            
            63,912Expenses
                per McfeLease
                operating
            
            nil
            
            nilGeneral
                and administrative
            
            $9.57
            
            $5.97Depletion
                and impairment
            
            $0.84
            
            nil








**D.**
            **Development,
                Exploration and Acquisition Capital
                Expenditures**





During
      the year ended December 31, 2005, we spent $1,196,165 on development and
      exploration activities including the acquisition of acreage in the Riverbend
      area for $885,290. During the year ended December 31, 2004, we spent
      $2,461,077 **** in
      development and exploration activities, which included the acquisition of
      acreage in the Riverbend area for $800,000. As of December 31, 2005, we held
      a
      working interest of approximately 15.5% in 207,488 gross acres (32,052 net
      acres) located in Utah, Wyoming and California. As of December 31, 2005, 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.





We
      own
      51.53% of Vallenar which has a 97% working interest in 9,191 gross acres (8,865
      net acres) located in Edwards County, Texas.




***Page
          - 16***





Table
      3
      summarizes our net costs incurred in the purchase of proved and unproved
      properties and in exploration and development activities.





Table
                3
              Net
                Exploration and Development CostsFor
                the years ended
              December
                312005
            
            2004Proved
                property acquisition costs
            
            $3,717,850
            
            $2,832,560Unproved
                property acquisition costs
            
            300
            
            300Exploration
                and development costs
            
            2,278,437
            
            1,967,562Impairment
                charges
            
            (82,377)
            
            nilTotal
            
            $5,914,210
            
            $4,800,422





**E.**
            **Productive
                Wells and Acreage**





Table
      4
      summarizes our productive and shut-in gas wells as of December 31, 2005.
      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
                4
              Productive
                Gas WellsProductive
                gas wellsGross
            NetProducing
                gas wells
            10.0
            1.51Shut-in
                gas wells
            1.0
            0.14





Table
      5
      sets out the working interests in leases that we acquired by exercising our
      rights under the July 16, 2002, purchase agreement with Gasco Energy, Inc.
      See
      Exhibit 10.3 - Purchase Agreement for more details.





Table
                5
              Working
                Interests acquired in Uinta Basin, UtahDate
                acquired
            Cost
            Net
                acreage
            Other
                assetsApril
                2004
            $
                800,000
            3,266
            six
                producing wells, and gathering system assets*January
                2005
            57,813
            344January
                2005
            828,117
            3,545Total
            $1,685,930
            7,155*We
                did not keep the gathering system assets. We traded them to Gasco
                for our
                share of Gasco’s due diligence and acquisition costs and a guarantee to
                carry and sell our gas on the same terms and conditions as they carry
                their own. See Exhibit 10.7 - Natural Gas Purchase Agreement for
                more
                details.





**F.**
            **Undeveloped
                Acreage**





Table
      6
      summarizes the undeveloped and developed leasehold acreage, by area, that we
      hold as of December 31, 2005. 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
                6
              Summary
                of AcreageUndeveloped
                acres
            
            Developed
                acresGross
            
            Net
            
            Gross
            
            NetUtah
            114,068
            
            17,064
            
            360
            
            51Wyoming
            89,665
            
            14,100
            
            80
            
            9California
            3,315
            
            828
            
            -
            
            -Texas
            9,191
            
            8,865
            
            -
            
            -Total
                acres
            216,239
            
            40,857
            
            440
            
            60






***Page
          - 17***





**G.**
            **Drilling
                Activity**





Table
      7
      summarizes our drilling activity during the years ended December 31, 2005 and
      2004. 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
                7
              Drilling
                ActivityFor
                the years ended December 312005
            
            2004Gross
            
            Net
            
            Gross
            
            NetExploratory
                wellsProductive
            
            0.0
            
            0.0
            
            0.0
            
            0.0Dry
            
            0.0
            
            0.0
            
            0.0
            
            0.0Inconclusive
            
            0.0
            
            0.0
            
            0.0
            
            0.0Development
                wellsProductive
            
            0.0
            
            0.0
            
            3.0
            
            0.4Dry
            
            0.0
            
            0.0
            
            0.0
            
            0.0Total
                wells
            
            0.0
            
            0.0
            
            3.0
            
            0.4





**H.**
            **Current
                Activity**





We
      are
      participating in the drilling of one well in the Uinta Basin of Utah to which
      we
      consented in January 2006. We did not participate in the drilling of three
      wells
      proposed in January and February, 2006, and have yet to decide whether we will
      participate in one that requires a response in April, 2006. We plan to continue
      to review drilling proposals that it 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.





**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”.
      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.





From
      December 3, 2002, our shares of common stock were quoted on the NASD OTC
      Bulletin Board under the symbol “BREK” until May 23, 2003, when our shares
      ceased to be quoted on the NASD OTC Bulletin Board and were quoted on the gray
      market under the same symbol, “BREK”.





Table
      8
      gives the high and low bid information for each fiscal quarter for the last
      two
      fiscal years and for the interim period ended March 23, 2006. 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.




***Page
          - 18***




Table
                8
              High
                and Low BidsPeriod
                ended
            High
            Low
            Source23
                March 2006
            $0.75
            $0.45
            Pink
                Sheets LLC31
                December 2005
            $0.72
            $0.55
            Pink
                Sheets LLC30
                September 2005
            $0.68
            $0.34
            Pink
                Sheets LLC30
                June 2005
            $0.44
            $0.29
            Pink
                Sheets LLC31
                March 2005
            $0.47
            $0.33
            Pink
                Sheets LLC31
                December 2004
            $0.42
            $0.30
            Pink
                Sheets LLC30
                September 2004
            $0.30
            $0.21
            Pink
                Sheets LLC30
                June 2004
            $0.32
            $0.18
            Pink
                Sheets LLC31
                March 2004
            $0.25
            $0.05
            Pink
                Sheets LLC





**(b)**  **Holders
      of Record**





We
        have
        approximately 239 registered holders of our common stock.


**(c)**  **Dividends**





We
      have
      never declared or paid dividends on our shares of common stock. 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 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. The description and terms of the Rights are set forth in the rights
      plan. See Exhibit 4.2 - Rights Agreement for more details.





**(d)**  **Recent
      Sales of Unregistered Securities**





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





April
      14, 2003 - $0.18 Offering





O n
      March
      20, 2003, the board of directors authorized the issuance of up to 277,776 shares
      of common stock at an offering price of $0.18 per share. We set the offering
      price arbitrarily without reference to the Company’s assets, book value,
      revenues or other established criteria of value. All the restricted shares
      issued in this offering were issued for investment purposes in a “private
      transaction”.





On
      April
      14, 2003, we raised $49,999 in cash from this offering and issued an aggregate
      277,776 restricted shares to four non-US investors outside the United States,
      one of which was an executive officer of the Company.





***Page
          - 19***





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 have been legended with the
      applicable trading restrictions.





April
      14, 2003 - $0.18 Shares for Debt Offering





O n
      March
      20, 2003, the board of directors approved a debt offering at a settlement price
      of $0.18 per share. We set the settlement price arbitrarily without reference
      to
      the Company’s assets, book value, revenues or other established criteria of
      value. All the restricted shares of common stock issued in this debt settlement
      were issued for investment purposes in a “private transaction”.





On
      April
      14, 2003, we settled $337,647 of debt by issuing an aggregate 1,875,817 shares
      of the Company’s common stock at a settlement price of $0.18 per share of common
      stock to 15 non-US creditors outside the United States, five of which were
      directors and/or executive officers of the Company.





For
      this
      shares for debt offering, 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 creditor a completed and signed subscription agreement
      containing certain representations and warranties, including, among others,
      that
      (a) the creditor was not a U.S. person, (b) the creditor 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 have been legended with the applicable trading
      restrictions.





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 is 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 one non-US
      finder outside the United States, who was an executive officer of Brek.





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. Of these creditors, one was an executive officer and one
      was
      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.





***Page
          - 20***


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 one non-US finder
      outside the United States, who was an executive officer of Brek.





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 one
      non-US finder outside the United States, who was an executive officer of Brek.





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 one non-US finder
      outside the United States, who was an executive officer of Brek.





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
      3,
      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 one non-US finder outside the United
      States, who was an executive officer of Brek.





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.





***Page
          - 21***


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 one non-US finder outside the United States, who was an executive officer
      of
      Brek..





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
      22, 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 one non-US finder outside the United
      States, who was an executive officer of Brek.





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.





***Page
          - 22***


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. 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 Rick Jeffs, the 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 Rick Jeffs,
      the
      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 Rick Jeffs, the
      president of Brek for the exercise of warrants at an exercise price of $0.25
      per
      warrant. We received $200,000 for the exercise of these warrants. These warrants
      were issued as part of the May 3, 2004 offering at $0.15 per unit.





January
      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.





***Page
          - 23***










**(e)**
            **Penny
                Stock Rules**





Trading
      in our shares of common stock is subject to the “penny stock” rules. The SEC has
      adopted regulations that generally define a penny stock to be any equity
      security that has a market price of less than $5.00 per share, subject to
      certain exceptions. These rules require that any broker-dealer who recommends
      our shares of common stock to persons other than prior customers and accredited
      investors, must, before the sale, make a special written suitability
      determination for the purchaser and receive the purchaser’s written agreement to
      execute the transaction. Unless an exception is available, the regulations
      require the delivery, before any transaction involving a penny stock, of a
      disclosure schedule explaining the penny stock market and the risks associated
      with trading in the penny stock market. Broker-dealers must disclose both
      commissions payable to the broker-dealer and to the registered representative,
      and the current quotations for the securities they offer. The additional burdens
      imposed upon broker-dealers by these requirements could discourage
      broker-dealers from effecting transactions in our shares of common stock, which
      could severely limit their market price and liquidity of our shares of common
      stock.





The
      “penny stock” rules imposes additional sales practice requirements on
      broker-dealers who sell penny stock. These rules require a one-page summary
      of
      certain essential items. The items include the risk of investing in penny stocks
      in both public offerings and secondary marketing; terms important to in
      understanding of the function of the penny stock market, such as “bid” and
“offer” quotes, a dealers “spread”; the broker-dealer’s compensation, the
      broker-dealer’s duties to its customers, including the disclosures required by
      any other penny stock disclosure rules; the customer’s rights and remedies in
      causes of fraud in penny stock transactions; and, the NASD’s toll free telephone
      number and the central number of the North American Administrators Association
      for information on the disciplinary history of broker-dealers and their
      associated persons.





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





The
      following is management’s discussion and analysis of certain significant factors
      that will affect or have affected our financial condition and results of
      operations for the fiscal years ended December 31, 2005 and 2004. Certain
      statements under this section might constitute “forward-looking statements”. You
      should read the following in conjunction with the consolidated financial
      statements and related notes appearing elsewhere in this 10-KSB.





**OVERVIEW**





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 eleven wells and have ten
      producing wells in which we have net revenue interests of between 8% and 20%.
      One well, an earning well drilled by Burlington in 2002, generated some revenue
      for two years but is now shut in. We have finished paying for the re-completion
      work performed on one well during the summer of 2005. The work increased the
      production from the well and our revenue.





We
      have
      farmed out the drilling of six wells. Under the farmout agreements, we agreed
      to
      forfeit 100% of our interest in five wells and wellbores and 75% of our interest
      in one well and wellbore, and to relinquish 70% of our leasehold interest in
      the
      acreage surrounding four wells and 75% in the acreage surrounding two wells
      in
      exchange for the right to back in to a 7.5% working interest in four wells
      and
      wellbores when the farmee has recovered 100% of its drilling and operating
      costs, an over-riding royalty interest in the revenue from one well convertible
      to a wellbore interest when the farmee has recovered 100% of its drilling and
      operating costs, and 7.5% of the revenue that we would have earned from one
      well
      had we not relinquished our well and wellbore interests in the well.





We
      transferred one-half of our interest in two wells and wellbores and all of
      our
      interest in one well and wellbore, all in Utah, to a small drilling fund for
      which the fund paid us its share of the drilling and completion costs. We used
      the recovered funds to invest in drilling other wells. The well in which we
      transferred all of our interest was an earning well.





We
      did
      not consent to the drilling of a total of twenty wells proposed by Gasco as
      of
      December 31, 2005, and did not consent to the drilling of three wells proposed
      in 2006. As a result of our non-consent, Gasco has drilled (or will drill)
      the
      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 approximately $3.5
      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 and can
      participate in future drilling that is proposed for other locations on the
      same
      leases. Gasco has proposed a well for our consent in April 2006. We are not
      likely to participate in this well as we do not have the funds available to
      pay
      our portion of the costs.





***Page
          - 24***


We
      agreed
      with Gasco in December 2005 to convert ten of the non-consent wells to farmouts.
      The farmouts have not been finalized and documented, nor has Gasco delivered
      the
      consideration for the agreement as required, which has caused the agreement
      to
      lapse. Although we have assigned no leases to Gasco because of the lapse, and
      have included the farmout acreage in our acreage calculations, we have not
      included the reserves that attach to the farmout acreage in our reserve
      calculations, as we believe that we will reach a satisfactory agreement with
      Gasco to complete the farmouts, at which time we will assign approximately
      112
      net acres in Utah to Gasco.





Our
      reserve and production information as of December 31, 2005 and 2004 is set
      out
      in Table 9.





Table
                9
              Production
                and ReservesFor
                the years ended December 312005
            
            2004Natural
                gas production (Mcf)
            91,983
            
            58,908Average
                sales price per Mcf
            $7.70
            
            $5.54Year-end
                proved gas reserves (Mcf)
            5,653,612
            
            6,853,310Oil
                production (Bbl)
            949
            
            834Average
                sales price per Bbl
            $59.44
            
            $43.66Year-end
                proved oil reserves (Bbl)
            27,405
            
            51,495Production
                (Mcfe)*
            97,674
            
            63,912Year-end
                proved reserves (Mcfe)*
            5,818,042
            
            7,162,280*Assumes
                a conversion of 6 Mcf for each Bbl of
                oil.





Our
      oil
      and gas production increased by approximately 52% during 2005 as compared with
      2004, primarily because we re-worked and completed additional zones in some
      wells. During 2005, on a combined basis, our oil and gas reserve quantities
      decreased by approximately 19% primarily because we reduced our reserves when
      we
      agreed to farm out ten wells to Gasco and we revised our prior estimates on
      the
      basis of our actual production.





Vallenar
      Energy, through its subsidiary, Nathan Oil Partners LP, has reached an agreement
      with an American oil and gas company with operations in Texas for the
      development of the Texas properties. Under the agreement, the operator can
      earn
      a 75% interest in the wells and production in exchange for drilling until it
      has
      completed a well capable of producing hydrocarbons in commercial quantities.
      The
      details of the agreement are being finalized.





Since
      December 31, 2005, we received $200,000 in cash from the exercise of warrants
      and $400,000 in cash from the private placement of units. We are using this
      cash
      to cover operating expenses and to participate in new drilling programs.





**Financial
      Condition**


During
      the year ended December 31, 2005, we had a net loss of $257,205. As of December
      31, 2005, we had a cash balance of $58,113, trade accounts receivable of
      $120,110, and prepaid expenses of $3,415. When we offset these current assets
      against our current obligations of $756,375 in accounts payable and accrued
      liabilities and $455,750 in amounts due to related parties, we are left with
      a
      working capital deficit of $1,030,487.





We
      believe that our cash and cash equivalents as of the date of this filing are
      inadequate to satisfy our working capital needs. As our oil and gas revenues
      are
      not yet sufficient to satisfy our 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 auditors have added an explanatory paragraph to their audit opinions
      issued in connection with our consolidated financial statements for the fiscal
      years 2005 and 2004, which states that 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.





***Page
          - 25***


**Related-Party
      Transactions**


Included
      in the $455,750 that we owed to related parties at December 31, 2005, is
      $135,463 in directors’ fees that were accrued during 2002 and 2003, $101,431 in
      administrative, consulting and rental fees accrued during the year ended
      December 31, 2005, $18,856 that some of our directors and officers or companies
      controlled by them paid to creditors on our behalf, and $200,000 in funds that
      an officer advanced to us, which the officer used to exercise his warrants
      for
      800,000 shares at $0.25 per share after December 31, 2005. None of the amounts
      due to related parties bear interest or have any fixed terms of repayment.





**COMPARISON
      OF THE YEARS ENDED DECEMBER 31, 2005 AND 2004.**





**Overall
      Results of Operations**


For
      the
      year ended December 31, 2005, we had a net loss of $257,205, or $0.01 per share,
      which was an increase of $263,699 in net loss from our net income of $6,494
      or
      $0.01 per share for the year ended December 31, 2004. The increase in net loss
      for the year ended December 31, 2005 as compared to the year ended December
      31,
      2004 was primarily due to two factors: the increase in our administrative
      expenses incurred in bringing our SEC filings up to date; and the depletion
      of
      our oil and gas assets. During 2006 we expect our net loss to stabilize as
      we
      balance our financing and investing activities.





**Revenue**


Total
      revenue for the year ended December 31, 2005 was $764,802 compared to $363,053
      for the year ended December 31, 2004. Revenues from the Wyoming oil and gas
      properties for the years ended December 31, 2005 and 2004 were $6,798 and
      $8,801. Revenue from the Utah oil and gas properties was $758,004 and $354,252
      for the years ended December 31, 2005 and 2004. The $401,749 increase in revenue
      for the year ended December 31, 2005 over the year ended December 31, 2004
      was
      due to an increase in the number of and production from our Utah wells in 2005
      and increases in the prices we received for natural gas and crude oil in
      2005.





We
      plan
      to participate whenever possible in any wells proposed in Utah and Wyoming
      during 2006. We understand that the operator plans to drill approximately
      twenty-five wells in Utah and at least three wells in Wyoming in order to
      preserve the leases. Our participation will depend entirely upon our ability
      to
      raise the capital required to pay our share of the costs. We cannot expect
      revenues to continue to increase from our Utah properties unless either we
      continue to participate in drilling programs and thus increase our production,
      or the price of gas continues to climb.





**Operating
      Expenses**


Total
      operating expenses increased by $665,192 from $351,900 for the year ended
      December 31, 2004 to $1,017,092 for the year ended December 31, 2005. This
      increase was primarily due to increases in administrative expenses of $235,236,
      depletion of $82,377, management fees of $22,423, professional fees of $290,959,
      regulatory costs of $33,097 and rent of $77,000, offset by decreases in
      advertising and promotion of $13,223, bank charges and interest of $2,439,
      foreign exchange losses of $4,729, office expenses of $1,639, telephone of
      $2,550, travel and entertainment of $50,320 and wages of $1,000. Our
      administrative, management, professional, regulatory and rental costs increased
      during the year due to the extra work required in bringing our regulatory
      filings up to date and our participation in the drilling of wells on our oil
      and
      gas properties. During 2006, we are planning to participate in drilling programs
      if our financing activities are successful. We expect our operating costs to
      stabilize during the year.





**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.





**Liquidity
      and Capital Resources**


As
      of
      December 31, 2005, we had a cash balance of $58,113 and negative cash flows
      from
      operations of $101,570 for the year then ended. During the year ended December
      31, 2005, we funded our operations through revenue from our oil and gas
      properties of $764,802, the private placement of 3,333,336 units for which
      we
      received cash of $1,000,000 and the exercise of 500,000 warrants from which
      we
      received cash of $125,000. In return for arranging the private placements,
      we
      issued 333,334 units to an officer in payment of finder’s fees of $100,000. Each
      unit consists of one common share and one common share purchase warrant.





***Page
          - 26***


The
      notes
      to our consolidated financial statements as of December 31, 2005, contain
      footnote disclosure regarding our uncertain ability to continue as a going
      concern. We have not generated sufficient revenues to cover our expenses, and
      we
      have an accumulated deficit of $61,592,913. As of December 31, 2005, we had
      $1,212,125 in current liabilities. When this is offset against our current
      assets of $181,638, we are left with a working capital deficit of $1,030,487.
      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.





Table
      10
      summarizes our sources and uses of cash for the two years ended December 31,
      2005 and 2004.





Table
                10
              Sources
                and Uses of CashFor
                the years ended December 312005
            2004Net
                cash used in operating activities
            $
                (101,570)
            $
                (452,286)Net
                cash used in investing activities
            (1,196,165)
            (2,461,077)Net
                cash provided by financing activities
            1,125,000
            3,141,893Net
                cash flow
            $
                (172,735)
            $
                228,530





**Net
      Cash Used In Operating Activities**


The
      decrease in cash used in operations of $101,570 was primarily due to an increase
      in oil and gas revenue of approximately $400,000, offset by an increase in
      operating expenses of approximately $660,000. The increase in oil and gas
      revenue caused an increase of approximately $63,000 in our accounts receivable,
      and we used approximately $270,000 to pay down our accounts payable and accrued
      liabilities. These uses of cash were offset by related parties deferring payment
      of administrative and rental expenses of approximately $287,000.





**Net
      Cash Used In Investing Activities**


During
      the year ended December 31, 2005, we invested $1,196,165 in our oil and gas
      properties: $885,290 to acquire oil and gas leases; and $310,875 on exploration
      and development.





**Net
      Cash Provided By Financing Activities**


We
      issued
      3,333,336 units for $1,000,000 cash and 500,000 common shares on the exercise
      of
      share purchase warrants for $125,000 cash during the year ended December 31,
      2005. We used this cash to pay operating expenses, to cover exploration and
      development expenses, and to acquire additional oil and gas leases.





**Contingencies
      and Commitments**


We
      had no
      contingencies or long-term commitments at December 31, 2005, except for the
      Transworld litigation which is disclosed in the commitments and contingencies
      section of the notes to our consolidated financial statements appearing
      elsewhere in this report.





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.





**CRITICAL
      ACCOUNTING 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, our estimates
      may significantly impact our 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 oil and
      gas
      properties, our critical accounting policies do not involve a choice between
      alternative methods of accounting. We applied our critical accounting policies
      and estimation methods consistently.





***Page
          - 27***


**Oil
      and Gas Reserves**


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 referred to as a full cost pool. Depletion of exploration and development
      costs is computed using the units of production method based upon estimated
      proved oil and gas reserves. Under the full cost method of accounting,
      capitalized oil and gas property costs less accumulated depletion cannot exceed
      an amount equal to the present value, discounted at 10%, of estimated future
      net
      revenues from proved oil and gas reserves plus the cost, or the estimated fair
      value if lower, of unproved properties. If capitalized costs exceed this
      ceiling, we would recognize the impairment.





Estimated
      reserve quantities and future net cash flows have the most significant impact
      on
      the results of operations because these reserve estimates are used in providing
      a measure of the Company's overall value. We also use these estimates in our
      quarterly calculations of depletion and impairment of the proved
      properties.





Estimating
      accumulations of gas and oil is complex and is not exact 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
      Securities and Exchange Commission ("SEC"), such as gas and oil prices, drilling
      and operating expenses, capital expenditures, taxes and availability of funds.
      The accuracy of a reserve estimate is a function of the quality and quantity
      of
      available data; the interpretation of that data; the accuracy of various
      mandated economic assumptions; and the judgment of the persons preparing the
      estimate.





The
      most
      accurate method of determining proved reserve estimates is based upon a decline
      analysis method, which consists of extrapolating future reservoir pressure
      and
      production from historical pressure decline and production data. The accuracy
      of
      the decline analysis method generally increases with the length of the
      production history. Since most of our wells have been producing for fewer than
      five years, their production history is relatively short, so we used other
      (generally less accurate) methods such as volumetric analysis and analogy to
      the
      production history of wells of other operators in the same reservoir in
      conjunction with the decline analysis method to determine our estimates of
      proved reserves, including developed producing, developed non-producing and
      undeveloped. As our wells produce over time and more data are available, we
      will
      re-determine the estimated proved reserves on an annual basis and they may
      be
      adjusted based on that data.





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, acquisitions, divestitures, ownership interest revisions, results
      of
      exploration and development and prevailing gas and oil prices. Our reserves
      may
      also be susceptible to drainage by operators on adjacent
      properties.





**Impairment
      of Long-Lived Assets**


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 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.





***Page
          - 28***


We
      use
      the Black-Scholes option valuation model to calculate the required disclosures
      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.





**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,
      but neither party has taken any further action. If any of these circumstances
      change, the outcome could have a material impact on our operating
      results.




**Income
      Taxes**


Table
      11
      sets out our deferred tax assets as of December 31, 2005 and 2004. 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
                11
              Deferred
                Tax AssetsFor
                the year ended December 312005
            2004Federal
                loss carryforwards
            $11,360,810
            $
                10,047,451State
                loss carryforwards, Nevada
            -
            -Foreign
                loss carryforwards
            2,991,796
            2,991,564Less:
                valuation allowance
            (14,352,606)
            (13,039,015)$  -
            $  -





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.





**Contractual
      Obligations**


We
      did
      not have any contractual obligations at December 31, 2005. In January 2006,
      we
      consented to a drilling contract, which we believe will be completed within
      the
      year. Our estimated costs for this contract are set out in Table
      12.





Table
                12
              Contractual
                ObligationsPayments
                due by periodTotal
            Less
                than
              1
                year
            1-3
                years
            3-5
                years
            More
                than
              5
                yearsDrilling
                contract
            $405,910
            $405,910
            -
            -
            -Total
            $405,910
            $405,910
            -
            -
            -





**Internal
      and External Sources of Liquidity**


We
      have
      funded our operations principally through subscriptions for common shares,
      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 by our use of 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.





***Page
          - 29***


All
      forward-looking statements are made as of the date of 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.





We
      may,
      from time to time, make oral forward-looking statements. We strongly advise
      you
      to read the foregoing paragraphs and the risk factors described in this annual
      report and in our other documents filed with the United States Securities and
      Exchange Commission for a description of certain factors that could cause our
      actual results to differ materially from those in the oral forward-looking
      statements. We disclaim any intention or obligation to update or revise any
      oral
      or written forward-looking statements whether as a result of new information,
      future events or otherwise.





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





See
      audited consolidated financial statements for the years ended December 31,
      2005
      and 2004 attached as Exhibit A to this Form 10-KSB.





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





principal
        independent accountant since February 21, 2006 to the current date is Mendoza
        Berger & Company, L.L.P. ,
        5500
        Trabuco Road, Suite 150, Irvine California, 92820.





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 contained any adverse
      opinion or disclaimer of opinion, or was qualified or modified as to
      uncertainty, audit scope or accounting principles. 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 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.





***Page
          - 30***


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.





**Item
      8B. Other Information**





During
      the fourth quarter of the fiscal year covered by this Form 10-KSB, we reported
      all information that was required to be disclosed in a report on Form
      8-K.





**PART
      III**





**Item
      9.**  **Directors,
      Executive Officers, Promoters and Control Persons; 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.





Table
                13
              ManagementBrek
                Energy Corporation
            Brek
                Petroleum Inc.
            Vallenar
                Energy Corp.
            Brek
                Petroleum (California), Inc.Richard
                N. Jeffs
            Director,
                CEO, president, CFO
            Director,
                president
            Director,
                president
            Director,
                president,
              CFO,
                corporate secretaryGregory
                Pek
            Director
            n/a
            n/a
            n/aIan
                Robinson
            Director
            n/a
            n/a
            n/aMichael
                L. Nazmack
            Director
            n/a
            n/a
            n/aEugene
                Sweeney
            Director
            n/a
            n/a
            n/aShawne
                Malone
            Director
            n/a
            n/a
            n/aJohn
                daCosta
            Treasurer
            Treasurer
                and
              corporate
                secretary
            Treasurer
                and
              corporate
                secretary
            n/aAnne
                McFadden
            Corporate
                secretary
            n/a
            n/a
            n/a





**Richard
      N. Jeffs.** Mr.
      Jeffs (60) 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).





*Potential
      conflict of interest* :
      Richard
      N. Jeffs, is our president and chief executive officer and is also an officer
      and director of Trilogy Metals Inc., an inactive reporting company, which may
      impact the amount of time he spends on Brek’s business operations. Mr. Jeffs may
      have demands placed on his time that detract from the amount of time he is
      able
      to devote to Brek. Mr. Jeffs devotes at least 40 hours per week of his business
      time and attention to Brek’s activities as required. Although Mr. Jeffs has
      other business interests, he attends to Brek’s business as his first priority.
      Brek consents to and understands this potential conflict of
      interest.





**Gregory
      Pek** .
      Mr. Pek
      (50) 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.





***Page
          - 31***


**Ian
      Robinson** .
      Mr.
      Robinson (66) has been a director of Brek since April 2001. Since 1995, Mr.
      Robinson has been the owner and managing director of Robinson Management
      Limited, 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 (55) 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 (38) 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.





**Shawne
      Malone.** Mr.
      Malone (37) 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 significant 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.





***Page
          - 32***


**(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 and Eugene
      Sweeney both 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, in lieu
      of
      filing a Form 5, provided the Company with a written representation that a
      Form
      5 was not required.





**(f)**  **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.





**(g)**  **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.





As
      of
      December 31, 2005, we did not have a written audit committee charter or similar
      document.





**(h)**  **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 99.1 - 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 Peter Forward at (604) 648-0511 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
      $490,334 in compensation to our named executive officers during our 2005 fiscal
      year as set out in Table 14.





Table
                14
              Summary
                Compensation TableLong-term
                compensationAnnual
                compensation
            Awards
            PayoutsName
                and principal position
              (a)
            Year
              (b)
            Salary
              ($)
              (c)
            Bonus
              ($)
              (d)
            Other
                annual compen-sation
              ($)
              (e)
            Restricted
                stock awards
              ($)
              (f)
            Securities
                underlying options/
              SARs
              (#)
              (g)
            LTIP
                Payouts
              ($)
              (h)
            All
                other compen-sation
              ($)
              (i)Richard
                N. Jeffs
              CEO,
                president
              Oct
                2002-Nov 2002
              Feb
                2004-present
              CFO
                Jan 2005-present
            2003
              
              2004
              
              2005
            n/a
              
              nil
              
              nil
            n/a
              
              nil
              
              nil
            n/a
              
              nil
              
              88,000
            n/a
              
              nil
              
              nil
            n/a
              
              nil
              
              nil
            n/a
              
              nil
              
              nil
            n/a
              
              226,250[1]
              177,000
              [2][3]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
            2003
              
              2004
              
              2005
            65,575
              
              nil
              
              nil
            nil
              
              nil
              
              nil
            nil
              
              nil
              
              nil
            nil
              
              nil
              
              nil
            nil
              
              nil
              
              nil
            nil
              
              nil
              
              nil
            50,000
              [5]
              nil
              
              nilKenneth
                G.C. Telford
              CFO
              July
                2000-Oct 2003
            2003
              
              2004
              
              2005
            50,909
              
              n/a
              
              n/a
            nil
              
              n/a
              
              n/a
            nil
              
              n/a
              
              n/a
            nil
              
              n/a
              
              n/a
            nil
              
              n/a
              
              n/a
            nil
              
              n/a
              
              n/a
            50,000
              [6]
              n/a
              
              n/aIan
                Robinson
              Chairman
              Jan
                2001-present
            2003
              
              2004
              
              2005
            12,000
              
              nil
              
              nil
            nil
              
              nil
              
              nil
            nil
              
              nil
              
              nil
            nil
              
              nil
              
              nil
            nil
              
              nil
              
              nil
            nil
              
              nil
              
              nil
            13,500
              [7]
              nil
              
              nilJohn
                daCosta
              Treasurer
              Feb
                2005-present
            2005
            nil
            nil
            nil
            nil
            nil
            nil
            225,334
              [4][1]Richard
                N. Jeffs was paid 1,804,167 units valued at $226,250 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 $0.15 per share to $0.38 per
                share.
                See “Item 5.(d) Recent Sale of Unregistered Securities” above for more
                details.
              [2]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.
              [3]A
                company controlled by Richard N. Jeffs was paid $77,000 for rent.
              [4]A
                company controlled by John daCosta was paid $225,334 in administrative
                fees.
              [5]On
                April 14, 2003, Gregory Pek received 277,778 shares of common stock
                as
                settlement for $50,000 debt at a settlement price of $0.18 per share.
                The
                fair market value of Brek’s shares of common stock at the time of the
                issuance of these shares was $0.21 per share.
              [6]On
                April 14, 2003, Ken Telford received 277,778 shares of common stock
                as
                settlement for $50,000 debt at a settlement price of $0.18 per share.
                The
                fair market value of Brek’s shares of common stock at the time of the
                issuance of these shares was $0.21 per share.
              [7]On
                April 14, 2003, Ian Robinson received 75,000 shares of common stock
                as
                settlement for $13,500 debt at a settlement price of $0.18 per share.
                The
                fair market value of Brek’s shares of common stock at the time of the
                issuance of these shares was $0.21 per share.





***Page
          - 33***


**Grant
      of Stock Options**





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





**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, 2005, are set out in Table 15.





Table
                15
              Stock
                OptionsName
            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
            UnexercisableRichard
                N. Jeffs
            0
            Nil
            150,000(1)
            0
            0
            0Gregory
                M. Pek
            0
            Nil
            100,000
            0
            0
            0Ian
                Robinson
            0
            Nil
            100,000
            0
            0
            0**(1)**Stock
                options granted to Wet Coast Management Corp., of which Richard N.
                Jeffs
                is the sole shareholder.





***Page
          - 34***


**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
              Third
                Floor
              346
                Kensington High Street
              London,
                UK, W14 8NS
            15,077,336[2]
                [3]
            23.12%[4][1]Based
                on 61,098,090 shares of common stock issued and outstanding as of
                March
                29, 2006, unless indicated otherwise.
              [2]Includes
                1,267,389 shares of common stock that are beneficially owned
                indirectly.
              [3]Includes
                3,962,501 warrants that that can be exercised into one share of common
                stock per warrant and 150,000 stock options that can be exercised
                into one
                share of common stock per stock option.
              [4]Based
                on 65,210,591 shares of common stock on the assumption that all the
                warrants and stock options in footnote 3 are exercised.


***Page
          - 35***




**** **(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
              Third
                Floor
              346
                Kensington High Street
              London,
                UK, W14 8NS
            15,077,336[2]
                [3]
            23.12%[4]shares
                of common stock
            Gregory
                M. Pek
              902
                Henley Building 5
              Queens
                Road Central, Hong Kong
            1,890,278[5]
            3.09%[6]shares
                of common stock
            Ian
                Robinson
              902
                Henley Boulevard
              5
                Queen Road
              Central,
                Hong Kong
            870,000[7]
                [8]
            1.42%[9]shares
                of common stock
            Michael
                L. Nazmack
              3280
                Forrest Lane
              York,
                Pennsylvania, 17402
            810,980
            1.33%shares
                of common stock
            Eugene
                Sweeney
              345
                N. Lasalle
              Chicago,
                Illinois, 60610
            1,546,033[10]
                [11]
            2.50%[12]shares
                of common stock
            Shawne
                Malone
              151
                W. Burton Place
              Coach
                House #2
              Chicago,
                Illinois, 60610
            355,592[13]
                [14]
            0.58%[15]shares
                of common stock
            Directors
                and executive officers (as a group)
            20,550,219[16]
            31.0%[17][1]Based
                on 61,098,090 shares of common stock issued and outstanding as of
                March
                29, 2006, unless indicated otherwise.
              [2]Includes
                1,267,389 shares of common stock that are beneficially owned
                indirectly.
              [3]Includes
                3,962,501 warrants that that can be exercised into one share of common
                stock per warrant and 150,000 stock options that can be exercised
                into one
                share of common stock per stock option.
              [4]Based
                on 65,210,591 shares of common stock on the assumption that all the
                warrants and stock options in footnote #3 above are exercised.
              [5]Includes
                100,000 stock options that can be exercised into one share of common
                stock
                per stock option.
              [6]Based
                on 61,198,090 shares of common stock on the assumption that all stock
                options in footnote #5 above are exercised.
              [7]Includes
                125,000 shares of common stock that are beneficially owned
                indirectly.
              [8]Includes
                100,000 stock options that can be exercised into one share of common
                stock
                per stock option.
              [9]Based
                on 61,198,090 shares of common stock on the assumption that all stock
                options in footnote #8 above are exercised.
              [10]Includes
                718,742 shares of common stock that are beneficially owned
                indirectly.
              [11]Includes
                718,742 warrants that that can be exercised into one share of common
                stock
                per warrant.
              [12]Based
                on 61,816,832 shares of common stock on the assumption that all warrants
                in footnote 11 above are exercised.
              [13]Includes
                69,520 shares of common stock that are beneficially owned
                indirectly.
              [14]Includes
                144,520 warrants that that can be exercised into one share of common
                stock
                per warrant.
              [15]Based
                on 61,242,610 shares of common stock on the assumption that all warrants
                in footnote 14 above are exercised.
              [16]Includes
                4,825,763 warrants that that can be exercised into one share of common
                stock per warrant and 350,000 stock options that can be exercised
                into one
                share of common stock per stock option.
              [17]Based
                on 66,273,853 shares of common stock on the assumption that all warrants
                and stock options listed above in footnote 16 are exercised.





***Page
          - 36***


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 17.06% voting interest in Vallenar Energy Corp. Mr.
      Jeffs also is entitled to a royalty on Vallenar’s production.





**(c)**  **Changes
      in Control**





We
      are
      not aware of any arrangement that could result in a change in control of the
      Company.





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





**(a)**  **Transactions
      with Related Parties**





During
      the last two fiscal years, no director, executive officer or security holder
      has
      had any direct or indirect material interest in any transaction or a series
      of
      similar transactions that exceeded $60,000 to which the Company was a party,
      except for the following:





We
      granted an option on May 1, 2004, to Griffin Asset Management, LLC, a drilling
      fund, 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. This right
      increases to 100% if we elect not to participate in the well. The drilling
      fund
      must pay us a fee equal to 7.5% of the estimated costs of the work when it
      elects to participate (adjusted when the work is finished to equal 7.5% of
      the
      actual costs), and a 7% royalty (subject to adjustment in certain
      circumstances). The agreement ends on the earlier of April 30, 2012, and the
      date on which the drilling fund acquires an interest 100 wells. The drilling
      fund has not exercised any rights under this agreement. See Exhibit 10.6 -
      Option to Acquire Interests in Oil and Gas Properties for more
      details.





Eugene
      Sweeney and Shawne Malone each have a 50% beneficial interest in Griffin Asset
      Management, LLC; and Mr. Malone is the co-CEO of Griffin Asset Management,
      LLC.
      Mr. Sweeney and Mr. Malone are directors of Brek.





***Page
          - 37***


**Item
      13. Exhibits.**





**(a)**  **Index
      to and Description of Exhibits.**





**Exhibit**
            **Description**
            **Status****Exhibit
                A**
            Audited
                Financial Statements for the period ended December 31, 2005
            Included**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**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**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**21**
            List
                of Subsidiaries, 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**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**99.1**
            Code
                of Ethics, 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







***Page
          - 38***


**ITEM
      14. PRINCIPAL ACCOUNTING 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:




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


2004
      - $0
      - Mendoza
      Berger & Company, L.L.P





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


2004
      -
      $17,888- Hall & Company, Certified Public Accountants Inc.





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


2004
      - $0
      - Dale Matheson Carr-Hilton Labonte, Chartered
      Accountants







***Page
          - 39***







**(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:




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


2004
      - $0
      - Mendoza
      Berger & Company, L.L.P





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


2004
      -
      $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:




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


2004
      - $0
      - Mendoza
      Berger & Company, L.L.P





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


2004
      -
      $4,900- 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:




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


2004
      - $0
      - Mendoza
      Berger & Company, L.L.P





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


2004
      -
      $0- Hall & Company, Certified Public Accountants Inc.





2005
      - $0
      - Deloitte
      Touche Tohmatsu, Chartered Accountants


2004
      - $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 %.




***Page
          - 40***








**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**






By:
      **Richard N. Jeffs**      ******


Name:  **Richard
      N. Jeffs**


Title **:**  **Director
      and CEO**


Dated:  **March 31** **,
      2006**








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
            March
                31,  2006/s/Greggory
                N. Pek
            Member
                of the Board of Directors
            March
                31, 2006/s/Ian
                Robinson
            Member
                of the Board of Directors
            ****March
                31,  2006/s/ Michael
                L. Nazmack
            Member
                of the Board of Directors
            ****March
                31, 2006/s/Eugene
                Sweeney
            Member
                of the Board of Directors
            ****March
                30, 2006/s/Shawne
                Malone
            Member
                of the Board of Directors
            ****March
                30, 2006





***Page
          - 41***














**Exhibit
      31**














***Page
          - 42***




**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:
      March 31 2006








/s/Richard
      N. Jeffs


Richard
      N. Jeffs


Chief
      Executive Officer




***Page
          - 43***




**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:
      March 31 ,
      2006






/s/Richard
      N. Jeffs


Richard
      N. Jeffs


Chief
      Financial Officer




***Page
          - 44***














**Exhibit
      32**









---









***Page
          - 45***




**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 (“Brek”) 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. Jeffs


Richard
      N. Jeffs


Chief
      Executive Officer






March
      31 ,
      2006




***Page
          - 46***




**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 (“Brek”) 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,
      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. Jeffs Richard
          N. Jeffs


Chief
      Financial Officer






March
      31 ,
      2006




***Page
          - 47***












**Exhibit
      A**


**Financial
      Statements**


















***Page
          - 48***







BREK
      ENERGY CORPORATION   CONSOLIDATED
        FINANCIAL STATEMENTS
  AS
        AT
        DECEMBER 31, 2005 and 2004
  AND
        FOR
        THE YEARS ENDED DECEMBER 31, 2005 and 2004












***Page
          - 49***


REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   CONSOLIDATED
        BALANCE SHEETS
   CONSOLIDATED
        STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
   CONSOLIDATED
        STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT AND COMPREHENSIVE
        INCOME
   CONSOLIDATED
        STATEMENTS OF CASH FLOWS
   NOTES TO CONSOLIDATED
        FINANCIAL
        STATEMENTS




***Page
          - 50***




**Mendoza
      Berger & Company, LLP** 
 
 
 REPORT
        OF INDEPENDENT REGISTERED PUBLIC
        ACCOUNTING FIRM
 
 
   
 We
        have
        audited the accompanying consolidated balance sheet of Brek Energy Corporation,
        as of December 31, 2005 and the related consolidated statements of operations
        and comprehensive loss, changes in stockholders’ equity and cash flows for the
        year then ended. These financial statements are the responsibility of the
        Company’s management. Our responsibility is to express an opinion on these
        financial statements based on our audit. The consolidated financial statements
        of Brek Energy Corporation, as of December 31, 2004 were audited by other
        auditors, whose report dated September 21, 2005, on those statements included
        an
        explanatory paragraph that described the uncertainty of the Company’s ability to
        continue as a going concern discussed in Note 11 to the consolidated
        financial statements.
 
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. The Company is not required
        to
        have, nor were we engaged to perform, an audit of its internal control over
        financial reporting. Our audit included consideration of internal control
        over
        financial reporting as a basis for designing audit procedures that are
        appropriate in the circumstances, but not for the purpose of expressing an
        opinion on the effectiveness of 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
        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 audit provides
        a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Brek Energy Corporation
        as
        of December 31, 2005 and the results of its operations and its cash flows
        for
        the year 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 discussed in Note 11 to
        the
        consolidated financial statements, the Company has suffered recurring losses
        from operations that raise substantial doubt about its ability to continue
        as a
        going concern. Management's plans in regard to these matters are also described
        in Note 11. The consolidated financial statements do not include any adjustments
        that might result from the outcome of this uncertainty.
 
 
 Mendoza
        Berger & Company, LLP












***Page
          - 51***




16140
        SAND CANYON AVE., SUITE 100
 IRVINE,
        CALIFORNIA 92618
 **H** **ALL** **&** **C** **OMPANY** *Certified
        Public Accountants, Inc* *.* (949)
        910-HALL (4255)
 TAX,
        FINANCIAL AND BUSINESS ADVISORY SERVICES F AX
        (949)
        910-4256
  **R** **EPORT
        OF** **I** **NDEPENDENT** **R** **EGISTERED** **P** **UBLIC** **A** **CCOUNTING** **F** **IRM**
  September
        21, 2005
 To
        the
        Board of Directors and Stockholders of
 Brek
        Energy Corporation (Formerly First Ecom.com, Inc.)
 London,
        United Kingdom
  We
        have
        audited the accompanying consolidated balance sheets of Brek Energy Corporation
        as of December
        31, 2004 and 2003, and the related consolidated statements of operations,
        stockholders' equity,
        and cash flows for the two years then ended. These financial statements are
        the responsibility
        of the Companyâ€TMs management. Our responsibility is to express an opinion on
        these financial
        statements based on our audits.
  We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight
        Board (United States). Those standards require that we plan and perform the
        audits to obtain
        reasonable assurance about whether the financial statements are free of material misstatement.
        The Company is not required to have, nor were we engaged to perform, an audit
        of its
        internal control over financial reporting. Our audits included consideration
        of
        internal control over
        financial reporting as a basis for designing audit procedures that are
        appropriate in the circumstance,
        but not for the purpose of expressing an opinion on the effectiveness of
        the Companyâ€TMs
        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
        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 financial statements referred to above present fairly, in all
        material respects, the consolidated
        financial position of Brek Energy Corporation as of December 31, 2004 and
        2003, and
        the
        results of its operations and its cash flows for the two years then ended
        in
        conformity with accounting
        principles generally accepted in the United States of America.
   **H** **ALL** **&
        C** **OMPANY**
 **Irvine,
        California**












***Page
          - 52***


**BREK
                  ENERGY CORPORATION****CONSOLIDATED
                  BALANCE SHEETS****AT
                  DECEMBER 31, 2005 AND 2004**
  **2005**
              
              **2004****ASSETS****Current
                  Assets**Cash
              $
              58,113
              
              $
              230,848Trade
                  accounts receivable
              
              120,110
              
              
              56,802Prepaids
              
              3,415
              
              
              1,238Due
                  from related party (Note 4)
              
              -
              
              
              116,594181,638
              
              
              405,482Oil
                  and gas properties (Note 3)
              
              5,914,210
              
              
              4,800,422**TOTAL
                  ASSETS**
              **$**
              **6,095,848**
              
              **$**
              **5,205,904****LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  Liabilities**Accounts
                  payable and accrued liabilities
              $
              756,375
              
              $
              1,026,158Due
                  to related parties (Note 4)
              
              455,750
              
              
              168,733**TOTAL
                  LIABILITIES**
              
              **1,212,125**
              
              
              **1,194,891****Commitments
                  and contingencies (Note 11)****Minority
                  interest**
              
              74,916
              
              
              70,001**STOCKHOLDERS'
                  EQUITY**Share
                  capital (Note 5)Authorized300,000,000
                  common shares, $0.001 par valueIssued
                  and outstanding59,498,090
                  and 55,331,420 common shares
              
              59,498
              
              
              55,331Additional
                  paid in capital
              
              65,364,249
              
              
              56,706,041Common
                  stock purchase warrants
              
              977,973
              
              
              8,515,348Deficit
              
              (61,592,913
              )
              
              (61,335,708
              )**TOTAL
                  STOCKHOLDERS' EQUITY**
              
              **4,808,807**
              
              
              **3,941,012****TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              **$**
              **6,095,848**
              
              **$**
              **5,205,904**




The
        accompanying notes are an integral part of these consolidated financial
        statements
   ***Page
            - 53***




**BREK
                  ENERGY CORPORATION****CONSOLIDATED
                  STATEMENTS OF
                  OPERATIONS****FOR
                  THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
  **2005**
              
              **2004****Revenue**
              $
              764,802
              
              $
              363,053**Expenses****Operating
                  expenses**General
                  and administrative
              
              934,715
              
              
              351,900Depletion
              
              82,377
              
              
              -Total
                  operating expenses
              
              1,017,092
              
              
              351,900**Net
                  (loss) income before Minority Interest**
              
              (252,290
              )
              
              11,153**Minority
                  Interest**
              
              (4,915
              )
              
              (4,659
              )**Net
                  (loss) income**
              **$**
              **(257,205**
              **)**
              **$**
              **6,494****Basic
                  and diluted (loss) earnings per share**
              $
              (0.01
              )
              $
              0.01**Weighted
                  Average Shares Outstanding**
              
              **58,980,007**
              
              
              **41,903,934**




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






***Page
          - 54***






**BREK
                  ENERGY CORPORATION****CONSOLIDATED
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
                  COMPREHENSIVE INCOME****FOR
                  THE YEARS ENDED DECEMBER 31, 2005 and
                  2004**
  **Accumulated****Common
                    Stock Issued**
              
              
              **Additional**
              
              
              **Common
                  Stock**
              
              
              **Other****Number
                    of**
              
              
              
              
              
              **Paid
                  in**
              
              
              **Purchase**
              
              
              **Comprehensive****Shares**
              
              
              **Amount**
              
              
              **Capital**
              
              
              **Warrants**
              
              
              **(Loss)
                  Income**
              
              
              **Total****Balance,
                  January 1, 2004**
              
              
              **28,713,630**
              
              **$**
              **28,714**
              
              **$**
              **54,021,239**
              
              **$**
              **8,016,124**
              
              **$**
              **(61,342,202**
              **)**
              **$**
              **723,875**Units
                  issued for cash
              
              
              23,438,623
              
              
              23,438
              
              
              2,332,981
              
              
              785,474
              
              
              -
              
              
              3,141,893Units
                  issued for debt
              
              
              3,179,167
              
              
              3,179
              
              
              218,071
              
              
              73,750
              
              
              -
              
              
              295,000Finders
                  fees
              
              
              -
              
              
              -
              
              
              (226,250
              )
              
              -
              
              
              -
              
              
              (226,250
              )Common
                  stock purchase warrants, expired
              
              
              -
              
              
              -
              
              
              360,000
              
              
              (360,000
              )
              
              -
              
              
              -Net
                  income for the year endedDecember
                  31, 2004
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              6,494
              
              
              6,494**Balance,
                  December 31, 2004**
              
              
              **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
              
              
              -
              
              
              1,000,000Units
                  issued for debt
              
              
              333,334
              
              
              333
              
              
              74,667
              
              
              25,000
              
              
              -
              
              
              100,000Warrants
                  exercised for cash
              
              
              500,000
              
              
              500
              
              
              124,500
              
              
              -
              
              
              -
              
              
              125,000Finders
                  fees
              
              
              -
              
              
              -
              
              
              (100,000
              )
              
              -
              
              
              -
              
              
              (100,000
              )Common
                  stock purchase warrants, exercised
              
              
              -
              
              
              -
              
              
              18,750
              
              
              (18,750
              )
              
              -
              
              
              -Common
                  stock purchase warrants, expired
              
              
              -
              
              
              -
              
              
              7,793,625
              
              
              (7,793,625
              )
              
              -
              
              
              -Net
                  loss for the year ended,December
                  31, 2005
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (257,205
              )
              
              (257,205
              )**Balance,
                  December 31, 2005**
              
              
              **59,498,090**
              
              **$**
              **59,498**
              
              **$**
              **65,364,249**
              
              **$**
              **977,973**
              
              **$**
              **(61,592,913**
              **)**
              **$**
              **4,808,807**




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




***Page
          - 55***






**BREK
                  ENERGY CORPORATION****CONSOLIDATED
                  STATEMENTS OF CASH
                  FLOWS****FOR
                  THE YEARS ENDED DECEMBER 31, 2005 AND
                  2004**
  **2005**
              
              
              **2004****CASH
                  FLOWS USED IN OPERATING ACTIVITIES**Net
                  (loss) income for the year
              $
              (257,205
              )
              $
              6,494Adjustments
                  to reconcile net (loss) income to net cash used in operating activities:Depletion,
                  oil and gas
              
              82,377
              
              
              -Minority
                  interest
              
              4,915
              
              
              4,659(169,913
              )
              
              11,153Changes
                  in operating assets and liabilities:Increase
                  in trade accounts receivable
              
              (63,308
              )
              
              (50,774
              )Increase
                  in prepaids
              
              (2,177
              )
              
              (1,238
              )Decrease
                  (increase) in amounts due from related party
              
              116,594
              
              
              (116,594
              )Decrease
                  in accounts payable and accrued liabilities
              
              (269,783
              )
              
              (288,954
              )Increase
                  (decrease) in amounts due to related parties
              
              287,017
              
              
              (5,879
              )**NET
                  CASH USED IN OPERATING ACTIVITIES**
              
              (101,570
              )
              
              (452,286
              )**CASH
                  FLOWS USED IN INVESTING ACTIVITIES**Cash
                  spent on oil and gas properties
              
              (1,196,165
              )
              
              (2,461,077
              )**NET
                  CASH USED IN INVESTING ACTIVITIES**
              
              (1,196,165
              )
              
              (2,461,077
              )**CASH
                  FLOWS PROVIDED BY FINANCING ACTIVITIES**Proceeds
                  from issuance of units
              
              1,000,000
              
              
              3,141,893Proceeds
                  from exercise of warrants
              
              125,000
              
              
              -**NET
                  CASH PROVIDED BY FINANCING ACTIVITIES**
              
              1,125,000
              
              
              3,141,893**Net
                  (decrease) increase in cash**
              
              **(172,735**
              **)**
              
              **228,530**Cash
                  at the beginning of year
              
              230,848
              
              
              2,318**Cash
                  at the end of year**
              **$**
              **58,113**
              
              **$**
              **230,848****Supplemental
                  cash information:****Cash
                  paid during the year for:**Income
                  taxes
              $
              -
              
              $
              -Interest
              $
              -
              
              $
              -**Non
                  Cash Transactions:**Issuance
                  of common shares in settlement of debt
              $
              -
              
              $
              32,405Issuance
                  of common shares in settlement of amounts due to related
                  parties
              $
              -
              
              $
              36,345Issuance
                  of common shares to an officer in payment of finders fees
              $
              100,000
              
              $
              226,250


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




***Page
          - 56***


**BREK
        ENERGY CORPORATION**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 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.
 
 The
        Company was originally established to facilitate of e-commerce transactions
        for
        merchants and banks across the Internet. The Company developed an electronic
        gateway to convert consumers’ credit card information, collected by merchants on
        the Internet, into a format that could be processed by banks. The Company
        disposed of its payment processing business on September 30, 2002.
 
 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.
 
 In
        March
        2002, the Company acquired a 26% non-dilutable voting interest in Vallenar
        Energy Corp. (“Vallenar”) another company engaged in oil and gas exploration. On
        June 28, 2002, the Company increased its ownership of Vallenar to
        51.53%.
 
 ***Page
            - 57***
 
 
 **BREK
          ENERGY CORPORATION**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2005**
 
 **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Principles
        of Consolidation**
 The
        consolidated financial statements include the financial statements of the
        Company and its subsidiaries. All significant intercompany balances and
        transactions have been eliminated.
 
 **Cash
        and Cash Equivalents**
 For
        purposes of the balance sheets and statements of cash flows, the Company
        considers all highly liquid debt instruments purchased with maturity of three
        months or less to be cash equivalents.
 
 **Accounting
        Estimates**
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets 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 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 and impairment of oil and gas properties.
 
 **Concentration
        of Credit Risk**
 Financial
        instruments that potentially subject the Company to a concentration of credit
        risk consist primarily of cash and cash equivalents. The Company places its
        cash
        with various major financial institutions and, by policy, limits the amount
        of
        credit exposure with any one financial institution.
 
 **Fair
        Value of Financial Instruments**
 The
        carrying values reflected in the consolidated balance sheets for cash, trade
        accounts receivable, accounts payable and accrued liabilities approximate
        their
        fair values because of the short term nature of these instruments. Amounts
        due
        to related parties approximate their fair value due to the related party
        nature
        of the debt.
  **Revenue
        Recognition**
 Oil
        and
        gas revenue is recognized as income when the oil or gas is produced and
        sold.
 
 **Long-Lived
        Assets**
 At
        December 31, 2005 and 2004 the Company’s only long lived asset was its oil and
        gas properties. At December 31, 2005 and 2004 the Company determined that
        the
        oil and gas properties reflected their fair value and did not recognize an
        impairment loss.
 
 **Income
        Taxes**
 Income
        tax expense is based on pre-tax financial accounting income. The Company
        recognizes deferred tax assets and liabilities based on differences between
        the
        financial reporting and tax bases of assets and liabilities using the enacted
        tax rates and laws that are expected to be in effect when the differences
        are
        expected to be recovered. The Company provides a valuation allowance for
        deferred tax assets for which it does not consider realization of such assets
        to
        be more likely than not.
 
 
 ***Page
            - 58***
 
 **BREK
          ENERGY CORPORATION**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2005**
 
 **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**
 
 **Research
        and Development and Advertising**
 Research
        and development and advertising costs are expensed as incurred. Research
        and
        development costs amounted to $Nil in each of the years ended December 31,
        2005
        and 2004. Advertising costs amounted to $11,954 and $18,368 for the years
        ended
        December 31, 2005 and 2004. **
 
 **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, 2005 and 2004.
 
 **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 leases and 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.
 
 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 it is determined whether
        or not proved reserves can be assigned to the properties. The properties
        are
        reviewed annually for impairment.
 
 Total
        well costs are transferred to the depletable pool even when multiple targeted
        zones have not been fully evaluated. For depletion and depreciation 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 may not exceed an
        amount
        equal to the present value, discounted at 10%, of estimated future net revenues
        from proved gas reserves plus the cost or estimated fair value, if lower,
        of
        unproven properties. In accordance with SFAS 143 and SAB 106, future cash
        outflows associated with settling asset retirement obligations that have
        been
        accrued on the balance sheet, have been excluded from the present value of
        estimated future net cash flows used in the ceiling test calculation. Should
        capitalized costs exceed this ceiling, an impairment is recognized. The present
        value of estimated future net revenues is computed by applying current prices
        of
        oil and gas 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.
 
 
 ***Page
            - 59***
 
 
 **BREK
          ENERGY CORPORATION**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2005**
 
 
 **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**
 
 **Basic
        and Diluted Net (Loss) Income Per Common Share (“EPS”)**
 Basic
        net
        (loss) income per share is computed by dividing net (loss ) or net income
        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, 2005, the Company had 59,498,090 shares of common stock issued
        and
        outstanding. The Company also had 1,580,000 shares of common stock issuable
        upon
        exercise of outstanding options and 18,784,460 shares of common stock issuable
        upon exercise of outstanding warrants. Additional options or warrants may
        be
        granted to purchase 3,320,000 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 Statement of Financial Accounting
        Standards 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.
 
 
 ***Page
            - 60***
 
 **BREK
          ENERGY CORPORATION**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2005**
 
 **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**
  
 **Stock-based
        Compensation, continued**
 Compensation
        expense has been recognized in the accompanying financial statements for
        stock
        options that were issued to our outside consultants. Had compensation expense
        for the options granted to our employees and directors been determined based
        on
        the fair value at the grant date for options, consistent with the provisions
        of
        SFAS 123, the Company’s net (loss) income and net (loss) income per share for
        the years ended December 31, 2005 and 2004 would have been increased to the
        pro
        forma amounts indicated below:
 
 **For
                  the Year Ended**
              
              **For
                  the Year Ended****December
                  31, 2005**
              
              
              **December
                  31, 2004**Net
                  (loss) Income attributable to common shareholders:As
                  reported
              
              $
              (257,205)
              
              $
              6,494Stock-based
                  employee compensationdetermined
                  under the fair value based method
              
              
              -
              
              
              -Pro
                  forma
              
              $
              (257,205)
              
              $
              6,494Net
                  loss per common share:As
                  reported
              
              $
              (0.01)
              
              $
              0.01Pro
                  forma
              
              $
              (0.01)
              
              $
              0.01
 
 The
        fair
        value of the common stock options granted during the years ended December
        31,
        2005 and 2004, for disclosure purposes was estimated on the grant dates using
        the Black Scholes Pricing Model and the following assumptions.
 
 2005
              2004Expected
                  dividend yield
              -
              -Expected
                  price volatility
              131%
                  - 151%
              131%
                  - 151%Risk-free
                  interest rate
              3%
                  to 5.5%
              3%
                  to 5.5%Expected
                  life of options
              5
                  years
              5
                  years
 
 The
        Company accounts for equity instruments issued to non-employees in accordance
        with the provisions of SFAS 123, 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 accounts for the re-pricing and re-issuing of stock options under
        the
        variable accounting provisions of FIN 44.
 
 
 ***Page
            - 61***
 
 
 **BREK
          ENERGY CORPORATION**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2005**
 
 **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**
 
 **Recent
        Accounting Pronouncements**
 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. The Company
        does not expect adoption of SFAS 153 to have a material impact on its financial
        condition or results of operations.
 
 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 Company does not expect
        adoption of SFAS 154 to have a material impact on its financial condition
        or
        results of operations.
 
 **Reclassifications**
 Certain
        prior year amounts in the accompanying consolidated financial statements
        have
        been reclassified to conform to the current year’s presentation. These
        reclassifications had no effect on the results of operations of financial
        position for any year presented.
 
 **NOTE
        3 - OIL AND GAS PROPERTIES**
 
 The
        Company has an interest in 114,428 gross acres (17,115 net acres) in the
        Uinta
        Basin region in Utah, 89,745 gross acres (14,109 net acres) in the Greater
        Green
        River Basin of Wyoming and 3,315 gross acres (828 net acres) in Kern County
        and
        San Luis Obispo County in California and they own 51.53% of a company which
        owns
        approximately 97% of 9,191 gross acres (8,865 net acres) in Edwards County
        in
        Texas.
 
 
 ***Page
            - 62***
 
 
 **BREK
          ENERGY CORPORATION**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2005**
  **NOTE
        3 - OIL AND GAS PROPERTIES, continued**
 
 The
        following table presents information regarding the Company’s costs incurred for
        the purchase of proved and unproved properties, in exploration and development
        activities and charges for depletion:
 
 
 December
                  31,2005
              2004Property
                  acquisition costs:Unproved
              $
                  300
              $
                  300Proved
              3,717,850
              2,832,560Exploration
                  and development expenditures
              2,278,437
              1,967,562Depletion
              (82,377)
              -Total
              $
                  5,914,210
              $
                  4,800,422
 
 At
        December 31, 2005 and 2004, the Company’s proved and unproved oil and gas
        properties consisted of leasehold interests and exploration and development
        costs related to their oil and gas properties in Texas, Utah, Wyoming and
        California. At December 31, 2005 and 2004, the Company’s oil and gas properties
        were valued as follows:
 
 **December
                  31, 2005**
              **December
                  31, 2004****Proved
                  and Unproved Properties**Property
                  acquisition costs:Utah
              
              $
              3,717,850
              
              $
              2,832,560Wyoming
              
              
              100
              
              
              100California
              
              
              100
              
              
              100Texas
              
              
              100
              
              
              100Exploration
                  & development costs:Utah
              
              
              2,264,489
              
              
              1,967,562Wyoming
              
              
              13,948
              
              
              -Depletion
              
              
              (82,377)
              
              
              -Total
              
              $
              5,914,210
              
              $
              4,800,422
 
 
 ***Page
            - 63***
 
 
 **BREK
          ENERGY CORPORATION**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2005**
 
 **NOTE
        3 - OIL AND GAS PROPERTIES, continued**
 
 The
        Company’s proven and unproven properties in Utah are evaluated based on annual
        reserve studies for the possibility of potential impairment. As a result
        of
        reserves studies completed at December 31, 2005 and 2004, no impairment charges
        were recorded against the Utah property during 2005 or 2004. At December
        31,
        2005 and 2004, the reserve studies reported that 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 $9.2 million and $5.7 million (calculated, based on estimated
        net
        revenues of $26.5 million and $18.5 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,
        2005 and 2004, assuming the continuation of existing economic conditions.
 
 The
        Company’s Texas, California and Wyoming, proven and unproven properties are
        evaluated periodically for the possibility of potential impairment. At December
        31, 2005 and 2004, it was determined that the properties we recorded a fair
        value and no impairment charges were recorded against these
        properties.
 
 **NOTE
        4 - RELATED PARTY TRANSACTIONS**
  
 At
        December 31, 2005 and 2004, the Company was indebted to a director in the
        amount
        of $123,463.
 
 At
        December 31, 2005 and 2004, the Company was indebted to a director in the
        amount
        of $12,000.
 
 At
        December 31, 2005 and 2004, the Company had $18,856 and $26,272 in accounts
        payable to directors, former directors or companies controlled by directors
        or
        officers.
 
 At
        December 31, 2005 and 2004, the Company had $Nil and $116,594 in accounts
        receivable from a limited partnership controlled by relatives of two of the
        Company’s directors.
 
 At
        December 31, 2005 and 2004, an officer of the Company received shares in
        payment
        of finder’s fees of $100,000 and $226,250 and in payment of debt of $nil and
        $25,951. (Note 5) During the year ended December 31, 2005 the Company paid
        $88,000 in management fees to this same officer and at December 31, 2005
        and
        2004, the Company was indebted to this officer in the amount of $232,586
        and
        $6,998.
 
 During
        the year ended December 31, 2005 the Company paid $55,000 in professional
        fees
        to a relative of an officer and at December 31, 2005, the Company was indebted
        to this relative in the amount of $25,000.
 
 During
        the year ended December 31, 2005 the Company paid $77,000 in rent to a company
        controlled by an officer. At December 31, 2005, the Company was indebted
        to this
        company in the amount of $21,000.
 
 During
        the year ended December 31, 2005 the Company paid $225,334 to a company
        controlled by an officer of the Company. At December 31, 2005, the Company
        was
        indebted to this company in the amount of $22,845.
 
 During
        the year ended December 31, 2005, an officer of the Company exercised 500,000
        share purchase warrants at $0.25 per share. (Note 5)
  
 **NOTE
        5 - COMMON STOCK**
 
 On
        March
        3, 2004, the Company issued a total of 8,750,000 units at $0.05 for each
        unit,
        by way of a private placement for cash of $437,500. Each unit is comprised
        of
        one common share and one common share purchase warrant entitling the holder
        to
        purchase one common share for $0.35. The warrants had a term of one year
        and
        expired on March 3, 2005. The fair value of the warrants was estimated to
        be
        $109,375 and was recorded as a separate component of stockholders’ equity. (Note
        8)
 
 On
        March
        3, 2004, the Company issued a total of 875,000 units, to an officer of the
        Company, at $0.05 for each unit, for finders’ fees of $43,750. Each unit is
        comprised of one common share and one common share purchase warrant entitling
        the holder to purchase one common share for $0.35. The warrants had a term
        of
        one year and expired on March 3, 2005. The fair value of the warrants was
        estimated to be $10,938 and was recorded as a separate component of
        stockholders’ equity. (Notes 4 and 8)
 
 On
        March
        3, 2004, the Company issued a total of 519,020 units, to an officer of the
        Company, at $0.05 for each unit, in exchange for debt totaling $25,951. Each
        unit is comprised of one common share and one common share purchase warrant
        entitling the holder to purchase one common share for $0.35. The warrants
        had a
        term of one year and expired on March 3, 2005. The fair value of the warrants
        was estimated to be $6,488 and was recorded as a separate component of
        stockholders’ equity. (Notes 4 and 8)
 
 On
        May 6,
        2004, the Company issued a total of 4,666,667 units at $0.15 for each unit,
        by
        way of a private placement for cash of $700,000. Each unit is comprised of
        one
        common share and one common share purchase warrant entitling the holder to
        purchase one common share for $0.25. The warrants have a term of three years
        and
        will expire on May 6, 2007. The fair value of the warrants was estimated
        to be
        $175,000 and has been recorded as a separate component of stockholders’ equity.
        (Note 8)
 
 On
        May 6,
        2004, the Company issued a total of 66,667 units, to an officer of the Company,
        at $0.15 for each unit, for finders’ fees of $10,000. Each unit is comprised of
        one common share and one common share purchase warrant entitling the holder
        to
        purchase one common share for $0.25. The warrants have a term of three years
        and
        will expire on May 6, 2007. The fair value of the warrants was estimated
        to be
        $2,500 and has been recorded as a separate component of stockholders’ equity.
        (Notes 4 and 8)
 
 On
        May 6,
        2004, the Company issued a total of 855,980 units at $0.05 for each unit,
        in
        exchange for debt totaling $42,799. Each unit is comprised of one common
        share
        and one common share purchase warrant entitling the holder to purchase one
        common share for $0.35. The warrants have a term of one year and expired
        on May
        6, 2005. The fair value of the warrants was estimated to be $10,700 and was
        recorded as a separate component of stockholders’ equity. (Note 8)
  On
        May
        24, 2004, the Company issued a total of 2,000,000 units at $0.20 for each
        unit,
        by way of a private placement for cash of $400,000. Each unit is comprised
        of
        one common share and one common share purchase warrant entitling the holder
        to
        purchase one common share for $0.30. The warrants have a term of three years
        and
        will expire on May 24, 2007. The fair value of the warrants was estimated
        to be
        $100,000 and has been recorded as a separate component of stockholders’ equity.
        (Note 8)
 
 ***Page
            - 64***
 
 **BREK
          ENERGY CORPORATION**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2005**
 **NOTE
        5 - COMMON STOCK, continued**
 
 On
        May
        24, 2004, the Company issued a total of 1,500,000 units at $0.20 for each
        unit,
        by way of a private placement for cash of $300,000. Each unit is comprised
        of
        one common share and one common share purchase warrant entitling the holder
        to
        purchase one common share for $0.30. The warrants have a term of three years
        and
        will expire on May 24, 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 8)
 
 On
        May
        24, 2004, the Company issued a total of 350,000 units to an officer of the
        Company, at $0.20 for each unit, for finders’ fees of $70,000. Each unit is
        comprised of one common share and one common share purchase warrant entitling
        the holder to purchase one common share for $0.30. The warrants have a term
        of
        three years and will expire on May 24, 2007. The fair value of the warrants
        was
        estimated to be $17,500 and has been recorded as a separate component of
        stockholders’ equity. (Notes 4 and 8)
 
 On
        May
        28, 2004, the Company issued a total of 250,000 units at $0.20 for each unit,
        by
        way of a private placement for cash of $50,000. Each unit is comprised of
        one
        common share and one common share purchase warrant entitling the holder to
        purchase one common share for $0.30. The warrants have a term of three years
        and
        will expire on May 28, 2007. The fair value of the warrants was estimated
        to be
        $12,500 and has been recorded as a separate component of stockholders’ equity.
        (Note 8)
 
 On
        May
        28, 2004, the Company issued a total of 25,000 units to an officer of the
        Company, at $0.20 for each unit, for finders’ fees of $5,000. Each unit is
        comprised of one common share and one common share purchase warrant entitling
        the holder to purchase one common share for $0.30. The warrants have a term
        of
        three years and will expire on May 28, 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 4 and 8)
 
 On
        October 14, 2004, the Company issued a total of 1,396,956 units at $0.20
        per
        unit by way of a private placement for cash of $279,392. Each unit is comprised
        of one common share and one common share purchase warrant entitling the holder
        to purchase one common share for $0.35. The warrants have a term of two years
        and will expire on October 14, 2006. The fair value of the warrants was
        estimated to be $69,848 and has been recorded as a separate component of
        stockholders’ equity. (Note 8)
 
 On
        November 30, 2004, the Company issued a total of 550,000 units at $0.20 per
        unit
        by way of a private placement for cash of $110,000. Each unit is comprised
        of
        one common share and one common share purchase warrant entitling the holder
        to
        purchase one common share for $0.30. The warrants have a term of three years
        and
        will expire on November 30, 2007. The fair value of the warrants was estimated
        to be $27,500 and has been recorded as a separate component of stockholders’
equity. (Note 8)
 
 On
        November 30, 2004, the Company issued a total of 55,000 units, to an officer
        of
        the Company at $0.20 per unit for finders’ fees of $11,000. Each unit is
        comprised of one common share and one common share purchase warrant entitling
        the holder to purchase one common share for $0.30. The warrants have a term
        of
        three years and will expire on November 30, 2007. The fair value of the warrants
        was estimated to be $2,750 and has been recorded as a separate component
        of
        stockholders’ equity. (Notes 4 and 8)
 
 ***Page
            - 65***
  **BREK
          ENERGY CORPORATION**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2005**
 
 **NOTE
        5 - COMMON STOCK, continued**
 
 On
        November 30, 2004, the Company issued a total of 75,000 units at $0.20 per
        unit
        by way of a private placement for cash of $15,000. Each unit is comprised
        of one
        common share and one common share purchase warrant entitling the holder to
        purchase one common share for $0.35. The warrants have a term of two years
        and
        will expire on November 30, 2006. The fair value of the warrants was estimated
        to be $3,750 and has been recorded as a separate component of stockholders’
equity. (Note 8)
 
 On
        November 30, 2004, the Company issued a total of 3,750,000 units at $0.20
        per
        unit by way of a private placement for cash of $750,000. Each unit is comprised
        of one common share and one common share purchase warrant entitling the holder
        to purchase one common share for $0.35. The warrants have a term of two years
        and will expire on November 30, 2006. The fair value of the warrants was
        estimated to be $187,500 and has been recorded as a separate component of
        stockholders’ equity. (Note 8)
 
 On
        November 30, 2004, the Company issued a total of 382,500 units, to an officer
        of
        the Company at $0.20 per unit for finders’ fees of $76,500. Each unit is
        comprised of one common share and one common share purchase warrant entitling
        the holder to purchase one common share for $0.35. The warrants have a term
        of
        two years and will expire on November 30, 2006. The fair value of the warrants
        was estimated to be $19,125 and has been recorded as a separate component
        of
        stockholders’ equity. (Notes 4 and 8)
 
 On
        December 21, 2004, the Company issued a total of 500,000 units at $0.20 per
        unit
        by way of a private placement for cash of $100,000. Each unit is comprised
        of
        one common share and one common share purchase warrant entitling the holder
        to
        purchase one common share for $0.35. The warrants have a term of two years
        and
        will expire on December 21, 2006. The fair value of the warrants was estimated
        to be $25,000 and has been recorded as a separate component of stockholders’
equity. (Note 8)
 
 On
        December 21, 2004, the Company issued a total of 50,000 units, to an officer
        of
        the Company at $0.20 per unit for finders’ fees of $10,000. Each unit is
        comprised of one common share and one common share purchase warrant entitling
        the holder to purchase one common share for $0.35. The warrants have a term
        of
        two years and will expire on December 21, 2006. The fair value of the warrants
        was estimated to be $2,500 and has been recorded as a separate component
        of
        stockholders’ equity. (Notes 4 and 8)
 
 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 is comprised
        of 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 8)
 
 On
        January 18, 2005, the Company issued a total of 216,667 units, to an officer
        of
        the Company at $0.30 per unit for finders’ fees of $65,000. Each unit is
        comprised of 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 4 and 8)
 
 ***Page
            - 66***
  **BREK
          ENERGY CORPORATION**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2005**
 
 **NOTE
        5 - COMMON STOCK, continued**
 
 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 is comprised
        of 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 $75,000 and has been recorded as a separate component of
        stockholders’ equity. (Note 8)
 
 On
        January 24, 2005, the Company issued a total of 100,000 units, to an officer
        of
        the Company at $0.30 per unit for finders’ fees of $30,000. Each unit is
        comprised of 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 4 and 8)
 
 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 is comprised
        of 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 8)
 
 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 is comprised of 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 8)
 
 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 is comprised of 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 4 and 8)
  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 4 and 8)
  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 4 and 8)
  ***Page
            - 67***
 
 **BREK
          ENERGY CORPORATION**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2005**
  **NOTE
        6 - 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 5 shares of the Companies common
        stock at an exercise price of $0.01 per right, if certain events occur 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, 2005 and 2004, the Company had reserved 297,490,450 and 276,657,100
        shares for the potential rights for the issued, outstanding and subscribed
        shares and 101,822,300 and 147,624,025 for the potential exercise of outstanding
        options and warrants. At December 31, 2005, 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
        7 - 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 options, if remaining unexercised, expire five years after the date of
        issue.
 
 During
        the years ended December 31, 2005 and 2004, no stock options were granted,
        exercised, repriced or cancelled by the Company.
 
 The
        following is a summary of the activity of the Company’s 2001 stock
        option/warrant plan for the year ended December 31, 2005:
 
 Shares
                  Under
              
              
              Weighted
                  AverageOption
              
              
              Exercise
                  PriceOutstanding,
                  at December 31, 2002
              
              1,630,000
              
              $
              0.40Cancelled
              
              (50,000)
              
              
              0.55Outstanding,
                  at December 31,2005
                  and 2004
              
              1,580,000
              
              $
              0.44
 
 The
        weighted average fair value of the outstanding options in 2005 and 2004 was
        $0.65.
 
 At
        December 31, 2005 and 2004 the weighted-average remaining contractual life
        of
        the outstanding options was .64 and 1.45 years.
 
 
 ***Page
            - 68***
 
 **BREK
          ENERGY CORPORATION**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2005**
 **NOTE
        7 - STOCK OPTIONS, continued**
 
 The
        following table presents additional information related to the options
        outstanding as of December 31, 2005.
 
 **Exercise
                  Price per Share**
              **Number
                  of Shares Outstanding**
              **Number
                  of Shares Exercisable**$0.40
              1,210,000
              1,210,000$0.55
              370,000
              370,000Total
              1,580,000
              1,580,000
 
 During
        the years ended December 31, 2005 and 2004, the Company did not record any
        compensation costs.
 
 **NOTE
        8 - WARRANTS**
 
 During
        the year ended December 31, 2005, the Company issued 3,666,670 warrants
        exercisable at $0.50 for a two year period. During the year ended December
        31,
        2005, 12,327,015 warrants expired and 500,000 warrants were exercised. (Note
        5)
 
 During
        the year ended December 31, 2004, the Company issued 26,617,790 warrants
        exercisable at between $0.25 and $0.35 for one to three year periods. During
        the
        year ended December 31, 2004, 516,667 warrants expired. (Note 5)
 
 **Warrants
        Outstanding**
 At
        December 31, 2005, the Company had the following share purchase warrants
        outstanding:
 
 Number
                  of Shares
              Exercise
                  Price Per Share
              Expiry
                  Date1,500,000
              0.30
              May
                  24, 20071,396,956
              0.35
              October
                  14, 200675,000
              0.35
              November
                  30, 20064,132,500
              0.35
              November
                  30, 2006550,000
              0.35
              December
                  21, 20064,233,334
              0.25
              May
                  6, 20072,350,000
              0.30
              May
                  24, 2007275,000
              0.30
              May
                  28, 2007605,000
              0.30
              November
                  30, 200740,000
              0.50
              January
                17, 20072,383,335
              0.50
              January
                  18, 20071,100,000
              0.50
              January
                  24, 200793,344
              0.50
              February
                  7, 200750,001
              0.50
              July
                  7, 200718,784,460
   ***Page
            - 69***
  **BREK
          ENERGY CORPORATION**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2005**
  
 **NOTE
        9 - INCOME TAXES**
 
 Income
        tax expense has not been recognized for the years ended December 31, 2005
        and
        2004 and no taxes were payable at December 31, 2005 or 2004, because the
        Company
        has incurred losses since its inception.
 
 The
        components of the Company’s net losses are as follows:
 
 2005
              
              2004United
                  States of America
              $
              (4,690,568)
              
              $
              (4,275,642)Hong
                  Kong
              
              -
              
              
              (126)Other
                  countries (British Virgin Islands, Bermuda and Canada)
              
              (829)
              
              
              -$
              (4,691,397)
              
              $
              (4,275,768)
 
 As
        of
        December 31, 2005 and 2004, 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.
 
 2005
              
              
              2004Federal
                  loss carryforwards
              
              $
              11,360,810
              
              $
              10,047,451State
                  loss carryforwards, Nevada
              
              
              -
              
              
              -Foreign
                  loss carryforwards
              
              
              2,991,796
              
              
              2,991,564Less:
                  Valuation allowance
              
              
              (14,352,606)
              
              
              (13,039,015)$
              -
              
              $
              -
 
 The
        Company’s valuation allowance increased during 2005 and 2004 by $1,313,591 and
        $1,197,200.
 
 At
        December 31, 2005 and 2004 the Company had the following net operating loss
        carryforwards (“NOL’s”):
 
 2005
              
              2004United
                  States
              
              $
              39,479,529
              
              $
              34,788,961Foreign
                  (Canada, Hong Kong, Bermuda and British Virgin Islands)
              
              
              20,518,163
              
              
              20,517,334$
              59,997,692
              
              $
              55,306,295
 
 The
        federal NOL’s expire through December 31, 2025 and the Hong Kong NOL’s can be
        carried forward indefinitely.
  ***Page
            - 70***
  **BREK
          ENERGY CORPORATION**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2005**
  
 **NOTE
        10 - SEGMENTED INFORMATION**
 
 The
        Company only has one business, an oil and gas business in the United States
        of
        America.
 
 **NOTE
        11 - COMMITMENTS AND CONTINGENCIES**
 
 **Lease
        Commitments**
 The
        Company had no lease commitments at December 31, 2005 or 2004.
 
 Rent
        expense for the years ended December 31, 2005 and 2004, was $77,000 and $nil.
 
 **Going
        Concern**
 During
        the year ended December 31, 2002, the Company changed its business direction
        and
        has been focusing on its oil and gas business. As such, the Company has
        accumulated a deficit of approximately $62 million to date and additional
        financing will be required by the Company to support development of its oil
        and
        gas properties until such time as the Company achieves positive cash flow
        from
        operations. 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 positive 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.
 
 **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 defense 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
        12 - SUBSEQUENT EVENTS**
 
 **Common
        Shares and Warrants**
 On
        January 30, 2006, an officer of the Company exercised 800,000 share purchase
        warrants for 800,000 shares of the Company’s common stock at $0.25 per
        share.
 
 During
        February and March, 2006, a total of 800,000 units were issued or subscribed
        for
        at $0.50 per unit, by way of a private placement for cash of $400,000. Each
        unit
        is comprised of one common share and one common share purchase warrant entitling
        the holder to purchase one common share for $0.90 and expire within one year
        of
        the date of issuance. The fair value of the warrants is estimated to be $100,000
        (25% of the $400,000 in proceeds) and will be recorded as a separate component
        of stockholders’ equity.


***Page
          - 71***






EXHIBIT
      23.1









***Page
          - 72***




16140
        SAND CANYON AVE., SUITE 100
 IRVINE,
        CALIFORNIA 92618
 **H** **ALL** **&** **C** **OMPANY** **** *Certified
        Public Accountants, Inc* *.*  (949)
        910-HALL (4255)
 TAX,
        FINANCIAL AND MANAGEMENT CONSULTING SERVICES  FAX
        (949)
        910-4256
 
 
 
 
 
 **Consent
        of Independent Registered Public Accounting Firm**
 
 We
        consent to the inclusion in this annual report on Form 10-KSB (File No.
        000-27753) of our report dated September 21, 2005 on our audits of the financial
        statements of Brek Energy Corp. as of December 31, 2004 and 2003 and for
        the
        years then ended.
 
 
 /s/
        Hall & Company
 Hall
        & Company
 Irvine,
        California
 April
        1,
        2006


***Page
          - 73***