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**UNITED STATES 
  SECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549

**FORM 20-F**

Amendment No.1

[   ] REGISTRATION STATEMENT PURSUANT TO SECTION 12
(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934 
  For the fiscal year ended **April 30, 2007**

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15
  (d) OF THE SECURITIES EXCHANGE ACT OF 1934 
  For the transition period from ____________ to ____________

Commission file number **000-49760**

OR

[   ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR
  15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

MEGAWEST ENERGY CORP.(Exact name of Registrant as specified in its charter)

Not Applicable(Translation of Registrant's
Name into English)

British Columbia, Canada(Jurisdiction of
incorporation or organization)

Suite 1000, 815  8thAvenue S.W.
Calgary, Alberta, Canada T2P 3P2(Address of principal
executive offices)

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

Not ApplicableTitle of Class

Not ApplicableName of Each Exchange on Which
Registered

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

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Common Shares, Without Par Value (Title of
Class)

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:

Not Applicable Title of Class

Indicate the number of outstanding shares of each of the Registrant's
  classes of capital or common shares as of the close of the period covered by
  the annual report.

There were 72,436,050common shares, without par value,
  issued and outstanding as of April 30, 2007, excluding 4,750,000 shares issued
  and held in trust pursuant to an escrow agreement.

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. [ 
 ] YES   [X] NO

If this report is an annual or transition report, indicate by
  check mark if the registrant is not required to file reports pursuant to Section
  13 or 15(d) of the Securities Exchange Act of 1934.

[X] YES   [   ] NO

Note  Checking the box above will not relieve any registrant
  required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
  Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all
  reports required to be filed by Section 13 or 15(d) of the Securities Exchange
  Act of 1934 during the preceding 12 months (or for such shorter period that
  the registrant was required to file such reports), and (2) has been subject
  to such filing requirements for the past 90 days.

[X] YES   [   ] NO

Indicate by check mark whether the registrant is a large accelerated
  filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated
  filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
  one):

Large accelerated filer [  
]      Accelerated filer [  
]      Non-accelerated filer [X]

Indicate by check mark which financial statement item the
registrant has elected to follow.

[   ] Item 17   [X] Item 18

If this is an annual report, indicate by check mark whether the
  registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[   ] YES   [X] NO

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
  DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents
  and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
  Exchange Act of 1934 subsequent to the distribution of securities under a plan
  confirmed by a court. [   ] YES   [   ] NO

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EXPLANATORY NOTE:

We are amending
  the Annual Report on Form 20-F that we filed with the Securities and Exchange
  Commission on August 10, 2007 to state on page 44 whether any changes in our
  internal controls over financial reporting occurred during our most recent fiscal
  quarter that have materially affected, or are reasonably likely to materially
  affect our internal controls over financial reporting, as opposed to any "significant"
  changes.

Except for
  the change described above, this Form 20-F/A does not amend or update the Form
  20-F that we filed on August 10, 2007.

PART I

This annual report contains forward-looking statements as that
term is defined in Section 27A of the United States Securities Act of
1933 and Section 21E of the United States Securities Exchange Act of
1934. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may", "should", "expects", "plans", "anticipates",
"believes", "estimates", "predicts", "potential" or "continue" or the negative
of these terms or other comparable terminology. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks in the section entitled "Risk Factors", that may
cause our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements.

Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.

As used in this annual report, the terms "we", "us", "our" and
"company" mean MegaWest Energy Corp. and "MegaWest USA" means our directly-owned
subsidiary MegaWest Energy (USA) Corp., unless otherwise indicated and all
references to "common shares" refer to common shares, without par value, in our
capital stock.

Unless otherwise indicated, all dollar amounts referred to
herein are in Canadian dollars.

ITEM
1.               
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM
2.               
OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM
3.               
KEY INFORMATION

A.        Selected
Financial Data

The following table summarizes selected financial data for our
company prepared in accordance with Canadian generally accepted accounting
principles (GAAP) for the five fiscal years ended April 30, 2007. Additional
information is presented to show the differences which would result from the
application of United States GAAP to our financial information. The data set out
below for the five year period ended April 30, 2007 is derived from our audited
financial statements which were examined by our principal accountant. The data
should be read in conjunction with our audited financial statements and related
notes included in this annual report and with the information appearing under
the heading "Item 5  Operating and Financial Review and Prospects" below. The
data is presented in Canadian dollars.

Selected Financial Data (Stated
        in Canadian Dollars - Calculated in accordance with Canadian GAAP)Year Ended April 30 (Audited)2007
      2006(1)
      2005(1)
      2004(1)
      2003(1)Net Sales or Operating Revenues
      $-
      $-
      $-
      $-
      $-Net Income (Loss) (2)
      ($6,893,052)
      ($222,945)
      ($61,031)
      ($143,489)
      ($45,773)


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Selected Financial Data (Stated in Canadian
        Dollars - Calculated in accordance with Canadian GAAP)Year Ended April 30 (Audited)2007
      2006(1)
      2005(1)
      2004(1)
      2003(1)Net Income (Loss) from Operations per Common Share
      ($0.31)
      ($0.04)
      ($0.01)
      ($0.05)
      ($0.03)Net Income (Loss) per Common Share
      ($0.31)
      ($0.04)
      ($0.01)
      ($0.08)
      ($0.02)Total Assets
      $52,532,847
      $31,440
      $137,113
      $176,549
      $313,924Net Assets (Deficiency in Assets) (2)
      $48,148,521
      ($129,422)
      $93,523
      $150,054
      $293,543Capital Stock(3)
      $66,955,725
      $376,092
      $376,092
      $371,592
      $371,592Number of Common Shares (4)
      72,436,050
      6,337,500
      6,337,500
      1,837,500
      1,837,500Dividends per Common Share
      $-
      $-
      $-
      $-
      $-Weighted Average Number of Common Shares
      22,102,129
      6,337,500
      5,018,322
      1,837,500
      1,837,500Working Capital
      $28,152,901
      ($139,422)
      ($30,087)
      $150,054
      $256,095Long-Term Debt(5)
      $3,082,686
      $-
      $-
      $-
      $-


| | Notes:
| | ------
| | (1)   
| | (2)   
| | (3)   
| | (4)   
| | (5)   

Reconciliation to United States Generally Accepted
Accounting Principles

Canadian GAAP conforms in all material respects with United
States GAAP except for certain matters as described in Note 19 to our
consolidated financial statements for the year ended April 30, 2007. The
differences between Canadian GAAP and U.S. GAAP, which affect our financial
statements for the year ended April 30, 2007, are as follows:

- adjust marketable securities to fair value at April 30, 2007;
- increase amount recorded for oil and gas net assets acquired and related
  consideration given;
- classify convertible promissory notes as a liability and adjust accretion
  expense;
- adjust stock-based compensation expense for stock options and warrants; and
- adjust the amount recorded for the conversion feature of warrants on
  private placements.

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Had we followed U.S. GAAP, certain selected financial
information reported above, would have been reported in as follows (stated in
Canadian dollars):

Selected Financial Data (Stated
        in Canadian Dollars - Calculated in accordance with U.S. GAAP)Year Ended April 30 (Audited)2007
      2006
      2005
      2004
      2003Net Income (Loss)
      ($18,112,762)
      ($222,945)
      ($61,031)
      ($143,489)
      ($45,773)Net Income (Loss) per Common Share
      ($0.81)
      ($0.04)
      ($0.01)
      ($0.08)
      ($0.02)Total Assets
      $74,594,937
      $31,440
      $137,113
      $176,549
      $313,924Net Assets (Deficiency in Assets)
      $70,210,611
      ($129,422)
      $93,523
      $150,054
      $293,543Capital Stock
      $111,802,667
      $376,092
      $376,092
      $371,592
      $371,592Long-Term Debt
      $3,174,557
      $-
      $-
      $-
      $-


The financial statements as at and for the four years ending
  April 30, 2006 conform in all material respects to U.S. GAAP.

Disclosure of Exchange Rate History

The following table sets out average exchange rates, based on
the noon buying rates in New York City for cable transfers in foreign currencies
as certified for customs purposes by the Federal Reserve Bank of New York for
the conversion of Canadian dollars into United States dollars in effect on the
last date of each month during the period, for the following periods:

Year Ended April 302007
      2006
      2005
      2004
      2003Average for period
      $0.8789
      $0.8423
      $0.7873
      $0.7444
      $0.6495


The following table sets out the high and low exchange rates,
based on the above-mentioned noon buying rate in New York City for the
conversion of Canadian dollars into United States dollars, for the following
periods:

High
      LowAugust 1 to August 8, 2007
    $0.9527
    $0.9465July 2007
    $0.9669
    $0.9344June 2007
    $0.9453
    $0.9322May 2007
    $0.9345
    $0.9019April 2007
    $0.9035
    $0.8633March 2007
    $0.8673
    $0.8467February 2007
    $0.8631
    $0.8437January 2007
    $0.8586
    $0.8457


On August 8, 2007, the above-mentioned noon buying rate in New
York City for the conversion of Canadian dollars into United States dollars was
$0.9527 per Canadian dollar.

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B.        Capitalization
and Indebtedness

Not applicable.

C.        Reasons for the
Offer and Use of Proceeds

Not applicable.

D.        Risk Factors

Much of the information contained in this annual report
includes or is based upon estimates, projections or other "forward looking
statements". Such forward looking statements include any projections or
estimates made by our company and our management in connection with our business
operations. While these forward-looking statements, and any assumptions upon
which they are based, are made in good faith and reflect our current judgment
regarding the direction of our business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections, assumptions
or other future performance suggested herein.

Such estimates, projections or other forward looking statements
involve various risks and uncertainties as outlined below. We caution the reader
that important factors in some cases have affected and, in the future, could
materially affect actual results and cause actual results to differ materially
from the results expressed in any such estimates, projections or other forward
looking statements.

The common shares of our company are considered speculative.
You should carefully consider the following risks and uncertainties in addition
to other information in this annual report in evaluating our company and our
business before purchasing our common shares. Our business, operating or
financial condition could be harmed due to any of the following risks.

Risks Relating to our Financial Condition

We have yet to attain profitable operations and because we
will need additional financing to fund our exploration activities, there is
substantial doubt about our ability to continue as a going concern.

Our company has a limited operating history and as of the date
of this annual report is considered to be in the development stage. Our
prospects must be considered in light of the risks, uncertainties, expenses and
difficulties frequently encountered by companies seeking to acquire or establish
new business opportunities. To date, we have identified and acquired interests
in four oil and gas properties, but there can be no assurances that we will
develop such properties or be able to identify, secure and complete further
suitable acquisitions in the future.

The success of our company is also significantly dependent on a
successful drilling, completion and production program. Our company's operations
will be subject to all the risks inherent in the establishment of a developing
enterprise and the uncertainties arising from the absence of a significant
operating history. No assurance can be given that we may be able to operate on a
profitable basis. We are in the development stage and potential investors should
be aware of the difficulties normally encountered by enterprises in the
development stage. There can be no assurance that our business plan will prove
successful, and no assurance that we may be able to operate profitably, if at
all.

We cannot be sure that we will be successful in addressing
these risks and uncertainties and our failure to do so could have a material
adverse effect on our financial condition. In addition, our operating results
are dependent to a large degree upon factors outside our control. There are no
assurances that we will be successful in addressing these risks, and the failure
to address such risks may adversely affect our business.

It is unlikely that we will generate significant revenues while
we seek to complete our drilling, completion and production program and seek
additional suitable business opportunities. Our short and long-term prospects
depend

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upon the success of our drilling, completion and production
program and our ability to select and secure suitable business opportunities. In
order for our company to generate revenues, we will incur substantial expenses
in the location, acquisition and development of commercially viable reserves of
oil and gas. All of our projects are in the exploration stage only and are
without proved reserves of oil and gas. Accordingly, we have not generated
significant revenues nor have we realized a profit from our operations to date
and there is little likelihood that we will generate any revenues or realize any
profits in the short term. Any profitability in the future from our business
will be dependent upon locating and developing economic reserves of oil and gas,
which itself is subject to numerous risk factors as set out herein. Since we
have not generated significant revenues, we may have to raise additional monies
through the sale of our equity securities, debt and/or joint venture farmouts in
order to continue our business operations and develop our projects, if
determined to be commercial.

We therefore expect to incur significant losses for the foreseeable
  future. We recognize that if we are unable to generate significant revenues
  from our business activities, our entire business may fail, and we can provide
  no assurance to investors that we will generate any operating revenues or achieve
  profitable operations.

We will require additional financing to continue as a going
concern.

There can be no assurance that, if required, any such financing
will be available upon terms and conditions acceptable to us, if at all. Our
inability to obtain additional financing in a sufficient amount when needed and
upon terms and conditions acceptable to us could have a materially adverse
effect upon our company. Although we believe that we have funds sufficient to
meet our immediate needs, we expect to require further funds to finance the
development of our company. If additional funds are raised by issuing equity
securities, further dilution to existing or future shareholders is likely to
result. If adequate funds are not available on acceptable terms when needed, we
may be required to delay, scale back or eliminate the development of our
company. Inadequate funding could also impair our ability to compete in the
marketplace, which may result in the dissolution of our company.

We have not generated significant revenues and our ability
to generate revenues is uncertain.

In the past, we have incurred substantial net losses. For the
  fiscal year ended April 30, 2007, we incurred anet loss of $6,893,052.
  We also had an accumulated deficit of $18,807,204 as at April 30, 2007. At this
  time, our ability to generate significant revenues is uncertain. Although we
  believe that we have sufficient funds to finance our operating costs for the
  next twelve months, we may require additional funds to finance the acquisition
  of suitable additional business opportunities or to complete business combinations.
  We do not expect to generate any significant revenues for the foreseeable future.
  Accordingly, we may require additional funds, either from equity, debt financing
  and/or joint venture farmouts.Obtaining additional financing is subject
  to a number of factors, including investor acceptance of any business we may
  acquire or combine with in the future and general investor sentiment. Financing,
  therefore, may not be available on acceptable terms, if at all. The most likely
  source of future funds presently available to us is through the sale of equity
  capital. Any sale of share capital, however, will result in the dilution of
  existing shareholders. If we are unable to raise additional funds when required,
  we may be forced to delay our plan of operation and our entire business may
  fail.

Risks Relating to Oil and Gas Operations

Competition in the oil and gas industry is highly
competitive and there is no assurance that we will be successful in acquiring
further leases.

The oil and gas industry is intensely competitive. We compete
with numerous individuals and companies, including many major oil and gas
companies, which have substantially greater technical, financial and operational
resources and staff for suitable business opportunities, desirable oil and gas
properties for drilling operations, drilling equipment and funds. There can be
no assurance that the necessary funds can be raised or that any projected work
will be completed.

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As our Chetopa, Deerfield, Kentucky Reserves and Trinity
Sands projects are in the exploration stage,there can be
no assurance that we will establish commercial discoveries on these projects.

Exploration for economic reserves of oil and gas is subject to
a number of risk factors. Few of the prospects that are explored are ultimately
developed into producing oil and/or gas wells. Our Chetopa project in Kansas,
Deerfield project in Missouri, Kentucky Reserves project in Kentucky and Trinity
Sands project in Texas are all in the exploration stage only and are without
proved reserves of oil and gas. There can be no assurance that we will establish
commercial discoveries on any of our projects.

The potential profitability of oil and gas ventures depends
upon factors beyond the control of our company, any of which may have a material
adverse effect on our company.

The potential profitability of oil and gas projects is
dependent upon many factors beyond our control. For instance, world prices and
markets for oil and gas are unpredictable, highly volatile, potentially subject
to governmental fixing, pegging, controls, or any combination of these and other
factors, and respond to changes in domestic, international, political, social,
and economic environments. Additionally, due to world-wide economic uncertainty,
the availability and cost of funds for production and other expenses have become
increasingly difficult, if not impossible, to project. These changes and events
may materially affect our financial performance.

Adverse weather conditions can also hinder drilling operations.
A productive well may become uneconomic in the event water or other deleterious
substances are encountered which impair or prevent the production of oil and/or
gas from the well. In addition, production from any well may be unmarketable if
it is impregnated with water or other deleterious substances. The marketability
of oil and gas which may be acquired or discovered will be affected by numerous
factors beyond our control. These factors include the proximity and capacity of
oil and gas pipelines and processing equipment, market fluctuations of prices,
taxes, royalties, land tenure, allowable production and environmental
protection. The extent of these factors cannot be accurately predicted but the
combination of these factors may result in our company not receiving an adequate
return on invested capital.

Oil and gas operations are subject to comprehensive
regulation which may cause substantial delays or require capital outlays in
excess of those anticipated causing an adverse effect on our company. Further,
exploration and production activities are subject to certain environmental
regulations which may prevent or delay the commencement or continuance of our
operations.

Oil and gas operations in the United States and Canada are
subject to federal, state and provincial laws and regulations relating to the
protection of the environment, including, but not limited to, laws regulating
removal of natural resources from the ground and the discharge/release of
materials into the environment. Oil and gas operations in United States and
Canada are also subject to federal, state and provincial laws and regulations
which seek to maintain health and safety standards by regulating the design and
use of drilling methods and equipment. Various permits from government bodies
are required for drilling operations to be conducted; no assurance can be given
that such permits will be received. No assurance can be given that environmental
standards imposed by federal, state and provincial authorities will not be
changed or that any such changes would not have material adverse effects on our
activities. Moreover, compliance with such laws may cause substantial delays or
require capital outlays in excess of those anticipated, thus causing an adverse
effect on us. Additionally, we may be subject to liability for pollution or
other environmental damages which we may elect not to insure against due to
prohibitive premium costs and other reasons. Our current and anticipated
exploration and drilling activities are subject to the aforementioned
environment regulations. When and if we establish reserves or enter into
production, we will become subject to additional regulations which do not
currently pertain to us or affect our current operations.

Specifically, we are subject to legislation regarding releases
into the environment, water discharges and storage and disposition of hazardous
wastes. In addition, legislation has been enacted which requires well and
facility sites to be abandoned and reclaimed to the satisfaction of federal,
state and provincial authorities. However, such laws and regulations are
frequently changed and we are unable to predict the ultimate cost of compliance.
Generally, environmental requirements do not appear to affect us any differently
or to any greater or lesser extent than other companies in the industry.

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Exploratory drilling involves many risks and we may become
liable for pollution or other liabilities which may have an adverse effect on
our financial position.

Drilling operations generally involve a high degree of risk.
Hazards such as unusual or unexpected geological formations, power outages,
labour disruptions, blow-outs, sour gas leakage, fire, inability to obtain
suitable or adequate machinery, equipment or labour, and other risks are
involved. We may become subject to liability for pollution or hazards against
which we cannot adequately insure or which we may elect not to insure. Incurring
any such liability may have a material adverse effect on our financial position
and operations.

We have oil and gas leases in respect of the real property
associated with our projects, but the real property may be subject to prior
unregistered agreements, or transfers which have not been recorded or detected
through title searches.

We have oil and gas leases with respect to the real property
associated with our projects and we believe our interests are valid. However,
these leases do not guarantee title against all possible claims. The real
property may be subject to prior unregistered agreements, or transfers which
have not been recorded or detected through title research. If the oil and gas
leases to the real property associated with our projects are challenged, we may
have to expend funds defending any such claims and may ultimately lose some or
all of any revenues generated from the projects if we lose our interest in such
leases.

Risks Relating to our Common Shares

Our common shares are not liquid and shareholders may be
unable to sell their shares.

Our common shares are currently quoted on the Over-the-Counter
Bulletin Board (OTC Bulletin Board) and are thinly traded. In the past, our
trading price has fluctuated widely, depending on many factors that may have
little to do with our operations or business prospects. There is currently a
limited market for our common shares and we can provide no assurance to
investors that a liquid market will develop. If a market for our common shares
does not develop, our shareholders may not be able to resell the shares of our
common shares that they have purchased and they may lose all of their
investment. Public announcements regarding our company, changes in government
regulations, conditions in our market segment and changes in earnings estimates
by analysts may cause the price of our common shares to fluctuate substantially.
In addition, the OTC Bulletin Board is not an exchange and, because trading of
securities on the OTC Bulletin Board is often more sporadic than the trading of
securities listed on a national exchange, our shareholders may have difficulty
reselling their shares.

Securities class-action litigation has often been instituted
  following periods of volatility in the market price of a company's securities.
  Such litigation, if instituted against our company, could result in substantial
  costs for our company and a diversion of management's attention and resources.

If we complete further business opportunities or
combinations, we will likely be required to issue a substantial number of common
shares which would dilute the shareholdings of our current shareholders and
result in a change of control of our company.

We may acquire additional oil and gas property interests in the
future and will likely have to issue common shares to acquire such interests.
Issuing previously unissued common shares will reduce the percentage of common
shares owned by our existing shareholders and may result in a change in the
control of our company and our management.

Shareholders' interests in our company will be diluted and
investors may suffer dilution in their net book value per share if we issue
additional shares or raise funds through the sale of equity securities.

Our constating documents authorize the issuance of an unlimited
number of common shares, without par value, and 100,000,000 preferred shares,
without par value. In the event that we are required to issue additional shares
or enter into private placements to raise financing through the sale of equity
securities, the interests of existing shareholders

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in our company will be diluted and existing shareholders may
suffer dilution in their net book value per share depending on the price at
which such securities are sold. If we do issue additional shares, it will cause
a reduction in the proportionate ownership and voting power of all existing
shareholders.

Principal shareholders, senior management and directors have
significant influence regarding share ownership. This concentration could lead
to conflicts of interest and difficulties for non-insider investors effecting
corporate changes, and could adversely affect our company's share price.

As of August 8, 2007, our senior management, directors and
greater than five percent (>5%) shareholders (and their affiliates), acting
together, held approximately 21 percent of the issued and outstanding shares of
our company, on a diluted basis, and have the ability to influence all matters
submitted to our company's shareholders for approval (including the election and
removal of directors and any merger, consolidation or sale of all or
substantially all of our company's assets) and to control our company's
management and affairs. Accordingly, this concentration of ownership may have
the effect of delaying, deferring or preventing a change in control of our
company, impeding a merger, consolidation, takeover or other business
combination involving our company or discouraging a potential acquirer from
making a tender offer or otherwise attempting to obtain control of our company,
which in turn could have a material adverse effect on the market price of our
shares.

Employee, director and consultant stock options and warrants
could lead to greater concentration of share ownership among insiders and could
lead to dilution of share ownership which could lead to depressed share prices.

Because the success of our company is highly dependent upon our
respective employees, our company has granted to some or all of our key
employees, directors and consultants stock options to purchase common shares as
non-cash incentives. To the extent that significant numbers of such stock
options may be granted and exercised, the interests of the other shareholders of
our company may be diluted causing possible loss of investment value.

We have never declared or paid cash dividends on our common
shares and do not anticipate doing so in the foreseeable future.

There can be no assurance that our board of directors will ever
declare cash dividends, which action is exclusively within our discretion.
Shareholders cannot expect to receive a dividend on our common shares in the
foreseeable future, if at all.

Trading of our shares may be restricted by the Securities
and Exchange Commission (SEC)'s "Penny Stock" regulations which may limit a
shareholder's ability to buy and sell our shares.

The SEC has adopted regulations which generally define "penny
stock" to be any equity security that has a market price (as defined) less than
US$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. Our securities are covered by the penny stock rules, which
impose additional sales practice requirements on broker-dealers who sell to
persons other than established customers and "accredited investors". The term
"accredited investor" refers generally to institutions with assets in excess of
US$5,000,000 or individuals with a net worth in excess of US$1,000,000 or annual
income exceeding US$200,000 or US$300,000 jointly with their spouse. The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the SEC which provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. The bid and offer
quotations, and the broker-dealer and salesperson compensation information, must
be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer's
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of

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trading activity in the secondary market for the share that is
subject to these penny stock rules. Consequently, these penny stock rules may
affect the ability of broker-dealers to trade our securities. We believe that
the penny stock rules discourage investor interest in and limit the
marketability of our common shares.

The National Association of Securities Dealer (NASD) has
adopted sales practice requirements which may limit a shareholder's ability to
buy and sell our shares.

In addition to the "penny stock" rules described above, the
NASD has adopted rules that require that in recommending an investment to a
customer, a broker-dealer must have reasonable grounds for believing that the
investment is suitable for that customer. Prior to recommending speculative low
priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer's financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, the NASD believes that there is a high probability that
speculative low priced securities will not be suitable for at least some
customers. The NASD requirements make it more difficult for broker-dealers to
recommend that their customers buy our common shares, which may limit your
ability to buy and sell our shares and have an adverse effect on the market for
our shares.

Risks Relating to our Management

Our articles contain provisions indemnifying our officers
and directors against all costs, charges and expenses incurred by them.

Our articles contain provisions that state, subject to
applicable law, we must indemnify every director or officer of our company,
subject to the limitations of the Business Corporations Act(British
Columbia), against all losses or liabilities that our company's directors or
officers may sustain or incur in the execution of their duties. Our company's
articles further state that no director or officer will be liable for any loss,
damage or misfortune that may happen to, or be incurred by our company in the
execution of his duties if he acted honestly and in good faith with a view to
the best interests of our company. Such limitations on liability may reduce the
likelihood of litigation against our company's officers and directors and may
discourage or deter our shareholders from suing our company's officers and
directors based upon breaches of their duties to our company, though such an
action, if successful, might otherwise benefit our company and our shareholders.

As a majority of our directors and officers are residents of
countries other than the United States, investors may find it difficult to
enforce, within the United States, any judgments obtained against our company or
our directors and officers.

We do not currently maintain a permanent place of business within
  the United States. A majority of our directors and officers are nationals and/or
  residents of countries other than the United States, and all or a substantial
  portion of such persons' assets are located outside the United States. As a
  result, it may be difficult for investors to enforce within the United States
  any judgments obtained against our company or our officers or directors, including
  judgments predicated upon the civil liability provisions of the securities laws
  of the United States or any state thereof.

Key management employees may fail to properly carry out
their duties or may leave, which could negatively impact our corporate
operations and/or our share price.

Our company's financial condition and the success of our oil
and gas operations is dependent on our ability to hire and retain highly skilled
and qualified personnel, including George T. Stapleton, II, R. William Thornton
and George Orr. We face competition for qualified personnel from numerous
industry sources, and there can be no assurance that we will be able to attract
and retain qualified personnel on acceptable terms. The loss of service of any
of our key personnel could have a material adverse effect on our operations
and/or financial condition, which may negatively impact our share price. We do
not have key-man insurance on any of our employees and with the exception of
three senior officers, R. William Thornton, George T. Stapleton, II and George
Orr, we do not have written employment agreements with any of our key
personnel.

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ITEM
4.               
INFORMATION ON MEGAWEST ENERGY CORP.

A.        History and
Development of MegaWest Energy Corp.

We are a corporation organized under the laws of the Province
of British Columbia, Canada. We were originally incorporated under the
Company Act (British Columbia) on February 8, 2000 under the name
"Brockton Capital Corp.". On March 29, 2004, the Business Corporations
Act (British Columbia) came into effect, replacing the Company Act.
As required by the Business Corporations Act, our company was
"transitioned" under the Business Corporations Act, effective June 30,
2005. At a special general meeting of our shareholders on February 19, 2007, our
shareholders authorized our directors to remove the pre-existing company
provisions applicable to our company pursuant to the Business Corporations
Act and to adopt new articles for our company. Our name was changed from
"Brockton Capital Corp." to "MegaWest Energy Corp." on February 27, 2007.

Our corporate offices are located at Suite 1000, 815 
8th Avenue S.W., Calgary Alberta, Canada T2P 3P2. Our telephone
number is (403) 984-6342 and our facsimile number is (403) 984-6343.

Our company was originally engaged in the consumer electronics
market. However, due to our inability to generate revenues from our existing
line of business, subsequent to our fiscal year ended April 30, 2006, new
management was hired to pursue alternative business opportunities, namely
non-conventional oil and gas resource exploration and development.

During the fiscal year ended April 30, 2007, we completed three
private placements to provide us with the necessary working capital to evaluate
and pursue non-conventional oil and gas opportunities in the United States and
Canada and to establish a head office in Calgary, Alberta. The first of the
private placements, an offering of 23,500,000 common shares at US$0.10 per share
for aggregate proceeds of US$2,350,000 was completed in December 2006. In
January and February 2007, we completed a further private placement of 8,425,000
units, at a price of US$0.50 per unit, for aggregate proceeds of US$4,212,500,
each of which units consists of one common share and one-half of one common
share purchase warrant (each whole warrant entitles the holder to purchase an
additional common share at an exercise price of US$1.00 for a period of one
year). In March 2007, our company completed an additional private placement of
27,448,550 units, at a price of US$1.00 per unit, for aggregate proceeds of
US$27,448,550, each of which units consists of one common share and one-half of
one common share purchase warrant (each whole warrant entitles the holder to
purchase an additional common share at an exercise price of US$1.30 for a period
of one year). In conjunction with the March 1, 2007 private placement, we issued
690,848 warrants (each of which entitles the holder to purchase one common share
at US$1.30 for a period of one year) to finders, rights to buy an additional
180,000 units under the same terms as the January 2007 private placement and
rights to buy a further 375,000 units under the same terms as the March 2007
private placement.

In December 2006, we took our first steps to become a
non-conventional oil and gas company with an initial focus on heavy oil when we
entered into several non-binding letters of intent with companies involved in
the business of the exploration of oil and gas resources in Kansas, Missouri,
Kentucky and Texas.

On March 26, 2007, we purchased (through MegaWest USA) all of
the assets of Deerfield Energy Kansas Corp. The purchased assets included
certain items of equipment and fixed assets and interests in two oil and gas
leases covering 392 undeveloped acres in respect of the Chetopa project near
Chetopa, Kansas. The consideration given for the assets was 250,000 common
shares in our capital and the assumption of a promissory note in the amount of
US$500,000 payable to a private company, Agosto Corporation Ltd. Pursuant to our
assumption of the promissory note, we granted Agosto a conversion feature that
enables the holder of the note to convert the principal amount of the loan plus
accrued interest into common shares of our company at a rate of US$0.25 per
common share until maturity on June 20, 2008.

As part of the Chetopa acquisition, MegaWest is obligated to
pay a net revenue interest up to a maximum of US$750,000 on net revenues
generated from the Chetopa project. The net revenue interest becomes payable
after our company recovers 100 percent of its capital and operating costs, and
will be paid quarterly from 25 percent of the project's net revenues.

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- 13 -

April 2, 2007, we acquired (in conjunction with MegaWest USA)
all of the issued and outstanding membership units of Kentucky Reserves, LLC
(Kentucky Reserves) in consideration for US$3,000,000 cash and 5,000,000 common
shares in our capital. Kentucky Reserve's assets included oil and gas leases
covering 27,009 undeveloped acres in the Edmonson, Warren and Butler Counties in
Kentucky. Pursuant to the membership unit purchase agreement, we acquired a 62.5
percent working interest in the shallow rights in certain tar sands and a 37.5
percent interest in the certain deep rights. Furthermore, pursuant to the
purchase agreement, we are committed to undertake a US$15,000,000 work program
within the area covered by the leases, which work program must be completed
within 30 months of the execution of the purchase agreement for the purpose of
determining the most effective way of extracting heavy oil/bitumen from the
leases. The work program will consist of field testing and evaluation, drilling,
logging and coring of wells, formation and fluid testing, the construction of
heavy oil pilot projects such as steam, water flooding, solvent injection,
electro-thermal heating, or the like. Should we be unable to expend the work
program commitment within the 30-month period, we will be subject to a 37.5
percent penalty on the unexpended amount of the work program commitment.

On April 5, 2007, we acquired (through MegaWest USA) all of the
issued and outstanding membership units of Deerfield Energy LLC (Deerfield
Missouri) in consideration for US$925,000 cash, including a change in control
fee, and 4,750,000 common shares in our capital. The assets of Deerfield
Missouri include rights to oil development agreements in Vernon County, Missouri
covering 7,620 undeveloped acres and all of the issued and outstanding units of
Deerfield Kansas. At the closing of the transaction, we paid US$625,000 of the
purchase price. Owing to potential issues related to certain oil development
agreements, the unpaid cash of US$300,000 and 4,750,000 common shares were
placed in an escrow account, set-up for our indemnification in respect of the
said claims. Pursuant to the escrow agreement, the said cash and shares can be
released on a pro-rata basis to the previous unitholders of Deerfield Missouri
upon either the modification of certain oil development agreements into oil and
gas leases or until 4,000 acres of replacement acreage have been leased. The
escrow agreement provides for an escrow period of six months subject to certain
adjustments.

April 25, 2007, we acquired (in conjunction with MegaWest USA)
all of the issued and outstanding membership units of Trinity Sands Energy LLC
(Trinity) in consideration for US$200,000 cash and 95,000 exchange shares of
MegaWest USA. Each exchange share may be exchanged for US$10 in cash or 100
common shares in our capital during the period January 1, 2008 to July 31, 2008,
after this time, we may compel the holders of the exchange shares to convert
their exchange shares into our common shares. The assets of Trinity consisted of
a 50 percent working interest in approximately 14,948 undeveloped acres in
Edmonds County, Texas and an earn-in agreement to increase the said working
interest to 66.67 percent and earn up to a 66.67 percent working interest in an
additional 13,348 undeveloped acres in Edmonds Country, Texas.

In June 2007, we began oil production from the Chetopa project
and have oil sales from the project.

B.Business Overview

Description of Operations

MegaWest is a development stage non-conventional oil company
with emphasis on North American heavy oil projects. Our company has operatorship
of and owns or has the right to earn a majority interest in over 70,000 acres of
prospective oil sands leases in Texas, Kentucky, Missouri and Kansas. These
projects are located in proximity to refineries with excess capacity, which
should allow our company to readily bring its oil to market. Our company intends
to acquire blocks of oil and gas rights known to contain substantial deposits of
heavy oil. Through delineation drilling and the completion of pilot production
tests, we plan to establish proven and producing reserves on these development
projects using thermal recovery technologies developed in Canada. The
underpinnings for our strategy is the convergence of the increased necessity for
North American security of energy supplies and current world oil prices. We have
taken the first steps to become a non-conventional oil and gas company with the
acquisition of the Chetopa, Deerfield, Kentucky Reserves and Trinity Sands
projects (as detailed in "Item 4.A  History and Development of MegaWest Energy
Corp." above).

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- 14 -

Prior to December 2006, MegaWest was a technology company,
whose business plan was to acquire the rights to market, sell and distribute a
product line of consumer electronic technology products in Canada.

Projects

We have four projects currently in the exploration stage. Our
strategy is to evaluate, enhance and exploit each project through:

- geoscience and engineering analysis to validate each project and identify
  technologies which may result in economic recovery;
- perform field work including seismic, drilling and operation of pilot
  projects to corroborate engineering and geoscience analysis, resulting in a
  commercial project design and development plan; and
- engage an independent third-party to establish the value of commercial
  reserves, leading to farm-out, sale, or funding and execution of the
  commercial development plan.

The objectives of our fiscal 2008 plan are to demonstrate
commercial feasibility through the operation of pilot projects and establish
reserves. We have created a plan that may ultimately lead to a thermal pilot
project on each of our properties in fiscal 2008.

Chetopa

The Chetopa project is a small, heavy oil project located two
miles south of Chetopa, Kansas. The assets acquired include certain oil and gas
equipment and a 100 percent interest in two oil and gas leases covering 392
undeveloped acres. On 15 of these acres are 20 steam injectors, 33 producer
wells and a water well which had been previously drilled, completed, equipped
and tied in for production. A tank battery, steam generator and two transfer
stations are also in place on the property.

The Chetopa project was originally assessed to acquire the
surface equipment and steam generator at a discount for use in Missouri.
However, our company elected to refurbish the facilities and has commenced
production. On June 14, 2007 the first truckload of oil was shipped from the
facility. While the production rates are not commercial, and our company is
continuing to optimize the production process, it was a significant
accomplishment for the company. It is intended that produced oil will be trucked
and sold to the Coffeyville refinery located twenty miles west of Chetopa. It is
expected that crude oil production can be sold for 85-90 percent of West Texas
Intermediate posted prices. During the fiscal year ended April 30, 2008, we will
evaluate the Chetopa operating results and decide if additional acreage will be
developed.

As part of the Deerfield Kansas acquisition, we are obligated
to pay a net revenue interest up to a maximum of US$750,000 on net revenues
generated from the Chetopa project. The net revenue interest becomes payable
after our company recovers 100 percent of its capital and operating costs, and
will be paid quarterly from 25 percent of the project's net revenues.

Prior to our acquisition of the project, Deerfield Energy
Kansas Corp. was a development stage oil and gas company that owned certain oil
and gas equipment and held 100 percent working interest in 392 undeveloped acres
of oil and gas leases in Kansas. As the company did not have commercial revenue
or operations, it incurred a net loss from incorporation to March 27, 2007 of
US$128,000.

Deerfield Missouri

The Deerfield Missouri project includes the rights to earn 100
percent interest in oil and gas leases on up to 7,620 undeveloped acres in
Vernon County, Missouri. As part of the project, we have been aggressively
leasing additional lands in the area, and to August 8, 2007 have acquired an
additional 2,580 acres of undeveloped oil and gas leases.

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- 15 -

We have plans to drill four exploration wells. After analysis
of the drilling results, a thermal pilot project may be designed and implemented
that includes approximately 60 development wells over 15 acres. The construction
and commencement of thermal pilot operations may occur as early as the third
quarter of the 2008 fiscal year.

Prior to our acquisition of the project, Deerfield Missouri was
a development stage oil and gas company party to oil development agreements over
7,620 undeveloped acres of oil and gas leases in Missouri. As the company did
not have commercial revenue or operations, it incurred a net loss for the year
ended December 31, 2006 and the period from January 1, 2007 to April 5, 2007 of
US$190,000 and US$32,000, respectively.

Kentucky Reserves

The Kentucky Reserves project includes a 62.5 percent working
  interest in the shallow rights in certain tar sands and an additional 37.5 percent
  working interest in the deep rights, of approximately 29,800 undeveloped acres
  in the Edmonson, Warren and Butler counties of Kentucky.

We are committed to fund a work program over the next 30 months
covering the first US$15,000,000 of exploration, testing and development
expenditures on the project aimed at proving commercial recovery of the
potential oil contained in the leases. Technical evaluation is ongoing and six
to eight exploration wells are identified and drilling has commenced. After
analysis of the drilling results, a thermal project may be designed and
implemented that may include approximately 50 development wells. The
construction and commencement of thermal pilot operations is planned to occur
near the end of the 2008 fiscal year.

Prior to our acquisition of the project, Kentucky Reserves was
a development stage oil and gas company and did not have commercial revenue or
operations. Kentucky Reserves incurred a net loss for the period from
incorporation on January 14, 2005 to December 31, 2006 and the period from
January 1, 2007 to April 2, 2007 of US$28,000 and US$11,000, respectively.

Trinity Sands

Currently, our interest in the project consists of,
approximately, 34,000 undeveloped acres in Edwards County, Texas. Pursuant to
earn-in agreements the company may earn up to a 66.67 percent working interest
in all leased acreage. Included in the total undeveloped acres are 20,600 acres
in which we have earned a 50 percent working interest.

We have completed a geological study of the project. This
includes compilation and evaluation of all available data, the conversion of all
available logs to digital form, well curve editing and correction after
digitizing, and the organization of well logs and all historical drilling,
completion and core data into a structured database.

The proposed work program for fiscal 2008 includes drilling six
to eight exploration wells for coring and logging. Cased-hole logging of
existing wellbores, where appropriate, is also proposed. After completing the
core, log and fluid analysis, a thermal pilot project may be designed and
implemented consisting of two development wells to prove the recovery concept.
The construction and commencement of thermal pilot operations is planned to
occur in the fourth quarter of the 2008 fiscal year.

Prior to our acquisition of the project, Trinity was a
development stage oil and gas company that did not have commercial revenue or
operations. Trinity incurred a net loss from incorporation on October 5, 2006 to
April 25, 2007 of US$37,000.

Principal Markets

The principal market that we compete in is the North American
energy market, specifically the North American oil market. With the exception of
the recent, limited production from the Chetopa project, we do not have, nor
have we ever had, any oil and gas operations and do not currently have any
interests in oil and gas leases with proved reserves.

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- 16 -

Extraction Processes

Our business model is dependent on the use of thermal recovery
technologies to recover previously uneconomic oil and gas reserves that have now
been made economically viable by the recent increases in the price of oil and
the development of new technologies in Canada. Our operational and head office
is in Calgary, Alberta, where we have access to technical experts in the
recovery of heavy oil. Our company's President is based in Houston, Texas. We
have built a team with expertise in various methods of primary and thermal heavy
oil recovery, including Cyclic Steam Stimulation (CSS), Steam Assisted Gravity
Drainage (SAGD), steam drive, in situ combustion, ET-DSP (a form of
electro-thermal heating) and solvent processes.

Technology Summary

Heavy Oil

North America's heavy oil and bitumen deposits are estimated to
contain more than 3 trillion barrels of resource, rivalling the oil reserves of
Saudi Arabia. Crude oil is considered "heavy" if its API gravity is lower than
20 degrees and its viscosity is higher than 1,000 centipoise. Natural bitumens
are even poorer raw materials, with API gravities lower than 10 degrees and
viscosities greater than 10,000 centipoise. Heavy oil and bitumen are highly
viscous requiring heat or dilution to enable significant production and recovery
of reserves.

Numerous large oil sands projects, both mining and in
situ have been announced and are being actively pursued to exploit this
resource. The well-established North American heavy oil deposits offer
world-class exploitation opportunities. We believe that the need for North
American energy self-sufficiency combined with the encouraging outlook for heavy
oil demand, strong prices, and easy access to refineries make this an ideal time
for the re-optimization of non-conventional heavy oil supplies.

Similar to other maturing resources, primary heavy oil
production in the Canadian heavy oil industry has peaked and is on decline.
Encouraged by favourable economic terms and long term leases, thermal recovery
is rapidly increasing and now exceeds 240,000 barrels of oil per day (bopd).
There are 21 approved Steam Assisted Gravity Drainage (SAGD)projects, six approved Cyclic Steam Stimulation (CSS) projects and one
approved in situ combustion project in the Province of Alberta.
Projections on the future phased developments of these projects indicate that
thermal production could reach 1,500,000 bopd by 2013 if investment proceeds as
planned. There is a significant and well-established commercial enhanced
recovery technology industry in Canada.

Large unconventional energy resources that are difficult to
produce using today's conventional recovery methods are the focus of our
company. These resources represent the key to easing energy supply concerns in
the near term and the future. We are building a team to evaluate and exploit our
company's projects using the best proven or emerging technologies.

In SituResource Recovery

Although most heavy oil or bitumen in Canada is currently
produced by open pit mining, about 80 percent of the oil sands are buried too
deep below the surface for this process to be applied. This oil must be
recovered by in situ techniques, which heat or dilute the heavy oil,
thereby lowering its viscosity and allowing it to migrate towards producing
wells, where it is brought to the surface. A technical review of MegaWest's
prospects will identify the most suitable technology for each resource and may
include proven technologies such as Cyclic Steam Stimulation (CSS), Steam
Assisted Gravity Drainage (SAGD), Steam Drive, in situ Combustion
and CO2 injection or such emerging technologies as ET-DSP (a form of
electro-thermal heating) or N-Solv (a novel solvent based technology).

We will be exploring synergistic technologies to improve
capital efficiency, increase energy efficiency, reduce energy costs, reduce the
requirement for water, and increase the profitability of in situ
processes. Production from in

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- 17 -

situ processes may well replace mining as the main
source of heavy oil production from tar sands, contributing significantly to
energy self-sufficiency in North America.

C.        Organizational
Structure

As of the date of this annual report, we have the following
direct and indirectly owned subsidiaries incorporated in the United States:

Subsidiary
      Acquisition Date
      Ownership PercentageMegaWest Energy (USA) Corp.
    -(1)
    99%(2)MegaWest Energy Texas Corp. (formerly Trinity
      Sands Energy LLC)
    April 25, 2007
    100%MegaWest Energy Kentucky Corp. (formerly
      Kentucky Reserves, LLC)
    April 2, 2007
    100%MegaWest Energy Missouri Corp. (formerly
      Deerfield Energy LLC)
    April 5, 2007
    100%MegaWest Energy Kansas Corp. (formerly
      Deerfield Energy Kansas Corp.)
    April 5, 2007
    100%


| |     | Notes:                                                                                                                                                                                                                         
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated on January 9, 2007.                                                                                                                                                                                               
| | (2) | The remaining 1 percent ownership is held by the former
      unitholders of Trinity Sands Energy LLC through the exchange shares
      discussed in "Item 4.A  History and Development of MegaWest Energy Corp."
      above.

D.        Property,
Plants and Equipment

We currently rent office space located at Suite 1000, 815 8th
Avenue S.W., Calgary, Alberta, Canada, T2P 3P2 for the amount of $15,500 per
month. We have committed to a new office lease in Calgary commencing October 1,
2007 which will provide adequate space for our foreseeable future needs and will
cost $20,000 per month.

The oil and gas acreage under lease for each of our projects
and related oil and gas equipment is described in "Item 4.B  Business Overview
 Description of Operations" above. Subsequent to April 30, 2007, our
company acquired four used steam generators which are currently being
re-furbished.

Other Oil and Gas Information

At April 30, 2007, our company did not have any reserves
associated with its oil and gas properties.

Oil and Gas Wells

At April 30, 2007 all of the wells on our company's properties
  were non-producing, and substantially all of the wells were drilled by prior
  leaseholders. The following table sets out the number of our wells, by project,
  as at April 30, 2007.

Project
    Gross
    NetUnited States:Chetopa
    54.0
    54.0Deerfield
    -
    -Kentucky Reserves
    1.0
    0.6Trinity Sands
    -
    -Total
    55.0
    54.6


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Project Area

The following table sets out the area we have an interest in,
  by project, as at April 30, 2007.

Project
      Gross
      
      NetUnited StatesChetopa
      392
      
      392Deerfield
      7,620
      
      7,620Kentucky Reserves
      29,126
      
      17,038Trinity Sands
      33,323
      
      9,649Total
      70,461
      
      34,699


Oil and Gas Costs

The following table summarizes the costs incurred in oil and
gas property acquisition, exploration, and development activities for our
company for the year ended April 30, 2007.

Activity
    CostProperty acquisition, including equipment
    $ 20,140,324Exploration
    616,031Development
    -Total
    $ 20,756,355


ITEM 4A.     UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 5.        OPERATING
AND FINANCIAL REVIEW AND PROSPECTS

The information in this Item is presented in accordance with
Canadian generally accepted accounting principles, and has not been reconciled
to United States generally accepted accounting principles. The following
discussion of our financial condition and results of operations for the five
year fiscal period ending April 30, 2007, should be read in conjunction with our
consolidated financial statements and related notes included elsewhere in this
annual reportin accordance with "Item 8  Financial Information" below.

Overview

We are a development stage company engaged in the exploration
and development of non-conventional oil and gas reserves in the United States
and Canada.

Critical Accounting Estimates

Our accounting principles are described in Note 1 to our
consolidated financial statements for the year ended April 30, 2007. We prepare
our consolidated financial statements in conformity with GAAP in Canada, which
conform in all material respects to U.S. GAAP except for those items disclosed
in Note 19 to our consolidated financial statements. For U.S. readers, we have
detailed the differences and have also provided a reconciliation of the
differences between Canadian and U.S. GAAP in Note 19 to our consolidated
financial statements for the year ended April 30, 2007.

The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts and other disclosures in these consolidated financial statements. Actual
results may differ from those estimates.

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- 19 -

In particular, the amounts recorded for the value of oil and
gas assets are subject to a ceiling test. By their nature, these ceiling test
estimates are subject to measurement uncertainty and the impact on the financial
statements of future periods could be material.

We have identified the following critical accounting policies
that affect the more significant judgments and estimates used in preparation of
our consolidated financial statements.

Oil and Gas Operations

We follow the full cost method of accounting for oil and gas
operations, whereby all costs of exploring for and developing oil and gas
reserves are capitalized and accumulated in country-by-country cost centres.
These capitalized costs will be depleted using the unit-of-production method
based on estimates of proved reserves. The costs in cost centres from which
there has been no commercial production are not subject to depletion until
commercial production commences. These capitalized costs are assessed to
determine whether it is likely such costs will be recovered in the future. Costs
which are not likely to be recovered in the future are written-off.

We may grow our business through acquisitions. A different
accounting outcome could potentially result for the cost of an acquisition if
accounting for a business combination compared to an asset or development stage
company acquisition, when shares are issued as consideration. For a business
combination, the cost of the shares issued for the acquisition is based on the
underlying share value at the time the acquisition is announced. For an asset or
development stage company acquisition, the cost of the shares issued is based on
underlying share value at the closing date of the transaction. Since the
acquisitions we completed in fiscal 2007 are development stage companies, we
valued the cost of the share consideration issued at the closing date.

Fair Value of our Company's Common Shares, Options and
Warrants

We completed a number of share-based transactions during the
year ended April 30, 2007. Under Canadian GAAP, share-based transactions are
recorded at their fair values. Generally, the best indicator of fair value of a
company's shares is quoted market prices, unless the market is not active or
liquid, in which case fair value is determined using valuation techniques,
including recent arm's length market transactions between knowledgeable, willing
parties. In addition, the fair value of options and warrants granted were based
on the Black-Scholes option pricing model, which uses the common share fair
value on the grant date as an input. Under U.S. GAAP, share-based transactions
are valued based on exchange quoted market prices.

Share based transactions impact a number of financial statement
items including stock-based compensation expenses, contributed surplus, share
capital, warrants, convertible promissory notes, exchange shares and deficit on
related party acquisitions.

Under Canadian GAAP we used recent arm's length transactions,
specifically private placements, as indicators of fair value. Under U.S. GAAP,
we used the OTC exchange price as the fair value estimate for our shares. As a
result, U.S. GAAP stock-based compensation expense was $11.3 million higher than
reported under Canadian GAAP. In addition, the amount recorded for the Kentucky
oil and gas assets and the deficit adjustment on related party acquisitions was
$21.8 million and $11.9 million higher, respectively, under U.S. GAAP.

A.        Operating
Results

The following discussion is prepared in accordance with
Canadian GAAP. For differences between Canadian and U.S. GAAP related to our
financial statements, refer to Note 19 to our consolidated financial statements
for the year ended April 30, 2007.

We reported a net loss of $6,893,052 for the year ended April
30, 2007, compared with a net loss of $222,945 for the year ended April 30,
2006, for aggregate net loss for five year period ended April 30, 2007 of
$7,366,290. The loss

---

- 20 -

for the year ended April 30, 2007 was mainly attributable to
administrative expenses of $1,624,546, stock-based compensation costs of
$3,899,148 and foreign exchange loss of $1,548,840.

Stockbased compensation expense was $3,899,148 for the year
ended April 30, 2007 and was attributable to the cost associated with granting
stock options and warrants to new employees, consultants and directors in
connection with forming a new oil and gas company.

Administrative expenses, excluding stock-based compensation,
totalled $1,624,546 for the year ended April 30, 2007 compared with $104,601 for
the year ended April 30, 2006. The increase was caused by new management
changing our focus to oil and gas exploration in December 2006. A number of
employees were hired and a new office was established in Calgary, Alberta that
resulted in salary and benefit costs, professional fees and office costs.

The foreign exchange loss of $1,548,840 for the year ended
April 30, 2007 resulted primarily from the translation of our U.S. dollar
denominated cash balances into our Canadian dollar reporting currency. The
Canadian dollar has strengthened in value compared to the U.S. dollar for the
period following the private placements. We do not engage in hedging activities
or use derivative instruments.

Administrative expenses totalled $104,601 for the year ended
April 30, 2006 compared with $57,292 for the year ended April 30, 2005. The
increase was substantially caused by the payment of $61,200 in fees to Carob
Management for consulting services related to new business opportunities for our
company and other administration duties.

During the year ended April 30, 2004, we advanced $109,280 plus
accrued interest to Cyberhand Technologies Inc. pursuant to notes payable to
fund activities pending a proposed acquisition. The balance owing on these notes
and interest accrued thereon in the amount of $123,610 was assigned to Cyberhand
Technologies Inc. in exchange for distribution rights pursuant to a July 5, 2004
distributor agreement, whereby we acquired the non-exclusive right to distribute
peripheral computer hardware products designed, manufactured and marketed by
Cyberhand Technologies Inc. Pursuant to the distributor agreement, we agreed to
purchase a minimum of 15,000 units on or before July 5, 2007, and upon
completion of this minimum order, to purchase 50,000 units per month or forfeit
our rights under the distributor agreement. As required by the distributor
agreement, we purchased as initial stocking order of 200 units at a cost of
$10,735, which was written down to its net realizable value of $4,735 for the
year ended April 30, 2005 and to $1.00 for the year ended at April 30, 2006.
During the year ended April 30, 2006, we wrote down the distribution right
granted under the distributor agreement to $10,000 to recognize the impairment
of the asset primarily due to the lack of sales of the Cyberhand Technologies
Inc. products.

We had interest income of $263,125, $Nil and $2,261 for the
years ended April 30, 2007, 2006 and 2005, respectively. The increase in
interest income for the year ended April 30, 2007 is related to interest earned
on cash balances generated from the private placements that raised an aggregate
amount of US$34,011,050.

B.        Liquidity and
Capital Resources

As our projects are in the exploration stage and we do not have
profitable oil and gas operations, existing working capital will be used to fund
operations and our capital program. The ultimate development of our oil and gas
projects, if proven commercial, will require additional funding. Additional
capital will be required in the form of equity, debt and or joint venture
farmouts. In addition to cash on hand, we have 18,627,623 common share purchase
warrants outstanding that could generate up to $25.6 million (US$22.9 million)
in cash during the 2008 fiscal year.

Cash and Financial Conditions

We had working capital of $28,152,901 as at April 30, 2007
compared to a working capital deficiency of $139,422 as at April 30, 2006. Cash
used in operating activities for the year ended April 30, 2007 totalled $424,158
on a $6,893,052 net loss for the year.

---

- 21 -

We had a working capital deficiency of $139,422 as at April 30,
2006 compared to a working capital deficiency of $30,087 as at April 30, 2005.
Cash used in operating activities for the year ended April 30, 2006, totalled
$31,724 including a $222,945 net loss for the fiscal year.

As at April 30, 2007, we had cash available of $29,328,951
which we consider sufficient to complete our 2008 work plan. Additional capital
may be required thereafter or should the budget or work plan be amended for a
number of reasons which include, but are not limited to, future events, possible
business or property acquisitions and actual results differing from our
anticipated our work plan. We currently have, approximately, $24,700,000 in cash
available.

Investing Activities

Cash used in investing activities was $6,932,653 for the year
ended April 30, 2007 and included cash expenditures of $4,244,360 for oil and
gas acquisitions (see "Item 4.A  History and Development of MegaWest Energy
Corp." above), $836,875 for capital expenditures, $1,851,960 for an investment
in our Trinity Sands project joint venture partner Energy Finders, and $341,250
cash deposited in trust as contingent consideration for the Deerfield Missouri
acquisition. Cash used in investing activities was $nil for the year ended April
30, 2006.

Financing Activities

During the fiscal year ended April 30, 2007, we completed three
private placements to provide us with $38,301,221, before costs, of working
capital to evaluate and pursue non-conventional oil and gas opportunities in the
United States and Canada and to establish a head office in Calgary, Alberta (see
"Item 4.A  History and Development of MegaWest Energy Corp." above).

Our debt obligations at April 30, 2007 consist of convertible
promissory notes and potential cash payout obligations on exchange shares.

The convertible promissory notes of US$1,700,000 were assumed
on December 20, 2006 in connection with the proposed acquisitions of Chetopa and
Trinity. The principal and interest are convertible into our common shares at
US$0.25 per share until June 20, 2008. The interest rate on the notes is six
percent per annum.

We caused to be issued 95,000 class B shares of our subsidiary,
MegaWest USA, as part of the consideration given to acquire Trinity. Each class
B exchange share is convertible into 100 of our common shares with up to
9,500,000 common shares of MegaWest to be issued. The holders of these MegaWest
USA shares have the right to exchange, or can receive a cash payment of
US$950,000 (US$10.00 per exchange share) until July 31, 2008, after which we can
implement a forced exchange of the shares.

In December 2006 we settled $167,500 of accounts payable
through the issuance of 600,000 common shares pursuant to debt settlement and
subscription agreements dated December 21, 2006. The fair value of the shares
was based on recent arm's length private placements.

In the year ended April 30, 2006, we borrowed $40,000 from
shareholders of our company and issued $40,000 in short term, unsecured notes
bearing interest at 10 percent in respect thereof. On October 20, 2006, our
shareholders approved a subdivision of its issued and outstanding common shares
on an up to 3 to 1 basis. This subdivision is subject to the discretion of the
directors and is currently not proposed to be implemented.

We completed our initial public offering on July 5, 2001, and
raised $262,500 from the sale of 1,750,000 common shares. In July 2004, we
completed a private placement of 4,500,000 common shares at $0.001 per share,
including 1,250,000 common shares purchased by directors and officers. As at
April 30, 2004, there were 2,250,000 common shares held in escrow, whose release
was subject to the policies of the TSX Venture Exchange. On July 29, 2004, as a
result of the voluntary delisting from the TSX Venture Exchange, the 2,250,000
escrowed common shares were cancelled and returned to the treasury.

---

- 22 -

At April 30, 2007 we had 72,436,050 common shares issued and
outstanding, excluding 4,750,000 shares issued and held in trust pursuant to an
escrow agreement (see "Item 4.A  History and Development of MegaWest Energy
Corp." above). As of August 8, 2007, there were 72,561,050 common shares issued
and outstanding, excluding 4,750,000 shares held in trust pursuant to an escrow
agreement. See "Item 6.E  Share Ownership" below for details on the shares
outstanding and potential dilutive securities.

C.        Research and
Development, Patents and Licenses, etc.

We do not currently, and did not previously, have research and
development policies in place. Over the past three fiscal years, no funds were
expended by our company on research and development activities.

D.        Trend
Information

We do not currently know of any trends that would be material
to our operations.

E.        Off-Balance
Sheet Arrangements

We do not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to investors.

F.        Contractual
Obligations

Contractual Obligations(in thousands of Canadian dollars)Total
      Less than 1 Year
      1-3 Years
      3-5 Years
      More than 5 YearsOperating Leases
      $1,623
      $239
      $725
      $659
      $-Work Commitments (1)
      $6,240
      $-
      $6,240
      $-
      $-Convertible Promissory Notes (2)
      $1,945
      $-
      $1,945
      $-
      $-Cash Redemption on Exchange Shares (3)
      $1,061
      $-
      $1,061
      $-
      $-Employment Agreements (4)
      $-
      $-
      $-
      $-
      $-Total
      $10,896
      $239
      $9,971
      $659
      $-


| | Notes:
| | ------
| | (1)   
| | (2)   
| | (3)   
| | (4)   

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- 23 -

In addition to the above:

- as part of the Chetopa acquisition, we are obligated to pay a net revenue
  interest up to a maximum of US$750,000 on net revenues generated from the
  Chetopa project. The net revenue interest becomes payable after our company
  recovers 100 percent of its capital and operating costs, and will be paid
  quarterly from 25 percent of the project's net revenues; and
- as part of the Deerfield acquisition, owing to potential issues related to
  certain oil development agreements, there was US$300,000 of cash and 4,750,000
  common shares were placed in an escrow account, set-up for our indemnification
  in respect of the said claims. Pursuant to the escrow agreement, the said cash
  and shares can be released on a pro-rata basis to the previous unitholders of
  Deerfield Missouri upon either the modification of certain oil development
  agreements into oil and gas leases or until 4,000 acres of replacement acreage
  have been leased. The escrow agreement provides for an escrow period of six
  months subject to certain adjustments.

G.        Safe
Harbour

Not applicable.

ITEM
6.               
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.        Directors and
Senior Officers

The following table sets out the names and business experience
of each of our directors and senior officers, as of August 8, 2007:

Name and Age
      Present Position with our Company
      Date of Commencement of Office with our CompanyGeorge T. Stapleton, II(2) (3)(53)
    President and Chief Executive Officer
    December 21, 2006Director
    December 21, 2006George Orr(1)(2)(46)
    Chief Financial Officer and Treasurer
    December 21, 2006Director
    December 21, 2006R. William Thornton(2)(51)
    Chief Operating Officer
    January 1, 2007Director
    December 21, 2006Brad Kitchen(1)(44)
    Director
    February 19, 2003Brian J. Evans(1) (2)(56)
    Director
    February 19, 2007Dr. Gail Bloomer (72)
    Director
    February 19, 2007


| | Notes:
| | ------
| | (1)   
| | (2)   
| | (3)   

George T. Stapleton, II

Mr. Stapleton received his civil engineering degree from Georgia
  Institute of Technology in 1975 and has 32 years of international experience
  in the offshore oil construction and service industry, project development,
  oil and gas exploration and production and energy infrastructure related projects.
  Mr. Stapleton is currently the President and Chief Executive Officer of our
  company. He has been the Chief Operating Officer and a Director of Deerfield
  Energy LLC since 2005 and the President and a director of Trinity Sands Energy
  LLC since 2006. He was formerly the President and remains a director since 2004
  of E-T Energy Ltd., a private Canadian company testing an electrothermal approach
  to the production of bitumen from the Athabasca tar sands. From 2000 to 2002
  he was responsible for the development of simulation based training packages
  for the energy and industrial sectors for Simulis, LLC.

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- 24 -

He was President - Products & Services for NEOppg Ltd. from
  1998 to 2000 where he was responsible for the development of the services side
  of the company's business plan, focusing on a proprietary multilateral system,
  heavy oil production systems and artificial lift products. Prior to that he
  was Vice-President, Operations for Asian Tiger Energy Company, an independent
  oil company developing oil and gas projects, primarily in Southeast Asia. Before
  Asian Tiger, Mr. Stapleton spent 19 years overseas with J. Ray McDermott in
  the Arabian Gulf, North Sea and Asia as Field Engineer, Operations Engineer,
  Project Manager, Fabrication Division Manager at Batam Island, Indonesia and
  finally as Division Manager  Business Development and Project Management
  where he oversaw project management of all turnkey projects for Southeast Asia
  and was responsible for business development activities throughout the region.

George Orr

Mr. Orr is a chartered accountant and has several years
experience dealing with public company reporting and administrative
requirements. Mr. Orr is currently a director and the Chief Financial Officer of
Valcent Products Inc. a company listed on the OTC Bulletin Board that is engaged
in the business of the design, development and marketing of innovative products
intended for the mass consumer appeal.

R. William Thornton

Mr. Thornton received his Chemical Engineering degree from the
University of Alberta in 1977 and Masters of Engineering (reservoir) 1989 from
the University of Calgary. He also completed the University of Calgary Executive
Development Program in 1988. He has held senior management and executive
positions over the last 30 years in all aspects of oil and gas development and
in particular enhanced recovery of heavy oil. He was General Manger  Petroleum
Engineering with Western OilSands, Vice-President, Engineering with Petrovera
Resources and Director of Primary Heavy Oil with Gulf Canada. Prior to these
positions he worked for 17 years with Murphy Oil on their various enhanced
recovery projects and technology development. During this time, Mr. Thornton
spent 3 years working in Murphy's El Dorado, Arkansas and New Orleans, Louisiana
offices overseeing engineering and operations on a large portion of Murphy's
onshore U.S. production. Mr. Thornton also has international experience, having
worked in drilling operations in interior Peru and as part of a team negotiating
a production sharing agreement in northern Iraq.

Brad Kitchen

Mr. Kitchen is a corporate finance consultant. Since 1996, he
has been the founder and President of PBK Financial Engineering Inc., a private
corporate finance consulting company. After graduating from McGill University
with an MBA, Mr. Kitchen became a financial product oriented investment banker
where he was employed in Toronto, Ontario over an eleven-year period as a
Vice-President and director at CIBC World Markets (formerly CIBC Wood Gundy
Securities Inc.) and TD Securities Inc. From January 2000 to January 2001, he
was Vice-President, Corporate Finance at Pacific Opportunities Company Ltd., a
small merchant bank and financial services company.

From December 1998 to December 1999, he was a partner of
Kitchen & Fuller Holdings Inc., a holding company for commercial real
estate. From May 1998 to November 1998, he was Chief Financial Officer of
Protocol Holdings Inc., a real estate investment company. Since April 2005, he
has been a director of Cyberhand Technologies International Inc. Since October
2005, Mr. Kitchen has been President and director of Grenville Gold Corporation,
a mining company listed on the TSX Venture Exchange; and President of Universal
Energy Corporation, an oil and gas company also listed on the TSX Venture
Exchange.

Brian J. Evans

Mr. Evans is a director of several public companies, including
CCS Income Trust, an income trust listed on the TSX that provides energy and
environmental waste management services and Tusk Energy Corporation, a company
listed on the TSX that is a exploration-focused oil and gas producer with
operation in western Canada. Since August 2006, Mr. Evans has served as the
Executive Director of the Werklund Group, a private investment group effective
August 2006 and prior to that was a partner and associate counsel with Miller
Thomson LLP, a national law firm.

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- 25 -

Dr. Gail Bloomer

Dr. Bloomer received his doctoral degree in Geology from
Harvard University in Geology and has developed his expertise in exploration and
development while working for international companies including Gulf Oil and
Kerr McGee.

Family Relationships

There are no family relationships between any of the directors
or executive officers of our company.

There are no arrangements or understandings between any of our
directors and/or executive officers and any other person pursuant to which that
director and/or executive officer was selected.

B.        Compensation

Executive Compensation

The following table provides a summary of compensation paid by
us during the fiscal year ended April 30, 2007 to the senior management of our
company:

SUMMARY COMPENSATION TABLEName and Principal Position
      Annual Compensation
      Long Term Compensation
      All
        other CompensationSalary
      Bonus
      Other Annual
        Compensation
      Securities Under Options/SARs GrantedGeorge T. Stapleton, II 
        President and Chief 
        Executive Officer
      $89,333 
        (US$80,000)
      $335,000 
        (US$300,000)
      $-
      1,000,000(1)
      $-(1)George Orr 
        Chief Financial Officer 
        and Treasurer
      $46,000
      $-
      $-
      1,000,000(2)
      $-R. William Thornton 
        Chief Operating Officer
      $83,333
      $295,000
      $-
      1,000,000(3)
      $-(8)Gerry Hampshire 
        Vice President, 
        Exploitation
      $46,860
      $-
      $-
      600,000(4)
      $-E. Wayne Sampson 
        Vice President, 
        Land
      $21,000
      $-
      $-
      600,000(5)
      $-David Sealock 
        Vice President, 
        Corporate Services and 
        Corporate Secretary
      $42,188
      $-
      $-
      600,000(6)
      $-Kelly Sledz 
        Finance Manager and 
        Controller
      $13,009
      $-
      $-
      300,000(7)
      $-


| | Notes:
| | ------
| | (1)   

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- 26 -

| | (2) | Represents 1,000,000 stock options granted effective
      January 5, 2007 at an exercise price of US$0.50 per share exercisable for
      a period of four years that vested on grant date.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) | Represents 1,000,000 stock options granted effective
      January 5, 2007 at an exercise price of US$0.50 per share exercisable for
      a period of four years that vested on grant date.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (4) | Represents 600,000 stock options granted effective
      January 8, 2007 at an exercise price of US$0.50 per share exercisable for
      a period for four years, 150,000 of which vest six months from grant and
      the remainder in three 150,000 tranches vesting on the first, second and
      third anniversary of the grant date.                                                                                                                                                                                                                                                                                                  
| | (5) | Represents 600,000 stock options granted effective March
      19, 2007 at an exercise price of US$1.00 per share exercisable for a
      period for four years , 150,000 of which vest six months from grant and
      the remainder in three 150,000 tranches vesting on the first, second and
      third anniversary of the grant date.                                                                                                                                                                                                                                                                                                  
| | (6) | Represents 600,000 stock options granted effective
      January 8, 2007 at an exercise price of US$0.50 per share exercisable for
      a period for four years , 150,000 of which vest six months from grant and
      the remainder in three 150,000 tranches vesting on the first, second and
      third anniversary of the grant date.                                                                                                                                                                                                                                                                                                 
| | (7) | Represents 300,000 stock options granted effective
      February 28, 2007 at an exercise price of US$1.00 per share exercisable
      for a period for four years that , 75,000 of which vest six months from
      grant and the remainder in three 75,000 tranches vesting on the first,
      second and third anniversary of the grant date.                                                                                                                                                                                                                                                                                            
| | (8) | On December 21, 2006, 10,000,000 assignable warrants
      (exercisable for common shares at US$0.10 per share for a period of six
      months after vesting) were issued to Endurance Energy Consulting Ltd., a
      private company controlled by R. William Thornton, which warrants vest if
      R. William Thornton brings a project of merit (i.e. a project with a
      potential economic value of at least US$10,000,000) to the directors of
      our company within one year of the award of the warrants. Subsequent to
      April 30, 2007, Endurance Energy Consulting Ltd. has assigned 8,200,000 of
      the warrants.

Compensation of Directors

No cash compensation was paid to any of our directors for
services as a director during the year ended April 30, 2007. We have no formal
arrangement pursuant to which directors are compensated by us for their services
in their capacity as directors, except for the granting from time to time of
incentive stock options. Directors are entitled to reimbursement for reasonable
travel and other out-of-pocket expenses incurred in connection with attendance
at meetings of our board. Our board may award special remuneration to any
director undertaking any special services on our behalf, other than services
ordinarily required of a director. No director received and/or accrued any
compensation for his services as a director, including committee participation
and/or special assignments for the year ended April 30, 2007.

The following table provides a summary of compensation paid by
us during the year ended April 30, 2007 to our directors:

SUMMARY COMPENSATION TABLEName and Principal Position
      Annual Compensation
      Long Term CompensationCash
      Special Remuneration
      Securities Under
        Options/SARs GrantedGeorge T. Stapleton, II
      $-
      $-
      500,000(1)George Orr
      $-
      $-
      500,000(2)R. William Thornton
      $-
      $-
      500,000(3)Brad Kitchen
      $-
      $-
      500,000(4)Brian J. Evans
      $-
      $-
      500,000(5)Dr. Gail Bloomer
      $-
      $-
      500,000(6)


| | Notes:
| | ------
| | (1)   
| | (2)   
| | (3)   

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- 27 -

| | (4) | Represents 250,000 stock options granted effective
      December 21, 2006 at an exercise price of US$0.10 per share exercisable
      for a period of five years and 250,000 stock options granted effective
      March 7, 2007 at an exercise price of US$1.00 per share exercisable for a
      period of four years, all of which vest on the grant dates.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | Represents 500,000 stock options granted effective
      February 20, 2007 at an exercise price of US$1.00 per share exercisable
      for a period for five years that vest on the grant date.                                                                                                                                                                
| | (6) | Represents 500,000 stock options granted effective
      January 15, 2007 at an exercise price of US$0.50 per share exercisable for
      a period of five years that vest on the grant
date.                                                                                                                                                                  

Retirement Benefits

We do not have in place any pension or actuarial plan to
provide pension, retirement or similar benefits and no funds were set aside or
accrued by our company or its subsidiaries during the fiscal year ended April
30, 2007 to provide pension, retirement or similar benefits.

Employment Agreements

We have employment agreements for our Chief Executive,
Operating and Financial Officers, the material terms of which are set out below.

We entered into an executive employment agreement made effective
  as of December 15, 2006 with R. William Thornton, whereby we have agreed to
  employ Mr. Thornton as our Chief Operating Officer as of January 1, 2007. Pursuant
  to the agreement, Mr. Thornton will receive an annual salary of $250,000 and
  bonuses as may be determined by our board. Upon execution of the agreement,
  we paid Mr. Thornton a signing bonus in the amount of US$250,000. Mr. Thornton
  will be entitled to coverage under Directors and Officers Liability Insurance
  and Errors and Omission Insurance (with a minimum cover of at least $2,000,000
  per occurrence), all at our company's expense. If Mr. Thornton's employment
  is terminated for just cause or by Mr. Thornton without constructive dismissal,
  we will pay to Mr. Thornton the amount of his unpaid annual salary to and including
  the date of termination, any declared but unpaid bonus and all outstanding vacation
  pay and expense reimbursements. If Mr. Thornton's employment is terminated by
  our company without just cause or by Mr. Thornton for constructive dismissal,
  then in addition to the foregoing amounts, Mr. Thornton will receive a severance
  payment in the amount of one year's annual salary plus $10,000 less applicable
  withholdings and deductions, in respect of lost benefits and notwithstanding
  any provisions of our company's stock plan, all stock options held by Mr. Thornton
  will automatically vest. Additionally, in the event of a change of control of
  our company, we and/or Mr. Thornton may terminate Mr. Thornton's employment
  with our company, on which event, we will pay to Mr. Thornton the termination
  payments set out above. As part of the agreement Mr. Thornton was granted 1,000,000
  Common Share options with an exercise price of US$0.50 per Common Share that
  expire January 5, 2011 and 500,000 Common Share options with an exercise price
  of US$0.10 per Common Share that expire December 21, 2011.

Our board of directors approved an executive employment
agreement with George T. Stapleton, II, whereby we have agreed to employ Mr.
Stapleton as our Chief Executive Officer as of January 1, 2007. Pursuant to the
agreement, Mr. Stapleton will receive an annual salary of US$240,000 and
performance bonuses as may be determined by our board. As part of the agreement,
we paid Mr. Stapleton a signing bonus in the amount of US$300,000. Mr. Stapleton
will be entitled to coverage under Directors and Officers Liability Insurance
and Errors and Omission Insurance (with a minimum cover of at least $2,000,000
per occurrence), all at our company's expense. If Mr. Stapleton's employment is
terminated for just cause or by Mr. Stapleton without constructive dismissal, we
will pay to Mr. Stapleton the amount of his unpaid annual salary to and
including the date of termination, any declared but unpaid bonus and all
outstanding vacation pay and expense reimbursements. If Mr. Stapleton's
employment is terminated by our company without just cause or by Mr. Stapleton
for constructive dismissal, then in addition to the foregoing amounts, Mr.
Stapleton will receive a severance payment in the amount of one year's annual
salary plus $10,000 less applicable withholdings and deductions, in respect of
lost benefits and notwithstanding any provisions of our company's stock plan,
all stock options held by Mr. Stapleton will automatically vest. Additionally,
in the event of a change of control of our company, we and/or Mr. Stapleton may
terminate Mr. Stapleton's employment with our company, on which event, we will
pay to Mr. Stapleton the termination payments set out above. As part of the
agreement Mr. Stapleton was granted 1,000,000 Common Share

---

- 28 -

options with an exercise price of US$0.50 per Common Share that
expire January 5, 2011 and 500,000 Common Share options with an exercise price
of US$0.10 per Common Share which were exercised on March 23, 2007.

Our board of directors approved an executive employment agreement
  with George Orr, whereby we have agreed to employ Mr. Orr as our Chief Financial
  Officer as of January 2, 2007. Pursuant to the agreement, Mr. Orr will receive
  an annual salary of $138,000 and bonuses as may be determined by our board.
  Mr. Orr will be entitled to coverage under Directors and Officers Liability
  Insurance and Errors and Omission Insurance (with a minimum cover of at least
  $2,000,000 per occurrence), all at our company's expense. If Mr. Orr's employment
  is terminated for just cause or by Mr. Orr without constructive dismissal, we
  will pay to Mr. Orr the amount of his unpaid annual salary to and including
  the date of termination, any declared but unpaid bonus and expense reimbursements.
  If Mr. Orr's employment is terminated by our company without just cause or by
  Mr. Orr for constructive dismissal, then in addition to the foregoing amounts,
  Mr. Orr will receive a severance payment in the amount of one year's annual
  salary plus $10,000 less applicable withholdings and deductions, in respect
  of lost benefits and notwithstanding any provisions of our company's stock plan,
  all stock options held by Mr. Orr will automatically vest. Additionally, in
  the event of a change of control of our company, we and/or Mr. Orr may terminate
  Mr. Orr's employment with our company, on which event, we will pay to Mr. Orr
  the termination payments set out above. As part of the agreement Mr. Orr was
  granted 1,000,000 Common Share options with an exercise price of US$0.50 per
  Common Share that expire January 5, 2011. As part of Mr. Orr's role as a director,
  our company granted 500,000 Common Share options with an exercise price of US$0.10
  per Common Share that expire December 21, 2011.

*C.*      
*Board Practices*

Our directors are re-elected and our officers are re-appointed
at the annual general meeting of our shareholders. Our last annual general
meeting was held on October 20, 2006. Messrs. Orr, Stapleton and Thornton were
appointed as directors and officers of our company on December 21, 2006 upon the
resignations of Terry Amisano and Kevin Hanson. Dr. Gail Bloomer and Brian J.
Evans were appointed as directors of our company at our special general meeting
held on February 19, 2007. Each of our current directors and officers will
continue to hold his respective office until his successor is elected or
appointed, unless his office is earlier vacated under any of the relevant
provisions of our articles or of the Business Corporations Act(British
Columbia).

Other than an executive employment agreements entered into with
R. William Thornton, George T. Stapleton, II, and George Orr, there are no
service contracts between our company and any of our directors providing for
benefits upon termination of employment.

The members of our company's audit committee are Brian Evans,
George Orr and Brad Kitchen. George Orr is our Chief Financial Officer and
Treasurer and is therefore not considered to be an independent member of the
audit committee. Brad Kitchen and Brian Evans are considered to be independent
members.

The members of our company's corporate governance and
compensation committee are Brian Evans, George Orr, R. William Thornton and
George T. Stapleton, II.

We do not have an executive or reserves committee of our board
of directors.

*D.*      
*Employees*

As at August 8, 2007, we employed 28.5full-time
equivalent people. During the fiscal years ended April 30, 2006 and 2005, we did
not have any employees other than our then President/Chief Executive Officer and
Chief Financial Officer.

*E.*       *Share Ownership*

Our authorized share structure consists of an unlimited number
of common shares without par value and 100,000,000 preferred shares without par
value.

---

- 29 -

The following table identifies the number of our company's
outstanding shares as at August 8, 2007 and the number of common shares that
could be issued if all of our dilutive securities were converted into shares.

August 8, 2007Common shares outstanding
    72,561,050Common shares in escrow
    4,750,000(1)Exchange shares
    9,500,000(2)Stock options
    10,159,000(3)Private placement share purchase warrants
    18,627,623(4)Incentive warrants
    19,500,000(5)Consulting warrants
    6,000,000(6)Unit rights
    832,500(7)Convertible promissory notes
    6,800,000(8)Total
    148,730,173


| | Notes:
| | ------
| | (1)   
| | (2)   
| | (3)   
| | (4)   
| | (5)   
| | (6)   
| | (7)   
| | (8)   

---

- 30 -

Of the above securities, our directors and senior officers owned
  the following common shares as of August 8, 2007:

Name Office Held
      Common Shares
      Options and Dilutive Securities
        Exercisable for Common Shares(2)Number
        Beneficially Owned
      Percentage
        of Class
      Number
        Beneficially Owned (Unexercised)
      Exercise
        Price
      Expiry
        DateGeorge T. Stapleton, II 
        President and Chief 
        Executive Officer 
        Director
      1,772,983(1)
      2.4%
      1,000,000
      US$0.50
      January 5, 20114,500,000(1)
      -
      -753,350(1)
      -
      -George Orr 
        Chief Financial Officer, 
        Treasurer and Director
      -
      -
      1,000,000
      US$0.50
      January 5, 2011500,000
      US$0.10
      December 21, 2011R. William Thornton 
        Chief Operating Officer 
        and Director
      2,600,000
      3.4%
      1,000,000
      US$0.50
      January 5, 2011500,000
      US$0.10
      December 21, 20111,800,000(3)
      US$0.10
      December 21, 2007(3)Brad Kitchen 
        Director
      140,465
      *%
      250,000
      US$1.00
      March 7, 2012250,000
      US$0.10
      December 21, 2011Brian J. Evans 
        Director
      10,000
      *%
      500,000
      US$1.00
      February 20, 2012Dr. Gail Bloomer 
        Director
      -
      -
      500,000
      US$0.50
      January 15, 20129,000,000(4)
      US$0.10
      October 2, 2007


| | Notes:
| | ------
| | *     
| | (1)   
| | (2)   
| | (3)   
| | (4)   

We adopted a formal written stock option plan for Canadian
resident directors, senior officers, employees and consultants on August 24,
2004. The purpose of the plan is to provide us with a share-related mechanism to
attract, retain and motivate qualified directors, officers, consultants and
employees, to reward those persons from time to time for their contributions
toward the long-term goals of our company, and to enable and encourage such
directors,

---

- 31 -

officers, consultants and employees to acquire our common
shares as long-term investments. The plan provides that stock options granted
under the plan vest in the manner determined by the administrator appointed
under the plan on the date of the grant. The price at which a stock option may
be exercised is determined by our board of directors at the time of the grant.
The plan also provides that we may not grant stock options to any person or that
person's associates that will in aggregate, when exercised, exceed in any 12
month period 5 percent of our issued and outstanding common shares.

As of February 19, 2007, our Canadian stock option plan was
amended and restated as follows: (a) to provide that the total number of common
shares that may be issued upon the exercise of stock options issued under the
plan plus the total number of common shares that may be issued upon the exercise
of stock options issued under a stock option plan, dated January 5, 2007, for
United States based employees cannot exceed 20 percent of the total number of
common shares issued and outstanding from time to time; (b) to set out the
circumstances under which the number and class of shares issuable upon the
exercise of a stock option will be adjusted; (c) to allow for the immediate
vesting of all unexpired and unvested stock options in the event of a change of
control of our company and for the acceleration of the vesting of stock options
at the discretion of the administrator appointed under the plan; (d) to set out
how the exercise price of a stock option may be paid and specifically to provide
for a (cashless) net exercise option; (e) to provide that our company's
obligation to issue shares upon the exercise of a stock option is dependant upon
certain factors, including the compliance of the shares with any applicable
laws; (f) to provide an option holder is responsible for the payment of any
withholding taxes in respect of the exercise of a stock option; (g) to set out
the discretion of our board of directors in respect of various matters
concerning the interpretation of the plan and the granting and exercise of stock
options and, specifically, the discretion to extend the expiry date of the stock
options and to determine the price per share at which a stock option may be
exercised; and (h) to correct minor typographical and grammatical errors and
inconsistencies in the text of the plan.

As of January 5, 2007, our board of directors adopted a stock
option plan for U.S. resident directors, senior officers, employees and
consultants. The material terms of the plan are: (a) the number of common shares
reserved for issuance under the plan is 20 percent of the issued and outstanding
common shares from time to time less the number of stock options granted under
our Canadian stock option plan; (b) the plan is to be administered by our board
of directors, except that the board of directors may, in its discretion,
establish a committee composed of two or more members of the board or two or
more other persons to administer the plan; (c) incentive stock options (stock
options which qualify under Section 422 of the Internal Revenue Code of
1986 (United States) may be granted to any individual who, at the time the
option is granted, is resident in the U.S. and who is an employee of our company
or any related corporation.; (d) non-qualified stock options (stock options that
do not qualify under Section 422 of the Internal Revenue Code of 1986)
may be granted to employees and to such other persons who are not employees as
the plan administrator shall select, subject to any applicable laws; (f) the
plan provides that, generally, the number of shares subject to each stock
option, the exercise price, the expiry time, the extent to which such stock
option is exercisable and other terms and conditions relating to such stock
options will be determined by the board of directors of our company or any
committee to which such authority is delegated by the board from time to time;
(g) the term of the stock options granted under the plan will not exceed ten
years from the date of grant, provided that the term of the stock options will
be reduced upon the death of an option holder or if an option holder ceases to
be employed by or hold office with our company; (h) the vesting of stock options
granted under the plan will be in 25 percent increments, beginning one year from
the date of the grant, provided that the plan allows for the immediate vesting
of all unexpired and unvested stock options in the event of a change of control
of our company and for the acceleration of the vesting of stock options at the
discretion of the administrator appointed under the plan; (i) the exercise price
of the stock options will be determined by the plan administrator in compliance
with applicable laws, including the rules of an applicable stock exchange or
national market system; and (j) the plan will terminate when all of the stock
options, available for grant thereunder, have been granted or when the plan is
otherwise terminated by our company (provided that any stock options outstanding
when the plan is terminated will remain in effect until they are exercised or
expire).

---

- 32 -

ITEM
7.               
Major Shareholders and Related Party Transactions

*A.*      
*Major Shareholders*

As of August 8, 2007, there were 72,561,050 common shares of
our company issued and outstanding, excluding 4,750,000 common shares held in
trust pursuant to an escrow agreement (see "Item 4.A  History and Development
of MegaWest Energy Corp." above). The following table sets out persons known to
us to be the beneficial owner of more than five (5 percent) of our common shares
as of August 8, 2007:

Shareholder
      Amount Owned
      Percentage of Class(1)FireBird Global Master Fund II LTD & LTD
    4,360,000
    6.0%Gundyco I/T/F Pinetree Resource Partnership
    4,150,000
    5.7%Cushing MLP Opportunity Fund I LP
    4,000,000
    5.5%


| | Notes:
| | ------
| | (1)   

The voting rights of our major shareholders do not differ from
the voting rights of shareholders who are not major shareholders.

Other than as disclosed herein, there has been no significant
change in the percentage ownership of any of our major shareholders during the
fiscal years ended April 30, 2007, 2006 and 2005. During the fiscal year ended
April 30, 2007, we issued 70,848,550 common shares.

Our major shareholders as at April 30, 2006 were Terry Amisano,
Kevin Hanson, Alan Crawford and Gregory Burnett, who held 500,000, 500,000,
250,000 and 250,000 of our issued and outstanding common shares, respectively.
As of August 8, 2007, each of these respective individuals beneficially own less
than 1 percent of our issued and outstanding common shares, respectively,and ceased to be major shareholders.

As of August 7, 2007, Pacific Corporate Trust Company, our
registrar and transfer agent, reported that of our company's 77,311,050 issued
and outstanding common shares (including 4,750,000 held in escrow), 44,556,758
common shares were registered to Canadian residents (374 shareholders),
23,013,440 common shares were registered to residents of the US (75
shareholders) and 9,740,852 common shares were registered to residents of
countries other than Canada or the US (20 shareholders).

To the best of our knowledge, we are not directly or indirectly
owned or controlled by another corporation, by any foreign government or by any
other natural or legal person.

There are no arrangements known to us, the operation of which
may at a subsequent date result in a change in the control of our company.

*B.*       *Related
  Party Transactions*

Other than as disclosed herein, to the best of our knowledge,
there have been no material transactions or loans from May 1, 2006 to August 8,
2007 between our company and: (a) enterprises that directly or indirectly
through one or more intermediaries, control or are controlled by, or are under
common control with, our company; (b) associates; (c) individuals owning,
directly or indirectly, an interest in the voting power of our company that
gives them significant influence over our company, and close members of any such
individual's family; (d) key management personnel of our company, including
directors and senior management of our company and close members of such
individuals' families; and (e) enterprises in which a substantial interest in
the voting power is owned, directly or indirectly, by any person described in
(c) or (d) or over which such a person is able to exercise significant
influence.

---

- 33 -

We entered into the following related party transactions during
the year ended April 30, 2007. These transactions were measured by the exchange
amount, which is the amount agreed upon by the transacting parties.

|1. | During the nine months ended January 31, 2007, we incurred
        $87,608 (2006 - $26,797; 2005 - $23,926) in general and administrative
        costs to entities controlled by former directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2. | We incurred $5,463 in consulting fees to Dr. Gail Bloomer
        a Director of our company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3. | Our Chief Financial Officer, George Orr, is affiliated
        with a company that assisted us in completing the share issue private
        placements and that provides us with ongoing investor relations services.
        For the year ended April 30, 2007 we paid $75,000 for these services.                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4. | At April 30, 2006, accounts payable and accrued liabilities includes $34,078
      (2005 - $17,340) to a partnership controlled by two directors of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|5. | During the year ended April 30, 2005, former directors and officers were
      issued 1,250,000 shares at $0.001 per share pursuant to a private placement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|6. | As described in "Item 6.B.  Compensation" above,
        10,000,000 assignable warrants (exercisable for common shares at US$0.10
        per share for a period of six months from vesting date) were granted to
        Endurance Energy Consulting Ltd., a private company controlled by that
        R. William Thornton (a director and our Chief Operating Officer), and
        9,000,000 assignable warrants (exercisable for common shares at US$0.10
        per share for a period of six months from vesting date) were granted to
        Gladrock Energy LLC, a private company that is controlled by Dr. Gail
        Bloomer, which vested when the Kentucky Reserves acquisition closed.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|7. | Pursuant a form of debt settlement and subscription
        agreement dated December 21, 2006, entered into with each of Karkrash
        Holdings Ltd., Carob Management Ltd. (a private company controlled by
        Gregory Burnett, a former director of our company), Brian Hanson, Roy
        Brown and Amisano Hanson, Chartered Accountants, we issued 600,000 common
        shares to the said subscribers in settlement of $167,500 of debt.                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|8. | The acquisitions of the assets of Deerfield Kansas,
        Deerfield Missouri and Trinity (as described in "Item 4.A.  History
        and Development of MegaWest Energy Corp." above) are considered related
        party transactions, since at the respective acquisition dates, George
        T. Stapleton, II (a director and the President and Chief Executive Officer
        of our company) was also the president and unitholder of Trinity (47.37
        percent of issued and outstanding units) and Deerfield Missouri (15.86
        percent of the issued and outstanding units), the parent company of Deerfield
        Kansas.                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | As a result, George T. Stapleton, II, or a private company
        controlled by him, received i) 39,650 of the common shares issued for
        the assets of Deerfield Kansas, ii) US$204,300 cash from Deerfield Missouri,
        including a change of control fee, and is entitled to receive, pending
        escrow release, an additional US$47,580 and 753,350 common shares and
        iii) 45,000 class B exchange shares of our subsidiary, MegaWest USA convertible
        into 4,500,000 common shares and US$94,737 cash of the consideration issued
        to Trinity.                                                                                                                

ITEM
8.               
Financial Information

Financial Statements filed as part of this Annual Report

Consolidated Financial Statements of MegaWest Energy Corp.

|- | Report
      of Independent Registered Public Accounting Firm dated July 25, 2007,
      together with Comments byAuditor
      for U.S. Readers in Canada  U.S. Reporting Conflict
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                     
|- | Consolidated
      Balance Sheets at April 30, 2007 and 2006                                                                                                                        
|  |                                                                                                                                                                                     
|- | Consolidated
      Statements of Operations and Deficit for the years ended April 30, 2007,
      2006 and 2005                                                                     
|  |                                                                                                                                                                                     
|- | Consolidated
      Statements of Cash Flows for the years ended April 30, 2007, 2006 and 2005                                                                                       

---

- 34 -

|- | Consolidated
      Statement of Shareholder's Equity (Deficiency in Assets) for the years
      ended April 30, 2007, 2006 and 2005
|- | -----------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                    
|- | Notes to
      Consolidated Financial Statements April 30, 2007                                                                    

Financial Statements of MegaWest Energy Corp. (formerly Brockton
  Capital Corp.)

|- | Auditors Report dated August 25, 2006, together with Comments
      by Auditor for U.S. Readers in Canada  U.S. Reporting Difference                               
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                     
|- | Balance Sheets at April 30, 2006 and 2005                                                                                                                           
|  |                                                                                                                                                                     
|- | Statements of Operations for the years ended April 30, 2006,
      2005 and 2004 and for the period February 8, 2000 (Date of Incorporation)
      to April 30, 2006
|  |                                                                                                                                                                     
|- | Statements of Cash Flows for the years ended April 30,
      2006, 2005 and 2004 and for the period February 8, 2000 (Date of Incorporation)
      to April 30, 2006
|  |                                                                                                                                                                     
|- | Statement of Shareholder's Equity (Deficiency) for the
      period February 8, 2000 (Date of Incorporation) to April 30, 2006                                      
|  |                                                                                                                                                                     
|- | Notes to the Financial Statements April 30, 2006, 2005 and
      2004                                                                                               

The financial statements can be found under "Item 18 -
Financial Statements" below.

Significant Changes

Other than as disclosed herein, no significant change has
occurred in our financial statements since the fiscal year ended April 30, 2007.

Legal Proceedings

There are no pending legal proceedings to which we are a party
or of which any of our property is the subject. There are no legal proceedings
to which any director, officer or affiliate of our company or any associate of
any such director, officer or affiliate of our company is a party or has a
material interest adverse to us.

Dividend Distributions

Holders of our common shares are entitled to receive such
dividends as may be declared from time to time by our board, in its discretion,
out of funds legally available for that purpose. We intend to retain future
earnings, if any, for use in the operation and expansion of our business and do
not intend to pay any cash dividends in the foreseeable future.

ITEM
9.               
The Offer and Listing

*A.*       *Offer and Listing Details*

Our common shares are traded on the OTC Bulletin Board under
the symbol "MGWSF". Our common shares were listed on the Canadian Venture
Exchange (now the TSX Venture Exchange) from August 27, 2001 to June 16, 2004.
On March 28, 2005, our common shares were listed for trading on the OTC Bulletin
Board under the symbol "BCKOF". Effective March 6, 2007, our trading symbol was
changed to "MGWSF".

---

- 35 -

The annual high and low market prices for our common shares for
  the five most recent full fiscal years are as follows:

Year Ended
      TSX Venture Exchange
      OTC Bulletin BoardHigh
      Low
      High
      LowApril 30, 2007
      N/A
      N/A
      US$2.75
      US$0.50April 30, 2006
      N/A
      N/A
      US$1.01
      US$0.30April 30, 2005
      N/A
      N/A
      No trades
      No tradesApril 30, 2004
      $0.65
      $0.25
      N/A
      N/AApril 30, 2003
      $0.50
      $0.25
      N/A
      N/A


The high and low market prices for our common shares for each
full financial quarter for the two most recent full fiscal years on the OTC
Bulletin Board were as follows:

Quarter Ended
      OTC Bulletin BoardHigh
      LowApril 30, 2007
      US$2.75
      US$1.80January 31, 2007
      US$0.52
      US$1.90October 31, 2006
      US$0.61
      US$0.52July 31, 2006
      US$0.60
      US$0.50April 30, 2006
      US$0.80
      US$0.40January 1, 2006
      US$0.51
      US$0.40October 31, 2005
      US$0.40
      US$0.35July 31, 2005
      US$1.01
      US$0.30


The high and low market prices of our common shares for each of
the most recent six months, from February, 2007 through July, 2007, on the OTC
Bulletin Board were as follows:

Month Ended
      OTC Bulletin BoardHigh
      LowJuly 31, 2007
      US$2.75
      US$1.99June 30, 2007
      US$2.60
      US$1.90May 31, 2007
      US$2.05
      US$1.80April 30, 2007
      US$2.40
      US$1.95March 31, 2007
      US$2.75
      US$2.00February 28, 2007
      US$1.80
      US$2.20


*B.*      
*Plan of Distribution*

Not applicable.

---

- 36 -

*C.*      
*Markets*

Our common shares are quoted on the OTC Bulletin Board under
the symbol "MGWSF".

*D.*      
*Selling Shareholders*

Not applicable.

*E.*      
*Dilution*

Not applicable.

*F.*      
*Expenses of the Issue*

Not applicable.

ITEM
10.              
Additional Information

*A.*      
*Share Capital*

Not applicable.

*B.*      
*Memorandum and Articles of Association*

We are incorporated under the laws of the Province of British
Columbia, Canada and have been assigned incorporation number BC0600967.

Our articles do not contain a description of our objects and
purposes.

Our articles do not restrict a director's power to vote on a
proposal, arrangement or contract in which the director is materially
interested, vote compensation to themselves or any other members of their body
in the absence of an independent quorum or exercise borrowing powers. Our
articles do not restrict the directors' power, in the absence of an independent
quorum, to vote compensation to themselves or any members of their body. Our
articles do not provide for borrowing powers exercisable by directors. Our
articles do not set out a mandatory retirement age for our directors and our
directors are not required to own securities of our company in order to serve as
directors.

Our authorized capital consists of an unlimited number of
common shares without par value and 100,000,000 preference shares without par
value. Our preference shares may be issued in one or more series and our
directors may fix the number of shares which is to comprise each series and the
designation, rights, privileges, restrictions and conditions attaching to each
series.

Holders of our common shares are entitled to vote at all
meetings of shareholders, except meetings at which only holders of a specified
class of shares are entitled to vote, receive any dividend declared by our
company's board of directors and, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares, receive the
remaining property of our company upon dissolution.

At each annual general meeting of our company, all of our
directors retire and the shareholders elect a new board of directors. Each
director holds office until our next annual general meeting, or until his office
is earlier vacated in accordance with our articles or with the provisions of the
Business Corporations Act. A director appointed or elected to fill a
vacancy on our board also holds office until our next annual general
meeting.

---

- 37 -

Our articles provide that our annual meetings of shareholders
must be held at such time in each calendar year and not more than 15 months
after the last annual general meeting and at such place as our board of
directors may from time to time determine.

Under our articles, and subject to the special rights and
restrictions attached to the shares of any class or series of shares, the quorum
for the transaction of business at a meeting of our shareholders is two persons
who are, or who represent by proxy, shareholders who, in the aggregate, hold at
least 5 percent of the issued shares entitled to be voted at the meeting.

Our articles state that our directors, the president, the
secretary, and any lawyer or auditor of our company are entitled to attend any
meeting of our shareholders.

Except as provided in the Investment Canada Act, there
are no limitations specific to the rights of non-Canadians to hold or vote our
common shares under the laws of Canada or British Columbia, or in our charter
documents.

There are no provisions in our articles that would have the
effect of delaying, deferring or preventing a change in control of our company,
and that would operate only with respect to a merger, acquisition or corporate
restructuring involving our company.

Our articles do not contain any provisions governing the
ownership threshold above which shareholder ownership must be disclosed.
Securities legislation in Canada, however, requires that we disclose in our
annual general meeting proxy statement, holders who beneficially own more than
10 percent of our issued and outstanding shares, and United States Federal
securities laws require the disclosure in our annual report on Form 20-F of
holders who own more than five percent of our issued and outstanding shares.

*C.*      
*Material Contracts*

The following summary of certain material provisions of the
agreements referenced below is not complete and these provisions are qualified
in their entirety by reference to the full text of such agreements.

In July 2007, we entered into an executive employment agreement
with George T. Stapleton, II, whereby we have agreed to employ Mr. Stapleton as
our Chief Executive Officer effective January 1, 2007. Pursuant to the
agreement, Mr. Stapleton will receive an annual salary of US$240,000. As part of
the agreement we paid Mr. Stapleton a signing bonus in the amount of US$300,000,
issued to Mr. Stapleton 1,000,000 fully vested stock options with an exercise
price of US$0.50 per common share exercisable until January 5, 2011 and issued
to Mr. Stapleton 500,000 fully vested stock options with an exercise price of
US$0.10 per common share which were exercised on March 23, 2007.

In July 2007, we entered into an executive employment agreement
with George Orr, whereby we have agreed to employ Mr. Orr as our Chief Financial
Officer effective January 2, 2007. Pursuant to the agreement, Mr. Orr will
receive an annual salary of $138,000. As part of the agreement we issued to Mr.
Orr 1,000,000 fully vested stock options with an exercise price of US$0.50 per
common share exercisable until January 5, 2011.

In April 2007,we entered into a membership unit
purchase agreement whereby we purchased (though our wholly-owned subsidiary,
MegaWest USA) all of the issued and outstanding membership units of Trinity
Sands Energy LLC in consideration for US$200,000 in cash and 95,000 exchange
shares of MegaWest USA and our release of Trinity of its obligations to us in
respect of a promissory note (previously assumed by us) in the amount of
US$1,200,000 granted by Trinity to Agosto Corporation Ltd. Each exchange share
may be exchanged for US$10 in cash or 100 common shares in our capital during
the period January 1, 2008 to July 31, 2008.

In April 2007, we entered into a membership unit purchase
agreement whereby we purchased (though MegaWest USA) all of the issued and
outstanding membership units of Kentucky Reserves, LLC in consideration for
US$3,000,000 in cash and 5,000,000 common shares in our capital.

---

- 38 -

In April 2007, we entered into a membership unit purchase
agreement whereby we purchased (though MegaWest USA) all of the issued and
outstanding membership units of Deerfield Energy LLC in consideration for
US$800,000 in cash and 4,750,000 common shares in our capital. In connection
with the purchase agreement, we entered into an escrow agreement whereby part of
the consideration of the Deerfield Energy LLC acquisition was placed into
escrow, to be released under certain conditions.

In March 2007, we entered into an asset purchase agreement
whereby we purchased (though MegaWest USA) all of the assets of Deerfield Energy
Kansas Corp. in consideration for 250,000 common shares in our capital and our
release of Deerfield Energy LLC (the parent of Deerfield Energy Kansas Corp.) of
its obligations to us in respect of a promissory note (previously assumed by us)
in the amount of US$500,000 granted by Deerfield Energy LLC to Agosto
Corporation Ltd. in the amount of US$500,000.

In February 2007, we entered into an agreement with a
consultant, Mercury Capital Inc., to provide advisory services to our company
whereby we have agreed to issue to the consultant up to 750,000 common shares.
At August 8, 2007, 500,000 of the shares were issued and the remainder are
issuable in 125,000 common share tranches on August 15, 2007 and November 15,
2007.

In respect of a private placement that was completed on March
1, 2007, we entered into a form of private placement subscription agreement with
various accredited investors whereby we issued 27,448,550 units, at a price of
US$1.00 per unit, for aggregate proceeds of $32,115,870, each of which units
consists of one common share and one-half of one common share purchase warrant,
with each whole warrant entitling the holder to purchase an additional common
share at an exercise price of US$1.30 for a period of one year.

In respect of a private placement that was completed on March
1, 2007, we entered into a rights agreement with an accredited investor whereby
we issued rights to buy 375,000 units at a price of US$1.00 per unit, of which
each unit consists of one common share and one-half of one common share purchase
warrant, with each whole warrant entitling the holder to purchase an additional
common share in our capital at an exercise price of US$1.30 for a period of one
year.

In respect of a private placement that was completed on January
5, 2007, we entered into a form of private placement subscription agreement with
various accredited investors whereby we issued 8,425,000 units, at a price of
US$0.50 per unit, for aggregate proceeds of $4,992,231, each of which units
consists of one common share and one-half of one common share purchase warrant,
with each whole warrant entitling the holder to purchase an additional common
share at an exercise price of US$1.00 for a period of one year.

In respect of a private placement that was completed on January
5, 2007, we entered into a rights agreement with an accredited investor whereby
we issued rights to buy 180,000 units at a price of US$0.50 per unit, of which
each unit consists of one common share and one-half of one common share purchase
warrant, with each whole warrant entitling the holder to purchase an additional
common share at an exercise price of US$1.00 for a period of one year.

Pursuant to a form of debt settlement and subscription agreement
  dated December 21, 2006, entered into with each of Karkrash Holdings Ltd., Carob
  Management Ltd., Brian Hanson, Roy Brown and Amisano Hanson, Chartered Accountants,
  we issued 600,000 common shares to the said subscribers in settlement of $167,500
  of debt.

Pursuant to a form of warrant issuance agreement dated December
20, 2006, we granted 19,500,000 warrants to three persons that entitle such
persons to purchase common shares of our company at a price of US$0.10 per share
upon the occurrence of certain conditions. The conditions include that the
warrants are exercisable if the holder thereof brings a project of merit (i.e. a
project with a potential economic value in the amount of at least US$1.00
multiplied by the total number of warrants issued to the holder) to the
directors of our company by December 21, 2007.

Pursuant to a letter of intent dated December 20, 2006, entered
into with Trinity Sands Energy LLC and its unitholders in respect of our
purchase of all of the issued and membership units of Trinity Sands Energy LLC,
we entered into an assumption and loan conversion agreement with a private
company, Agosto Corporation Ltd. dated

---

- 39 -

December 20, 2006, as amended, whereby we assumed the repayment
of a US$1,200,000 loan made by Agosto to Trinity Sands Energy LLC. In exchange
for the assumption of Agosto loan, we issued a convertible promissory note to
Agosto in the amount of US$1,200,000 with simple interest accruing at a rate of
6 percent per annum.

Pursuant to a letter of intent dated December 20, 2006, entered
into with Deerfield Energy LLC in respect of our acquisition of all of the
assets of Deerfield Energy LLC, we entered into an assumption and loan
conversion agreement with Agosto Corporation Ltd. dated December 20, 2006, as
amended, whereby we assumed the repayment of a US$500,000 loan made by Agosto to
Deerfield Energy LLC. In exchange for the assumption of Agosto loan, we issued a
convertible promissory note to Agosto in the amount of US$500,000 with simple
interest accruing at a rate of six percent per annum.

In respect of a private placement that was completed December
18, 2006, we entered into a form of private placement subscription agreement
with various accredited investors whereby we issued 23,500,000 common shares of
our company at US$0.10 per common shares for aggregate proceeds of $2,707,168.

Effective December 15, 2006, we entered into an executive
employment agreement with R. William Thornton, whereby we have agreed to employ
Mr. Thornton as our Chief Operating Officer as January 1, 2007. Pursuant to the
agreement, Mr. Thornton will receive an annual salary of $250,000. Upon
execution of the agreement we paid Mr. Thornton a signing bonus in the amount of
US$250,000, issued to Mr. Thornton 1,000,000 stock options with an exercise
price of US$0.50 per common share exercisable until January 5, 2011 and issued
to Mr. Thornton 500,000 stock options with an exercise price of US$0.10 per
common share exercisable until December 21, 2011.

*D.*      
*Exchange Controls*

There are no government laws, decrees or regulations in Canada
which restrict the export or import of capital or which affect the remittance of
dividends, interest or other payments to non-resident holders of our common
shares. Any remittances of dividends to United States residents and to other
non-residents are, however, subject to withholding tax. See "Item 10.E -
Taxation" below.

*E.*      
*Taxation*

Certain Canadian Federal Income Tax Consequences

We consider that the following general summary fairly describes
the principal Canadian federal income tax consequences applicable to a holder of
our common shares who is a resident of the United States, who is not, will not
be and will not be deemed to be a resident of Canada for purposes of the
Income Tax Act (Canada) and any applicable tax treaty and who does not
use or hold, and is not deemed to use or hold, his common shares in the capital
of our company in connection with carrying on a business in Canada (a
"non-resident holder").

This summary is based upon the current provisions of the
Income Tax Act (Canada), the regulations thereunder (the "Regulations"),
the current publicly announced administrative and assessing policies of the
Canada Customs and Revenue Agency and the Treaty. This summary also takes into
account the amendments to the Income Tax Act (Canada) and the Regulations
publicly announced by the Minister of Finance (Canada) prior to the date hereof
(the "Tax Proposals") and assumes that all such Tax Proposals will be enacted in
their present form. However, no assurances can be given that the Tax Proposals
will be enacted in the form proposed, or at all. This summary is not exhaustive
of all possible Canadian federal income tax consequences applicable to a holder
of our common shares and, except for the foregoing, this summary does not take
into account or anticipate any changes in law, whether by legislative,
administrative or judicial decision or action, nor does it take into account
provincial, territorial or foreign income tax legislation or considerations,
which may differ from the Canadian federal income tax consequences described
herein.

This summary is of a general nature only and is not intended
to be, and should not be construed to be, legal, business or tax advice to any
particular holder or prospective holder of our common shares, and no opinion

---

- 40 -

or representation with respect to the tax consequences to
any holder or prospective holder of our common shares is made. Accordingly,
holders and prospective holders of our common shares should consult their own
tax advisors with respect to the income tax consequences of purchasing, owning
and disposing of our common shares in their particular circumstances.

Dividends

We have not declared any dividends on our common shares for the
last five years and do not anticipate that we will do so in the foreseeable
future. The present policy of our company is to retain future earnings for use
in our operations and the expansion of our business.

Notwithstanding the aforementioned, we are unaware of any
dividend restrictions; have no specific procedure for the setting of the date of
dividend entitlement; but might expect to set a record date for share ownership
to determine entitlement; have no specific procedures for non-resident holders
to claim dividends, but might expect to mail their dividends in the same manner
as resident holders. We have not nominated any financial institutions to be the
potential paying agents for dividends in the United States.

Capital Gains

A non-resident holder is not subject to tax under the Income
Tax Act (Canada) in respect of a capital gain realized upon the disposition
of a common share of our company unless such share represents "taxable Canadian
property", as defined in the Income Tax Act (Canada), to the holder
thereof. Our common shares generally will be considered taxable Canadian
property to a non-resident holder if:

- the non-resident holder;
- persons with whom the non-resident holder did not deal at arm's length; or
- the non-resident holder and persons with whom such non-resident holder did
  not deal at arm's length,

owned, or had an interest in an option in respect of, not less
than 25 percent of the issued shares of any class of our capital shares at any
time during the 60 month period immediately preceding the disposition of such
shares. In the case of a non-resident holder to whom shares of our company
represent taxable Canadian property and who is resident in the United States, no
Canadian taxes will generally be payable on a capital gain realized on such
shares by reason of the Treaty unless the value of such shares is derived
principally from real property situated in Canada.

Certain United States Federal Income Tax Consequences

The following is a general discussion of certain possible
United States Federal foreign income tax matters under current law, generally
applicable to a U.S. Holder (as defined below) of our common shares who holds
such shares as capital assets. This discussion does not address all aspects of
United States Federal income tax matters and does not address consequences
peculiar to persons subject to special provisions of Federal income tax law,
such as those described below as excluded from the definition of a U.S. Holder.
In addition, this discussion does not cover any state, local or foreign tax
consequences. See "Certain Canadian Federal Income Tax Consequences" above.

The following discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service (IRS) rulings, published administrative positions of the IRS and
court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
In addition, this discussion does not consider the potential effects, both
adverse and beneficial, of any recently proposed legislation which, if enacted,
could be applied, possibly on a retroactive basis, at any time. No assurance can
be given that the IRS will agree with such statements and conclusions, or will
not take, or a court will not adopt, a position contrary to any position taken
herein.

---

- 41 -

The following discussion is for general information only and
is not intended to be, nor should it be construed to be, legal, business or tax
advice to any holder or prospective holder of our common shares, and no opinion
or representation with respect to the United States Federal income tax
consequences to any such holder or prospective holder is made. Accordingly,
holders and prospective holders of common shares should consult their own tax
advisors with respect to Federal, state, local, and foreign tax consequences of
purchasing, owning and disposing of our common shares.

U.S. Holders

As used herein, a "U.S. Holder" includes a holder of less than
10 percent of our common shares who is a citizen or resident of the United
States, a corporation created or organized in or under the laws of the United
States or of any political subdivision thereof, any entity which is taxable as a
corporation for U.S. tax purposes and any other person or entity whose ownership
of our common shares is effectively connected with the conduct of a trade or
business in the United States. A U.S. Holder does not include persons subject to
special provisions of Federal income tax law, such as tax-exempt organizations,
qualified retirement plans, financial institutions, insurance companies, real
estate investment trusts, regulated investment companies, broker-dealers,
non-resident alien individuals or foreign corporations whose ownership of our
common shares is not effectively connected with the conduct of a trade or
business in the United States and shareholders who acquired their shares through
the exercise of employee stock options or otherwise as compensation.

Distributions

The gross amount of a distribution paid to a U.S. Holder will
generally be taxable as dividend income to the U.S. Holder for U.S. federal
income tax purpose to the extent paid out of our current or accumulated earnings
and profits, as determined under U.S. federal income tax principles.
Distributions which are taxable dividends and which meet certain requirements
will be "unqualified dividend income" and taxed to U.S. Holders at a maximum
U.S. federal rate of 15 percent. Distributions in excess of our current and
accumulated earnings and profits will be treated first as a tax-free return of
capital to the extent the U.S. Holder's tax basis in the common shares and, to
the extent in excess of such tax basis, will be treated as a gain from a sale or
exchange of such shares.

Capital Gains

In general, upon a sale, exchange or other disposition of
common shares, a U.S. Holder will generally recognize a capital gain or loss for
U.S. federal income tax purposes in an amount equal to the difference between
the amount realized on the sale or other distribution and the U.S. Holder's
adjusted tax basis in such shares. Such gain or loss will be U.S. source gain or
loss and will be treated as a long-term capital gain or loss if the U.S.
Holder's holding period of the shares exceeds one year. If the U.S. Holder is an
individual, any capital gain will generally be subject to U.S. federal income
tax at preferential rates if specified minimum holding periods are met. The
deductibility of capital losses is subject to significant limitations.

Foreign Tax Credit

A U.S. Holder who pays (or has had withheld from distributions)
Canadian income tax with respect to the ownership of our common shares may be
entitled, at the option of the U.S. Holder, to either a deduction or a tax
credit for such foreign tax paid or withheld. Generally, it will be more
advantageous to claim a credit because a credit reduces United States Federal
income taxes on a dollar-for-dollar basis, while a deduction merely reduces the
taxpayer's income subject to tax. This election is made on a year-by-year basis
and generally applies to all foreign income taxes paid by (or withheld from) the
U.S. Holder during that year. There are significant and complex limitations
which apply to the tax credit, among which is an ownership period requirement
and the general limitation that the credit cannot exceed the proportionate share
of the U.S. Holder's United States income tax liability that the U.S. Holder's
foreign source income bears to his or its worldwide taxable income. In
determining the application of this limitation, the various items of income and
deduction must be classified into foreign and domestic sources.

Complex rules govern this classification process. There are
further limitations on the foreign tax credit for certain types of income such
as "passive income", "high withholding tax interest", "financial services
income", "shipping

---

- 42 -

income", and certain other classifications of income. The
availability of the foreign tax credit and the application of these complex
limitations on the tax credit are fact specific and holders and prospective
holders of our common shares should consult their own tax advisors regarding
their individual circumstances.

*F.*      
*Dividends and Paying Agents*

Not applicable.

*G.*      
*Statements by Experts*

Not applicable.

*H.*      
*Documents on Display*

Documents and agreements concerning our company referred to in
this annual report may be viewed by appointment during normal business hours at
our registered and records office at Suite 800 - 885 West Georgia Street,
Vancouver, British Columbia, Canada, V6C 3H1.

*I.*       
*Subsidiary Information*

As of the date of this annual report, we have the following
direct and indirectly owned subsidiaries incorporated in the United States:

Subsidiary
      Acquisition Date
      Ownership PercentageMegaWest Energy (USA) Corp.
    -(1)
    99%(2)MegaWest Energy Texas Corp. (formerly Trinity
      Sands Energy LLC)
    April 25, 2007
    100%MegaWest Energy Kentucky Corp. (formerly
      Kentucky Reserves, LLC)
    April 2, 2007
    100%MegaWest Energy Missouri Corp. (formerly
      Deerfield Energy LLC)
    April 5, 2007
    100%MegaWest Energy Kansas Corp. (formerly
      Deerfield Energy Kansas Corp.)
    April 5, 2007
    100%


| | Notes:
| | ------
| | (1)   
| | (2)   

ITEM
11.              
Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM
12.              
Description of Securities Other Than Equity Securities

Not applicable.

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- 43 -

PART II

ITEM
13.              
Defaults, Dividend Arrearages and Delinquencies

Not applicable.

ITEM
14.              
Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable.

ITEM
15.              
Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act
  of 1934, as of the end of the period covered by this annual report, being
  April 30, 2007, we have carried out an evaluation of the effectiveness of the
  design and operation of our company's disclosure controls and procedures. This
  evaluation was carried out under the supervision and with the participation
  of our company's management, including our Chief Executive Officer and our Chief
  Financial Officer. Based upon that evaluation, our Chief Executive Officer and
  our Chief Financial Officer concluded that our disclosure controls and procedures
  are effective as at the end of the period covered by this annual report. There
  have been no changes
  in our internal controls over financial reporting that occurred during our most
  recent fiscal quarter that have materially affected, or are reasonably likely
  to materially affect our internal controls over financial reporting.

Disclosure controls and procedures are controls and other procedures
  that are designed to ensure that information required to be disclosed in our
  reports filed or submitted under the Securities Exchange Act of 1934
  is recorded, processed, summarized and reported, within the time period specified
  in the SEC's rules and forms. Disclosure controls and procedures include, without
  limitation, controls and procedures designed to ensure that information required
  to be disclosed in our reports filed under the Securities Exchange Act of
  1934 is accumulated and communicated to management including ourofficer
  Chief Executive Officer and
  Chief Financial Officer as appropriate, to allow timely decisions regarding
  required disclosure.

ITEM
16.              
Reserved

ITEM
16A.            Audit
Committee Financial Expert

Our board has determined that we have one member of our audit
committee that qualifies as an "audit committee financial expert" as defined in
Item 401(e) of Regulation S-B. We believe that the members of our board of
directors, who are the same members of our audit committee, are collectively
capable of analyzing and evaluating our financial statements and understanding
internal controls and procedures for financial reporting.

Our board of directors has determined that Brad Kitchen and
Brian Evans qualify as "independent" members of our audit committee as that term
is defined in Rule 4350(d) of the Marketplace Rules of the National Association
of Securities Dealers (NASD). The remaining member of our audit committee is not
"independent" as defined in Rule 4350(d) of the Marketplace Rules of the NASD.
We believe that having an audit committee that consists entirely of independent
directors is not warranted in our circumstances given the early stages of our
development and the fact that we have not generated revenues to date.

ITEM
16B.             
Code of Ethics

We have not adopted a written code of ethics that meets the new
United States' Sarbanes-Oxley standards. We have not seen any need to adopt a
written code of ethics on the basis that our corporate culture effectively
deters wrongdoing and promotes honest and ethical conduct, full, fair and
accurate, timely, and understandable disclosure in reports and documents, the
compliance with applicable governmental laws, rules and regulations, the prompt
internal reporting.

---

- 44 -

ITEM
16C.             Principal
Accountant Fees and Services

Our board of directors appointed KPMG LLP as our principal
accountant to audit our financial statements for the fiscal year ended April 30,
2007. Our former principal accountant, Morgan & Company, Chartered
Accountants, voluntarily resigned and there were no disagreements between our
company and Morgan & Company, Chartered Accountants, on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures. The decision to appoint KPMG LLP as our new principal
accountant to audit our financial statements was made by our audit committee and
approved by our board of directors.

Audit Fees

The aggregate fees billed by KPMG LLP for professional services
rendered for the audit of our annual financial statements for the fiscal year
ended April 30, 2007 were $nil. The aggregate fees billed by our former
principal accountant, Morgan and Company, Chartered Accountants, for
professional services rendered for the audit of our annual financial statements
for the fiscal year ended April 30, 2006 were $4,200.

Audit Related Fees

The aggregate fees billed for assurance and related services by
KPMG LLP and Morgan and Company, Chartered Accountants, as applicable, relating
to the performance of the audit or review of our financial statements for the
fiscal years ended April 30, 2007 and 2006 which are not reported under the
heading "Audit Fees" above, were $nil and $nil, respectively.

Tax Fees

For the fiscal years ended April 30, 2007 and 2006, the
aggregate fees billed for tax compliance, tax advice and tax planning by KPMG
LLP and Morgan and Company, Chartered Accountants, as applicable, were $nil and
$nil, respectively.

All Other Fees

For the fiscal years ended April 30, 2007 and 2006, the
aggregate fees billed by KPMG LLP and Morgan and Company, Chartered Accountants,
as applicable, for products and services, other than the services set out above,
were $nil and $nil, respectively.

Audit Committee Pre-Approved Procedures

Our audit committee pre-approves all services provided by our
principal accountant. All of the services and fees described under the headings
"Audit Fees", "Audit Related Fees", "Tax Fees" and "All Other Fees" above were
reviewed and approved by the audit committee before the respective services were
rendered and none of such services were approved by the audit committee pursuant
to paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X.

ITEM
16D.             Exemption
from the Listing Standards for Audit Committees

Not Applicable.

ITEM
16E.             Purchases
of Equity Securities by our Company and Affiliated Purchasers

Not Applicable.

---

- 45 -

PART III

ITEM
17.              
Financial Statements

Refer to "Item 18  Financial Statements" below.

ITEM
18.              
Financial Statements

Financial Statements Filed as Part of this Annual Report

Consolidated Financial Statements of MegaWest Energy Corp.

|- | Report
      of Independent Registered Public Accounting Firm dated July 25, 2007,
      together with Comments by Auditor for U.S. Readers in Canada  U.S.
      Reporting Conflict
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                      
|- | Consolidated
      Balance Sheets at April 30, 2007 and 2006                                                                                                                         
|  |                                                                                                                                                                                      
|- | Consolidated
      Statements of Operations and Deficit for the years ended April 30, 2007,
      2006 and 2005                                                                      
|  |                                                                                                                                                                                      
|- | Consolidated
      Statements of Cash Flows for the years ended April 30, 2007, 2006 and 2005                                                                                        
|  |                                                                                                                                                                                      
|- | Consolidated
      Statement of Shareholder's Equity (Deficiency in Assets) for the years
      ended April 30, 2007, 2006 and 2005                                                  
|  |                                                                                                                                                                                      
|- | Notes
      to Consolidated Financial Statements April 30, 2007                                                                                                                      

Financial Statements of MegaWest Energy Corp. (formerly Brockton
  Capital Corp.)

|- | Auditors Report dated August 25, 2006, together with Comments
      by Auditor for U.S. Readers in Canada  U.S. Reporting Difference                               
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                     
|- | Balance
      Sheets at April 30, 2006 and 2005                                                                                                                     
|  |                                                                                                                                                                     
|- | Statements
      of Operations for the years ended April 30, 2006, 2005 and 2004 and for
      the period February 8, 2000 (Date of Incorporation) to April 30, 2006
|  |                                                                                                                                                                     
|- | Statements of Cash Flows for the years ended April 30,
      2006, 2005 and 2004 and for the period February 8, 2000 (Date of Incorporation)
      to April 30, 2006
|  |                                                                                                                                                                     
|- | Statement of Shareholder's Equity (Deficiency) for the
      period February 8, 2000 (Date of Incorporation) to April 30, 2006                                      
|  |                                                                                                                                                                     
|- | Notes to the Financial Statements April 30, 2006, 2005 and
      2004                                                                                               

---









(formerly Brockton Capital Corp.)

a Development Stage Company

Consolidated Financial Statements

April 30, 2007 and 2006

---

REPORT OF MANAGEMENT

To the Shareholders of MegaWest Energy Corp. (formerly
Brockton Capital Corp)

Management is responsible for the preparation of the financial
statements and for the consistency of all other financial and operating data
presented in this report. To prepare these financial statements, management
selects appropriate accounting policies and uses its judgment and best estimates
to report events and transactions as they occur. Management has determined such
amounts on a reasonable basis in order to ensure that the financial statements
are presented fairly, in all material respects.

Management maintains a system of internal controls to ensure,
on a reasonable and cost effective basis, that the Company's assets are
safeguarded and to facilitate the preparation of relevant, reliable and timely
financial information. Management has the responsibility for preparation and
fair presentation of the accompanying financial statements, including the
financial process that give rise to such consolidated financial statements. This
responsibility includes selecting appropriate accounting principles and making
objective judgments and estimates in accordance with Canadian generally accepted
accounting principle and providing a reconciliation to generally accepted
accounting principles in the United States.

It is the responsibility of the audit committee and the board
of directors to review the financial statements with management prior to their
approval of the financial statements for publication. In addition, the audit
committee meets regularly with management and the external auditor to review
accounting policies, financial reporting and internal controls. The audit
committee is comprised of three financially literate directors, of which two are
independent. The audit committee is responsible for the compensation of the
external auditor and pre-approves their retention for the appointment and any
such fees related to non-audit services.

External auditors have examined the financial statements. Their
report is attached to the consolidated financial statements that follow. The
audit committee has reviewed these statements with management and the auditors
and has reported to the board of directors, who have approved these financial
statements.

July 25, 2007



|/s/ George T.
      Stapleton, II |  | /s/
      George Orr       
|--------------------------------- |  | ---------------------------
|                                  |  |                            
|George T. Stapleton, II           |  | George Orr                 
|Chief Executive Officer,          |  | Chief Financial Officer and
|President                         |  | Director                   
|and Director                      |  |                            

---

REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTSTo the Board of Directors and Shareholders of MegaWest Energy
Corp. (formerly Brockton Capital Corp)

We have audited the accompanying consolidated balance sheets of
MegaWest Energy Corp. as of April 30, 2007 and the consolidated statements of
operations and deficit, shareholders' equity and cash flows for the year ended
April 30, 2007. 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.

We conducted our audit in accordance with Canadian generally
accepted auditing standards and 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 whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the company as of
April 30, 2007 and the result of its operations and cash flows for the year
ended April 30, 2007 in accordance with Canadian generally accepted accounting
principles.

Canadian generally accepted accounting principles vary in
certain significant respects from United States generally accepted accounting
principles. Information relating to the nature and effect of such differences is
presented in note 19 to the consolidated financial statements.

The financial statements as at April 30, 2006 and for the years
ended April 30, 2006 and 2005 were audited by another auditor who expressed an
opinion without reservation on those statements in their report dated August 25,
2006.

/s/ KPMG LLP

KPMG LLP Calgary, Canada July 25, 2007

---

COMMENTS BY INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS ON
CANADA  UNITED STATES OF AMERICA REPORTING DIFFERENCES

The standards of the Public Company Accounting Oversight Board
(United States) require the addition of an explanatory paragraph when the
financial statements are affected by conditions and events that cast substantial
doubt on the company's ability to continue as a going concern, such as those
described in note 1 to the consolidated financial statements. Although we
conducted our audits in accordance with both Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight
Board (United States), our reports to the board of directors and shareholders
dated July 25, 2007 is expressed in accordance with Canadian reporting standards
which do not permit a reference to such conditions and events in the auditors'
report when these are adequately disclosed in the financial statements.

/s/ KPMG LLP

KPMG LLP Calgary, Canada July 25, 2007

---

MegaWest Energy CorpConsolidated Balance Sheets
April 30

|(in Canadian
      dollars)                                             |   | 2007        |   |   | 2006     |  
|----------------------------------------------------------------------- | - | ----------- | - | - | -------- | -
|                                                                        |   |             |   |   |          |  
|Assets                                                                  |   |             |   |   |          |  
|Current assets                                                          |   |             |   |   |          |  
|Cash and
      cash equivalents                                         | $ | 29,328,951  |   | $ | 14,141   |  
|Accounts receivable and
      prepaid expenses                          |   | 125,590     |   |   | 7,298    |  
|Inventory (note 3)                                                      |   | -           |   |   | 1        |  
|                                                                        |   | 29,454,541  |   |   | 21,440   |  
|                                                                        |   |             |   |   |          |  
|Marketable securities (note 4)                                          |   | 1,851,960   |   |   | -        |  
|Restricted cash (note 5)                                                |   | 341,250     |   |   | -        |  
|Property, plant and equipment (note 6)                                  |   | 20,885,096  |   |   | -        |  
|Rights (note 3)                                                         |   | -           |   |   | 10,000   |  
|                                                                        | $ | 52,532,847  |   | $ | 31,440   |  
|                                                                        |   |             |   |   |          |  
|Liabilities and Shareholders' Equity (Deficiency in
      Assets)       |   |             |   |   |          |  
|Current liabilities                                                     |   |             |   |   |          |  
|Accounts payable and
      accrued liabilities                          | $ | 1,301,640   |   | $ | 120,862  |  
|Notes payable (note 7)                                                  |   | -           |   |   | 40,000   |  
|                                                                        |   | 1,301,640   |   |   | 160,862  |  
|                                                                        |   |             |   |   |          |  
|Exchange shares (note 8)                                                |   | 1,061,055   |   |   | -        |  
|Convertible promissory notes
      (note 7)                             |   | 1,867,387   |   |   | -        |  
|Asset retirement obligations (note 9)                                   |   | 154,244     |   |   | -        |  
|                                                                        |   |             |   |   |          |  
|Shareholders' Equity (Deficiency in Assets)                             |   |             |   |   |          |  
|Share capital                                                           |   | 41,168,088  |   |   | 207,342  |  
|Warrants                                                                |   | 3,729,000   |   |   | -        |  
|Equity portion of exchange
      shares (note 8)                        |   | 8,599,442   |   |   | -        |  
|Contributed surplus                                                     |   | 13,338,629  |   |   | 168,750  |  
|Equity portion of convertible
      promissory notes (note 7)           |   | 120,566     |   |   | -        |  
|Deficit                                                                 |   | (18,807,204 | ) |   | (505,514 | )
|                                                                        |   | 48,148,521  |   |   | (129,422 | )
|Future operations (note 1)                                              |   |             |   |   |          |  
|Commitments (notes 2 and 8) and contractual
      obligations (note 16) |   |             |   |   |          |  
|                                                                        | $ | 52,532,847  |   | $ | 31,440   |  

See accompanying notes to consolidated financial statements.

Approved by the Board:

|/s/ George T.
      Stapleton, II |  | /s/
      Brad Kitchen
|--------------------------------- |  | ----------------------
|George T. Stapleton II, Director  |  | Brad Kitchen, Director

---

MEGAWEST ENERGY CORPConsolidated Statements of
Operations and Deficit Years ended April 30

|(in Canadian
      dollars)           |   | 2007        |   |   | 2006     |   |   | 2005     |  
|------------------------------------- | - | ----------- | - | - | -------- | - | - | -------- | -
|                                      |   |             |   |   |          |   |   |          |  
|                                      |   |             |   |   |          |   |   |          |  
|                                      |   |             |   |   |          |   |   |          |  
|Interest income                       | $ | 263,125     |   | $ | -        |   | $ | 2,261    |  
|                                      |   |             |   |   |          |   |   |          |  
|Expenses                              |   |             |   |   |          |   |   |          |  
|General and administrative (note 18)  |   | 5,523,694   |   |   | 104,601  |   |   | 57,292   |  
|Foreign exchange loss                 |   | 1,548,840   |   |   | -        |   |   | -        |  
|Accretion on promissory notes         |   | 71,270      |   |   | -        |   |   | -        |  
|Depreciation and write-downs (note 3) |   | 12,373      |   |   | 118,344  |   |   | 6,000    |  
|                                      |   | 7,156,177   |   |   | 222,945  |   |   | 63,292   |  
|                                      |   |             |   |   |          |   |   |          |  
|Net loss for the year                 |   | (6,893,052  | ) |   | (222,945 | ) |   | (61,031  | )
|                                      |   |             |   |   |          |   |   |          |  
|Deficit, beginning of year            |   | (505,514    | ) |   | (282,569 | ) |   | (221,538 | )
|                                      |   |             |   |   |          |   |   |          |  
|Deficit adjustment on related party   |   |             |   |   | -        |   |   | -        |  
|acquisitions
      (note 2)           |   | (11,408,638 | ) |   |          |   |   |          |  
|                                      |   |             |   |   |          |   |   |          |  
|Deficit, end of year                  | $ | (18,807,204 | ) | $ | (505,514 | ) | $ | (282,569 | )
|                                      |   |             |   |   |          |   |   |          |  
|Net Loss per share (note 12)          |   |             |   |   |          |   |   |          |  
|Basic
      and diluted               | $ | (0.31       | ) | $ | (0.04    | ) | $ | (0.01    | )

See accompanying notes to consolidated financial statements.

---

MegaWestEnergyCorpConsolidated Statements of Shareholders' Equity (Deficiency in
Assets) Years ended April 30

|                                              |  | Share
      Capital |   |   |            |   |   |           |  |   |           |  |   |             |   |   |                   |  |   |             |  
|--------------------------------------------- |  | ------------------- | - | - | ---------- | - | - | --------- |  | - | --------- |  | - | ----------- | - | - | ----------------- |  | - | ----------- | -
|                                              |  |                     |   |   |            |   |   |           |  |   |           |  |   |             |   |   |                   |  |   |             |  
|                                              |  |                     |   |   |            |   |   |           |  |   | Exchange  |  |   | Contributed |   |   | Equity Portion of |  |   |             |  
|(in Canadian dollars)                         |  | Shares              |   |   | Amount     |   |   | Warrants  |  |   | Shares    |  |   | Surplus     |   |   | Convertible Debt  |  |   | Deficit     |  
|                                              |  |                     |   |   |            |   |   |           |  |   |           |  |   |             |   |   |                   |  |   |             |  
|Balance, April 30, 2004                       |  | 4,087,500           |   | $ | 371,592    |   | $ | -         |  | $ | -         |  | $ | -           |   | $ | -                 |  | $ | (221,538    | )
|Cancel escrow shares                          |  | (2,250,000          | ) |   | (168,750   | ) |   | -         |  |   |           |  |   | 168,750     |   |   | -                 |  |   | -           |  
|Private placement                             |  | 4,500,000           |   |   | 4,500      |   |   | -         |  |   | -         |  |   | -           |   |   | -                 |  |   | -           |  
|Net loss for the year                         |  | -                   |   |   | -          |   |   | -         |  |   | -         |  |   | -           |   |   | -                 |  |   | (61,031     | )
|Balance, April 30, 2005                       |  | 6,337,500           |   |   | 207,342    |   |   | -         |  |   | -         |  |   | 168,750     |   |   | -                 |  |   | (282,569    | )
|                                              |  |                     |   |   |            |   |   |           |  |   |           |  |   |             |   |   |                   |  |   |             |  
|Net loss for the year                         |  | -                   |   |   | -          |   |   | -         |  |   | -         |  |   | -           |   |   | -                 |  |   | (222,945    | )
|Balance, April 30, 2006                       |  | 6,337,500           |   |   | 207,342    |   |   | -         |  |   | -         |  |   | 168,750     |   |   | -                 |  |   | (505,514    | )
|                                              |  |                     |   |   |            |   |   |           |  |   |           |  |   |             |   |   |                   |  |   |             |  
|Shares issued on:                             |  |                     |   |   |            |   |   |           |  |   |           |  |   |             |   |   |                   |  |   |             |  
|Private placements (note 10(a)
      and (d)) |  | 59,373,550          |   |   | 34,203,821 |   |   | 3,729,000 |  |   | -         |  |   | 368,400     |   |   | -                 |  |   | -           |  
|Acquisitions (notes 2 and 8)                  |  | 5,250,000           |   |   | 6,062,825  |   |   | -         |  |   | 8,599,442 |  |   | -           |   |   | -                 |  |   | (11,408,638 | )
|Services (note 10(b))                         |  | 375,000             |   |   | 434,900    |   |   | -         |  |   | -         |  |   | -           |   |   | -                 |  |   | -           |  
|Debt settlement (note 10(c))                  |  | 600,000             |   |   | 165,700    |   |   | -         |  |   | -         |  |   | -           |   |   | -                 |  |   | -           |  
|Exercise of stock options (note
      11)     |  | 500,000             |   |   | 93,500     |   |   | -         |  |   | -         |  |   | (35,000     | ) |   | -                 |  |   | -           |  
|Stock based compensation (note 11)            |  | -                   |   |   | -          |   |   | -         |  |   | -         |  |   | 1,863,448   |   |   | -                 |  |   | -           |  
|Consulting warrants (note 10(d))              |  | -                   |   |   | -          |   |   | -         |  |   | -         |  |   | 1,600,800   |   |   | -                 |  |   | -           |  
|Incentive warrants (note 10(d))               |  | -                   |   |   | -          |   |   | -         |  |   | -         |  |   | 9,372,231   |   |   | -                 |  |   | -           |  
|Issue convertible promissory notes (note 7)   |  | -                   |   |   | -          |   |   | -         |  |   | -         |  |   | -           |   |   | 120,566           |  |   | -           |  
|Net loss for the year                         |  | -                   |   |   | -          |   |   | -         |  |   | -         |  |   | -           |   |   | -                 |  |   | (6,893,052  | )
|                                              |  |                     |   |   |            |   |   |           |  |   |           |  |   |             |   |   |                   |  |   |             |  
|Balance, April 30, 2007                       |  | 72,436,050          |   | $ | 41,168,088 |   | $ | 3,729,000 |  | $ | 8,599,442 |  | $ | 13,338,629  |   | $ | 120,566           |  | $ | (18,807,204 | )

See accompanying notes to consolidated financial statements.

---

MegaWest Energy CorpConsolidated Statements of Cash
Flows Years ended April 30

|(in Canadian
      dollars)                            |   | 2007       |   |   | 2006     |   |   | 2005    |  
|------------------------------------------------------ | - | ---------- | - | - | -------- | - | - | ------- | -
|                                                       |   |            |   |   |          |   |   |         |  
|Operating activities                                   |   |            |   |   |          |   |   |         |  
|Net loss for the year                                  | $ | (6,893,052 | ) | $ | (222,945 | ) | $ | (61,031 | )
|Items not
      involving cash                         |   |            |   |   |          |   |   |         |  
|Stock-based
      compensation (note 18)               |   | 3,899,148  |   |   | -        |   |   | -       |  
|Unrealized foreign exchange loss                       |   | 1,606,317  |   |   | -        |   |   | -       |  
|Accretion on
      promissory notes                    |   | 71,270     |   |   | -        |   |   | -       |  
|Depreciation and write-downs (note 3)                  |   | 12,373     |   |   | 118,344  |   |   | 6,000   |  
|Change in non-cash working capital                     |   | 879,786    |   |   | 72,877   |   |   | 5,838   |  
|                                                       |   | (424,158   | ) |   | (31,724  | ) |   | (49,193 | )
|Financing activities                                   |   |            |   |   |          |   |   |         |  
|Proceeds from
      private placements (note 10)       |   | 38,301,221 |   |   | -        |   |   | 4,500   |  
|Proceeds from stock option
      exercises             |   | 58,500     |   |   | -        |   |   | -       |  
|Notes payable (note 7)                                 |   | (40,000    | ) |   | 40,000   |   |   | -       |  
|                                                       |   | 38,319,721 |   |   | 40,000   |   |   | 4,500   |  
|Investing activities                                   |   |            |   |   |          |   |   |         |  
|Expenditures on capital assets                         |   | (836,875   | ) |   | -        |   |   | -       |  
|Acquisitions net
      of cash acquired (note 2):      |   |            |   |   |          |   |   |         |  
|Deerfield
      Kansas                                 |   | (6,438     | ) |   | -        |   |   | -       |  
|Kentucky Reserves                                      |   | (3,488,794 | ) |   | -        |   |   | -       |  
|Deerfield
      Missouri                               |   | (666,359   | ) |   | -        |   |   | -       |  
|Trinity Sands Energy                                   |   | (82,769    | ) |   | -        |   |   | -       |  
|Marketable securities (note 3)                         |   | (1,851,960 | ) |   | -        |   |   | -       |  
|Restricted cash
      (note 5)                         |   | (341,250   | ) |   | -        |   |   | -       |  
|Change in non-cash working capital                     |   | 341,792    |   |   | -        |   |   | -       |  
|                                                       |   | (6,932,653 | ) |   | -        |   |   | -       |  
|                                                       |   |            |   |   |          |   |   |         |  
|Change in cash and cash equivalents                    |   | 30,962,910 |   |   | 8,276    |   |   | (44,693 | )
|                                                       |   |            |   |   |          |   |   |         |  
|Exchange rate fluctuations on change
      in cash and |   |            |   |   |          |   |   |         |  
|cash equivalents                                       |   | (1,648,100 | ) |   | -        |   |   | -       |  
|                                                       |   |            |   |   |          |   |   |         |  
|Cash and
      cash equivalents, beginning of year     |   | 14,141     |   |   | 5,865    |   |   | 50,558  |  
|                                                       |   |            |   |   |          |   |   |         |  
|Cash and cash
      equivalents, end of year           | $ | 29,328,951 |   | $ | 14,141   |   | $ | 5,865   |  

See accompanying notes to consolidated financial statements.

---

- 54 -

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian
      dollars unless otherwise indicated)

|   | MegaWest Energy Corp ("MegaWest") was incorporated on
      February 8, 2000 in the name of Brockton Capital Corp. under the Company
      Act in the province of British Columbia, Canada. On February 27, 2007 the
      Company changed its name to MegaWest Energy Corp. The primary business
      activity of MegaWest and its subsidiaries (collectively the "Company") is
      the acquisition, exploration and development of oil and gas properties in
      North America.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Prior to December 2006, MegaWest was a technology company
      whose business plan was to acquire the rights to market, sell and
      distribute a product line of consumer electronic technology products in
      Canada.                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|1. | Significant Accounting
Policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| | (a) | Future Operations and Basis of Presentation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | These financial statements have been prepared on a going
      concern basis. The Company incurred a net loss of $6.9 million for the
      year ended April 30, 2007, as at April 30, 2007 had an accumulated deficit
      of $18.8 million and positive working capital of $28.2 million. The
      Company has a U.S. $15 million work commitment on its Kentucky property,
      which if not met by October 2009, will require the Company to pay a
      penalty of 37.5 percent on the unspent balance, which was U.S. $14.9
      million at April 30, 2007. The Company currently anticipates spending its
      existing funds in the upcoming fiscal year to acquire, explore and
      appraise new and existing oil and gas projects.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | The ultimate development of the Company's oil and gas
      projects, if proven commercial, will require additional funding. The
      Company's future operations are dependent upon its ability to obtain
      additional financing and ultimately achieve profitable operations. The
      outcome of these matters cannot be predicted with certainty at this time.
      These financial statements do not include any adjustments to the amounts
      and classification of assets and liabilities that may be necessary should
      the Company be unable to secure additional funding or obtain profitable
      operations.                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | These consolidated financial statements have been
      prepared using generally accepted accounting principles ("GAAP") in
      Canada. The impact of material differences between Canadian and U.S. GAAP
      on the consolidated financial statements is disclosed in note
19.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (b) | Principles of Consolidation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | These financial statements include the accounts of
      MegaWest and its subsidiaries from their respective acquisition dates
      (note 2). All intercompany balances and transactions have been
      eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                                                            |                  | Ownership 
| | -------------------------------------------------------------------------- | ---------------- | ----------
| | Subsidiary                                                                 | Acquisition Date | Percentage
| | MegaWest Energy Corp USA                                                   | (i)              | 99 %(i)   
| | MegaWest Energy Texas Corp (formerly Trinity Sands Energy
      LLC)       | April 25, 2007   | 100 %     
| | MegaWest Energy Kentucky Corp (formerly
      Kentucky Reserves LLC)       | April 2, 2007    | 100 %     
| | MegaWest Energy Missouri Corp (formerly Deerfield Energy
      LLC)        | April 5, 2007    | 100 %     
| | MegaWest Energy Kansas Corp (formerly
      Deerfield Energy Kansas Corp.) | April 5, 2007    | 100 %     

(i) incorporated January 9, 2007 (note
8)

| | (c) | Use of Estimates and Measurement Uncertainty:                                                                                                                                                                                                                                                 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                               
| |     | The preparation of financial statements in conformity
      with GAAP requires management to make estimates and assumptions that
      affect the reported amounts and other disclosures in these consolidated
      financial statements. Actual results may differ from those
    estimates.

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

| |     | In particular, the amounts recorded for the value of oil
      and gas assets are subject to a ceiling test. By their nature, these
      ceiling test estimates are subject to measurement uncertainty and the
      impact on the financial statements of future periods could be
    material.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (d) | Cash and Cash Equivalents:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Cash and cash equivalents consist of highly liquid
      investments with terms to maturity, at the date of issue, not exceeding 90
      days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (e) | Marketable Securities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Marketable securities are recorded at the lower of cost
      or market value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (f) | Oil and Gas Operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The Company follows the full cost method of accounting
      for oil and gas operations whereby all costs related to exploration and
      development of oil and gas reserves are capitalized. Such costs are
      capitalized on a country-by-country basis, which to date there is one cost
      centre, being the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | These capitalized costs will be depleted using the
      unit-of-production method based on estimated gross proved oil and gas
      reserves as determined by independent reservoir engineers. Oil and gas
      reserves and production will be converted into equivalent units based upon
      relative energy content.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Costs of acquiring and evaluating unproved properties are
      initially excluded from the depletion calculations. These unevaluated
      properties are assessed periodically to ascertain whether impairment has
      occurred. When proved reserves are assigned or the property is considered
      to be impaired, the cost of the property or the amount of impairment is
      added to the costs subject to depletion calculations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | In applying the full cost method, the Company calculates
      a ceiling test whereby the carrying value of oil and gas assets is
      compared quarterly to the sum of undiscounted future cash flows expected
      to result from proved reserves and the lower of cost and market of
      unproved properties. Cash flows are based on third party quoted forward
      prices, adjusted for transportation and quality differentials. Should the
      ceiling test result in an excess of carrying value, the Company would then
      measure the amount of impairment by comparing the carrying amounts of oil
      and gas assets to an amount equal to the estimated net present value of
      future cash flows from proved plus probable reserves and the market value
      of unproved properties. A risk free interest rate would be used to arrive
      at the net present value of future cash flows. The carrying value of oil
      and gas assets in excess of the discounted future cash flows would be
      recorded as a permanent impairment.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Proceeds from the sale of oil and gas assets are applied
      against capitalized costs, with no gain or loss recognized, unless a sale
      would alter the rate of depletion and depreciation by more than 20 per
      cent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Office furniture and equipment are stated at cost.
      Depreciation is provided on a declining balance method over the estimated
      useful lives of the respective assets, at rates ranging from 20  30
      percent per year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (g) | Asset Retirement Obligations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The Company recognizes a liability for the estimated fair
      value of site restoration and abandonment costs when the obligations are
      legally incurred and the fair value can be reasonably estimated. The fair
      value of the obligations is based on the estimated cash flow required to
      settle the obligations discounted using the Company's credit adjusted
      risk-free interest rate. The obligation is recorded as a liability with a
      corresponding increase in the carrying amount of the oil and gas assets.
      The capitalized amount will be depleted on a unit-of-production method.
      The liability is increased each period, or accretes, due to the passage of
      time and a corresponding amount is recorded in the statement of operations
      as an operating expense. Revisions to the estimated fair value would
      result in an adjustment to the liability and the capitalized amount in oil
      and gas assets.                                                                                       

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

| | (h) | Convertible Promissory Notes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Convertible promissory notes were recorded at the amount
      of proceeds received less the amount attributed to the conversion feature
      which is included as part of shareholders' equity. The liability component
      is accreted to the face value of the promissory note at maturity on an
      effective yield basis. The accretion is charged to the statement of
      operations as interest expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (i) | Foreign Currency Translation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company's subsidiaries are considered financially and
      operationally integrated. The Canadian dollar is the parent company's
      functional currency and the U.S. dollar is the functional currency of all
      subsidiaries. As a result, monetary assets and liabilities denominated in
      foreign currencies are translated to Canadian dollars at the exchange rate
      in effect at the balance sheet date and non-monetary assets and
      liabilities at the exchange rates in effect at the time of the
      transactions. Revenues and expenses are translated to Canadian dollars at
      rates approximating exchange rates in effect at the time of the
      transactions. Exchange gains and losses resulting from the period-end
      translation of monetary assets and liabilities denominated in foreign
      currencies are recorded in the statement of operations.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (j) | Oil and Gas Revenue:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | After an oil and gas project becomes commercial, sales of
      crude oil and natural gas will be recognized in the period in which the
      product is delivered to the customer. Oil and gas revenue represents the
      Company's share and is recorded net of royalty payments to governments and
      other mineral interest owners.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (k) | Stock-Based Compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company accounts for all stock options, consulting
      and incentive warrants granted using the fair value method. Under this
      method, compensation expense is measured at fair value on the grant date
      using the Black-Scholes option pricing model and recognized over the
      vesting period with a corresponding credit to contributed surplus.
      Compensation expense is adjusted for the estimated amount of forfeitures,
      awards forfeited due to a failure to satisfy the service requirement for
      vesting, in the period in which the stock options expire.                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Consideration received upon the exercise of stock options
      and warrants together with the amount of non-cash compensation expense
      recognized in contributed surplus is recorded as share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (l) | Income Taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company uses the asset and liability method of
      accounting for income taxes. Under this method, current income taxes are
      recognized for the estimated income taxes payable for the current year and
      future tax assets and liabilities are recognized for future tax
      consequences attributable to differences between the financial statement
      carrying value and tax basis of assets and liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Future tax assets and liabilities are measured using
      enacted or substantively enacted tax rates expected to apply to taxable
      income in the years in which these differences are expected to be
      recovered or settled. The effect on future tax assets and liabilities of a
      change in tax rates is recognized in income in the period that includes
      the date of enactment or substantive enactment. A valuation allowance is
      recorded against any future income tax asset if it is more likely than not
      that the asset will not be realized.                                                                                                                                                                                                                                                                                                                         

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

| | (m) | Per Share Amounts:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Basic per share amounts are computed by dividing the
      earnings or loss by the weighted average shares outstanding during the
      reporting period. Diluted amounts for options and warrants are computed
      using the treasury stock method. The treasury stock method assumes that
      proceeds received from the exercise of in-the-money stock and purchase
      warrants are used to repurchase shares at the average market price for the
      period. The difference between the number of shares that could have been
      purchased at market prices in the period and the number of in-the-money
      options and warrants is added to the weighted average shares outstanding.
      Dilutive amounts for convertible promissory notes are determined by adding
      the maximum number of shares that could be converted on the balance sheet
      date to the weighted average shares outstanding.                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (n) | Comparative Figures:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Certain comparative figures have been reclassified to
      conform to the current year's presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (o) | Impact of New Canadian GAAP Accounting
  Standards:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | In December 2006, the Canadian institute of Chartered
      Accountants ("CICA") approved Section 1535 "Capital Disclosure"
      ("S.1535"), Section 3862 "Financial Instruments  Disclosures" ("S.3862")
      and Section 3863 "Financial Instruments  Presentation" ("S.3863"). S.1535
      established standards for disclosing information about capital and how it
      is managed. The objective of S.3862 is to require entities to provide
      disclosures that enable users to evaluate both the significance of
      financial instruments for the entity's financial position and performance;
      and the nature and extent of risk arising from financial instruments to
      which the entity is exposed during the period and at the balance sheet
      date, and how the entity manages those risks. The purpose of S.3863 is to
      enhance financial statement users' understanding of the significance of
      financial instruments to an entity's financial position, performance and
      cash flows. These sections apply to interim and annual financial
      statements relation to fiscal years beginning on or after October 1, 2007.
      Management is in the process of reviewing the requirements of these recent
      sections.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | In July 2006, the CICA approved Section 1506 "Accounting
      Changes". The objective of this section is to prescribe the criteria for
      changing accounting policies, together with the accounting treatment and
      disclosure of change in accounting policies, changes in accounting
      estimates and correction of errors. This section is intended to enhance
      the relevance and reliability of an entity's financial statements and the
      comparability of those financial statements over time and with financial
      statements of other entities. This section applies to interim and annual
      financial statements relating to fiscal years beginning on or after
      January 1, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | In January 2005, the CICA approved Section 1530
      "Comprehensive Income" ("S.1530"), Section 3855 "Financial Instruments 
      Recognition and Measurements" ("S.3855") and Section 3865 "Hedges"
      ("S.3865") to harmonize financial instruments and hedge accounting with
      International Financial Reporting Standards and introduce the concept of
      comprehensive income. S.1530 requires presentation of certain gains and
      losses outside of net income, such as unrealized gains or losses related
      to hedges or other derivative instruments. S.3855 establishes standards
      for recognizing and measuring financial assets and financial liabilities
      and non-financial derivatives as required to be disclosed under Section
      3861 "Financial Instruments Disclosure and Presentation". S.3865
      establishes standards for how and when hedge accounting may be applied.
      These sections apply to interim and annual financial statements relating
      to fiscal years beginning on or after October 1, 2006. Management is in
      the process of reviewing the requirements of these recent
  sections.                                                                                                         

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

|2. | Acquisitions:                                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                             
|   | The Company completed the following acquisitions. The operations of each entity are included in the consolidated financial statements from the closing date.
|   |                                                                                                                                                             
|   | (a)                                                                                                                                                         
|   |                                                                                                                                                             
|   |                                                                                                                                                             
|   |                                                                                                                                                             
|   | (b)                                                                                                                                                         
|   |                                                                                                                                                             
|   |                                                                                                                                                             
|   |                                                                                                                                                             
|   |                                                                                                                                                             
|   |                                                                                                                                                             
|   | (c)                                                                                                                                                         
|   |                                                                                                                                                             
|   |                                                                                                                                                             
|   |                                                                                                                                                             
|   |                                                                                                                                                             
|   |                                                                                                                                                             
|   | (d)                                                                                                                                                         
|   |                                                                                                                                                             
|   |                                                                                                                                                             

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

The following table summarizes the
estimated net assets acquired and liabilities assumed and the consideration
given as of the date of each respective acquisition date.

Deerfield
    
    
    Kentucky
    
    
    DeerfieldKansas
    
    
    Reserves
    
    
    Missouri
    
    
    Trinity
    
    
    TotalsMarch 26,
    
    
      April 2,
    
    
      April 5,
    
    
    April 25,Closing Date
    
      2007
    
    
      2007
    
    
      2007
    
    
    2007Net Assets Acquired:Cash
    $
      -
    
    $
    3,521
    
    $
    75,330
    
    $
    166,750
    
    $
    245,601Oil and gas
      assets
    
      440,042
    
    
    18,633,054
    
    
    47,012
    
    
    930,014
    
    
    20,050,122Working capital
    
      (13,667
    )
    
    -
    
    
    7,058
    
    
    -
    
    
    (6,609
    )Asset retirement
      obligations
    
      (160,376
    )
    
    -
    
    
    -
    
    
    -
    
    
    (160,376
    )$
      265,999
    
    $
    18,636,575
    
    $
    129,400
    
    $
    1,096,764
    
    $
    20,128,738Consideration Given:SharesCommon shares
    
      250,000
    
    
    5,000,000
    
    
    -
    
    
    -
    
    
    5,250,000Exchange shares
    
      -
    
    
    -
    
    
    -
    
    
    95,000
    
    
    95,000Incentive warrants
    
      -
    
    
    9,000,000
    
    
    -
    
    
    -
    
    
    9,000,000Value of common
      shares
    $
      290,325
    
    $
    5,772,500
    
    $
    -
    
    $
    -
    
    $
    6,062,825Value of exchange shares
    
      -
    
    
    -
    
    
    -
    
    
    9,660,497
    
    
    9,660,497Value of
      incentive warrants
    
      -
    
    
    9,372,231
    
    
    -
    
    
    -
    
    
    9,372,231Cash
    
      -
    
    
    3,412,500
    
    
    579,050
    
    
    227,500
    
    
    4,219,050Note payable
      assumed
    
      591,250
    
    
    -
    
    
    -
    
    
    1,361,085
    
    
    1,952,335Expenses
    
      6,438
    
    
    79,344
    
    
    162,638
    
    
    22,018
    
    
    270,438888,013
    
    
    18,636,575
    
    
    741,688
    
    
    11,271,100
    
    
    31,537,376Deficit adjustment on related partyacquisitions (i)
    
      (622,014
    )
    
    -
    
    
    (612,288
    )
    
    (10,174,336
    )
    
    (11,408,638
    )$
      265,999
    
    $
    18,636,575
    
    $
    129,400
    
    $
    1,096,764
    
    $
    20,128,738Contingent Consideration:SharesNumber
    
      -
    
    
    -
    
    
    4,750,000
    
    
    -
    
    
    4,750,000Value
    $
      -
    
    $
    -
    
    $
    5,500,975
    
    $
    -
    
    $
    5,500,975Cash
    
      -
    
    
    -
    
    
    347,430
    
    
    -
    
    
    347,430$
      -
    
    $
    -
    
    $
    5,848,405
    
    $
    -
    
    $
    5,848,405


| | (i) | The acquisitions of the assets of Deerfield Energy Kansas
      Corp., Deerfield Missouri and Trinity are considered related party
      transactions, since at the respective acquisition dates the president and
      chief executive officer of the Company, was also the president and a
      unitholder of Trinity (47.37% of issued and outstanding units) and the
      president and unitholder of Deerfield Missouri (15.86% of the issued and
      outstanding units), which is also the parent company of Deerfield
      Kansas.                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | As a result, the president and chief executive officer of
      the Company, or a private company controlled by him, received i) 39,650 of
      the common shares issued for the assets of Deerfield Kansas, ii)
      U.S.$204,300 cash from Deerfield Missouri, including a change in control
      fee, and is entitled to receive, pending escrow release, an additional
      U.S.$47,580 and 753,350 common shares and iii) 45,000 class B exchange
      shares of our subsidiary, MegaWest USA convertible into 4,500,000 common
      shares and US$94,737 cash of the consideration issued to
  Trinity.

|3. | Inventory and Rights:                                                                                                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                              
|   | While operating as a technology products distribution
      company, the Company wrote-off its inventory and costs associated with its
      rights under a distributor agreement during the years ended April 30,
      2007, 2006 and 2005.

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

|4. | Marketable Securities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company acquired 7,500,000 common shares of Energy
      Finders Inc. ("Energy Finders") for $1,851,960 (U.S. $1,650,000)
      representing approximately nine percent of its issued and outstanding
      share capital. The Company does not have any representation on the Energy
      Finders board of directors. As a result, the Company does not believe it
      exerts influence over Energy Finders. The quoted market price of Energy
      Finder's shares on April 30, 2007 was U.S. $0.25 per share, converting to
      an approximate market value of $2,094,000.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|5. | Restricted Cash:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company deposited $341,250 (U.S. $300,000) in trust
      pursuant to an escrow agreement entered into as part of the Deerfield
      Missouri acquisition (see Note 2(c)).                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|6. | Property, Plant and
Equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                                      |   |            |  |   | Accumulated  |  |   |                      | 
| | ------------------------------------ | - | ---------- |  | - | ------------ |  | - | -------------------- | 
| | April 30,
      2007                 |   | Cost       |  |   | Depreciation |  |   | Net
      Book Value | 
| |                                      |   |            |  |   |              |  |   |                      | 
| | Oil and gas assets  unproven        | $ | 20,756,355 |  | $ | -            |  | $ | 20,756,355           | 
| | Office furniture
      and equipment |   | 131,113    |  |   | 2,372        |  |   | 128,741              | 
| |                                      | $ | 20,887,468 |  | $ | 2,372        |  | $ | 20,885,096           | 

|   | At April 30, 2007, all of the costs associated with oil
      and gas assets are excluded from depletion calculations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | During the quarter the Company capitalized $176,600 of
      general and administrative expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|7. | Convertible Promissory Notes and Note
    Payable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | In December 2006, MegaWest assumed two convertible
      promissory notes totaling $1,952,335 (U.S. $1,700,000) in conjunction with
      proposed acquisitions (see note 2). As part of the assumption, the Company
      agreed to the following terms: interest accrues at six percent and the
      outstanding interest and principal are convertible into MegaWest common
      shares at U.S. $0.25 per share until June 20, 2008. The fair value of the
      conversion feature at the date of assumption was estimated to be $120,566
      and has been classified as equity. The fair value was estimated at $0.02
      (U.S. $0.02) per share using the Black-Scholes option pricing model
      assuming a volatility of 80 percent, risk free interest rate of 4.90
      percent and expected term of eighteen months.                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | In 2006 the Company issued $40,000 of notes payable to
      shareholders, including $14,000 to former directors and $2,500 to a
      current director. The notes payable were repaid in cash during the year
      ended April 30, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|8. | Exchange Shares:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | As part of the consideration given to acquire Trinity
      (see note 2(d)), MegaWest issued 95,000 class B shares of its subsidiary,
      MegaWest USA. Each class B exchange share is convertible into 100 MegaWest
      shares with up to 9,500,000 common shares of MegaWest to be issued. The
      holders of these MegaWest USA shares have the right to exchange, or can
      receive a cash payment of U.S. $950,000 (U.S. $10.00 per exchange share)
      until July 31, 2008, after which the Company can implement a forced
      exchange of the shares. The cash redemption value of the exchange shares
      of $1,061,055 (U.S. $950,000) has been recorded as a liability. The
      estimated fair value of the conversion feature of $8,599,442 has been
      classified as equity. The fair value was estimated at $1.02 (U.S. $0.91)
      per exchange share using the Black-Scholes option pricing model assuming a
      volatility of 80 percent, risk free interest rate of 5.09 percent and
      expected term of fifteen months.

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

|9.  | Asset Retirement Obligations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | As at April 30, 2007 the Company had an asset retirement
      obligation for the equipment and wells acquired as part of the Deerfield
      Kansas asset purchase (note 2). The present value of this obligation has
      been projected using estimates of the future costs and the timing of
      abandonment. At April 30, 2007 the Company estimated the present value of
      its asset retirement obligations to be $154,244 based on a future
      undiscounted liability of $260,000. These costs are expected to be
      incurred within two to ten years. A credit-adjusted risk-free discount
      rate of ten per cent and an inflation rate of two per cent were used to
      calculate the present value.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10. | Share Capital and Warrants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The authorized capital of the Company consists of
      unlimited common shares without par value and 100,000,000 preferred shares
      without par value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |                                                                     |  |                |  |  | Units / Shares |  |   |            |  
| | ------------------------------------------------------------------- |  | -------------- |  |  | -------------- |  | - | ---------- | -
| | Closing Date                                                        |  | Offering Price |  |  | Issued         |  |   | Proceeds   |  
| | December, 2006 (i)                                                  |  | U.S. $0.10     |  |  | 23,500,000     |  | $ | 2,707,168  |  
| | January and February 2007 (ii)                                      |  | U.S. $0.50     |  |  | 8,425,000      |  |   | 4,992,234  |  
| | March, 2007 (iii)                                                   |  | U.S. $1.00     |  |  | 27,448,550     |  |   | 32,115,870 |  
| | Issue costs (iv)                                                    |  |                |  |  | -              |  |   | (1,882,451 | )
| |                                                                     |  |                |  |  | 59,373,550     |  |   | 37,932,821 |  
| | Value ascribed to U.S. $1.30 private placement warrants
      (iii) |  |                |  |  |                |  |   | 3,446,000  |  
| | Value ascribed to U.S. $1.00 private placement warrants
      (ii)  |  |                |  |  |                |  |   | 283,000    |  
| | Net amount
      recorded to share capital from private placements  |  |                |  |  |                |  | $ | 34,203,821 |  

| | (i)   | The December U.S. $0.10 private placement consisted of
      common shares only.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (ii)  | Units of the U.S. $0.50 private placement included one
      common share and one half share purchase warrant. One whole share purchase
      warrant entitles the holder to acquire one share for U.S. $1.00. The
      amount classified to warrants was based on the fair value of the share
      purchase warrants which was estimated at $0.07 (U.S. $0.06) per warrant,
      using the Black-Scholes option pricing model assuming a volatility of 80
      percent, risk free interest rate of 5.10 percent and expected term of one
      year.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       | In connection with placement, the Company granted a
      consultant rights to purchase 180,000 units under the same terms as the
      private placement for a period of one year from the date of the placement.
      The value of these units, recorded as issue costs, was estimated to be
      $0.22 (U.S. $0.19) per unit, being the sum of the estimated fair value of
      one share plus one half share purchase warrant. The fair value was
      estimated using the Black-Scholes option pricing model.                                   
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (iii) | Units of the U.S. $1.00 private placement included one
      common share and one half share purchase warrant. One whole share purchase
      warrant entitles the holder to acquire one share for U.S. $1.30. The
      amount classified as warrants was based on the fair value of the share
      purchase warrants, which was estimated at $0.28 (U.S. $0.24) per warrant
      using the Black-Scholes option pricing model assuming a volatility of 80
      percent, risk free interest rate of 4.95 percent and expected term of one
      year.

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

| |      | In connection with the placement, the Company granted a
      consultant rights to purchase 375,000 units under the same terms as the
      private placement for a period of one year from the date of the placement.
      The value of these units, recorded as issue costs, was estimated to be
      $0.53 (U.S. $0.45) per unit, being the sum of the estimated fair value of
      one share plus one half share purchase warrant. The fair value was
      estimated using the Black-Scholes option pricing model.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (iv) | Included in issue costs of the private placements is
      $1,514,051 of fees paid in cash, $190,000 representing the fair value of
      690,848 share purchase warrants issued and $178,400 representing the fair
      value of 555,000 units issued in connection with the
  financing.                                                                                                                                                                                                                               

| | (b) | Shares Issued for Services:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | In March 2007, the Company entered into an agreement with
      a consultant to provide advisory services. The consideration for the
      advisory services is 750,000 common shares of the Company, of which
      375,000 were issued as at April 30, 2007. The value of the common shares
      issued of U.S. $1.00 was based on the cash consideration received for
      recent private placements of shares around the closing date. The remainder
      is issuable in 125,000 share tranches on May 15, 2007, August 15, 2007 and
      November 15, 2007, respectively.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (c) | Shares Issued to Settle Debt:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | In December 2006, the Company agreed to issue 600,000
      common shares to settle accounts payable of $165,700, which included
      amounts payable to former directors and officers of the Company.                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (d) | Warrants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | Warrants were granted during the year and remain
      outstanding as of April 30, 2007:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

Warrants
        Outstanding
      
      
      Warrants
        VestedWeighted Ave.
      
      
      Weighted Ave.
      
      
      
      
      
      Weighted Ave.Warrant Type
      
      Number
      
      
      Remaining Life
      
      
      Exercise Price
      
      
      Number
      
      
      Exercise PriceIncentive (i)
      
      19,500,000
      
      
      0.6 years
      
      
      U.S. $ 0.10
      
      
      9,000,000
      
      
      U.S. $ 0.10Consulting (ii)
      
      6,000,000
      
      
      1.7 years
      
      
      U.S. $ 0.50
      
      
      6,000,000
      
      
      U.S. $ 0.50Private Placement (iii)
      
      18,627,623
      
      
      0.8 years
      
      
      U.S. $ 1.23
      
      
      18,627,623
      
      
      U.S. $ 1.2344,127,623
      
      
      0.9
        years
      
      
      U.S.
        $0.63
      
      
      33,627,623
      
      
      U.S.
        $0.80


| | (i) | The Incentive warrants were issued in an effort to secure
      additional non-conventional oil and gas prospects. The warrants allow the
      holders to purchase common shares from the Company at an exercise price of
      U.S. $0.10 per share, subject to the holder of the warrants bringing to
      the Company a project that has, at the reasonable opinion of the board of
      directors, a minimum specified potential value to the Company of at least
      U.S. $1.00 per warrant. Upon acceptance by the board of directors of a
      project, the warrant holder will have six months to exercise the warrants.
      If the holders of the warrants have not delivered a project that is
      acceptable to the board of directors within one year from the date of
      issuance then the warrants will expire. The recipients of 19,000,000
      incentive warrants are two private companies, one is controlled by a
      current director and the other is controlled by a current senior officer
      and director of the Company.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | In April 2007, 9,000,000 incentive warrants vested on the
      closing of the Kentucky Reserves acquisition and $9.4 million was recorded
      as part of the cost of acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Compensation costs will be recorded for the remaining
      10,500,000 incentive warrants if and when the holders introduce a project
      to the Company of sufficient value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

| | (ii)  | The consulting warrants were issued to various investor
      relations and other contractors. The consulting warrants vest on grant
      date, have a term of two years and an exercise price of U.S. $0.50 per
      share. For the year ended April 30, 2007, the Company recorded $1,600,800
      million of stock based compensation expense with a corresponding increase
      in contributed surplus for these warrants. The fair value of the warrants
      granted was estimated to be $0.27 (U.S. $0.23) per warrant and was
      determined using the Black-Scholes pricing model with the following
      assumptions: expected volatility 80 percent, risk-free interest rate of
      4.75 percent and expected term of two years.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (iii) | The private placement warrants were issued in conjunction
      with the US$0.50 and U.S. $1.00 private placements. The Company calculated
      the fair value of these warrants using the Black-Scholes pricing model on
      the date of grant. The fair value of the warrants issued has been
      accounted for as reduction to share capital with a corresponding increase
      in the amount of warrants.                                                                                                                                                                                                                                                                                                                                  

|11. | Stock Options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The 2004 stock option plan (the "2004 Plan") allows for
      an amount of options equaling 10 percent of the outstanding common shares
      to be reserved for grant. During 2005 and 2006 years no options were
      issued. During the year ended April 30, 2007, 302,500 previously granted
      stock options under the 2004 Plan expired unexercised.                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | On February 19, 2007, the 2007 Stock Option Plan ("2007
      plan") was approved at a special general meeting of shareholders. The 2007
      Plan specifies that the number of common shares reserved for issuance
      under the plan is 20 percent of the issued and outstanding common shares
      less the number of options granted under the 2004 Plan. The term and
      vesting schedule of the stock options granted is set by the board of
      directors at the time of grant.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The following table summarizes the changes in stock
      options outstanding during the years ended April 30, 2007 and
  2006:                                                                                                                                                                                                                                                                                                                                                                

| |                                      |  |            |   |  |                | 
| | ------------------------------------ |  | ---------- | - |  | -------------- | 
| |                                      |  | Number of  |   |  | Weighted Avg.  | 
| |                                      |  | Options    |   |  | Exercise Price | 
| | Outstanding, April 30, 2005 and 2006 |  | 302,500    |   |  | U.S. $0.15     | 
| | Granted                              |  | 10,169,000 |   |  | 0.59           | 
| | Exercised                            |  | (500,000   | ) |  | 0.10           | 
| | Expired                              |  | (302,500   | ) |  | 0.15           | 
| | Outstanding, April 30, 2007          |  | 9,669,000  |   |  | U.S. $0.62     | 

The following table summarizes
information about the options outstanding and exercisable at April 30, 2007:

Options Outstanding
      
      Options VestedWeighted Ave.
      
      Weighted Ave.
      
      
      
      Weighted Ave.Options
      
      Remaining Life
      
      Exercise
        Price
      
      Options
      
      Exercise
        Price1,250,000
      
      4.7 years
      
      U.S. $ 0.10
      
      1,250,000
      
      U.S. $ 0.105,705,000
      
      3.8 years
      
      $0.50
      
      3,500,000
      
      $0.502,464,000
      
      3.9 years
      
      $1.00
      
      750,000
      
      $1.00250,000
      
      4.9
        years
      
      $2.00
      
      41,665
      
      $2.009,669,000
      
      4.0 years
      
      U.S. $0.62
      
      5,541,665
      
      U.S. $0.49


---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

|    | For the year ended April 30, 2007, the Company recorded
      $1,863,448 million of stock-based compensation expense related to stock
      options with a corresponding increase in contributed surplus. The fair
      value of the options granted for the year ended April 30, 2007 was
      estimated to be $0.41 (U.S. $0.35) per option and was determined using the
      Black-Scholes option pricing model with the following assumptions:
      expected volatility of 80 percent, risk-free interest rate of 5.04 percent
      and expected lives of four years.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|12. | Per Share Amounts:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The loss per share is based on the weighted average
      shares outstanding for the year. The weighted average shares outstanding
      for the year ended April 30, 2007 was 22,102,129 (2006  6,337,500). There
      is no change between the basic and diluted per share amounts since the
      effect of stock options, warrants and convertible promissory notes would
      be anti-dilutive.                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|13. | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Income tax expense differs from the amount that would be
      computed by applying the Canadian federal and provincial statutory income
      tax rates to the loss for the year as follows:                                                                                                                                                                                                                                                                                                                                                                                 

| |                                               |   | 2007       |   |   | 2006     |   |   | 2005    |  
| | --------------------------------------------- | - | ---------- | - | - | -------- | - | - | ------- | -
| |                                               |   |            |   |   |          |   |   |         |  
| | Loss for the year                             | $ | (6,893,052 | ) | $ | (222,945 | ) | $ | (61,031 | )
| |                                               |   |            |   |   |          |   |   |         |  
| | Statutory tax rate                            |   | 34.5 %     |   |   | 37.6 %   |   |   | 37.6 %  |  
| |                                               |   |            |   |   |          |   |   |         |  
| | Expected income tax recovery                  |   | (2,378,103 | ) |   | (83,827  | ) |   | (22,948 | )
| | Increase (decrease) resulting from:           |   |            |   |   |          |   |   |         |  
| | Non-deductible
      stock-based compensation |   | 1,345,200  |   |   | -        |   |   | -       |  
| | Change in valuation allowance and other       |   | 1,032,903  |   |   | 83,827   |   |   | 22,948  |  
| |                                               | $ | -          |   | $ | -        |   | $ | -       |  

The components of the April 30 net
future income tax asset and liability, after applying corporate income tax
rates, are as follows:

| |                                        |   | 2007       |   |   | 2006     |  
| | -------------------------------------- | - | ---------- | - | - | -------- | -
| | Net future income tax asset:           |   |            |   |   |          |  
| | Capital assets                         | $ | 3,994,000  |   | $ | -        |  
| | Operating losses                       |   | 636,000    |   |   | 164,452  |  
| | Share issue costs                      |   | 436,700    |   |   | -        |  
| | Unrealized foreign
      exchange loss |   | 464,000    |   |   | -        |  
| | Marketing rights                       |   | -          |   |   | (11,007  | )
| |                                        |   | 5,530,700  |   |   | 153,445  |  
| | Less: valuation allowance              |   | (5,530,700 | ) |   | (153,445 | )
| |                                        | $ | -          |   | $ | -        |  

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

The Company has accumulated operating
losses totaling $2,193,166 which expire over the following years:

| | 2008       | $ | 2,748     |  |  |  | 
| | ---------- | - | --------- |  |  |  | 
| | 2009       |   | 48,867    |  |  |  | 
| | 2010       |   | 60,060    |  |  |  | 
| | 2011       |   | 157,207   |  |  |  | 
| | 2012       |   | 74,847    |  |  |  | 
| | Thereafter |   | 1,849,437 |  |  |  | 
| | Totals     | $ | 2,193,166 |  |  |  | 

|14. | Related Party Transactions:                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                             
|    | The Company incurred the following related party
      transactions in the year ended April 30, 2007. These transactions were
      measured by the exchange amount, which is the amount agreed upon by the
      transacting parties.                                                                                      
|    |                                                                                                                                                                                                                                                                                                                             
|    | (a)                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                             
|    | (b)                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                             
|    | (c)                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                             
|    | (d)                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                             
|    | (e)                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                             
|15. | Financial Instruments:                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                             
|    | The Company is exposed to foreign currency fluctuations
      as it has cash, short-term deposits and accounts payable denominated in
      U.S. dollars. In addition, a significant portion of the Company's
      operating activities are conducted in U.S. dollars. There are no exchange
      rate contracts in place.
|    |                                                                                                                                                                                                                                                                                                                             
|    | The fair value of the Company's financial instruments,
      including cash and cash equivalents, accounts receivable, and accounts
      payable and accrued liabilities approximate their carrying values due to
      their short terms to maturity.                                                                     
|    |                                                                                                                                                                                                                                                                                                                             
|    | At April 30, 2007, the fair values of the convertible
      promissory notes and exchange shares were estimated to be $5,924,000 and
      $9,660,000, respectively. The fair value was determined using the
      Black-Scholes option pricing model at April 30, 2007.                                                    
|    |                                                                                                                                                                                                                                                                                                                             
|16. | Commitments and Contractual Obligations:                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                             
|    | (a)                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                             

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

| | (b) | Office and Equipment Leases:                                                                             
| | --- | ---------------------------------------------------------------------------------------------------------
| |     |                                                                                                          
| |     | The Company is committed to office and equipment leases
      over the next five fiscal years as follows:

| | 2008       | $ | 239,438   |  |  |  | 
| | ---------- | - | --------- |  |  |  | 
| | 2009       |   | 241,620   |  |  |  | 
| | 2010       |   | 241,620   |  |  |  | 
| | 2011       |   | 241,620   |  |  |  | 
| | 2012       |   | 237,836   |  |  |  | 
| | Thereafter |   | 420,836   |  |  |  | 
| | Total      |   | 1,622,970 |  |  |  | 

| |     | Included in the above commitments are costs associated
      with an office lease entered into subsequent to April 30, 2007.                                                                                                                                                                                       
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                    
| | (c) | Severance Obligations:                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                    
| |     | Pursuant to employment agreements with three senior
      officers, the Company is obligated to pay $688,000 under certain events
      around employment termination.                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                    
| | (d) | The Company pledged a $30,000 guaranteed investment
      certificate as collateral against a letter of credit issued by the Company
      for the start up of its oil and gas operations in Kansas. Subsequent to
      April 30, 2007 the restrictions were removed and the letter of credit was
      cancelled.

|17. | Supplemental Cash Flow Information:                                                      
|--- | -----------------------------------------------------------------------------------------
|    |                                                                                          
|    | The following non-cash transactions were excluded from
      the statement of cash flows:
|    |                                                                                          
|    | (a)                                                                                      
|    |                                                                                          
|    |                                                                                          
|    |                                                                                          
|    |                                                                                          
|    |                                                                                          
|    | (b)                                                                                      
|    |                                                                                          
|    |                                                                                          
|    |                                                                                          
|    |                                                                                          

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

|18. | General and Administrative Expenses:                                                
|--- | ------------------------------------------------------------------------------------
|    |                                                                                     
|    | General and administrative expenses for the years ended
      April 30 consisted of:

| |                            |   | 2007      |   |   | 2006    |  |   | 2005   | 
| | -------------------------- | - | --------- | - | - | ------- |  | - | ------ | 
| |                            |   |           |   |   |         |  |   |        | 
| | Stock-based compensation:  |   |           |   |   |         |  |   |        | 
| | Stock options              | $ | 1,863,448 |   | $ | -       |  | $ | -      | 
| | Consulting
      warrants  |   | 1,600,800 |   |   | -       |  |   | -      | 
| | Shares issued for services |   | 434,900   |   |   | -       |  |   | -      | 
| |                            |   | 3,899,148 |   |   | -       |  |   | -      | 
| | Salaries and benefits      |   | 1,171,885 |   |   | -       |  |   | -      | 
| | Professional fees          |   | 332,218   |   |   | 83,720  |  |   | 36,874 | 
| | Office and operations      |   | 297,043   |   |   | 20,881  |  |   | 20,418 | 
| | Capitalized portion        |   | (176,600  | ) |   | -       |  |   | -      | 
| |                            | $ | 5,523,694 |   | $ | 104,601 |  | $ | 57,292 | 

|19. | Additional Disclosures Required under U.S. Generally
      Accepted Accounting Principles:                                                                                                                                                                                                                                                                                                                 
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The consolidated financial statements have been prepared
      in accordance with GAAP as applied in Canada. For the years ended April
      30, 2007, Canadian GAAP conforms in all material respects with U.S. GAAP
      except for certain matters, detailed in the following. For the years ended
      April 30, 3006 and 2005, Canadian GAAP conforms in all material respects
      with U.S. GAAP.
|    |                                                                                                                                                                                                                                                                                                                                                                                                            
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                            

Property, PlantMarketable
    
    
      andAssets
    
      Securities
    
    
      EquipmentCanadian GAAP:
    $
      1,851,960
    
    $
      20,885,096Adjustments for:Oil and gas assets
      on acquisition of Kentucky(ii)
    
      -
    
    
      21,820,050Marketable securities to fair
      value (iii)
    
      242,040
    
    
      -U.S.
      GAAP
    $
      2,094,000
    
    $
      42,705,146


| | (i) | There are certain differences between the full cost
      method of accounting for oil and gas assets as applied in Canada and in
      the U.S. The principal difference is in the method of performing ceiling
      test evaluations under the full cost method. Canadian GAAP requires the
      ceiling test evaluation to use estimates of future oil and gas prices and
      costs plus the value of unproved properties on an undiscounted basis. To
      calculate the amount of impairment, the future net cash flows of a cost
      center's proved and probable reserves are discounted using a risk-free
      interest rate.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | In the ceiling test evaluation for U.S. GAAP purposes,
      under Regulation S-X, future net cash flows from proved reserves using
      period-end, non-escalated prices and costs, are discounted to present
      value at 10 percent per annum plus the value of unproved properties is
      compared to the carrying value of oil and gas assets.                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | There is no GAAP difference for the year end April 30,
      2007 related to oil and gas assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

| | (ii)  | There is a difference in determining the fair value of
      shares issued for certain stock-based transactions under Canadian GAAP
      compared to U.S. GAAP if the market for the Company's shares is not active
      and liquid. Under Canadian GAAP, if the market for the Company's shares is
      not active and liquid, fair value is established using valuation
      techniques that include recent arm's length market transactions. Under
      U.S. GAAP, regulatory interpretation requires the use of quoted market
      prices as fair value. As a result, the amount recorded for the Kentucky
      oil and gas assets is higher under U.S. GAAP.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (iii) | There is a difference in the carrying amounts of
      marketable securities under Canadian GAAP compared to U.S. GAAP. Currently
      under Canadian GAAP, marketable securities are recorded at the lower of
      cost or market value, and are not re-measured unless an impairment of
      carrying amount has occurred. Under U.S. GAAP, marketable securities
      available for sale are recorded and re-measured at each balance sheet date
      at their fair value. At April 30, 2007 under U.S. GAAP the Company
      recorded a $242,040 unrealized gain on marketable securities as a
      component of other comprehensive income.                 

|                                   |   | Convertible |   |   | Equity portion of |   |   |             |   |   |            |  |   |                     |   |   |            |  |   |             |  
|---------------------------------- | - | ----------- | - | - | ----------------- | - | - | ----------- | - | - | ---------- |  | - | ------------------- | - | - | ---------- |  | - | ----------- | -
|                                   |   | promissory  |   |   | convertible       |   |   | Contributed |   |   | Exchange   |  |   |                     |   |   |            |  |   |             |  
|Liabilities and Equity             |   | notes       |   |   | promissory notes  |   |   | surplus     |   |   | shares     |  |   | Share
      capital |   |   | Warrants   |  |   | Deficit     |  
|                                   |   |             |   |   |                   |   |   |             |   |   |            |  |   |                     |   |   |            |  |   |             |  
|Canadian GAAP:                     | $ | 1,867,387   |   | $ | 120,566           |   | $ | 13,338,629  |   | $ | 8,599,442  |  | $ | 41,168,088          |   | $ | 3,729,000  |  | $ | (18,807,204 | )
|Adjustments for:                   |   |             |   |   |                   |   |   |             |   |   |            |  |   |                     |   |   |            |  |   |             |  
|Re-class convertible note (iv)     |   | 120,566     |   |   | (120,566          | ) |   | -           |   |   | -          |  |   | -                   |   |   | -          |  |   | -           |  
|Interest expense
      on          |   |             |   |   |                   |   |   |             |   |   |            |  |   |                     |   |   |            |  |   |             |  
|convertible note (iv)              |   | (28,695     | ) |   | -                 |   |   | -           |   |   | -          |  |   | -                   |   |   | -          |  |   | -           |  
|Stock-compensation                 |   |             |   |   |                   |   |   |             |   |   |            |  |   |                     |   |   |            |  |   |             |  
|transactions (v)                   |   | -           |   |   | -                 |   |   | 10,651,013  |   |   | -          |  |   | 597,392             |   |   | -          |  |   | -           |  
|Value of warrants
      on private |   |             |   |   |                   |   |   |             |   |   |            |  |   |                     |   |   |            |  |   |             |  
|placements (vi)                    |   | -           |   |   | -                 |   |   | 1,604,600   |   |   | -          |  |   | (10,657,600         | ) |   | 9,053,000  |  |   | -           |  
|                                   |   |             |   |   |                   |   |   |             |   |   |            |  |   |                     |   |   |            |  |   |             |  
|Kentucky acquisition (ii)          |   | -           |   |   | -                 |   |   | 14,027,175  |   |   | -          |  |   | 7,792,875           |   |   | -          |  |   | -           |  
|Related party
      acquisitions   |   |             |   |   |                   |   |   |             |   |   |            |  |   |                     |   |   |            |  |   |             |  
|(vii)                              |   | -           |   |   | -                 |   |   | -           |   |   | 11,515,824 |  |   | 383,229             |   |   | -          |  |   | (11,899,053 | )
|Transfer on stock
      option     |   |             |   |   |                   |   |   |             |   |   |            |  |   |                     |   |   |            |  |   |             |  
|exercise (viii)                    |   | -           |   |   | -                 |   |   | (430,000    | ) |   | -          |  |   | 430,000             |   |   | -          |  |   | -           |  
|                                   |   |             |   |   |                   |   |   |             |   |   |            |  |   |                     |   |   |            |  |   |             |  
|Net loss                           |   | -           |   |   | -                 |   |   | -           |   |   | -          |  |   | -                   |   |   | -          |  |   | (11,219,710 | )
|                                   |   |             |   |   |                   |   |   |             |   |   |            |  |   |                     |   |   |            |  |   |             |  
|U.S. GAAP                          | $ | 1,959,258   |   | $ | -                 |   | $ | 39,191,417  |   | $ | 20,115,266 |  | $ | 39,713,984          |   | $ | 12,782,000 |  | $ | (41,925,967 | )

| | (iv) | There is a difference in the treatment of convertible
      promissory notes under Canadian GAAP compared to U.S. GAAP. Under Canadian
      GAAP, the equity component of the note is valued using an option pricing
      model and classified as shareholders' equity. The residual amount is
      classified as a liability and interest is recorded, to bring the liability
      to its future value at maturity using the effective interest rate
      method.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | Under U.S. GAAP, the convertible promissory notes are
      classified as liability, and interest is accrued at the contractual rate.
      This results in the re-classification of the equity portion to liability,
      and a reduction in interest expense.                                                                                                                                                                                                       

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

| | (v) | The fair value of the Company's stock compensation
      transactions was estimated using the Black-Scholes options pricing model.
      One of the assumptions used in the Black-Scholes model is the market price
      of the underlying share on the grant date. As a result of the GAAP
      difference on the fair value of the Company's shares described in (ii),
      the stock compensation transactions have a different fair value input
      under Canadian GAAP compared to U.S. GAAP. Under Canadian GAAP, the fair
      value of the Company's shares was based on recent arm's length
      transactions, including recent private placements. Under U.S. GAAP, the
      quoted OTC exchange price is used.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | This results in the GAAP differences for the following
      stock-based transactions for the year ended April 30,
  2007:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| |                                                |   | Canadian  |  |   |                 |  |   | GAAP       | 
| | ---------------------------------------------- | - | --------- |  | - | --------------- |  | - | ---------- | 
| |                                                |   | GAAP      |  |   | U.S.
      GAAP |  |   | Adjustment | 
| |                                                |   |           |  |   |                 |  |   |            | 
| | Compensation cost on stock options             | $ | 1,863,448 |  | $ | 7,712,061       |  | $ | 5,848,613  | 
| | Compensation cost
      on consulting warrants |   | 1,600,800 |  |   | 6,403,200       |  |   | 4,802,400  | 
| | Adjustment to contributed surplus              |   | 3,464,248 |  |   | 14,115,261      |  |   | 10,651,013 | 
| |                                                |   |           |  |   |                 |  |   |            | 
| | Shares issued to settle debt                   |   | -         |  |   | 597,392         |  |   | 597,392    | 
| |                                                |   |           |  |   |                 |  |   |            | 
| | Adjustment to net loss                         | $ | 3,464,248 |  | $ | 14,712,653      |  | $ | 11,248,405 | 

| | (vi)   | The value ascribed to the share purchase warrants issued
      in connection with the unit private placements is adjusted under U.S.
      GAAP, as the OTC exchange quoted price is used for the market price input
      in the option pricing model. This results in an adjustment of $9.1 million
      from share capital to warrants and $1.6 million from share capital to
      contributed surplus for the stock-based issue costs.
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (vii)  | The deficit adjustment on related party acquisitions is
      different under Canadian GAAP compared to U.S. GAAP because of different
      fair values assigned to the Company's shares. Under U.S. GAAP, the average
      OTC exchange closing price around the acquisition date was used to value
      the share consideration given. This results in an adjustment of $11.9
      million to deficit.                                
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (viii) | As a result of the higher stock compensation cost as
      described in (v), when stock options and warrants are exercised, there
      will be an adjustment under U.S. GAAP related to the transfer from
      contributed surplus to share capital. During the year, 500,000 options
      were exercised resulting in an additional $430,000 transferred to share
      capital from contributed surplus.                               
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (ix)   | At April 30, 2007, accounts payable and accrued
      liabilities consisted of trade payables of $246,978 (2006 - $120,862),
      salary and bonus accrual of $401,029 (2006 - $-), operational accruals of
      $615,185 (2006 - $-) and sales tax accruals of $38,448 (2006 -
  $-).                                                                                                                                                    

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

| | (b) | Consolidated Statement of Operations:                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                  
| |     | The application of U.S. GAAP has the effects on the
      following consolidated statement of operations for the year ended April
      30, 2007:

| |                                                          |   | Net
      Loss |   |   | Net
      Loss per Share |  
| | -------------------------------------------------------- | - | -------------- | - | - | ------------------------ | -
| | Canadian GAAP Loss:                                      | $ | (6,893,052     | ) | $ | (0.31                    | )
| | Adjustments for:                                         |   |                |   |   |                          |  
| | Reduced interest
      expense on convertible promissory |   |                |   |   |                          |  
| | notes (iv)                                               |   | 28,695         |   |   | 0.01                     |  
| | Stock-based compensation
      expense (v)               |   | (11,248,405    | ) |   | (0.51                    | )
| | U.S. GAAP Loss                                           | $ | (18,112,762    | ) | $ | (0.81                    | )
| | Unrealized gain on marketable
      securities (iii)     |   | 242,040        |   |   |                          |  
| | U.S. GAAP
      Comprehensive Loss                       | $ | (17,870,722    | ) |   |                          |  

| | (c) | Recent Developments in US GAAP:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | In June 2006, the FASB issued FASB Interpretation No.48,
      "Accounting of Uncertainty in Income Taxes  an interpretation of FASB
      Statement No. 109" ("FIN 48"). The interpretation clarifies the accounting
      for uncertainty in income taxes recognized in an enterprise's financial
      statements in accordance with SFAS No. 109, Accounting for Income Taxes.
      The evaluation of a tax position in accordance with this interpretation is
      a two-step process. Under the recognition step an enterprise determines
      whether it is more likely than not that a tax position will be sustained
      upon examination based on the technical merits of the position. Under the
      measurement step a tax position that meets the more more-likely- than-not
      recognition threshold is measured to determine the amount of benefit to
      recognize in the financial statements. The tax position is measured at the
      largest amount of benefit that is greater than 50 percent likely of being
      realized upon ultimate settlement. FIN 48 effective for fiscal years
      beginning after December 15, 2006. Earlier application of the provisions
      of this interpretation is encouraged if the enterprise has not yet issued
      financial statements, including interim financial, in the period this
      interpretation is adopted. Management does not believe the requirements of
      this interpretation will have a material impact on its financial
      statements.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | In February 2006, the FASB issued SFAS No. 155
      "Accounting for certain Hybrid Financial Instruments  an amendment of
      FASB statements No. 133 and 140" (SFAS no.155"). SFAS No. 155 resolves
      issues surrounding the application of the bifurcation requirements to
      beneficial interest in securitized financial assets. In general, this
      statement permits fair value remeasurement for any hybrid financial
      instrument that contains an embedded derivative that otherwise would
      require bifurcation. SFAS No.155 is effective for all financial
      instruments acquired or issued after the beginning of entity's first
      fiscal year that begins after September 15, 2006 and is not expected to
      have a material impact on the Company's financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | In September 2006, the FASB issued Statement of Financial
      Accounting Standards No. 157, "Fair Value Measurements" ("SFAS No. 157").
      This statement defines fair value, establishes a framework for measuring
      fair value in generally accepted accounting principles (GAAP), and expands
      disclosures about fair value measurements. This statement does not require
      any new fair value measurements; however, for some entities the
      application of this statement will change current practice. SFAS No. 157
      is effective for financial statements issued for fiscal years beginning
      after November 15, 2007, and interim periods within those fiscal years,
      although early adoption is permitted. Management is in the process of
      reviewing the requirements of this recent
statement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

---

|MegaWest Energy Corp                                  
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2007, 2006 and 2005     
|(in Canadian dollars
      unless otherwise indicated)

In February 2007, the FASB issued
Statement of Financial Accounting Standards No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS No. 159"). Under SFAS 159,
entities are provided with an option to report selected financial assets and
liabilities at fair value. The standard permits an entity to elect the fair
value option on an instrument-by-instrument basis; and once the election is
made, it is irrevocable. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. In addition, SFAS 159
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. The effective date of SFAS 159 is for
fiscal years beginning after November 15, 2007. Management is in the process of
reviewing the requirements of this recent statement.

---

- 72 -









BROCKTON CAPITAL CORP.

(A Development Stage Company)

REPORT AND FINANCIAL STATEMENTS

April 30, 2006 and 2005

(Stated in Canadian Dollars)

---

- 73 -



AUDITORS REPORT

To the Shareholders, Brockton Capital Corp. (A
Development Stage Company)

We have audited the balance sheets of Brockton Capital Corp. (A
Development Stage Company) as at April 30, 2006 and 2005 and the statements of
operations and cash flows for each of the years in the three year period ended
April 30, 2006 and for the period February 8, 2000 (Date of Incorporation) to
April 30, 2006 and the statement of shareholders equity (deficiency) for the
period February 8, 2000 (Date of Incorporation) to April 30, 2006. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with Canadian generally
accepted auditing standards and with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.

In our opinion, these financial statements present fairly, in
all material respects, the financial position of the Company as at April 30,
2006 and 2005 and the results of its operations and its cash flows for each of
the years in the three year period ended April 30, 2006 and for the period
February 8, 2000 (Date of Incorporation) to April 30, 2006, in accordance with
Canadian generally accepted accounting principles.

|Vancouver, Canada | /s/ Morgan & Company 
|----------------- | ---------------------
|August 25, 2006   | Chartered Accountants

COMMENTS BY AUDITOR FOR US. READERS ON CANADA-U.S. REPORTING
DIFFERENCE

In the United States, reporting standards for auditors require
the addition of an explanatory paragraph (following the opinion paragraph) when
the financial statements are affected by conditions and events that cast
substantial doubt on the Companys ability to continue as a going concern, such
as those described in Note 1 to the financial statements. Our report to the
shareholders, dated August 25, 2006, is expressed in accordance with Canadian
reporting standards which do not permit a reference to such events and
conditions in the auditors report when these are adequately disclosed in the
financial statements or a reference to such a change in accounting principles in
the auditors report when the change is property accounted for and adequately
disclosed in the financial statements.

|Vancouver, Canada | /s/ Morgan & Company 
|----------------- | ---------------------
|August 25, 2006   | Chartered Accountants



---

- 74 -

BROCKTON CAPITAL CORP. (A Development Stage Company)
BALANCE SHEETS

April 30, 2006 and 2005 (Stated in Canadian Dollars)

|                                                        |   | 2006     |   |   | 2005     |  
|------------------------------------------------------- | - | -------- | - | - | -------- | -
|**ASSETS**                                              |  
|Current                                                 |   |          |   |   |          |  
|Cash and cash
      equivalents                         | $ | 14,141   |   | $ | 5,865    |  
|GST receivable                                          |   | 7,298    |   |   | 2,903    |  
|Inventory  Notes 2 and
      3                         |   | 1        |   |   | 4,735    |  
|                                                        |   | 21,440   |   |   | 13,503   |  
|Rights  Notes 3 and 8                                  |   | 10,000   |   |   | 123,610  |  
|                                                        | $ | 31,440   |   | $ | 137,113  |  
|LIABILITIES                                             |  
|Current                                                 |   |          |   |   |          |  
|Accounts payable and
      accrued liabilities  Note 6 | $ | 120,862  |   | $ | 43,590   |  
|Notes payable  Note 4                                  |   | 40,000   |   |   | -        |  
|                                                        |   | 160,862  |   |   | 43,590   |  
|SHAREHOLDERS EQUITY
      (DEFICIENCY)                 |  
|Share Capital  Notes 5 and 6                           |   | 207,342  |   |   | 207,342  |  
|Contributed surplus  Note 8                            |   | 168,750  |   |   | 168,750  |  
|Deficit accumulated during the development
      stage  |   | (505,514 | ) |   | (282,569 | )
|                                                        |   | (129,422 | ) |   | 93,523   |  
|                                                        | $ | 31,440   |   | $ | 137,113  |  
|Nature and Continuance of Operations  Note 1           |   |          |   |   |          |  
|Commitments  Notes 3, 4 and 5                          |   |          |   |   |          |  
|Subsequent Event  Note 3                               |   |          |   |   |          |  

APPROVED BY THE DIRECTORS:

|/s/ Terry Amisano | Director | /s/ Kevin Hanson | Director
|----------------- | -------- | ---------------- | --------
|Terry Amisano     |          | Kevin Hanson     |         

SEE ACCOMPANYING NOTES

---

- 75 -

BROCKTON CAPITAL CORP.(A Development Stage Company)
STATEMENTS OF OPERATIONS for the years ended April 30, 2006, 2005 and
2004 and for the period from February 8, 2000 (Date of Incorporation) to
April 30, 2006 (Stated in Canadian Dollars)

|                                                      |   |                       |   |   |           |   |   |           |   |   | February 8, 2000  |  
|----------------------------------------------------- | - | --------------------- | - | - | --------- | - | - | --------- | - | - | ----------------- | -
|                                                      |   |                       |   |   |           |   |   |           |   |   | (Date of          |  
|                                                      |   |                       |   |   |           |   |   |           |   |   | Incorporation) to |  
|                                                      |   | Years ended April 30, |   |   | April 30, |  
|                                                      |   | 2006                  |   |   | 2005      |   |   | 2004      |   |   | 2006              |  
|                                                      |   |                       |   |   |           |   |   |           |   |   |                   |  
|Administrative Expenses                               |   |                       |   |   |           |   |   |           |   |   |                   |  
|Accounting, audit and legal 
      Note 6            | $ | 14,599                |   | $ | 24,406    |   | $ | 37,820    |   | $ | 120,953           |  
|Consulting fees                                       |   | 61,200                |   |   | 2,383     |   |   | 1,826     |   |   | 74,069            |  
|Equipment rental  Note 6                             |   | 6,000                 |   |   | 6,000     |   |   | 6,000     |   |   | 28,000            |  
|Filing fees                                           |   | 7,525                 |   |   | 5,357     |   |   | 3,188     |   |   | 19,911            |  
|General and administrative                            |   | -                     |   |   | 169       |   |   | 2,974     |   |   | 3,899             |  
|Interest and bank
      charges                       |   | 2,056                 |   |   | 768       |   |   | 422       |   |   | 4,110             |  
|Investor relations                                    |   | -                     |   |   | 625       |   |   | 6,339     |   |   | 6,964             |  
|Marketing                                             |   | -                     |   |   | -         |   |   | -         |   |   | 1,170             |  
|Office rent  Note 6                                  |   | 9,000                 |   |   | 9,000     |   |   | 9,000     |   |   | 42,000            |  
|Office supplies
       Note 6                        |   | 3,284                 |   |   | 3,000     |   |   | 3,000     |   |   | 14,462            |  
|Promotion                                             |   | 541                   |   |   | 1,481     |   |   | 1,677     |   |   | 4,708             |  
|Transfer agent fees                                   |   | 396                   |   |   | 4,103     |   |   | 9,861     |   |   | 23,228            |  
|Travel                                                |   | -                     |   |   | -         |   |   | 1,729     |   |   | 8,171             |  
|                                                      |   |                       |   |   |           |   |   |           |   |   |                   |  
|Loss before other items                               |   | (104,601              | ) |   | (57,292   | ) |   | (83,836   | ) |   | (351,645          | )
|                                                      |   |                       |   |   |           |   |   |           |   |   |                   |  
|Other items:                                          |   |                       |   |   |           |   |   |           |   |   |                   |  
|Other income                                          |   | -                     |   |   | -         |   |   | 961       |   |   | 961               |  
|Interest income                                       |   | -                     |   |   | 2,261     |   |   | 11,513    |   |   | 41,641            |  
|Write-off of deferred
      investment expenses       |   | -                     |   |   | -         |   |   | (72,127   | ) |   | (72,127           | )
|Write-down of inventory to net realizable
      value |   | (4,734                | ) |   | (6,000    | ) |   | -         |   |   | (10,734           | )
|Write-down of rights  Note 3                         |   | (113,610              | ) |   | -         |   |   | -         |   |   | (113,610          | )
|                                                      |   |                       |   |   |           |   |   |           |   |   |                   |  
|Net loss for the year                                 | $ | (222,945              | ) | $ | (61,031   | ) | $ | (143,489  | ) | $ | (505,514          | )
|                                                      |   |                       |   |   |           |   |   |           |   |   |                   |  
|Basic and diluted loss per share                      | $ | (0.04                 | ) | $ | (0.01     | ) | $ | (0.08     | ) |   |                   |  
|                                                      |   |                       |   |   |           |   |   |           |   |   |                   |  
|Weighted average number of shares outstanding         |   | 6,337,500             |   |   | 5,018,322 |   |   | 1,837,500 |   |   |                   |  

SEE ACCOMPANYING NOTES

---

- 76 -

BROCKTON CAPITAL CORP.(A Development Stage Company)
STATEMENTS OF CASH FLOWS for the years ended April 30, 2006, 2005 and
2004 and for the period from February 8, 2000 (Date of Incorporation) to
April 30, 2006 (Stated in Canadian Dollars)

|                                                               |   |                       |   |   |           |   |   |          |   |   | February 8,    |  
|-------------------------------------------------------------- | - | --------------------- | - | - | --------- | - | - | -------- | - | - | -------------- | -
|                                                               |   |                       |   |   |           |   |   |          |   |   | 2000 (Date of  |  
|                                                               |   |                       |   |   |           |   |   |          |   |   | Incorporation) |  
|                                                               |   |                       |   |   |           |   |   |          |   |   | to             |  
|                                                               |   | Years ended April 30, |   |   | April 30, |  
|                                                               |   | 2006                  |   |   | 2005      |   |   | 2004     |   |   | 2006           |  
|                                                               |   |                       |   |   |           |   |   |          |   |   |                |  
|Operating Activities                                           |   |                       |   |   |           |   |   |          |   |   |                |  
|Net loss for the period                                        | $ | (222,945              | ) | $ | (61,031   | ) | $ | (143,489 | ) | $ | (505,514       | )
|Add (deduct) items not involving cash:                         |   |                       |   |   |           |   |   |          |   |   |                |  
|Interest
      accrual on notes receivable                     |   | -                     |   |   | (1,946    | ) |   | -        |   |   | (1,946         | )
|Write-off of deferred investment
      expenses                |   | -                     |   |   | -         |   |   | 72,127   |   |   | 72,127         |  
|Write-down
      of inventory to net realizable value          |   | 4,734                 |   |   | 6,000     |   |   | -        |   |   | 10,734         |  
|Write-down of rights                                           |   | 113,610               |   |   | -         |   |   | -        |   |   | 113,610        |  
|Changes in non-cash working capital items related
      to     |   |                       |   |   |           |   |   |          |   |   |                |  
|operations:                                                    |   |                       |   |   |           |   |   |          |   |   |                |  
|GST and interest
      receivable                              |   | (4,395                | ) |   | 1,424     |   |   | 3,050    |   |   | (7,298         | )
|Inventory                                                      |   | -                     |   |   | (10,735   | ) |   | -        |   |   | (10,735        | )
|Prepaid expenses                                               |   | -                     |   |   | -         |   |   | 9,700    |   |   | -              |  
|Accounts payable and accrued
      liabilities                 |   | 77,272                |   |   | 17,095    |   |   | 6,114    |   |   | 120,862        |  
|                                                               |   |                       |   |   |           |   |   |          |   |   |                |  
|Cash used in operating activities                              |   | (31,724               | ) |   | (49,193   | ) |   | (52,498  | ) |   | (208,160       | )
|                                                               |   |                       |   |   |           |   |   |          |   |   |                |  
|Investing Activities                                           |   |                       |   |   |           |   |   |          |   |   |                |  
|Notes and
      accrued interest receivable                    |   | -                     |   |   | -         |   |   | (49,414  | ) |   | (121,664       | )
|Deferred investment expenses                                   |   | -                     |   |   | -         |   |   | (34,679  | ) |   | (72,127        | )
|                                                               |   |                       |   |   |           |   |   |          |   |   |                |  
|Cash used in investing activities                              |   | -                     |   |   | -         |   |   | (84,093  | ) |   | (193,791       | )
|                                                               |   |                       |   |   |           |   |   |          |   |   |                |  
|Financing Activities                                           |   |                       |   |   |           |   |   |          |   |   |                |  
|Proceeds
      from shares issued                              |   | -                     |   |   | 4,500     |   |   | -        |   |   | 448,875        |  
|Share issue costs                                              |   | -                     |   |   | -         |   |   | -        |   |   | (72,783        | )
|Notes payable                                                  |   | 40,000                |   |   | -         |   |   | -        |   |   | 40,000         |  
|                                                               |   |                       |   |   |           |   |   |          |   |   |                |  
|Cash provided by financing activities                          |   | 40,000                |   |   | 4,500     |   |   | -        |   |   | 416,092        |  
|                                                               |   |                       |   |   |           |   |   |          |   |   |                |  
|Increase in cash and cash equivalents during
      the period  |   | 8,276                 |   |   | (44,693   | ) |   | (136,591 | ) |   | 14,141         |  
|                                                               |   |                       |   |   |           |   |   |          |   |   |                |  
|Cash and cash equivalents at the beginning
      of the period |   | 5,865                 |   |   | 50,558    |   |   | 187,149  |   |   | -              |  
|                                                               |   |                       |   |   |           |   |   |          |   |   |                |  
|Cash and cash equivalents at the end of the
      period       | $ | 14,141                |   | $ | 5,865     |   | $ | 50,558   |   | $ | 14,141         |  

/contd

SEE ACCOMPANYING NOTES

---

- 77 -

| | BROCKTON CAPITAL CORP.                                                                   | Continued
| | ---------------------------------------------------------------------------------------- | ---------
| | (A Development Stage Company)                                                            |          
| | STATEMENTS OF CASH FLOWS                                                                 |          
| | for the years ended April 30,
      2006, 2005 and 2004                                  |          
| | and for the period from
      February 8, 2000 (Date of Incorporation) to April 30, 2006 |          
| | (Stated in Canadian
      Dollars)                                                       |          

|                                                  |   |                       |  |   |           |  |   |        |  |   | February 8, 2000  | 
|------------------------------------------------- | - | --------------------- |  | - | --------- |  | - | ------ |  | - | ----------------- | 
|                                                  |   |                       |  |   |           |  |   |        |  |   | (Date of          | 
|                                                  |   |                       |  |   |           |  |   |        |  |   | Incorporation) to | 
|                                                  |   | Years ended April 30, |  |   | April 30, | 
|                                                  |   | 2006                  |  |   | 2005      |  |   | 2004   |  |   | 2006              | 
|                                                  |   |                       |  |   |           |  |   |        |  |   |                   | 
|Cash and cash equivalents consist of:             |   |                       |  |   |           |  |   |        |  |   |                   | 
|Cash                                              | $ | 14,141                |  | $ | 5,865     |  | $ | 10,558 |  | $ | 14,141            | 
|Term deposits                                     |   | -                     |  |   | -         |  |   | 40,000 |  |   | -                 | 
|                                                  |   |                       |  |   |           |  |   |        |  |   |                   | 
|                                                  | $ | 14,141                |  | $ | 5,865     |  | $ | 50,558 |  | $ | 14,141            | 
|                                                  |   |                       |  |   |           |  |   |        |  |   |                   | 
|Supplemental disclosure of cash flow information: |   |                       |  |   |           |  |   |        |  |   |                   | 
|Cash paid for:                                    |   |                       |  |   |           |  |   |        |  |   |                   | 
|Interest                                          | $ | -                     |  | $ | -         |  | $ | -      |  | $ | -                 | 
|                                                  |   |                       |  |   |           |  |   |        |  |   |                   | 
|Income
      taxes                                | $ | -                     |  | $ | -         |  | $ | -      |  | $ | -                 | 
|                                                  |   |                       |  |   |           |  |   |        |  |   |                   | 
|                                                  |   |                       |  |   |           |  |   |        |  |   |                   | 
|Non-cash Transactions  Note 8                    |   |                       |  |   |           |  |   |        |  |   |                   | 

SEE ACCOMPANYING NOTES

---

- 78 -

BROCKTON CAPITAL CORP. (A Development Stage Company)
STATEMENT OF SHAREHOLDERS EQUITY (DEFICIENCY) for the period from
February 8, 2000 (Date of Incorporation) to April 30, 2005 (Stated in
Canadian Dollars)

RetainedEarnings(Deficit)AccumulatedCommon
        Stock
      
      
      
      
      
      During theNumber of
      
      
      
      
      
      Contributed
      
      
      DevelopmentShares
      
      
      Amount
      
      
      Surplus
      
      
      Stage
      
      
      TotalBalance, February 8, 2000
      
      -
      
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -(Date of Incorporation)Net income for the period
      
      -
      
      
      -
      
      
      -
      
      
      737
      
      
      737Balance, April 30, 2000
      
      -
      
      
      -
      
      
      -
      
      
      737
      
      
      737Cash received from escrow share
      
      2,250,000
      
      
      168,750
      
      
      -
      
      
      -
      
      
      168,750issuances at $0.075 per shareNet income for the year
      
      -
      
      
      -
      
      
      -
      
      
      1,297
      
      
      1,297Balance, April 30, 2001
      
      2,250,000
      
      
      168,750
      
      
      -
      
      
      2,034
      
      
      170,784Cash received from shareissuances at $0.15 per share
      
      1,837,500
      
      
      275,625
      
      
      -
      
      
      -
      
      
      275,625Less share issue costs
      
      -
      
      
      (72,783
      )
      
      -
      
      
      -
      
      
      (72,783
      )Net loss for the year
      
      -
      
      
      -
      
      
      -
      
      
      (34,310
      )
      
      (34,310
      )Balance, April 30, 2002
      
      4,087,500
      
      
      371,592
      
      
      -
      
      
      (32,276
      )
      
      339,316Net loss for the year
      
      -
      
      
      -
      
      
      -
      
      
      (45,773
      )
      
      (45,773
      )Balance, April 30, 2003
      
      4,087,500
      
      
      371,592
      
      
      -
      
      
      (78,049
      )
      
      293,543Net loss for the year
      
      -
      
      
      -
      
      
      -
      
      
      (143,489
      )
      
      (143,489
      )Balance, April 30, 2004
      
      4,087,500
      
      
      371,592
      
      
      -
      
      
      (221,538
      )
      
      150,054Cancel escrow shares
      
      (2,250,000
      )
      
      (168,750
      )
      
      168,750
      
      
      -
      
      
      -Cash received from share
      
      4,500,000
      
      
      4,500
      
      
      -
      
      
      -
      
      
      4,500issuance at $0.001 per shareNet loss for the year
      
      -
      
      
      -
      
      
      -
      
      
      (61,031
      )
      
      (61,031
      )Balance, April 30, 2005
      
      6,337,500
      
      
      207,342
      
      
      168,750
      
      
      (282,569
      )
      
      93,523Net loss for the year
      
      -
      
      
      -
      
      
      -
      
      
      (222,945
      )
      
      (222,945
      )Balance, April 30, 2006
      
      6,337,500
      
      $
      207,342
      
      $
      168,750
      
      $
      (505,514
      )
      $
      (129,422
      )


SEE ACCOMPANYING NOTES

---

- 79 -

BROCKTON CAPITAL CORP. (A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS April 30, 2006, 2005 and 2004
(Stated in Canadian Dollars)

|Note 1 | Nature and Continuance of
      Operations
|------ | ------------------------------------------

The Company is in the development
stage and during the year ended April 30, 2005, entered into a distributor
agreement with Cyberhand Technologies Inc. (Cyberhand) to acquire the right to
market, sell and distribute in Canada the full product line of Cyberhand.

These financial statements have been
prepared on a going concern basis. The Company has a working capital deficiency
of $139,422, has yet to achieve profitable operations and has accumulated a
deficit of $505,514 since inception. Its ability to continue as a going concern
is dependent upon the ability of the Company to generate profitable operations
in the future and/or to obtain the necessary financing to meet its obligations
and repay its liabilities arising from normal business operations when they come
due. The outcome of these matters cannot be predicted with any certainty at this
time and raise substantial doubt that the Company will be able to continue as a
going concern. These financial statements do not include any adjustments to the
amounts and classification of assets and liabilities that may be necessary
should the Company be unable to continue as a going concern. The Company
anticipates that additional funding will be in the form of equity financing from
the sale of common shares. The Company may also seek to obtain short-term loans
from the directors of the Company. There are no current arrangements in place
for equity funding or short-term loans.

At April 30, 2004, the Companys
shares were listed on the TSX Venture Exchange (TSX) and the Company was
classified as a Capital Pool Company as defined in the TSX policy 2.4. Effective
June 16, 2004, the Company was delisted from trading on the TSX-V at the request
of the Company and effective March 28, 2005, the Companys common shares
commenced trading on the Over-The-Counter Bulletin Board in the United States of
America.

The Company was incorporated under the
Company Act of the Province of British Columbia on February 8, 2000.

|Note 2 | Significant Accounting
      Policies
|------ | -------------------------------------

The financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles (GAAP) in Canada and are stated in Canadian dollars. These
financial statements conform in all respects with GAAP in the United States of
America. Because a precise determination of many assets and liabilities is
depended on the future events, the preparation of financial statements for a
period necessarily involves the use of estimates, which have been made using
careful judgement. Actual results could differ from these estimates.

These financial statements have, in
managements opinion, been properly prepared within reasonable limits of
materiality and within the framework of significant accounting policies
summarized below:

---

- 80 -

Brockton Capital Corp. (A Development Stage Company)
Notes to the Financial Statement April 30, 2006, 2005 and 2004
(Stated in Canadian Dollars)  Page 2

|Note 2 | Significant Accounting
      Policies (contd)
|------ | -----------------------------------------------

| | a) | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Cash and cash equivalents consist of all highly liquid
      investments that are readily convertible to cash and have maturities of
      three months or less when purchased.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | b) | Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Inventory is recorded at the lower of cost and net
      realizable value. Cost is determined using the first in first out method.
      Inventory consists of finished goods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | c) | Loss Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Basic loss per share is computed by dividing the loss for
      the year by the weighted average number of shares outstanding during the
      year. Diluted loss per share reflect the potential dilution that could
      occur if potentially dilutive securities were exercised or converted to
      common stock. The dilutive effect of options and warrants and their
      equivalent is computed by application of the treasury stock method and the
      effect of convertible securities by the if converted method. Fully
      diluted amounts are not presented when the effect of the computations are
      anti-dilutive due to the losses incurred. Accordingly, there is no
      difference in the amounts presented for basic and diluted loss per
      share.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | d) | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The carrying value of the Companys financial
      instruments, consisting of cash and cash equivalents and accounts payable
      and accrued liabilities approximate their fair value due to the short-term
      maturity of such instruments. Notes payable also approximate fair value.
      Unless otherwise noted, it is managements opinion that the Company is not
      exposed to significant interest, currency or credit risks arising from
      these financial instruments.                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | e) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The Company follows the liability method of accounting
      for income taxes. Under this method, current income taxes are recognized
      for the estimated income taxes payable for the current year. Future income
      tax assets and liabilities are determined based on differences between tax
      and accounting basis of assets and liabilities. The future tax assets or
      liabilities are calculated using the tax rates for the periods in which
      the differences are expected to be settled. Future tax assets are
      recognized to the extent that they are considered more likely than not to
      be realized.                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | f) | Rights                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Intangible assets with indefinite lives are not amortized
      but are subject to an annual impairment test. Other intangible assets are
      amortized over their estimated useful lives and are also tested for
      impairment annually. Impairment write-downs will be charged to
      operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

---

- 81 -

Brockton Capital Corp. (A Development Stage Company)
Notes to the Financial Statement April 30, 2006, 2005 and 2004
(Stated in Canadian Dollars)  Page 3

|Note 2 | Significant Accounting
      Policies (contd)
|------ | -----------------------------------------------

| | g) | Stock-based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The fair value of all share purchase options granted is
      expensed over their vesting period with a corresponding increase to
      contributed surplus. Upon exercise of share purchase options, the
      consideration paid by the option holder, together with the amount
      previously recognized in contributed surplus, is recorded as an increase
      to share capital.                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The Company uses the Black-Scholes option valuation model
      to calculate the fair value of share purchase options at the date of
      grant. Option pricing models require the input of highly subjective
      assumptions, including the expected price volatility. Changes in these
      assumptions can materially affect the fair value estimate and, therefore,
      the existing models do not necessarily provide a reliable single measure
      of the fair value of the Companys share purchase
  options.

|Note 3 | Rights Note 8
|------ | --------------

By a distributor agreement dated July
5, 2004, the Company acquired the non-exclusive right to market, sell and
distribute in Canada the full product line of Cyberhand Technologies Inc.
(Cyberhand). Consideration paid was the assignment of the principal and
accrued interest of $123,610 due from Cyberhand on promissory notes receivable.
Under the terms of the agreement and amendment dated July 5, 2006, the Company
agreed to purchase a minimum of 15,000 units on or before July 5, 2007, and upon
completion of this minimum order, to purchase 50,000 units per month or forfeit
its rights acquired under the July 5, 2004 agreement. As required by the
agreement, the Company purchased an initial stocking order of 200 units at a
cost of $10,735, which was written down to its net realizable value of $4,735
during the year ended April 30, 2005 and to $1 during the year ended April 30,
2006. During the year ended April 30, 2006, the Company wrote down the rights to
$10,000 to recognize the possible impairment of the asset primarily due to the
lack of sales of the product.

|Note 4 | Notes Payable
|------ | -------------

The notes payable are due on demand,
bear interest at 10% per annum and are unsecured. Included in notes payable are
notes due to directors of the Company ($9,500) and a Company controlled by a
director of the Company ($7,000).

|Note 5 | Share Capital
|------ | -------------

| | a) | Authorized:                                                                                        
| | -- | ---------------------------------------------------------------------------------------------------
| |    |                                                                                                    
| |    | 100,000,000 common shares without par value 
        100,000,000 preferred shares without par value

---

- 82 -

Brockton Capital Corp. (A Development Stage Company)
Notes to the Financial Statement April 30, 2006, 2005 and 2004
(Stated in Canadian Dollars)  Page 4

|Note 5 | Share Capital (contd)
|------ | -----------------------

| | b) | Commitments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Stock-based Compensation Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The Company has granted directors and officers common
      share purchase options. Options are granted with an exercise price equal
      to the market price of the Companys stock on the date of the grant,
      however, the Company was not publicly listed at the date of the grant and
      the options were priced equal to the offering price on the Companys
      Initial Public Offering. Unless otherwise stated, share purchase options
      vest when granted. Details of share purchase options for the year ended
      April 30, 2006 and 2005 are as follows:

| |                                     |  | April 30, 2006 |  |   | April 30, 2005 | 
| | ----------------------------------- |  | -------------- |  | - | -------------- | 
| |                                     |  |                |  |   | Weighted       | 
| |                                     |  |                |  |   | Average        | 
| |                                     |  | Number of      |  |   | Exercise       | 
| |                                     |  | Shares         |  |   | Price          | 
| |                                     |  |                |  |   |                | 
| |                                     |  |                |  |   |                | 
| |                                     |  |                |  |   |                | 
| | Options outstanding and exercisable |  | 302,500        |  | $ | 0.15           | 
| | at beginning and end of year        |  |                |  |   |                | 

At April 30, 2006, directors and
officers of the Company held 302,500 common share purchase options. Each option
entitles the holder to purchase one share for each option held at $0.15 per
share. These options expire on August 28, 2006.

|Note 6 | Related Party Transactions Notes 4 and 5
|------ | -----------------------------------------

The Company incurred the following
expenses charged by a partnership controlled by two directors of the Company:

| |                  |   | Years ended April 30, | 
| | ---------------- | - | --------------------- | 
| |                  |   | 2006                  | 
| |                  |   |                       | 
| | Accounting fees  | $ | 8,797                 | 
| | Equipment rental |   | 6,000                 | 
| | Office rent      |   | 9,000                 | 
| | Office supplies  |   | 3,000                 | 
| |                  |   |                       | 
| |                  | $ | 26,797                | 

These charges were measured by the
exchange amount, which is the amount agreed upon by the transacting parties.

At April 30, 2006, accounts payable
and accrued liabilities includes $34,078 (2005: $17,340) to a partnership
controlled by two directors of the Company.

---

- 83 -

Brockton Capital Corp. (A Development Stage Company)
Notes to the Financial Statement April 30, 2006, 2005 and 2004
(Stated in Canadian Dollars)  Page 5



|Note 6 | Related Party Transactions Notes 4 and
      5  (contd)                                                                                                                                                                                                   
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                              
|       | During the year ended April 30, 2005, directors and
      officers were issued 1,250,000 shares at $0.001 per share pursuant to a
      private placement.                                                                                                   
|       |                                                                                                                                                                                                                                                              
|Note 7 | Corporation Income Tax Losses                                                                                                                                                                                                                                
|       |                                                                                                                                                                                                                                                              
|       | At April 30, 2006, the Company has accumulated eligible
      capital costs of $92,708 and non-capital losses totaling $462,695, which
      are available to reduce taxable income in future taxation years. The
      non-capital losses expire as follows:

|2007 | $ | 420     | 
|---- | - | ------- | 
|2008 |   | 2,748   | 
|2009 |   | 48,867  | 
|2010 |   | 60,060  | 
|2014 |   | 157,207 | 
|2015 |   | 74,847  | 
|2016 |   | 118,546 | 
|     |   |         | 
|     | $ | 462,695 | 

Significant components of the
Companys future tax assets and liabilities, after applying enacted corporate
income tax rates are as follows:

| |                                |   | 2006     |   |   | 2005     |  
| | ------------------------------ | - | -------- | - | - | -------- | -
| |                                |   |          |   |   |          |  
| | Future income tax assets       |   |          |   |   |          |  
| | Net tax losses carried forward | $ | 164,812  |   | $ | 120,452  |  
| | Marketing rights               |   | (11,007  | ) |   | (10,816  | )
| |                                |   |          |   |   |          |  
| |                                |   | 153,805  |   |   | 109,636  |  
| | Less: valuation allowance      |   | (153,805 | ) |   | (109,636 | )
| |                                |   |          |   |   |          |  
| |                                | $ | -        |   | $ | -        |  

|       | The Company recorded a valuation allowance against its
      future income tax assets based on the extent to which it is
      more-likely-than-not that sufficient taxable income will not be realized
      during the carry forward periods to utilize all the future tax assets.
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                     
|Note 8 | Non-cash Transactions                                                                                                                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                                     
|       | Investing and financing activities that do not have an
      impact on current cash flows are excluded from the statement of cash
      flows. The following transactions have been excluded:                                                                                       

---

- 84 -

Brockton Capital Corp. (A Development Stage Company)
Notes to the Financial Statement April 30, 2006, 2005 and 2004
(Stated in Canadian Dollars)  Page 6

|Note 8 | Non-cash Transactions
      (contd)      
|------ | -------------------------------------------
|       |                                            
|       | During the year ended April 30,
      2005;

| | a) | the Company cancelled and returned to treasury 2,250,000
      common shares previously issued at $0.075 per share ($168,750). The amount
      paid for these shares has been recorded as contributed surplus.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                
| | b) | the Company acquired Rights (Note 3) in exchange for
      notes and accrued interest receivable of
$123,610.                                                                                                  

---

- 85 -

ITEM
19.              
Exhibits

Exhibits Required by Form 20-F.

|Exhibit |                                                                                                                                                                       
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                                           
|        |                                                                                                                                                                       
|1.1     | Certificate of
      Incorporation (1)                                                                                                                                
|        |                                                                                                                                                                       
|1.2     | Notice of
      Articles (1)                                                                                                                                          
|        |                                                                                                                                                                       
|1.3     | Transition
      Application (1)                                                                                                                                      
|        |                                                                                                                                                                       
|1.4     | Articles (1)                                                                                                                                                          
|        |                                                                                                                                                                       
|1.5     | Notice of
      Articles (2)                                                                                                                                          
|        |                                                                                                                                                                       
|1.6     | Certificate of
      Name Change (2)                                                                                                                                  
|        |                                                                                                                                                                       
|1.7     | Articles (2)                                                                                                                                                          
|        |                                                                                                                                                                       
|4.1     | Form of
      Subscription Agreement entered into with the following persons in December
      2006: (2)                                                              
|        |                                                                                                                                                                       
|        | Firebird Global
      Master Fund II, Ltd.                                                                                                                            
|        | Firebird Global Master Fund, Ltd.                                                                                                                                     
|        | F.T.S. Worldwide
      Corporation                                                                                                                                    
|        | Pinetree Resource Partnership                                                                                                                                         
|        | MB Picks Capital
      Corp.                                                                                                                                          
|        | Treshnish Investment, Inc.                                                                                                                                            
|        | Bob Faris                                                                                                                                                             
|        | Bill Brandes                                                                                                                                                          
|        | Steve McGuire                                                                                                                                                         
|        | Tarbo Resources Ltd.                                                                                                                                                  
|        | Woodburn Holdings
      Ltd.                                                                                                                                          
|        | Dave Goodman & Jane Goodman                                                                                                                                           
|        | Mike Parker                                                                                                                                                           
|        | Peter K. Spencer                                                                                                                                                      
|        |                                                                                                                                                                       
|4.2     | Form of Subscription Agreement
      entered into with the following persons in December 2006: (2)                                                                    
|        |                                                                                                                                                                       
|        | Murdock Capital Partners Corp.                                                                                                                                        
|        | Murdock
      Opportunity Fund                                                                                                                                        
|        | Jay S. Kennedy                                                                                                                                                        
|        | George T.
      Stapleton II                                                                                                                                          
|        | Michael Berry                                                                                                                                                         
|        |                                                                                                                                                                       
|4.3     | Employment Agreement dated
      December 15, 2006 with R. William Thornton (2)                                                                                       
|        |                                                                                                                                                                       
|4.4     | Letter of Intent dated December
      20, 2006 with Deerfield Energy LLC (2)                                                                                          
|        |                                                                                                                                                                       
|4.5     | Assumption and Loan Conversion
      Agreement dated December 20, 2006 with Agosto Corporation Ltd. and
      Deerfield Energy LLC (2)                                
|        |                                                                                                                                                                       
|4.6     | First Supplemental Agreement to
      Assumption and Loan Conversion Agreement dated December 20, 2006 with
      Agosto Corporation Ltd. and Deerfield Energy LLC (2)

---

- 86 -

|4.7  | Letter of Intent dated December 20, 2006 with Trinity
      Sands Energy LLC (2)                                                                                          
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                           
|4.8  | Assumption and Loan Conversion Agreement dated December
      20, 2006 with Agosto Corporation Ltd. and Trinity Sands Energy LLC
    (2)                                  
|     |                                                                                                                                                                           
|4.9  | First Supplemental Agreement to Assumption and Loan
      Conversion Agreement dated December 20, 2006 with Agosto Corporation Ltd.
      and Trinity Sands Energy LLC (2)
|     |                                                                                                                                                                           
|4.10 | Form of Warrant Issuance Agreement dated December 20,
      2006 entered into with: (2)                                                                                   
|     |                                                                                                                                                                           
|     | Gladrock Energy LLC                                                                                                                                                       
|     | Endurance Energy Consulting Ltd.                                                                                                                                          
|     | 1187016 Alberta Ltd.                                                                                                                                                      
|     |                                                                                                                                                                           
|4.11 | Form of Debt Settlement and Subscription Agreement dated
      December 21, 2006 entered into with: (2)                                                                   
|     |                                                                                                                                                                           
|     | Karkrash Holdings Ltd. Carob Management Ltd.
      Brian Hanson Roy Brown Amisano Hanson                                                                                  
|     |                                                                                                                                                                           
|4.12 | Stock Option Plan dated August 24, 2004, amended and restated
        February 19, 2007 and August 9, 2007 (3)                                                            
|     |                                                                                                                                                                           
|4.13 | Stock Option Plan dated January 5, 2007 (3)                                                                                                                               
|     |                                                                                                                                                                           
|4.14 | Form of Subscription Agreement entered into with the
      following persons in January and February 2007:
(2)                                                            

| | RSJN Holdings Ltd.          | Michael Geleta                | Kim Gulevich         
| | --------------------------- | ----------------------------- | ---------------------
| | Brent Rolufs                | Hector L. Demers              | 633430 Alberta Ltd.  
| | Ethel Holmberg              | Robert Douglas Gerbrandt      | Darren Dzikowski     
| | Douglas R. Anthony          | Andiamo (Thunder Bay) Inc.    | Frank Quinby         
| | Terence Schorn              | Kosta Tsoutsis                | GKM Holdings Ltd.    
| | James S. Unterschultz       | Aeron T. Evans                | John B. Ross         
| | Marcel Brichon              | Pinetree Resource Partnership | Ginette Maguire      
| | HBK Resources Ltd.          | Robert Steinborn              | Richard J. Sorensen  
| | Pacific West Ventures Inc.  | Tom Rupprecht                 | Sandra Rupprecht     
| | Laurie Anne Thornton        | Steve Palmer                  | Gordon Elliott       
| | Ian Downs                   | Sanjay Maharaj                | Lawrence I. Hamm     
| | Hilde Clovechok             | Craig A. Mills                | Donna G. Mills       
| | Howard P. Prumer            | Anne V. Pruner                | Brian J. Evans       
| | Rayna Lynnette Elsdon       | Fairview Capital (1978) Ltd.  | Dale Loewen          
| | Dean Duke                   | Julie Catling                 | Diane Winstanley     
| | Myron Braun                 | Kalayra B. Angelyys           | Ping Pong Toth       
| | Shaun Kelbert               | Suzanne Liptak                | Bill Brandes         
| | Michael and Cindy Mallett   | George Kokonis                | Tamara Ross          
| | Shane Koh                   | Christine Sealock             | MP Pics Capital Corp.
| | Fundarica Investments       | Channing Investments Corp.    | Richard A. Brook     
| | Dr. Valerie Kuehne and John | Gary Danylchuk                | Brian C. McIntosh    
| | Kuehne                      | Brock Helm                    | Karen Gable          
| | Larry Thompson              | 624659 Alberta Ltd.           | Jerry Chrzaszcz      
| | Michael Geleta              | Thomas Martin Christopher     | Donald Rickard       
| | Doug Ramsey                 | Garry Fizzell                 | Randy L. Oswald      
| | Terrence G. Dingwell        | Mike McCaffrey                | Carole MacLeod       
| | Barry Parsons               | Hector L. Demers              | Tyler Romanchuk      
| | Cory Pichota                | Gianni Sgambaro               | Danny Dion           
| | Ryan Larsh                  | B.R. (Ron) Voogel             | Taras Pysyk          

---

- 87 -

| | Monica McGrandle                        | 0750412 B.C. Ltd.                    | Michael McBride         
| | --------------------------------------- | ------------------------------------ | ------------------------
| | Graham Dallimore                        | Randall Pow                          | Eat-Me Foods Ltd.       
| | Michael Laidlaw                         | Dave Van Dyke                        | Carrie Louise Clark     
| | In-Sook Leigh                           | George Hatch                         | James G. Taylor         
| | Camille Hodge                           | Mark and Birgitta Redcliffe          | Anita Datt              
| | Ramona Vorberg                          | Terrance Sigmund                     | Faten Ardakani          
| | Chris Vorberg                           | Fraser Hindson                       | Sandra E. Fopma         
| | Nick Reeves                             | Rolf Tevely                          | Shane Meyers            
| | PowerOne Capital Markets
      Limited  | Minaz Devji                          | 1091096 Ontario Inc.    
| | Mary K. Hill                            | Michael McMath                       | Franco Tormene          
| | Arnold and Tricia Hughes                | 563298 B.C. Ltd.                     | Karkrash Holdings Ltd.  
| | Greg Burnett                            | David Berg                           | Jimmy S.H. Lee          
| | Bruce Durnie                            | Dossche Bart                         | Cnudde Davy             
| | Tiger Capital Corp.                     | Firebird Global Master Fund II, Ltd. | Manfid SA               
| | Firebird Global Master Fund,
      Ltd. | F.T.S. Worldwide Corporation         | Ironshore Trust         
| | Treshnish Investment, Inc.              | Stacy Broadoway                      | Marrandino Holdings Inc.
| | Doug Casey                              | Leslie Friesen, David Friesen        |                         

|4.15 | Form of Subscription Agreement entered into with the
      following persons in January and February 2007: (2)                    
|---- | ----------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                   
|     | James L. and Ann C. Donnelly John Herby James P.
      Geiskoph Al O'Hara Kurt R. Gainer Murray Vernon Kenneth
      John Greenlaw
|     |                                                                                                                                   
|4.16 | Form of Subscription Agreement entered into with the
      following persons in March 2007: (2)                                   

| | Byron Cook                    | Ethel Holmberg                 | Frank Quinby                        
| | ----------------------------- | ------------------------------ | ------------------------------------
| | Agosto Velenosi               | Ping Pong Toth and Zoltan Toth | Shaun Kelbert                       
| | Craig Lytle                   | Ron Child                      | Pentor Capital Corp                 
| | Barrie Einarson               | Kenneth Jabs                   | Firebird Global Master Fund II, Ltd.
| | Pinetree Resource Partnership | 0753829 BC Ltd.                | George Kokonis                      
| | R. Douglas Gerbrandt          | Cullen Kuzio                   | Brock Helm                          
| | 633430 Alberta Ltd.           | Hazel Reid                     | Kenneth Santa                       
| | Deryl Williams                | Dossche Bart                   | Vanderstraeten Luc                  
| | Cnudde Martin                 | Cnudde Davy                    | 2034511 Ontario Inc.                
| | 2034512 Ontario Inc.          | Iatima M da Rosa               | Jeffery Berliner                    
| | Julia Della Maestra           | Thomas Della Maestra           | Gary Elman                          
| | Anne Fairfull                 | David Pinkus                   | Tom James                           
| | Nassrin Kabiri                | Allen Koffman                  | Douglas Mukley                      
| | Tony Baldassarre              | Vivien Roe-Perry               | Rosenbloom Medicine Professional    
| | Aaron Shier                   | Cindy G. White                 | Corporation                         
| | 558859 BC Ltd.                | Vital Beliveau                 | International Capital               
| | Radcliff Foundation           | Bateman and Company Ltd.       | Dianna L Bull                       
| | Marcel Brichon                | Aeron T. Evans                 | Kriston Sehn                        
| | Pauline Wong                  | Sturgeon Holdings Corp.        | Brent Rolufs                        
| | Chang Wan Stephan Woo         | Patrick Whibley                | Donald Rickard                      
| | 1004387 Alberta Ltd.          | Eric Negraeff                  | Lawrence Chernoff                   
| | Nathan Isbister               | Garry Fizzell                  | Mike McCaffrey                      
| | Ron Carole MacLeod            | Jack Cross Roberta Cross       | Hector Demers                       
| | Christian Yoingco             | Bruce Hudson                   | DKR Saturn Event Driven Holdings    
| | Larry Krawchuck               | Rupprecht Family Trust         | Fund Ltd.                           
| | Hudson Family Trust           | Joe Schaab                     | Myron Braun                         
| | Douglas Kurek                 | Shelley Sorensen               | Deborah Schaab                      
| | Sukhbir Mann                  | George A. Brown                | Andrew Thornton                     
| | Lawrence I Hamm               | 6249659 Alberta Ltd.           | Vertex One Asset Mgmt Inc.          
| | Lorl Anne Jensen              | Morton Elman                   | Gerry Feldman                       

---

- 88 -

| | Peter Cozzi                              | Antonietta Gatto                    | Marty Herson                        
| | ---------------------------------------- | ----------------------------------- | ------------------------------------
| | FX Inc.                                  | Warran Manis                        | Les Tanzer                          
| | Incorporated International
      Capital | Blayne Johnson                      | Gary Danylchuk                      
| | Quarry Capital Corporation               | Dr. Savvas Nicolaou Inc.            | Yong-Jong Kim                       
| | Stefaniya Danylchuk                      | Vivki Koh                           | Teak-ky Min                         
| | 578159 BC Ltd.                           | Jin-Ho Chang                        | Medallion Capital Corp.             
| | Waltraud Wilson                          | Shirley Lee                         | Denis Cooke Enterprises             
| | Roland M. Labuan                         | Denis Wilson                        | Robert Steinborn                    
| | Craig A. Mills                           | Edward Thornton                     | Steve Mantel                        
| | Peter Holt                               | Donna Mills                         | James Wagner                        
| | 6287 Holdings Inc.                       | Bernard Oegema                      | Roberto Sgambaro                    
| | Scott & Heather Kyllo                    | Dale Johnson                        | In-Sook Leigh                       
| | Tom Matthes                              | Trevor Perepolkin                   | Dan Cuerrier & sandra
      Cuerrier
| | Ron McDougall & Val McDougall            | Susan Hamilton                      | Brian Chambers                      
| | Terry T. Jarton                          | Barry Reed                          | Paloduro Inv. Inc.                  
| | Lloyd Michaels                           | Juan-Pablo Santini                  | John Flynn                          
| | Fenyo Sandro                             | Ron Perry                           | France Couture                      
| | PowerOne Capital                         | David Mills                         | Renita Narayan                      
| | Shane Meyers                             | Miranda Bradley                     | Bolder Opportunities                
| | Fundarica Investments                    | Channing Investments                | Harvey W. Cole                      
| | Doug Simpson                             | Carley J Cole                       | Lee Berstein                        
| | Jonathan Lim Keng Hock                   | Setsiskas                           | Harry Pokrandt                      
| | Tim Sorensen                             | Alex Rothwell                       | Michael Nininger                    
| | Brenda Howard                            | Kevin Gould                         | John Frome                          
| | Diane Michaels                           | Suzanne Liptak                      | Chris Gray                          
| | Colleen Mulligan                         | Eymann Investments Corp.            | Gill J Vincent                      
| | Maureen Gustufson                        | Joseph Gustafson                    | Merlin Peterson                     
| | Joseph Pau l McDonald                    | Ron Johnston                        | Sunita Prasad                       
| | RSJN Holdings Ltd.                       | Craig Bessie                        | Ian Downs                           
| | Gordon MacGregor                         | Sanjay Chand Maharaj                | Timothy Turyk                       
| | Grant Scott                              | George Charles Durham               |                                     
| |                                          |                                     |                                     
| | Radsport Holdings Inc.                   | Charles Lyall                       | David Akselson                      
| | Greg Ledding                             | William Gordica                     | Dean Claridge                       
| | Robert Lim                               | Bill Brandis                        | Sam Magid                           
| | Dean Mockney                             | Ilja Troitscanski                   | Randy Johnson                       
| | Overdrive Enterprises Ltd.               | Caulfield Trust                     | KR Lockett                          
| | Monarch Capital Fund Ltd.                | James Lockett Family Trust          | Rick Zeinot                         
| | Anatoly Langer                           | Asset Management Limited            | Kelly Shibata                       
| | Ron Rubuliak                             | John McGoldrick                     | Victor Dario                        
| | Half Moon Foundation                     | Steve Krystofiak                    | Larry Thompson                      
| | Goma Foundation                          | Doug Casey                          | Carmen Martin                       
| | Todd Sharum                              | Paul Hickey                         | Dale Lowen                          
| | Frazer Loney                             | Adam Vary                           | Aly Mawji                           
| | Tango Corp Inc                           | Gillian Branson                     | Scott Calderwood                    
| | Scott Wilson                             | Gordon MacGregor Elliot             | Shelly Shaw                         
| | Larry Sostad                             | Randy Chan                          | Bill Griffis                        
| | Jim Slipp                                | Bank Sal.oppenheim Jr. & Cie Zurich | James Treliving Holdings            
| | Trout Exploration &
      Mining Ltd.    |                                     | Bradner                             

|4.17 | Form of
      Subscription Agreement entered into with the following persons in March
      2007: (2)
|---- | -----------------------------------------------------------------------------------------------------

| | John Herby      | Hugo Liberti                  | Terrence J. Hankerson    
| | --------------- | ----------------------------- | -------------------------
| | Murray Vernon   | John Philip Mappin            | Paul Yezzi               
| | Ken Danylchuck  | Veron F. Ross                 | Barbara Yeomans          
| | Monika Campbell | Ted & Kim Williams            | Kenneth & Stephanie Alton
| | Gerard Gloisten | Charles B Simmons Jr.         | Ronald Eisenberg         
| | Kurt Gainer     | Robert Holtzclaw & Darlene    | David Sparks             
| | David Batchelor | Holtzclaw                     | CMS Capital              
| | Gerald Dasbach  | KJV Investment Family Limited | Will Harris              
| | John Krolick    | Partnership                   | Ken Greenlaw             
| | Scott McNitt    | James Geiskopf                | Peter M Halloran         

---

- 89 -

| | Gary Olsen           | Wei-Tek Tsai / Enyan Deng | Roy Holdings LLC   
| | -------------------- | ------------------------- | -------------------
| | Tradewinds Fund Ltd. | Robert Rushing            | Al Ohara           
| | William Lee Buse     | Cushing MLP Opportunity   | Thomas D. Willis II
| |                      | Little Wing LP            |                    

|4.18 | Asset Purchase Agreement dated
        March 26, 2007 with Deerfield Energy Kansas Corp. (2)                                                                               
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                            
|4.19 | Membership Unit Purchase Agreement
        dated March 26, 2007 with the members of Deerfield Energy LLC (3)                                                               
|     |                                                                                                                                                                            
|4.20 | Membership Unit Purchase Agreement
        dated April 2, 2007 with the members of Kentucky Reserves, LLC (3)                                                              
|     |                                                                                                                                                                            
|4.21 | Membership Unit Purchase Agreement
        dated April 25, 2007 with the members of Trinity Sands Energy LLC (3)                                                           
|     |                                                                                                                                                                            
|4.22 | Escrow Agreement dated April
        5, 2007 with the unitholders of Deerfield Energy LLC and Clark Wilson
        LLP (3)                                                 
|     |                                                                                                                                                                            
|4.23 | Consulting Agreement dated as
        of February 15, 2007 with Mercury Capital Inc. (3)                                                                                   
|     |                                                                                                                                                                            
|4.24 | Employment Agreement with George
        T. Stapleton, II (3)                                                                                                              
|     |                                                                                                                                                                            
|4.25 | Employment Agreement with George
        Orr (3)                                                                                                                           
|     |                                                                                                                                                                            
|4.26 | Warrant Certificate dated February
        28, 2007 for 375,000 units at US$1.30 evidencing Rights Agreement entered
        into with PowerOne Capital Markets Limited (3)
|     |                                                                                                                                                                            
|4.27 | Warrant Certificate dated January
        5, 2007 for 180,000 units at US$0.50 evidencing Rights Agreement entered
        into with PowerOne Capital Markets Limited (3)  
|     |                                                                                                                                                                            
|8.1  | Significant, direct and indirect,
        subsidiaries as at August 8, 2007:                                                                                               
|     |                                                                                                                                                                            
|     | MegaWest Energy (USA) Corp. - Nevada                                                                                                                                       
|     | MegaWest Energy Missouri Corp (formerly Deerfield Energy LLC)  Delaware                                                                                                   
|     | MegaWest Energy Kansas Corp (formerly Deerfield Energy
        Kansas Corp.)  Delaware                                                                                    
|     | MegaWest Energy Kentucky Corp (formerly Kentucky Reserves,
        LLC)  Ohio                                                                                             
|     | MegaWest Energy Texas Corp (formerly Trinity Sands Energy LLC) - Delaware                                                                                                  
|     |                                                                                                                                                                            
|12.1 | Section
        302 Certification under Sarbanes-Oxley Act of 2002for George T.
        Stapleton, II ( 4 )                                                                
|     |                                                                                                                                                                            
|12.2 | Section
        302 Certification under Sarbanes-Oxley Act of 2002for George Orr
        ( 4 )                                                                             
|     |                                                                                                                                                                            
|12.3 | Section 906 Certification
      under Sarbanes-Oxley Act of 2002for George T. Stapleton, II and
      George Orr ( 4 )                                                     
|     |                                                                                                                                                                            
|23.1 | Consent of
      KPMG LLP (4)                                                                                                                                              
|     |                                                                                                                                                                            
|23.2 | Consent
        of Morgan & Company, Chartered Accountants (4)                                                                                                             

|(1) | Incorporated by reference to our Form 6-K filed with
        the Securities and Exchange Commission on March 6, 2006.       
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(2) | Incorporated by reference to our Form 20-F filed with
        the Securities and Exchange Commission on March 30, 2007.     
|(3) | Incorporated by reference
      to our Form 20-F filed with the Securities and Exchange Commission on August
      10, 2007.
|(4) | Filed
        herewith.                                                                                                     



---

- 90 -

SIGNATURES

The registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.

MEGAWEST ENERGY CORP.

Per: /s/ George
  T. Stapleton, II

George T. Stapleton, II 
  Chief Executive Officer, President and Director 
  (Principal Executive Officer)

Dated: October
  15 , 2007

---