10KSB

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

                                   Form 10-KSB


_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934. For the fiscal year ended April 30, 2006

___ TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
OF 1934

Commission file number 0-22661

                                VTEX ENERGY, INC.
                 (Name of small business issuer in its charter)





                      Nevada                            76-0582614
          (State or other jurisdiction of            (I.R.S. Employer
           incorporation or organization)           Identification No.)

  11811 North Freeway, Suite 200, Houston, Texas           77060
     (Address of principal executive offices)            (Zip Code)





       Registrant's telephone number, including area code: (281) 445-5880

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

                                      NONE

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




                                                     Name of Each Exchange
        Title of Each Class                           On Which registered

    Common Stock, $0.001 par value                             None





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

     Check if there is no disclosure  of  delinquent  filers in response to item
405 of Regulation S-B is not contained in this form,  and no disclosure  will be
contained,  to the best of the  registrant's  knowledge,  in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. __.

     The issuer's revenues for its most recent fiscal year were $641,621.

     The aggregate market value of the voting and non-voting  common equity held
by  non-affiliates  of the issuer was $5,465,278 as of July 31, 2006, based upon
the average  bid and asked price of $0.37 per share of such common  equity as of
that date.

     As of July 31, 2006, there were 15,087,689  shares of common stock,  $0.001
par value, outstanding.

Documents Incorporated by Reference: None

     Transitional Small Business Disclosure Format (Check one). Yes No _X_.



PART I........................................................................3

   Item 1.     Description of Business........................................3
   Item 2.     Description of Property........................................7
   Item 3.     Legal Proceedings.............................................11
   Item 4.     Submission of Matters to a Vote of Security Holders...........11

PART II......................................................................11

   Item 5.     Market for Common Equity and Related Stockholder Matters......11
   Item 6.     Management's Discussion and Analysis..........................12
   Item 7.     Financial Statements..........................................22
   Item 8.     Changes in and Disagreements With Accountants on
                 Accounting and Financial Disclosure.........................46
   Item 8A.    Controls and Procedures.......................................46
   Item 8B.    Other Information.............................................47

PART III.....................................................................47

   Item 9.    Directors, Executive Officers, Promoters and Control
                 Persons; Compliance With Section 16(a) of the Exchange Act..47
   Item 10.    Executive Compensation........................................48
   Item 11.    Security Ownership of Certain Beneficial
                 Owners and Management.......................................50
   Item 12.    Certain Relationships and Related Transactions................50
   Item 13.    Exhibits and Reports on Form 8-K..............................51
   Item 14.    Principal Accountant Fees and Services........................51

Forward Looking Statements

     This Form 10-KSB includes  "forward-looking  statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities  Exchange  Act  of  1934,  as  amended.  All  statements  other  than
statements of historical facts included in this Form 10-KSB,  including  without
limitation the  statements  under  "Description  of Business,"  "Description  of
Property" and "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations" regarding the nature of the Company's oil and natural gas
reserves,  productive wells,  acreage, and drilling activities,  the adequacy of
the Company's  financial  resources,  current and future industry conditions and
the  potential  effects of such  matters  on the  Company's  business  strategy,
results of operations and financial position,  are  forward-looking  statements.
When used in this document, the words "anticipate," "estimate," "expect," "may,"
"project,"  "believe,"  "budgeted,"  "intend," "plan," "potential,"  "forecast,"
"might,"  "predict,"  "should" and similar  expressions are intended to be among
the statements that identify forward looking statements. Such statements involve
risks and  uncertainties,  including,  but not limited to, those relating to the
results  of and our  dependence  on our  exploratory  and  development  drilling
activities,  the  volatility of oil and natural gas prices,  the need to replace
reserves  depleted  by  production,  operating  risks  of oil  and  natural  gas
operations,  our  dependence  on key  personnel,  our reliance on  technological
development and possible  obsolescence  of the technology  currently used by us,
the  significant  capital  requirements  of our  exploration and development and
technology  development programs, the potential impact of government regulations
and  liability for  environmental  matters,  results of  litigation  and audits,
expansion of our capital  budgets,  our ability to manage our growth and achieve
our business  strategy,  competition  from larger oil and natural gas companies,
the  uncertainty  of  reserve  information  and future  net  revenue  estimates,
property  acquisition  risks and other factors  detailed in this Form 10-KSB for
the year ended April 30, 2006 and other  filings with the SEC ("SEC").  Although
the Company  believes  that the  expectations  reflected in the  forward-looking
statements contained herein are reasonable,  no assurance can be given that such
expectations  will prove to have been correct.  All subsequent  written and oral
forward-looking  statements attributable to the Company or persons acting on its
behalf are expressly  qualified in their entirety by the Cautionary  Statements.
The Company assumes no duty to update or revise its  forward-looking  statements
based on changes in internal estimates or expectations or otherwise.

                                      -2-

                                     PART I

Item 1.     Description of Business

General

     VTEX Energy,  Inc., a Nevada  corporation (the "Company" or "VTEX"),  is an
independent  oil and  natural  gas  company  engaged in  acquiring,  exploiting,
developing and operating oil and natural gas  properties,  with a focus on Texas
and Louisiana. The Company has one wholly owned subsidiary,  Vector Exploration,
Inc.,  and is  headquartered  in Houston,  Texas.  The estimated  proved oil and
natural gas  reserves of the Company at April 30, 2006 were  108,000  barrels of
crude oil and condensate  and  10,277,000  MCF (thousand  cubic feet) of natural
gas.  These  reserves  have an  estimated  $27  million in future net cash flow,
discounted at 10%. Of these reserves,  an estimated  76,000 barrels of crude oil
and condensate and 6,880,000 MCF of natural gas with an estimated $16 million in
future net cash flow,  discounted at 10%, are considered to be proved developed.
The  Company's  reserves  are  located in two fields,  Bateman  Lake and Mustang
Island 818-L.



                                                          Percent of
                                                        April 30, 2006
                                                       Estimated Future     Percent of
                                                        Net Cash Flows      Fiscal 2006
       Field                     Location              Discounted at 10%      Revenue
- --------------------    ---------------------------    -----------------    ------------
                                                                   
Bateman Lake            St. Mary Parish, Louisiana           45.26%             1.10%

Mustang Island 818-L    State Waters Offshore Texas          54.74%            98.90%


Company Background

     The Company was  incorporated  under the laws of the State of Texas on June
18,  1998 as Vector  Energy  Corporation  ("Vector")  which  was a wholly  owned
subsidiary of Sunburst Acquisitions II, Inc. ("Sunburst"). Vector was formed for
the purpose of  completing  a reverse  merger  with  Sunburst in order to change
Sunburst's name to Vector Energy Corporation and its state of incorporation from
Colorado  to Texas.  This  merger  was  completed  on June 19,  1998.  Effective
November   19,  2002,   the  Company  was   reincorporated   into  Nevada.   The
reincorporation  was  effected  by the  merger of  Vector  with and into a newly
created, wholly owned subsidiary, VTEX Energy, Inc., a Nevada Corporation, which
became the surviving entity.

     Sunburst was incorporated  under the laws of the State of Colorado on March
17,  1997  as  a  "shell"  company.   Sunburst's  business  plan  was  to  seek,
investigate, and if warranted, acquire one or more properties or businesses, and
to pursue  other  related  activities  intended  to enhance  shareholder  value.
Sunburst elected to voluntarily  file a registration  statement on Form 10-SB in
order to become a reporting  company under the  Securities  Exchange Act of 1934
and continued to file periodic reports required under the Exchange Act.

     From its inception through March 2000, the Company  consummated a series of
oil and natural gas property  acquisitions  in Texas,  Louisiana  and  Oklahoma.
These  acquisitions  were funded primarily through the issuance of the Company's
stock and the assumption of debt and other liabilities.  The properties acquired
were a mixture of currently  producing  properties and properties  considered to
have future development potential.

     A lack of working capital and the service  requirements of the debt assumed
by the Company in its  acquisitions  prevented the Company from fully developing
the  properties  it had  acquired.  Accordingly,  the Company  identified  those
properties that had the most potential for future development,  and in July 2002
began to actively  market for sale the rest of its  non-strategic  producing oil
and natural gas  properties.  The proceeds  from the property  sales allowed the
Company to reduce and  restructure its debt,  while retaining  enough capital to
begin development of the properties retained.

Business Strategy

     VTEX  is  an  independent   energy  company  focused  on  the  acquisition,
exploitation,  development  and operation of oil and natural gas reserves in the
United  States,  primarily in Texas,  Louisiana and the Gulf Coast  region.  The
Company has crafted a business model specifically designed to exploit the unique
opportunities  currently  available  to small  companies in the domestic oil and
natural gas industry.  The Company's  basic  philosophy is that it will maximize
potential success by focusing on shallow,  less expensive prospects with quality
data.

                                      -3-

     The Company's  projects are focused on low risk  development type drilling,
recompletions and workovers.  Each project is screened looking at depth, seismic
data  available,  surrounding  production  from similar wells,  and proximity to
infrastructure.  The Company seeks to hold a majority  operating interest in the
projects, and thus is able to bring its experience and operating philosophy into
the project.

     The Company  utilizes a risk based economic  evaluation that compares high,
most  likely,  and low  production  and price  scenarios  to rank  projects  for
investment.  The Company's  overall business plan employs the same technique for
price and production.

     To date, the Company has chosen to focus its acquisition, exploitation, and
development  activities  primarily  in the Gulf  Coast  region.  This  region is
characterized  by  long-lived  reserves  with  predictable  and  relatively  low
production depletion rates, multiple geologic targets that decrease risk, strong
natural gas  prices,  lower  service  costs than in more  competitive  or remote
areas, a favorable regulatory  environment that encourages drilling efforts, and
virtually no federal land or land access  impediments.  Management believes that
by  continuing  to  identify  projects  that fit the  Company's  investment  and
production criteria that it has a strategy that will enhance production and cash
flow and optimize the use of the Company's investment capital.

     The  Company is  managed  by a small  highly  experienced  team  focused on
finding and structuring attractive oil and natural gas investment  opportunities
and then extracting the maximum value from them. The Company's goal is to create
long-term  value for our investors by building a significant oil and natural gas
reserve base.

     In summary,  the  Company  seeks to acquire and exploit oil and natural gas
properties with the following characteristics:

         o     primarily Gulf Coast region locations;

         o     an established production history and infrastructure;

         o     multiple productive sands and reservoirs;

         o     low current production levels with significant identified
               proven and potential reserve opportunities;and

         o     the opportunity to obtain a majority operating interest.

Going Concern Risk

     The Company has had, and could have,  losses,  deficits and deficiencies in
liquidity,  which could  impair its ability to continue as a going  concern.  In
Note 1 to its  consolidated  financial  statements,  the  Company's  independent
auditors have indicated that certain factors raise  substantial  doubt about the
Company's  ability to  continue as a going  concern.  Since its  inception,  the
Company has suffered  recurring losses from operations and has been dependent on
existing stockholders and new investors to provide the cash resources to sustain
its  operations.  During the years ended  April 30,  2006 and 2005,  the Company
reported losses of approximately  $7,447,000 and $3,960,000,  respectively.  The
Company's  continuing negative operating results have produced a working capital
deficit of  approximately  $8,579,000  at April 30, 2006.  These  factors  raise
substantial doubt about the Company's ability to continue as a going concern.

     The  Company's  long-term  viability  as a going  concern is  dependent  on
certain factors primarily including:

         o     The Company's ability to obtain sources of outside financing
               to support near term operations and to allow the Company to
               make strategic investments in new oil and  natural gas
               prospects;

         o     The Company's ability to locate attractive development
               prospects, and coordinate with timely funding that will allow
               the Company to continue to increase oil and natural gas
               reserves and production; and

         o     The Company's ability to attain profitability and sustain
               a cash flow level that will ensure support for continuing
               operations.

         o     The Company's ability to settle significant delinquent
               obligations and meet other operating criteria including its
               legal requirments for environmental bonds.

Implementation of Business Strategy is Dependent on Additional Financing

     The  Company  must  obtain  outside  financing  to fund  the  expansion  of
operations and to meet  obligations  as they become due. Such outside  financing
must be provided from the sale of equity,  common or preferred  stock,  or third

                                      -4-

party financing through debt instruments. Further, the sale of equity securities
will dilute our existing  shareholders'  interests,  and  borrowings  from third
parties could result in restrictions  on the Company's  operations if loan terms
increase the Company's debt service requirements. There is no assurance that the
Company can obtain financing on favorable terms.

Competitive Conditions

     The  exploration,  development  and  production  of oil and  natural gas is
subject to intense  competition.  The principal  methods of  competition  in the
industry  for the  acquisition  of oil and  natural  gas  leases  and  producing
properties  are the payment of cash bonus payments at the time of acquisition of
leases,  delay rentals,  location damage supplement  payments,  and stipulations
requiring  exploration  and  production  commitments  by the  lessee.  Producing
properties are frequently  offered for sale through an open competitive  bidding
process.  Companies with greater financial  resources,  existing staff and labor
forces, equipment for exploration,  and vast experience are in a better position
than the  Company  to  compete  for such  leases and  producing  properties.  In
addition,  the ability of the Company to market any oil and natural gas which it
might produce could be severely  limited by its inability to compete with larger
companies  operating in the same area, that may be drilling or able to offer any
oil and natural gas produced at a price lower than that of the Company.

     The  availability  of a ready  market for oil and natural gas depends  upon
numerous factors beyond the Company's control,  including the extent of domestic
production  and  imports of oil and  natural  gas,  proximity  and  capacity  of
pipelines, and the effect of federal and state regulation of oil and natural gas
sales, as well as environmental restrictions on the exploration and usage of oil
and natural gas prospects which will become even more intense in the future. The
Company has a minimal competitive position in the oil and gas industry.

     Supplies  requisite to the  transaction of the Company's  business  include
such items as drilling rigs and other equipment,  casing pipe,  drilling mud and
other supplies.  Such items are commonly  available from a number of sources and
the Company  foresees no shortage or  difficulty  in acquiring any raw materials
relevant  to the  conduct  of its  business  that do not  affect the oil and gas
industry as a whole.

Risks of the Oil and Gas Industry

     The current market for oil and natural gas is characterized by instability.
This instability has caused fluctuations in domestic and international world oil
and natural gas prices in recent  years and there is no  assurance  of any price
stability in the future.  The price the Company receives for its oil and natural
gas  production  in the future may not be  sufficient  to  generate  revenues in
excess of our costs of  production or provide  sufficient  cash flow to meet our
working capital requirements.

     The Company is uncertain  about the prices at which it will be able to sell
oil and natural gas that it produces.  The  Company's  estimated  future oil and
natural gas revenues  are highly  dependent on the price of oil and natural gas,
as well as the amount of oil and natural gas  produced.  The  volatility  of the
energy  market makes it difficult to estimate  future  prices of oil and natural
gas.  Various  factors beyond the Company's  control affect these prices.  These
factors include:

         o     domestic and worldwide supplies of oil and natural gas;

         o     the ability of the members of the Organization of Petroleum
               Exporting Countries, or OPEC, to agree to maintain oil price
               and production controls;

         o     political instability or armed conflict in oil-producing regions;

         o     the price of foreign imports;

         o     the level of consumer demand;

         o     the price and availability of alternative fuels;

         o     the availability of pipeline capacity; and

         o     changes in existing federal regulation and price controls.

     It is likely that oil and natural gas prices will  continue to fluctuate as
they have in the past.

                                      -5-

     The development of oil and natural gas reserves is a high risk endeavor and
is frequently marked by unprofitable efforts, such as:

         o     drilling unproductive wells;

         o     drilling productive wells which do not produce sufficient
               amounts of oil and natural gas to return a profit; and

         o     production of developed oil and natural gas reserves which
               cannot be marketed or cannot be sold for adequate market prices.

     There are many additional  risks incident to drilling for and producing oil
and natural gas.  These risks  include  blowouts,  cratering,  fires,  equipment
failure and accidents. Any of these events could result in personal injury, loss
of life and  environmental  and/or property damage. If such an event does occur,
the Company may be held liable for  properties  it operates and may not be fully
insured against these risks. In fact, many of these risks are not insurable. The
occurrence  of such events that are not fully  covered by insurance  may require
the Company to pay damages,  which would  reduce the  Company's  profits.  As of
April 30, 2006, we have not  experienced  any material losses due to these types
of events.

Dependence upon One or a Few Major Customers

     The Company  currently  markets the oil and natural gas production from its
properties to three customers, one of which represents sales in excess of 10% of
the  Company's  total oil and natural gas  revenues.  This  customer  represents
approximately 98% of the Company's total oil and natural gas revenues during the
year ended April 30,  2006.  During the year ended April 30,  2005,  the Company
marketed  its oil and  natural  gas  production  from  its  properties  to three
customers,  two of which  represented  sales in excess  of 10% of the  Company's
total  oil  and  natural  gas   revenues.   These  two   customers   represented
approximately  83% and 14% of the Company's  total oil and natural gas revenues,
respectively.  The availability of oil and natural gas purchasers,  with respect
to  onshore  production,  is  such,  however,  that any  customer  discontinuing
purchases from the Company will normally be replaced by another buyer.

         Approximately $26,000,000, or 53%, of estimated future cash flows from
the Company's proved reserves is expected to be generated from offshore
     production from the Company's  Mustang Island Block.  Available  purchasers
and
transportation facilities are much more limited for offshore production.

Governmental and Environmental Regulations

      Governmental Regulations

     Domestic  development,  production  and  sale  of oil and  natural  gas are
extensively  regulated  at  both  the  federal  and  state  levels.  Legislation
affecting  the oil and gas industry is under  constant  review for  amendment or
expansion,   frequently   increasing  the  regulatory  burden.   Also,  numerous
departments  and  agencies,  both  federal  and  state,  have  issued  rules and
regulations  binding on the oil and gas  industry  and its  individual  members,
compliance  with which is often  difficult  and  costly and some of which  carry
substantial  penalties  for failure to comply.  State  statutes and  regulations
require permits for drilling  operations,  drilling bonds and reports concerning
wells. Texas and other states in which the Company conducts operations also have
statutes  and  regulations  governing   conservation   matters,   including  the
unitization or pooling of oil and natural gas properties  and  establishment  of
maximum rates of production from oil and natural gas wells.

      Environmental Regulations

     The Company's  operations are subject to extensive and developing  federal,
state and local  laws and  regulations  relating  to  environmental,  health and
safety  matters;   petroleum;   chemical  products  and  materials;   and  waste
management.  Permits, registrations or other authorizations are required for the
operation of certain of the Company's facilities and for its oil and natural gas
exploration  and  production   activities.   These  permits,   registrations  or
authorizations are subject to revocation, modification and renewal. Governmental
authorities  have  the  power  to  enforce   compliance  with  these  regulatory
requirements,  the  provisions  of  required  permits,  registrations  or  other
authorizations,  and lease  conditions,  and  violators are subject to civil and
criminal penalties,  including fines,  injunctions or both. Failure to obtain or
maintain  a  required  permit  may also  result in the  imposition  of civil and
criminal  penalties.  Third  parties  may  have  the  right  to sue  to  enforce
compliance.

     Some risk of costs and  liabilities  related to  environmental,  health and
safety  matters is inherent  in the  Company's  operations,  as it is with other
companies  engaged in similar  businesses,  and there can be no  assurance  that
material costs or liabilities will not be incurred.  In addition, it is possible
that future  developments,  such as stricter  requirements of  environmental  or

                                      -6-

health and safety laws and regulations  affecting the Company's business or more
stringent interpretations of, or enforcement policies with respect to, such laws
and regulations, could adversely affect the Company. To meet changing permitting
and operational standards,  the Company may be required, over time, to make site
or operational modifications at the Company's facilities, some of which might be
significant  and  could  involve  substantial  expenditures.  There  can  be  no
assurance  that  material  costs or  liabilities  will not arise  from  these or
additional  environmental  matters that may be discovered or otherwise may arise
from future requirements of law.

Employees and Consultants

     The  Company  has four  full time  employees  and two  part-time  employees
including the officers of the Company. The Company may hire additional personnel
as required by its operations and may also engage the services of geological and
engineering  consultants  from  time to time to assist  in its  operations.  The
Company has recently employed engineering consultants on a part time basis.

Item 2.     Description of Property

Properties Acquired

Bateman Lake

     The Bateman  Lake Field is located  seven miles south of Morgan City in St.
Mary  Parish,  Louisiana.  In 1937,  Texaco  discovered  the  field in a widened
portion of the  Atachafalaya  River.  By 1950, Sun completed its first well, the
Bateman  Isle Unit No. 1. As the field was  developed,  it was  determined  that
hydrocarbon  entrapment  was  due  to  radial  faulting  on  the  flanks  of the
deep-seated Bateman Lake/Sweet Bay Lake salt dome, along with anticlinal closure
on top of the dome. Bateman Lake Field has cumulative  production to date of 2.7
trillion cubic feet of natural gas and 58 million  barrels of oil and condensate
from 272 wells.

     There  have been five main  productive  horizons  within the  Bateman  Lake
Field;  the G, J, N, W, and X sands.  The N and X sands are  further  subdivided
into several identifiable zones. All of these are Miocene in age and were formed
by various  depositional  stages of the Mississippi  River delta system.  Listed
below are the average  depths and  thickness  of the  aforementioned  productive
sands in Bateman Lake:

       Sand               Depth, Ft.           Thickness, Ft.
       ----               ----------           --------------
        G                   10,200                   20
        J                   10,400                   10
        N                   10,600                   43
        W                   11,600                   31
        X                   11,650                   37

     The production mechanism varies with each reservoir. The X sands produce by
water drive,  while the J, N, and W sands produce by depletion drive. The G sand
has produced  both by water drive and  depletion  drive,  depending on the fault
block.

     VTEX Energy,  Inc.  currently owns Louisiana  State Lease No. 1337 covering
approximately  3,000 acres of Bateman Lake Field.  The Company has  conducted an
initial  review of all well bores  located  upon its acreage and has  identified
several viable recompletions and developmental drilling opportunities.

     The  Company  believes  that  its  Bateman  Lake  acreage  has  significant
potential  reserves  in  addition  to its  proved  reserves.  There are 14 wells
located upon the lease and a dozen  separate pay zones in the field. A number of
the wells located on this acreage have not yet been adequately evaluated.

     Since its  acquisition in November 1998, the Company has produced from four
different  wells in Bateman Lake. The following  shows the Company's  production
history from Bateman Lake:

                        Natural Gas        Oil/Condensate       Gross
     Fiscal Year     Production (MCF)     Production (BBL)     Revenue
     -----------     ----------------     ----------------     --------
       2000               210,833               2,195           $617,167
       2001               163,270               2,807           $970,540
       2002               141,062               2.229           $501,794
       2003                 9,102                 552           $ 48,596
       2004                36,503               2,312           $260,376
       2005                24,038                 857           $166,390
       2006                   867                   0           $  7,083

                                      -7-

Mustang Island 818-L

     On March 7, 2000, the Company executed a purchase and sale agreement with a
company  that was a debtor in  possession  in Chapter 11  Bankruptcy.  Under the
agreement,  the Company acquired the Bankrupt  Debtor's  interest in Block 818-L
located in the Offshore Texas, Mustang Island Area except for a 7.5% net profits
interest  retained by the Debtor.  Since that time, the Company has  transferred
certain interest in certain wells to third parties and the Company now owns 100%
of the leasehold interest and between 85% and 100% of each existing well.

     The Mustang Island Block 818-L consists of two leases  covering 2,170 acres
located approximately four miles offshore Kleberg County, Texas in State waters.
There are 15 wells  located on three 4-pile  platforms and one  individual  well
caisson.  The field was  discovered  in 1977 and has  produced  over 124 billion
cubic feet of natural gas. The  producing  intervals are Frio sands located from
8,500 to 11,900 feet deep. The property was  originally  produced using a number
of techniques that resulted in significant reserves being prematurely  abandoned
or not fully  produced.  The Company is currently  producing five wells from one
platform.  The  Company  currently  estimates  at least 6 billion  cubic feet of
remaining recoverable reserves.

     Included in the assets  acquired  was a 15 mile 20 inch  pipeline  from the
Mustang Island 818-L block to onshore facilities. Subsequent to the acquisition,
the Company  transferred the pipeline to a Texas limited  liability  company for
cash and a 20% interest in the LLC.

     Shortly after completing the acquisition, the Company performed through the
tubing  workovers  on five of the wells.  However,  the  Company  experienced  a
significant  delay in  production  from  these  wells  because of a refusal by a
pipeline company to purchase its production, or allow its transportation through
their  facilities.  In December 2002, the Company  finally  reached an agreement
with the pipeline  company and began  production from Mustang Island 818-L.  The
following shows the Company's production history from the property:

                        Natural Gas        Oil/Condensate       Gross
     Fiscal Year     Production (MCF)     Production (BBL)     Revenue
     -----------     ----------------     ----------------     --------
        2003              37,731                 -             $234,270
        2004             128,367                7,651          $895,436
        2005             132,741                  775          $842,132
        2006              88,981                   92          $634,538

     The Company is currently  seeking an investor to provide $3 million for the
workover of three wells in the Mustang  Island 818-L block.  This will allow for
the  conversion  of  approximately  4 Billion cubic feet of reserves from proved
developed non-producing to proved developed producing.

Other Assets

     On November 22, 2000, the Company exchanged pipeline,  meter stations,  and
related equipment  acquired in the Mustang Island transaction for a cash payment
of $150,000 and a 20% interest in Mustang Island Gathering, LLC, a Texas limited
liability company and pipeline operator (the "LLC"). As part of the transaction,
the Company  entered into a five-year  natural gas purchase  agreement  with the
LLC.  As a member of the LLC,  the  Company  has been  required  to  guarantee a
portion of the LLC's  bank  debt,  which is  approximately  $1.1  million in the
aggregate.  In  addition,  any  member  of the LLC has  the  right,  but not the
obligation, to transfer all of its membership units in the LLC to the Company in
exchange  for shares of its  common  stock.  At April 30,  2006,  the  Company's
percentage ownership in the LLC was approximately 11%.

                                      -8-

Production Information

     The table  below  sets  forth the net  quantities  of oil and  natural  gas
production (net of all royalties,  overriding  royalties,  and production due to
others), the average sales prices, and the average production costs attributable
to the Company's properties for the years ended April 30, 2006 and 2005.

                                         Year Ended April 30,
                                       ------------------------
                                          2006          2005
                                       ----------    ----------
        Net Production
        Oil (BBLS)                             92         1,628
        Gas (MCF)                         133,608       156,776

        Average Sales Prices
        Oil (per BBL)                  $    62.79    $    35.21
        Gas (per MCF)                  $     4.76    $     6.07

        Average Production Cost (1)
        Per Equivalent MCF of Gas (2)  $     5.62    $     3.80

        (1)  Production  costs include  lease  operating  expenses,  severance
             taxes,  transportation,  treatment,  marketing,  and other direct
             expenses

        (2)  Oil  production  is converted to MCF using its  estimated  energy
             equivalent of six MCF per BBL

Reserve Information

     Oil and natural gas reserve  information  for the  properties  owned by the
Company have been  prepared  internally  by the Company for the year ended April
30, 2006 and by D. Raymond Perry, Jr., a registered  petroleum  engineer for the
year ended April 30, 2005.

     Reserve  calculations  by petroleum  engineers  involve the  estimation  of
future net recoverable reserves of oil and natural gas and the timing and amount
of future net revenues to be received  therefrom.  Those  estimates are based on
numerous factors,  many of which are variable and uncertain.  Reserve estimators
are  required to make  numerous  judgements  based upon  professional  training,
experience,  and  educational  background.  The extent and  significance  of the
judgements in themselves are sufficient to render reserve  estimates  inherently
imprecise.  Since reserve  determinations  involve  estimates of future  events,
actual  production,  revenues and operating expenses may not occur as estimated.
Accordingly,  it is common for the actual production and revenues later received
to vary  from  earlier  estimates.  Estimates  made in the  first  few  years of
production  from a property  are  generally  not as reliable as later  estimates
based on longer  production  history.  Reserve  estimates  based upon volumetric
analysis are  inherently  less reliable  than those based on lengthy  production
history. Also, potentially productive natural gas wells may not generate revenue
immediately due to lack of pipeline connections and potential  development wells
may have to be  abandoned  due to  unsuccessful  completion  techniques.  Hence,
reserve estimates may vary from year to year.

     Proved oil and natural gas reserves are the  estimated  quantities of crude
oil,  condensate,  natural gas,  and natural gas liquids  which  geological  and
engineering  data  demonstrate  with  reasonable  certainty to be recoverable in
future  years  from known  reservoirs  under  existing  economic  and  operating
conditions.

     Proved  developed oil and natural gas reserves are those reserves  expected
to be recovered  through  existing  wells with existing  equipment and operating
methods.

                                      -9-

     The  tables  below set forth the  estimated  proved  and  proved  developed
reserves of crude oil (including  condensate)  and natural gas, all of which are
located within the  continental  United States,  associated  with the properties
owned by the Company for the years ended April 30, 2006 and 2005.

Proved Reserves at Year End
                                    Developed        Undeveloped     Total
                                    ---------        -----------     -----
Oil (BBLs) (in thousands)
April 30, 2006                            76               32          108
April 30, 2005                            50               53          103

Gas (MCF)
April 30, 2006                         6,880             3,397      10,277
April 30, 2005                         4,130             5,294       9,424

Changes in Proved Reserves
                                                  MCF                BBLS
                                            ------------        ------------
                                                     (In Thousands)
Estimated Quantity, April 30, 2004             15,516                  85
Production                                  (     157  )        (       2  )
Changes in Estimates                        (   5,935  )               20
                                            ------------        ------------
Estimated Quantity, April 30, 2005              9,424                 103

Production                                  (      90  )        (       1  )
Changes in Estimates                              943                   6
                                            ------------        ------------
Estimated Quantity, April 30, 2005             10,277                 108
                                            ============        ============

Oil and Natural Gas Wells

     The  Company  owns  interests  in  productive  oil and  natural  gas  wells
(including producing wells and wells capable of production), as follows:

                        April 30, 2006                   April 30, 2005
                -----------------------------    ------------------------------
                 Gross (1)          Net           Gross (1)           Net
                   Wells           Wells            Wells            Wells
                -------------   -------------    -------------    -------------

Oil Wells                 34            2.55               34             2.55
Gas Wells                 36            4.28               36             4.28
                -------------   -------------    -------------    -------------

Total                     70            6.83               70             6.83
                =============   =============    =============    =============

        (1)      One or more completions in the same well are counted as
                 separate wells.

Oil and Natural Gas Leaseholds

     The table below sets forth the  Company's  ownership  interest in leasehold
acreage. The oil and natural gas leases in which the Company has an interest are
generally held by  production.  The leases may be surrendered at any time by the
cessation of production.



                                    April 30, 2006                                       April 30, 2005
                   -------------------------------------------------    --------------------------------------------------
                        Developed (1)             Undeveloped                 Developed(1)              Undeveloped
                           Acreage                  Acreage                     Acreage                   Acreage
                                                                        ------------------------- ------------------------
                     Gross         Net         Gross        Net            Gross         Net        Gross         Net
                   ----------- ------------ ------------ -----------    ------------ ------------ ----------- ------------
                                                                                      

Louisiana               4,603        2,211           -          -            4,603        2,211          -            -
Texas                   4,856        1,469           -          -            4,856        1,495          -            -
                   ----------- ------------ ------------ -----------    ------------ ------------ ----------- ------------

Total                   9,459        3,680           -          -            9,459        3,680          -            -
                   =========== ============ ============ ===========    ============ ============ =========== ============

     (1) Acres spaced or assigned to productive wells


Office Facilities

     The Company's Houston,  Texas office consists of approximately 5,025 square
feet and has been leased through July of 2006 for $5,427 per month.

                                      -10-

Item 3.     Legal Proceedings

     The Company is involved from time to time in various  claims,  lawsuits and
administrative  proceedings  incidental  to  its  business.  In the  opinion  of
management,  the  ultimate  liability  thereunder,  if  any,  will  not  have  a
materially adverse effect on the financial condition or results of operations of
the Company.  At April 30, 2006, the Company has accounts  payable in the amount
of $2,602,721.  A significant portion of these accounts are now past due and are
subject  to  becoming  matters  for  litigation  at any time.  Certain  of these
accounts have been converted into judgments and the Company is continuing to try
and work out payment arrangements with the judgment creditors.

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

     No matters were  submitted to a vote of security  holders during the fourth
quarter.

                                     PART II

Item 5.     Market for Common Equity and Related Stockholder Matters

     On June 29, 1998,  the Company began trading its common stock on the NASDAQ
OTC  Electronic  Bulletin  Board under the symbol VECT. On November 19, 2002, in
conjunction  with its name change and a one for thirty reverse stock split,  the
Company's  common stock began trading under the symbol VXEN. The following table
shows,  for the period  indicated,  the high and low  closing  bid prices of the
Company  common stock as reported by NASDAQ OTC bulletin  board.  Any market for
the common stock should be considered  sporadic,  illiquid and highly  volatile.
Prices reflect  inter-dealer  quotations,  without adjustment for retail markup,
markdowns or commissions, and may not represent actual transactions. The stock's
trading range for the last two years is as follows:

                                            High           Low
                                          ---------     ---------
          2006 Fiscal Year
1st Quarter                               $   0.39      $   0.22
2nd Quarter                                   0.61          0.28
3rd Quarter                                   0.58          0.31
4th Quarter                                   0.53          0.37
          2005 Fiscal Year
1st Quarter                               $   0.68      $   0.40
2nd Quarter                                   0.70          0.45
3rd Quarter                                   0.52          0.22
4th Quarter                                   0.47          0.23

     As of July 31, 2006,  there were  approximately  2,094 holders of record of
the Company's common stock. The Company has not paid any dividends on its common
stock and no dividends are anticipated in the foreseeable  future.  In addition,
the ability of the Company to declare or pay  dividends  on its common  stock is
currently subject to certain restrictions contained in its credit facilities and
its Class AA-1 Preferred Stock.

     The  following  shares of common  stock  have been  issued  subject  to the
provisions of Rule 144 of the Securities and Exchange Commission.

     In February  2006,  the Company issued 40,000 shares of its common stock to
Frontier  Medical  Institute  PSP as  consideration  under  the  terms of a loan
agreement.

     In February  2006,  the Company issued 40,000 shares of its common stock to
Accu-Tube Corporation as consideration under the terms of a loan agreement.

     In February  2006,  the Company issued 40,000 shares of its common stock to
Michael R. Seeley as consideration under the terms of a loan agreement.

     In February  2006,  the Company issued 40,000 shares of its common stock to
William R. DeGarmo as consideration under the terms of a loan agreement.

     In February  2006,  the Company issued 40,000 shares of its common stock to
Allen Brown as consideration under the terms of a loan agreement.

                                      -11-

     In March 2006,  the Company issued 120,000 shares of its common stock to W.
Douglas Moreland as consideration under the terms of a loan agreement.

     In March 2006, the Company issued 112,000 shares of its common stock to the
Bargus Partnership as consideration under the terms of a loan agreement.

     In March 2006,  the Company  issued  40,000  shares of its common  stock to
Aquaria GK, LLC as consideration under the terms of a loan agreement.

     In March, the Company issued 60,301 shares of its common stock to SSSP, LLC
under the terms of a forbearance agreement.

     In each of the  aforementioned  cases, the Company issued the shares of its
common stock in reliance upon the exemption from registration under Section 4(2)
of the  Securities  Act of 1933,  as  amended.  The  Company  did not engage any
underwriters in connection with their issuances.

Item 6.     Management's Discussion and Analysis

     The  following  is  management's  discussion  and  analysis of  significant
factors  that have  affected  certain  aspects  of our  financial  position  and
operating  results  during the  periods  included  in the  accompanying  audited
consolidated financial statements. This discussion should be read in conjunction
with  the  accompanying  audited  consolidated   financial  statements  included
elsewhere in this Form 10-KSB.

General Overview

     VTEX Energy, Inc., a Nevada corporation (the "Company"),  is an independent
oil and natural gas company  engaged in acquiring,  exploiting,  developing  and
operating oil and natural gas  properties,  with a focus on Texas and Louisiana.
The Company has one wholly owned subsidiary,  Vector  Exploration,  Inc., and is
headquartered in Houston, Texas.

     The Company was  incorporated  under the laws of the State of Texas on June
18,  1998 as Vector  Energy  Corporation  ("Vector")  which  was a wholly  owned
subsidiary of Sunburst Acquisitions II, Inc. ("Sunburst"). Vector was formed for
the purpose of  completing  a reverse  merger  with  Sunburst in order to change
Sunburst's name to Vector Energy Corporation and its state of incorporation from
Colorado  to Texas.  This  merger  was  completed  on June 19,  1998.  Effective
November 15, 2002, the Company was reincorporated in Nevada. The reincorporation
was effected by the merger of Vector with and into a newly created, wholly owned
subsidiary, VTEX Energy, Inc., a Nevada Corporation,  which became the surviving
entity.

     From its inception through March 2000, the Company  consummated a series of
oil and natural gas property  acquisitions  in Texas,  Louisiana  and  Oklahoma.
These  acquisitions  were funded primarily through the issuance of the Company's
stock and the Company's assumption of debt and other liabilities. The properties
acquired were a combination of producing properties and properties considered to
have future development potential.

     A lack of working capital and the service  requirements of the debt assumed
by the Company in its  acquisitions  prevented the Company from fully developing
the properties it had acquired or funding  sufficient  capital  expenditures  on
certain existing  properties to sustain economic  production.  Accordingly,  the
Company  identified  those  properties  that had the most  potential  for future
development,  and in July 2002 began to actively market for sale the rest of its
non-strategic  producing oil and gas properties.  The proceeds from the property
sales allowed the Company to reduce and  restructure  its debt,  while retaining
enough capital to begin development of the properties retained.

     The  estimated  proved oil and natural gas reserves of the Company at April
30, 2006 were 108,000  barrels of crude oil and  condensate  and  10,277,000 Mcf
(thousand  cubic feet) of natural gas.  These  reserves  have an  estimated  $27
million  in future net cash  flow,  discounted  at 10%.  Of these  reserves,  an
estimated  76,000  barrels  of crude oil and  condensate  and  6,880,000  MCF of
natural gas with an estimated $16 million in future net cash flow, discounted at
10%, are considered to be proved developed.  Estimated  capital  expenditures to
develop these properties are $11,275,000.  The Company's reserves are located in
two fields, Bateman Lake and Mustang Island 818-L.

                                      -12-




                                                          Percent of        Percent of        Percent of
                                                        April 30, 2006       Revenue           Revenue
                                                       Estimated Future        Year              Year
                                                        Net Cash Flows         Ended            Ended
        Field                      Location            Discounted at 10%   April 30, 2006   April 30, 2005
- ---------------------     --------------------------   -----------------   --------------   --------------
                                                                                
Bateman Lake              St. Mary Parish, Louisiana        45.26%              1.10%            16.50%

Mustang Island 818-L      State Waters Offshore Texas       54.74%             98.90%            83.50%



Results of Operations

     Oil and natural gas  revenues  for the year ended April 30, 2006  decreased
36% to $641,621 compared to $1,008,521 for fiscal 2005.  Production  volumes for
natural gas during the year ended April 30, 2006  decreased 15%, to 133,608 Mcf,
compared to 156,779 Mcf for the year ended April 30, 2005.  Average  natural gas
prices  for the year  ended  April  30,  2006  decreased  22% to $4.76  per Mcf,
compared to $6.07 per Mcf for fiscal  2005.  Production  volumes for oil for the
year ended April 30, 2006 decreased 94% from 1,628 barrels  produced  during the
year ended April 30, 2005 to 92 for fiscal 2006. Average oil prices for the year
ended April 30, 2006 increased 78% to $62.79 per barrel,  compared to $35.21 per
barrel for fiscal 2005.

     The following table summarizes production volumes, average sales prices and
operating  revenues for the  Company's  oil and natural gas  operations  for the
years ended April 30, 2006 and 2005.



                                                                    2006 Period Compared to 2005 Period
                                     Year Ended April 30,          -------------------------------------
                               --------------------------------       Increase         % Increase
                                    2006              2005            Decrease)        (Decrease)
                               --------------    --------------    --------------    --------------
                                                                         
Production volumes -
   Oil (Bbls)                             92             1,628      (      1,536)     (        94%)
   Natural Gas (MCF)                 133,608           156,779      (     23,171)     (        15%)
Average sales prices -
   Oil (per Bbl)               $       62.79     $       35.21     $       27.58     $         78%
   Natural gas (per MCF)                4.76              6.07      (       1.31)     (        22%)
Operating revenue
   Oil                         $       5,777     $      57,321     $(     51,544)    $(        90%)
   Natural gas                       635,844           951,200      (    315,356)     (        33%)
                               --------------    --------------    --------------
                                     641,621         1,008,521     $(    366,900)     (        36%)
                               ==============    ==============    ==============


     Production  expenses  for the year ended  April 30, 2006  increased  19% to
$754,241 compared to $633,094 for fiscal 2005. Production expense per equivalent
unit  increased to $5.62 per Mcfe for the year ended April 30, 2006  compared to
$3.80 in fiscal 2005. This increase in production  expense per Mcfe is caused by
the effect of fixed lease operating expenses which in effect increase production
expense on a per equivalent  unit basis when  production  decreases.  Production
expenses  exceeded  revenue  by  $112,620  for the year  ended  April 30,  2006,
principally due to the fact that the Company's  producing oil and gas wells have
either been shut-in or produce only  intermittently  pending the  completion  of
necessary  repairs.  Such repairs include repairs to the main tank battery and a
new natural gas supply line for  artificial gas lift at Bateman Lake and repairs
to the production  platform at Mustang Island.  The Company  estimates that such
repairs will cost approximately $450,000.

     Depreciation,  depletion and amortization  expense  decreased from $290,504
for the year ended April 30, 2005 to $164,511 for the year ended April 30, 2006.
This 43% decrease is primarily due to a 20% decrease in Mcfe production volumes.
The  depletion  rate  decreased  to $1.06 per Mcfe in fiscal 2006 from $1.63 per
Mcfe in fiscal 2005.

     General  and  Administrative  expenses  for the year ended  April 30,  2006
increased by $2,767,742 to $5,870,153  compared to $3,102,411 for the year ended
April 30, 2005. The increase was partially due to the value of options issued to
employees and directors of the Company whose value of  $1,280,000,  was expensed
in fiscal  2006.  Contract  services  incurred  by the  Company  increased  from
$1,866,161  for the year ended April 30, 2005 to  $2,396,946  for the year ended
April  30,  2006  primarily  due to fund  raising  efforts  by  consultants  and
investment advisors that we retain on an ongoing basis. Of the contract services
incurred in fiscal 2006,  $1,355,124  (57%) was paid for through the issuance of
the  Company's  common  stock and  warrants to  purchase  common  stock.  Of the
contract services incurred in fiscal 2005, $1,626,059 (87%) was paid for through
the issuance of the Company's common stock or warrants to purchase common stock.

                                      -13-

     Accretion  expense for the year ended April 30, 2006 increased by $5,587 to
$95,054 compared to $89,467 for the year ended April 30, 2005. This increase was
due to the normal  compound  effect of the discount  factor  attributable to the
Company's asset retirement obligation.

     Interest  expense  for the year ended April 30,  2006  increased  by 42% to
$1,252,910  from $883,769 for fiscal 2005. The increase in interest  expense was
due primarily to an increase in weighted  average debt from  $4,170,141  for the
year ended  April 30,  2005 to  $6,869,287  for the year ended  April 30,  2006.
Amortization  of loan  discount  and  deferred  loan costs  included in interest
expense  increased  from  $575,621 for the year ended April 30, 2005 to $637,794
for the year ended April 30, 2006.

Financial Condition and Capital Resources

     Since its  inception,  the  Company  has  suffered  recurring  losses  from
operations and has been dependent on existing  stockholders and new investors to
provide the cash  resources  to sustain its  operations.  During the years ended
April 30, 2006 and 2005, the Company reported losses of approximately $7,447,000
and  $3,960,000,  respectively.  The  Company's  continuing  negative  operating
results have produced a working capital deficit of  approximately  $8,579,000 at
April 30,  2006.  These  factors  raise  substantial  doubt about the  Company's
ability to continue as a going concern.  The Company's  long-term viability as a
going  concern is  dependent  upon the  Company's  ability to obtain  sources of
outside  financing to support near term  operations  and to allow the Company to
make  strategic  investments  in new oil and  natural gas  prospects  which will
provide the Company the ability to attain  profitability and sustain a cash flow
level that will ensure support for continuing operations.  The Company estimates
that an  additional  $1.2  million  in  capital  will  be  required  to  sustain
operations for the next year.

     For the past year,  the  Company's  oil and natural gas revenues  have been
sufficient  to satisfy most of its oil and natural gas operating  expenses.  The
Company has funded the remainder of its oil and gas operating expenses,  general
and  administrative  expenses  and the  development  of its oil and  natural gas
properties  through  additional  borrowings under its line of credit and through
the issuance of short term investor  notes.  Additional  equity  funding will be
required in the near term to meet the capital needs of the Company.  The Company
is  evaluating  various  financing  alternatives  such as the  issuance of debt,
private  placements  of its  common  and  preferred  stock,  sales of  undivided
interests in some of its oil and natural gas  properties and joint ventures with
industry partners.  There is no guarantee that the Company will be successful in
obtaining such financing, or that the terms of any financing obtained will be on
terms favorable to the Company. Any inability of the Company to raise additional
capital will limit the development of most of its oil and natural gas properties
and may prevent the Company  from  meeting its cash  requirements.  If the wells
which are  currently  being  brought into  production  through  development  and
workovers perform as expected  additional cash flows may be available;  however,
there is no assurance that such cash flows will in fact be available or that the
wells  will,  in  fact,  perform  as  expected.  In the  absence  of  such  well
performance  or  financing,  the company will not be able to meet its  financial
obligations.

     The Texas  Railroad  Commission  declined  a request by the  Company  for a
reduction in bonding  requirements which were recently increased by the State of
Texas for  operators of certain wells located in offshore and bay State of Texas
waters. The Company's bonding  requirement has been $50,000,  but would increase
to $1,500,000 under the new  regulations.  The Company is seeking a bond at this
increased  level but does not have such bond in place at this time.  There is no
assurance  that a bond can be obtained or that such bond would be  available  on
commercial   terms   acceptable   to  the   Company.   The   Company   requested
reconsideration  by the Texas  Railroad  Commission  of this  decision  and such
request was declined on March 27, 2006.  The Company has appealed  such decision
to the  district  court.  Until a final  decision  is made in this  matter,  the
Company  will be allowed to continue  its  operations  under its  current  bond.
Should the  Company  not be  successful  in reducing  the bond  requirement,  or
alternatively  obtain a bond at the  increased  requirement,  or  provide  other
satisfactory  security  the  Company  could be required  to  outsource  offshore
operations of the property provided such operator provides a satisfactory  bond.
An arrangement to outsource  operations  would likely result in the reduction of
the Company's  working  interests or an increase in lease operating  expenses to
fund such asset retirment obligations.

Financing Arrangements

     The  Company  has a $10.0  million  revolving  credit  line  with an entity
controlled by the brother of the Company's president. The credit line is subject
to a  borrowing  base  formula.  At April 30,  2006,  the  Company had drawn the
maximum  available  under the  borrowing  base on the  revolving  credit line of
$3,624,707.  Additional  borrowings are not available without the consent of the
lender.  The line of credit is secured by all of the  Company's  oil and natural
gas  properties  and bears  interest  at the rate of 7.5%.  Accrued  and  unpaid
interest on the line of credit  totaled  $271,853 at April 30,  2006.  Under its
terms,  the line of credit was to accrue  interest  through October 31, 2005, at
which time  interest was to be due  monthly.  Beginning  in November  2006,  the
principal balance  outstanding under the line of credit was to convert to a term
note payable in 48 equal monthly  installments along with current interest.  The

                                      -14-

Company  has not made any  payments  under the terms of the  converted  note and
interest on the line of credit is continuing to accrue. The note is currently in
default,  however  no demand  for  payment  has been  received  pending  ongoing
discussions  with the  lender to modify  the  terms of the note.  No  definitive
agreement has yet been reached.

     The Company also has a $250,000 line of credit with a bank. The outstanding
balance under this line of credit is $245,001 at April 30, 2006, and is due upon
demand.

     On June 21,  2005,  the Company  entered into a $500,000  revolving  credit
agreement with Bank of Texas.  The note was guaranteed by a private investor who
is to receive  200,000  shares of the  Company's  common  stock and  warrants to
purchase 100,000 shares of the Company's common stock at $0.50. Interest on this
note is payable  quarterly at the prime rate. The outstanding  balance under the
note is due December 31, 2006.

     The Company has outstanding  production  payments in the amount of $299,504
at April 30, 2006. One of the holders of such production  payments has agreed to
a temporary forbearance of the Company's obligation until December 31, 2006. The
Company  is  currently  holding  discussions  with the  holder of the  remaining
production payments in order to obtain his forbearance,  however there can be no
assurance that such  forbearance  will be obtained or will be on terms favorable
to the Company.  If such  forbearance is not obtained or continued,  the Company
will be  required  to  remit  the  revenue  from a  substantial  portion  of the
Company's production.

     From time to time, the Company  issues notes payable to settle  outstanding
accounts  payable  and other  liabilities,  finance  expenditures  and  generate
working  capital.  The  balances  of such  notes  payable  were  $2,795,999  and
$1,377,333  at April 30, 2006 and 2005,  respectively.  Notes  payable  totaling
$1,420,342 have reached maturity and are currently in default, however no demand
for payment has been received  pending ongoing  discussions  with the lenders to
modify the terms of the notes.

Off Balance Sheet Financing Arrangements

     As a member of Mustang Island  Gathering,  LLC (the "LLC"), a Texas limited
liability  company and  pipeline  operator,  the  Company  has been  required to
guarantee a portion of the LLC's bank debt, which is approximately  $1.1 million
in the  aggregate.  The  Company's  share  of such  guarantee  is  approximately
$40,000. Due to the financial  performance of the pipeline,  the likelihood that
the Company will be required to perform  under this  guarantee is remote thus no
amount is recorded to reflect the obligation under this guarantee.

Net Cash (Used in) Provided by Operating Activities

     Cash flows used in operating  activities were $2,498,677 for the year ended
April 30, 2006 as compared to cash flows  provided by  operating  activities  of
$90,183 for the year ended April 30, 2005. This decrease was primarily due to an
increase in the net loss incurred by the Company from  $3,960,385 in fiscal 2005
to $7,482,674 in fiscal 2006.

Net Cash Provided by (Used in) Investing Activities

     Cash flows provided by investing  activities  increased to $114,505 for the
year ended April 30, 2006 from $1,535,184  used in investing  activities for the
year ended April 30, 2005.  Cash flows from investing  activities were primarily
derived  from  proceeds of $591,500  from the sale of  non-strategic  properties
offset by capital  expenditures  of $333,530 to develop  properties  with higher
development  potential.  The increase from the prior year was due primarily to a
decrease in oil and natural gas capital  expenditures  from $1,550,927 in fiscal
2005 to $333,530 in fiscal 2006.

Net Cash Provided by Financing Activities

     Net cash flows provided by financing  activities totaled $2,377,072 for the
year ended April 30, 2006 primarily from  borrowings  under a new line of credit
from a bank and notes payable to investors totaling  $2,591,775.  Net cash flows
provided by financing activities totaled $1,326,008 for the year ended April 30,
2005 primarily from borrowings  under a new line of credit from a bank and notes
payable to investors totaling $1,421,800.

Critical Accounting Policies

         The following summarizes several of our critical accounting policies:

Recent Accounting Pronouncements

     In December 2004, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standard  ("SFAS")  No. 153,  "Exchanges  of
Nonmonetary  Assets -- an  amendment  of  Accounting  Principles  Board  ("APB")
Opinion No. 29." SFAS No. 153 is effective for fiscal years beginning after June

                                      -15-

15, 2005.  This statement  addresses the  measurement of exchange of nonmonetary
assets and eliminates the exception from fair value  measurement for nonmonetary
exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29,
"Accounting for Nonmonetary  Transactions" and replaces it with an exception for
exchanges that do not have commercial substance. The adoption of SFAS No. 153 is
expected to have no impact on our consolidated financial statements.

     In May 2005, the Financial  Accounting Standards Board issued SFAS No. 154,
"Accounting Changes and Error  Corrections--a  replacement of APB Opinion No. 20
and FASB Statement No. 3." which is effective for fiscal years  beginning  after
December 15, 2005. This statement  changes the  requirements  for the accounting
for and reporting of a change in accounting principle. This statement applies to
all  voluntary  changes  in  accounting  principle.  It also  applies to changes
required  by an  accounting  pronouncement  in the  unusual  instance  that  the
pronouncement  does  not  include  specific   transition   provisions.   When  a
pronouncement includes specific transition  provisions,  those provisions should
be  followed.  The adoption of SFAS No. 154 is expected to have no impact on our
consolidated financial statements.

Use of Estimates

     The preparation of financial  statements in conformity with U.S.  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting periods. Actual results could differ from these estimates.  The use of
these  estimates  significantly  affects oil and natural gas properties  through
depletion and the full cost ceiling test, as discussed in more detail below.

Oil and Natural Gas Properties

     We account for  investments  in oil and natural  gas  properties  using the
full-cost  method  of  accounting.   All  costs  directly  associated  with  the
acquisition,  exploration  and development of oil and natural gas properties are
capitalized.  These costs  include  lease  acquisitions,  seismic  surveys,  and
drilling and completion  equipment.  We expense  maintenance and repairs as they
are incurred.

     We amortize oil and natural gas properties based on the  unit-of-production
method using  estimates  of proved  reserve  quantities.  The  amortizable  base
includes   estimated   future   development   costs  and,   where   significant,
dismantlement,  restoration  and  abandonment  costs,  net of estimated  salvage
values.  The depletion rate per Mcfe for the years ended April 30, 2006 and 2005
was $1.06 and $1.63, respectively.

     We  account  for   dispositions  of  oil  and  natural  gas  properties  as
adjustments to capitalized  costs with no gain or loss  recognized,  unless such
adjustments would significantly alter the relationship between capitalized costs
and proved reserves.  We have not had any transactions that significantly  alter
that relationship.

     The net  capitalized  costs of proved oil and  natural gas  properties  are
subject to a "ceiling  test" which  limits such costs to the  estimated  present
value,  discounted  at a 10% interest  rate,  of future net revenues from proved
reserves, based on current economic and operating conditions. If net capitalized
costs exceed this limit, the excess is charged to operations  through depletion,
depreciation and amortization.  No ceiling test write downs were required during
the years ended April 30, 2006 or 2005.

Oil and Natural Gas Reserve Estimates

     The reserve  data  included in this  document  for the year ended April 30,
2006 are estimates prepared internally by the Company. The reserve data included
in this document for the year ended April 30, 2005 are estimates  prepared by D.
Raymond Perry, Jr., an independent petroleum engineer.  Reserve engineering is a
subjective process of estimating underground  accumulations of hydrocarbons that
cannot be measured in an exact manner.  The process relies on  interpretation of
available  geologic,  geophysical,  engineering and production data. The extent,
quality and reliability of this data can vary. The process also requires certain
economic   assumptions   regarding  drilling  and  operating  expense,   capital
expenditures,  taxes and  availability of funds.  The SEC mandates some of these
assumptions  such as oil and natural gas prices and the present  value  discount
rate.

     You should not assume  that the  present  value of future net cash flows is
the current market value of our estimated  proved  reserves.  In accordance with
SEC requirements,  we based the estimated  discounted future net cash flows from
proved reserves on prices and costs on the date of the estimate.

                                      -16-

     Our rate of recording depreciation,  depletion and amortization expense for
proved properties  depends on our estimate of proved reserves.  If these reserve
estimates decline, the rate at which we record these expenses will increase.

Asset Retirement Obligations

     The Company records a liability for legal  obligations  associated with the
retirement  of  tangible  long-lived  assets  in the  period  in which  they are
incurred in  accordance  with SFAS No.  143,  "Accounting  for Asset  Retirement
Obligations."  The Company  adopted this policy  effective May 1, 2003,  using a
cumulative effect approach to recognize  transition amounts for asset retirement
obligations,  asset  retirement  costs and accumulated  accretion and depletion.
Under this method,  when liabilities for  dismantlement  and abandonment  costs,
excluding  salvage values,  are initially  recorded,  the carrying amount of the
related oil and natural gas properties are increased. Accretion of the liability
is  recognized  each period using the  interest  method of  allocation,  and the
capitalized cost is depleted over the useful life of the related asset.

Contingencies

     Liabilities and other contingencies are recognized upon determination of an
exposure,  which when analyzed  indicates that it is both probable that an asset
has been  impaired or that a liability  has been incurred and that the amount of
such loss is reasonably estimable.

Volatility of Oil and Natural Gas Prices

     Our  revenues,  future  rate of growth,  results of  operations,  financial
condition and ability to borrow funds or obtain additional  capital,  as well as
the  carrying  value  of  our  properties,   are  substantially  dependent  upon
prevailing prices of oil and natural gas.

Risk Factors

Our reserve data and  estimated  discounted  future net cash flows are estimates
based on assumptions  that may be inaccurate and are based on existing  economic
and operating conditions that may change in the future.

     There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their estimated value, including many factors beyond the control of
the  producer.  The reserve data set forth in this Form 10-KSB  represents  only
estimates.  Reservoir  engineering  is  a  subjective  and  inexact  process  of
estimating  underground  accumulations  of oil and  natural  gas that  cannot be
measured  in an exact  manner.  The  reserve  data  included in this Form 10-KSB
represents estimates that depend on a number of factors and assumptions that may
vary considerably from actual results, including:

         o     historical production from the area compared with production
               from other areas;

         o     the assumed effects of regulations by governmental agencies;

         o     assumptions concerning future oil and natural gas prices;

         o     future operating costs;

         o     severance and excise taxes;

         o     development costs; and

         o     workover and remedial costs.

     For these reasons,  estimates of the economically recoverable quantities of
oil  and  natural  gas  attributable  to any  particular  group  of  properties,
classifications of those reserves based on risk of recovery and estimates of the
future net cash flows  expected from them prepared by different  engineers or by
the same engineers but at different times may vary  substantially.  Accordingly,
reserve  estimates may be subject to upward or downward  adjustment,  and actual
production,  revenue and  expenditures  with respect to our reserves likely will
vary, possibly materially, from estimates. Additionally, there recently has been
increased  debate and disagreement  over the  classification  of reserves,  with
particular focus on proved undeveloped  reserves.  Changes in interpretations as
to classification  standards,  or disagreements with our interpretations,  could
cause us to write down these reserves.

                                      -17-

     As of April 30, 2006,  all of our proved  reserves were proved  undeveloped
and proved  nonproducing.  Reserve estimates on these wells may be less reliable
than estimates based on a lengthy production history. Realization or recognition
of our proved undeveloped  reserves will depend on our development  schedule and
plans.   Lack  of  certainty  with  respect  to  development  plans  for  proved
undeveloped  reserves could cause the  discontinuation  of the classification of
these reserves as proved.

     The  discounted  future net cash flows included in this Form 10-KSB are not
necessarily  the  same as the  current  market  value of our  estimated  oil and
natural gas reserves. As required by the Securities and Exchange Commission, the
estimated  discounted  future net cash flows from proved  reserves  are based on
prices and costs as of the date of the  estimate.  Actual  future net cash flows
also will be affected by factors such as:

         o     the actual prices we receive for oil and natural gas;

         o     our actual operating costs in producing oil and natural gas;

         o     the amount and timing of actual production;

         o     supply and demand for oil and natural gas;

         o     increases or decreases in consumption of oil and natural
               gas; and

         o     changes in governmental regulations or taxation.

     In addition,  the 10% discount  factor we use when  calculating  discounted
future net cash flows for reporting  requirements in compliance with the FASB in
SFAS No. 69 may not be the most  appropriate  discount  factor based on interest
rates in effect  from time to time and risks  associated  with us or the oil and
natural gas industry in general.

We depend on successful  exploration,  development and  acquisitions to maintain
reserves and revenue in the future.

     In general,  the volume of production  from oil and natural gas  properties
declines  as  reserves  are  depleted,  with the rate of  decline  depending  on
reservoir   characteristics.   Except  to  the  extent  we  conduct   successful
exploration and development  activities or acquire properties  containing proved
reserves,  or both,  our proved  reserves will decline as reserves are produced.
Our future oil and natural gas production is, therefore, highly dependent on our
level of success in finding or acquiring  additional  reserves.  The business of
exploring for,  developing or acquiring reserves is capital intensive.  Recovery
of our reserves,  particularly  undeveloped  reserves,  will require significant
additional  capital  expenditures  and successful  drilling  operations.  To the
extent  cash flow from  operations  is reduced and  external  sources of capital
become  limited  or  unavailable,  our  ability  to make the  necessary  capital
investment  to maintain or expand our asset base of oil and natural gas reserves
would be impaired.

Oil and natural gas prices are highly volatile, and lower prices will negatively
affect our financial results.

     Our revenue, profitability,  cash flow, future growth and ability to borrow
funds  or  obtain  additional  capital,  as well as the  carrying  value  of our
properties,  are substantially dependent on prevailing prices of oil and natural
gas.  Historically,  the  markets  for oil and  natural  gas  prices  have  been
volatile, and those markets are likely to continue to be volatile in the future.
It is  impossible  to predict  future oil and natural gas price  movements  with
certainty.  Prices for oil and natural gas are  subject to wide  fluctuation  in
response  to  relatively  minor  changes in the supply of and demand for oil and
natural gas, market  uncertainty and a variety of additional  factors beyond our
control. These factors include:

         o      the level of consumer product demand;

         o      overall economic conditions;

         o      weather conditions;

         o      domestic and foreign governmental relations;

         o      the price and availability of alternative fuels;

         o      political conditions;

         o      the level and price of foreign imports of oil and liquefied
                natural gas; and

                                      -18-

         o      the ability of the members of the Organization of Petroleum
                Exporting Countries to agree upon and maintain oil price
                controls.

     Declines in oil and natural gas prices may materially  adversely affect our
financial   condition,   liquidity  and  ability  to  finance   planned  capital
expenditures and results of operations.

We face strong competition from other oil and natural gas companies.

     We encounter  competition  from other oil and natural gas  companies in all
areas of our  operations,  including the acquisition of proven  properties.  Our
competitors  include major integrated oil and natural gas companies and numerous
independent  oil and natural gas companies,  individuals and drilling and income
programs.  Many of our  competitors are large,  well-established  companies that
have been engaged in the oil and natural gas  business  much longer than we have
and possess  substantially larger operating staffs and greater capital resources
than we do. These companies may be able to pay more for  developmental  projects
and  productive  oil and  natural  gas  properties  and  may be able to  define,
evaluate, bid for and purchase a greater number of properties and prospects than
our financial or human  resources  permit.  In addition,  these companies may be
able to expend greater resources on the existing and changing  technologies that
we believe are and will be  increasingly  important to attaining  success in the
industry.  We may not be able to conduct  our  operations,  evaluate  and select
suitable  properties and  consummate  transactions  successfully  in this highly
competitive environment.

We may not be able to keep pace with technological developments in our industry.

     The oil and natural gas industry is  characterized by rapid and significant
technological  advancements and introductions of new products and services using
new technologies. As others use or develop new technologies, we may be placed at
a competitive disadvantage,  and competitive pressures may force us to implement
those new technologies at substantial  cost. In addition,  other oil and natural
gas companies may have greater financial, technical and personnel resources that
allow them to enjoy technological advantages and may in the future allow them to
implement new technologies before we can. We may not be able to respond to these
competitive  pressures and implement new technologies on a timely basis or at an
acceptable  cost. If one or more of the technologies we use now or in the future
were  to  become  obsolete  or if  we  are  unable  to  use  the  most  advanced
commercially available technology, our business, financial condition and results
of operations could be materially adversely affected.

We are subject to various governmental regulations and environmental risks.

     Oil and natural gas  operations are subject to various  federal,  state and
local government  regulations that may change from time to time. Matters subject
to  regulation  include  discharge  permits for  drilling  operations,  plug and
abandonment  bonds,  reports  concerning  operations,   the  spacing  of  wells,
unitization  and  pooling  of  properties  and  taxation.  From  time  to  time,
regulatory agencies have imposed price controls and limitations on production by
restricting  the  rate of  flow  of oil  and  natural  gas  wells  below  actual
production  capacity in order to conserve supplies of oil and natural gas. Other
federal,  state  and  local  laws  and  regulations  relating  primarily  to the
protection  of  human  health  and the  environment  apply  to the  development,
production,  handling,  storage,  transportation and disposal of oil and natural
gas,  by-products thereof and other substances and materials produced or used in
connection  with oil and natural gas operations.  In addition,  we may be liable
for  environmental  damages caused by previous owners of property we purchase or
lease.  As a result,  we may incur  substantial  liabilities to third parties or
governmental  entities  and may be  required  to incur  substantial  remediation
costs.  We also are subject to changing and extensive  tax laws,  the effects of
which cannot be predicted.  Compliance  with existing,  new or modified laws and
regulations  could have a material  adverse  effect on our  business,  financial
condition and results of operations.

We are subject to various operating and other casualty risks that could result
in liability exposure or the loss of production and revenues.

     The oil and natural gas business involves operating hazards such as:

         o     well blowouts;

         o     mechanical failures;

         o     explosions;

         o     uncontrollable flows of oil, natural gas or well fluids;

         o     fires;

                                      -19-

         o     geologic formations with abnormal pressures;

         o     pipeline ruptures or spills;

         o     releases of toxic gases; and

         o     other environmental hazards and risks.

     Any of these  hazards  and  risks can  result in the loss of  hydrocarbons,
environmental  pollution,  personal  injury  claims  and  other  damage  to  our
properties and the property of others.

We do not have insurance to cover all of the risks we face.

     In August,  2006, the Company's general liability,  umbrella and control of
well  insurance  policies  lapsed,  and the Company has decided not to renew its
control  of well  policy  due to  premium  cost  considerations.  Our  insurance
coverage  provides  protection  against some, but not all,  potential  losses we
face. We do not carry business interruption insurance. We may elect not to carry
insurance if our  management  believes  that the cost of available  insurance is
excessive relative to the risks presented.  In addition,  we cannot insure fully
against  pollution  and  environmental  risks.  The  occurrence  of an event not
covered  by  insurance  could have a material  adverse  effect on our  financial
condition and results of operations.

The marketability of our natural gas production depends on facilities that we
typically do not own or control, which could result in a curtailment of
production and revenues.

     The marketability of our production  depends in part upon the availability,
proximity  and  capacity  of  natural  gas  gathering  systems,   pipelines  and
processing  facilities.  We generally  deliver natural gas through gas gathering
systems and gas pipelines that we do not own under  interruptible  or short-term
transportation  agreements.  Under the interruptible  transportation agreements,
the transportation of our gas may be interrupted due to capacity  constraints on
the applicable  system,  for  maintenance or repair of the system,  or for other
reasons as dictated  by the  particular  agreements.  Our ability to produce and
market  natural gas on a  commercial  basis  could be harmed by any  significant
change in the cost or availability of such markets, systems or pipelines.

Our future acquisitions may yield revenues or production that varies
significantly from our projections.

     In acquiring  producing  properties,  we assess the  recoverable  reserves,
future oil and natural gas prices,  operating costs,  potential  liabilities and
other  factors  relating to the  properties.  Our  assessments  are  necessarily
inexact and their  accuracy  is  inherently  uncertain.  Our review of a subject
property  in  connection  with our  acquisition  assessment  will not reveal all
existing or potential problems or permit us to become sufficiently familiar with
the  property to assess  fully its  deficiencies  and  capabilities.  We may not
inspect  every  well,  and  we  may  not  be  able  to  observe  structural  and
environmental  problems  even  when  we do  inspect  a  well.  If  problems  are
identified,  the  seller  may  be  unwilling  or  unable  to  provide  effective
contractual protection against all or part of those problems. Any acquisition of
property  interests  may  not  be  economically  successful,   and  unsuccessful
acquisitions may have a material  adverse effect on our financial  condition and
future results of operations.

Our business may suffer if we lose key personnel.

     We depend to a large  extent on the  services  of  certain  key  management
personnel, including our executive officers and other key employees, the loss of
any of whom could have a material  adverse effect on our  operations.  We do not
maintain  key-man  life  insurance  with  respect to any of our  employees.  Our
success  will be  dependent  on our  ability  to  continue  to employ and retain
skilled technical personnel.

We may experience difficulty in achieving and managing future growth.

     We have experienced growth in the past primarily through the acquisition of
proven properties. Future growth may place strains on our resources and cause us
to  rely  more  on  project  partners  and  independent  contractors,   possibly
negatively  affecting our financial  condition  and results of  operations.  Our
ability to grow will depend on a number of factors, including:

         o     our ability to obtain proven properties;

         o     our ability to acquire additional 3-D seismic data;

         o     our ability to develop existing properties;

                                      -20-

         o     our ability to retain and attract skilled personnel;

         o     our ability to maintain or enter into new relationships
               with project partners and independent contractors;

         o     the results of our developmental programs;

         o     hydrocarbon prices; and

         o     our access to capital.

     We may  not be  successful  in  upgrading  our  technical,  operations  and
administrative  resources or in  increasing  our ability to  internally  provide
certain of the services currently provided by outside sources, and we may not be
able to maintain  or enter into new  relationships  with  project  partners  and
independent contractors. Our inability to achieve or manage growth may adversely
affect our financial condition and results of operations.

We have substantial capital requirements that, if not met, may hinder
operations.

     We have  experienced  and  expect to  continue  to  experience  substantial
capital  needs as a result  of our  development  and  acquisition  programs  and
continued  net losses.  We expect that  additional  external  financing  will be
required  in the  future  to fund  our  growth.  We may  not be  able to  obtain
additional financing,  and financing under existing or new credit facilities may
not be available in the future. Without additional capital resources,  we may be
forced to limit or defer our planned oil and natural gas development program and
thereby  adversely affect the  recoverability  and ultimate value of our oil and
natural gas  properties,  in turn negatively  affecting our business,  financial
condition and results of operations.

We may have difficulty obtaining additional credit.

     Our credit  facilities are secured by a pledge of substantially  all of our
oil and natural gas properties.  Some of our credit facilities are guaranteed by
individuals.  We may not be able to  refinance  our  debt or  obtain  additional
financing,  particularly  in view of our  continued net losses and the fact that
substantially  all of our assets  are  currently  pledged to secure  obligations
under existing credit  facilities.  Our difficulty in obtaining  additional debt
financing may have adverse  consequences on our operations and financial results
including:

         o     our ability to obtain financing for working capital, capital
               expenditures, our developmental programs, purchases of new
               technology or other purposes may be impaired;

         o     because a majority of our indebtedness is subject to variable
               interest rates, we are vulnerable to increases in interest
               rates;

         o     any additional financing we obtain may be on unfavorable terms;

         o     we may be required to use a substantial portion of our cash
               flow to make debt service payments, which will reduce the funds
               that would otherwise be available for operations and future
               business opportunities;

         o     a substantial decrease in our operating cash flow or an increase
               in our expenses could make it difficult for us to meet debt
               service requirements and could require us to modify our
               operations, including by curtailing portions of our developmental
               program, selling assets, reducing our capital expenditures,
               refinancing all or a portion of our existing debt or obtaining
               additional financing; and

         o     we may become more vulnerable to downturns in our business or
               the economy generally.

     We may incur additional debt in order to fund our development activities. A
higher level of indebtedness  increases the risk that we may default on our debt
obligations.  Our ability to meet our debt  obligations  and reduce our level of
indebtedness depends on future performance. General economic conditions, oil and
natural gas prices and financial,  business and other factors, many of which are
beyond our control, affect our operations and our future performance.

We may record ceiling limitation write-downs that would reduce our shareholders'
equity.

     We use the  full-cost  method  of  accounting  for  investments  in oil and
natural gas  properties.  Accordingly,  we  capitalize  all the direct  costs of
acquiring,  exploring for and developing oil and natural gas  properties.  Under
the full-cost  accounting rules, the net capitalized cost of oil and natural gas
properties may not exceed a "ceiling limit" that is based upon the present value

                                      -21-

of estimated future net revenues from proved  reserves,  discounted at 10%, plus
the lower of the cost or the fair market  value of unproved  properties.  If net
capitalized costs of oil and natural gas properties exceed the ceiling limit, we
must  charge  the  amount of the  excess  to  operations  through  depreciation,
depletion and amortization  expense. This charge is called a "ceiling limitation
write-down." This charge does not impact cash flow from operating activities but
does reduce our shareholders' equity. The risk that we will be required to write
down the carrying value of our oil and natural gas properties increases when oil
and natural gas prices are low or volatile. In addition, write-downs would occur
if we were to experience sufficient downward adjustments to our estimated proved
reserves or the  present  value of  estimated  future net  revenues,  as further
discussed in "Risk  Factors--Our  reserve data and estimated discount future net
cash flows are estimates based upon  assumptions  that may be inaccurate and are
based on  existing  economic  and  operating  conditions  that may change in the
future." Once  incurred,  a write-down of oil and natural gas  properties is not
reversible  at a later  date.  See  "Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations--Critical  Accounting Policies and
Oil and Natural Gas Properties" for additional information on these matters.

Item 7.     Financial Statements



                                VTEX ENERGY, INC.


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                           PAGE
                                                                           ----

    Reports of Independent Registered Public Accounting Firms               23
    Consolidated Balance Sheets, April 30, 2006 and 2005                    25
    Consolidated Statements of Operations for the Years Ended
       April 30, 2006 and 2005                                              27
    Consolidated Statements of Stockholders' Equity for the Years Ended
       April 30, 2006 and 2005                                              28
    Consolidated Statements of Cash Flows for the Years Ended
       April 30, 2006 and 2005                                              30
    Notes to Consolidated Financial Statements                              31




                                      -22-


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Shareholders of
VTEX Energy, Inc.

We have audited the accompanying consolidated balance sheet of VTEX Energy, Inc.
("the Company") as of April 30, 2006 and the related consolidated  statements of
operations,  stockholders'  equity,  and cash flows for the year ended 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 audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of VTEX Energy, Inc.
as of April 30, 2006, and the consolidated  results of operations and cash flows
for the year ended  April 30,  2006 in  conformity  with  accounting  principles
generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
the Company  will  continue as a going  concern.  As  discussed in Note 1 to the
consolidated  financial  statements the Company has suffered a significant  loss
from operations  during the current year, has a working capital deficit,  and is
currently in default on certain of its debt instruments.  In the past two years,
the Company has been  required to raise  additional  capital by the  issuance of
both equity and debt instruments to sustain operations. There are no commitments
from  funding  sources,  debt or  equity,  in the event  that cash flows are not
sufficient  to fund ongoing  operations or other cash  commitments  as they come
due.  These  factors  raise  substantial  doubt about the  Company's  ability to
continue as a going  concern.  Management's  plans  regarding  these matters are
described in Note 1. The  Consolidated  Financial  Statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ Malone & Bailey, PC
- -------------------------
    Malone & Bailey, PC

www.malone-bailey.com
Houston, Texas
September 15, 2006

                                      -23-


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Shareholders of
VTEX Energy, Inc.

We have audited the accompanying consolidated balance sheet of VTEX Energy, Inc.
and Subsidiary ("the Company") as of April 30, 2005 and the related consolidated
statements of operations  (Restated),  stockholders'  equity, and cash flows for
the year ended April 30, 2005. 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  standards  of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of VTEX Energy, Inc.
and  Subsidiary  as of April 30,  2005,  and the  consolidated  results of their
operations  (Restated) and their cash flows for the year ended April 30, 2005 in
conformity with U.S. generally accepted accounting principles.

As referred to in Note 1, the  accompanying  consolidated  financial  statements
have been prepared  assuming the Company will continue on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business.  The Company has suffered a  significant  loss
from  operations  during the current year,  has a working  capital  deficit,  is
currently  in  default  on certain  of its debt  instruments,  and will  require
capital  funding from  sources  other than  operations  to meet its current debt
obligations.  In the past two years,  the  Company  has been  required  to raise
additional  capital by the issuance of both equity and debt  instruments.  There
are no commitments from funding sources,  debt or equity, in the event that cash
flows are not sufficient to fund ongoing operations or other cash commitments as
they come due. These factors raise substantial doubt about the Company's ability
to continue as a going concern.  Management will be required to raise additional
capital in the near term through  offerings of equity or debt securities to fund
the Company's debt service  obligations and its operations.  No assurance can be
given that such financing will be available or, if available, that it will be on
commercially favorable terms.  Moreover,  available financing may be dilutive to
current investors. Management's plans regarding these matters are also described
in Note 1. The Consolidated  Financial Statements do not include any adjustments
that might result from the outcome of this uncertainty.

As  referred to in Note 1,  subsequent  to the filing of the Form 10-KSB for the
year ended  April 30, 2005 an error was  identified  in the  computation  of the
weighted  average  number of shares  outstanding  used in computing net loss per
share. Accordingly, the loss per share was reduced to $(0.50) per share compared
to $(0.55) per share, as previously reported.


/s/ Pannell Kerr Forster of Texas, P.C.
- ---------------------------------------
    Pannell Kerr Forster of Texas, P.C.

Houston, Texas
July 29, 2005

                                      -24-

                                VTEX ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS



                                                         April 30,
                                               ------------------------------
                                                      2006            2005
                                                      ----            ----

    ASSETS

 CURRENT ASSETS
   Cash                                        $       38,536  $       37,582
   Certificates of deposit                            101,807          98,917
   Accounts receivable, oil and natural gas            52,239          78,702
   Joint interest billins receivable                   20,267         106,118
   Note receivable                                    537,000            -
   Other current assets                               374,310            -
                                               --------------  --------------

         Total current assets                       1,124,159         321,319
                                               --------------  --------------

OIL AND GAS PROPERTIES - Full cost method
   of accounting                                   16,977,310      18,325,280

   Less accumulated depletion, depreciation
      and amortization                          (   1,723,720)  (   1,581,145)
                                               --------------  --------------

         Oil and gas properties, net               15,253,590      16,744,135
                                               --------------  --------------

OTHER ASSETS
   Other property and equipment, net of
      accumulated depreciation of $133,077
      and $111,229 at April 30, 2006 and 2005,
      respectively                                     69,297          47,030
      Deferred loan costs, net of accumulated
      amortization of $623,089 and $362,558
      at April 30, 2006 and 2005,
      respectively                                     37,152          14,405
   Investment in Viking Petroleum UK Limited,
      equity method                                 1,369,570            -
   Other assets                                       108,342          55,600
                                               --------------  --------------

         Total other assets                         1,584,361         106,035
                                               --------------  --------------

         TOTAL ASSETS                          $   17,962,110  $   17,171,489
                                               ==============  ==============


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

                                      -25-


                                VTEX ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS



                                                          April 30,
                                               ------------------------------
                                                      2006            2005
                                                      ----            ----

    LIABILITIES AND STOCKHOLDERS' EQUITY

 CURRENT LIABILITIES
    Current portion of line of credit -
       related party                                1,359,265            -
    Revolving lines of credit - banks                 745,001         246,537
    Notes payable, net of debt discount of
       $265,492 and $87,397 at April 30, 2006
       and 2005, respectively                       2,795,999       1,377,333
    Production payments payable                       299,504         305,504
    Accounts payable, trade                    $    2,736,973  $    1,462,292
    Accrued salaies - officers                                           -
    Royalties payable                                 771,793         720,823
    Working interest revenues payable                  63,768          61,676
    Taxes payable                                     172,463         172,463
    Advances from related parties                        -             12,500
    Accrued interest                                  540,418          75,810
                                               --------------  --------------

          Total current liabilities                 9,702,684       4,434,938
                                               --------------  --------------

 NONCURRENT LIABILITIES
    Line of credit - related party                  2,265,442       3,624,707
    Asset retirement obligations                    1,327,351       1,232,297
                                               --------------  --------------

          Total noncurrent liabilities              3,592,793       4,857,004
                                               --------------  --------------

          TOTAL LIABILITIES                        13,295,477       9,291,942
                                               --------------  --------------

 COMMITMENTS AND CONTINGENCIES                           -              -

 STOCKHOLDERS' EQUITY
    Preferred stock class AA-1, cumulative
       convertible; $0.01 par value per share,
       500,000 shares authorized; 395,879
       shares issued and outstanding                    3,959          3,959
    Preferred stock class B, noncumulative
       nonconvertible; $0.001 par value per
       share, 500,000 shares authorized;
       500,000 shares issued and outstanding              500            500
    Common stock, $0.001 par value per share;
       150,000,000 shares authorized; 15,007,689
       and 9,769,989 shares issued and
       outstanding at April 30, 2006 and 2005,
       respectively                                    15,008          9,770
    Additional paid-in capital                     36,685,098     32,420,576
    Accumulated deficit                         (  32,002,436)  ( 24,555,258)
    Accumulated other comprehensive loss        (      35,496)          -
                                               --------------  --------------

          Total stockholders' equity                4,666,633      7,879,547
                                               --------------  --------------

 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $   17,962,110  $  17,171,489
                                               ==============  ==============





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

                                      -26-

                                VTEX ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                                     Year Ended April 30,
                                               ------------------------------
                                                      2006            2005
                                                      ----            ----
                                                                   (Restated)

REVENUES
   Oil sales                                   $        5,777  $       57,321
   Natural gas sales                                  635,844         951,200
                                               --------------  --------------

         Total revenues                               641 621       1,008,521
                                               --------------  --------------

OPERATING EXPENSES
   Lease operating expense                            597,085         505,323
   Production taxes                                   157,156         127,771
   Depreciation, depletion and
      amortization expense                            164,511         290,504
   General and administrative expense               5,870,153       3,102,411
   Accretion expense                                   95,054          89,467
                                               --------------  --------------

         Total operating expenses                   6,883,959       4,115,476
                                               --------------  --------------

OPERATING LOSS                                  (   6,242,338)  (   3,106,955)
                                               --------------  --------------

OTHER INCOME (EXPENSE)
   Other income                                        48,070          30,339
   Interest expense                             (   1,252,940)  (     883,769)
                                               --------------  --------------

         Total other expense, net               (   1,204,840)  (     853,430)
                                               --------------  --------------

NET LOSS                                       $(   7,447,178) $(   3,960,385)
                                               ==============  ==============

NET LOSS PER SHARE - Basic and Diluted         $(        0.56) $(        0.50)
                                                ==============  ==============

WEIGHTED AVERAGE NUMBER OF
   SHARES OUTSTANDING                              13,183,420       7,922,569
                                               ==============  ==============



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

                                      -27-


                                VTEX Energy, Inc.
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                       Years Ended April 30, 2006 and 2005


                             Preferred Stock
                    -------------------------------                                         Accumulated
                        Class AA-1      Class B           Common Stock                         Other       Additional      Total
                    ---------------- -------------- -----------------------   Accumulated  Comprehensive    Paid-in    Shareholders'
                      Shares  Amount Shares  Amount    Shares       Amount      Deficit         Loss        Capital       Equity
                      ------  ------ ------  ------    ------       ------      -------         ----        -------       ------
                                                                                          
April 30, 2004       395,879  $3,959 500,000 $  500  5,848,681  $    5,849  $( 20,594,873) $      -      $ 29,976,623  $  9,392,058

Common stock issued
 for consulting
 services               -       -       -       -    2,424,999       2,425           -            -           942,084       944,509
Warrants issued
 for consulting
 services               -       -       -       -         -           -              -            -           681,550       681,550
Common stock issued
 for cash               -       -       -       -      200,000         200           -            -            49,800        50,000
Common stock issued
 as loan                -       -       -       -      660,750         661           -            -           402,902       403,563
consideration
Warrants issued
 as loan
 consideration          -       -       -       -         -           -              -            -           139,509       139,509
Common stock issued
 under stock
 appreciation
 rights agreement       -       -       -       -      585,559         585           -            -      (        585)         -
Common stock issued
 in settlement of
 accounts payable       -       -       -       -       50,000          50           -            -            13,693        13,743
Warrants issued for
 option to
 acquire oil and
 gas properties         -       -       -       -         -           -              -            -           215,000       215,000
Net loss                -       -       -       -         -           -      (  3,960,385)        -              -     (  3,960,385)
                    --------- ------ ------- ------ ----------- ----------- -------------- ------------- ------------- -------------
Balance
April 30, 2005       395,879  $3,959 500,000 $  500  9,769,989  $    9,770  $( 24,555,258) $      -      $ 32,420,576  $  7,879,547
Common stock issued
 for consulting
 services               -       -       -       -      993,025         993           -            -           300,751       301,744
Warrants granted
 for consulting
 services               -       -       -       -         -           -              -            -         1,033,380     1,033,380
Common stock
 obligated to be
 issued for services    -       -       -       -         -           -              -            -            20,000        20,000
Common stock issued
 for consulting
 services incurred
 in the prior year      -       -       -       -      125,771         126           -            -      (        126)         -
Common stock issued
 as loan
 consideration          -       -       -       -      812,586         813           -            -           311,834       312,647


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

                                      -28-


                                VTEX Energy, Inc.
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                       Years Ended April 30, 2006 and 2005


                            Preferred Stock
                    -------------------------------                                         Accumulated
                        Class AA-1      Class B           Common Stock                         Other       Additional      Total
                    ---------------- -------------- -----------------------   Accumulated  Comprehensive    Paid-in    Shareholders'
                      Shares  Amount Shares  Amount    Shares       Amount      Deficit         Loss        Capital       Equity
                      ------  ------ ------  ------    ------       ------      -------         ----        -------       ------
                                                                                          
Warrants granted
 as loan
 consideration          -       -       -       -         -           -              -            -           181,026       181,026
Common stock
 obligated to be
 issued as loan
 consideration          -       -       -       -         -           -              -            -            57,200        57,200
Common stock issued
 for prior year
 loan consideration     -       -       -       -      205,267        205            -            -             4,279         4,484
Common stock issued
 for loan extensions    -       -       -       -      388,403        388            -            -           128,177       128,565
Warrants granted
 for loan extensions    -       -       -       -         -          -               -            -            46,504        46,504
Common stock
 obligated to be
 issued for loan
 extensions             -       -       -       -         -          -               -            -            19,720        19,720
Common stock issued
 for prior year
 loan extensions        -       -       -       -      105,000        105            -            -      (        105)         -
Common stock
 issued for loan
 guarantee              -       -       -       -      200,000        200            -            -            59,800        60,000
Warrants granted for
 loan guarantee         -       -       -       -         -          -               -            -            28,490        28,490
Common stock
 options granted for
 stock based
 compensation           -       -       -       -         -          -               -            -         1,280,000     1,280,000
Common stock
 issued for the
 acquisition of Viking  -       -       -       -    2,000,000      2,000            -            -           638,000       640,000
Common stock issued
 in settlement of
 accounts payable       -       -       -       -      407,648        408            -            -           155,592       156,000
Net loss                -       -       -       -         -           -      (  7,447,178)        -              -     (  7,447,178)
Total other
 comprehensive
 loss                   -       -       -       -         -           -              -       (  35,496)          -     (     35,496)
                    --------- ------ ------- ------ ----------- ----------- -------------- ------------- ------------- -------------
Balance
April 30, 2006       395,879  $3,959 500,000 $  500 15,007,689  $  15,008   $( 32,002,436) $ (  35,496)  $ 36,685,098  $  4,666,633
                    ========= ====== ======= ====== =========== =========== ============== ============= ============= ============


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

                                      -29-


                                VTEX Energy, Inc.
                      CONSOLIDATED STATEMENTS OF CASH FLOWs

                                                     Year Ended April 30,
                                               ------------------------------
                                                      2006            2005
                                                      ----            ----

CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                    $(  7,447,178)  $(  3,960,385)
   Adjustments to reconcile net loss
      to net cash provided by operating
       activities
      Depreciation, depletion and
        amortization expense                         164,510         290,504
      Amortization of deferred loan
        costs and debt discount                      637,794         575,621
      Bad debt expense                               183,717          28,000
      Accretion expense                               95,054          89,467
      Deferred officers salaries                     217,500            -
      Common stock and warrants issued for
        services                                   1,355,124       1,626,059
      Stock based compensation                     1,280,000            -
      Advances to related parties applied
        to travel costs                                 -            205,742
      Write off option to purchase oil
        and natural gas properties                      -            215,000
   Changes in operating assets and liabilities
      Accounts receivable, trade                (     71,403)          6,307
      Other assets                              (    327,555)         56,728
      Accounts payable - trade                       889,986         670,501
      Royalties and working interest
        revenues payable                              53,062          34,076
      Other current liabilities                      514,261         252,563
                                               --------------  --------------
Net cash (used in) provided by
  operating activities                          (  2,455,127)         90,183
                                               --------------  --------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Investment in certificates of deposit        (      2,890)     (   23,917)
   Oil and natural gas capital expenditures     (    333,530)     (1,550,927)
   Proceeds from sales of oil and natural
     gas properties                                  591,500         200,000
   Purchase of property and equipment, other    (     18,956)     (   31,598)
   Purchase of Viking International
     Petroleum, PLC, net of cash acquired       (    121,619)           -
   Payments received on note receivable                 -             67,000
   Advances to related party                            -         (  220,742)
   Payments received on advances to
     related party                                      -             25,000
                                               --------------    ------------
Net cash provided by (used in)
   investing activities                              114,505      (1,535,184)
                                               --------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Borrowings on notes payable                     2,091,775       1,272,500
   Repayments of notes payable                  (    194,667)     (  127,029)
   Repayments of production payments            (      6,000)           -
   Borrowings on lines of credit                     500,000         149,300
   Repayments of lines of credit                (      1,536)     (    2,763)
   Repayments of advances from related party    (     12,500)     (   16,000)
   Proceeds from issuance of common stock               -             50,000
                                               --------------    ------------
Net cash provided by financing activities          2,377,072       1,326,008
                                               --------------    ------------

Effect of foreign currency translation          (     35,496)           -
                                               --------------    ------------

 NET INCREASE (DECREASE) IN CASH
    AND CASH EQUIVALENTS                                 954    (    118,993)

 CASH AND CASH EQUIVALENTS,
    BEGINNING OF PERIOD                               37,582         156,575
                                               --------------  --------------

 CASH AND CASH EQUIVALENTS,
    END OF PERIOD                              $      38,536   $      37,582
                                               ==============  ==============

 SUPPLEMENTAL CASH FLOW DISCLOSURES - SEE NOTE 2


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

                                      -30-


                                VTEX Energy, Inc.
                   Notes to Consolidated Financial Statements
                                 April 30, 2006

Note 1.  Financial Statement Presentation

Business and Organization

The  Company was  incorporated  under the laws of the State of Texas on June 18,
1998 as Vector Energy Corporation.  Effective November 19, 2002, the Company was
reincorporated  into Nevada. The  reincorporation  was effected by the merger of
Vector Energy  Corporation with and into a newly created wholly owned subsidiary
VTEX Energy, Inc., a Nevada corporation,  which became the surviving entity. The
Company is primarily  engaged in the  acquisition,  development,  production and
exploration of oil and natural gas properties in the United States.

Going Concern

As shown in the financial statements,  the Company has historically incurred net
losses from operations and has incurred net losses of  approximately  $7,447,000
and  $3,960,000 for the years ended April 30, 2006 and 2005,  respectively,  and
losses are expected to continue in the near term. Current  liabilities  exceeded
current assets by approximately  $8,579,000 and $4,114,000 at April 30, 2006 and
2005, respectively,  and the accumulated deficit is approximately $32,002,000 at
April 30, 2006. Amounts  outstanding and payable to creditors are in arrears and
the  Company  is  in  negotiations  with  creditors  to  obtain  extensions  and
settlements of outstanding  amounts.  Management  anticipates  that  significant
additional  expenditures will be necessary to develop the Company's  properties,
which  consist  primarily  of proved  reserves  that are  non-producing,  before
significant  positive  operating  cash flows will be achieved.  Without  outside
investment  from the sale of equity  securities or debt financing our ability to
execute our business plan will be limited.  These factors are an indication that
the Company may be unable to continue in existence.

Management's  plans to alleviate these conditions  include the  renegotiation of
certain  trade  payables,  settlements  of debt amounts with stock,  deferral of
certain  scheduled  payments,  and sales of non core  properties,  as considered
necessary by management. In addition, management is pursuing business partnering
arrangements  for the acquisition  and  development of additional  properties as
well as debt and equity funding through private placements.

The  accompanying  consolidated  financial  statements  are  prepared  as if the
Company will continue as a going concern. The consolidated  financial statements
do not  contain  adjustments,  including  adjustments  to  recorded  assets  and
liabilities,  which might be necessary if the Company were unable to continue as
a going concern.

Note 2.  Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated  financial statements include the accounts of VTEX Energy, Inc.
and  its  wholly  owned  subsidiaries,   Vector  Exploration,  Inc.  and  Viking
International Petroleum, PLC ("Viking"),  herein collectively referred to as the
"Company".  All significant  intercompany  accounts and  transactions  have been
eliminated in consolidation.

The Company  owns an  approximate  24%  interest in Viking  Petroleum UK Limited
which is  accounted  for under  the cost  method  because  of the  inability  to
exercise significant  influence over its operations.  This investment is carried
at cost and  adjusted  only for other than  temporary  declines  in fair  value.
Profits  and  losses of the  investee  are not  recognized  in the  consolidated
financial  statements  of the Company.  No  impairment  of this  investment  was
considered necessary at April 30, 2006.

Restatement of loss per share

Subsequent  to the filing of the Form 10-K for the year ended  April 30, 2005 an
error was identified in the computation of the weighted average number of shares
outstanding  used in the computation of net loss per share. The error was caused
due to the  exclusion  of weighted  average  shares  obligated to be issued as a
component of the total weighted  average shares  outstanding.  Accordingly,  the
weighted  average  shares  outstanding  was  increased to 7,922,569  compared to
7,257,918,  as  previously  reported,  and the net loss per share was reduced to
$(0.50) per share compared to $(0.55) per share, as previously reported.

                                      -31-

Revenue Recognition

The Company recognizes oil and natural gas revenue for its interest in producing
wells as oil and  natural  gas is produced  and sold from those  wells.  Oil and
natural  gas  sold  by the  Company  is not  significantly  different  from  the
Company's share of production.

Recent Accounting Pronouncements

In December 2004, SFAS No. 153, "Exchanges of Nonmonetary Assets -- an amendment
of  Accounting  Principles  Board  ("APB")  Opinion  No.  29" was  issued and is
effective  for fiscal  years  beginning  after  June 15,  2005.  This  Statement
addresses the  measurement of exchange of nonmonetary  assets and eliminates the

exception  from fair value  measurement  for  nonmonetary  exchanges  of similar
productive  assets in  paragraph  21(b) of APB Opinion No. 29,  "Accounting  for
Nonmonetary  Transactions"  and replaces it with an exception for exchanges that
do not have  commercial  substance.  The adoption of SFAS No. 153 is expected to
have no impact on our consolidated financial statements.

In May  2005,  SFAS  No.  154,  "Accounting  Changes  and  Error  Corrections--a
replacement  of APB Opinion No. 20 and FASB  Statement  No. 3" was issued and is
effective for fiscal years  beginning  after  December 15, 2005.  This statement
changes the  requirements  for the  accounting  for and reporting of a change in
accounting  principle.  This  statement  applies  to all  voluntary  changes  in
accounting  principle.  It also  applies to changes  required  by an  accounting
pronouncement  in the unusual instance that the  pronouncement  does not include
specific  transition   provisions.   When  a  pronouncement   includes  specific
transition provisions, those provisions should be followed. The adoption of SFAS
No. 154 is expected to have no impact on our consolidated financial statements.

Accounts Receivable

The majority of the Company's accounts receivable are due from purchasers of its
oil and natural gas production and industry  partners in its wells.  The Company
determines any required  allowance by considering a number of factors  including
length of time accounts  receivable are past due and the Company's previous loss
history. The Company provides reserves for account receivable balances when they
become uncollectible, and payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.

Oil and Natural Gas Properties

The Company  follows the full cost method of accounting  for its oil and natural
gas properties. All costs associated with property acquisition, exploration, and
development  activities  are  capitalized in a single cost center located within
the United  States.  Internal costs directly  identified  with the  acquisition,
exploration  and  development  activities  of the Company are also  capitalized.
Capitalized  costs are  amortized  on the  unit-of-production  basis using total
proved oil and natural gas reserves. Capitalized costs are subject to a "ceiling
test" and are limited to the present value of estimated future net revenues less
estimated  future  expenditures  using a discount factor of ten percent.  Should
capitalized  costs  exceed  the  present  value of  reserves  discounted  at ten
percent,  the excess is charged to operations.  Once incurred,  an impairment of
oil and natural gas properties  can not be reversed at a later date.  Impairment
of  oil  and  natural  gas  properties  is  assessed  on a  quarterly  basis  in
conjunction  with  our  quarterly  filings  with the SEC.  Sales of  proved  and
unproved  oil and  natural  gas  properties  are  treated as  reductions  of the
capitalized cost pool,  unless such adjustments  would  significantly  alter the
relationship  between  capitalized costs and proved reserves.  At April 30, 2006
and  2005,  there  were no costs of  unproved  properties  or major  development
projects included in the capitalized cost pool. The depletion rates per Mcfe for
the years ended April 30, 2006 and 2005 were $1.06 and $1.63, respectively.

Other Property and Equipment

Other  property  and  equipment  of the Company  consists  primarily of computer
equipment,  vehicles and  furniture  and fixtures,  which are  depreciated  over
estimated  useful lives,  ranging from three to seven years,  on a straight-line
basis.  Repairs and  maintainence  is expensed as incurred  while costs incurred
that extend the useful life are capitalized.

Deferred Loan Costs

Deferred  loan costs  consist of direct costs of securing  financing and include
primarily  common  stock  and  warrants  issued as part of the  underlying  debt
instruments,  loan origination  fees paid to third parties,  extension fees, and
legal costs to prepare loan documents. These costs are capitalized and amortized
over the life of the loan on a straight line basis.

                                      -32-

Asset Retirement Obligations

The  Company  records a  liability  for legal  obligations  associated  with the
retirement  of  tangible  long-lived  assets  in the  period  in which  they are
incurred in  accordance  with SFAS No.  143.  The  Company  adopted  this policy
effective  May  1,  2003,  using  a  cumulative  effect  approach  to  recognize
transition amounts for asset retirement  obligations  ("ARO"),  asset retirement
costs  and  accumulated  accretion  and  depletion.   Under  this  method,  when
liabilities for dismantlement and abandonment  costs,  excluding salvage values,
are  initially  recorded the carrying  amount of the related oil and natural gas
properties are increased.  Accretion of the liability is recognized  each period
using the interest method of allocation,  and the  capitalized  cost is depleted
over the useful life of the  related  asset.  Revisions  to such  estimates  are
recorded as  adjustments  to the ARO,  capitalized  asset  retirement  costs and
charges to operations during the periods in which they become known. At the time
the  abandonment  cost is incurred,  the Company will be required to recognize a
gain or loss if the actual costs do not equal the  estimated  costs  included in
ARO (see Note 7).

Stock-Based Compensation

The Company  accounts for stock based  compensation  to employees under the fair
value  method  prescribed  by  SFAS  No.  123(R),  "Accounting  for  Share-Based
Payment."  Under the fair value  method,  compensation  cost is  measured at the
grant date of each  common  stock  option or warrant  awarded  based on the fair
value of the award and is recognized over the vesting  period,  which is usually
the  service  period.  For common  stock  options  and  warrants,  fair value is
determined using the Black-Scholes  option-pricing model that takes into account
the common  stock  market  price at the grant  date,  the  exercise  price,  the
expected  life of the common stock option or warrant,  the market  volatility of
the underlying common stock, the dividend yield and the risk-free  interest rate
over the expected life of the common stock option or warrant.  The fair value of
a common  stock  option or  warrant  is  estimated  at the grant date and is not
subsequently adjusted for changes in the assumptions used.

Loss Per Share

Loss per share has been calculated  using the weighted  average number of shares
outstanding. Outstanding warrants and other potentially dilutive securities have
been excluded from the  calculation of loss per share,  as their effect would be
anti-dilutive due to the Company incurring a net loss for all periods presented.
At April 30, 2006 and 2005, there were 269,430 and 396,039 shares, respectively,
that the Company was obligated to issue.  The weighted  average  effect of these
shares was  111,499  and  176,431  for the years  ended April 30, 2006 and 2005,
respectively.  At April 30, 2006 and 2005,  there are 250,000  warrants that are
potentially  dilutive common shares that have been excluded from the calculation
of earnings per share because their effects are anti-dilutive.

Income Taxes

The Company  accounts  for income  taxes under the  provisions  of SFAS No. 109,
"Accounting  for  Income  Taxes,"  which  provides  for an asset  and  liability
approach for  accounting  for income taxes.  Under this  approach,  deferred tax
assets  and  liabilities  are  recognized   based  on  anticipated   future  tax
consequences,  using  currently  enacted tax laws,  attributable  to differences
between financial statement carrying amounts of assets and liabilities and their
respective tax bases.  The Company's most significant  timing  difference is its
net operating loss carry forwards and the timing difference between the book and
tax basis if its oil and natural gas properties.  Management  determined that it
is more likely than not that NOL's  accumulated  during prior years of in excess
of $27,000,000 will not be recoverable.  Accordingly,  a valuation allowance has
been provided for the full value of its net tax assets.  The Company's NOL carry
forwards begin to expire in 2013.

Statement of Cash Flows

For purposes of the consolidated  statement of cash flows, the Company considers
all highly  liquid  investments  purchased  with an  original  maturity of three
months or less to be cash and cash equivalents.

                                      -33-

The  following  is a summary of all payments  made for interest and  significant
noncash  financing  activities  for the years  ended  April  30,  2006 and 2005,
respectively.

Supplemental Disclosures of Cash Flow Information:

                                                      Year Ended April 30,
                                                 ------------------------------
                                                      2006            2005
                                                      ----            ----
Cash payments
   Interest                                      $       93,419  $       25,231
Noncash investing and financing activities
   Accrued interest converted into note payable  $       49,653  $       13,167
   Accrued interest converted into production
      payment                                              -             51,503
   Accrued interest converted into
      line of credit                                       -            386,702
   Advances from related party converted into
      line of credit                                       -            223,906
   Production payment and accrued interest
      converted into line of credit                        -          1,174,956
   Common stock and warrants issued for
      services                                        1,355,124       1,626,059
   Note receivable received in sale of
      oil and natural gas properties                    537,000            -
   Notes payable assumed in sale of oil
      and natural gas properties                        350,000            -
   Accounts payable offset against proceeds
      from sale of oil and natural gas
      properties                                        203,000            -
   Common stock and warrants issued to note
      holders recorded as debt discounts                555,358         399,610
   Common stock and warrants issued for debt
      extensions and a guarantee                        283,278         143,462
   Common stock issued to settle accounts
      payable                                           156,000          13,743
   Common stock warrants issued for option to
      purchase oil and natural gas properties              -            215,000
   Common stock options issued for stock
      based compensation                              1,280,000            -
   Common stock issued as consideration
      for the acquisition of Viking
      International Petroleum, PLC                      640,000            -
   Net liabilities acquired in the acquisition
      of Viking International Petroleum, PLC            607,951            -

Use of Estimates

The  preparation  of financial  statements  in  conformity  with U.S.  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of contingent  assets and liabilities as of the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual amounts could differ from these estimates.

Significant  estimates  include  volumes of oil and natural gas reserves used in
calculating  depletion,  depreciation and amortization of proved oil and natural
gas properties,  asset  retirement  obligations,  bad debts,  contingencies  and
litigation.  Oil and  natural  gas  reserve  estimates,  which are the basis for
unit-of-production  depletion  and the  ceiling  test,  have  numerous  inherent
uncertainties. The accuracy of any reserve estimate is a function of the quality
of available data and of engineering and geological interpretation and judgment.
Results of  drilling,  testing,  and  production  subsequent  to the date of the
estimate  may  justify  revision  of  such  estimate   (positive  or  negative).
Accordingly,  reserve  estimates are most often different from the quantities of
oil and  natural  gas  that  are  ultimately  recovered.  In  addition,  reserve
estimates are vulnerable to changes in wellhead  prices of crude oil and natural
gas.  Such  prices  have been  volatile  in the past and can be  expected  to be
volatile in the future.

Concentration of Credit Risk

Substantially  all of the  Company's  accounts  receivable  result  from oil and
natural gas sales or joint interest billings to third parties in the oil and gas
industry.  This  concentration of customers and joint interest owners may impact
the  Company's  overall  credit  risk in that these  entities  may be  similarly
affected by changes in economic and other industry conditions.  The Company does
not require  collateral  from its customers and the Company has not  experienced
material credit losses on such receivables.  Further,  the Company generally has
the right to offset revenue against related billings to joint interest owners.

Guarantees

Guarantees  are  accounted for in  accordance  with the  provisions of Financial
Accounting Standards Board ("FASB")  Interpretation No. ("FIN") 45, "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of  Others."  FIN 45  establishes  disclosure  and
liability-recognition  requirements for direct and indirect debt guarantees with
specified characteristics.

                                      -34-

Note 3.  Certificates of Deposit

At April 30, 2006 and 2005,  the Company had  certificates  of deposit  totaling
$101,807 and $98,917,  respectively.  Such certificates bear interest at a rates
ranging  from 2.81% to 3.93% at April 30,  2006 and from 1.88% to 2.52% at April
30, 2005.  The maturity  dates of the  certificates  ranged from June 3, 2006 to
March 20,  2007.  The  certificates  of deposit  are  collateral  for letters of
credit,  with  expiration  dates  corresponding  to the  maturity  dates  of the
certificates,  issued in favor of  governmental  agencies in states in which the
Company operates wells. It is anticipated that such  certificates of deposit and
the corresponding letters of credit will be renewed at maturity.

Note 4.  Sales of Oil and Natural Gas Properties

On January 13, 2005,  the Company  executed a purchase and sale  agreement  with
ARCOA Energy Partners I, L.P.  ("ARCOA").  Under the terms of the agreement,  as
amended,  ARCOA acquired a net profits  interest in three wells on the Company's
Bateman Lake property for  $1,800,000.  No gain or loss was  recognized  and the
gross sales price was reflected as a reduction in oil and gas  properties  under
the full cost method.

The net profits  interest is  initially  payable out of 75% of the monthly  cash
flows  attributable  to the  Company's  interest  in such  wells  until  payout,
including a 12% rate of return. The net profits interest will then be reduced to
65% until the well has  produced  a total of $7  million of net cash flow to the
Company's working interest.  The net profits interest will be further reduced to
60% until the net cash  flow  attributable  to the  Company's  working  interest
reaches a total of $9 million.  At that time,  the net profits  interest will be
reduced to 50% which will be the net profits percentage  thereafter.  After June
1, 2006,  ARCOA may elect to convert its net profits  interest into common stock
of the  Company at a  conversion  rate of $1.25 per share.  The value of the net
profits interest will be determined  based upon the net cash flows  attributable
to the reserves, discounted at 15%.

On December 29, 2005, the Company closed the sale of the net profits interest to
ARCOA. The sales price consisted of the following:

     Cash proceeds                                          $     710,000
     Notes payable converted into partnership units
        of ARCOA                                                  250,000
     Notes payable assumed by the generaL partner
        of ARCOA                                                  100,000
     Offsets against amounts owed to the general
        partner of ARCOA                                          203,000
     Note receivable from the general partner
        of ARCOA                                                  537,000
                                                            -------------
     Total sale price                                       $   1,800,000
                                                            =============

In connection with this  transaction,  the Company  received a total of $510,000
and $200,000 in cash payments from ARCOA during the fiscal years ended April 30,
2006 and 2005,  respectively  (such  payments were a component of the sale price
described above) which were recorded as a sale of oil and natural gas properties
at the time received.

The note  receivable  of $537,000  bears  interest at the rate of 10%, is due on
December  29, 2006 and is secured by the net  revenues  attributable  to the net
profits interest.

Note 5.  Acquisition of Viking

On  July  29,  2005,  the  Company  completed  the  acquisition  of  all  of the
outstanding shares of Viking.  Viking is a UK registered company with offices in
London and owns a 24%  interest in a company that owns the North  Yorkshire  gas
fields  (an  extension  of the  Southern  North  Sea  Gas  Basin  onshore).  The
properties  include  licenses  covering   approximately  100,000  acres  onshore
including,  four proved  producing  fields,  two proved  undeveloped  fields and
additional  seismically mapped low risk exploration  potential.  Upon closing of
this  acquisition,  the Company  delivered  400,000  shares of its common stock,
valued at $128,000,  to Viking for  distribution  to its  shareholders,  with an
obligation to deliver an additional 1.6 million shares of its common stock. Such
additional shares, valued at $512,000 were issued on October 18, 2005. The North
Yorkshire gas fields are security for debt in Viking Petroleum UK, Limited. Such
debt is not currently in default,  however, the Company has no assurance that an
event of  default  will not  occur.  Additionally,  prior to the  closing of the
acquisition,  the  Company  advanced  $127,757  to Viking  for  working  capital
purposes.  This amount is  considered a component of the purchase  price paid to
acquire  the stock of  Viking.  This  transaction  has been  recorded  using the
purchase  method of accounting  and the results of operations  subsequent to the
acquisition date are recorded in the  consolidated  results of operations of the
Company.

                                      -35-

The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed of Viking:

     Current assets, including cash of $6,138               $      54,892
     Fixed assets                                                  25,246
     Other assets                                                  61,743
     Investment in Viking Petroleum UK Limited                  1,369,570
     Current liabilities                                     (    743,694)
                                                            --------------
     Total purchase price                                   $     767,757
                                                            ==============

The following table summarizes the components of the purchase price of Viking:

     Working capital advances made to Viking
        prior to the date of acquisition                    $     127,757
     Fair value of common stock issued                            128,000
     Fair value of common stock obligated to be issued            512,000
                                                            ---------------
     Total purchase price                                   $     767,757
                                                            ===============

Note 6. Oil and Gas Producing Activities

Set forth below is certain information regarding the aggregate capitalized costs
of oil and gas properties,  as of April 30, 2006 and 2005, and costs incurred in
oil and gas property acquisition, development and exploration activities for the
years ended April 30, 2006 and 2005.

                                                       April 30,
                                         ---------------------------------------
                                                 2006                  2005
                                                 ----                  ----
 Capitalized Costs
    Proved properties                    $     16,977,310      $     18,325,280
    Unproved properties                              -                     -
    Accumulated depreciation, depletion
       and amortization                   (     1,723,720)      (     1,581,145)
                                         --------------------  -----------------
                                         $     15,253,590      $     16,744,135
                                         ====================  =================

                                                   Year Ended April 30,
                                         ---------------------------------------
                                                 2006                  2005
                                                 ----                  ----
 Cost Incurred
    Property acquisitions:
       Proved properties                 $           -         $           -
       Unproved properties                           -                     -
    Development costs                             333,530             1,550,927
    Exploration costs                                -                     -
                                         --------------------  -----------------
                                         $        333,530      $      1,550,927
                                         ====================  =================

The  following  presents  the  results of  operations  of oil and gas  producing
activities for the years ended April 30, 2006 and 2005:

                                                    Year Ended April 30,
                                         ---------------------------------------
                                                 2006                  2005
                                                 ----                  ----

 Oil and gas sales                       $        641,621      $      1,008,521
 Production costs                         (       754,241)      (       633,094)
 Exploration                                         -                     -
 Depreciation, depletion and amortization (       142,575)      (       270,995)
 Impairment of oil and gas properties                -                     -
                                         -----------------     -----------------
 Operating income, before income tax      (       255,195)              104,432
 Income tax                                          -                     -
                                         -----------------     -----------------
 Operating income, after income tax      $(       255,195)     $        104,432
                                         =================     =================

                                      -36-

Note 7.  Debt

Total debt at April 30, 2006 and 2005 consists of the following:

                                                        April 30,
                                         ---------------------------------------
                                                 2006                  2005
                                                 ----                  ----

          Line-of-credit - related party $      3,624,707      $      3,624,707
          Lines of credit - banks                 745,001               246,537
          Production payments payable             299,504               305,504
          Other notes payable                   2,795,999             1,377,333
                                         -----------------     -----------------
                                                7,465,211             5,554,081
          Less current portion            (     5,199,769)      (     1,929,374)
                                         -----------------     -----------------
                                         $      2,265,442      $      3,624,707
                                         =================     =================

Long term debt due in each of the next five fiscal years is as follows:

    Fiscal Year Ended April 30,
                2008                   $            906,177
                2009                                906,177
                2010                                453,088
                                      --- ------------------
               Total                   $          2,265,442
                                      === ==================

Lines of Credit

The Company has a $10.0 million  revolving credit line with an entity controlled
by the  brother of the  Company's  president.  The  credit  line is subject to a
borrowing  base  formula.  At April 30, 2006,  the Company had drawn the maximum
available  under the borrowing base on the revolving  credit line of $3,624,707.
Additional  borrowings are not available without the consent of the lender.  The
line of credit is secured by all of the Company's oil and natural gas properties
and bears interest at the rate of 7.5%.  Accrued  interest on the line of credit
totaled  $271,853 at April 30, 2006.  Under its terms, the line of credit was to
accrue  interest  through October 31, 2005, at which time interest was to be due
monthly. Beginning in November 2005, the principal balance outstanding under the
line of  credit  was to  convert  to a term  note  payable  in 48 equal  monthly
installments along with current interest.  The Company has not made any payments
under  the terms of the  converted  note and  interest  on the line of credit is
continuing  to accrue.  The note is currently in default,  however no demand for
payment has been received pending ongoing  discussions with the lender to modify
the terms of the note. No definitive agreement has yet been reached.

On April 8, 2004, the Company entered into a $250,000 revolving credit agreement
with  Hibernia  Bank.  The note has been  guaranteed  by a private  investor who
received  100,000  shares of the  Company's  common  stock  with a fair value of
$49,000 as consideration for such guarantee.  The fair value of the common stock
was  expensed  when  incurred.  Interest  on this note is  payable  monthly at a
floating  rate of prime plus  1.097%  (8.847%  and 6.847% at April 30,  2006 and
2005,  respectively.) The outstanding balance under the note, which was $245,001
and $246,537 at April 30, 2006 and 2005, respectively, is due upon demand.

On June 21, 2005, the Company entered into a $500,000 revolving credit agreement
with Bank of Texas.  The note was guaranteed by a private  investor who received
200,000  shares of the Company's  common stock and warrants to purchase  100,000
shares of the Company's common stock at $0.50. The value of the common stock and
warrants,  which is $88,490,  has been  included  in deferred  loan costs and is
being  amortized  over the life of the loan.  Interest  on this note is  payable
quarterly at the prime rate,  which was 7.75% at April 30, 2006.  The note has a
balance of $500,000 at April 30, 2006 and matures on December 31, 2006.

Other Notes Payable

Included  in other  notes  payable are  unsecured  10% to 13.6% notes  issued to
vendors in settlement of accounts payable. These notes are past their due dates,
are in default and are subject to a demand for payment at any time.  These notes
totaled $42,842 at April 30, 2006 and 2005, respectively.

In March,  2004,  the Company  issued a $150,000 note payable to Mustang  Island
Gathering,  LLC (the "LLC") for indemnification of litigation  settlement costs.
Mustang  Island  Gathering,  LLC  purchases  the natural gas  produced  from the
Company's  Mustang Island property,  and the Company is an approximate 10% owner
in the LLC. The note is payable in monthly installments,  with interest at 4.5%,
at the rate of $0.03 per MCF of natural gas purchased, beginning with April 2004
production  The  balance due under the note was $61,149 and $96,220 at April 30,
2006 and 2005, respectively.

                                      -37-

During  December 2003 and January 2004, the Company issued a series of 12% notes
totaling  $40,000 to investors for working  capital loans.  In conjunction  with
these loans,  the Company also issued the investors  40,000 shares of its common
stock.  The stock  issued was  recorded at its fair market  value of $27,600 and
treated as deferred  loan cost which was amortized  over four months.  The notes
were  due on dates  ranging  from  April  29,  2004 to May 26,  2004 and were in
default.  These notes were subject to a demand for payment at any time. However,
the Company  subsequently reached agreement with the investors to extend the due
dates of the  notes to dates  ranging  from  April 29,  2005 to May 26,  2005 in
return for the  issuance of 28,250  shares of its common  stock and  warrants to
purchase  5,000  shares of the  Company's  common stock at $0.50 per share which
expired on January 26,  2006.  The stock and  warrants  issued were  recorded at
their fair market  value of $17,048 and treated as deferred  loan cost which was
amortized over one year.  During June 2005, the Company reached  agreements with
the holders of notes  totaling  $30,000 to further  extend the maturity dates of
the notes to December  31, 2005 in return for the  issuance of 18,000  shares of
the Company's  common stock.  The stock was recorded at its fair market value of
$5,220 and treated as deferred loan cost which was  amortized  over the terms of
the  extensions.  At April 30, 2006,  the 18,000 shares of common stock remained
unissued,  however,  their fair value has been included in stockholders' equity.
In July 2005,  the Company  paid the  remaining  $10,000  principal  balance and
$1,792 in  accrued  interest  on the only note which was not  extended.  Accrued
interest  on these notes  totaled  $8,298 and $6,276 at April 30, 2006 and 2005,
respectively.  These notes have  matured and are subject to a demand for payment
at any time. The Company is currently  holding  discussions  with the holders of
the notes in order to obtain  additional  extensions,  however,  there can be no
assurance that such extensions will be obtained or will be on terms favorable to
the Company.

During March 2005,  the Company  issued a $250,000  unsecured  note payable to a
private  investor.  The note bears interest at 12% and the principal and accrued
interest is due in one payment upon the demand of the holder.  The note provided
for the  issuance to the  investor  of 100,000  shares of the  Company's  common
stock. The common stock was recorded at its fair value of $38,000 and treated as
a debt discount  which was  immediately  expensed as interest  expense.  Accrued
interest  on the note  totaled  $34,192  and $4,192 at April 30,  2006 and 2005,
respectively.

During the period June 2004 through April 2005,  the Company  issued a series of
12% notes totaling $1,035,667 to private investors for working capital purposes.
During  fiscal 2006,  the Company  borrowed an additional  $100,000  under these
notes and made  principal  payments of $50,000.  The notes also provided for the
issuance to the investors of 557,767  shares of its common stock and warrants to
purchase  252,633 shares of the Company's  common stock at $0.50 per share which
expire on dates  ranging from June 18, 2006 to April 27, 2007.  The common stock
and warrants were recorded at their fair value of $366,094 and treated as a debt
discount  which  was  amortized  over the term of the loan.  At April 30,  2006,
10,000 shares of the common stock  remained  unissued,  however their fair value
was included in stockholders' equity. Interest on the notes is payable quarterly
and the  principal  balances had original  maturity  dates ranging from June 18,
2005 to December 31, 2005.  Accrued  interest on the notes totaled  $119,677 and
$63,027 at April 30, 2006 and 2005, respectively.  Unamortized debt discount was
$0  and  $87,397  at  April  30,  2006  and  2005,  respectively.   The  Company
subsequently  reached  agreement with certain of the investors to extend the due
dates of the notes to dates ranging from March 2, 2005 to June 8, 2005 in return
for the issuance of 195,000  shares of its common stock and warrants to purchase
40,000 shares of the  Company's  common stock at $0.50 per share which expire in
March 2007.  The stock and  warrants  issued were  recorded at their fair market
value of $77,414 and treated as deferred loan cost which was amortized  over the
term of the extension.  In June 2005, the Company reached  agreements to further
extend the maturity dates of all of the 12% notes to investors that had matured,
to December 31, 2005 in return for the issuance of 207,500  shares of its common
stock and warrants to purchase  50,000 shares of the  Company's  common stock at
$0.50 per share which expire in June 2007.  The stock and  warrants  issued were
recorded at their fair market value of $73,180 and treated as deferred loan cost
which was amortized  over the term of the extension.  At April 30, 2006,  50,000
shares of the  common  stock  remain  unissued,  however  their  fair  value was
included in stockholders'  equity. During December 2005, notes totaling $250,000
were converted into partnership  units of ARCOA and notes totaling $100,000 were
assumed by the general  partner of ARCOA in  conjunction  with the sale of a net
profits  interest by the Company  (see Note 4). In January  2006,  a note with a
principal amount of $263,167 and related interest of $23,188 were converted into
a new series of secured  convertible notes. The remaining notes have matured and
are  subject  to a demand  for  payment at any time.  The  Company is  currently
holding  discussions with the holders of the notes in order to obtain additional
extensions,  however,  there can be no assurance  that such  extensions  will be
obtained or will be on terms favorable to the Company.

During fiscal 2006, the Company  issued a series of 12% notes totaling  $851,466
to private investors for working capital  purposes.  The notes also provided for
the issuance to the investors of 340,586 shares of its common stock and warrants
to purchase  170,293  shares of the  Company's  common  stock at $0.50 per share
which expire on dates  ranging from May 2, 2007 to October 20, 2007.  The common
stock and warrants  were recorded at their fair value of $170,777 and treated as
a debt discount which was amortized over the terms of the loans. Interest on the
notes is payable  quarterly and the principal  balances  matured on December 31,
2005.  In  December  2005,  two of the notes with a total  principal  balance of
$226,466 were  converted  into a new series of secured  convertible  notes.  The
remaining  notes have  matured  and are  subject to a demand for  payment at any
time. The Company is currently holding discussions with the holders of the notes

                                      -38-

in order to obtain additional extensions, however there can be no assurance that
such  extensions  will be obtained or will be on terms favorable to the Company.
Accrued interest on the notes totaled $41,794 at April 30, 2006.

During August 2005,  the Company  issued a $100,000  unsecured note payable to a
private  investor.  The note bears interest at 12% and the principal and accrued
interest is due in one payment upon the demand of the holder.  In January  2006,
the Company issued 50,000 shares of the Company's  common stock to the holder of
the note for his  continued  forbearance.  The common  stock was recorded at its
fair value of $15,500  and  treated as a loan cost which was  expensed.  Accrued
interest on the note totaled $8,384 at April 30, 2006.

During  December  2005 through  March 2006,  the Company  issued a series of 10%
secured  convertible notes totaling  $1,480,000 to private investors for working
capital purposes.  Included in these notes was principal and interest  converted
from other notes payable which totaled $512,821. The notes also provided for the
issuance to the investors of 592,000  shares of its common stock and warrants to
purchase  296,000 shares of the Company's  common stock at $0.50 per share which
expire on dates  ranging  from  December 5, 2009 to March 10,  2010.  The common
stock and warrants  were recorded at their fair value of $380,096 and treated as
a debt discount which is being  amortized over the terms of the loans.  Interest
and  principal is due upon  maturity on dates  ranging from  December 5, 2006 to
March 10, 2007. The notes are secured by the Company's interest in certain wells
in its Mustang  Island Field and are  convertible  at the  holders'  option into
common  stock of the Company at $0.75 per share.  Accrued  interest on the notes
totaled $45,808 at April 30, 2006.

Production Payments Payable

During  October and November 2000,  the Company  issued  31,687 shares of its
common stock and  undivided  working  interests,  ranging from 3.7% to 4.4%,  in
three  nonproducing  wells in the Mustang Island Field to private  investors for
total cash consideration of $254,000. The proceeds were used to fund development
of the wells.  The investors are entitled to recoup their investment out of 100%
of the future  production,  if any,  from the  wells.  These  transactions  were
treated,  by the Company,  as loans  repayable out of production from designated
wells for accounting purposes.  The stock issued was recorded at its fair market
value as a loan cost which has been fully amortized.  The production loans began
accruing  interest on January 1, 2001 at 5.25% and accrued interest on the loans
totaled  $5,611 and $1,992 at April 30,  2006 and 2005,  respectively.  Although
certain of the wells covered by the production  loans have been  producing,  the
Company  has not made any  principal  payments  under the loans.  In January and
February of 2004, the Company issued the holders of the production loans 100,000
shares of the Company's common stock in return for their  forbearance  under the
production  loans until the earlier of the first  month  following  the month in
which the Company has positive cash flow or August 1, 2004. The stock issued was
recorded at its fair market  value of $57,500 and treated as deferred  loan cost
which was amortized over six months. In December of 2004, the Company reached an
agreement  with the holders of the loans to increase  the  interest  rate to 6%,
begin paying interest  monthly on the loans and to convert the accrued  interest
of $51,503  into  principal.  In August  2005,  the Company  agreed to issue the
holders of the production  loans 120,602 shares of its common stock and warrants
to purchase 60,300 shares of the Company's common stock at $0.50 per share which
expire on August 15, 2007 in return for their  forbearance under the loans until
December 31, 2005.  The common  stock and warrants  were  recorded at their fair
value of $64,112 and treated as deferred  loan costs which were  amortized  over
the terms of the  forbearance.  In January 2006, the Company agreed to issue one
of the holders of the  production  loans  60,301  shares of its common stock and
warrants to purchase  30,150 shares of the  Company's  common stock at $0.50 per
share which expire on January 4, 2008 in return for forbearance  under the loans
until  December  31,  2006.  In  addition,  the Company  agreed to begin  making
principal  payments of $2,000 per month  through  December 31, 2006.  The common
stock and warrants  were  recorded at their fair value of $36,777 and treated as
deferred loan costs which are being amortized over the term of the  forbearance.
The Company is currently  holding  discussions  with the holder of the remaining
production payments in order to obtain his forbearance,  however there can be no
assurance that such  forbearance  will be obtained or will be on terms favorable
to the Company.

In December  2000,  the Company  issued an  undivided  10% interest in six wells
located in the Mustang  Island  Field to Old Jersey Oil  Ventures,  LLC for cash
consideration  of  $1,000,000.  The brother of the president of the Company is a
principal  in Old Jersey Oil  Ventures,  LLC.  Old Jersey Oil  Ventures,  LLC is
entitled to recoup its investment out of future production from the wells in the
Mustang Island Field.  The  transaction was treated,  by the Company,  as a loan
repayable out of production from designated wells for accounting  purposes.  The
production  loan began accruing  interest on January 1, 2001 at 5.25%. In March,
2004,  the Company  issued Old Jersey Oil  Ventures,  LLC 400,000  shares of the
Company's  common stock in return for forbearance  under the production  payment
until the  earlier of the first month  following  the month in which the Company
has positive  cash flow or August 1, 2004.  The stock issued was recorded at its
fair  market  value of $176,000  and  treated as a deferred  loan cost which was
amortized  over five  months.  On April 30,  2005,  the  production  payment and
$240,438 in accrued  interest was transferred  into the Company's line of credit
with Old Jersey Oil Ventures, LLC.

                                      -39-

Note 8.  Asset Retirement Obligations

The Company  recognizes an estimated  liability for the plugging and abandonment
of its oil and  natural  gas  wells and  associated  pipelines,  platforms,  and
equipment.  The  Company  records a  liability  in the period in which its asset
retirement  obligation  ("ARO") is  incurred.  Upon initial  recognition  of the
liability,  the Company must capitalize a corresponding  asset cost equal to the
amount of the liability.

The  estimated  liability  is based on  historical  experience  in plugging  and
abandoning wells and associated pipelines,  platforms, and equipment,  estimated
remaining lives of those wells based on reserve  estimates and federal and state
regulatory   requirements.   The  liability  is  discounted   using  an  assumed
credit-adjusted  risk-free rate of 7.5%.  Revisions to the liability could occur
due to changes in estimates of plugging and  abandonment  costs,  changes in the
risk-free  rate  or  remaining  lives  of the  wells,  or if  federal  or  state
regulators  enact new plugging  and  abandonment  requirements.  At the time the
abandonment  cost is incurred,  the Company will be required to recognize a gain
or loss if the actual  costs do not equal the  estimated  costs  included in the
ARO.

The following table describes all changes to the Companys ARO liability:

                                                      Year Ended April 30,
                                              ----------------------------------
                                                     2006              2005
                                                     ----              ----

Beginning asset retirement obligations        $     1,232,297   $     1,165,330
   Accretion expense                                   95,054            89,467
   Asset retirement costs paid                           -       (       22,500)
                                              ----------------  ----------------
Ending asset retirement obligations           $     1,327,351   $     1,232,297
                                              ================  ================

Note 9. Commitments and Contingencies

The Texas Railroad  Commission declined a request by the Company for a reduction
in bonding  requirements  for asset retirement  obligations  which were recently
increased  by the State of Texas for  operators  of  certain  wells  located  in
offshore and bay State of Texas waters.  The Company's  bonding  requirement has
been $50,000,  but would increase to $1,500,000 under the new  regulations.  The
Company is seeking a bond at this increased level but does not have such bond in
place at this time.  There is no  assurance  that a bond can be obtained or that
such bond would be available on commercial terms acceptable to the Company.  The
Company  requested  reconsideration  by the Texas  Railroad  Commission  of this
decision  and such  request  was  declined  on March 27,  2006.  The Company has
appealed such decision to the district court.  Until a final decision is made in
this matter,  the Company will be allowed to continue its  operations  under its
current  bond.  Should  the  Company  not be  successful  in  reducing  the bond
requirement,  or alternatively  obtain a bond at the increased  requirement,  or
provide other  satisfactory  security the Company could be required to outsource
offshore   operations  of  the  property   provided  such  operator  provides  a
satisfactory bond. An arrangement to outsource operations would likely result in
the  reduction  of the  Company's  working  interests  or an  increase  in lease
operating expenses to fund such asset retirement obligations.

In June 2001, the Company  entered into a long-term  lease for office space with
an annual rent of $65,124.  Rent  expense for the years ended April 30, 2006 and
2005 was $65,124. As of April 30, 2006, future minimum lease payments under this
lease were as follows:

    Fiscal Year Ended April 30,
    ---------------------------
                2007                   $         10,854
                                       ------------------
               Total                   $         10,854
                                       ==================

As a member of Mustang Island Gathering,  LLC, a Texas limited liability company
and pipeline  operator,  the Company has been required to guarantee a portion of
the LLC's bank debt, which is approximately  $1.1 million in the aggregate.  The
Company's  share of such  guarantee is  approximately  $40,000.  Due to positive
financial  performance of the pipeline,  management's  opinion of the likelihood
that the Company will be required to perform under this guarantee is remote thus
no amount is recorded to reflect the obligation under this guarantee.

Subsequent  to June 1,  2006,  ARCOA  shall  have the right to  convert  its net
profits  interest into common stock of the Company at a conversion rate of $1.25
per share.  The value of the net profits  interest will be determined based upon
the net cash flows attributable to the reserves, discounted at 15%.

From time to time,  the  Company is party to certain  legal  actions  and claims
arising in the ordinary  course of  business.  While the outcome of these events
cannot be predicted with certainty,  management does not expect these matters to
have a materially adverse effect on the financial position of the Company.

                                      -40-

The  operations  and financial  position of the Company  continue to be affected
from time to time in varying  degrees by domestic and political  developments as
well as  legislation  and  regulations  pertaining  to  restrictions  on oil and
natural gas  production,  natural gas regulation,  tax increases,  environmental
regulations and cancellation of contract rights. Both the likelihood and overall
effect of such occurrences on the Company vary greatly and are not predictable.

Note 10.  Stockholder's Equity

Preferred Stock

The  Company  is  authorized  to issue  3,000  shares  of Class  A-1  Cumulative
Convertible  Preferred  Stock (Class A-1 Preferred  Stock).  Class A-1 Preferred
Stock was issued for $1,000 per share and is entitled to receive cumulative cash
dividends  at the annual  rate of 8%  payable  annually  in  arrears  commencing
December 1, 2001 when and as declared by the Board of Directors. As of April 30,
2006 and 2005,  there  were no shares of Class  A-1  Preferred  Stock  issued or
outstanding

The  Company is  authorized  to issue  500,000  shares of Class AA-1  Cumulative
Convertible  Preferred Stock (Class AA-1 Preferred Stock).  Class AA-1 Preferred
Stock has a par value of $0.01 per share and is entitled  to receive  cumulative
dividends at the rate of 10% payable  annually in shares of Class AA-1 Preferred
Stock (or 39,588  shares)  when and as  declared by the Board of  Directors.  At
April 30,  2006,  no  dividends  have been  declared.  The  aggregate  amount of
cumulative  dividends  in arrears  was  approximately  80,788  shares and 41,200
shares at April 30, 2006 and 2005,  respectively.  The effect of the  cumulative
dividends on basic and diluted  earnings per share was $0.00 for the years ended
April 30, 2006 and 2005, respectively.  All shares of Class AA-1 Preferred Stock
were issued to holders of judgment  liens against the Company,  in the amount of
$395,879,  on April 15,  2004 and remain  outstanding.  The holders of the Class
AA-1  Preferred  Stock are,  upon the  liquidation  of the Company,  entitled to
receive $1.00 per share.  Alternatively,  and at the sole option of the holders,
the  holders of the Class AA-1  Preferred  Stock,  upon the  liquidation  of the
Company,  may retain the rights provided under the original  judgment liens. The
Class AA-1 Preferred Stock is redeemable in whole or in part at any time, at the
option of the  Company,  at $1.00  per  share.  The  holders  of the Class  AA-1
Preferred Stock are entitled to a 20 day written notice of the Company's  intent
to redeem and the  opportunity  to convert the Class AA-1  Preferred  Stock into
common stock of the Company.  The Class AA-1  Preferred  Stock is convertible by
the holder  into common  stock of the  Company at any time.  Each share of Class
AA-1  Preferred  Stock is  convertible  into one share of the  Company's  common
stock,  adjusted for stock dividends and stock splits. The holders of Class AA-1
Preferred  Stock have no voting  rights  except as expressly  required by Nevada
law. The Class AA-1  Preferred  Stock is senior to all other series of preferred
stock and all of the Company's common stock.

The Company is authorized to issue  500,000  shares of Class B Preferred  Stock,
par value  $0.001 per share.  The  holders  of Class B  Preferred  Stock are not
entitled to receive any dividends. As of April 30, 2006 and 2005, 500,000 shares
of the  Class B  Preferred  Stock  were  issued  and  outstanding.  The  Class B
Preferred  Stock is redeemable  in whole,  but not in part, at the option of the
Company by resolution  of the  Company's  Board of Directors at anytime at $1.00
per share.  Each share of Class B Preferred Stock has voting rights equal to 100
shares of the Company's common stock. The holders of Class B shares are entitled
to elect at least two  directors to the Board of  Directors of the Company.  The
holders  of Class B  Preferred  Stock  voting as a class  will have the right to
remove  without  cause at any time and replace any  director  such  holders have
elected.

Common Stock

The Company has 150,000,000  shares of authorized $0.001 par value common stock,
of which  15,007,689 and 9,769,989  shares were issued and  outstanding at April
30, 2006 and 2005, respectively.

During the year ended April 30, 2006,  the Company  issued 993,025 shares of its
common  stock  having a fair value of $301,744 for  services.  In addition,  the
Company is obligated to issue an  additional  71,430  shares of its common stock
under the terms of consulting  agreements.  The unissued common stock has a fair
value of $20,000 which has been expensed and included in  stockholders'  equity.
The Company also issued  125,771  shares of its common stock for services  which
had been  performed  prior to April 30,  2005 and whose  value was  included  in
stockholders' equity at April 30, 2005.

During the year ended April 30, 2006,  the Company  issued 812,586 shares of its
common  stock  having a fair value of $312,648 to  investors  under the terms of
notes  payable.  In addition,  the Company is  obligated to issue an  additional
120,000  shares  of its  common  stock to  investors  under  the  terms of notes
payable.  The unissued  common stock has a fair value of $57,200  which has been
included in stockholders'  equity. The Company also issued 205,267 shares of its
common  stock  under the terms of notes  payable  for  which the  obligation  of
issuance  arose  prior to April  30,  2005  and  whose  value  was  included  in
stockholders' equity at April 30, 2005.

                                      -41-

During the year ended April 30, 2006,  the Company  issued 388,403 shares of its
common stock having a fair value of $128,565 to investors in order to extend the
due dates of notes  payable.  In addition,  the Company is obligated to issue an
additional  68,000  shares  of its  common  stock to  investors  under the terms
extensions  of notes  payable.  The  unissued  common  stock has a fair value of
$19,720 which has been included in stockholders' equity. The Company also issued
105,000  shares of its  common  stock  under the  terms of  extensions  of notes
payable for which the  obligation of issuance  arose prior to April 30, 2005 and
whose value was included in stockholders' equity at April 30, 2005.

During the year ended April 30, 2006,  the Company  issued 407,648 shares of the
Company's  common  stock  having a fair value of $156,000 to settle  outstanding
accounts payable.

During the year ended April 30, 2006, the Company issued 2,000,000 shares of its
common  stock,  valued at  $640,000,  to the  shareholders  of Viking as partial
consideration for all of its outstanding shares (see Note 5).

During the year ended April 30, 2005 the  Company  issued  200,000 of its common
stock for cash totaling $50,000.

During the year ended April 31, 2005,  the Company  issued 442,500 shares of its
common  stock  having a fair value of $217,275 to  investors  under the terms of
notes payable.

During the year ended April 30, 2005,  the Company  issued 100,000 shares of its
common  stock  having  a  fair  value  of  $49,000  to  a  private  investor  as
consideration for providing a guarantee on its line of credit with a bank.

During the year ended April 30, 2005,  the Company  issued 118,250 shares of its
common  stock having a fair value of $41,103 to investors in order to extend the
due dates of notes payable.

During the year ended April 30, 2005,  the Company  issued  50,000 shares of the
Company's  common  stock  having a fair value of  $13,743 to settle  outstanding
accounts payable.

Stock Options and Warrants

The Company has outstanding options granted to certain key employees to purchase
4,000,000  shares of the  Company's  common stock a purchase  price of $0.50 per
share.  These  options  expire on July 29,  2015 and are  non-transferable.  The
options,  which were issued at a price equal to or exceeding the market value of
the  underlying  stock on the date of the grant,  are not intended to qualify as
incentive  stock  options under  Internal  Revenue Code Section 422. The Company
follows the  provisions  of SFAS No.  123(R)  recording the fair value of common
stock options on the date of grant using a Black Scholes  option  pricing model.
This model allows the use of a range of assumptions  related to volatility,  the
risk-free interest rate, the expected life, and the dividend yield. The expected
volatility utilized in the valuation model is based on implied volatilities from
traded  options on the  Company's  stock and the  historical  volatility  of the
Company's stock price.  Similarly,  the dividend yield and the expected  holding
period are both based on  historical  experience  and  management's  estimate of
future  events.  The risk-free  interest rate is derived from the U.S.  Treasury
yield  curve  based on the  expected  life of the grant in effect at the time of
grant.  The fair values of the Company's stock options are calculated  using the
following weighted average  assumptions based on the methods described above for
the year ended April 30, 2006:

        Assumptions
        ----------------------
        Dividend yield                                           0%
        Expected volatility                                    289%
        Risk-free interest rate                                  4%
        Expected holding period                            10 Years

Based on the above  assumptions,  the stock options issued during the year ended
April  30,  2006  were  valued  at  $1,280,000.   This  amount  was  charged  to
compensation  expense  immediately  as all of the options  were fully  vested at
issuance.

                                      -42-

A summary of the  Company's  stock  options as of April 30,  2006 and 2005,  and
changes during the years then ended is presented below:

                                           Weighted Average          Number of
                                            Exercise Price            Options
                                           ----------------        -------------

Balance at April 30, 2004                    $     6.68                  69,336
                                             -----------           -------------
Exercisable                                  $     6.68                  69,336
                                             -----------           -------------
   Granted                                          -                     -
   Exercised                                        -                     -
   Forfeited                                        -                     -
                                             -----------           -------------
Balance at April 30, 2005                    $     6.68                  69,336
                                             -----------           -------------
Exercisable                                  $     6.68                  69,336
                                             -----------           -------------
   Granted                                         0.50               4,000,000
   Exercised                                        -                     -
   Forfeited                                       6.68             (    69,336)
                                             -----------           -------------
Balance at April 30, 2006                    $     0.50               4,000,000
                                             ===========           =============
Exercisable                                  $     0.50               4,000,000
                                             ===========           =============

The following  table  summarizes  information  about the Company's stock options
outstanding at April 30, 2006:

Options Outstanding
                              Number         Weighted Average   Weighted Average
     Exercise Price        Outstanding        Remaining Life     Exercise Price
     --------------        -----------       ----------------   ----------------

         $ 0.50             4,000,000              9.25              $ 0.50
                           -----------
                            4,000,000              9.25              $ 0.50
                           ===========

Options Exercisable
                              Number         Weighted Average   Weighted Average
     Exercise Price        Outstanding        Remaining Life     Exercise Price
     --------------        -----------       ----------------   ----------------

         $ 0.50             4,000,000              9.25              $ 0.50
                           -----------
                            4,000,000              9.25              $ 0.50
                           ===========

As of April 30, 2006, there were 5,254,376 warrants  outstanding and exercisable
at prices  ranging from $0.10 to $0.50.  Such  warrants  expire on dates ranging
from August 8, 2006 to March 10, 2010.

During the year ended April 30, 2006,  the Company  issued  warrants to purchase
466,293  shares of its common  stock at $0.50 per share to  investors  under the
terms of notes payable.  The warrants had a fair value of $181,026 and expire on
dates ranging from May 2, 2007 to March 10, 2010.

During the year ended April 30, 2006,  the Company  issued  warrants to purchase
140,450  shares of its common  stock at $0.50 per share to investors in order to
extend the due dates of notes payable.  The warrants had a fair value of $46,504
and expire on dates ranging from January 2, 2007 to June 27, 2007.

During the year ended April 30, 2006,  the Company  issued  warrants to purchase
100,000  shares  of its  common  stock  at $0.50  per  share  to  investors  for
guarantees  of its notes  payable.  The warrants had a fair value of $28,490 and
expire on June 21, 2007.

During the year ended April 30, 2006,  the Company  issued  warrants to purchase
2,000,000  shares of its common stock at $0.50 for services.  The warrants had a
fair value of $1,033,380 and expire on November 29, 2008.

Note 11.  Related Party Transactions

From time to time,  officers,  directors  and  shareholders  of the Company make
unsecured advances to the Company.  The Company made repayments of such advances
in the amount of $16,000 and  $12,500  during the years ended April 30, 2006 and
2005,  respectively.  As of April 30, 2006, all such advances to the Company had
been repaid.

                                      -43-

The Company is obligated  under a line of credit to an entity  controlled by the
brother of the Company's president. See Note 7.

In March,  2004,  the Company  issued a $150,000 note payable to and  affiliate,
Mustang Island  Gathering,  LLC, for  indemnification  of litigation  settlement
costs. See Note 7.

During July, 2005, the Company executed employment agreements with its officers.
Certain of the  officers  have  elected  to defer  payment of a portion of their
salary  under  such  agreements  until  such  time as the  Company's  cash  flow
improves.  At April 30, 2006, $217,500 of deferred compensation has been accrued
and is recorded as accrued salaries, officers.

Note 12.  Oil and Gas Reserve Information (Unaudited)

The estimates of proved oil and gas reserves  utilized in the preparation of the
financial statements for the year ended April 30, 2006 were estimated internally
by the Company.  The  estimates  of proved oil and gas reserves  utilized in the
preparation  of the financial  statements for the year ended April 30, 2005 were
estimated  by D.  Raymond  Perry,  Jr., a  registered  petroleum  engineer.  All
estimates  were  prepared  in  accordance  with  guidelines  established  by the
Securities and Exchange Commission and the Financial Accounting Standards Board,
which  require  that reserve  reports be prepared  under  existing  economic and
operating  conditions with no provision for price and cost escalation  except by
contractual  agreement.  All  of  the  Company's  reserves  are  located  in the
continental United States.

Future prices  received for  production  and future  production  costs may vary,
perhaps  significantly,  from the prices and costs assumed for purposes of these
estimates.  There can be no assurance that the proved reserves will be developed
within the periods  indicated  or that  prices and costs will  remain  constant.
There can be no  assurance  that  actual  production  will  equal the  estimated
amounts used in the preparation of reserve  projections.  In accordance with the
Securities  and  Exchange  Commission's   guidelines,   the  Company's  internal
petroleum  engineers'  estimates  of future net cash  flows  from the  Company's
proved  properties  and the present value thereof are made using oil and natural
gas  sales  prices in  effect  as of the  dates of such  estimates  and are held
constant  throughout  the  life  of  the  properties.  Average  prices  used  in
estimating the future net cash flows were $67.51 per barrel of oil and $6.27 per
Mcf of gas and  $48.04  per  barrel of oil and $6.13 per Mcf of  natural  gas at
April 30, 2006 and 2005, respectively.

There are numerous  uncertainties  inherent in  estimating  quantities of proved
reserves and in projecting  future rates of production and timing of development
expenditures. Oil and gas reserve engineering must be recognized as a subjective
process of estimating  underground  accumulations  of oil and gas that cannot be
measured  in an exact  way,  and  estimates  of  other  engineers  might  differ
materially  from those shown below.  The  accuracy of any reserve  estimate is a
function  of the  quality  of  available  data and  engineering  and  geological
interpretation and judgment.  Results of drilling,  testing and production after
the date of the estimate may justify revisions.  Accordingly,  reserve estimates
are  often  materially  different  from the  quantities  of oil and gas that are
ultimately recovered. Reserve estimates are integral in management's analysis of
impairments  of oil and gas  properties  and the  calculation  of  depreciation,
depletion and amortization on those properties.

                                                 Oil                   Gas
                                               (Bbls)                 (Mcf)
                                          ----------------     ----------------
                                                     (in thousands)
Proved Reserves
Estimated Quantities - April 30, 2004                  85               15,516
Production                                (             2)     (           157)
Revisions                                              20      (         5,935)
                                          ----------------     ----------------
Estimated Quantities - April 30, 2005                 103                9,424
Production                                (             1)     (            90)
Revisions                                               6                  943
                                          ----------------     ----------------
Estimated Quantities - April 30, 2006                 108               10,277
                                          ================     ================

Proved Developed Reserves
April 30, 2005                                         50                4,130
April 30, 2006                                         76                6,880

Due to significant NOL carry forwards, there have been no income taxes have been
provided for within the standardized measure of discounted future net cash flow.

                                      -44-

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

                                                        April 30,
                                             ---------------------------------
                                                   2006               2005
                                                   ----               ----
                                                       (in thousands)

Future cash inflows                         $       71,836     $       62,710
Future production costs                      (      11,483)     (       6,508)
Future development costs                     (      11,275)     (       6,495)
                                            ---------------    ---------------
Future net cash flows                               49,078             49,707
10% annual discount for estimating
   timing of cash flows                      (      21,887)     (      19,218)
                                            ---------------    ---------------

Standardized measure of discounted
   future net cash flows                    $       27,191     $       30,489
                                            ===============    ===============

Changes in Standardized  Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves:

                                                    Year Ended of April 30,
                                              ----------------------------------
                                                     2006               2005
                                                     ----               ----
                                                        (in thousands)
Standardized measure of discounted
   future net cash flows, beginning of year   $       30,489     $       43,778

Changes due to operations:
Sales, net of production costs                           270      (         392)
Net change in prices, net of production costs          1,786              1,555
Development costs incurred                               334              1,528
Change in future development costs             (       1,555)     (         321)
Revisions of quantity estimates                        4,672     (      16,170)
Sales of reserves                              (       2,082)             -
Changes in production rates, timing and other  (       9,772)     (       3,867)
Accretion of discount                                  3,049              4,378
                                              ---------------    ---------------
Standardized measure of discounted
   future net cash flows, end of year         $       27,191     $       30,489
                                              ===============    ===============

Note 13.  Subsequent Events

Office Lease

In June 2006,  the  Company  entered  into a long term  lease for  office  space
effective  September 1, 2006. Under the terms of the lease, rent expense will be
$4,330  per month for the first  year and  escalates  annually  to a maximum  of
$5,052 per month.  Future  minimum  lease  payments  under this lease will be as
follows:

    Fiscal Year Ended April 30,
                2007                   $             25,980
                2008                                 53,403
                2009                                 55,568
                2010                                 57,733
                2011                                 59,898
                2012                                 30,310
                                      --- ------------------
               Total                   $            282,892
                                      === ==================

Exchange of Viking Interests to USEY

On August 11, 2006, VTEX closed a transaction  whereby it contributed all of the
outstanding stock of Viking to US Energy Overseas Investments,  LLC ("Overseas")
in return for Class B  ownership  units in  Overseas  and  warrants  to purchase
common stock of US Energy Systems,  Inc. ("USEY").  The Company,  through Viking
owned an  approximate  24%  interest  in Viking  Petroleum  UK Limited  ("Viking
Petroleum").  Viking  Petroleum  owned gas  licenses  (the "Gas  Licenses")  for
approximately 100,000 acres of onshore natural gas properties and mineral rights
in North Yorkshire,  England.  The transaction  between the Company and Overseas
was combined with transactions  between several other entities which resulted in
the Gas Licenses,  the Knapton Generating Station, a 42 MW gas-fired power plant

                                      -45-

associated with and located in the vicinity of the natural gas reserves in North
Yorkshire,  England,  and certain  related gas gathering and  processing  assets
being  directly  and  indirectly  acquired  by UK Energy  Systems  Limited  ("UK
Energy"). UK Energy is an English company which is a wholly-owned  subsidiary of
GBGH, LLC ("GBGH"),  a Delaware limited liability company.  GBGH is 79% owned by
Overseas,  and 21% owned by Marathon  Capital Holdings (UK), LLC. As part of the
transaction,  a power purchase agreement and a gas sales agreement with Scottish
Power Energy Management ("Scottish Power") was entered into under which Scottish
Power  is  required  to take all of the  electricity  generated  by the  Knapton
Generating  Station  and all of the  natural gas  produced  from the  associated
reserves  up to 100 Bcf  for a term  of up to 12  years.  The  financing  of the
transaction  provided  approximately  $167,000,000  for the  acquisition  of the
assets,  for certain  reserves  required by the terms of the  financing  and for
working capital to be used for the operation and upgrading of the assets and the
proposed  increased  production of natural gas from the reserves  covered by the
Gas Licenses.

The  assets  received  by the  Company  in return  for  Viking  were 100 Class B
Membership Units of Overseas.  The Class B Membership  Units  participate in the
cash flow of Overseas and are convertible  into up to 1,900,000 shares of common
stock of USEY. In addition,  the Company  received  warrants to purchase 500,000
shares of common stock of USEY.  The warrants are  exercisable at prices ranging
from $8 to $10 per share and expire on August 7, 2011.

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

     Effective  January 31, 2006, the Company's  Independent  Registered  Public
Accounting  Firm  resigned.  In  connection  therewith  the  Company  states the
following:

          (a)  Pannell  Kerr  Forster of Texas,  P.C.  ("PKF")  resigned  as the
               Company's   Independent   Registered   Public   Accounting  Firm,
               effective January 31, 2006.

          (b)  PKF's report of the independent registered accounting firm on the
               Company's financial  statements for the year ended April 30, 2005
               did not contain an adverse opinion or disclaimer of opinion,  nor
               was it modified as to audit scope or accounting principles. PKF's
               report of the independent registered accounting firm was modified
               as to an uncertainty about the Company's ability to continue as a
               going concern

          (c)  There was no  disagreement  with PKF for the year ended April 30,
               2005 or for the interim period through January 31, 2006,  whether
               or not  resolved,  on any  matter  of  accounting  principles  or
               practices,  financial  statement  disclosure,  auditing  scope or
               procedure,  which,  if not resolved to the  satisfaction  of PKF,
               would have caused it to make  reference to the subject  matter of
               the disagreement in connection with its report of the independent
               registered accounting firm.

          (d)  The board of directors selected Malone & Bailey, PC ("Malone") as
               the Company's successor independent  registered public accounting
               firm,  effective February 3, 2006.  Neither the Company,  nor any
               other party on its behalf, consulted with Malone on any matter of
               accounting   principles   or   practices,   financial   statement
               disclosure, auditing scope or procedure prior to its selection.

Item 8A.   Controls and Procedures

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

     The  Company's  Chief  Executive   Officer  and  Chief  Financial   Officer
(collectively,  the "Certifying  Officers") are responsible for establishing and
maintaining  disclosure  controls  and  procedures  (as  defined  in  Securities
Exchange Act Rule  13a-15(e))  for the Company.  Such  officers  have  concluded
(based upon their  evaluation  of these  controls  and  procedures  as of a date
within  90 days of the  filing of this  report)  that the  Company's  disclosure
controls and  procedures  are not adequate  and  effective  for purposes of Rule
13a-14(c)  in timely  alerting  them to  material  information  relating  to the
Company required to be included in the Company's  filings with the SEC under the
Securities  Exchange  Act of 1934.  The reasons for our  determination  that our
internal controls and procedures are not effective are detailed below.

     The Company currently employs one person in the accounting  department (the
Chief  Financial  Officer) who is responsible  for the day to day accounting and
SEC reporting  function of the Company.  Daily  transactions  are accounted for,

                                      -46-

reconciled and processed to our accounting  records solely by this person.  This
is   considered   a   material   weakness   due  to  lack  of   segregation   of
responsibilities. The lack of resources in the accounting and reporting function
of our internal controls also resulted in the Company not being able to file its
quarterly financial  statements during the year ended April 30, 2006 on a timely
basis.  As of the date of this  filing the  Company is  compliant  in all of its
filings.

     As a result  of the items  mentioned  above,  the  Company  has a  material
weakness in its internal  control over the financial  reporting  and  disclosure
function due to the lack accounting resources available for the daily processing
of transactions and account  reconciliations  and the reporting of our financial
statements  within the  appropriate  filings in the time required.  This void in
available accounting resources increases the likelihood to more than remote that
a material  misstatement of the Company's annual or interim financial statements
will not be prevented or detected in a timely manner.

     Executive  management of the Company is currently evaluating its accounting
resource needs and anticipates  employing further  accounting  assistance in the
near term. Management believes that additional accounting assistance,  including
increased  technical  resources,  will  mitigate  the  circumstances  that  have
resulted  in our  evaluation  of  internal  controls  and  procedures  as having
material weaknesses.

Item 8B.   Other Information

         None

                                    PART III

Item 9.    Directors, Executive Officers, Promoters and Control Persons;
           Compliance With Section 16(a) of the Exchange Act

     The Directors and Executive Officers of the Company are as follows:

         Name            Age            Position                     Tenure
- ----------------------- -----   ------------------------        ---------------
Stephen F. Noser         60     Director                            May 8, 1998
                                President                        March 21, 2006
                                Secretary                        March 21, 2006
                                Assistant Treasurer                 May 8, 1998

Randal B. McDonald, Jr.  48     Director                            May 8, 1998
                                Chief Financial Officer             May 8, 1998
                                Treasurer                           May 8, 1998
                                Assistant Secretary                 May 8, 1998

John E. Seago                   Director                        August 25, 2006

     All Directors of the Company will hold office until the next annual meeting
of stockholders. The executive officers of the Company, who are appointed by the
board of directors, hold office until their successors are chosen and qualified,
or until their  death,  resignation  or removal.  The Company  presently  has no
audit, nominating or executive committee or committees performing  substantially
similar  functions,  although the Company is considering  establishing  these or
similar  committees  in the  future.  The  Company  does  not  presently  have a
financial expert serving on a audit committee or similar body, but will consider
appointing  one in the event an audit  committee  is  established.  There are no
family  relationships  among the  directors  and  officers of the  Company.  The
Company  currently  has no  employment  agreement  with any of the  officers  or
directors.

     Stephen  Noser,  President.  Mr. Noser has been with VTEX  Energy,  Inc. in
various  capacities  since its inception.  Mr. Noser has served as President and
Chief  Executive  Officer since March 21, 2006. From August 25, 2005 until March
21, 2006 Mr. Noser served as Executive Vice President and General Counsel.  From
May 8, 1998 until August 25, 2005,  Mr.  Nosert  served as President  and Chhief
Executive  Officer.  Mr.  Noser has been a  Director  of the  Company  since its
inception.  Prior to that  time,  he  served  in  various  management  and legal
capacities  within the oil and gas industry.  He was Vice  President and General
Counsel of MCO Resources, Inc. ($60 million in assets and listed on the American
Stock  Exchange)  from 1987 to 1988. He was Associate  General  Counsel and then
General  Counsel of Inexco Oil Company ($500 million in assets and listed on the
New York Stock  Exchange) from 1983 to 1986. He also served on Inexco's Board of
Directors and as a member of the company's operating  committee.  Both at Inexco
and MCO, Mr. Noser had primary responsibility for all SEC reporting requirements
and preparation of all registration statements.  From 1977 to 1983, he served in
various legal capacities within the American Natural Resources System. From 1974
to 1977, he served as an attorney for Mitchell  Energy & Development  Corp.  Mr.

                                      -47-

Noser holds a B.A. from the University of St. Thomas and a J.D.  degree from the
University of Houston. He is a member of the Texas and Houston Bar Associations.

     Randal  McDonald,  Chief  Financial  Officer.  Mr.  McDonald has been Chief
Financial  Officer  and a  Director  of the  Company  since its  inception.  Mr.
McDonald has twenty-six years experience in the field of accounting. Since 1993,
he has provided general financial  consulting and litigation support services to
a variety of companies.  Such services have included  preparation  and review of
public  and  private  offering  documents,  preparation  of pro forma  financial
statements utilized in raising capital,  and services as interim chief financial
officer.  From 1979 to 1985,  he was with KPMG Peat  Marwick's  Houston  office,
specializing in public oil and gas companies.  During 1986, he served a one year
rotational assignment in KPMG Peat Marwick's world headquarters developing their
audit  software.  During  1987,  he served as Chief  Financial  Officer  for IBS
Technologies,  Ltd., a publicly traded computer software  company.  From 1988 to
1992, he was with Arthur  Andersen's  Denver office,  specializing in public oil
and gas companies. Mr. McDonald holds a B.B.A. in accounting from the University
of Texas at Austin and is a licensed CPA.

     John E. Seago,  Director.  During the past five years Mr.  Seago has been a
partner with the law firm of Seago & Carmichael,  or its predecessors,  in Baton
Rouge, Louisiana.

Section 16(a) Beneficial Ownership Compliance

     Section  16(a)  of the  Securities  Exchange  Act  requires  the  executive
officers and directors, and persons who own more than 10% of our common stock of
the Company,  to file reports  regarding  ownership of, and transactions in, the
securities of the Company with the  Securities  and Exchange  Commission  and to
provide the Company with copies of those filings.

     Based  solely on the review of the copies of such forms  received by us, or
written  representations  from certain reporting  persons,  the Company believes
that  during  fiscal  year  2006,  all  filing  requirements  applicable  to the
Company's  officers,  directors and greater than ten percent  beneficial  owners
were complied with.

Code of Ethics

     The Company has not adopted a code of ethics that applies to our  principal
executive officer,  principal financial officer, principal accounting officer or
controller,  or persons performing  similar functions.  We are in the process of
preparing and adopting a code of ethics.

Item 10.    Executive Compensation

     The  aggregate   amount  of  compensation   paid  by  the  Company  or  its
subsidiaries  during  the fiscal  year  ended  April 30,  2006 to  officers  and
directors, as a group, for services in all capacities was $185,000.

     The following table sets out the compensation received by the President and
Chief  Financial  Officer of the Company for the last three  fiscal  years ended
April 30, 2006.

Summary Compensation Table



                                                                                   Long Term Compensation Awards
                                                                              --------------------------------------
                                                                              Restricted
             Name and             Year          Annual Compensation (1)         Stock           (2)           All
        Principal Position        End      Salary($)  Bonus($)   Other($)      Awards($)      Options(#)    Other($)
- -----------------------------     ----     ---------  --------   --------     ----------      ----------    --------
                                                                                       
Stephen F. Noser                  2006      95,000        -          -             -           1,000,000        -
   President                      2005      95,000        -          -             -                -           -
                                  2004      95,000        -          -             -                -           -

Randal B. McDonald, Jr.           2005      90,000        -          -             -           1,000,000        -
   Chief Financial Officer        2004      90,000        -          -             -                -           -
                                  2003      90,000        -          -             -                -           -

     During July,  2005, the Company  executed  employment  agreements  with Mr.
Noser and Mr. McDonald.  Mr. Noser and Mr. McDonald have voluntarily  elected to
defer payment of a portion of their salary under such agreements until such time
as the Company's  cash flow  improves.  At April 30, 2006,  $217,500 of deferred
compensation has been accrued and is recorded as accrued salaries, officers.

                                      -48-


Options Granted in 2005 and 2004

     Options  granted to  officers  and  directors  during the fiscal year ended
April 30, 2006 were as follows:


                                                Percent of Total
                         Number of Securities  Options Granted to
                          Underlying Options    Employees During   Exercise or
          Name                 Granted            Fiscal Year       Base Price  Expiration Date
 ----------------------  --------------------  ------------------  -----------  ---------------
                                                                    
 Stephen F. Noser             1,000,000              25.0%            $0.50      July 29, 2015
 Randal B. McDonald, Jr       1,000,000              25.0%            $0.50      July 29, 2015

     No options  were  granted to officers or  directors  during the fiscal year
ended April 30, 2005.



Options Exercised During 2006 and 2005 and Year End Option Values (1)

                              Number of Securities       Value of Unexercised
                         Underlying Unexercised Options   In-the-Money Options
                             At Fiscal Year End (#)      At Fiscal Year End ($)
                                 Exercisable/               Exercisable/
         Name                   Unexercisable              Unexercisable
- -----------------------  ------------------------------  ----------------------

Stephen F. Noser                  1,000,000                        -
                                       -                           -

Randal B. McDonald, Jr.           1,000,000                        -
                                       -                           -

     (1)  Since no options were exercised, no shares were acquired or value
          realized upon the exercise of options

     At the  present  time,  the Company  has no  retirement,  pension or profit
sharing programs for the benefit of its Directors or employees.  However, at its
discretion,  the Company  may adopt one or more of such  programs in the future.
The Company has not entered into any  employment  agreements  with its executive
officers.

     Pursuant to its bylaws and the Texas Business  Corporation Act, the Company
shall indemnify each director and officer against  expenses,  judgments,  fines,
and  amounts  paid in  settlement  actually  and  reasonably  incurred by him in
connection with any action,  suit or proceeding  which he may be made a party by
reason of his being or having  been made a director  or officer of the  Company,
unless he failed to meet certain standards of conduct.

                                      -49-

Item 11.    Security Ownership of Certain Beneficial Owners and Management

     The following  table sets forth certain  information  regarding  beneficial
ownership of outstanding  shares as of July 31, 2006 by each person who is known
by the  Company to own  beneficially  five  percent  or more of the  outstanding
shares, the Company's  Directors and Executive  Officers,  and all Directors and
Executive Officers as a group.



          Name and Address                                                                   Amount and Nature        % of
        Of Beneficial Owner                Title of Class           Position or Title     Of Beneficial Ownership     Class
- ------------------------------------- -------------------------- ------------------------ ------------------------- ----------
                                                                                                        
Stephen F. Noser                      Common Stock               Director, President            (1)(2)   1,011,667       6.29%
8303 Southwest Freeway, Suite 950                                Secretary
Houston, Texas 77074                  Class B Preferred Stock    Assistant Treasurer                       250,000      50.00%

Randal B. McDonald, Jr.               Common Stock               Director, CFO                     (2)   1,005,000       6.25%
8303 Southwest Freeway, Suite 950                                Treasurer
Houston, Texas 77074                                             Assistant Secretary

John E. Seago                         Common Stock               Director                                  300,000       1.99%
8303 Southwest Freeway, Suite 950
Houston, Texas 77074

KLA Consulting, Inc.                  Common Stock               N/A                               (3)   2,000,000      11.70%
4631 S. Columbine Ct.
Englewood, Colorado 80113

ARCOA Advisors, LLC                   Common Stock               N/A                               (4)   1,500,000       9.62%
50 Briar Hollow East, Suite 210
Houston, Texas 77027

Ronald E. Reese, M.D.                 Common Stock               N/A                               (5)   1,099,033       7.28%
1441 Liberty St/, Suite 206
Redding, CA 96001

WDR Capital, Inc.                     Class B Preferred Stock    N/A                                       250,000      50.00%
19607 Piney Point Place
Houston, Texas 77094

All Officers                          Common Stock               N/A                            (1)(6)   2,316,667      13.56%
And Directors                         Class B Preferred Stock                                              250,000      50.00%

- ------------------------------------- -------------------------- ------------------------ ------------------------- ----------

     (1)  Includes 1,667 shares of common stock indirectly owned by Mr. Noser
          because of his 50% ownership in Old Vector Corporation, which owns
          3,334 shares of common stock.

     (2)  Includes  1,000,000  shares of common stock issuable upon the exercise
          of stock options.

     (3)  Includes  2,000,000  shares of common stock issuable upon the exercise
          of stock warrants.

     (4)  Includes 500,000 shares of common stock issuable upon the exercise of
          stock warrants.

     (5)  Shares included as Trustee and bebeficiary of the Ronald E. Reese
          Retirement Trust, dated 01/01/87 and the Ronald E. Reese Revocable
          Trust, dated 06/30/00

     (6)  Includes  2,000,000  shares of common stock issuable upon the exercise
          of stock options



Item 12.    Certain Relationships and Related Transactions

     From time to time, officers, directors and shareholders of the Company make
unsecured advances to the Company.  The Company made repayments of such advances
in the amount of $12,500 and  $16,000  during the years ended April 30, 2005 and
2006,  respectively.  As of April 30, 2006, all such advances to the Company had
been repaid.

     The Company is obligated under a line of credit to an entity  controlled by
the brother of the Company's president. See Note 7.

     In  March,  2004,  the  Company  issued  a  $150,000  note  payable  to and
affiliate,  Mustang Island  Gathering,  LLC, for  indemnification  of litigation
settlement costs. See Note 7.

     During July,  2005, the Company  executed  employment  agreements  with its
officers.  Certain of the officers have elected to defer payment of a portion of
their salary under such  agreements  until such time as the Company's  cash flow
improves.  At April 30, 2006, $217,500 of deferred compensation has been accrued
and is recorded as accrued salaries, officers.

                                      -50-

Item 13.    Exhibits and Reports on Form 8-K

     Exhibits  not  incorporated  herein  by  reference  to a prior  filing  are
designated by an asterisk (*) and are filed herewith.

Exhibit   2.01  Asset Purchase Agreement between Registrant and
                Vector

Exhibit   2.02  Lisbon Agreement

Exhibit   2.03  Taurus Agreement

Exhibit   2.04  Agreement and Plan of Merger Between Sunburst Acquisitions
                II, Inc. and Vector Energy Corporation

Exhibit   2.05  Option Agreement Between CLK Energy, Inc. and VTEX Energy, Inc.

Exhibit   3.01  Articles of Incorporation of Vector Energy Corporation

Exhibit   3.02  By-Laws of Vector Energy Corporation

Exhibit   4.01  Certificate of Designation, Preferences, Rights and Limitations
                of Class AA 6% Cumulative Convertible Preferred Stock and
                Class B Preferred Stock of Vector Energy Corporation

Exhibit   4.02  Certificate of Designation, Preferences, Rights and Limitations
                of Class C 5% Cumulative Convertible Preferred Stock
                of Vector Energy Corporation

Exhibit   21    Subsidiaries of the Registrant

Exhibit   23    Consent of Pannell Kerr Forster of Texas, P.C.*

Exhibit   31.1  CEO Certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002*

Exhibit   32.1  CFO Certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002*

Exhibit   31.1  CEO Certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002*

Exhibit   32.1  CFO Certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002*

Item 14.    Principal Accountant Fees and Services

     The Company's board of directors reviews and approves audit and permissible
non-audit  services  performed by the authorized  Independent  Registered Public
Accounting  Firm as well  as the  fees  charged  by the  authorized  Independent
Registered Public Accounting Firm for such services.  In its review of non-audit
service fees and its appointment of the authorized Independent Registered Public
Accounting Firm, the board of directors considered whether the provision of such
services is compatible with  maintaining the authorized  Independent  Registered
Public  Accounting  Firm's  independence.  All of the services provided and fees
charged by the  authorized  Independent  Registered  Public  Accounting  Firm in
fiscal 2006 and 2005 were pre-approved by the board of directors.

Audit Fees

     The aggregate fees billed by the authorized  Independent  Registered Public
Accounting Firm for professional  services for the audit of the annual financial
statements of the Company and the reviews of the financial  statements  included
in the  Company's  quarterly  reports on Form  10-QSB for fiscal 2006 and Fiscal
2005 were $91,866 and $25,793 respectively, net of expenses.

Audit Related Fees

     There were no other fees billed by the  authorized  Independent  Registered
Public  Accounting  Firm  during the last two  fiscal  years for  assurance  and
related services that were reasonably related to the performance of the audit or
review of the Company's financial statements and not reported under "Audit Fees"
above.

                                      -51-

Tax Fees

         There were no fees billed by the authorized Independent Registered
Public Accounting Firm during fiscal 2006 for tax compliance. The aggregate fees
billed by the authorized Independent Registered Public Accounting Firm for
professional services related to tax compliance were $22,963 for fiscal 2005.

All Other Fees

         There were no fees billed by the authorized Independent Registered
Public Accounting Firm during fiscal 2006 for other services. The aggregate fees
billed by the authorized Independent Registered Public Accounting Firm for other
professional services were $10,895 for fiscal 2005.

                                   SIGNATURES

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


                           VTEX ENERGY, INC.
                          (Registrant)


                           By  /S/   Stephen F. Noser
                               -------------------------------
                                     Stephen F. Noser.
                                     Chairman of the Board

                                     Date:    September 19, 2006

     Pursuant to the  requirements  of the  Securities and Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the date indicated.

                           By  /S/   Stephen F. Noser
                               -------------------------------
                                     Stephen F. Noser.
                                     President and Director

                                     Date:    September 19, 2006


                           By  /S/   Randal B. McDonald, Jr
                               ------------------------------------------
                                     Randal B. McDonald, Jr.
                                     Chief Financial Officer and Director
                                     Principal Accounting and
                                        Financial Officer

                                     Date:    September 19, 2006

EX-23

                                                                      EXHIBIT 23

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We  consent  to the use of our  report  dated  July 29,  2005,  relating  to the
consolidated  financial  statements of VTEX Energy,  Inc. (the  "Company") as of
April 30, 2005 and the year then ended,  appearing in the Annual  Report on Form
10-KSB of VTEX Energy, Inc. as of April 30, 2006.


/s/ Pannell Kerr Forster of Texas, P.C.

Houston, Texas
September 19, 2006

EX-31

                                                                    EXHIBIT 31.1
                                 CERTIFICATIONS
                           PRINCIPAL EXECUTIVE OFFICER


I, Stephen F. Noser, certify that:

1.   I have reviewed this annual report on Form 10-KSB of VTEX Energy, Inc.;

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

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

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules  13a-15(e) and  15d-15(e))  for the registrant and we
     have:

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

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and  procedures  and presented in this annual  report our  conclusions
          about the effectiveness of the disclosure controls and procedures,  as
          of the end of the period  covered by this annual  report based on such
          evaluation; and

     c)   disclosed  in  this  annual  report  any  change  in the  registrant's
          internal  control over financial  reporting  that occurred  during the
          registrant's  most recent  fiscal  quarter  (the  registrant's  fourth
          fiscal  quarter in the case of an annual  report) that has  materially
          affected,   or  is  reasonably  likely  to  materially   affect,   the
          registrant's internal control over financial reporting; and

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

     a)   all  significant  deficiencies  in the design or operation of internal
          control  over  financial  reporting  which  are  reasonably  likely to
          adversely  affect  the  registrant's   ability  to  record,   process,
          summarize and report financial information; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.


Date: September 19, 2006           /s/ Stephen F. Noser
                                   ---------------------------------------------
                                       President and Chief Executive Officer

EX-31

                                                                    EXHIBIT 31.2
                                 CERTIFICATIONS
                           PRINCIPAL FINANCIAL OFFICER


I, Randal B. McDonald, Jr., certify that:

1.   I have reviewed this annual report on Form 10-KSB of VTEX Energy, Inc.;

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

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

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules  13a-15(e) and  15d-15(e))  for the registrant and we
     have:

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

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and  procedures  and presented in this annual  report our  conclusions
          about the effectiveness of the disclosure controls and procedures,  as
          of the end of the period  covered by this annual  report based on such
          evaluation; and

     c)   disclosed  in  this  annual  report  any  change  in the  registrant's
          internal  control over financial  reporting  that occurred  during the
          registrant's  most recent  fiscal  quarter  (the  registrant's  fourth
          fiscal  quarter in the case of an annual  report) that has  materially
          affected,   or  is  reasonably  likely  to  materially   affect,   the
          registrant's internal control over financial reporting; and

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

     a)   all  significant  deficiencies  in the design or operation of internal
          control  over  financial  reporting  which  are  reasonably  likely to
          adversely  affect  the  registrant's   ability  to  record,   process,
          summarize and report financial information; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.


Date: September 19, 2006           /s/ Randal B. McDonald, Jr.
                                   --------------------------------------------
                                       Chief Financial Officer

EX-32

                                                                    EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
                    (SUBSECTIONS (A) AND (B) OF SECTION 1350,
                   CHAPTER 63 OF TITLE 18, UNITED STATES CODE)


     Pursuant to section 906 of the  Sarbanes-Oxley Act of 2002 (Subsections (a)
and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Stephen
F. Noser,  President and Chief Executive Officer of VTEX Energy,  Inc., a Nevada
corporation (the "Company"), hereby certify, to my knowledge, that:

     (1)  the  Company's  Annual  Report on Form 10-KSB for the year ended April
          30,  2006 (the  "Report")  fully  complies  with the  requirements  of
          Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2)  information  contained in the Report fairly presents,  in all material
          respects,  the  financial  condition  and results of operations of the
          Company.


Dated: September 19, 2006         /s/ Stephen F. Noser
                                  ---------------------------------------------
                                      Name: Stephen F. Noser
                                      President and Chief Executive Officer


The foregoing certification is being furnished solely pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter
63 of Title 18, United States Code) and is not being filed as part of the Report
or as a separate disclosure document.

A signed  original of this  written  statement  required by Section 906 has been
provided to VTEX  Energy,  Inc.  and will be retained by VTEX  Energy,  Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

                                                                    EXHIBIT 32.2

                            CERTIFICATION PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
                    (SUBSECTIONS (A) AND (B) OF SECTION 1350,
                   CHAPTER 63 OF TITLE 18, UNITED STATES CODE)


     Pursuant to section 906 of the  Sarbanes-Oxley Act of 2002 (Subsections (a)
and (b) of Section 1350,  Chapter 63 of Title 18, United States Code), I, Randal
B.  McDonald,  Jr.,  Chief  Financial  Officer of VTEX  Energy,  Inc.,  a Nevada
corporation (the "Company"), hereby certify, to my knowledge, that:

     (1)  the  Company's  Annual  Report on Form 10-KSB for the year ended April
          30,  2006 (the  "Report")  fully  complies  with the  requirements  of
          Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2)  information  contained in the Report fairly presents,  in all material
          respects,  the  financial  condition  and results of operations of the
          Company.


Dated: September 19, 2006          /s/ Randal B. McDonald, Jr.
                                   -------------------------------------------
                                       Name: Randal B. McDonald, Jr.
                                       Chief Financial Officer


The foregoing certification is being furnished solely pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter
63 of Title 18, United States Code) and is not being filed as part of the Report
or as a separate disclosure document.

A signed  original of this  written  statement  required by Section 906 has been
provided to VTEX  Energy,  Inc.  and will be retained by VTEX  Energy,  Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.