SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT UNDER SECTION 13 OR 15(Dd) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~February~~May 2831, 2006

o TRANSITION REPORT UNDER SECTION 13 OR 15(Dd) OF THESECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 000-50428

MAVERICK OIL AND GAS, INC. (Exact Name of Small Business Issuer as Specified in Its Charter)

Nevada		98-0377027
(State or Other Jurisdiction ofIncorporation or Organization)		(IRS Employer Identification No.)

888 E. Las Olas Boulevard, Suite 400
Fort Lauderdale, Florida 33301

(Address of Principal Executive Offices)

(954) 463-5707

(Issuer’s Telephone Number, including Area Code)

N/A

(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has 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 ý No o

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

Large accelerated filer o Accelerated filer o Non-accelerated filer ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: There were 99,~~022~~446,~~565~~116 issued and outstanding shares of the registrant’s common stock, par value $.001 per share, as of ~~April~~July 712, 2006.

MAVERICK OIL AND GAS, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited)	1
	Consolidated Statements of Operations — (Unaudited)	2
	Consolidated Statements of Cash Flows — (Unaudited)	3
	Notes to Consolidated Financial Statements — (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	911
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	1822
Item 4.	Controls and Procedures	1923
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	2024
Item 1A.	Risk Factors	2024
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2226
Item 3.	Defaults Upon Senior Securities	2226
Item 4.	Submission of Matters to a Vote of Security Holders	2226
Item 5.	Other Information	2326
Item 6.	Exhibits	2327

MAVERICK OIL AND GAS, INC AND SUBSIDARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

	February 28,2006			August 31,2005
	May 31,2006			August 31,2005
ASSETS
Current Assets:
Cash	$	31,~~906~~480,~~622~~581		$	3,008,854
Accounts receivable		1,~~009~~484,~~619~~657			881,410
Prepaid expenses and advances to operators		2,311,605			501,459
Prepaid drilling costs and advances to operators		2,118,381			501,459
Total Current Assets		75,~~227~~083,~~846~~619			4,391,723
Property, Plant and Equipment:
Oil and natural gas properties, successful efforts method of accounting:
Proved properties, net		9,~~483~~742,~~204~~788			5,903,686
Unproved properties not being amortized, net of impairment		1421,~~516~~117,~~510~~914			5,249,902
Furniture and equipment, net of accumulated depreciation of $32,893 and $18,199		736,420			221,285
Properties, Furniture and equipment, net of accumulated depreciation of $72,711 and $18,199		827,164			221,285
Total Property, Plant and Equipment, Net		2431,~~736~~687,~~134~~866			11,374,873
Other assets		2,154,891			342,768
Prepaid expenses and other assets:
Investments in limited partnership		—			962,199
Prepaid loan fees, net of amortization of $319,432		2,792,790			—
Total Assets	$	34,118,871		$	17,071,563
Other assets		204,932			342,768
Total prepaid expenses and other assets, Net		2,997,722			342,768
Investment in limited partnership		—			962,199
Total Assets	$	39,769,207		$	17,071,563
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses	$	28,~~288~~072,~~977~~838		$	3,060,657
Payables for oil and gas interests		355,842			353,265
Notes payable		3632,~~995~~047			48,451
Current maturities of convertible debentures		1,666,667			—
Derivative Liability		22,979,470			—
Total Current Liabilities		4,348,481			3,462,373
Current Portion of long-term debt		4,166,667			—
Total Current Liabilities		35,606,864			3,462,373
Non-Current Liabilities:
Fair value of derivatives		23,635,380			—
Convertible debentures, Net of discount		6,605,878			—
Convertible debentures, net of discount		8,814,699			—
Other liabilities		18,000			18,000
Total Non-Current Liabilities		32,468,079			18,000
Total non-Current Liabilities		6,623,878			18,000
Minority Interest		~~901~~1,~~351~~281,802			889,475
Stockholders’ Equity (Deficit):
Preferred stock, $.001 par value, authorized 10,000,000 shares; none issued and outstanding		—			—
Common stock, $.001 par value, authorized 200,000,000 shares; 99,022,565 shares issued and outstanding at February 28, 2006 and 96,472,565 shares issued and outstanding at August 31, 2005		99,023			96,473
Common stock, $.001 par value, authorized 200,000,000 shares; 99,022,565 shares issued and outstanding May 31, 2006 and 96,472,565 shares issued and outstanding at August 31, 2005		99,023			96,473
Additional paid-in capital		4951,~~707~~705,~~884~~499			45,687,506
Deferred compensation		—			(3,735,956	)
Accumulated deficit		(5355,~~405~~547,~~947~~859	)		(29,346,308	)
Total Stockholders’ Equity (Deficit)		(3,~~599~~743,~~040~~337	)		12,701,715
Total Liabilities and Stockholders’ Equity (Deficit)	$	3439,~~118~~769,~~871~~207		$	17,071,563

See accompanying Notes to Consolidated Financial Statements.

MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months EndedFebruary 28,						Six Months EndedFebruary 28,
	Three Months EndedMay 31,						Nine Months EndedMay 31,
	2006			2005			2006			2005
Oil and gas sales revenues	$	~~362~~665,~~319~~156		$	—46,129		$	1,~~173~~838,~~488~~644		$	—46,129
Expenses:
Lease operating expenses		~~254~~390,~~272~~688			—82,238			~~312~~702,~~121~~808			—82,238
Exploration costs		403,~~361~~177			552,~~124~~104,359			6265,~~436~~614			692,~~849~~174,208
Share based compensation		3,457,977			—			5,223,778			—
General and administrative		2,172,699			9,250,687			11,122,975			10,001,847
General and administrative		2,252,338			615,594			3,726,498			751,158
Depreciation, depletion and amortization		177,106			51,070			1,082,580			109,822
Depreciation, depletion and amortization		651,664			1,173,771			905,474			1,277,331
Impairment		—			3,018,306			—			5,710,416
Impairment		—			2,692,110			—			2,692,110
Loss on equity investment		—			18,186			—			77,882
Loss on equity investment		—			59,696			—			59,696
Total expenses		2,743,670			14,524,846			12,973,977			18,156,413
Total expenses		6,656,612			4,596,295			10,230,307			4,850,144
Loss before minority interest		(2,078,514	)		(14,478,717	)		(11,135,333	)		(18,110,284	)
Loss before minority interest		(6,294,293	)		(4,596,295	)		(9,056,819	)		(4,850,144	)
Minority interest		(10,238	)		501,666			(64,566	)		996,994
Minority interest		(4,391	)		486,215			(54,328	)		495,328
Loss from operations		(2,088,752	)		(13,977,051	)		(11,199,899	)		(17,113,290	)
Loss from operations		(6,298,684	)		(4,110,080	)		(9,111,147	)		(4,354,816	)
Other income (expense):
Change in fair value of derivatives		~~(13~~655,~~559,429~~910	)		—			(1312,~~559~~903,~~429~~519	)		—
Interest expense		(1723,~~392,038~~507	)		—(837,495	)		(12,~~442~~166,~~900~~407	)		—(2,056,073	)
Interest income		4414,~~996~~436			—24,553			5368,~~837~~274			—24,553
Total other income (expense)		(1453,~~906,471~~161	)		—(812,942	)		(1415,~~948~~001,~~492~~652	)		—(2,031,520	)
Net loss to common shareholders	$	(212,~~205~~141,~~155~~913	)	$	(414,~~110~~789,~~080~~993	)	$	(2426,~~059~~201,~~639~~551	)	$	(419,~~354~~144,~~816~~810	)
Basic and diluted loss per common share	$	(0.2102	)	$	(0.0615	)	$	(0.2527	)	$	(0.0725	)
Weighted average common shares outstanding		98,~~929~~976,~~232~~015			7095,~~564~~831,~~775~~341			98,~~006~~348,~~267~~755			6575,~~459~~475,~~144~~782

See accompanying Notes to Consolidated Financial Statements.

MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six Months EndedFebruary 28,
	Nine Months EndedMay 31,
	2006			2005
Cash Flows from Operating Activities:
Net loss	$	(2426,~~059~~201,~~639~~551	)	$	(419,~~354~~144,~~816~~810	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share based compensation		5,~~223~~813,~~778~~266			~~198~~8,~~750~~143,247
Minority interest		5464,~~328~~566			(~~495~~996,~~328~~994	)
Depreciation, depletion and amortization		~~905~~1,~~474~~082,580			151,~~277,331~~066
Impairment		—			25,~~692~~710,~~110~~416
Loss on equity investment		—			5977,~~696~~882
Amortization of discount		1,173,384			—
Interest expense and amortization of debt discount		1,895,589			2,158,506
Change in fair value of derivatives		1312,~~559~~903,~~429~~519			—
Changes in working capital:
Increase in accounts receivable		(~~128~~603,~~209~~247	)		—(40,538	)
Increase in prepaid expenses, advances to operators and other		(21,~~067~~479,~~306~~087	)		(1,~~145~~419,~~500~~324	)
Increase (decrease) in accounts payable and accrued expenses		(1,997,565	)		95,467
Increase in accounts payable and accrued expenses		2,420,099			2,533,749
Net cash used in operating activities		(74,~~336~~104,~~326~~266	)		(12,~~672~~926,~~290~~800	)
Cash Flows from Investing Activities:
Purchase of oil and gas properties		(1218,~~724~~630,~~716~~138	)		(812,~~944~~054,~~535~~378	)
Acquisition of office building		(~~422~~547,~~792~~800	)		—
Purchase of furniture and equipment		(110,788	)		—
Camden Acquisition Deposit		—			(5,000,000	)
Net cash used in investing activities		(13,258,296	)		(8,944,535	)
Purchase of furniture and equipment		(108,512	)		(121,005	)
Net cash used in investing activities		(19,286,450	)		(17,175,383	)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock,net of issuance costs		1,860,000			25,396,291
Proceeds from issuance of common stock, net of issuance costs		1,860,000			25,364,936
Proceeds from issuance of debt		21,154,850			1,600,000
Proceeds from minority interest owner		~~488~~863,997			~~100~~601,~~000~~666
Repayment of debt		(2,~~011~~016,~~457~~404	)		(~~359~~613,~~000~~866	)
Net cash provided by financing activities		21,~~492~~862,~~390~~443			26,~~737~~952,~~291~~736
Net Increase in Cash		897,768			16,120,466
Net Increase (Decrease) in Cash		(1,528,273	)		6,850,553
Cash at the Beginning of Period		3,008,854			596,748
Cash at the End of Period	$	31,~~906~~480,~~622~~581		$	167,~~717~~447,~~214~~301
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest	$	47396,~~309~~329		$	—
Taxes	$	—		$	—

See accompanying Notes to Consolidated Financial Statements.

MAVERICK OIL AND GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

The unaudited consolidated financial statements included herein have been prepared by Maverick Oil and Gas, Inc. (“us”, “we” or the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such adjustments are of a normal recurring nature. Although we believe that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), have been condensed or omitted pursuant to such rules and regulations.

~~These~~Certain ~~financial~~reclassifications ~~statements~~have ~~should~~been bemade ~~read~~to inthe ~~conjunction~~prior ~~with~~years’ ~~the~~ financial statements ~~and~~to ~~the~~conform ~~notes thereto included in our 2005 Annual Report on Form 10-KSB filed~~ with the ~~Securities~~current ~~and Exchange Commission~~presentation. ~~The results of operations for interim periods are not necessarily indicative of the results for any subsequent quarter or the entire fiscal year ending August 31, 2006.~~

~~NOTE~~These 2financial —statements ~~STOCK~~should ~~BASED~~be ~~COMPENSATION~~read in conjunction with the financial statements and the notes thereto included in our 2005 Annual Report on Form 10-KSB filed with the Securities and Exchange Commission. The results of operations for interim periods are not necessarily indicative of the results for any subsequent quarter or the entire fiscal year ending August 31, 2006.

~~During~~NOTE ~~February~~2 ~~2005,~~— ~~the~~STOCK ~~Company~~BASED ~~adopted~~COMPENSATION a Stock Incentive Plan (the “Stock Incentive Plan”) which covers 10,000,000 shares of common stock. Under its terms, employees, officers and directors of the Company and its subsidiaries are currently eligible to receive non-qualified stock options, restricted stock awards and incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986 (the “Code”). In addition, advisors and consultants who perform services for the Company or its subsidiaries are eligible to receive non-qualified stock options under the Stock Incentive Plan. The Stock Incentive Plan is administered by the Board of Directors or a committee designated by the Board of Directors.

~~All~~During ~~stock~~February ~~options~~2005, ~~granted~~the ~~under~~Company ~~the~~adopted a Stock Incentive Plan ~~are exercisable for a period of up to ten years from~~ (the ~~date of grant. The Company may not grant incentive stock options pursuant to the~~ “Stock Incentive Plan”) ~~at exercise prices~~ which ~~are~~covers ~~less~~10,000,000 ~~than~~shares ~~the fair market value~~ of ~~the~~ common stock. onUnder ~~the~~its ~~date~~terms, ofemployees, ~~grant.~~officers ~~The~~and ~~term~~directors of anthe ~~incentive~~Company ~~stock~~and ~~option~~its ~~granted~~subsidiaries ~~under~~are ~~the~~currently ~~Stock~~eligible ~~Incentive Plan~~ to areceive ~~stockholder~~non-qualified ~~owning~~stock ~~more~~options, ~~than~~restricted ~~10%~~stock ofawards ~~the issued~~ and ~~outstanding~~incentive ~~common~~ stock ~~may~~options ~~not~~within ~~exceed~~the ~~five~~meaning ~~years~~of ~~and~~Section ~~the~~422 ~~exercise~~Internal ~~price~~Revenue Code of an1986 ~~incentive~~(the ~~stock~~“Code”). ~~option~~In ~~granted~~addition, toadvisors ~~such~~and ~~stockholder~~consultants ~~may~~who ~~not~~perform beservices ~~less~~for ~~than~~the ~~110%~~Company ofor ~~the~~its ~~fair~~subsidiaries ~~market~~are ~~value~~eligible ofto ~~the~~receive ~~common~~non-qualified stock onoptions under the ~~date~~Stock ofIncentive ~~grant~~Plan. The Stock Incentive Plan ~~contains~~is ~~certain~~administered ~~limitations~~by on the ~~maximum~~Board ~~number~~ of ~~shares~~Directors ofor ~~the~~a ~~common~~committee ~~stock~~designated ~~that~~by ~~may be awarded in any calendar year to any one individual for~~ the ~~purposes~~Board of ~~Section 162(m) of the Code~~Directors.

InAll ~~addition~~stock options granted under the Stock Incentive Plan are exercisable for a period of up to ten years from the date of grant. The Company may not grant incentive stock options ~~covered~~pursuant byto the Stock Incentive Plan, at exercise prices which are less than the ~~Company~~fair ~~has~~market value of the common stock on the date of grant. The term of an incentive stock option granted under the Stock Incentive Plan to a stockholder owning more than 10% of the issued and outstanding ~~options~~common stock may not exceed five years and the exercise price of an incentive stock option granted to ~~purchase~~such ~~450,000~~stockholder ~~shares~~may not be less than 110% of the fair market value of the common stock on the date of grant. The Stock Incentive Plan contains certain limitations on the maximum number of shares of the common stock that may be awarded in any calendar year to any one individual for the purposes of Section 162(m) of the Code.

~~Prior~~In addition to ~~September~~the ~~1, 2005 we accounted for~~ stock ~~based~~options ~~compensation~~covered ~~under~~by ~~Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“123”). As permitted under this standard, compensation cost was recognized using~~ the ~~intrinsic value method described in Accounting Principles Board Opinion No. 25, “Accounting for~~ Stock ~~Issued~~Incentive ~~to Employees” (“APB 25”). Effective December 1~~Plan, ~~2005,~~ the Company has ~~adopted~~outstanding ~~Statement~~options ofto ~~Financial~~purchase ~~Accounting Standards No. 123 (Revised 2004)~~4,580,000 ~~“Share-Based~~shares ~~Payment” (“FAS 123R”) and applied the provisions~~ of ~~the~~common Securities and Exchange Commission Staff Accounting Bulletin No. 107 using the modified-prospective transition method. Prior periods were not restated to reflect the impact of adopting the new standard. As a result of the adoption of FAS 123R, stock~~-based compensation expense recognized~~ .

4Prior to September 1, 2005 the Company accounted for stock based compensation under Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“FAS 123”). As permitted under this standard, compensation cost was recognized using the intrinsic value method described in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Effective December 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“FAS 123R”) and applied the provisions of the Securities and Exchange Commission Staff Accounting Bulletin No. 107 using the

during the quarter ended February 28, 2006 includes compensation expense for all share-based payments granted on or prior to, but not yet vested as of August 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of FAS 123, and compensation cost for all share-based payments granted on or subsequent to September 1, 2005, based on the grant date fair value estimated in accordance with the provisions of FAS 123R.4

~~APB~~modified-prospective 25transition ~~did~~method. ~~not~~Prior ~~require~~periods ~~any~~were ~~compensation~~not ~~expense~~restated to bereflect ~~recorded in~~ the ~~financial~~impact ~~statements~~of ifadopting the ~~exercise~~new ~~price~~standard. As a result of the ~~award~~adoption ~~was~~of ~~not~~FAS ~~less~~123R, ~~than~~stock-based ~~the~~compensation ~~market~~expense ~~price~~recognized onduring the ~~date~~quarter ofended ~~grant.~~May ~~Since~~31, 2006 includes compensation expense for all ~~options~~share-based payments granted byon ~~the~~or ~~Company~~prior ~~had~~to, ~~exercise~~but ~~prices~~not ~~equal~~yet orvested ~~greater~~as ~~than~~of ~~the~~August ~~market~~31, ~~price~~2005, based on the grant date fair value estimated in accordance with the original provisions of ~~grant~~FAS 123, noand compensation ~~expense~~cost ~~was~~for ~~recognized~~all ~~for~~share-based ~~stock~~payments ~~option~~granted ~~grants~~on ~~prior~~or subsequent to September 1, 2005, based on the grant date fair value estimated in accordance with the provisions of FAS 123R.

During the quarter ended ~~February~~May 2831, 2006, the Company recognized stock-based compensation expenses of $~~304~~589,~~370~~488 related to outstanding stock options according to the provisions of FAS 123R, using the modified-prospective transition method. This total includes $154,101 corresponding to the amount that would have been recognized during our fiscal quarter ended November 30, 2005 had we adopted the provisions of FAS 123R as of that period. We have determined that the expense that would have been recognized during our prior quarter does not have a material effect on the results of operations and earnings per share information previously reported for that period, and accordingly, we have recognized this amount in the results of operations for our quarter ended February 28, 2006.

Prior to the adoption of FAS 123R and for the ~~six~~nine months ended ~~February~~May 2831, 2006, no tax benefits from the exercise of stock options has been recognized as no options have ~~vested or have~~ been exercised. Any future excess tax benefits derived from the exercise of stock options will be recorded prospectively and reported as cash flows from financing activities in accordance with FAS 123R.

The following table illustrates the pro forma effect on operating results and per share information had the Company accounted for share-based compensation in accordance with FAS 123R for the following periods ~~indicated~~during our prior fiscal year. All options stock-based compensation options granted to date have been issued on or after March 10, 2005:

	Three Months Ended February 28, 2005			Six Months Ended February 28, 2005
	Three MonthsEndedMay 31, 2005			Nine MonthsEndedMay 31, 2005
Net loss, as reported	$	(414,~~110~~789,~~080~~993	)	$	(419,~~354~~144,~~816~~810	)
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		0			0
Plus: Stock-based employee compensation expense included in reported net income, net of related tax effects		1,283,344			1,283,344
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		0			0
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(453,094	)		(453,094	)
Pro forma net loss	$	(413,~~110~~959,~~080~~743	)	$	(418,~~354~~314,~~816~~560	)
Net loss per common share:
Net loss per common share, as reported	$	$(0.0615	)	$	$(0.0725	)
Net loss per common share, pro forma	$	$(0.0615	)	$	$(0.0724	)

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	February 28,2006			February 28,2005
	May 31,2006			May 31,2005
Expected life (years)		2.98			—2.98
Risk-free interest rate		3.2996	%		—3.29	%
Expected Volatility		4165.7720	%		—41.77	%
Expected Dividend yield		0.0	%		—0.0	%

The range of risk free interest rates used in the Black-Scholes option pricing ~~model~~Model (the “Model”) was 3.2% to 4.6%. The range of expected volatility used in the ~~model~~Model was 3141.3% to 5680.17%.

A summary of the options issued by the Company for the ~~six~~nine months ended ~~February~~May 2831, 2006 is as follows:

	Options		Weighted-AverageExercisePrice per Share		Weighted-AverageRemainingContractualTerm(in years)		AggregateIntrinsicValue
Outstanding on August 31, 2005		4,340,000	$	2.26		8.28
Granted		240,000	$	1.14		9.69
Exercised		—	$	—		—
Forfeited/Canceled		—	$	—		—
Outstanding on February 28, 2006		4,580,000	$	2.20		8.35	$	19,200
Outstanding on May 31, 2006		4,580,000	$	2.20		8.35	$	19,200
Exercisable on February 28, 2006		450,000	$	1.50		1.62		—
Exercisable on May 31, 2006		450,000	$	1.50		1.62	$	—

The weighted-average grant-date fair value for the ~~six~~nine months ended ~~February~~May 2831, 2006 and ~~February~~May 2831, 2005 was $0.3491/share and $0.0094/share, respectively. No options were exercised or vested during the periods ended ~~February~~May 2831, 2006 and ~~February~~May 2831, 2005. The unrecognized share based compensation cost related to stock option expense at ~~February~~May 2831, 2006 is $~~259~~3,~~579~~053,983 and will be recognized over a weighted average of 2.4.0 years.

InPrior ~~accordance~~to ~~with~~the ~~APB~~adoption 25of FAS 123R, the Company recorded compensation expense for restricted stock awards based on the fair market value on the date of grant, in accordance with APB 25. The fair value was recorded as deferred compensation in a separate component of shareholders’ equity and expensed over the vesting period. In accordance with FAS 123R, during the quarter ended February 28, ~~2005~~2006, the deferred compensation balance of $2,011,569 was reclassified to paid-in-capital.

Stock-based compensation expense recognized for restricted stock awards was $1287,~~970,288~~382 and $06,329,755 for the three months ended ~~February~~May 2831, 2006 and ~~February~~May 2831, 2005, respectively; and $3,~~694~~735,~~576~~957 and $06,329,755 for the ~~six~~nine months ended ~~February~~May 2831, 2006 and ~~February~~May 2831, 2005, respectively. ~~The~~At ~~unrecognized~~May ~~compensation cost related to the unvested restricted shares at February 28~~31, 2006 there is ~~$128,061~~no ~~and~~unrecognized ~~will~~compensation becost ~~recognized~~related ~~over~~to aunvested ~~weighted-average~~restricted ~~period of 3~~shares.~~8 years.~~

A summary of the activity of restricted stock under the Company’s compensation plans during the quarter ended ~~February~~May 2831, 2006 is as follows:

	Shares		Weighted AverageGrant Date FairValue
Outstanding on August 31, 2005		3,510,000	$	9,196,200
Granted		300,000		246,000
Vested		—		—
Forfeited/Canceled		—		—
Outstanding on February 28, 2006		3,810,000	$	9,442,200
Outstanding on May 31, 2006		3,810,000	$	9,442,200

NOTE 3 — CURRENT PROJECTS

Zapata County

On October 1, 2005, the owners of the PHT Resendez Limited Partnership elected to dissolve the partnership and distribute the assets to the members in proportion to their membership interest in the Limited Partnership. These assets consisted of some cash, a producing gas well, and leasehold interests in oil and gas properties in Zapata County, Texas. Accordingly, we no longer report our investment on an equity method basis, but consolidate the revenues and expenses into our income statement and reflect the investment in cash and fixed asset sections of the balance sheet.

Fayetteville Shale

During October 2005, our subsidiary, Maverick Woodruff County, LLC, borrowed $1,000,000 to finance lease acquisitions in the Fayetteville Shale project. The loan was secured by a pledge of the membership interests of Maverick Woodruff County, LLC. However, the loan automatically converted into shares of the common stock of one of our Fayetteville project participants in February 2006 when we acquired and distributed to this participant its ~~prorata~~pro-rata interest in 50,000 leasehold acres.

~~Barnett~~On April 4, 2006, Maverick Woodruff County, LLC received advances of $2.6 million from Bamco, LLC, one of the Fayetteville Shale project partners. The advance was used for the acquisition of additional leasehold acreage in the Fayetteville Shale project. The advance, together with interest at the rate of 8% per annum, will be settled when, and to the extent capital contributed to the project by the Fayetteville Shale project partners brings contributions in line with ownership percentages. Bamco, LLC received a $100,000 fee in conjunction with the advance. To date, $1.1 million of this advance has been settled.

~~From~~Barnett inception of the project through October 19, 2005, Reichmann Petroleum Corp served as the managing partner of RBE and as the operator of a 1,942 acre portion of the project. Dyke Ferrell, the principal shareholder of Reichmann Petroleum, owned an approximate 13% interest in RBE. During October 2005, we acquired the 13% interest in RBE from Mr. Ferrell for $1,750,000 and 250,000 shares of our common stock, for a total purchase price of $2,037,500. Of the cash purchase price, $250,000 was paid in October 2005, and the balance of $1,500,000 was paid in January 2006. In connection with this purchase, we became the managing member of RBE and operator of the 1,942 acre portion of the project. Shale

~~NOTE~~From 4inception —of ~~CONVERTIBLE~~the ~~DEBENTURES~~project ~~AND~~through ~~WARRANTS~~October ~~LIABILITY~~19, 2005, Reichmann Petroleum Corp served as the managing partner of RBE and as the operator of the 100% owned portion of the project. Dyke Ferrell, the principal shareholder of Reichmann Petroleum, owned an approximate 13% interest in RBE. During October 2005, we acquired the 13% interest in RBE from Mr. Ferrell for $1,750,000 and 250,000 shares of our common stock, for a total purchase price of $2,037,500. Of the cash purchase price, $250,000 was paid in October 2005, and the balance of $1,500,000 was paid in January 2006. In connection with this purchase, we became the managing member of RBE and operator of the 100% owned portion of the project.

~~During~~NOTE ~~October~~4 ~~2005,~~— ~~our~~CONVERTIBLE ~~subsidiary,~~DEBENTURES ~~Maverick~~AND ~~Woodruff~~DERIVATIVE County, LLC, borrowed $1,000,000 to finance lease acquisitions in the Fayetteville Shale project. The loan was secured by a pledge of the membership interests of Maverick Woodruff County, LLC. However, the loan automatically converted into shares of the common stock of one of our Fayetteville project participants in February 2006 when we acquired and distributed to this participant its prorata interest in 50,000 leasehold acres.LIABILITY

During October 2005, weour ~~sold~~subsidiary, ~~convertible~~Maverick ~~debentures~~Woodruff ~~and warrants to Trident Growth Fund~~County, ~~L.P. for gross proceeds of $2~~LLC,~~000,000.~~ ~~The~~borrowed ~~convertible debentures had a principal amount of~~ $21,000,000 ~~and~~to ~~bore~~finance ~~interest~~lease atacquisitions ~~12%~~in ~~per annum (~~the ~~“Trident~~Fayetteville ~~2005~~Shale ~~Debentures”)~~project. The ~~warrants~~loan ~~are~~was ~~exercisable~~secured ~~over~~by a ~~five~~pledge ~~year term for 500,000 shares~~ of ~~common~~the ~~stock~~membership atinterests ~~an exercise price~~ of ~~$1.00~~Maverick ~~per~~Woodruff ~~share~~County, ~~(the “Trident 2005 Warrants”)~~LLC. ~~At its inception~~However, wethe ~~recorded~~loan aautomatically ~~beneficial~~converted ~~conversion~~into ~~feature~~shares onof the ~~Trident~~common ~~2005~~stock ~~Debentures~~of inone ~~the amount~~ of ~~$602,966,~~our ~~accounted~~Fayetteville ~~for~~project asparticipants ain ~~note~~February ~~discount~~2006 towhen bewe ~~amortized~~acquired ~~over~~and ~~the~~distributed ~~life~~to ofthis ~~the~~participant ~~loan.~~its ~~The~~pro ~~Trident~~rata ~~2005~~interest ~~Debentures were paid~~ in ~~full in January 2006. Upon repayment~~50,000 ~~the~~leasehold ~~remaining unamortized note discount was recognized as interest expense~~acres.

~~Following~~During ~~the~~October ~~January 6~~2005, ~~2006~~we ~~issuance~~sold ofconvertible ~~$20~~debentures ~~million~~and ofwarrants ~~secured~~to ~~convertible~~Trident ~~debentures~~Growth Fund, asL.P. ~~discussed~~for ~~below,~~gross ~~and~~proceeds byof ~~application~~$2,000,000. ofThe ~~anti-dilution~~convertible ~~provisions,~~debentures ~~the~~had ~~exercise~~a ~~price~~principal amount of ~~the~~$2,000,000 ~~Trident~~and ~~2005~~bore ~~Warrants~~interest ~~was~~at ~~reduced~~12% toper $annum (the “Trident 2005 Debentures”).~~9376~~ ~~per~~The ~~share,~~warrants ~~and~~are ~~the~~exercisable ~~number~~over ofa ~~warrants~~five ~~was~~year ~~increased~~term tofor ~~533~~500,~~276.~~000 ~~Also,~~shares ~~following~~of ~~the~~common ~~January~~stock 6,at ~~2006~~an ~~issuance~~exercise price of $201.00 ~~million~~per ofshare ~~secured~~(the ~~convertible~~“Trident ~~debentures,~~2005 asWarrants”). ~~discussed~~At ~~below~~its inception, ~~and~~we byrecorded ~~application~~a ofbeneficial ~~anti-dilution~~conversion ~~provisions,~~feature on the ~~exercise~~Trident ~~price~~2005 Debentures in the amount of ~~200~~$602,~~000~~966, ~~warrants~~accounted ~~issued~~for as a note discount to ~~Trident~~be ~~during~~amortized ~~July~~over ~~2004~~the (life of the “loan. The Trident ~~2004~~2005 ~~Warrants”)~~Debentures ~~was~~were ~~reduced~~paid toin $full in January 2006.~~9376~~ ~~per~~Upon ~~share~~repayment, ~~and~~ the ~~number~~remaining ofunamortized ~~warrants~~note discount was ~~increased~~recognized toas ~~213,310~~interest expense.

OnFollowing the January 65, 2006, weissuance ~~sold secured convertible debentures and warrants for gross proceeds~~ of $20~~,000,000.~~ ~~The~~million of secured convertible debentures, ~~have~~as andiscussed ~~aggregate principal amount of $20~~below,~~000,000~~ and ~~are~~by ~~convertible~~application ~~into~~of 21anti-dilution provisions,~~331,058~~ ~~shares~~the ofexercise ~~our~~price ~~common~~of ~~stock,~~the ~~based~~Trident ~~upon~~2005 anWarrants ~~initial~~was ~~conversion~~reduced ~~price~~to of $0.9376 per share, ~~which~~and isthe ~~subject~~number toof ~~anti-dilution adjustments The~~ warrants ~~are~~was ~~exercisable~~increased ~~for~~to 31533,~~996~~276. Also,~~587~~ ~~shares~~following ofthe ~~our~~January ~~common stock over a five year period with~~5, ~~21,331,059~~2006 ~~having~~issuance anof ~~initial~~$20 ~~exercise~~million ~~price~~ of ~~$0.9376~~secured ~~per~~convertible ~~share~~debentures, ~~5,332,764~~as ~~having~~discussed anbelow, ~~initial~~and ~~exercise~~by ~~price~~application of ~~$1.50~~anti-dilution ~~per share~~provisions, ~~and~~ the ~~remaining 5,332,764 having an initial~~ exercise price of ~~$2.00~~200,000 ~~per share. The exercise prices of the~~ warrants ~~are~~issued ~~subject~~ to ~~anti-dilution~~Trident ~~adjustments.~~during WeJuly ~~agreed~~2004 ~~to register~~ (the ~~resale~~“Trident of2004 ~~the~~Warrants”) ~~shares~~was ofreduced ~~common~~to ~~stock~~$.9376 ~~issuable~~per ~~upon~~share, ~~conversion~~and of the ~~secured~~number ~~convertible debentures and exercise~~ of ~~the~~ warrants. ~~The~~was ~~registration~~increased ~~rights agreement contains a liquidated damages provison that has been determined~~ to ~~be uneconomic~~213,310.

7On January 5, 2006, we sold secured convertible debentures and warrants for gross proceeds of $20,000,000. The secured convertible debentures have an aggregate principal amount of $20,000,000 and are convertible into 21,331,058 shares of our common stock, based upon an initial conversion price of $0.9376 per share, which is subject to anti-dilution adjustments The warrants are exercisable

As a result, we have determined that the conversion feature of the secured convertible debentures and the warrants issued with the secured convertible debentures are embedded derivative instruments pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Under the provisions of EITF Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” the accounting treatment of these derivative financial instruments requires that the Company record the derivatives at their fair values as of the inception date of the note agreements and at fair value as of each subsequent balance sheet date as a liability. Any change in fair value is recorded as non-operating, non-cash income or expense at each balance sheet date. The Company estimates fair value using the Black-Scholes option pricing model. This model requires the use of estimates such as the expected holding period, the expected future volatility of the company’s common stock and the risk-free rate of return over the holding period. These estimates directly affect the reported amounts of the derivative instrument liabilities. At February 28, 2006, the Company estimated the fair value of the conversion feature and warrant liability and related expense at $13,559,429.7

~~NOTE~~for 31,996,587 shares of our common stock over a five year period with, 21,331,059 having an initial exercise price of $0.9376 per share, 5,332,764 —having ~~STOCKHOLDERS’~~an ~~EQUITY~~initial exercise price of $1.50 per share, and the remaining 5,332,764 having an initial exercise price of $2.00 per share. The exercise prices of the warrants are subject to anti-dilution adjustments. We agreed to register the resale of the shares of common stock issuable upon conversion of the secured convertible debentures and exercise of the warrants. The registration right agreement contains a liquidated damages provision that has been determined to be uneconomic.

~~During~~As ~~August~~a ~~and September 2005~~result, we ~~granted~~have ~~stock~~determined ~~options~~that tothe ~~three~~conversion ~~non-employee~~feature ~~directors.~~of ~~Each~~the ofsecured convertible debentures and the ~~options~~warrants ~~granted~~issued ~~entitle~~with the ~~director~~secured toconvertible ~~purchase~~debentures ~~80,000~~are ~~shares~~embedded ofderivative ~~common~~instruments ~~stock,~~pursuant ~~provided~~to ~~that~~SFAS heNo. ~~remains~~133, onAccounting ~~the~~for ~~Company’s~~Derivative ~~Board~~Instruments ofand ~~Directors~~Hedging ~~through~~Activities, as amended. Under the ~~vesting~~provisions ~~period~~of EITF Issue No. ~~One~~00-~~half~~19, ~~(50%)~~Accounting offor ~~these~~Derivative ~~options~~Financial ~~vest~~Instruments ~~during~~Indexed ~~August~~to, and ~~September~~Potentially ~~2006~~Settled ~~and~~in, a Company’s Own Stock, the ~~remaining~~accounting ~~50%~~treatment ~~vest~~of ~~during~~these ~~August~~derivative ~~and~~financial ~~September~~instruments ~~2007.~~requires ~~These~~that ~~options~~the ~~have~~Company anrecord ~~exercise~~the ~~price~~derivatives ~~ranging~~at ~~from~~their ~~$1.02~~fair tovalues ~~$1.22~~as ~~per~~of ~~share~~the ~~and~~inception ~~expire~~date ~~during~~of ~~2015.~~the ~~The~~note ~~average~~agreements and at fair value as of each ~~option~~subsequent ~~granted~~balance ~~was~~sheet ~~$0.96.~~date ~~All~~as ~~options~~a ~~were~~liability. ~~granted~~Any ~~with~~change anin ~~exercise~~fair ~~price~~value ~~equal~~is torecorded ~~the~~as ~~market~~non-operating, ~~price~~non-cash onincome ~~the~~or ~~trading~~expense ~~day~~at ~~prior~~each tobalance ~~the~~sheet date ~~of grant~~. The fair value ~~was~~of ~~estimated on~~ the ~~date~~derivative ofliabilities was ~~grant~~estimated using the Black-Scholes option- pricing model. ~~with~~This anmodel requires the use of estimates such as the expected ~~average~~holding period, the expected future volatility of ~~40%~~the company’s common stock and athe risk-free ~~interest~~ rate of 4%return over the holding period. These estimates directly affect the reported amounts of the derivative instrument liabilities. At May 31, 2006, the Company estimated the fair value of the conversion feature and warrant liability and related non-cash expense at $22,979,470 and $12,903,519, respectively.

On November 28, 2005, we sold 200,000 investment units at a price of $10 per unit to Millenium Global Investments, Ltd., with each unit consisting of ten (10) shares of our common stock and one (1) thirty month warrant to purchase four (4) shares of our common stock at an exercise price of $1.70 per share. The ~~Millenium warrants were restructured~~ following ~~our~~table ~~January~~illustrates 6,the ~~2006~~components ~~issuance~~ of our secured convertible debentures ~~and~~included ~~associated warrants. As restructured, Millenium surrendered warrants to purchase 800,000 shares of our common stock at an exercise price of $1.70 per share,~~ in ~~exchange~~the ~~for~~accompanying ~~warrants~~consolidated tofinancial purchase 2,000,000 shares of our common stock; of which 1,000,000 were issued at an exercise price of $.9376 per share; 500,000 at an exercise price of $1.50 per share; and 500,000 at an exercise price of $2.00 per share.statements:

On December 2, 2005, we issued 250,000 shares of our common stock to Reichmann Petroleum as part of the purchase price for an additional interest in RBE, LLC, as more fully described in Note 2.

	May 31, 2006			August 31, 2005
Convertible debentures, gross proceeds of $20,000,000:
Current Portion, included in current liabilities	$	4,166,667		$	—
Long-term portion	$	15,833,333		$	—
Less: Unamortized discount		(9,227,455	)		—

Long-term portion, net of unamortized discount	$	6,605,878		$	—

~~During~~Future ~~February~~maturities ~~2006, we granted stock options to a non-employee director entitling him to purchase 80,000 shares~~ of ~~common stock, provided that he remains on~~ the ~~Company’s~~convertible ~~Board~~debentures ofare ~~Directors~~as through the vesting period. One-half (50%) of these options vests during February 2007 and the remaining 50% vests during February 2008. These options have an exercise price of $1.39 per share and expire during 2016. The average fair value of the option granted was $1.39. The options were granted with an exercise price equal to the market price on the trading day prior to the date of grant. The fair value was estimated on the date of grant using the Black-Scholes option-pricing model with an expected average volatility of 54% and a risk-free interest rate of 4%.follows:

During the quarter ended February 28, 2006, we issued 300,000 shares of our restricted common stock under our 2005 Incentive Stock Plan to certain officers and employees. The shares are subject to annual vesting over a three-year period.

	2006		2007		2008
Principal payments	$	—	$	10,000,000	$	10,000,000
Interest	$	1,101,370	$	1,406,507		405,822

Total	$	1,101,370	$	11,406,507	$	10,405,822

8As discussed in Note 6 — Subsequent Events, effective as of June 30, 2006 the Company issued registered shares of its common stock in lieu of payment in cash of the accrued interest payable on the January 5, 2006 secured convertible debentures through that date.

~~NOTE~~As discussed below under Note 6, —on ~~SUBSEQUENT~~June ~~EVENTS~~21, 2006, we sold secured convertible debentures and warrants for gross proceeds of $10,000,000. This transaction will be reviewed for the application of EITF 00-19 and FAS 133 in regards to accounting for embedded derivatives. However, we expect that the conversion feature of the June 21, 2006 secured convertible debentures and the associated warrants will be accounted for as embedded derivative instruments pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Under the provisions of EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” the accounting treatment of these derivative financial instruments will likely require that the Company record the derivatives at their fair values as of the inception date of the note agreements and at fair value as of each subsequent balance sheet date as a

On April 4, 2006, our Maverick Woodruff County, LLC subsidiary borrowed $2.5 million from BAMCO, LLC, one of our Fayetteville Shale project partners. The loan was used for the acquisition of additional leasehold acreage in our Fayetteville Shale project, and is secured by a first lien position on such acreage. The loan is due to mature on the earlier of (i) July 4, 2006, or (ii) out of the proceeds of any capital contributed to the project by our Fayetteville Shale partners, together with a $100,000 loan origination fee and accrued interest at the rate of 8~~% per annum. To date, $1.0 million of this loan has been repaid.~~

Onliability. ~~April~~Any 3,change ~~2006,~~in wefair ~~agreed~~value towill ~~issue~~be uprecorded toas ~~115~~non-operating,~~000~~ ~~shares~~non-cash ofincome ~~our~~or ~~common~~expense ~~stock~~at toeach ~~our investor relations firm pursuant to an agreement dated August 2005, under which approximately 60,000 of the shares have been earned through February 28, 2006, and the~~ balance tosheet ~~be earned through the end of fiscal 2006~~date.

InNOTE ~~consideration~~5 ~~for~~— ~~certain~~STOCKHOLDERS’ financial advisory services, during April 2006 we agreed to issue warrants to purchase 200,000 shares of our common stock at an exercise price of $2.00 per share to an investment banker. These warrants will not be issued, however, until we have increased our authorized capital stock.EQUITY

~~Item~~During 2August and September 2005, we granted stock options to three non-employee directors. ~~Management~~Each of the options granted entitle the director to purchase 80,000 shares of common stock, provided that he remains on the Company’s ~~Discussion~~Board of Directors through the vesting period. One-half (50%) of these options vest during August and ~~Analysis~~September 2006 and the remaining 50% vest during August and September 2007. These options have an exercise price ranging from $1.02 to $1.22 per share and expire during 2015. The average fair value of ~~Financial~~each ~~Condition~~option granted was $0.96. All options were granted with an exercise price equal to the market price on the trading day prior to the date of grant. The fair value was estimated on the date of grant using the Black-Scholes option-pricing model with an expected average volatility of 40% and ~~Results~~a risk-free interest rate of ~~Operations~~4%.

~~Cautionary~~On ~~statement~~November 28, 2005, we sold 200,000 investment units at a price of $10 per unit to Millenium Global Investments, Ltd., with each unit consisting of ten (10) shares of our common stock and one (1) thirty month warrant to purchase four (4) shares of our common stock at an exercise price of $1.70 per share. The Millenium warrants were restructured following our January 5, 2006 issuance of secured convertible debentures and associated warrants. As restructured, Millenium surrendered warrants to purchase 800,000 shares of our common stock at an exercise price of $1.70 per share, in exchange for ~~forward-looking~~warrants ~~statements~~to purchase 2,000,000 shares of our common stock; of which 1,000,000 were issued at an exercise price of $.9376 per share; 500,000 at an exercise price of $1.50 per share; and 500,000 at an exercise price of $2.00 per share.

~~This~~On ~~report~~December ~~includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933~~2, ~~as amended~~2005, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position or results, levels of activity, events, trends or plans, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “project,” “estimate,” “anticipate,” or “believe” or the negative thereof or any variation thereon or similar terminology. Although we ~~believe~~issued ~~that the expectations reflected in such forward-looking statements are reasonable~~250,000 ~~there~~shares ~~is no assurance that such expectations will be accomplished. In connection with our overall business objectives, we expect to be able to complete the development~~ of our ~~existing~~common ~~projects~~stock ~~and implement an aggressive growth strategy. This assumes however, among other things, that we will be able~~ to ~~develop~~Reichmann ~~oil~~Petroleum ~~and~~as ~~gas~~part reserves that can be extracted at commercial rates from our current projects, locate and acquire oil and gas properties on terms and conditions satisfactory to us and outsource project management services on terms satisfactory to us. Our ability to accomplish these objectives, however, depends upon among other things, our ability to secure sufficient funding for these purposes, also on terms and conditions satisfactory to us. As to our general business operations, important factors that could cause actual results to differ materially from our expectations include, but are not limited to, our assumptions about energy and mineral markets, production levels, reserve levels, operating results, competitive conditions, technology, the availability of ~~capital resources, capital expenditure obligations,~~ the ~~supply~~purchase ~~and~~price ~~demand~~ for ~~oil,~~an ~~natural~~additional ~~gas,~~interest minerals and other products or services, the price of oil, natural gas, minerals and other products or services, currency exchange rates, the weather, inflation, the availability of goods and services, successful exploration, drilling and extraction, drilling and extraction risks, future processing volumes and pipeline throughput, general economic conditions, either nationally or internationally or in ~~the jurisdictions in which we are doing business~~RBE, ~~legislative or regulatory changes~~LLC, ~~including~~as ~~changes~~more infully ~~environmental~~described ~~regulation, environmental risks and liability under federal, state and foreign environmental laws and regulations, the securities or capital markets and other factors disclosed~~ in ~~our~~Note Annual Report on Form 10-KSB for the year ended August 31, 2005, under the caption “Risk Factors”, the risk factors identified in Item 1A of Part II of this Quarterly Report on Form 10-Q, as well as Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarter ended November 30, 2005, and other filings with the Securities and Exchange Commission3. ~~All subsequent written and~~

9During February 2006, we granted stock options to a non-employee director entitling him to purchase 80,000 shares of common stock, provided that he remains on the Company’s Board of Directors through the vesting period. One-half (50%) of these options vests during February 2007 and the remaining 50% vests during February 2008. These options have an exercise price of $1.39 per share and expire during 2016. The average fair value of the option granted was $1.39. The options were granted with an exercise price equal to the market price on the trading day prior to the date of grant. The fair value was estimated on the date of grant using the Black-Scholes option-pricing model with an expected average volatility of 54% and a risk-free interest rate of 4%.

~~oral~~During ~~forward-looking~~the ~~statements~~quarter ~~attributable~~ended toMay us31, or2006, ~~persons~~the ~~acting~~Company onissued no shares of restricted common stock under our ~~behalf~~2005 Incentive Stock Plan. During the nine months ended May 31, ~~are~~2006, ~~expressly~~the ~~qualified~~Company inissued ~~their~~an ~~entirety~~aggregate byof ~~these~~300,000 ~~cautionary~~shares ~~statements~~of restricted common stock under our 2005 Incentive Stock Plan to certain officers and employees. WeThe ~~assume~~shares noare ~~duty~~subject to ~~update~~annual orvesting ~~revise~~over ~~our~~a ~~forward~~three-~~looking~~year ~~statement~~period.

~~Overview~~During March and April, 2006, we issued five-year warrants to purchase an aggregate of 1,493,174 shares of our common stock at an exercise price of $.9376 to the investment bankers who assisted in the placement of the January 5, 2006 sale of convertible debentures and associated warrants. The fair value of these warrants was estimated at $1,449,660 accounted for as prepaid loan fees, being amortized over the remainder of the term of the secured convertible debentures. The fair value was estimated at grant date using the Black-Scholes option pricing model with an expected average volatility of 84.18% and a risk-free interest rate ranging from 4.71% to 4.85%. During the quarter ended May 31, 2006 we recognized amortization costs of $111,459 on the original fair value of these warrants.

WeOn ~~are~~April ~~an early stage independent energy company engaged in oil and gas exploration~~3, ~~exploitation~~2006, ~~development and production. We currently participate in these activities through the interests~~ we ~~hold~~agreed into ~~oil~~issue ~~and~~up ~~gas~~to ~~exploration and development projects in Arkansas~~115,000 ~~Texas~~shares ~~and~~of ~~Colorado.~~our ~~Our~~common ~~strategy~~stock is to ~~continue the development of~~ our ~~current~~investor ~~exploration~~relations ~~projects~~firm ~~and~~pursuant to ~~expand~~an ~~our~~agreement ~~operations~~dated byAugust ~~acquiring~~2005, ~~additional~~under ~~exploration~~which ~~opportunities~~approximately ~~and properties with existing production~~104,583 ~~taking advantage~~ of the ~~industry~~shares ~~experience~~have ofbeen ~~our~~earned ~~management~~through ~~team~~May 31, 2006, and ~~modern~~the ~~techniques~~balance ~~such~~to asbe ~~horizontal~~earned ~~drilling~~through ~~and~~the 3Dend ~~seismic~~of ~~analysis.~~fiscal 2006.

Our operations are presently focused on identifying and evaluating prospective oil and gas properties and contributing capital to projects that we believe have the potential to produce oil or gas in commercial quantities. Over time, as we complete the exploration and development stage of a particular project, our primary focus for that project will gradually shift to drilling and production.9

WeIn ~~participate~~consideration infor ~~projects~~certain ~~directly,~~financial asadvisory ~~well~~services, asduring ~~indirectly~~April as2006 ~~equity~~we ~~participants~~agreed into ~~subsidiaries~~issue ~~and~~warrants ~~investees.~~to ~~Until~~purchase ~~recently~~200,000 weshares ~~have~~of ~~not~~our ~~been~~common ~~involved~~stock asat ~~the~~an ~~operator~~exercise price of ~~the projects in which we participate~~$2.00 ~~Instead,~~per weshare ~~have~~to ~~relied~~an oninvestment ~~others~~banker. ~~for~~These ~~drilling,~~warrants ~~delivering~~will ~~any~~not ~~gas~~be ~~or oil reserves we discover~~issued, ~~and negotiating all sales contracts. Recently,~~ however, until we have ~~become~~amended ~~the operator of two of~~ our ~~existing~~Articles ~~projects, and we expect to act as the operator~~ of ~~certain~~Incorporation ~~of the projects in which we participate in the future. Operatorship will be a key component of our strategy~~ to increase our ~~reserves~~authorized ~~and~~capital ~~production~~stock.

WeNOTE ~~seek~~6 to— ~~create~~SUBSEQUENT ~~shareholder~~EVENTS value by building oil and gas reserves, production revenues and operating cash flow. We believe that building oil and gas reserves and production, on a cost-effective basis, is an important indicator of performance success for an independent oil and gas company such our company. We seek to build oil and gas reserves, production, and cash flow through a balanced program of capital expenditures involving acquisition, exploitation and exploration activities. We intend to place primary emphasis on the issuance of public and private debt and equity to finance our business.

~~Our~~Effective ~~ability~~as toof ~~generate~~June ~~future~~30, ~~revenues~~2006, ~~and operating cash flow will depend on~~ the ~~successful~~Company ~~exploration~~issued 423,551 ~~exploitation~~registered ~~and/or~~shares ~~acquisition~~ of ~~oil~~its ~~and~~common ~~gas~~stock ~~producing~~as ~~properties,~~an ~~development~~interest ofpayment ~~our~~to ~~inventory~~the holders of ~~capital~~the ~~projects,~~$20 ~~the~~million ~~volume~~secured ~~and~~convertible ~~timing~~debentures ofissued ~~our~~in ~~production,~~January as2006. ~~well~~These asshares ~~commodity~~were ~~prices~~issued ~~for~~in ~~oil~~lieu ~~and~~of ~~gas.~~a ~~Such~~cash ~~pricing~~payment ~~factors~~of ~~are~~$373,973 ~~largely~~that ~~beyond~~would ~~our~~have ~~control,~~otherwise ~~and~~been ~~may~~paid ~~result~~representing ininterest ~~fluctuations~~due inthrough ~~our~~June ~~earnings~~30, 2006.

WeOn ~~believe~~June ~~significant~~21, ~~opportunities~~2006, ~~are~~we ~~available~~sold tosecured usconvertible ~~given,~~debentures ~~among~~and ~~other~~warrants ~~things~~for gross proceeds of $10,000,000. ~~the~~The ~~continued~~secured ~~strength~~convertible indebentures ~~the~~have ~~market~~an ~~price~~aggregate principal amount of ~~oil~~$10,000,000 and ~~gas~~are convertible into 10,665,529 ~~and~~shares ~~because~~of weour ~~can~~common ~~effectively~~stock, ~~compete~~based ~~with~~upon ~~large~~an ~~energy~~initial ~~companies~~conversion ~~who~~price ~~continue~~of to$0.9376 ~~focus~~per ~~their~~share, ~~attention~~which ~~and~~is ~~resources~~subject onto ~~the~~anti-dilution ~~discovery~~adjustments ~~and~~The ~~development~~warrants are exercisable for 18,664,676 shares of ~~large~~common ~~oil~~stock ~~and~~for ~~gas~~a ~~fields~~period of five years, ~~while~~at ~~divesting~~an ~~themselves~~exercise price of ~~less~~$0.9376 ~~productive~~per ~~mature~~share. ~~fields~~The exercise price of the warrants is subject to anti-dilution adjustments. ~~Given~~We ~~these~~agreed ~~conditions,~~to register the ~~significant~~resale ~~experience~~of the shares of ~~our~~common ~~management~~stock ~~team~~issuable ~~and~~upon ~~our~~conversion ~~efficient~~of ~~operating~~the ~~model,~~secured weconvertible ~~believe~~debentures ~~that~~and weexercise ~~have~~of the ~~opportunity,~~warrants. asThe anregistration ~~early~~right ~~stage~~agreement ~~independent~~contains ~~energy~~a ~~company,~~liquidated todamages ~~successfully~~provision ~~compete~~that inhas ~~our~~been ~~chosen~~determined ~~market~~to be uneconomic.

~~Projects~~This transaction will be reviewed for the application of EITF 00-19 and FAS 133 in regards to accounting for embedded derivatives. However, inasmuch as the June 21, 2006 transaction contained many of the same features as the January 5, 2006 transaction, we expect that the conversion feature of the June 21, 2006 secured convertible debentures and the associated warrants will be accounted for as embedded derivative instruments pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Under the provisions of EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, the accounting treatment of these derivative financial instruments could require that the Company record the derivatives at their fair values as of the inception date of the debentures and at fair value as of each subsequent balance sheet date as a liability. Any change in fair value will be recorded as non-operating, non-cash income or expense at each balance sheet date.

~~Fayetteville~~As ~~Shale~~a result of the issuance of the warrants in connection with the sale of these secured convertible debentures on June 21, 2006 and the anti-dilution adjustment provisions of the warrants issued in connection with the sale of secured convertible debentures on January 5, 2006, the exercise price of approximately 5.3 million of the warrants issued on January 5, 2006 was reduced from $2.00 to $0.9376, the exercise price of approximately 5.3 million of the warrants issued on January 5, 2006 was reduced from $1.50 to $0.9376, and an approximately 9.3 million additional shares of common stock became issuable upon exercise of the warrants issued on January 5, 2006.

InDuring ~~September~~June ~~2005~~2006, ~~through~~we ~~our~~agreed ~~wholly-owned~~to ~~subsidiary,~~issue ~~Maverick~~1.2 ~~Woodruff~~million ~~County,~~shares ~~LLC,~~of weour ~~initiated~~common ~~efforts~~stock to ~~develop~~a ~~oil~~third ~~and~~party ~~gas~~for ~~properties~~advisory ~~located~~services ~~within~~provided ~~the~~in ~~Fayetteville~~connection ~~Shale~~with ~~play~~the inacquisition ~~Arkansas~~of ~~and~~leasehold ~~commenced~~acreage ~~actively~~by ~~acquiring~~our ~~acreage~~subsidiary in ~~Northeastern~~Woodruff and surrounding counties in Arkansas., ~~Pursuant~~subject to certain conditions, including a ~~joint~~pending amendment to our Articles of Incorporation to increase the number of shares of common stock authorized and available for issuance.

10Pursuant to an Information Statement dated July 17, 2006, on August 7, 2006, we plan to amend our Articles of Incorporation to increase the number of authorized shares of our common stock from 200 million shares to 260 million shares. The action was approved pursuant to written consent by the holders of a majority of our shares (approximately 51.9 million shares). No meeting was held and no proxies were solicited.

~~operating~~During ~~agreement~~June ~~with~~2006, ~~our~~we ~~two~~agreed ~~project~~to ~~partners~~grant options to purchase 500,000 weshares ~~are~~of ~~the~~our ~~operator~~common stock and 100,000 shares of restricted common stock, ~~and~~each ~~have~~under aour ~~45%~~2005 ~~working~~Incentive ~~interest~~Stock inPlan, ~~the~~to ~~project.~~a new

We have set a target for Maverick Woodruff County, LLC to acquire 150,000 net mineral acres (67,500 net acres to Maverick). As of the date of this report, we have fully executed leases on approximately 100,000 acres and have another 57,000 acres under contract pending title work for a total of 157,000 acres committed to date. 10

Weemployee. ~~anticipate~~The ~~the~~options ~~total~~will ~~cost~~have toan ~~Maverick~~exercise toprice ~~secure the target level~~ of ~~leased acreage to be approximately~~ $~~18 million~~1.04 Weper ~~commenced~~share, ~~our~~with ~~initial~~annual ~~drilling~~vesting ~~operations~~to ~~during~~occur ~~the~~over ~~first~~a ~~quarter~~period ~~calendar~~ of ~~2006~~five years, ~~and~~subject ~~we plan~~ to ~~drill~~continued anemployment ~~initial~~with ~~series~~the ofCompany ~~six~~(and subject to ~~eight~~acceleration ~~test~~under ~~wells~~certain conditions.) ~~Following~~The ~~full~~shares ~~interpretation~~ of ~~data~~restricted ~~gathered~~stock ~~during~~will ~~this~~vest ~~operation,~~upon ~~we expect to initiate a full development program by mid-year 2006~~grant.

~~Barnett~~Item ~~Shale~~2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

WeCautionary ~~hold~~statement ~~a 63% membership interest in RBE LLC, a Delaware limited liability company (“RBE”), that was formed to explore~~ for ~~oil~~forward-looking and gas in the Barnett Shale area of North Texas. We acquired a 50% interest in RBE during August 2004 from Ferrell RBE Holdings, LLC (“Ferrell RBE”) for $2 million, of which $1 million was paid to Ferrell RBE and the balance represented our assumption of Ferrell RBE’s obligation to make a $1 million capital contribution to RBE.statements

~~RBE~~This ~~owns~~report aincludes ~~working~~“forward-looking ~~interest~~statements” within the meaning of ~~50%~~Section in27A ~~approximately~~of 10the Securities Act of 1933,~~400~~ ~~leasehold~~as ~~acres~~amended, inand ~~Wise~~Section ~~County~~21E of the Securities Exchange Act of 1934, ~~Texas~~as ~~operated~~amended. All statements other than statements of historical facts included or incorporated by ~~Devon~~reference ~~Energy~~in this report, including, without limitation, statements regarding our future financial position or results, levels of activity, events, trends or plans, are forward-looking statements. ItForward-looking ~~also~~statements ~~owns~~generally acan ~~working~~be ~~interest~~identified by the use of ~~100%~~forward-looking interminology ~~approximately~~such 1as “may,~~942~~” ~~leasehold~~“will,” ~~acres~~“expect,” in“intend,” ~~Wise~~“project,” ~~County~~“estimate,” ~~Texas~~“anticipate,” or “believe” or the negative thereof or any variation thereon or similar terminology. Although we believe that the ~~until~~expectations ~~recently~~reflected ~~was~~in ~~operated~~such byforward-looking ~~Reichmann~~statements ~~Petroleum~~are ~~and~~reasonable, there is ~~now~~no ~~operated~~assurance bythat ussuch expectations will be accomplished. ~~The~~In ~~interests~~connection ~~acquired~~with ~~are~~our ~~subject~~overall tobusiness aobjectives, ~~25%~~we ~~royalty.~~expect ~~Drilling~~to isbe ~~complete~~able onto complete the ~~initial~~development ~~test~~of ~~well~~our ~~within~~existing ~~the~~projects 1and implement an aggressive growth strategy. This assumes however,~~942~~ ~~acre~~among ~~tract~~other things, ~~the~~that ~~Pauline~~we ~~Cook~~will #1be able to develop oil and gas reserves that can be extracted at commercial rates from our current projects, locate and ~~this~~acquire ~~well~~oil isand ~~flowing~~gas properties on terms and conditions satisfactory to ~~sales~~us and outsource project management services on terms satisfactory to us. ~~RBE~~Our ~~must~~ability ~~drill~~to ~~another~~accomplish ~~well~~these byobjectives, ~~July~~however, ~~2006~~depends upon among other things, our ability to ~~retain~~secure ~~its~~sufficient ~~leasehold~~funding ~~rights~~for these purposes, also on terms and conditions satisfactory to us. As to our general business operations, important factors that could cause actual results to differ materially from our expectations include, but are not limited to, our assumptions about energy and mineral markets, production levels, reserve levels, operating results, competitive conditions, technology, the 1availability of capital resources,~~942~~ ~~acre~~capital ~~tract.~~expenditure ~~The~~obligations, ~~Portwood~~the 4Hsupply ~~well~~and ~~was~~demand ~~recently~~for ~~drilled~~oil, onnatural gas, minerals and other products or services, the ~~Devon~~price ~~operated~~of ~~portion~~oil, natural gas, minerals and other products or services, currency exchange rates, the weather, inflation, the availability of goods and services, successful exploration, drilling and extraction, drilling and extraction risks, future processing volumes and pipeline throughput, general economic conditions, either nationally or internationally or in the ~~project~~jurisdictions in which we are doing business, legislative or regulatory changes, including changes in environmental regulation, environmental risks and ~~started~~liability ~~flowing~~under tofederal, ~~sales~~state and foreign environmental laws and regulations, the securities or capital markets and other factors disclosed in ~~December~~our Annual Report on Form 10-KSB for the year ended August 31, 2005., ~~This~~under ~~allowed~~the ~~RBE~~caption to“Risk ~~retain~~Factors”, ~~its~~the ~~leasehold~~risk ~~rights~~factors identified in Item 1A of Part II of this Quarterly Report on Form 10-Q, as well as Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarters ended November 30, 2005 and February 28, 2006 and other filings with ~~respect~~the Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to ~~the~~us, 10or persons acting on our behalf,~~400~~ ~~acres~~are expressly qualified in their entirety by these cautionary statements. We assume no duty to update or revise our forward-looking statements.

From inception of the project through October 19, 2005, Reichmann Petroleum Corp served as the managing partner of RBE and as the operator of the 1,942 acre portion of the project. Dyke Ferrell, the principal shareholder of Reichmann Petroleum, owned an approximate 13% interest in RBE. During October 2005, we acquired the 13% interest in RBE from Mr. Ferrell in consideration for the purchase price of $1,750,000 and 250,000 shares of our common stock. In connection with this purchase, we became the managing member of RBE and operator of the 1,942 acre portion of the project. Overview

~~The~~We ~~RBE~~are ~~operating~~an ~~agreement~~early ~~provides~~stage ~~that~~independent ~~cash~~energy ~~distributions~~company byengaged ~~RBE~~in ~~are~~oil toand begas ~~made~~exploration, ~~first~~exploitation, todevelopment usand ~~until~~production. We currently participate in these activities through the ~~aggregate~~interests ~~distributions~~we ~~equal~~hold $1in oil and gas exploration and development projects in Arkansas,~~000,000~~ Texas and ~~then~~Colorado. Our strategy is to continue the ~~members~~development inof ~~proportion~~our current exploration projects and to ~~their~~expand ~~ownership~~our ~~interests.~~operations by acquiring additional exploration opportunities and properties with existing production, taking advantage of the industry experience of our management team and modern techniques such as horizontal drilling and 3D seismic analysis.

~~Whitewater~~Our operations are presently focused on identifying and evaluating prospective oil and gas properties and contributing capital to projects that we believe have the potential to produce oil or gas in

On February 1, 2005, Maverick Whitewater, LLC, a subsidiary that we formed to explore for oil and gas in Colorado, paid $5,600,000 to South Oil, Inc. (including $2,000,000 of prepaid drilling costs) to acquire a 30% interest in approximately 42,197.52 gross and 40,463.84 net mineral acres in Mesa and Delta Counties in Colorado. The conveyance also included two shut-in gas wells and a pipeline tap. The interest was acquired subject to a 12.5% carried working interest, proportionately reduced in favor of prior parties in interest. To date, eleven exploration/ delineation wells have been drilled. In March 2006, we assumed operatorship of this project from South Oil and have begun to assess test results and formulate a field development plan, including plans to connect to the Trans Colorado pipeline. 11

~~Maverick~~commercial ~~Whitewater~~quantities. ~~has~~Over ~~two~~time, ~~separate~~as ~~classes~~we ofcomplete ~~ownership~~the ~~interest,~~exploration ~~Class A~~ and ~~Class~~development B.stage ~~We acquired all~~ of ~~the~~a ~~Class~~particular Aproject, ~~interests.~~our ~~South~~primary ~~Oil,~~focus ~~Inc.~~for ~~acquired~~that ~~all~~project ofwill ~~the~~gradually ~~Class~~to Bshift ~~interests.~~to Wedrilling ~~serve~~and as production.

11We participate in projects directly, as well as indirectly as equity participants in subsidiaries and investees. Until recently, we have not been involved as the operator of the projects in which we participate. Instead, we have relied on others for drilling, delivering any gas or oil reserves we discover, and negotiating all sales contracts. Recently, however, we have become the operator of two of our existing projects, and we expect to act as the operator of certain of the projects in which we participate in the future. Operatorship will be a key component of our strategy to increase our reserves and production.

~~the~~We ~~manager~~seek ofto ~~Maverick~~create ~~Whitewater~~shareholder ~~and~~value soby ~~are~~building ~~responsible~~oil ~~for~~and ~~making~~gas ~~all~~reserves, ~~decisions~~production revenues and ~~taking~~operating ~~all~~cash ~~actions~~flow. ~~regarding~~We ~~Maverick~~believe ~~Whitewater’s~~that ~~business.~~building ~~The~~oil ~~operating~~and ~~agreement~~gas ~~provides~~reserves ~~that~~and ~~cash~~production, ~~distributions~~on ~~are~~a tocost-effective bebasis, ~~made~~is ~~first~~an toimportant usindicator asof ~~the~~performance ~~Class~~success Afor ~~member~~an ~~until~~independent ~~the~~oil ~~aggregate~~and ~~distributions~~gas company such our company. We seek to usbuild ~~equal~~oil ~~our~~and ~~initial~~gas reserves, production, and cash flow through a balanced program of capital ~~contribution~~expenditures involving acquisition, exploitation and ~~then~~exploration ~~85%~~activities. We intend to usplace asprimary emphasis on the ~~Class~~issuance Aof ~~member~~public and ~~15%~~private todebt ~~the~~and ~~Class~~equity Bto ~~member.~~finance our business.

~~Zapata~~Our ~~County~~ability to generate future revenues and operating cash flow will depend on the successful exploration, exploitation and/or acquisition of oil and gas producing properties, development of our inventory of capital projects, the volume and timing of our production, as well as commodity prices for oil and gas. Such pricing factors are largely beyond our control, and may result in fluctuations in our earnings.

We ~~acquired~~believe asignificant ~~19.8%~~opportunities ~~limited~~are ~~partnership~~available ~~interest~~to inus ~~PHT Resendez Partners~~given, ~~L.P.~~among onother ~~October 5~~things, ~~2004~~the incontinued ~~return~~strength ~~for~~in anthe ~~initial~~market ~~capital~~price ~~contribution~~ of ~~$1,000,000.~~oil ~~PHT~~and ~~Resendez has a 67% working leasehold interest on approximately 1~~gas,~~248~~ ~~acres located in Zapata County, Texas. This results in~~ the ~~Company~~significant ~~having~~experience aof ~~13.3%~~our ~~working~~management ~~interest~~team ~~(10.002~~and %our ~~net~~efficient ~~revenue~~operating ~~interest) in this acreage~~model. ~~The~~Given ~~initial~~these ~~test~~factors ~~well,~~we ~~known~~believe asthat ~~Resendez~~we ~~#1 has been drilled and completed and production facilities and sales pipelines~~ have ~~been installed. Gas production and sales commenced during April 2005. We also acquired a 31.25% working interest in~~ the Laopportunity, ~~Duquesa~~as ~~project~~an onearly ~~approximately~~stage ~~1,248~~independent ~~acres~~energy ~~in Zapata County~~company, ~~Texas.~~to ~~The initial well on this project has been~~ successfully ~~completed~~compete ~~and~~in ~~gas~~our ~~production~~chosen ~~and sales commenced during August 2005~~market.

~~Turner/LaEscalera~~ProjectsFayetteville Shale

OnIn ~~February~~September ~~14,~~ 2005, ~~Maverick~~through ~~Turner~~our ~~Escalera,~~wholly-owned ~~L.L.C.~~subsidiary, aMaverick ~~wholly~~Woodruff ~~owned~~County, ~~subsidiary~~LLC, ~~that~~ we ~~formed~~initiated efforts to ~~explore~~develop ~~for~~ oil and gas inproperties ~~West~~located ~~Texas.,~~within ~~paid~~the ~~$1,200,000~~Fayetteville toShale ~~South~~play ~~Oil,~~in ~~Inc.~~Arkansas toand ~~acquire~~commenced aactively ~~9.625%~~acquiring ~~interest~~acreage in ~~17,800~~Northeastern Arkansas.07 ~~option~~Pursuant ~~acres with drill-~~to~~-earn~~ ~~terms in Tom Green County, Texas, and~~ a ~~17.5%~~joint ~~interest~~operating inagreement ~~1631.25~~with ~~leasehold~~our ~~acres~~two inproject ~~Pecos County~~partners, ~~Texas.~~we Weare ~~subsequently~~the ~~acquired~~operator ~~605.5 acres in Pecos County~~of, ~~Texas,~~and ~~subject~~have to a ~~12.5~~45% ~~carried~~ working interest ~~and a 12.5% back-~~in, ~~after~~the ~~payout to prior parties in interest~~project.

~~Seven~~As ~~wells~~of the date of this report, we have ~~been~~fully ~~drilled~~executed leases on ~~the~~approximately ~~Turner~~125,000 ~~Ranch~~acres ~~portion~~(56,250 ofnet ~~the~~acres ~~project~~to inMaverick) ~~Tom~~and ~~Green~~have ~~County~~approximately ~~resulting~~another in25,000 ~~six~~acres ~~marginal~~under ~~producers~~contract ~~and~~pending ~~one~~title ~~dry~~work ~~hole~~for ~~with~~a ~~production~~total ~~rates~~of in150,000 ~~all~~acres ~~wells~~committed ~~less~~to ~~than expected~~date. OfIt is our intention to maintain our interest at the ~~six~~net ~~wells~~position ~~that~~of ~~have~~56,250 ~~been~~acres ~~tested~~and, ~~only~~if ~~one~~possible, ~~has~~bring ~~been~~in ~~deemed~~a ~~capable~~fourth ofpartner ~~producing~~to atacquire ~~commercial~~the ~~levels~~final 25,000 acres on a promoted basis. WeThis ~~have~~strategy ~~ceased~~will ~~participating~~enable inus to focus our financial resources on drilling and development activities while still maintaining a critical mass of acreage for development in the ~~Turner~~play. ~~Ranch~~The ~~portion~~total cost to Maverick to secure the target level of ~~this~~leased ~~project.~~acreage has been approximately $15 million.

~~The~~We commenced our initial drilling operations during the first quarter calendar of 2006. To date we have drilled and fracture stimulated two test wells onand have commenced drilling a third. Pending successful test results and final completion, production could commence during the Lafourth ~~Escalera~~quarter ~~portion~~of 2006. We plan to have drilled our initial series of ~~the~~six ~~project~~to ineight ~~Pecos~~test ~~County~~wells ~~were~~by ~~unsuccessful~~the end of the calendar year. ~~Accordingly~~Following full interpretation of data gathered during this operation, we ~~have~~could ~~ceased~~initiate ~~participating~~a infull development ~~activities~~program inby the Lafirst ~~Escalera portion~~ of the ~~project~~calendar year 2007.

~~Maverick Basin~~ 12

OnBarnett ~~July~~Shale 28, 2004, we acquired a 74.25% Class A membership interest in Maverick Basin Exploration, LLC, a Delaware limited liability company (“MBE”). MBE is an oil and gas exploration and production company that entered into an exploration and joint operating agreement with Blue Star Operating, Inc., an oil and gas exploration and production company based in Dallas, Texas (“Blue Star”). This operating agreement gave MBE the right to drill four wells in order to secure a 10,240-acre parcel in the Maverick Basin in Texas, which is located adjacent to the Mexican border.

We ~~acquired~~hold ~~our~~a 63% membership interest in ~~MBE~~RBE, inLLC, ~~August~~a ~~2004~~Delaware inlimited ~~exchange~~liability ~~for~~company ~~assuming~~(“RBE”), anthat ~~obligation~~was formed to ~~make~~explore ~~capital~~for ~~contributions~~oil toand ~~MBE~~gas ~~totaling~~in ~~$4,000,000~~the Barnett Shale area of North Texas. We ~~paid~~acquired ~~these~~a ~~capital~~50% ~~contributions~~interest in ~~full~~RBE during ~~the~~August ~~second~~2004 ~~quarter~~from ofFerrell ~~our~~RBE ~~2005~~Holdings, ~~fiscal~~LLC ~~year.~~(“Ferrell InRBE”) ~~addition~~for $2 million, weof ~~incurred~~which $~~2.5~~1 million ofwas ~~drilling~~paid to Ferrell RBE and ~~other~~the ~~expenses~~balance ~~during~~represented ~~fiscal~~our ~~2005~~assumption ~~related~~of Ferrell RBE’s obligation to ~~this~~make ~~project~~a $1 million capital contribution to RBE.

~~There~~Through ~~have~~our ~~been~~interest 3in ~~wells~~RBE, ~~drilled~~we toown ~~date~~a working interest in more than 4,000 net leasehold acres in Wise County, Texas. ~~These~~A ~~wells~~portion ~~have~~of ~~not~~that ~~tested~~acreage atis ~~commercial~~operated ~~rates~~by Devon Energy and a portion is operated by us that until recently was operated by Reichmann Petroleum. AsThe interests acquired are subject to a ~~result,~~25% weroyalty. ~~have~~Drilling ~~ceased~~is ~~participating~~complete inon ~~development~~the ~~activities~~initial ~~for~~test ~~this~~well ~~project~~within the acreage operated by us, the Pauline Cook #1, and inthis ~~March~~well ~~2006~~is flowing to sales. We initiated drilling on the second well, wethe ~~terminated~~Flowers 1-H, on this acreage on June 7, 2006. This well satisfies our ~~interest~~drilling incommitments required to retain leasehold rights on this tract. The Portwood 4H well was drilled on the Devon operated portion of the project and ~~surrendered~~started ~~our~~flowing ~~interest~~to sales in December 2005. This allowed RBE to ~~Blue~~retain ~~Star~~its leasehold rights with respect to the acreage on the portion of the project. A second well, the Bridges W. B. GU1, was spud in ~~consideration~~this ~~for~~acreage ~~Blue~~on ~~Star’s~~June ~~agreement~~19, to2006 ~~fulfill~~and drilling is now complete and the well ~~abandonment~~is ~~obligations~~awaiting completion. This is the first of three consecutive wells that Devon plans to drill and complete on this acreage this year.

12From inception of the project through October 19, 2005, Reichmann Petroleum Corp served as the managing partner of RBE and as the operator of the 1,942 acre portion of the project. Dyke Ferrell, the principal shareholder of Reichmann Petroleum, owned an approximate 13% interest in RBE. During October 2005, we acquired the 13% interest in RBE from Mr. Ferrell in consideration for the purchase price of $1,750,000 and 250,000 shares of our common stock. In connection with this purchase, we became the managing member of RBE and operator of the 1,942 acre portion of the project.

~~Results~~The ofRBE ~~Operations.For~~operating agreement provides that cash distributions by RBE are to be made first to us until the ~~Quarters~~aggregate ~~Ended~~distributions ~~February~~equal 28$1,000,000 ~~2006~~ and ~~February~~then ~~28,~~to ~~2005~~the members in proportion to their ownership interests.

AsIn weconnection ~~have~~with ~~remained in~~ the ~~early~~sale ~~stages~~ of ~~development,~~$10 ~~our~~million ~~revenues~~secured ~~from~~convertible ~~operations~~debentures ~~only~~and ~~recently~~warrants ~~commenced~~on ~~during~~June ~~the third quarter of fiscal 2005. We realized revenues from operations of $362~~21,~~319~~ ~~for the three month period ended February 28,~~ 2006, ~~compared~~we agreed to nouse ~~revenue earned for the comparable prior year period. Our second quarter revenue of $362,319 reflected a reduction of $448,850 from~~ our ~~first~~best ~~quarter~~efforts ~~revenue of $811,169, due~~ to, ~~among~~sell ~~other~~our ~~things,~~interests ~~declining~~in ~~gas prices and~~ the ~~expected~~Barnett ~~decline~~Shale inproject. ~~production~~See at“Liquidity ~~the Pauline Cook~~ and LaCapital ~~Duquesa wells, partially offset by the initial production from the Portwood 1-H well~~Resources”.

WeWhitewater incurred a net loss of $21,205,155 for the three month period ended February 28, 2006 compared to a net loss of $4,110,080 for the three month period ended February 28, 2005. Non-cash charges of $18,272,036 were the largest component of our second quarter 2006 losses. Our loss from operations for the three month period ended February 28, 2006 was $6,298,684, compared to a loss from operations of $4,110,080 for the comparable prior year period.

~~Expenses~~On ~~were~~February ~~$21~~1,~~608~~ 2005,~~079~~ ~~for~~Maverick ~~the~~Whitewater, ~~three~~LLC, ~~month~~a ~~period~~subsidiary ~~ended~~that ~~February~~we ~~28,~~formed ~~2006~~to explore for oil and gas in Colorado, aspaid ~~compared~~$5,600,000 to South Oil, Inc. (including $42,~~596~~000,~~295~~000 ~~for~~of ~~the~~prepaid ~~three~~drilling ~~month~~costs) ~~period~~to ~~ended~~acquire ~~February~~a 28working interest in approximately 12,000 ~~2005.~~net ~~General~~mineral acres in Mesa and ~~administrative~~Delta ~~expenses~~Counties ~~were~~in ~~$2,252,338~~Colorado. ~~for~~The ~~the~~conveyance ~~three~~also ~~month~~included ~~period~~two ~~ended~~shut-in ~~February~~gas ~~28,~~wells ~~2006,~~and asa ~~compared~~pipeline tap. The interest was acquired subject to ~~$615~~a 12.5% carried working interest,~~594~~ ~~for~~proportionately ~~the~~reduced ~~three~~in ~~month~~favor ~~period~~of ~~ended~~prior ~~February~~parties ~~28,~~in ~~2005~~interest. ~~The~~To ~~year~~date, toeleven ~~year~~exploration/ ~~increase~~delineation inwells ~~general~~have ~~and~~been ~~administrative~~drilled. ~~expenses~~In isMarch ~~reflective~~2006, we assumed operatorship of ~~establishing~~this ~~the~~project ~~proper~~from ~~level~~South ofOil ~~professional~~and ~~staff~~have begun to ~~run~~assess ~~the~~test ~~Company~~results and ~~professional~~formulate ~~fees~~a ~~associated~~field ~~with~~development aplan, ~~high~~including ~~level~~plans ofto ~~financing~~connect ~~and~~to ~~regulatory~~the ~~reporting~~Trans ~~activity~~Colorado pipeline. ~~Non-cash~~We ~~expenses~~are ofcurrently ~~$18,272,036~~in ~~for~~ the ~~three~~process ~~months~~of ~~ended~~transitioning ~~February~~this ~~28,~~operatorship ~~2006~~to ~~included~~a ~~$3,457,977~~local ~~share~~operator who ~~based~~will ~~compensation,~~buy ~~$651,664~~in ~~depletion,~~to ~~depreciation~~a ~~and~~10% ~~amortization,~~working ~~and~~interest ~~$13,559,429~~in ~~for~~this project proportionately from the ~~mark~~existing toowners. ~~market~~The successful execution of ~~the~~this ~~conversion~~strategy ~~feature~~will ofallow ~~the~~us ~~debentures~~to ~~and~~focus ~~investment~~more ~~warrants primarily~~of ~~associated~~our ~~with~~personnel ~~the~~and ~~January~~financial ~~$20,000,000~~resources ~~debenture~~on ~~financing~~the ~~and~~Fayetteville ~~$602,966~~Shale ~~interest~~project ~~expense~~while ~~recognized~~still ~~for~~maintaining ~~the~~a ~~extinguishment~~27% ofinterest ~~debt.~~in this project.

~~For~~Maverick ~~the~~Whitewater ~~Six~~has ~~Months~~two ~~Ended~~separate ~~February~~classes 28of ownership interest, ~~2006~~Class A and ~~February~~Class 28B. We acquired all of the Class A interests. South Oil, ~~2005~~Inc. acquired all of the Class B interests. We serve as the manager of Maverick Whitewater and so are responsible for making all decisions and taking all actions regarding Maverick Whitewater’s business. The operating agreement provides that cash distributions are to be made first to us as the Class A member until the aggregate distributions to us

As we have remained in the early stages of development, our revenues from operations only recently commenced during the third quarter of fiscal 2005. We realized revenues from operations of $1,173,488 for the six month periods ended February 28, 2006, compared to no revenue for the comparable prior year period.13

Weequal ~~incurred~~our ainitial ~~net~~capital ~~loss of $24~~contribution,~~059,639~~ ~~for~~and ~~the~~then ~~six~~85% ~~month period ended February 28, 2006 compared~~ to aus ~~net~~as ~~loss of $4,354,816 for~~ the ~~six~~Class ~~month~~A ~~period~~member ~~ended~~and ~~February~~15% ~~28, 2005. Non-cash charges of $20,291,647 were the largest component of our 2006 losses. Our loss from operations for the six month period ended February 28, 2006 was $9,111,147, compared~~ to ~~a loss from operations of $4,354,816 for~~ the ~~comparable~~Class ~~prior~~B ~~year period~~member.

~~Expenses~~Zapata were $25,232,636 for the six month period ended February 28, 2006 as compared to $4,850,144 for the six month period ended February 28, 2005. General and administrative expenses were $3,726,498 for the six month period ended February 28, 2006, as compared to $751,158 for the six month period ended February 28, 2005. The year to year increase in general and administrative expenses is reflective of establishing the proper level of professional staff to run the Company and professional fees associated with a high level of financing and regulatory reporting activity. Non-cash expenses of $20,291,647 for the six month period ended February 28, 2006 included $5,223,778 share based compensation, $905,474 depletion, depreciation and amortization, and $13,559,429 for the mark to market of the conversion feature of the debentures and investment warrants primarily associated with the January $20,000,000 debenture financing and $602,966 interest expense recognized for the extinguishment of debt. County

~~EITF~~We ~~00-~~acquired a 19.8% ~~and~~limited ~~FAS~~partnership ~~133~~interest ~~require~~in ~~that~~PHT ~~certain~~Resendez ~~financial~~Partners, ~~instruments~~L.P. ~~that~~on ~~meet~~October ~~certain~~5, ~~conditions~~2004 bein ~~treated~~return for an initial capital contribution of $1,000,000. PHT Resendez had a net working leasehold interest on approximately 800 net acres located in Zapata County, Texas. The initial test well, known as ~~derivatives~~Resendez ~~with~~#1 ~~embedded~~has ~~liabilities~~been drilled and ~~must~~completed beand ~~established~~production asfacilities and sales pipelines have been installed. Gas production and sales commenced during April 2005. We also acquired a ~~liability~~working oninterest in the ~~balance~~La Duquesa project on approximately 400 net acres in Zapata County, Texas. The initial well on this project has been successfully completed and gas production and sales commenced during August 2005.

13Turner/LaEscalera

~~sheet~~On ~~and~~February ~~marked~~14, to2005, ~~market~~Maverick ~~through~~Turner ~~the~~Escalera, ~~income~~L.L.C., ~~statement~~a onwholly aowned ~~regular~~subsidiary ~~basis.~~that ~~This~~we isformed ato ~~non-cash~~explore ~~accounting~~for ~~event~~oil and ~~does~~gas ~~not~~in ~~represent~~West Texas., paid $1,200,000 to South Oil, Inc. to acquire a ~~current~~working orinterest ~~future~~in ~~cash~~approximately ~~requirement~~1700 ofnet ~~the~~option ~~Company~~acres ~~and~~with asdrill-to-earn ~~such~~terms ~~has~~in noTom ~~impact~~Green onCounty, ~~liquidity~~Texas, and a 17.5% ~~This~~interest ~~convention~~in ~~will~~1631.25 ~~cause~~leasehold aacres ~~non-cash~~in ~~expense~~Pecos toCounty, beTexas. ~~realized~~We ~~during~~subsequently ~~periods~~acquired ~~when~~approximately ~~our~~200 ~~share~~net ~~price~~acres ~~rises~~in ~~and~~Pecos ~~non-cash~~County, ~~income~~Texas, subject to bea ~~recognized~~12.5% ~~when~~carried ~~our~~working ~~share~~interest ~~price~~and ~~falls~~a 12.5% ~~This~~back-in ~~accounting~~after ~~treatment~~payout ~~does~~to ~~not~~prior ~~impact~~parties ~~operating~~in ~~income~~interest.

~~Liquidity~~Seven wells have been drilled on the Turner Ranch portion of the project in Tom Green County resulting in six marginal producers and ~~Capital~~one ~~Resources~~dry hole with production rates in all wells less than expected. Of the six wells that have been tested, only one has been deemed capable of producing at commercial levels. We have ceased participating in development activities in the Turner Ranch portion of this project.

~~Net~~The ~~cash~~two ~~used~~test bywells ~~operating~~on ~~activities during~~ the ~~six~~La ~~month~~Escalera ~~period~~portion ~~ended February 28, 2006 was $7,336,326, as compared to net cash used~~ of ~~$1,672,290 during~~ the ~~six~~project ~~months~~in ~~ended~~Pecos ~~February~~County ~~28,~~were ~~2005~~unsuccessful. ~~The~~Accordingly, ~~primary~~we ~~use~~have ofceased ~~cash~~participating in ~~operating~~development activities ~~for~~in the ~~current~~La ~~period~~Escalera ~~was~~portion ~~to fund the net loss, reduce payables and prepay drilling costs. Of our prepaid drilling costs, $1,692,600 was used to secure the services~~ of ~~a dedicated drilling rig for~~ the ~~Fayetteville Shale~~ project ~~for at least 24 months~~. ~~This cost will be assigned to the wells drilled over that period.~~

~~Net~~Maverick ~~cash~~Basin used in investing activities for the six month period ended February 28, 2006 was $13,258,296, as compared to $8,944,535 used for investing activities during the six months ended February 28, 2005. For the six month period ended February 28, 2006, the majority of our net cash used for investing activities primarily consisted of acquiring leasehold interests in the Fayetteville Shale play in eastern Arkansas, with the balance used for the drilling of the Portwood 1-H well in the Barnett Shale project.

~~Net~~On ~~cash~~July ~~provided~~28, by2004, ~~financing~~we ~~activities~~acquired ~~during~~a ~~the~~74.25% ~~six~~Class ~~months~~A ~~ended~~membership ~~February~~interest ~~28,~~in ~~2006~~Maverick ~~was~~Basin ~~$21~~Exploration,~~492~~ LLC,~~390,~~ ~~compared~~a toDelaware ~~$26,737,291~~limited ofliability ~~cash~~company ~~provided~~(“MBE”). ~~for~~MBE ~~the~~is ~~six~~an ~~months~~oil ~~ended~~and ~~February~~gas ~~28,~~exploration ~~2005.~~and ~~The~~production ~~primary~~company ~~sources~~that ofentered ~~this~~into ~~funding~~an ~~came~~exploration ~~from~~and ~~the~~joint ~~issuance~~operating ofagreement ~~debt~~with ofBlue ~~$21~~Star Operating,~~154~~ Inc.,~~850~~ an oil and gas exploration and production company based in Dallas, ~~proceeds~~Texas ~~from~~(“Blue Star”). This operating agreement gave MBE the ~~issuance~~right ofto ~~common~~drill ~~stock~~four ofwells $1in order to secure a 10,~~860,000,~~240-acre ~~net~~parcel ofin ~~repayment~~the ofMaverick ~~debt~~Basin ofin $2Texas,~~011,457~~ which is located adjacent to the Mexican border.

~~Net~~We ~~working~~acquired ~~capital~~our ~~increased~~interest byin ~~$1,950,015~~MBE asin ofAugust ~~February~~2004 ~~28,~~in ~~2006~~exchange tofor aassuming ~~surplus~~an ofobligation ~~$2,879,365,~~to asmake ~~compared~~capital contributions to ~~the~~MBE ~~surplus~~totaling of $~~929~~4,~~350 as of August 31~~000, ~~2005~~000. ~~This~~We ~~increase~~paid isthese ~~attributed~~capital tocontributions ~~the~~in ~~equity~~full ~~and convertible debenture financings~~ during the second quarter ~~which~~of ~~increased~~our ~~cash~~2005 ~~and~~fiscal ~~provided~~year. ~~funds~~In toaddition, ~~settle~~we ~~the~~incurred $~~1,500,000~~2.5 ~~payable~~million toof ~~Reichmann~~drilling ~~Petroleum~~ and ~~for~~other ~~the~~expenses ~~purchase~~during offiscal an2005 ~~additional~~related ~~interest in RBE, LLC. This increase in working capital was partially offset by a $2,131,058 increase in prepaid expense and advances~~ to ~~operators.~~this project.

~~Our~~There ~~working~~have ~~capital~~been ~~position~~3 ~~was~~wells ~~affected~~drilled byto ~~the~~date. ~~following~~These ~~transactions~~wells ~~during~~have ~~the~~not ~~six-month~~tested ~~period~~at ~~ending~~commercial ~~February 28, 2006~~rates. ~~During~~As ~~October~~a ~~2005~~result, we ~~sold~~have ~~convertible~~ceased ~~debentures~~participating ~~and~~in ~~warrants~~development toactivities ~~purchase~~for ~~500,000~~this ~~shares of our common stock to Trident Growth Fund~~project, LPand ~~for~~in ~~gross~~March ~~proceeds of $2~~2006,~~000,000.~~ ~~The~~we ~~convertible~~terminated ~~debentures~~our ~~had~~interest ain ~~principal~~this ~~amount~~project ~~of $2,000,000~~ and ~~bore~~surrendered our interest atto anBlue ~~annual~~Star ~~rate~~in ofconsideration ~~12%.~~for ~~The~~Blue ~~convertible~~Star’s ~~debentures~~agreement ~~were~~to ~~repaid~~fulfill inwell ~~full~~abandonment ~~on January 6, 2006~~obligations.

The warrants have a term of five years and an exercise price of $1.00 per share The exercise price of the warrants is subject to customary anti-dilution adjustments and a “full ratchet” adjustment in the event of the issuance of common stock or common stock equivalents for a price less than the then exercise price of the warrants. By application of these anti-dilution adjustments, the exercise price of the warrants was reduced to $.9376 per share following the January 6, 2006 issuance of the $20 million secured convertible debentures and warrants referred to below.14

~~Also~~Results inof ~~October 2005, our subsidiary, Maverick Woodruff County, LLC, borrowed $1,000,000 to finance lease acquisitions in the Fayetteville Shale project~~Operations.For ~~The loan was secured by a pledge of~~ the ~~membership~~Quarters ~~interests~~Ended ofMay ~~Maverick Woodruff County~~31, ~~LLC. However, the loan automatically converted into shares of the common stock of one of our Fayetteville project participants in February~~ 2006 ~~when we acquired~~ and ~~distributed~~May ~~to this participant its prorata interest in 50~~31,~~000~~ ~~leasehold acres.~~2005

~~During~~As ~~November~~we ~~2005,~~have weremained ~~sold~~in ~~200~~the early stages of development,~~000~~ ~~investment~~our ~~units~~revenues atfrom aoperations ~~price~~only ofrecently ~~$10~~commenced ~~per~~during ~~unit~~the tothird ~~Millenium~~quarter ~~Global~~of ~~Investments,~~fiscal ~~Ltd~~2005. ~~Each~~We ~~unit~~realized ~~consisted~~revenues offrom ~~ten~~operations ~~(10)~~of ~~shares~~$665,156 offor ~~our~~the ~~common~~three ~~stock~~month ~~and~~period aended ~~thirty~~May ~~(30)~~31, ~~month~~2006, ~~warrant~~compared to ~~purchase~~$46,129 ~~four~~for ~~(4)~~the ~~shares~~comparable ofprior ~~our~~year ~~common~~period. ~~stock~~Our atthird anquarter ~~exercise~~revenue ~~price~~ of $~~1.70~~665,156 ~~per~~reflected ~~share.~~an ~~The~~increase ~~Millenium~~of ~~warrants~~$302,837 ~~were~~over ~~restructured following~~ our ~~January~~second 6,quarter ~~2006~~revenue ~~issuance~~ of ~~secured~~ $362,319.

We incurred a net loss of $2,141,913 for the three month period ended May 31, 2006 compared to a net loss of $14,789,993 for the three month period ended May, 2005. Non-cash charges of $11,843,978 were the largest component of our third quarter 2005 losses. Our loss from operations for the three month period ended May 31, 2006 was $2,088,752, compared to a loss from operations of $13,977,051 for the comparable prior year period.

~~convertible~~Total ~~debentures~~expenses ~~and~~were ~~warrants.~~$2,811,267 Asfor ~~restructured,~~the ~~Millenium~~three ~~surrendered~~month ~~warrants~~period toended ~~purchase~~May ~~800~~31,~~000~~ ~~shares~~2006, ofas ~~our~~compared ~~common~~to ~~stock~~$15,362,341 atfor anthe ~~exercise~~three ~~price~~month ofperiod ~~$1.70~~ended ~~per~~May ~~share~~31, in2005. ~~exchange~~General ~~for~~and ~~warrants~~administrative toexpenses ~~purchase~~were $2,~~000~~172,~~000~~699 ~~shares~~for ofthe ~~our~~three ~~common~~month ~~stock;~~period ofended ~~which~~May 131,~~000~~ 2006,~~000~~ ~~have~~as ancompared ~~exercise~~to ~~price~~$9,250,687 offor ~~$.9376~~the ~~per~~three ~~share;~~month ~~500~~period ended May 31,~~000~~ ~~have~~2005. anNon-cash ~~exercise~~share ~~price~~based compensation of $~~1.50~~589,488 ~~per~~and ~~share;~~$7,944,497 ~~and~~for ~~500~~the three month periods ended May 31,~~000~~ ~~have~~2006 anand ~~exercise~~2005 ~~price~~was ofa ~~$2.00~~major ~~per~~contributor ~~share~~to General and Administrative expenses.

OnFor ~~January 6, 2006, we sold for $20 million, convertible secured debentures (~~the ~~“Secured~~Nine ~~Convertible~~Months ~~Debentures”)~~Ended ~~and~~May ~~five-year warrants to purchase up to~~ 31,~~996,587~~ shares of our common stock (the “Warrants”). The Secured Convertible Debentures have an aggregate principal amount of $20 million, bear interest at 7.5% per annum, and have a maturity date on the third anniversary of their issuance, subject to the right of the holders to extend the maturity date for a period of up to three years. Interest payments are scheduled to commence on a quarterly basis during March 2006, ~~with principal payments due in twenty-four equal monthly installments commencing in January 2007. Under limited circumstances, interest~~ and ~~principal~~May payments may be made in shares of our common stock priced at an agreed upon discount to market. The Secured Convertible Debentures are convertible into shares of our common stock at an initial conversion price of approximately $0.9376 per share31, subject to full-ratchet anti-dilution adjustments which reduce the conversion price to any lower price at which the Company issues any common stock, or is obligated to issue common stock pursuant to options, warrants, or convertible securities in the future, except for the issuance of certain excluded securities. Also, under limited circumstances, the Company has the right to force the holders to convert certain partial amounts due under the Secured Convertible Debentures, upon payment of certain additional warrants. The Company’s obligations under the Secured Convertible Debentures are secured by a security interest in all of the Company’s assets. The terms of the Secured Convertible Debentures preclude the Company from incurring any other indebtedness, subject to limited carve-outs for trade payables, other forms of operating indebtedness and up to $5 million in senior debt. Of the Warrants, 21,331,059 have an initial exercise price of $0.9376 per share, 5,332,764 have an initial exercise price of $1.50 per share, and the remaining 5,332,764 have an initial exercise price of $2.00 per share. The exercise prices of the Warrants are subject to anti-dilution adjustments which reduce the exercise price to any lower price at which the Company issues any common stock, or is obligated to issue common stock pursuant to options, warrants, or convertible securities, in the future, except for the issuance of certain excluded securities. Upon adjustment of the exercise price of the Warrants, the number of shares issuable upon exercise of the Warrants will be correspondingly adjusted.2005

As ~~part~~we ofhave ~~this~~remained ~~transaction,~~in the ~~Company~~early ~~filed~~stages ~~a registration statement with the Securities and Exchange Commission for the purpose~~ of ~~registering~~development, ~~the~~our ~~resale~~revenues offrom ~~the~~operations ~~shares~~only ofrecently ~~common~~commenced ~~stock~~during ~~issuable pursuant to~~ the ~~Secured~~third ~~Convertible~~quarter ~~Debentures and exercise~~ of ~~the~~fiscal ~~Warrants~~2005. ~~The~~We ~~registration~~realized ~~statement~~revenues ~~was~~from ~~filed~~operations ~~on a timely basis (within 45 days~~ of ~~the closing). However~~$1, ~~it must be declared effective by the Commission within 120 days of the closing~~838,644 ~~and must remain effective~~ for athe ~~predetermined~~nine ~~period~~month ~~subject to certain “grace~~ periods”. Ifended ~~the~~May ~~Company~~31, ~~fails to meet the deadlines for the initial or continued effectiveness of the registration statement~~2006, itcompared ~~will be required~~ to ~~pay~~revenues ~~liquidated damages~~ of ~~two~~$46,129 ~~percent~~for of the ~~aggregate~~comparable ~~purchase~~prior ~~price~~year ~~of the Secured Convertible Debentures and Warrants on the date of such failure and on every 30th day thereafter until such failure is cured~~period.

~~From~~We ~~inception~~incurred ofa ~~our~~net ~~Barnett~~loss ~~Shale~~of ~~project through October 19~~$26, ~~2005~~201,551 ~~Reichmann~~for ~~Petroleum Corp served as~~ the ~~managing~~nine ~~partner~~month ofperiod ~~RBE~~ended ~~and~~May as31, ~~the~~2006 ~~operator~~compared ofto a ~~1,942~~net ~~acre~~loss ~~portion~~ of ~~the project. Dyke Ferrell~~$19, ~~the principal shareholder of Reichmann Petroleum~~144,810 ~~owned~~for anthe ~~approximate~~nine ~~13%~~month ~~interest~~period inended ~~RBE.~~May ~~During October 2005~~31, ~~we acquired the 13% interest in RBE from Mr~~2005. ~~Ferrell~~Non-cash incharges ~~consideration~~were ~~for~~ the ~~purchase~~largest ~~price~~component of ~~$1,750,000~~our ~~and~~losses ~~250,000~~for ~~shares~~both ~~of our common stock~~periods. OfOur ~~the~~loss ~~purchase~~from ~~price,~~operations ~~$250,000~~for ~~was~~the ~~paid~~nine ~~during~~month ~~October~~period ~~2005~~ended ~~and~~May ~~the~~31, ~~balance~~2006 ofwas $111,~~500~~199,~~000~~899, ~~was~~compared ~~paid~~to ~~in January 2006 upon completion by us of~~ a ~~financial~~loss ~~audit~~from ofoperations ~~all relevant financial and other data relating to the operation~~ of ~~RBE by Reichmann Petroleum. In connection with this purchase~~$17,113,290 wefor ~~became~~ the ~~managing~~comparable ~~member~~prior ofyear ~~RBE and operator of the 1,942 acre portion of the project~~period.

15Total Expenses were $28,043,903 for the nine month period ended May 31, 2006 as compared to $20,212,486 for the nine month period ended May 31, 2005. General and administrative expenses were $11,122,975 for the nine month period ended May 31, 2006, as compared to $10,001,847 for the nine month period ended May 31, 2005. Non-cash share based compensation expense of $5,813,266 and $8,143,247 for the nine month periods ended May 31, 2006 and 2005 respectively was a major contributor to General and Administrative expense. The year to year increase in general and administrative expenses is reflective of establishing the proper level of professional staff to run the Company and professional fees associated with a high level of financing and regulatory reporting activity. Non-cash expenses of $21,263,925 for the nine month period ended May 31, 2006 included $5,813,266 share based compensation, $1,082,580 depletion, depreciation and amortization, and $12,903,519 for the mark to market of the conversion feature of the debentures and investment warrants primarily associated with the $20,000,000 January 2006 debenture financing and $1,464,560 non-cash interest expense. Non-cash charges for the nine month period ended May 31 2005 of $16,012,169 included $8,143,247 share based compensation, $2,056,073 convertible note discount amortization, and $5,710,416 impairment.

~~Our~~EITF-00-19 ~~plan~~and ofFAS ~~operation~~133 ~~for~~require ~~the~~that ~~next~~certain ~~twelve~~financial ~~months~~instruments isthat tomeet ~~continue~~certain toconditions ~~conduct~~be ~~oil~~treated ~~and~~as ~~gas~~derivatives ~~exploration,~~with ~~development,~~embedded ~~drilling~~liabilities and ~~production~~must ~~operations~~be onestablished ~~our existing projects~~ as ~~well~~a asliability ~~any~~on ~~new projects we may identify during~~ the ~~year.~~balance Insheet ~~this regard, our capital spending plan for the next twelve months, excluding potential acquisitions,~~ and ~~after~~marked ~~application~~to ofmarket ~~the~~through ~~net proceeds from our recent sale of Secured Convertible Debentures, contemplates~~ the ~~expenditure~~income ofstatement ~~approximately~~on ~~$37~~a ~~million~~regular ~~across~~basis. ~~all~~This ofis ~~our~~a ~~various~~non-cash ~~projects,~~accounting ~~with~~event ~~the greatest concentration in the Fayetteville Shale~~ and ~~Barnett~~does ~~Shale~~not ~~projects.~~represent ~~Our capital spending plan, however, relies upon~~ a ~~number~~current ofor assumptions including: (i) our ability to secure additional financing; (ii) our shareholders’ approval of an amendment to our corporate charter to increase the number of shares of capital stock available for future ~~issuance;~~cash ~~(iii)~~requirement ~~the geology~~ of the ~~various~~Company ~~projects~~and ~~validating our expectations~~ as tosuch ~~reserve~~has ~~levels~~no ~~and~~impact ~~supporting~~on ~~the~~liquidity. ~~drilling~~This ofconvention ~~multiple~~will ~~well~~cause ~~locations;~~a ~~(iv)~~non-cash ~~the~~expense ~~commercial~~to ~~viability~~be ofrealized ~~the~~during ~~overall projects, and (v) all such other assumptions referenced in the in this report under the caption “Forward-Looking Statements.”~~

As a result of our recent financing transactions during fiscal 2005 and the first six months fiscal 2006, we have made significant progress in our development efforts, including, among other things, increasing our ownership interest in the Barnett Shale project, completing the Portwood 1H well, securing the use of a drilling rig for, and commencing our first well in, the Fayetteville Shale project, and acquiring approximately 100,000 gross acres in the Fayetteville Shale play. However, we have either spent or allocated most of the proceeds from our recent sale of the Secured Convertible Debentures, and as we expected, our current capital resources will not be sufficient to fund all development and drilling of our existing projects, or to fund the acquisition of all additional oil and gas properties, as discussed above. Furthermore, although our current capital resources, together with our expected cash flow from operations, are likely to be sufficient to maintain our operations over the course of the next twelve months (just including, for this purpose, payment of our anticipated overhead expenses), they will not be sufficient to cover the approximate $3.1 million of interest and current portion of our long-term debt due within the next twelve months. We will, therefore, continue to seek additional capital over the next 12 months to finance the development of our existing projects and to fund our future growth and exploration activities. This may take the form of either debt-based financing, or sale of equity securities. Any sale of equity securities would require an amendment to our corporate charter (to increase the number of shares of capital stock available for issuance), which, in turn, would require shareholder approval under Nevada law. In the shorter term, if we are unable to obtain additional funds when we need them or if we cannot obtain funds on terms favorable to us, we may need to delay, scale back, or eliminate plans for further development efforts. A longer term inability to secure additional funds would require us to consider sale of certain assets or otherwise incur a risk of default upon our Secured Convertible Debentures.15

~~Critical~~periods ~~Accounting~~when ~~Policies~~our share price rises and non-cash income to be recognized when our share price falls. This accounting treatment does not impact operating income.

~~Our~~Liquidity ~~financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates~~ and ~~judgments~~Capital that affect the reported amount of assets, liabilities, revenues and expenses. These estimates are based on information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary significantly from those estimates under different assumptions and conditions. Resources

~~Critical~~Net ~~accounting~~cash ~~policies~~used ~~are~~by ~~defined~~operating asactivities ~~those~~during ~~significant~~the ~~accounting~~nine ~~policies~~month ~~that~~period ~~are~~ended ~~most~~May ~~critical~~31, 2006 was $4,104,266, as compared to annet ~~understanding~~cash used of a$2,926,800 ~~company’s~~during ~~financial~~the ~~condition~~nine ~~and~~months ~~results~~ended ofMay ~~operation~~31, 2005. WeThe ~~consider~~primary anuse ~~accounting~~of ~~estimate~~cash orin ~~judgment~~operating toactivities befor ~~critical~~the ifcurrent ~~(i)~~period itwas ~~requires~~to ~~assumptions~~fund tothe benet ~~made~~loss ~~that~~and ~~were~~prepaid ~~uncertain~~drilling atcosts. ~~the~~Of ~~time~~our ~~the~~prepaid ~~estimate~~drilling ~~was~~costs, ~~made~~$1,692,600 ~~and~~was ~~(ii)~~used ~~changes~~to insecure the ~~estimate~~services orof ~~different~~a ~~estimates~~dedicated ~~that~~drilling ~~could~~rig ~~have~~for ~~been~~the ~~selected~~Fayetteville ~~could~~Shale ~~have~~project afor ~~material~~at ~~impact~~least on24 ~~our~~months. ~~results~~This ofcost ~~operations~~will orbe ~~financial~~assigned ~~condition.~~to the wells drilled over that period.

~~Our~~Net ~~entry~~cash ~~into~~used in investing activities for the ~~oil~~nine ~~and~~month ~~gas~~period ~~business~~ended ~~subjects~~May us31, 2006 was $19,286,450, as compared to ~~new~~$17,175,383 ~~accounting~~used ~~policies~~for ~~that~~investing weactivities ~~were~~during ~~not~~the ~~previously~~nine ~~subject~~months toended May 31, 2005. WeFor ~~believe~~the ~~that~~nine month period ended May 31, 2006, the ~~following~~majority ~~significant~~of ~~accounting~~our ~~policies~~net ~~will~~cash beused ~~most~~for ~~critical~~investing toactivities anprimarily ~~evaluation~~consisted of ~~our~~acquiring ~~future~~leasehold ~~financial~~interests ~~condition~~in the Fayetteville Shale play in eastern Arkansas, with the balance used in the Barnett Shale project for the drilling of the Portwood 1-H well and ~~results~~the acquisition of ~~operations~~the additional 13.4% interest in RBE, LLC from Reichman Petroleum.

16Net cash provided by financing activities during the nine months ended May 31, 2006 was $21,862,443, compared to $26,952,736 of cash provided for the nine months ended May 31, 2005. The primary sources of this funding came from the issuance of debt of $21,154,850 and proceeds from the issuance of common stock of $1,860,000, net of repayment of debt of $2,016,404.

~~Valuation~~Net ofworking ~~Derivative~~capital ~~Instruments~~decreased —by In$31,452,595 ~~accordance~~as ~~with~~of ~~the~~May ~~interpretive~~31, ~~guidance~~2006 into ~~EITF~~a ~~Issue~~deficit ~~No.~~of ~~00-19~~$30,523,245, ~~“Accounting~~as ~~for~~compared ~~Derivative Financial Instruments Indexed~~ to, ~~and~~the ~~Potentially~~surplus ~~Settled~~of in$929,350 aas ~~Company’s~~of ~~Own~~August ~~Stock”~~31, we2005. ~~valued~~This ~~the~~decrease ~~conversion~~is ~~feature~~primarily ofattributable ~~the~~to ~~debentures~~a ~~and~~$32,144,491 ~~warrants~~increase ~~we issued~~ in ~~January~~current ~~2006~~liabilities induring ~~our~~this ~~financing~~period. ~~transaction~~$27,146,137 asof athis ~~derivative~~increase ~~liability.~~is Weassociated ~~must~~with ~~make~~the ~~certain~~secured ~~periodic~~convertible ~~assumptions~~debentures and ~~estimates~~warrants toissued ~~value~~on ~~the~~January ~~derivative~~5, ~~liability~~2006. ~~Factors~~$4,166,667 ~~affecting~~of this increase is the ~~amount~~portion of ~~this~~that ~~liability~~debt ~~include~~that ~~changes~~is indue ~~our~~to ~~stock~~be ~~price,~~repaid over the ~~computed~~first ~~volatility~~six months of ~~our~~2007 ~~stock price~~ and ~~other~~$22,979,470 ~~assumptions.~~is ~~The~~the ~~change~~derivative inliability ~~value~~associated iswith ~~reflected~~the insecured ~~our~~convertible ~~statements~~debentures ofand ~~operations~~warrants. asThis non-cash ~~income~~liability oris ~~expense,~~recognized ~~and~~as ~~the~~a ~~changes~~current inliability because the ~~carrying~~debenture ~~value~~holders ~~of derivatives can~~ have athe ~~material~~option ~~impact~~to onconvert ~~our financial statements. For~~ the ~~six~~debentures ~~months~~into ~~ended~~Maverick ~~February 28,~~shares ~~2006,~~immediately weshould ~~recognized~~they achoose. ~~non-cash charge of~~ $134,~~559~~987,~~429~~230 ~~upon revaluation~~ of the ~~instruments~~increase ~~that~~is ~~are~~a ~~subject~~payable to ~~this accounting treatment. The derivative liability associated with these instruments is reflected on~~ our ~~balance~~Fayetteville ~~sheets~~partners asfor lease aassignments ~~long-term~~that ~~liability. This liability~~ will ~~remain~~be ~~until~~settled ~~the~~as ~~debentures~~we ~~are~~catch ~~converted,~~up ~~exercised,~~with orour ~~repaid~~pro-rata ~~and~~share ~~until the warrants are exercised, expire, or other events occur to cause the termination~~ of ~~the~~funding ~~derivative~~with ~~accounting,~~our ~~the~~Fayetteville ~~timing~~Shale ofProject ~~which may be outside our control~~partners.

Our ~~secured~~working ~~convertible~~capital ~~debentures~~position ~~contain~~was anaffected ~~embedded~~by ~~conversion feature, pursuant to which all or part of~~ the ~~debt~~following ~~owed~~transactions toduring the ~~holders~~nine-month ~~may~~period beending ~~converted~~May ~~into~~31, ~~shares~~2006. ofDuring ~~our~~October ~~common stock at a negotiated conversion price~~2005, ~~and the warrants~~ we ~~issued~~sold ~~to the purchasers of our secured~~ convertible debentures ~~provide~~and ~~them~~warrants ~~with the right~~ to purchase ~~our~~500,000 ~~common~~shares ~~stock at negotiated exercise prices. As a result~~ of ~~the terms of~~ our ~~agreement to register the resale of the shares of~~ common stock ~~issuable~~to ~~upon~~Trident ~~conversion~~Growth ~~or exercise of these instruments~~Fund, weLP ~~are~~for ~~required~~gross ~~under~~proceeds ~~applicable accounting rules to treat the conversion feature~~ of ~~the secured convertible debenture and the warrants as liabilities~~$2, ~~rather than as equity instruments~~000,000. ~~This~~The classification as liabilities also requires that we account for them at fair value and include changes in fair value as a component of other income (expense) for so long as the warrants and the conversion feature of the secured convertible debentures ~~remain~~had ~~classified as liabilities. Changes in fair value are based upon the market price of our common stock and are calculated using the Black Scholes method of valuation. As~~ a ~~result,~~principal asamount ~~the market price~~ of ~~our common stock increases~~$2, ~~our other expense increases~~000,000 and asbore ~~the~~interest ~~market~~at ~~price~~an ofannual ~~our~~rate ~~common~~of ~~stock decreases, our other income increases~~12%. ~~This~~The ~~accounting~~convertible ~~treatment~~debentures ~~could~~were ~~result~~repaid in ~~wide~~full ~~swings~~on ofJanuary ~~our~~6, ~~other income (expense) and net income in the future~~2006.

~~Proved~~The ~~Oil~~warrants have a term of five years and ~~Natural~~an ~~Gas~~exercise ~~Reserves~~price of $1.00 per share The exercise price of the warrants is subject to customary anti-dilution adjustments and a “full ratchet” adjustment in the event of the issuance of common stock or common stock equivalents for a price less than the then exercise price of the warrants. By application of these anti-dilution adjustments, the exercise price of the warrants was reduced to $.9376 per share following the January 6, 2006 issuance of the $20 million secured convertible debentures and warrants referred to below.

~~Proved~~Also ~~reserves~~in ~~are~~October ~~defined~~2005, byour ~~the~~subsidiary, ~~SEC~~Maverick asWoodruff ~~the~~County, ~~estimated~~LLC, ~~quantities~~borrowed ~~of crude oil~~$1, ~~condensate~~000,000 ~~natural~~to ~~gas~~finance ~~and~~lease ~~natural~~acquisitions ~~gas~~in ~~liquids~~the ~~that~~Fayetteville ~~geological~~Shale ~~and~~project. ~~engineering~~The ~~data~~loan ~~demonstrate~~was ~~with~~secured ~~reasonable~~by ~~certainty~~a ~~are~~pledge ~~recoverable~~of inthe ~~future~~membership ~~years~~interests ~~from~~of ~~known~~Maverick ~~reservoirs~~Woodruff ~~under~~County, ~~existing~~LLC. ~~economic~~However, ~~and~~the ~~operating~~loan ~~conditions.~~automatically ~~Prices~~converted ~~include~~into ~~consideration~~shares of ~~changes~~the incommon ~~existing~~stock ~~prices~~of ~~provided~~one ~~only~~of byour ~~contractual~~Fayetteville ~~arrangements,~~project ~~but~~participants ~~not~~in onFebruary ~~escalations~~2006 ~~based~~when ~~upon~~we ~~future~~acquired ~~conditions.~~and ~~Prices~~distributed doto ~~not~~this ~~include~~participant ~~the~~its ~~effect~~pro ofrata ~~derivative~~interest ~~instruments,~~in ~~if any~~50,000 ~~entered~~leasehold ~~into by the Company~~acres.

~~Proved~~From ~~developed~~inception ~~reserves~~of ~~are~~our ~~those~~Barnett ~~reserves~~Shale ~~expected~~project ~~to be recovered~~ through ~~existing~~October ~~equipment~~19, ~~and~~2005, ~~operating~~Reichmann ~~methods.~~Petroleum ~~Additional~~Corp ~~oil~~served ~~and~~as ~~gas expected to be obtained through~~ the ~~application~~managing partner of ~~fluid~~RBE ~~injection~~and oras ~~other improved recovery techniques for supplementing~~ the ~~natural~~operator ~~forces and mechanisms~~ of ~~primary~~a ~~recovery~~portion ~~are included as proved developed reserves only after testing~~ of athe ~~pilot~~ project. orDyke ~~after~~Ferrell, the ~~operation~~principal shareholder of anReichmann ~~installed~~Petroleum, ~~program~~owned ~~has~~an ~~confirmed~~approximate ~~through~~13% ~~production~~interest ~~response~~in ~~that increased recovery will be achieved~~RBE.

Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on non-drilled acreage, or from existing wells where a relatively major expenditure is required for re-completion. Reserves on non-drilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other non-drilled units are claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. 16

~~Volumes~~During October 2005, we acquired the 13% interest in RBE from Mr. Ferrell in consideration for the purchase price of ~~reserves~~$1,750,000 ~~are~~and ~~estimates~~250,000 ~~that~~shares of our common stock. Of the purchase price, by$250,000 ~~their~~was ~~nature~~paid during October 2005 and the balance of $1,500,000 ~~are~~was ~~subject~~paid toin ~~revision.~~January ~~The~~2006 ~~estimates~~upon ~~are~~completion ~~made~~by ~~using~~us of a financial audit of all ~~available~~relevant ~~geological~~financial and ~~reservoir~~other data asrelating ~~well~~to asthe ~~production~~operation ~~performance~~of ~~data~~RBE by Reichmann Petroleum. ~~There~~In connection with this purchase, we became the managing member of RBE and operator of the 100% owned portion of the project.

17During November 2005, we sold 200,000 investment units at a price of $10 per unit to Millenium Global Investments, Ltd. Each unit consisted of ten shares of our common stock and a thirty (30) month warrant to purchase four shares of our common stock at an exercise price of $1.70 per share. The Millenium warrants were restructured following our January 6, 2006 issuance of secured convertible debentures and warrants. As restructured, Millenium surrendered warrants to purchase 800,000 shares of our common stock at an exercise price of $1.70 per share, in exchange for warrants to purchase 2,000,000 shares of our common stock; of which 1,000,000 have an exercise price of $.9376 per share; 500,000 have an exercise price of $1.50 per share; and 500,000 have an exercise price of $2.00 per share.

~~are~~On ~~numerous~~January ~~uncertainties~~5, in2006, ~~estimating~~we ~~crude~~sold ~~oil~~for ~~and~~$20 ~~natural~~million, ~~gas~~convertible ~~reserve~~secured ~~quantities,~~debentures ~~projecting~~(the ~~future~~“January ~~production~~Secured ~~rates~~Convertible Debentures”) and ~~projecting~~five-year warrants to purchase up to 31,996,587 shares of our common stock (the ~~timing~~“January Warrants”). The January Secured Convertible Debentures have an aggregate principal amount of ~~future~~$20 ~~development~~million, ~~expenditures~~bear interest at 7.5% ~~Oil~~per annum, and ~~gas~~have ~~reserve~~a ~~engineering~~maturity ~~must~~date beon ~~recognized~~the asthird aanniversary ~~subjective~~of ~~process~~their issuance, subject to the right of ~~estimating~~the ~~underground~~holders ~~accumulations~~to extend the maturity date for a period of ~~oil~~up to three years. Interest payments commenced on a quarterly basis during June 2006, with principal payments due in twenty-four equal monthly installments commencing in January 2007. Under limited circumstances, interest and ~~gas~~principal ~~that~~payments ~~cannot~~may be ~~measured~~made in shares of our common stock priced at an ~~exact~~agreed ~~way~~upon ~~and~~discount ~~estimates~~to market. The January Secured Convertible Debentures are convertible into shares of ~~engineers~~our ~~that~~common westock ~~use~~at ~~may~~an ~~differ~~initial ~~from~~conversion ~~those~~price of ~~other~~approximately ~~engineers~~$0.9376 ~~The~~per ~~accuracy~~share, ofsubject to full-ratchet anti-dilution adjustments which reduce the conversion price to any ~~reserve~~lower ~~estimate~~price at which the Company issues any common stock, or is obligated to issue common stock pursuant to options, warrants, or convertible securities in the future, except for the issuance of certain excluded securities. Also, under limited circumstances, the Company has the right to force the holders to convert certain partial amounts due under the January Secured Convertible Debentures, upon payment of certain additional warrants. The Company’s obligations under the January Secured Convertible Debentures are secured by a ~~function~~security interest in all of the ~~quantity~~Company’s assets. The terms of ~~available~~the ~~data~~January ~~and~~Secured Convertible Debentures preclude the Company from incurring any other indebtedness, subject to limited carve-outs for trade payables, other forms of ~~engineering~~operating indebtedness and ~~geological~~up ~~interpretation~~to ~~and~~$5 ~~judgment~~million in senior debt. ~~Accordingly~~Of the January Warrants, ~~future~~21,331,059 ~~estimates~~had an initial exercise price of $0.9376 per share, 5,332,764 had an initial exercise price of $1.50 per share, and the remaining 5,332,764 had an initial exercise price of $2.00 per share. The exercise prices of the January Warrants are subject to ~~change~~anti-dilution asadjustments which reduce the exercise price to any lower price at which the Company issues any common stock, or is obligated to issue common stock pursuant to options, warrants, or convertible securities, in the future, except for the issuance of certain excluded securities. Upon adjustment of the exercise price of the January Warrants, the number of shares issuable upon exercise of the January Warrants will be correspondingly adjusted. As a result of our issuance of warrants in connection with our sale of $10 million of secured convertible debentures on June 21, 2006 described below and the anti-dilution adjustment provisions of the January Warrants issued on January 5, 2006, the exercise price of approximately 5.3 million of the January Warrants was reduced from $2.00 to $0.9376, the exercise price of approximately 5.3 million of the warrants issued on January 5, 2006 was reduced from $1.50 to $0.9376, and an approximately 9.3 million additional ~~information~~shares ~~becomes~~of ~~available~~common stock became issuable upon exercise of the January Warrants.

~~Successful~~As ~~Efforts~~part ~~Accounting~~of this transaction, we secured effectiveness of a registration statement filed with the Securities and Exchange Commission for the purpose of registering the resale of the shares of common stock issuable pursuant to the January Secured Convertible Debentures and exercise of the January Warrants. The registration statement must remain effective for a predetermined period

The Company utilizes the successful efforts method to account for our crude oil and natural gas operations. Under this method of accounting, all costs associated with oil and gas lease acquisition costs, successful exploratory wells and all development wells are capitalized and amortized on a unit-of-production basis over the remaining life of proved developed reserves and proved reserves on a field basis. Unproved leasehold costs are capitalized pending the results of exploration efforts. Exploration costs, including geological and geophysical expenses, exploratory dry holes and delay rentals, are charge to expense when incurred. 17

~~Impairment~~subject to certain “grace periods”. If we fail to meet the deadlines for the continued effectiveness of ~~Properties~~the registration statement, we will be required to pay liquidated damages of two percent of the aggregate purchase price of the June Secured Convertible Debentures and associated warrants on the date of such failure and on every 30th day thereafter until such failure is cured.

WeOn ~~review~~June ~~our~~21, ~~proved~~2006, ~~properties~~we atissued ~~the~~$10 ~~field~~million ~~level~~principal ~~when~~amount ~~management~~of ~~determines~~secured ~~that~~convertible ~~events~~debentures or(the ~~circumstances~~“June ~~indicate~~Secured ~~that~~Convertible ~~the~~Debentures”) ~~recorded~~and ~~carrying~~associated ~~value~~warrants ofto ~~the~~purchase ~~properties~~18,664,676 ~~may~~shares ~~not~~of beour ~~recoverable.~~common ~~Such~~stock ~~events~~(the ~~include~~“June Warrants”) in a ~~projection~~private ofplacement ~~future~~transaction ~~oil~~The ~~and~~June ~~natural~~Secured ~~gas~~Convertible ~~reserves~~Debentures ~~that~~have ~~will~~an beaggregate ~~produced~~principal ~~from~~amount aof ~~field,~~$10 ~~the~~million ~~timing~~and ofare ~~this~~convertible ~~future~~into ~~production~~10,665,529 ~~future~~shares ~~costs~~of toour ~~produce~~common ~~the~~stock ~~oil~~(at ~~and~~an ~~natural~~initial ~~gas,~~conversion ~~and~~price ~~future~~of ~~inflation levels~~$0.9376 Ifper ~~the~~share), ~~carrying~~subject ~~amount~~to ofanti-dilution anadjustments. ~~asset~~The ~~exceeds~~June ~~the~~Secured ~~sum~~Convertible ofDebentures ~~the~~have ~~undiscounted~~a ~~estimated~~maturity ~~future~~date ~~net~~on ~~cash~~the ~~flows,~~first weanniversary ~~recognize~~of ~~impairment~~their ~~expense~~issuance, ~~equal~~subject to the ~~difference~~right ~~between~~of the ~~carrying~~holders ~~value~~to ~~and~~extend the ~~fair~~date ~~value~~for of the ~~asset~~payment ~~which~~of isany ~~estimated~~installment toof beprincipal ~~the~~described ~~expected~~below. ~~present~~The ~~value~~June ofSecured ~~future~~Convertible ~~net~~Debentures ~~cash~~bear ~~flows~~interest ~~from~~at ~~proved~~the ~~reserves,~~rate ~~utilizing~~of a9.75% ~~risk-free~~per ~~rate~~annum, ofwhich ~~return.~~rate ~~The~~is ~~Company~~increased to ~~cannot~~15% ~~predict~~upon the ~~amount~~occurrence of ~~impairment~~an ~~charges~~event ~~that~~of ~~may~~default beunder ~~recorded in~~ the ~~future.~~June ~~Unproved leasehold~~Secured ~~costs~~Convertible ~~are~~Debentures. ~~reviewed~~Our ~~periodically~~obligations ~~and~~under athe ~~loss~~June isSecured ~~recognized~~Convertible toDebentures ~~the~~are ~~extent,~~secured ifby ~~any,~~a ~~that~~security ~~the~~interest ~~cost~~in all of the ~~property~~Company’s ~~has been impaired~~assets.

~~Asset~~The ~~Retirement~~principal ~~Obligations~~amount of the June Secured Convertible Debentures is to be repaid in equal monthly installments commencing on November 1, 2006 (or, if earlier, on the first day of the calendar month following the date the registration statement required by a registration rights agreement entered into in connection with the Secured Convertible Debentures and warrants (the “Registration Rights Agreement”) is declared effective) and ending on June 21, 2007, the first anniversary of the date of their issuance. Such principal payments may be paid in cash or, at the option of the Company if certain conditions are satisfied, in shares of our common stock. Any shares of common stock used to pay an installment of principal will be valued at the lower of (1) the then applicable conversion price of the June Secured Convertible Debentures and (2) 82.5% of the arithmetic average of the weighted average price of the common stock for the fifteen trading days preceding the installment payment date (but no greater than the arithmetic average of the weighted average price for the first and last three trading days of such fifteen trading day period). The number of shares of common stock which may be issued for the payment of any installment of principal may not exceed 22.5% of the aggregate dollar trading volume over the twenty trading days before the date the Company delivers notice of its election to pay an installment of principal in shares of its common stock. If we use shares of our common stock to pay an installment of principal, we may be required to deliver additional shares of common stock to pay such principal if the arithmetic average of the weighted average price for the nineteen (19) trading days following the installment payment date is less than the price used in determining the number of shares that were delivered on the installment payment date. The holders of the June Secured Convertible Debentures may elect to defer the payment of any installment of principal for a period of up to two years from the date such installment was originally due.

The ~~Company~~June isSecured ~~required~~Convertible toDebentures ~~make~~are ~~estimates~~convertible ofat the ~~future~~option ~~costs~~ of the ~~retirement~~holders ~~obligations~~into shares of ~~its~~our ~~producing~~common ~~oil~~stock ~~and~~at ~~gas~~an ~~properties.~~initial ~~This~~conversion ~~requirement~~price ~~necessitates~~of ~~that~~$0.9376 ~~the~~per ~~Company~~share, ~~make~~subject ~~estimates~~to ofanti-dilution ~~its~~adjustments. ~~property~~The ~~abandonment~~anti-dilution ~~costs~~adjustments ~~that,~~include ina ~~some~~“full ~~cases,~~ratchet” ~~will~~adjustment ~~not~~which bereduces ~~incurred~~the ~~until~~conversion aprice ~~substantial~~to ~~number~~any oflower ~~years~~price inat ~~the~~which ~~future.~~we ~~Such~~issue ~~cost~~any ~~estimates~~common ~~could~~stock, beor ~~subject~~are obligated to ~~significant~~issue ~~revisions~~common instock ~~subsequent~~pursuant ~~years due~~ to ~~changes~~options, inwarrants, ~~regulatory~~or ~~requirements,~~convertible ~~technological~~securities ~~advances~~in ~~and~~the ~~other~~future, ~~factors~~except ~~that~~for ~~may~~the beissuance ~~difficult~~of tocertain ~~predict.~~excluded securities.

~~Income~~Interest ~~Taxes~~on the June Secured Convertible Debentures commenced accruing as of June 21, 2006, however, the first payment will not be required until the first day of the month immediately following the earlier of: (i) the date on which the Registration Statement required by the Registration Rights Agreement is declared effective by the Securities and Exchange Commission; or (ii) the four month anniversary of the closing. At our option, provided certain conditions are satisfied, interest may be paid by the issuance of common stock. Any shares of common stock used to pay interest will be valued at 82.5% of the arithmetic average of the weighted average price of the common stock for the five trading days preceding the interest payment date.

The Company is subject to income and other related taxes in areas in which it operates. When recording income tax expense, certain estimates are required by management due to timing and the impact of future events on when income tax expenses and benefits are recognized by the Company. The Company will periodically evaluate its tax operating loss and other carryforwards to determine whether a gross deferred tax asset, as well as a related valuation allowance, should be recognized in its financial statements. 18

~~Item~~The 3June Secured Convertible Debentures require that we use our best efforts to sell our interest in the Barnett Shale project by December 31, 2006 for a purchase price equal to its fair market value. ~~Quantitative~~If the cash consideration to be received in any such sale is less than the amount required to retire the January Secured Convertible Debentures and ~~Qualitative~~the ~~Disclosures~~June ~~About~~Secured ~~Market~~Convertible ~~Risk~~Debentures, the consent of the holders of a majority of the outstanding principal amount of the June Secured Convertible Debentures is required. If such consent is not provided, the deadline for the sale is extended until March 31, 2007.

~~Interest~~The ~~Rate~~proceeds from the sale of the Barnett Shale project must be deposited and ~~Credit~~retained ~~Rating~~in ~~Risk~~an escrow account until such time as there are no January Secured Convertible Debentures or June Secured Debentures outstanding. AsThe holders of ~~February~~the ~~28,~~January ~~2006,~~Secured weConvertible ~~had~~Debentures ~~approximately~~and ~~$3,906,622~~June Secured Convertible Debentures have the right for a period of three months after the proceeds are deposited into escrow to require us to redeem their debentures in cash ~~and~~or ~~cash~~in ~~equivalents,~~stock ~~and~~(at ~~short~~the ~~term~~conversion ~~investments.~~price Atof ~~February~~the ~~28,~~June ~~2006,~~Secured ~~approximately~~Convertible ~~$682,631~~Debentures) ~~was~~at ~~held~~a 25% premium. We may use the proceeds in ~~our~~the ~~operating~~escrow ~~accounts~~fund to make payments on the January Secured Convertible Debentures and the June Secured Convertible Debentures. A ratable portion of the escrowed proceeds may also be ~~used~~withdrawn ~~for~~by ~~general~~us ~~corporate~~as ~~purposes~~the principal amount of the debentures are reduced. In addition, ~~and~~if the closing sale price of our common stock for thirty trading days during any forty consecutive trading day period is more than $32.00 and certain conditions are satisfied by us,~~223,991~~ ~~was~~we may withdraw an amount of the escrowed proceeds equal to ten percent of the aggregate dollar trading volume during such forty day trading period.

18If we have not sold the Barnett Shale project prior to the applicable deadline, the holders of the June Secured Convertible Debentures have the right to have one-third of the outstanding principal amount of the June Secured Convertible Debentures and the January Secured Convertible Debentures held by them redeemed, plus accrued and unpaid interest. If we have not sold the Barnett Shale project within three months after the applicable deadline, the holders of the June Secured Convertible Debentures have the right to have an additional one-third of the principal amount redeemed, plus accrued and unpaid interest. If the proceeds from the sale of the Barnett Shale project are less than the amount required to retire the January Secured Convertible Debentures and the January Secured Convertible Debentures, the holders of the June Secured Convertible Debentures have the right to require us to redeem a portion of the deficiency, which may be paid in cash or registered shares of common stock. If the proceeds from the sale of the Barnett Shale project exceed the amount required to retire the January Secured Convertible Debentures and the June Secured Convertible Debentures, we may retain any such excess for working capital purposes.

~~invested~~As inpart ~~overnight~~of ~~repurchase~~this ~~agreements~~transaction, ~~100%~~we ~~collateralized~~have ~~with~~agreed ~~AAA~~to ~~rated~~file USa ~~Government~~registration statement with the Securities. ~~Based~~and onExchange ~~sensitivity~~Commission ~~analysis~~for ~~performed~~the onpurpose of registering the ~~financial~~resale ~~instruments~~of ~~held~~the asshares of ~~February~~common ~~28,~~stock ~~2006~~issuable pursuant to the June Secured Convertible Debentures and exercise of the Warrants. The registration statement must be filed and declared effective by the Commission within certain time periods, anand ~~immediate~~must ~~10%~~remain ~~change~~effective infor ~~interest~~a ~~rates~~predetermined isperiod ~~not~~subject ~~expected~~to certain “grace periods”. If we fail to ~~have~~meet athe ~~material~~deadlines ~~effect~~for the filing or effectiveness of the registration statement, we will be required to pay liquidated damages of two percent of the aggregate purchase price of the June Secured Convertible Debentures and June Warrants on ~~our~~the ~~near~~date ~~term~~of ~~financial~~such ~~condition~~failure orand ~~results.~~on every 30th day thereafter until such failure is cured.

~~Commodity~~Effective ~~Risk.~~as ~~Our~~of ~~major~~June ~~commodity~~30, ~~price~~2006, ~~risk~~we ~~exposure~~issued is423,551 toregistered ~~the~~shares ~~prices~~of ~~received for~~ our ~~natural~~common ~~gas~~stock ~~and~~as ~~oil~~an ~~production.~~interest ~~Realized~~payment ~~commodity~~to ~~prices~~the ~~received~~holders ~~for~~of ~~our production are~~ the ~~spot~~January ~~prices~~Secured ~~applicable~~Convertible toDebentures ~~natural~~issued ~~gas~~in ~~and~~January ~~crude oil~~2006. ~~Prices~~These ~~received~~shares ~~for~~were ~~natural~~issued ~~gas~~in ~~and~~lieu ~~oil~~of ~~are~~a ~~volatile~~cash ~~and~~payment ~~unpredictable~~of ~~and are beyond our control. For the quarter ended February 28~~$373,973 ~~2006,~~that ~~a 10% fluctuation in the prices for natural gas and oil production~~ would have ~~had~~otherwise ~~less~~been ~~than~~paid anrepresenting ~~approximate~~interest ~~$0.1~~due ~~million~~through ~~impact~~June on30, ~~our revenues~~2006.

~~Item~~Our 4plan of operation for the next twelve months is to continue to conduct oil and gas exploration, development, drilling and production operations on our existing projects in Arkansas and Colorado, as well as any new projects we may identify during the year. ~~Controls~~We intend to continue drilling and ~~Procedures~~developing efforts, in our Barnett Shale project. However, as part of the sale of our June 21, 2006 Secured Convertible Debentures, we have agreed to use our best efforts to sell our Barnett Shale project. In light of the foregoing, our capital spending plan for the next twelve months, excluding

During the accounting close for the Company’s fiscal quarter ended November 30, 2005, the Company determined that its disclosure controls were not effective in that some accounting entries relating to debt and equity instruments required adjustment upon review by its independent auditors. To remedy this situation, during the quarter ended February 28, 2006, the Company increased its accounting staff, engaged an outside accounting firm as a consultant to supplement its technical resources and to provide technical support and guidance on accounting issues, and improved the internal distribution of contracts and documents within its organization. After these remedial measures were implemented, we conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based upon that evaluation, our CEO and CFO concluded, as of the end of the period covered by this quarterly report, that our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. There has been no other change in our internal controls over financial reporting identified in connection with that evaluation that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.19

19potential acquisitions, contemplates the expenditure of approximately $37 million across all of our various projects, with the greatest concentration in the Fayetteville Shale project. However, our current funding will only be sufficient to sustain operations through the fourth calendar quarter of 2006. Our ability to fund our operations and capital spending plan thereafter, depends upon a number of assumptions including: (i) our ability to secure additional financing; (ii) our ability to sell our Barnett Shale project; (iii) completion of our pending amendment to our corporate charter to increase the number of shares of capital stock available for future issuance; (iv) the geology of the various projects validating our expectations as to reserve levels and supporting the drilling of multiple well locations; (v) the commercial viability of the overall projects, and (vi) all such other assumptions referenced in the in this report under the caption “Forward-Looking Statements.”

~~PART~~The IIfunding provided by our recent financing transactions during fiscal 2005 and the first nine months of fiscal 2006, has enabled us to make significant progress in our development efforts, including, among other things, increasing our ownership interest in the Barnett Shale project, completing our first two wells in the Barnett Shale project, securing the use of a drilling rig for, and commencing our first two wells in, the Fayetteville Shale project, and acquiring approximately 125,000 gross acres in the Fayetteville Shale play. ~~OTHER~~However, ~~INFORMATION~~we have either spent or allocated most of the proceeds from our recent sale of the January Secured Convertible Debentures and the June Secured Convertible Debentures, and as we expected, our current capital resources will not be sufficient to fund all development and drilling of our existing projects, or to cover the interest and current portion of our long-term debt due within the next twelve months. We will, therefore, attempt to sell our interest in our Barnett Shale project and continue to seek additional capital over the next 12 months to finance the development of our existing projects and to fund our future growth and exploration activities. This may take the form of either debt-based financing, or sale of equity securities. Any sale of equity securities would require us to complete the pending amendment to our corporate charter (to increase the number of shares of capital stock available for issuance). In the shorter term, if we are unable to obtain additional funds when we need them or if we cannot obtain funds on terms favorable to us, we may need to delay, scale back, or eliminate plans for further development efforts. An inability to secure additional funds would require us to consider sale of certain assets or otherwise incur a risk of default upon our January Secured Convertible Debentures and June Secured Convertible Debentures.

~~Item~~Critical 1.Accounting ~~Legal~~Policies ~~Proceedings~~

~~None~~Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. These estimates are based on information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary significantly from those estimates under different assumptions and conditions.

~~Item~~Critical 1Aaccounting policies are defined as those significant accounting policies that are most critical to an understanding of a company’s financial condition and results of operation. ~~Risk~~We ~~Factors~~consider an accounting estimate or judgment to be critical if (i) it requires assumptions to be made that were uncertain at the time the estimate was made, and (ii) changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition.

~~Developing~~We ~~our~~believe ~~current~~that ~~properties~~the ~~and~~following ~~expanding~~significant ~~our~~accounting ~~operations~~policies ~~will~~are ~~require~~the ~~significant~~most ~~capital~~critical ~~expenditures~~to ~~which~~an weevaluation ~~may~~of beour ~~unable~~future tofinancial ~~fund~~condition and results of operations.

~~Our~~Valuation ~~business plan contemplates developing our current exploration properties and expanding our business by acquiring additional oil and gas properties. Our plan~~ of ~~operations~~Derivative for the next twelve months anticipates capital spending of approximately $37 million. We plan to obtain the funding we need through the debt and equity markets. The terms of our January 6, 2006 Secured Convertible Debentures, however, limit the amount of additional senior debt we may incur to $5 million, and place additional limitations on the timing and pricing of any subsequent rounds of equity financing. These limitations could impair our ability to secure the full amount of capital required by our plan of operations, absent the consent of the holders of our Secured Convertible Debentures. There is no assurance that such additional financing will be available to us or, if it is, whether we will be able to complete such financing in light of the restrictions of this recent transaction. Instruments

~~The~~In ~~exercise~~accordance orwith ~~conversion~~the ofinterpretive ~~our~~guidance ~~outstanding~~in ~~convertible~~EITF ~~securities~~Issue No. 00-19, ~~options~~“Accounting ~~and~~for ~~warrants~~Derivative ~~will~~Financial ~~result~~Instruments Indexed to, and Potentially Settled in, ~~the~~a ~~dilution~~Company’s ofOwn Stock”, we valued the ~~ownership~~conversion ~~interests~~feature of ~~our~~the ~~existing~~debentures ~~shareholders~~ and ~~may~~warrants ~~create~~we ~~downward~~issued ~~pressure~~in onJanuary ~~the~~2006 ~~trading~~in ~~price of~~ our ~~common~~financing ~~stock.~~

We may in the future issue up to 82,984,768 additional shares of our common stock upon exercise or conversion of existing outstanding convertible securities as of March 31, 2006, in accordance with the following schedule:20

	Number of Shares
• Upon exercise of options granted under our Stock Option Plan		4,130,000
• Upon exercise of Non-Plan Options		450,000
• Upon exercise of Warrants		20,670,250
• Upon conversion of the principal and interest under Secured Convertible Debentures issued on January 5, 2006(1)		24,244,757
• Upon exercise of Warrants issued in conjunction with the Secured Convertible Debentures(1)		31,996,587
• Upon exercise of Placement Agent Warrants issued in conjunction with Secured Convertible Debentures		1,493,174
TOTAL		82,984,768

transaction as a derivative liability. We must make certain periodic assumptions and estimates to value the derivative liability. Factors affecting the amount of this liability include changes in our stock price, the computed volatility of our stock price and other assumptions. The change in value is reflected in our statements of operations as non-cash income or expense, and the changes in the carrying value of derivatives can have a material impact on our financial statements. For the nine months ended May 31, 2006, we recognized a non-cash charge of $12,903,519 upon revaluation of the instruments that are subject to this accounting treatment. The derivative liability associated with these warrants is reflected on our balance sheets as a short-term liability. This liability will remain until the debentures and converted, exercised, or repaid, and until the warrants are exercised, expire, or other events occur to cause the termination of the derivative accounting, the timing of which may be outside our control.

~~(1)~~Our ~~With~~secured ~~respect~~convertible debentures contain an embedded conversion feature, pursuant to which all or part of the debt owed to the holders may be converted into shares of our ~~Secured~~common ~~Convertible~~stock ~~Debentures~~at ~~and~~a ~~associated~~negotiated ~~warrants~~conversion price, and the ~~foregoing~~warrants ~~determination~~we ~~has~~issued ~~been~~to ~~made~~the ~~irrespective~~purchasers of ~~limitations~~our ~~contained~~secured ~~within~~convertible debentures provide them with the right to purchase our common stock at negotiated exercise prices. As a result of the terms of our agreement to register the ~~Secured~~resale ~~Convertible~~of ~~Debentures~~the ~~and~~shares ~~associated~~of ~~warrants~~common stock issuable upon conversion or exercise of these instruments, ~~which~~we ~~prohibit~~are ~~the~~required ~~holders~~under ~~thereof~~applicable ~~from~~accounting ~~converting~~rules to treat the ~~Secured~~conversion ~~Convertible~~feature ~~Debentures~~of orthe ~~exercising~~secured convertible debenture and the ~~Warrants,~~warrants onas ~~less~~liabilities, rather than ~~sixty~~as ~~days~~equity ~~notice,~~instruments. toThis classification as liabilities also requires that we account for them at fair value and include changes in fair value as a component of other income (expense) for so long as the ~~extent~~warrants ~~such~~and the conversion orfeature ~~exercise~~of ~~would~~the ~~cause~~secured ~~such~~convertible ~~holder~~debentures toremains ~~beneficially~~classified ~~own~~as liabilities. Changes in ~~excess~~fair value are based upon the market price of 4our common stock and are calculated using the Black Scholes method of valuation.~~99%~~ As a result, as the market price of our ~~outstanding~~common stock increases, our other expense increases, and as the market price of our common stock decreases, our other income increases. This accounting treatment could result in wide swings of our other income (expense) and net income in the future.

20Proved Oil and Natural Gas Reserves

~~The~~Proved ~~accounting~~reserves ~~treatment~~are ~~for~~defined ~~our~~by ~~secured~~the ~~convertible~~SEC ~~debentures~~as the estimated quantities of crude oil, condensate, natural gas and ~~related~~natural ~~warrants~~gas ~~may~~liquids ~~create~~that ~~volatility~~geological and engineering data demonstrate with reasonable certainty are recoverable in ~~our~~future ~~reporting~~years ~~earnings~~from known reservoirs under existing economic and operating conditions. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. Prices do not include the effect of derivative instruments, if any, entered into by the Company.

~~Our~~Proved ~~Secured~~developed ~~Convertible~~reserves ~~Debentures~~are ~~contain~~those anreserves ~~embedded~~expected ~~conversion feature, pursuant~~ to ~~which all or part of the debt owed to the holders may~~ be ~~converted~~recovered ~~into~~through ~~shares~~existing ofequipment ~~our common stock at a negotiated conversion price,~~ and ~~the~~operating ~~Warrants we issued to the purchasers of our Secured Convertible Debentures provide them with the right to purchase our common stock at negotiated exercise prices~~methods. AsAdditional aoil ~~result~~and ofgas ~~the~~expected ~~terms of our agreement~~ to ~~register~~be ~~the~~obtained ~~resale~~through of the ~~shares~~application of ~~common~~fluid ~~stock~~injection ~~issuable upon conversion~~ or ~~exercise~~other ofimproved ~~these~~recovery ~~instruments,~~techniques wefor ~~are~~supplementing ~~required under applicable accounting rules to treat~~ the ~~conversion~~natural ~~feature~~forces ~~of the Secured Convertible Debenture~~ and ~~the~~mechanisms ~~Warrants as liabilities, rather than as equity instruments. This classification as liabilities also requires that we account for them at fair value and include changes in fair value as a component~~ of ~~other~~primary ~~income~~recovery ~~(expense)~~are ~~for~~included ~~so long~~ as ~~the~~proved ~~warrants~~developed ~~remain~~reserves ~~classified~~only asafter ~~liabilities.~~testing ~~Changes in fair value are based upon the market price~~ of ~~our common stock and are calculated using the Black Scholes method of valuation. As~~ a ~~result,~~pilot asproject ~~the~~or ~~market~~after ~~price of our common stock increases, our other expense increases, and as~~ the ~~market~~operation ~~price~~ of ~~our~~an ~~common~~installed ~~stock~~program ~~decreases,~~has ~~our~~confirmed ~~other~~through ~~income~~production ~~increases.~~response ~~This~~that ~~accounting~~increased ~~treatment~~recovery ~~could~~will ~~result~~be ~~in wide swings of our other income (expense) and net income in the future while these features of the facility are outstanding~~achieved.

WeProved ~~need~~undeveloped ~~additional~~oil ~~capital~~and gas reserves are reserves that are expected to be recovered from new wells on non-drilled acreage, or from existing wells where a relatively major expenditure is required for re-completion. Reserves on non-drilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other non-drilled units are claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation.

WeVolumes ~~have either spent or allocated most~~ of ~~the~~reserves ~~proceeds~~are ~~from~~estimates ~~our recent sale of the Secured Convertible Debentures~~that, ~~and~~by astheir ~~we expected~~nature, ~~our~~are ~~current~~subject ~~capital resources will not be sufficient~~ to ~~fund~~revision. ~~all~~The ~~development~~estimates ~~and~~are ~~drilling~~made ofusing ~~our existing projects, or to fund the acquisition of~~ all ~~additional~~available ~~oil~~geological and ~~gas~~reservoir ~~properties,~~data as ~~discussed~~well ~~above.~~as ~~Furthermore,~~production ~~although~~performance ~~our~~data. ~~current~~There ~~capital resources, together with our expected cash flow from operations,~~ are ~~likely~~numerous touncertainties bein ~~sufficient~~estimating tocrude ~~maintain~~oil ~~our~~and ~~operations~~natural ~~over~~gas ~~the~~reserve ~~course of the next twelve months (just including~~quantities, ~~for~~projecting ~~this~~future ~~purpose,~~production ~~payment~~rates ofand ~~our~~projecting ~~anticipated overhead expenses), they will not be sufficient to cover~~ the ~~approximate~~timing ~~$3.1 million~~ of ~~interest~~future ~~and~~development ~~current portion of our long-term debt due within the next twelve months~~expenditures. WeOil ~~will,~~and ~~therefore,~~gas ~~continue~~reserve toengineering ~~seek~~must ~~additional~~be ~~capital~~recognized ~~over~~as ~~the~~a ~~next~~subjective 12process ~~months~~of toestimating ~~finance the~~underground ~~development~~accumulations of ~~our~~oil ~~existing projects~~ and togas ~~fund~~that ~~our~~cannot ~~future~~be ~~growth~~measured ~~and~~in ~~exploration~~an ~~activities.~~exact ~~This~~way ~~may~~and ~~take~~estimates ~~the form~~ of ~~either~~engineers ~~debt-based~~that ~~financing, or sale of equity securities. In the shorter term, if~~ we ~~are~~use ~~unable to obtain additional funds when we need them or if we cannot obtain funds on terms favorable to us, we~~ may ~~need~~differ to delay, scale back, or eliminate plans for further development efforts. A longer term inability to secure additional funds would require us to consider a sale of certain assets or otherwise incur a risk of default upon our Secured Convertible Debenutures.

~~The funding of our Fayetteville Project relies upon liquidity of our partners~~21

~~Our~~from ~~Maverick~~those ~~Woodruff~~of ~~County,~~other ~~LLC~~engineers. ~~subsidiary,~~The isaccuracy ~~a 45% project participant in the development~~ of ~~our~~any ~~leasehold~~reserve ~~acreage~~estimate ~~in Woodruff and surrounding counties within Eastern Arkansas. Our 45% partner~~ is ana ~~early-stage~~function ~~public~~of ~~company~~the ~~which~~quantity ~~recently~~of ~~experienced~~available ~~liquidity~~data ~~concerns~~ and ~~during~~of ~~our~~engineering ~~second quarter~~ and ~~became~~geological ~~delinquent~~interpretation ~~in its funding to the project by approximately $3.5 million. Although this partner has recently completed a financing~~ and ~~become current in its funding obligations, we cannot be certain that it will have sufficient capital resources to maintain its funded contributions to the project~~judgment. ~~A failure by this partner~~Accordingly, orfuture ~~any~~estimates ~~other~~are ~~project~~subject ~~partner,~~ to ~~maintain~~change ~~its~~as ~~prorata~~additional ~~funding~~information ofbecomes ~~the project, could impair the project’s ability to acquire and develop the acreage as expected~~available.

~~Short-term~~Successful ~~need~~Efforts toAccounting ~~increase authorized capital stock~~

WeThe ~~are~~Company ~~authorized~~utilizes the successful efforts method to ~~issue~~account ~~200,000,000~~for ~~shares~~our crude oil and natural gas operations. Under this method of ~~common~~accounting, ~~stock~~all costs associated with oil and gas lease acquisition costs, ~~almost~~successful exploratory wells and all ofdevelopment ~~which~~wells ~~have~~are ~~been~~capitalized ~~issued~~and oramortized ~~reserved~~on ~~for~~a ~~issuance~~unit-of-production tobasis ~~cover~~over the ~~potential~~remaining ~~exercise~~life of ~~outstanding~~proved ~~options~~developed reserves and ~~warrants,~~proved ~~and~~reserves ~~upon~~on ~~conversion~~a offield ~~our~~basis. ~~January~~Unproved 6,leasehold ~~2006~~costs ~~issuance~~are ofcapitalized ~~$20,000,000~~pending ofthe ~~Secured~~results ~~Convertible~~of ~~Debentures~~exploration efforts. ~~Accordingly~~Exploration costs, weincluding dogeological ~~not~~and ~~have~~geophysical ~~sufficient~~expenses, ~~authorized~~exploratory ~~capital~~dry ~~available~~holes toand ~~permit~~delay ~~any~~rentals, ~~material~~are ~~issuance~~charge ofto expense when incurred.

21Impairment of Properties

~~securities~~We ~~until~~review our ~~Articles~~proved properties at the field level when management determines that events or circumstances indicate that the recorded carrying value of ~~Incorporation~~the ~~are~~properties ~~amended~~may not be recoverable. ~~This~~Such ~~process~~events ~~could~~include ~~take~~a ~~several~~projection ~~months~~of future oil and natural gas reserves that will be produced from a field, the timing of this future production, future costs to ~~complete~~produce the oil and natural gas, ~~pending~~and future inflation levels. If the carrying amount of an ~~affirmative~~asset ~~shareholder~~exceeds ~~vote~~the ~~governed~~sum ~~under~~of ~~Nevada~~the ~~law.~~undiscounted ~~Until~~estimated ~~this~~future ~~process~~net iscash ~~completed~~flows, ifwe atrecognize ~~all,~~impairment ~~our~~expense ~~access~~equal to ~~proceeds~~the difference between the carrying value and the fair value of the asset which is estimated to be the expected present value of future net cash flows from ~~one~~proved orreserves, ~~more~~utilizing ~~financing~~a ~~transactions~~risk-free ~~could~~rate of return. The Company cannot predict the amount of impairment charges that may be ~~limited~~recorded in the future. Unproved leasehold costs are reviewed periodically and a loss is recognized to the extent, if any, that the cost of the property has been impaired.

~~Item~~Asset 2.Retirement ~~Unregistered~~Obligations ~~Sales of Equity Securities and Use of Proceeds~~

OnThe ~~November~~Company ~~28,~~is ~~2005,~~required ~~we sold 200,000 investment units at a price of $10 per unit~~ to ~~Millenium~~make ~~Global~~estimates ~~High Yield Fund, Ltd., with each unit consisting~~ of ~~ten~~the ~~(10)~~future ~~shares~~costs of ~~our~~the ~~common~~retirement ~~stock~~obligations ~~and one (1) warrant to purchase four (4) shares~~ of ~~our~~its ~~common~~producing ~~stock~~oil ~~subject to an exercise price of $1.70 per share~~ and agas ~~term of thirty (30) months~~properties. ~~The~~This ~~units~~requirement ~~were~~necessitates ~~sold~~that inthe aCompany ~~private~~make ~~placement~~estimates ~~transaction~~of ~~exempt~~its ~~from~~property ~~the~~abandonment ~~registration~~costs ~~requirements of the Securities Act~~that, ~~pursuant~~in tosome ~~Section 4(2)~~cases, ~~Rule~~will ~~506~~not ofbe ~~SEC~~incurred ~~Regulation~~until Da ~~and~~substantial ~~Regulation~~number S of ~~the~~years ~~Securities~~in ~~Act without~~ the ~~payment of underwriting discounts or commissions to any person~~future. ~~The~~Such ~~Millenium~~cost ~~warrants~~estimates ~~were~~could ~~restructured~~be ~~following~~subject ~~our January 6, 2006 issuance of the $20,000,000 Secured Convertible Debentures and associated Warrants. Millenium surrendered warrants~~ to ~~purchase~~significant ~~800,000~~revisions ~~shares of our common stock at an exercise price of $1.70 per share,~~ in ~~exchange~~subsequent ~~for~~years ~~warrants~~due to ~~purchase~~changes ~~2,000,000~~in ~~shares~~regulatory ~~of our common stock; of which 1~~requirements,~~000,000~~ ~~have~~technological anadvances ~~exercise price of $.9376 per share; 500,000 have an exercise price of $1.50 per share;~~ and ~~500,000~~other ~~have~~factors anthat ~~exercise~~may ~~price~~be ofdifficult ~~$2.00~~to ~~per share~~predict.

~~During~~Income ~~the~~Taxes quarter ended February 28, 2006, we issued 300,000 shares of our restricted common stock under our 2005 Incentive Stock Plan to certain officers and employees, as follows: Mr. V Ray Harlow-100,000 shares; John Ruddy-80,000 shares; James Parrish-60,000 shares; Ron Idom-30,000 shares; and William Irwin-30,000 shares. The shares are subject to vesting over a three-year period.

~~Item~~The 3Company is subject to income and other related taxes in areas in which it operates. ~~Defaults~~When ~~Upon~~recording ~~Senior~~income ~~Securities~~tax expense, certain estimates are required by management due to timing and the impact of future events on when income tax expenses and benefits are recognized by the Company. The Company will periodically evaluate its tax operating loss and other carryforwards to determine whether a gross deferred tax asset, as well as a related valuation allowance, should be recognized in its financial statements.

~~None~~Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~Item~~Interest 4Rate and Credit Rating Risk. ~~Submission~~As of ~~Matters~~May 31, 2006, we had approximately $1,480,581 in cash and cash equivalents, and short term investments. At May 31, 2006, approximately $1,304,779 was held in our operating accounts to ~~Vote~~be used for general corporate purposes, and $175,802 was invested in overnight repurchase agreements, 100% collateralized with AAA rated US Government Securities. Based on sensitivity analysis performed on the financial instruments held as of ~~Security~~May ~~Holders~~31, 2006, an immediate 10% change in interest rates is not expected to have a material effect on our near term financial condition or results.

~~We held our Annual Meeting of Stockholders on January 27, 2006. At the Annual Meeting our stockholders voted on the following proposals identified in our Proxy Statement dated December 19, 2005:~~22

~~(1)~~Commodity ~~Vote~~Risk. Our major commodity price risk exposure is to the prices received for our natural gas and oil production. Realized commodity prices received for our production are the ~~Election~~spot ofprices ~~Directors:~~applicable to natural gas and crude oil. Prices received for natural gas and oil are volatile and unpredictable and are beyond our control. For the quarter ended May 31, 2006, a 10% fluctuation in the prices for natural gas and oil production would have had less than an approximate $0.1 million impact on our revenues.

~~The~~Item ~~following~~4. ~~directors~~Controls ~~were~~and ~~elected to serve as members of our Board of Directors:~~Procedures.

	For		Withheld
V. Ray Harlow		85,374,500		432,463
Lance E. Johnson		85,413,546		393,417
Andrej Rucigaj		85,401,227		405,736
David Preng		85,402,961		404,002
Matthew Fitzgerald		85,412,582		394,381

~~(2) Proposal to approve the adoption of 2005 Stock Incentive Plan~~23

			For				Against				Abstain
				49,611,227				1,840,992				260,646

PART II. OTHER INFORMATION

~~(3)~~Item ~~Proposal~~1. toLegal ~~ratify appointment of Malone & Bailey, PC as the Company’s independent auditors for the Company for the year ended August 31, 2006:~~Proceedings

			For				Against				Abstain
				85,366,594				188,181				258,188

None

Item 51A. ~~Other~~Risk ~~Information~~Factors

~~None~~Developing our current properties and expanding our operations will require significant capital expenditures which we may be unable to fund.

22Our business plan contemplates a sale of one our material project, as well as developing our remaining exploration properties and expanding our business by acquiring additional oil and gas properties. Our plan of operations for the next twelve months anticipates capital spending of approximately $37 million. However, our current funding will only sustain our operations through the beginning of the fourth calendar quarter of 2006. We plan to obtain the additional funding we need through the debt and equity markets. The terms of our Secured Convertible Debentures place limitations on the timing and pricing of any subsequent rounds of equity financing. These limitations could impair our ability to secure the full amount of capital required by our plan of operations, absent the consent of the holders of our Secured Convertible Debentures. There is no assurance that such additional financing will be available to us or, if it is, whether we will be able to complete such financing in light of the restrictions of this recent transaction.

~~Item~~The 6.exercise ~~Exhibits~~or conversion of our outstanding convertible securities, options and warrants will result in the dilution of the ownership interests of our existing shareholders and may create downward pressure on the trading price of our common stock.

~~The~~We ~~following~~may ~~exhibits~~in ~~are~~the ~~included~~future ~~herein:~~issue up to 118,689,195 additional shares of our common stock upon exercise or conversion of existing outstanding convertible securities as of June 30, 2006, in accordance with the following schedule:

ExhibitNumber		Description
			Number of Shares
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
	• Upon exercise of options granted under our Stock Option Plan			4,130,000
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
	• Upon exercise of Non-Plan Options			450,000
32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)(1)
	• Upon exercise of Warrants			22,210,010
32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)(1)
	• Upon conversion of the principal under Secured Convertible Debentures issued on January 5, 2006(1)(2)			21,331,058
	• Upon conversion of the principal under Secured Convertible Debentures issued on June 21, 2006(1)(2)			10,665,529
	• Upon exercise of Warrants issued in conjunction with the Secured Convertible Debentures issued on January 5, 2006(2)(3)			41,237,922
	• Upon exercise of Warrants issued in conjunction with the Secured Convertible Debentures issued on June 21, 2006(2)(3)			18,664,676
	TOTAL			118,689,195

(1) ~~Filed~~ ~~herewith~~Does not include shares issuable in lieu of interest due under the Debentures.

23(2) With respect to the holders of our Secured Convertible Debentures and associated warrants, the foregoing determination has been made irrespective of limitations contained within the terms of the Secured Convertible Debentures and associated warrants, which prohibit the holders thereof from converting the Secured Convertible Debentures or exercising the Warrants, on less than sixty days

~~SIGNATURES~~24

Innotice, ~~accordance~~to ~~with~~ the ~~requirements~~extent ofsuch ~~the~~conversion ~~Securities~~or ~~Exchange~~exercise ~~Act~~would ofcause ~~1934,~~such asholder ~~amended, the registrant caused this report~~ to bebeneficially ~~signed~~own onin ~~its~~excess ~~behalf~~of by4.99% ~~the~~of ~~undersigned,~~our ~~thereunto~~outstanding ~~duly~~common ~~authorized~~stock.

~~Date:~~(3) ~~April~~Includes 14Warrants to purchase 31,996,587 shares of our Common Stock issued on January 5, 2006, ~~MAVERICK~~which ~~OIL~~when ~~AND~~subject ~~GAS~~to adjustment by virtue of the June 21, ~~INC./s/~~2006 V.sale ~~Ray~~of ~~Harlow~~Secured V.Convertible ~~Ray~~Debentures, ~~HarlowChief~~resulted ~~Executive~~in ~~Officer/s/~~an ~~John~~increase ~~Ruddy~~by ~~John~~9,241,335 ~~RuddyChief~~to ~~Financial~~the ~~Officer~~number of shares covered by those Warrants.

24Substantial Voting Power Concentrated in the hands of our Principal Stockholders.

~~EXHIBIT~~ ~~INDEX~~We have less than ten shareholders who in the aggregate own and control over fifty percent of our outstanding common stock. In addition, the two holders of the Secured Convertible Debentures and associated warrants issued on January 5, 2006 and June 21, 2006, although they are unrelated, have the right to acquire in excess of 91 million shares of our Common Stock should they convert all of their Secured Convertible Debentures into our shares, and should they exercise all of their Warrants and hold the shares of common stock received upon such conversion and exercise. This would equate to approximately 47% of our outstanding common stock, after giving effect to such issuance. With respect to the holders of our Secured Convertible Debentures and associated warrants, the foregoing determination has been made irrespective of limitations contained within the terms of the Secured Convertible Debentures and associated warrants, which prohibit the holders thereof from converting the convertible debentures or exercising the warrants, on less than sixty days notice, to the extent such conversion or exercise would cause such holder to beneficially own in excess of 4.99% of our outstanding common stock.

Exhibit Number		Description
31.1		Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification by the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification by the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The accounting treatment for our secured convertible debentures and related warrants may create volatility in our reporting earnings

25The Secured Convertible Debentures we issued in January 2006 contain an embedded conversion feature, pursuant to which all or part of the debt owed to the holders may be converted into shares of our common stock at a negotiated conversion price, and the Warrants we issued to the purchasers of our Secured Convertible Debentures provide them with the right to purchase our common stock at negotiated exercise prices. As a result of the terms of our agreement to register the resale of the shares of common stock issuable upon conversion or exercise of these instruments, we are required under applicable accounting rules to treat the conversion feature of the Secured Convertible Debenture and the Warrants as liabilities, rather than as equity instruments. This classification as liabilities also requires that we account for them at fair value and include changes in fair value as a component of other income (expense) for so long as the warrants remain classified as liabilities. Changes in fair value are based upon the market price of our common stock and are calculated using the Black Scholes method of valuation. As a result, as the market price of our common stock increases, our other expense increases, and as the market price of our common stock decreases, our other income increases. This accounting treatment could result in wide swings of our other income (expense) and net income in the future while these features of the facility are outstanding.

The June 21, 2006 sale of Secured Convertible Debentures will be reviewed for the application of EITF 00-19 and FAS 133 in regards to accounting for embedded derivatives. However, in as much as the June 21, 2006 transaction contained many of the same features as the January 5, 2006 transaction, we expect that the conversion feature of the June 21, 2006 Secured Convertible Debentures and the associated Warrants will similarly be accounted for as embedded derivative instruments.

We need additional capital

We have either spent or allocated most of the proceeds from our recent sale of Secured Convertible Debentures on January 5, 2006 and June 21, 2006, and as we expected, our current capital resources will not be sufficient to sustain operations or to fund all development and drilling of our existing projects, beyond the beginning of the fourth calendar quarter of 2006. In addition, our current capital resources, together with our expected cash flow from operations, will not be sufficient to cover the

interest and current portion of our long-term debt due within the next twelve months. We will, therefore, continue to seek additional capital over the next 12 months to finance the development of our existing projects and to fund our future growth and exploration activities. This may take the form of either debt-based financing, or sale of equity securities. In the shorter term, if we are unable to obtain additional funds when we need them or if we cannot obtain funds on terms favorable to us, we may need to delay, scale back, or eliminate plans for further development efforts. An inability to secure additional funds would require us to consider a sale of certain assets or otherwise incur a risk of default upon our January Secured Convertible Debentures and June Secured Convertible Debentures.

The funding of our Fayetteville Project relies upon liquidity of our partners

Our Maverick Woodruff County, LLC subsidiary, is a 45% project participant in the development of our leasehold acreage in Woodruff and surrounding counties within Eastern Arkansas. Our 45% partner is an early-stage public company which recently experienced liquidity concerns and during our second quarter and became delinquent in its funding to the project by approximately $3.5 million. Although this partner has recently completed a financing and become current in its funding obligations, we cannot be certain that it will have sufficient capital resources to maintain its funded contributions to the project. A failure by this partner, or any other project partner, to maintain its prorata funding of the project, could impair the project’s ability to acquire and develop the acreage as expected.

The terms of our Secured Convertible Debentures require us to sell our Barnett Shale Property within certain time periods

The terms of the Secured Convertible Debentures we issued on June 21, 2006 require us to use our best efforts to sell our Barnett Shale Property by December 31, 2006 for a purchase price equal to its fair market value. If the cash consideration to be received in any such sale is less than the amount required to retire those Secured Convertible Debentures and the Secured Convertible Debentures we issued on January 5, 2006, the consent of the holders of a majority of the outstanding principal amount of the June Secured Convertible Debentures is required. If such consent is not provided, the deadline for the sale is extended until March 31, 2007. If we have not sold the Barnett Shale Property prior to the applicable deadline, the holders of the Secured Convertible Debentures have the right to require us to make certain redemptions of those debentures and the Secured Convertible Debentures we issued on January 5, 2006. It is not likely that we will be able to fund any such redemptions in the absence of such a sale. In addition, the obligation to sell our Barnett Shale Property within the applicable deadlines may result in a lower sales price than could be obtained in the absence of those deadlines.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On June 21, 2006, the Company issued Secured Convertible Debentures in the principal amount of $10 million and associated warrants. The Secured Convertible Debentures are convertible into 10,665,529 shares of the Company’s Common Stock, based upon an initial conversion price of $0.9376 per share, which is subject to anti-dilution adjustments. Warrants to purchase up to 18,664,676 shares of the Company’s Common Stock were issued for a period of five years at an exercise price of $.9376 per share, subject to anti-dilution adjustments. Additionally, by operation of anti-dilution features contained within warrants issued to these Investors during January 2006 (the “January 2006 Warrants”), the exercise price of approximately 5.3 million of the January 2006 Warrants has been reduced from $2.00 per share to $.9376 per share, and approximately 5.3 million of the January 2006 Warrants from $1.50 per share to $.9376 per share. In addition, the number of shares issuable upon the exercise of the January 2006 Warrants has been increased by approximately 9.3 million.

The Secured Convertible Debentures and Warrants were issued to institutional accredited investors in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 promulgated by the Commission thereunder.

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits

The following exhibits are included herein:

Exhibit Number		Description
10.34		Securities Purchase Agreement dated June 21, 2006 (including relevant portions of accompanying schedules)(1)
10.35		Form of Secured Convertible Debenture dated June 21, 2006(1)
10.36		Form of Warrant dated June 21, 2006(1)
10.37		Form of Registration Rights Agreement dated June 21, 2006(1)
10.38		Form of Pledge and Security Agreement dated June 21, 2006(1)
10.39		Form of Escrow Agreement(1)
10.40		Form of Waiver Letter(1)
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(2)
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(2)
32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)(2)
32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)(2)

(1) Incorporated by reference to our Current Report on Form 8-K filed with the Commission on June 23, 2006.

(2) Filed herewith.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: July 17, 2006

MAVERICK OIL AND GAS, INC.

/s/ V. Ray Harlow
V. Ray Harlow
Chief Executive Officer

/s/ John Ruddy
John Ruddy
Chief Financial Officer

EXHIBIT INDEX

Exhibit Number		Description
31.1		Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification by the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification by the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Filing Compare · MAVERICK OIL & GAS, INC.