1109348--4/17/2007--PETROL_OIL_&_GAS

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{gas, price, oil}

{stock, price, share}

{debt, indebtedness, cash}

{cost, regulation, environmental}

{provision, law, control}

{operation, international, foreign}

{acquisition, growth, future}

{investment, property, distribution}

{interest, director, officer}

{financial, litigation, operation}

{competitive, industry, competition}

{control, financial, internal}

{personnel, key, retain}

{loss, insurance, financial}

Risks Associated with Laurus Funds Financing We have substantial indebtedness to Laurus Master Fund, Ltd. which is secured by all of our assets. If an event of default occurs under the secured notes issued to Laurus Funds, Laurus Funds may foreclose on all of our assets and we may be forced to curtail our operations or sell some or all of our assets to repay the notes. The issuance of shares to Laurus Funds upon conversion of the convertible term note and exercise of its warrants may cause immediate and substantial dilution to our existing stockholders. Laurus Funds has no obligation to convert shares if the market price is less than the conversion price. Risks Associated with Oil and Gas Operations Because we face uncertainties in estimating proven recoverable natural gas reserves, you should not place undue reliance on such reserve information. Drilling wells is speculative, often involving significant costs that may be more than our estimates, and may not result in any addition to our production or reserves. Any material inaccuracies in drilling costs, estimates or underlying assumptions will materially affect our business. Gas and Oil prices are volatile. This volatility may occur in the future, causing negative change in cash flows which may result in our inability to cover our capital expenditures. We may incur substantial write-downs of the carrying value of our gas and oil properties, which would adversely impact our earnings. Currently the vast majority of our producing properties are located in the Cherokee Basin of southeastern Kansas, making us vulnerable to risks associated with having our production concentrated in one area. Competition in our industry is intense. We are very small and have an extremely limited operating history as compared to the vast majority of our competitors, and we may not be able to compete effectively. The natural gas and oil business involves numerous uncertainties and operating risks that can prevent us from realizing profits and can cause substantial losses. The high cost of drilling rigs, equipment, supplies, personnel and other services could adversely affect our ability to execute on a timely basis our development, exploitation and exploration plans within our budget. Our lease ownership may be diluted due to financing strategies we may employ in the future due to our lack of capital or due to our focus on producing leases. We are subject to complex laws and regulations, including environmental regulations, which can adversely affect the cost, manner or feasibility of doing business. Our oil and gas operations may expose us to environmental liabilities. Risks Associated with Our Business Our auditor s report reflects the fact that without realization of additional capital, it would be unlikely for us to continue as a going concern. Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. We may need additional capital in the future to finance our planned growth, which we may not be able to raise or it may only be available on terms unfavorable to us or our stockholders, which may result in our inability to fund our working capital requirements and harm our operational results. We currently employ only one executive officer. The loss of this officer, whose knowledge and technical expertise upon which we rely, may harm our ability to execute our business plan. Shortages of natural gas and oil field service personnel and equipment could adversely affect our business. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. Because our common stock is deemed a low-priced Penny stock, an investment in our common stock should be considered high risk and subject to marketability restrictions. NASD sales practice requirements may also limit a stockholder s ability to buy and sell our stock. We could be subject to class action litigation due to stock price volatility, which, if occurs, could result in substantial costs or large judgments against us. Our common stock is an unsecured equity interest. Our Articles of Incorporation authorizes our Board of Directors to issue up to 10,000,000 shares of preferred stock, which could adversely affect the voting power of our common stock holders. Provisions in Nevada law could delay or prevent a change in control, even if that change would be beneficial to our stockholders.

Full 10-K form ▸

1109348--4/17/2007--PETROL_OIL_&_GAS_INC