Trans-Orient Petroleum 20-F 2006 FY Annual report (foreign)

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

FORM 20-F

[     ]     REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THESECURITIES EXCHANGE ACT OF 1934

OR

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 31, 2006 (with other information to December, 29, 2006 except where noted)

OR

[     ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

OR

[     ]     SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report _______________

Commission file number 0-27668

TRANS-ORIENT PETROLEUM LTD.
(Exact name of Registrant specified in its charter)

TRANS-ORIENT PETROLEUM LTD.
(Translation of Registrant’s name into English)

BRITISH COLUMBIA, CANADA
(Jurisdiction of incorporation or organization)

999 Canada Place,
World Trade Centre, Suite 404
Vancouver, British Columbia, Canada, V6C 3E2
(Address of principal executive offices)

COMMON SHARES WITHOUT PAR VALUE
(Title of Class)

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

Title of Each Class	Name of each exchange on which registered
None	Not applicable

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

Common Shares without Par Value
(Title of Class)

-ii -

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.    None

Number of outstanding shares of Trans-Orient’s only class of capital stock as of July 31, 2006.
17,618,083 Common Shares Without Par Value

Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of theSecurities Act.
Yes [     ]      No [X]

If this report is an annual or transition report, indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934
Yes [     ]     No [X]

Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934during the preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]     No [     ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b 2 of the Exchange Act.
[     ]Large Accelerated Filer      [     ] Accelerated Filer Non       [X]Accelerated Filer

Indicate by check mark which financial statement item Registrant has elected to follow:
Item 17 [X]     Item 18 [     ]

If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b 2 of the Exchange Act):
Yes [     ]     No [X]

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

Indicate by check mark whether Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of theSecurities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed by a court.

NOT APPLICABLE

(End of Cover Page)

T A B L E O F C O N T E N T S

of the Form 20F of Trans-Orient Petroleum Ltd.

		Page
CURRENCY, MEASUREMENT AND GLOSSARY OF INDUSTRY TERMS		1
PART I		2
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	2
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	2
ITEM 3.	KEY INFORMATION	2
A.	Selected financial data	2
B.	Capitalization and indebtedness	4
C.	Reasons for the offer and use of proceeds	4
D.	Risk Factors	4
ITEM 4.	INFORMATION ON THE REGISTRANT	9
A.	History and Development of the Registrant	9
B.	Business Overview	10
C.	Organizational Structure	11
D.	Property, Plant and Equipment	11
ITEM 5.	OPERATING, FINANCIAL REVIEW AND PROSPECTS	16
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	21
A.	Directors and Senior Management	21
B.	Compensation	22
C.	Board Practices	23
D.	Employees	24
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED TRANSACTIONS	25
A.	Major shareholders	25
B.	Related Party Transactions	27
C.	Interests of experts and counsel	27
ITEM 8.	FINANCIAL INFORMATION	28
ITEM 9.	THE OFFER AND LISTING	28
ITEM 10.	ADDITIONAL INFORMATION	30
A.	Share Capital	30
B.	Memorandum and Articles of Association	30
C.	Material contracts	30
D.	Exchange Controls	31
E.	Taxation	32
Canadian Tax Consequences		32
United States Tax Consequences		33
F.	Dividends and paying agents	39
G.	Statement by experts	39
H.	Documents on display	39
I.	Subsidiary information	39
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	39
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	39

-2 -

PART II		39
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	39
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS	40
ITEM 15.	CONTROLS AND PROCEDURES	40
ITEM 16.		40
A.	Audit committee financial expert	40
B.	Code of Ethics	41
C.	Principal Accountant Fees and Services	41
D.	Exemptions from the Listing Standards for Audit Committees	42
E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	42
PART III		42
ITEM 17.	FINANCIAL STATEMENTS	42
INDEX TO FINANCIAL STATEMENTS		42
ITEM 18.	FINANCIAL STATEMENTS	56
ITEM 19.	EXHIBITS	56
SIGNATURE		57

FORWARD-LOOKING STATEMENTS

The information in this annual report on Form 20-F contains forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business plans and expectations. Such forward-looking statements involve risks and uncertainties regarding the availability of private placement financing, the availability of suitable exploration permits, the liquidity of our investment in Austral Pacific Energy Ltd., the potential applicability of theInvestment Company Act of 1940, and other factors. Forward-looking statements are made, without limitation, in relation to availability of funds and our plan to invest in directly into suitable new resource exploration projects. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined below, and, from time to time, in other reports we file with the SEC. These factors may cause our actual results to differ materially from any forward-looking statement. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Currency, Measurement and Glossary of Industry Terms

All currency amounts are stated in U.S. dollars unless otherwise indicated.

Conversion from metric into imperial units of measurement is as follows:

Metric Units	Imperial Units
hectare	2.471 acres
metre (m)	3.281 feet
kilometre (km)	0.621 miles (3,281 feet)

Industry Expressions

The following are industry expressions that may be used in this Annual Report:

Trans-Orient, We, Our, Companyor Registrantrefers toTrans-Orient PetroleumLtd., a corporation organized and registered under the laws of British Columbia, Canada, and unless the context clearly requires, includes its subsidiaries.

Basin is a segment of the crust of the Earth which has been downwarped and in which thick layers of sediments have accumulated over a long period of time.

Exploration Well is a well drilled in a prospect without knowledge of the underlying sedimentary rock or the contents of the underlying rock.

Farm-In orFarm-Out refers to a common form of agreement between petroleum companies where the holder of the petroleum interest agrees to assign all or part of an interest in the ownership to another party that is willing to fund agreed exploration activities which may be more or less than the proportionate interest assigned to them.

Hydrocarbons is the general term for oil, gas, condensate and other petroleum products.

Participating Interest orWorking Interest is an equity interest, compared with a royalty interest, in an oil and gas property whereby the participating interest holder pays its proportionate percentage share of development and operating costs and receives the equivalent share of the proceeds of hydrocarbon sales after deduction of royalties or other imposts due on gross income.

- 2 -

Permit orLicence is an area that is granted for a prescribed period of time for exploration, development or production under specific contractual or legislative conditions.

Prospect is a potential hydrocarbon trap which has been confirmed by geological and geophysical studies to the degree that drilling of an exploration well is warranted.

Royalty is the entitlement to a stated or determinable percentage of the proceeds received from the sale of hydrocarbons calculated as prescribed in applicable legislation or in the agreement reserving the royalty to the owner of the royalty.

Seismic refers to a geophysical technique using low frequency sound waves to determine the subsurface structure of sedimentary rocks.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected financial data

The selected historical financial information presented in the table below for each of the fiscal years ended July 31, 2006, 2005, 2004, 2003 and 2002, is derived from the audited consolidated financial statements of the Registrant. The audited financial statements of the Registrant for the fiscal years ended July 31, 2006, 2005 and 2004 are included in this Filing. The selected historical financial information for the fiscal years ended July 31, 2003 and 2002 presented in the table below are derived from audited financial statements of the Registrant that are not included in this Filing but were included in previous filings. The selected financial information presented below should be read in conjunction with the Registrant’s consolidated financial statements and the notes thereto included in this annual report (Item 17), and with the information appearing under the heading, “Operating and Financial Review and Prospects” (Item 5).

The selected consolidated financial data has been prepared in accordance with Canadian Generally Accepted Accounting Principles (“Canadian GAAP”). The consolidated financial statements included in Item 17 in this filing are also prepared under Canadian GAAP. Additional information is presented to show the differences which would result from the application of United States Generally Accepted Accounting Principles (“US GAAP”) to the Registrant’s financial information. Refer to Note 11 of the consolidated financial statements included herein for a discussion of the material differences between Canadian GAAP and US GAAP and their effect on the Registrant’s financial position and results of operations.

- 3 -

Under Canadian Generally Accepted Accounting Principles (in US$)

	Year Ended July 31
	2006		2005		2004		2003		2002
	$		$		$		$		$
Balance Sheet Data
Current Assets	484,749		237,601		111,186		304,912		338,714
Investments	2,304,811		2,219,072		1,197,839		557,609		754,791
Property and Equipment	83,887		85,316		89,676		120,761		127,483
Oil and Gas Interests	-		-		1		1		1
Total Assets	2,915,621		2,541,989		1,398,702		983,283		1,220,989
Share Capital	13,175,075		13,175,075		13,175,075		13,145,075		13,145,075
Share Capital held by
subsidiary	-		-		(11,993	)	(11,993	)	-
Deficit	(10,271,860	)	(10,653,466	)	(11,795,712	)	(12,254,541	)	(11,993,534	)
Operating Data
Gross Revenue	13,848		1,896		1,696		2,882		3,589
Net Income (Loss)	381,606		1,142,246		458,829		(261,007	)	(397,564	)
Net Income (Loss)
per Share	0.02		0.06		0.03		(0.02	)	(0.04	)

Under U.S. Generally Accepted Accounting Principles (in US$)

	Year Ended July 31
	2006		2005		2004		2003		2002
	$		$		$		$		$
Balance Sheet Data
Current Assets	484,749		237,601		111,186		304,912		338,714
Investments	2,693,233		4,263,187		2,101,413		757,324		754,791
Property and Equipment	83,887		85,316		89,676		120,761		127,483
Oil and Gas Interests	-		-		1		1		1
Total Assets	3,304,043		4,586,104		2,101,413		1,181,529		1,220,989
Share Capital	14,008,686		14,008,686		14,008,686		13,978,686		13,978,686
Deficit	(11,105,471	)	(11,487,076	)	(12,629,323	)	(13,088,152	)	(12,827,145	)
Accumulated Other
Comprehensive Income
(Loss)	388,422		2,044,115		903,574		199,715		-
Operating Data
Gross Revenue	13,848		1,896		1,696		2,882		3,589
Net Income (Loss)	381,606		1,142,246		458,829		(261,007	)	(397,564	)
Comprehensive Income
(Loss)	(1,274,087	)	2,282,787		1,162,688		(61,292	)	(849,460	)
Net Income (Loss) per	0.02		0.06		(0.03	)	(0.02	)	(0.04	)
Share

Exchange Rates

The Registrant’s financial statements, as provided under Item 8 and 17 of this annual report, are presented in United States Dollars. On July 31, 2006 the closing rate for Canadian dollars was US $1.00 for CAD$1.1316. On December 29, 2006 the closing rate for Canadian dollars was US$1.00 for CAD$1.1654. Rates of exchange are obtained from the Bank of Canada and believed by the Registrant to approximate the rates certified for customs purposes by the Federal

- 4 -

Reserve Bank in New York. It should be noted, however, that Bank of Canada exchange rates are nominal quotations - not buying or selling rates - and are intended for statistical or analytical purposes. Rates available from financial institutions will differ. Rates are expressed in Canadian dollars, converted from U.S. dollars.

The following table sets out the high and low exchange rates for Canadian dollars during each of the last six months:

	Jul 2006	Aug 2006	Sep 2006	Oct 2006	Nov 2006	Dec 2006
High (1)	1.1459	1.1373	1.1289	1.1415	1.1495	1.1670
Low (1)	1.1052	1.1040	1.1035	1.1146	1.1256	1.1380

Notes:
(1)	The high and low buying rate figures are selected from daily high and low figures.

The following table sets out the year-end, average, and high and low exchange rates for Canadian dollars for the last five fiscal years:

	2006	2005	2004	2003	2002
Year End (1)	1.1316	1.2241	1.3295	1.4048	1.5776
Average	1.1551	1.1789	1.3382	1.4959	1.5700
High (2)	1.2185	1.2185	1.4072	1.6010	1.6125
Low (2)	1.0983	1.1467	1.2712	1.3323	1.5122

Notes:
(1)	Year end is July 31.
(2)	The high and low buying rate figures are selected from daily high and low figures.

B. Capitalization and indebtedness

Not applicable.

C. Reasons for the offer and use of proceeds

Not applicable.

D. Risk Factors

The common shares of the Registrant must be considered a speculative investment due to a number of factors primarily related to the nature of its business (resource exploration) and its early stage of development and history of losses. An investment in the Registrant’s common shares should only be made by persons who can afford to lose their entire investment and there can be no assurance that the Registrant’s common shares will increase in value. The purchase of the common shares involves a number of significant risk factors. Purchasers of common shares should consider the following:

1. Lack of Petroleum Reserves

The Registrant has recently acquired two petroleum exploration permits in New Zealand and is searching for possible new projects. However, it has no properties on which any petroleum or other hydrocarbon are known to exist in commercial quantities. Exploration for hydrocarbons is a speculative venture necessarily involving substantial risk, and there is no certainty that any exploration expenditures that the Registrant may incur will result in discoveries of commercial quantities of hydrocarbons.

2. Geological and Geographic Risks

Even if hydrocarbons are discovered, the costs of extracting and delivering the hydrocarbons to market may render any deposit found uneconomic. Geological conditions are variable and unpredictable. Even if a well is drilled and

- 5 -

production is commenced, the quantity of hydrocarbons produced will inevitably decline over time, and production may be adversely affected or may have to be terminated altogether if the Registrant encounters geological conditions that cannot be foreseen.

The Registrant will also be subject to uncertainties related to the proximity of any reserves that it may discover to pipelines and processing facilities. It expects that its operational costs will increase proportionally to the remoteness of, and any restrictions on access to, the properties on which any such reserves may be found. Adverse climatic conditions at such properties may also hinder the Registrant’s ability to carry on exploration or production activities continuously throughout any given year.

3. Market and Pricing Risks Pertaining to Oil and Natural Gas

The marketability and price of any oil or natural gas that may be discovered and extracted by the Registrant are subject to numerous factors beyond the Registrant’s control, including market fluctuations in the prices of oil and natural gas. The Registrant’s ability to operate at a profit will also be affected by the grade of any oil that the Registrant discovers and produces, as refiners will typically demand and pay higher prices for light, quality oil. In addition, government regulation relating to prices of hydrocarbons, taxes, royalties, land tenure, allowable production, the export of oil and natural gas, and many other aspects of the oil and natural gas business will impact on the Registrant’s future operations.

4. Limited Financial Resources

The Registrant will require additional funding to search for new projects and to resume exploration work on its existing prospects. However, the Registrant has limited financial resources, and it may not be able to raise sufficient funds to either sustain or expand its business. The Registrant currently has no operating revenues and relies principally on the issuance of common shares and the sale of its assets (primarily marketable common shares of Austral Pacific Energy Ltd. (“Austral”), a public company) to finance its business. There is no assurance that market conditions will continue to permit the Registrant to raise funds on acceptable terms or at all.

5. HistoryofLosses

Excluding the last three fiscal years when the Company did not have direct operations in oil and gas exploration, the Registrant has a history of losses from operations from failed investments in oil and gas and the internet. There is no assurance that the Registrant will enjoy success in any future business activity.

6. Dilution

Our Articles of Continuance authorize the issuance of an unlimited number of shares of common stock. We have several types of dilutive securities outstanding and our Board of Directors has the power to issue further shares without stockholder approval. Our Board of Directors may issue some of such shares to acquire further capital in order to carry out our intended operations or expand our current operations, or to provide additional financing in the future. The issuance of any such shares may result in a reduction of the book value or market price of our outstanding common shares. If we issue any such additional shares, such issuance will also cause a reduction in the proportionate ownership and voting power of all other shareholders. Further, any such issuance may result in a change of control.

7. Environmental Risks

We are subject to laws and regulations that control the discharge of materials into the environment, require removal and cleanup in certain circumstances, require the proper handling and disposal of waste materials or otherwise relate to the protection of the environment. In operating and owning petroleum interests, we may be liable for damages and the costs of removing hydrocarbon spills for which we are held responsible. Laws relating to the protection of the environment have in many jurisdictions become more stringent in recent years and may, in certain circumstances, impose strict liability, rendering our Company liable for environmental damage without regard to negligence or fault on the part of our Company. Such laws and regulations may expose us to liability for the conduct of, or conditions caused by others or for acts of our Company that were in compliance with all applicable law at the time such acts were performed. The application of these requirements or the adoption of new requirements could have a material adverse effect on our

- 6 -

business. We believe that we have conducted our business in substantial compliance with all applicable environmental laws and regulations.

8. Indemnities may be Unenforceable or Uncollectible

We may enter into operating agreements with other participants in a property. Such operating agreements typically provide for the indemnification of the operator. We are currently planning to directly operate our exploration programs on our recently-acquired oil and gas prospects. However, we may not always do so, and we may be requested to reimburse another participant that is the operator for losses or damages caused or incurred in the course of operations.

9. Consequences of Failure to Satisfy Prescribed Permit or Licence Terms and Conditions

In all cases, the terms and conditions of the permit or licence granting us, or the party from which we acquired, the right to explore for, and develop, hydrocarbons, prescribe a work program and the date or dates before which such work program must be done. We believe that we are in substantial compliance with all such permits and licenses. However, varying circumstances, including the financial resources available to us, rig availability and reliance on third party operators of permits and licenses, or other circumstances beyond our control or influence may result in the failure to satisfy the terms and conditions of a permit or license and result in the complete loss of the interest in the permit or license without compensation.

Such terms and conditions may be renegotiated with applicable regulatory authorities, but there is no assurance that if a term or condition of a license or permit that is required to be satisfied has not been met, that such term or condition will be successfully renegotiated with the applicable authority.

10. Consequences of Failure to Satisfy Joint Venture Obligations

We may in the future participate in permits or licences with industry partners with access to greater resources to meet their joint venture capital commitments. If we are unable to meet our commitments, the other joint venture participants may assume some or all of our deficiency and thereby assume a pro-rata portion of our interest in any production from the joint venture area.

Conversely, if a participant in a joint venture in which we are interested is unable to meet its commitments, it may delay or veto exploration or development plans which it cannot afford. This could, in turn, delay our desired exploration and development program and lead to the assumption of all or some of the share of the non-committing entity’s interest by our Company and the other participants (if any) in the joint venture. Although the joint venture agreement would typically allow the contributing joint venture participants to assume a pro-rata portion of the non-contributing participant’s interest in the property, our Company may face financial hardship if it is unexpectedly required to assume any portion of a non-contributing party’s joint venture obligations.

Furthermore, joint venture and other like agreements can give rise to interpretive disputes with other parties who are financially interested in the property.

11. No Title Insurance

We do not maintain title insurance over our any of our petroleum exploration permits. Accordingly, if a problem is discovered with respect to the title of any of our prospects, we may be forced to forfeit our interest without compensation.

12. Possible Lack of or Inadequacy of Insurance

The Company does not currently maintain insurance against certain public liability, operational and environmental risks, but intends to do so prior to exploration commences. However, even with insurance there is no assurance that an event causing loss will be covered by such insurance, that such insurance will continue to be available to our Company, or that the benefits of such insurance will be adequate to cover our liability.

- 7 -

13. Foreign Currency Exchange Risk

We hold cash reserves in Canadian and US dollars. In the foreseeable future, we expect to incur the majority of our exploration expenditures in New Zealand dollars. We do not currently hedge our exposure to foreign currency exchange rate changes, although we may choose to selectively do so in the future. A decrease in the value of the New Zealand dollar against the value of the Canadian and US dollar will be a benefit to our Company. An increase in value of the New Zealand dollar relative to the Canadian or US dollar would have a detrimental effect on us as our operating expenses would, in turn, increase in Canadian and US dollars.

14. Competition

Other companies with greater financial resources and/or expertise are in competition with the Registrant for oil and gas prospect and investment opportunities. The Registrant must compete with such companies in bidding for the acquisition of petroleum interests from various state authorities, in purchasing or leasing equipment necessary to explore for, develop and produce hydrocarbons, and in obtaining the services of personnel in the exploration for, and development and production of, hydrocarbons.

15. Thinly Traded Public Market

The Registrant’s shares trade on the OTC Bulletin Board. The Registrant has 463 registered shareholders as at December 29, 2006, and its shares are relatively thinly traded. There can be no assurance that a stable market for the Registrant’s common shares will ever develop or, if it should develop, be sustained. It should be assumed that the market for the Registrant’s common shares will continue to be highly illiquid, sporadic and volatile. The Registrant is required to remain current in its reporting obligations under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), in order for its common stock to remain eligible for quotation on the OTC Bulletin Board. If the Registrant fails to meet its obligations as a “reporting company” under the Exchange Act, the Registrant’s common stock will cease to be eligible for quotation on the OTC Bulletin Board, and its shareholders may not be able to sell their shares in the public market within the United States.

16. Dealings With Associated Companies

In previous fiscal years the Registrant has been associated with other public junior resource companies through common directors, common officers and common shareholdings, and may become associated with other public junior resource companies in the future. The Registrant may continue to hold equity investments in these other companies. The Registrant may also make application for interests in petroleum properties with companies with which it may become associated. Persons who are not willing to rely on the discretion and judgment of management and the boards of directors of the Registrant and any companies with which it may become associated should not consider a purchase of its securities.

17. Value of Properties

The amounts attributed to future properties in the Registrant’s financial statements represent acquisition and exploration expenditures only, and should not be taken to in any way reflect realizable value.

18. Investment Company Act

The Registrant may incur significant costs to avoid investment company status and may suffer other adverse consequences if deemed to be an investment company under theInvestment Company Act of 1940 (“Investment Company Act”). Some of the Registrant’s equity investments in other businesses may constitute investment securities under the Investment Company Act. A company may be deemed to be an investment company if it owns investment securities with a value exceeding 40% of its total assets, subject to certain exclusions. Investment companies are subject to registration under, and compliance with, the Investment Company Act unless a particular exclusion or safe harbor provision applies. If the Registrant were to be deemed an investment company, it would become subject to the requirements of the Investment Company Act. As a consequence, the Registrant would be prohibited from engaging in business or issuing securities as it has in the past and might be subject to civil and criminal penalties for non-

- 8 -

compliance. In addition, certain of the Registrant’s contracts might be voidable, and a court-appointed receiver could take control of the Registrant and liquidate the business. Unless an exclusion or safe harbor was available to the Registrant, it would have to attempt to reduce its investment securities as a percentage of its total assets. This reduction can be attempted in a number of ways, including the disposition of investment securities and the acquisition of non-investment security assets. If the Registrant were required to sell investment securities, the Registrant may sell them sooner than it otherwise would have based on economic factors solely. These sales would likely be at depressed prices and the Registrant may never realize anticipated benefits from, or may incur losses on, these investments. The Registrant may be unable to sell some investments due to contractual or legal restrictions or the inability to locate a suitable buyer. Moreover, the Registrant may incur tax liabilities when it sells assets.

19. Penny Stock Regulation and Difficulties in Selling Shares

The Securities and Exchange Commission (the “SEC”) has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges such as AMEX and the Nasdaq Stock Market, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).

The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules, the broker-dealer must make a special written determination that a penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements often have the effect of reducing the level of trading activity in any secondary market for a stock that becomes subject to the penny stock rules.

The Registrant’s common stock is currently subject to the penny stock rules. Accordingly, investors may find it difficult to sell their shares, if at all.

20. Foreign Jurisdiction Risks; Governmental Laws and Local Conditions

Claims of aboriginal peoples in New Zealand or other potential areas of operation may adversely affect the rights or operations of our Company and there is no assurance that governmental regulation will not vary, including regulations relating to prices, royalties, allowable production, environmental matters, import and export of hydrocarbons and protection of water resources and agricultural lands. Our exploration interests in New Zealand are subject to regulations that relate directly and indirectly to our operations, including title to the petroleum interests, production, marketing and sale of hydrocarbons, taxation, environmental matters, restriction on the withdrawal of capital from a country and other factors. There is no assurance that the laws relating to the ownership of petroleum interests and the operation of our business in New Zealand will not change in a manner that may materially and adversely affect our business.

21. Legal Proceedings Against Foreign Directors

The Company is incorporated under the laws of the British Columbia, Canada, and three of the Company’s directors and officers are residents of Canada and one is a resident of New Zealand. Consequently, it may be difficult for United States investors to effect service of process within the United States upon the Company or upon its directors or officers, or to realize in the United States upon judgements of United States courts predicated upon civil liabilities under the Exchange Act. Furthermore, it may be difficult for investors to enforce judgements of the U.S. courts based on civil liability provisions of the U.S. federal securities laws in a foreign court against the Company or any of the Company’s non-U.S. resident officers or directors.

- 9 -

22. Concentration of Ownership and Ineffective Voting Powers

The directors and principal shareholders of the Registrant beneficially own a sufficient number of the outstanding common shares of the Registrant to have substantial influence over matters which require a vote of the Registrant’s shareholders, such as the election of members of the board of directors as well as extraordinary matters which require shareholders’ approval. Should the directors and the principal shareholders vote their shares in a like manner on a matter requiring a simple, or special majority vote of the Registrant’s shareholders, it is most likely that their position on the matter would control or significantly affect the outcome of the vote. Additionally, because the directors and principal shareholders possess substantial influence over the Registrant through their shareholdings, the value attributable to the right to vote held by other shareholders may be perceived to be reduced. This could result in a reduced value for the shares owned by other shareholders who do not have the same level of control over the Registrant’s affairs.

23. The Registrant expects to be a passive foreign investment company, or PFIC

Shareholders who are U.S. taxpayers should be aware that the Registrant will likely be a passive foreign investment company (“PFIC”) for the current fiscal year, may also have been a PFIC in prior years and may also be a PFIC in subsequent years. If the Registrant is a PFIC for any year during a U.S. taxpayer’s holding period, then such U.S. taxpayer generally will be required to treat any so-called “excess distribution” received on its common shares, or any gain realized upon a disposition of common shares, as ordinary income and to pay an interest charge on a portion of such distribution or gain, unless the taxpayer makes a qualified electing fund (“QEF”) election or a mark-to-market election with respect to the shares of Trans-Orient. In certain circumstances, the sum of the tax and the interest charge may exceed the amount of the excess distribution received, or the amount of proceeds of disposition realized, by the taxpayer. A U.S. taxpayer who makes a QEF election generally must report on a current basis its share of the Registrant’s net capital gain and ordinary earnings for any year in which the Registrant is a PFIC, whether or not it distributes any amounts to its shareholders. A U.S. taxpayer who makes the mark-to-market election, generally, must include as ordinary income in each year, the excess of the fair market value of the common shares over the taxpayer’s tax basis therein.

ITEM 4. INFORMATION ON THE REGISTRANT

A. History and Development of the Registrant

Corporate Actions:

The Registrant, Trans-Orient Petroleum Ltd., is a British Columbia corporation based in Vancouver, British Columbia, Canada. The Registrant’s registered office is located at 1500 Royal Centre, 1055 West Georgia Street, P.O. Box 11117, Vancouver, B.C. V6E 4N7. The Registrant’s principal business office is located at 999 Canada Place, World Trade Centre, Suite 404, Vancouver, British Columbia, V6C 3E2.

The Registrant was incorporated on July 25, 1986 under the name Palo Duro Exploration Ltd. by the registration of memorandum and articles under theCompany Act (British Columbia). The Registrant changed its name to Stoney Creek Mines Ltd. on July 15, 1988. On June 30, 1992, the Registrant consolidated its shares on a one new for three old basis and changed its name to Cyn-Tech Ventures Ltd. On June 29, 1995, the Registrant consolidated its shares on a one new for five old basis and changed its name to Consolidated Cyn-Tech Ventures Ltd. On June 27, 1996 the Registrant subdivided its shares on a three new for one old basis and changed its name to Trans-Orient Petroleum Ltd.

On September 26, 1997, the Registrant was re-domiciled in the Yukon Territory, Canada, by way of continuance under theBusiness Corporations Act (Yukon). On May 4, 1998 the Registrant subdivided its shares on a two new for one old basis and increased its authorized capital to 200,000,000 common shares without par value. On January 17, 2001 the Registrant consolidated its common shares on a one new for twelve old basis, and increased its authorized capital from 200,000,000 to an unlimited number of common shares without par value. The Registrant received shareholder approval at the Annual and Special meeting on January 18, 2002 to further consolidate all of its common shares on a one new for three old basis. The Registrant implemented this consolidation on April 5, 2002. On March 30, 2006 the Registrant subdivided its common shares on a seven new for one old basis.

- 10 -

All references to our outstanding common shares, issuances of common shares, options and warrants and prices associated with the above corporate actions and their effects on share capital have been shown on a retroactive basis.

On January 16, 2006, the Registrant was re-domiciled in British Columbia by way of continuance under theBusiness Corporations Act (British Columbia) which replaced theCompany Act (British Columbia) in 2004.

The Registrant became a public or “reporting company” in British Columbia upon obtaining a receipt for the prospectus filed with the British Columbia Securities Commission in connection with its initial public securities offering in April, 1989. The Registrant’s common shares commenced trading on the Vancouver Stock Exchange (“VSE”), the predecessor to the TSX Venture Exchange, at about that time. On June 10, 1997, the Registrant’s common shares commenced trading on the National Association of Securities Dealers’ OTC Bulletin Board (the “OTCBB”) under the symbol “TEPUF”. On July 31, 1997, the Registrant voluntarily delisted its common shares from the VSE. The Registrant’s current trading symbol on the OTCBB is “TOPLF”.

Developments:

During the fiscal years ended July 31, 2006, 2005 and 2004, the Registrant did not carry on any active oil and gas exploration activities. During the 2005 fiscal year, the Registrant wrote off an oil and gas interest of $1 which at that time represented its only remaining oil and gas interest.

Subsequent to the end of the 2006 fiscal year the Registrant was awarded 100% interests in two onshore petroleum exploration permits in New Zealand (discussed in more detail below under the heading “Information on the Registrant – Business Overview” (Item 4.B).

The Registrant did not conduct any financing activities during the 2006 and 2005 fiscal years. However, it realized certain gains from its investment activities which are discussed under the heading “Operating, Financial Review And Prospects –Investing Activities” (Item 5). The Registrant successfully completed two private placement financings subsequent to the 2006 fiscal year for total gross proceeds of $10,540,250, as described in more detail under the heading “Operating, Financial Review And Prospects –Financing Activities” (Item 5).

During the 2006 fiscal year the Registrant sold a total of 7,373,569 common shares of AMG Oil Ltd. (“AMG”). These dispositions resulted in the Registrant’s effective loss of control of AMG, the accounts of which were, until that time, consolidated with those of the Registrant.

B. Business Overview

Nature of Operations

We are an independent oil and gas exploration company, incorporated in Canada. During the 2006 fiscal year, we have been focused on identifying suitable international oil and gas prospects with the view to resuming our oil and gas exploration activities. On November 8, 2006, the Government of New Zealand awarded us 100% interests in two onshore petroleum exploration permits, PEP 38348 and 38349, totalling 2,163,902 acres, located in the East Coast Basin of New Zealand.

Since we are an exploration stage company we do not have any revenues from operations. Accordingly, we are not directly affected by fluctuations in the markets for hydrocarbon products, the seasonality of hydrocarbon products, or marketing channels for such products. We also do not rely on raw materials, and do not have any significant proprietary interests in intellectual property, as we operate in an extractive industry.

We compete with other companies for bidding for the acquisition of petroleum interests from various authorities, and in exploring for oil and gas in the Australasia region. We are also subject to government regulations applicable to the petroleum exploration permits that we hold, and to the exploration activities that we plan to conduct on those permits. The effects of these regulations are described in Item 4. “Property, Plant and Equipment”.

- 11 -

As of December 29, 2006, we also held 3,110,240 common shares (11.2%) of Austral. Austral is a public company whose common shares are listed on AMEX, the TSX Venture Exchange and the New Zealand Stock Exchange, with a market capitalization in the $52 million range.

In addition to our interest in Austral, we also currently own 826,431 common shares of AMG Oil Ltd. (“AMG”) with a current market bid price of $0.50 per share as of January 15, 2007. AMG is a reporting company under theSecurities Exchange Act of 1934 whose shares have been quoted on the OTCBB since January 15, 2003. Our present interest in AMG accounts for 3.66% of the outstanding shares. We account for our investment in AMG using the cost method. During the 2006 fiscal year we sold 7,373,569 common shares of AMG for aggregate proceeds of $133,695. These dispositions resulted in the Company’s effective loss of control of AMG. The AMG market is highly illiquid, and we do not consider the currently quoted prices realizable. Please refer to Item 17 for additional information.

Our 100% owned subsidiary, DLJ Management Corp., provides management, accounting and reporting services to three junior public natural resource companies on a cost-recovery basis.

C. Organizational Structure

As of December 29, 2006 the Registrant has one wholly owned subsidiary, being DLJ Management Corp. Unless indicated otherwise, the terms “Trans-Orient”, “we”, “our”, the “Company” or the “Registrant”, or any reference to the Registrant’s business and operations, mean Trans-Orient Petroleum Ltd. inclusive of its wholly-owned subsidiary.

D. Property, Plant and Equipment

We have been focused on identifying suitable international oil and gas prospects with the view to resuming our oil and gas exploration activities. On November 8, 2006, the Government of New Zealand awarded us interests in two onshore petroleum exploration permits located in the East Coast Basin of New Zealand. The following is a brief description of these permits. For definitions of technical terms in the following description of properties, see the Glossary of Industry Terms found at the beginning of this report. Apart from our interests in the following hydrocarbon exploration properties and the investments described above, we hold only minor office assets for the purpose of operating our business.

The following table summarizes our two exploration permits:

Property	Location	Working Interest	Gross Sq. Km’s	Net Sq. Km’s
PMP 38348	East Coast Basin	100%	2,147	2,147
PMP 38349	East Coast Basin	100%	6,610	6,610

In order to keep our permits in good standing, we must expend at least $230,000 under the mandated work programs (the “Work Programs”) before November 8, 2007 (“Year 1”) as follows:

Property	Location	2007 Fiscal Year Work Program Details	Expenditure Required by November 8, 0207
PMP 38348	East Coast Basin	Seismic reprocessing, structural, stratigraphic, geochemical and reservoir sampling and analysis.	$99,500
PMP 38349	East Coast Basin	Seismic reprocessing, structural, stratigraphic, geochemical and reservoir sampling and analysis.	$130,500

To maintain the permits in good standing after November 8, 2007 (“Year 2”), we need to commit in writing to the Ministry of Economic Development prior to November 8, 2007, to complete the Year 2 work program on both permits.

- 12 -

The Year 2 programs on both permits consist of acquiring, processing and interpreting 20 km’s and 30 km’s of 2D seismic on PEP 38348 and 38349, respectively and to undertake additional geological, geochemical and geophysical studies including interpretation of existing, reprocessed and new seismic data.

To maintain the permits in good standing after November 8, 2008 (“Year 3”), we need to commit in writing to the Ministry of Economic Development prior to November 8, 2008, to complete the Year 3 work program on both permits. The year 3 programs on both permits consist of drilling one exploration well, relinquishing 25% of the permit area and submitting a satisfactory work programme proposal to the Ministry of Economic Development for the remaining two years of the permit.

The permits are both situated onshore in New Zealand's East Coast Basin, which covers the eastern onshore and offshore areas of the North Island. The East Coast Basin is classified as an active fore-arc basin, situated immediately west of the convergent plate boundary between the Australian and Pacific plates. At an earlier stage in its evolution it was a passive margin basin, prior to the initiation of convergence on the plate boundary, about 20 million years ago.

The Pacific plate is flexured downwards at the offshore Hikurangi Trench which forms the eastern boundary of the East Coast Basin, and is actively subducting beneath the Australian plate, deepening westwards beneath the East Coast Basin. A consequence of this active tectonic environment has been the deposition of enormous thicknesses of sedimentary rock, with sedimentary thicknesses of up to 30,000 feet in parts of the Basin; together with east-west compressional folding and faulting.

The entire sedimentary section can be examined at locations where it is exposed in outcrop. Good potential oil and gas source rocks are found in the Late Cretaceous / Early Tertiary section, particularly in the organically very rich Waipawa Black Shale and the much thicker but lesser richness Whangai Formation, both of which are extensively developed across the Basin. Various laboratory geochemical studies of these rocks have demonstrated that they are mature for oil/gas generation and expulsion over much of the Basin's area., including within PEP's 38348 & 38349.

Numerous active oil and gas seeps are known within both permit areas. The most prominent of these are the Waitangi Hill oil ponds in PEP 38348 and the Westcott oil seeps in PEP 38349. At Waitangi Hill a series of oil ponds up to 20 feet in diameter, are continuously recharged with oil seeping up a fault contact and running off along Petroleum Creek. The area has been the locus of a number of historical shallow wells; a couple of which were claimed to produce oil, but no commercial production has been established. At Westcott, oil seeps continuously from Miocene sands in outcrop. These oils, and the various gas seeps, are geochemically typed as being from the Waipawa and/or Whangai source rocks.

Good reservoir rocks are extensively observed in outcrop, in a variety of Miocene sandstones and Pliocene coquina limestones. In addition to this, the Whangai and Waipawa mudstones are themselves extensively jointed and fractured, and have potential to be effective oil or gas reservoirs in their own right, while more conventional reservoir potential is also exhibited in greensands of Late Cretaceous to Early Tertiary age.

The plate boundary compressional tectonics have given rise to the formation of numerous potentially oil / gas trapping structures, which are observed in outcrop and on 2D seismic (of which there is only limited amount in both permits). However, the same compressional regime has resulted in a division of the East Coast Basin into a series of sub-basins, with consequential discontinuous and variable reservoir trends; and also has resulted in extensive faulting and uplift which has led to the presence of the hydrocarbon seeps and the potential for fault breaching of traps.

The above summary demonstrates that the Basin and the permits have considerable discovery potential but also considerable exploration risk. At present they can be classified as lightly explored frontier areas, with minimal modern drilling in either permit based on modern seismic control.

In PEP 38348, there is only of order 150 miles of 2D seismic, most of poor to moderate quality. The only well drilled on any degree of seismic control was Waingaromia-2 in 2000. As with the majority of the historical wells, this had hydrocarbon shows, but encountered no effective reservoir. An inventory of some ten prospects and good leads is identified on the seismic and on surface outcrop. The best defined of these at present are the Pauariki and Wharekak Prospects, both being defined on several seismic lines. A prominent gas seep is situated at the northern end of Pauariki,

- 13 -

which has potential to reservoir significant amounts of gas or oil. Geochemical surveying of the better ranked targets will commence in February 2007, as the first step in high-grading the targets. Following this work, additional seismic will be acquired over the top ranked prospects, in order to select optimal locations for drilling.

In PEP 38349, there is of order 300 miles of 2D seismic, of moderate to good quality. There have been four wells drilled on some degree of modern seismic control since 1980; and three earlier wells in the 1970's based on very limited seismic control. Again, most of these wells had significant hydrocarbon shows, but as in PEP 38348, drilling problems associated with swelling shales meant that some never reached their target, and none were flow tested.

An inventory of some twenty prospects and leads are presently indentified from 2D seismic and outcrop mapping. Boar Hill is a seismically defined fractured Whangai shale target mapped on seismic, with a set of gas seeps situated on its western side. Prospects Oporae, Conoor, Waewaepa and Mangatoro are all Mio-Plio reservoir targets situated in the general vicinity of the Westcott oil seeps, on the western flank of the Ellsthorpe Anticline, in the core of which further hydrocarbon seeps are observed. Prospect Speedy was drilled on a seismically defined target in 2000 by Speedy-1; yet despite increasing levels of higher order hydrocarbons being observed with increasing depth, it failed to reach its objective due to drilling problems. All these targets are relatively shallow, being less than 6,000 feet. Recent drilling practice, particularly in the use of synthetic oil based muds, now offers the means to overcome the swelling shale problems which have hindered earlier drilling.

The forward work program is to be carried out in parallel with that in PEP 38348, namely geochemical sampling in First Quarter 2007, followed by detail seismic on selected targets in 2008, to optimise drilling locations.

- 14 -

No Reserves

The Company did not have any hydrocarbon reserves or prospects at July 31, 2006. Subsequent to the 2006 fiscal year the Company acquired the two permits detailed above. The properties that are subject to the permits have no known hydrocarbon reserves.

Petroleum Exploration Regime in New Zealand

Unless otherwise indicated and subject to the conditions of the permit, a petroleum exploration permit granted in New Zealand provides for the exclusive right to explore for petroleum in the land covered by the exploration permit. Exploration permits have an initial term of five years, but are renewable for a further term of up to five years over an area of land not exceeding one-half of the original area (with a possible further short appraisal extension where necessary).

An exploration permit holder may apply to the Minister of Energy for amendments to an exploration permit, including changes to the mandatory Work Program prescribed in relation to the permit to keep it in good standing or the area covered by the exploration permit, if circumstances require and the conditions of the exploration permit have been substantially complied with. This remains, however, a matter for the Minister’s discretion. Exploration permit holders may exceed the requirement of the Work Program in relation to any permit.

If an exploration permit holder does not satisfy the Minister that it has complied with the obligations under the Work Program (or such variation as may have been agreed with the Minister), the New Zealand government has the power to revoke the exploration permit. A NZ$250,000 bond is now payable with all applications for a new permit.

Unless an earlier date is specified in the permit, an exploration permit holder has a right to be granted a petroleum mining permit with a term of up to 40 years if the exploration permit holder satisfies the Minister that, as a result of the activities authorised by the exploration permit, a deposit of petroleum has been found in the land covered by the exploration permit. An exploration permit or a mining permit operates as an exclusive license to undertake exploration or mining activities, as the case may be, on the land covered by it, but does not grant any ownership interest to the permit holder in the land itself.

The annual royalties payable in relation to a permit depend on when the relevant petroleum discovery in the permit was made, and whether an exploration permit or a mining permit is held.

On deposits of petroleum known to exist before June 30, 2004 or discovered after December 31, 2009, the New Zealand Government reserves:

(a)	where an exploration permit is held, a royalty equal to 5% of the net sales revenue from all petroleum obtained from the exploration permit; and
(b)	where a mining permit is held, a royalty equal to the greater of:
	(i)	5% of the net sales revenue from the sale of all petroleum obtained from the mining permit; and
	(ii)	20% of the accounting profits from the sale of all petroleum obtained from the mining permit.

On deposits of petroleum discovered in the period June 30, 2004 to December 31, 2009, where an exploration permit is held, the New Zealand Government reserves a royalty equal to:

(a)	1% of the net sales revenue from the sale of all natural gas products obtained from the exploration permit; and
(b)	5% of the net sales revenue from the sale of all oil products from the exploration permit.

- 15 -

On deposits of petroleum discovered during the period June 30, 2004 to December 31, 2009 that are produced under a mining permit, the New Zealand Government reserves a royalty that is the greater of:

(a)	1% of the net sales revenue from the sale of all natural gas products obtained from the mining permit or 5% of the net sales revenue, from the sale of all oil products from the mining permit; and
(b)	a percentage of accounting profits, calculated on the following basis:
	(i)	15% of the accounting profits on the first NZ$750 million (cumulative) gross sales for an offshore discovery or the first NZ$250 million (cumulative) gross sales for an onshore discovery; and
	(ii)	20% of the accounting profits on any additional petroleum obtained.

In calculating the accounting profits on any petroleum produced from a discovery made during the period June 30, 2004 to December 31, 2009, a mining permit holder may deduct, amongst other things, its prospecting and exploration costs that it has incurred in any permit in New Zealand between June 30, 2004 and December 31, 2009. For production from all other mining permits, only prospecting and exploration costs associated with that specific permit can be deducted for the calculation of accounting profits for that permit.

Detailed methods for calculating “net sales revenue” and “accounting profits” are prescribed for the purpose of calculating royalties. Royalties are assessed annually.

On August 22, 2006 new fees were implemented with an effective date of September 22, 2006 for all permits. For the financial year from July 1, 2006 to June 30, 2007, an exploration permit holder must pay the New Zealand Government an annual fee of NZ$9.47 per square kilometre for the first 1500 square kilometres and NZ$7.22 for each additional square kilometre of the land of any exploration permit. In respect of the same period, a mining permit holder must pay the New Zealand Government an annual fee of NZ$303.12 per square kilometre of the land area of any mining permit. From July 1, 2007, or on any permit granted or extended on or after September 22, 2006, the new annual fees require an exploration permit holder to pay the New Zealand Government NZ$10.50 per square kilometre for any exploration permit. A mining permit holder must pay the New Zealand Government an annual fee of NZ$100 per square kilometre of the land area of any mining permit and a prospecting permit holder must pay an annual fee of NZ$4.00 per square kilometre of the land area of any prospecting permit.

Environmental Regulation in New Zealand

In New Zealand, on land and in waters within twelve miles of the coast, theResource Management Act 1991 controls users of natural and physical resources, including petroleum explorers, with a view to managing resource usage in ways that will not compromise future utilization. TheResource Management Act 1991 places the emphasis on assessment of the effect the proposed activity will, or might, have on the environment with a view to promoting sustainable management. Under theResource Management Act 1991, most of the responsibility for managing resources and their use is given to local authorities. Regional and district councils must produce and continuously update planning schemes for their jurisdictions which establish procedures and standards for assessing and approving environmental standards in accordance with theResource Management Act 1991.

Corporate Office

The Registrant maintains corporate office space at 999 Canada Place, World Trade Center Suite 404, Vancouver, BC, Canada and at 1407-1050 Burrard Street, Vancouver, B.C. V6Z 2S3. The Registrant also owns a 400 sq. foot office condominium located at 1406-1050 Burrard Street, Vancouver B.C. The office condominium was originally purchased for CAD $147,000 and is held for investment purposes and as office space for the Registrant’s President and Chief Executive Officer.

- 16 -

ITEM 5. OPERATING, FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis is management’s opinion of the Registrant’s historical financial and operating results and should be read in conjunction with the audited consolidated financial statements of the Registrant (See Item 17) for the years ended July 31, 2006, 2005, and 2004, together with the notes related thereto. The financial statements have been prepared in accordance with Canadian GAAP, and a reconciliation to US GAAP is provided in the notes to the financial statements, under Item 17. All dollar values are expressed in United States dollars, unless otherwise stated.

The consolidated financial statements include the accounts of the Registrant and its wholly-owned subsidiary, DLJ Management Corp.

Operating Results

Summary

We are in the exploration stage with respect to all of our oil and gas properties and therefore we do not generate any sales or revenue from oil and gas operations. We have experienced losses in each of our fiscal years since incorporation, with the exception of the 2006, 2005 and 2004 fiscal years during which we earned net income of $381,606, $1,142,246 and $458,829, respectively, principally from the sale of marketable securities in Austral and TAG. We believe that such income is of a non-recurring nature. Total losses incurred from incorporation to the fiscal period ending July 31, 2006 were $10.27 million.

As we have just recently acquired our interests in the two oil and gas exploration properties in New Zealand, our results from operations to date may not provide a meaningful basis for evaluating our current prospects. However, the level of future operations, if any, will be limited by the availability of capital resources, the sources of which are not predictable. Our only sources of capital currently are the issuance from time to time of unregistered equity securities pursuant to private placement transactions that are exempt from registration under theSecurities Act of 1933, as amended, and applicable state securities laws (which is dilutive to our shareholders), and, to a lesser extent, the sale of assets consisting primarily of marketable equity securities in Austral.

Management believes that the primary financial information of current relevance to investors are the measures of liquidity and solvency. However, as we begin to explore our oil and gas properties, we expect that investors will begin to evaluate our results of operations largely by reference to the results of our exploration programs, which will in turn depend on the extent and quality of oil and gas (if any) that we discover.

Results of Operations -2006 Compared to 2005 and 2004

The Registrant spent the fiscal year ended July 31, 2006 preparing to re-establish itself as an international oil and gas exploration company, and, subsequent to year end, was awarded two 100% petroleum exploration permits in New Zealand’s East Coast Basin, identified as PEP 38348 and 38349, consisting of 2,163,902 acres.

The Registrant’s objective for the 2007 fiscal year is to review and reprocess existing seismic data on PEP 38348 and 38349, and to conduct structural, stratigraphic and reservoir sampling analysis on these prospects prior to committing to two dimensional (2D) seismic programs covering 20 square km’s and 30 square km’s, respectively, as contemplated under the Work Programs. The Registrant intends to continue its ongoing efforts to identify additional exploration and acquisition opportunities in Austral-Asia.

The Registrant has not received any revenue from oil and gas operations during the 2006 fiscal year. The Registrant’s revenue for the year was restricted to minor amounts received as interest income earned on cash balances.

- 17 -

The Registrant’s net income for the twelve-month period ended July 31, 2006 was $381,606 or $0.02 per share compared to net income for July 31, 2005 of $1,142,246 or $0.06 per share, and net income for July 31, 2004 of $458,829 or $0.03 per share.

The Registrant’s net income of $381,606 resulted primarily from gains on the sale of the Registrant’s holdings of common shares in TAG and AMG totalling $641,581 and $136,842, respectively. Specifically, during the 2006 fiscal year the Registrant sold 1,000,000 shares of its investment in TAG for proceeds of $1,141,581; these shares had a book value of $500,000. The Registrant also sold 7,373,569 shares of AMG for aggregate proceeds of $133,695. During the 2006 fiscal year the Registrant also sold 50,000 shares of Austral with a book value of $78,000 for proceeds of $74,241.

In comparison, the Registrant’s net income in the fiscal year ended July 31, 2005 was $1,142,246 which resulted primarily from a gain on the sale of a portion of the Registrant’s holdings of common shares in Austral totalling $1,218,319.

The Registrant used a significant portion of the proceeds received from the sale of investments described above during the 2006 fiscal year to acquire 200,000 units of Austral pursuant to a private placement, at a cost of $500,000. Each unit of Austral consisted of one share and one-half of one share purchase warrant. The warrants subsequently expired as they were not exercised. The Registrant also acquired 500,000 shares of TAG, at a cost of $300,000, by exercising share purchase warrants held by the Registrant.

For the year ended July 31, 2006, the general and administrative (“G&A”) expenses totalled $305,173 which is considerably higher for the year when compared with G&A costs totalling $168,957 for the year ended July 31, 2005. The increase in G&A is attributable to work undertaken by the Registrant during the 2006 fiscal year to identify and conduct due diligence investigation of suitable prospects, with the veiw to re-establishing its international oil and gas exploration operations. A comparative summary of G&A costs for the last three fiscal years can be found in the consolidated schedules of general and administrative expenses in the accompanying audited consolidated financial statements located in Item 17 below.

The Registrant expects that G&A costs for the 2007 fiscal year will likely increase as a result of its success in obtaining the two petroleum exploration permits in New Zealand, and continuing to search for other suitable exploration and acquisition opportunities in Austral-Asia.

Inflation

We are beginning to operate in New Zealand where inflation for operational costs has historically been at low levels (2-5% range per annum). However, operational costs world-wide have increased significantly and will likely continue to do so. The affect on the Registrant of increased inflation at this time is expected to be minimal but may become more significant as exploration efforts increase.

Foreign Currency Fluctuations

The Registrant holds its cash reserves primarily in US dollars and does not have significant obligations in other currencies. Accordingly, management does not perceive that the Registrant is currently subject to significant exchange risks.

Foreign Regulations

As discussed above under the heading “Property, Plant and Equipment - Petroleum Exploration Regime in New Zealand” (Item 4.D), the Registrant’s proposed operations on its two petroleum exploration permits in New Zealand will be subject to extensive regulation by the Government of New Zealand. Such regulation will govern not only the Registrant’s title to the petroleum exploration permits, the mandated Work Programs for the prospects, environmental matters and taxation, but, if petroleum reserves are discovered and successfully developed (which cannot be assured), also the production, marketing and sale of hydrocarbons, as well as other matters. The government of any foreign

- 18 -

jurisdiction in which the Registrant operates may also potentially impose restrictions on the withdrawal of capital from that jurisdiction, or impose other foreign currency exchange controls.

There is no assurance that the laws relating to the ownership of petroleum interests and the operation of the Registrant’s business in the jurisdictions in which it currently operates, or in the jurisdictions in which the Registrant may in the future operate, will not change or be applied in a manner that may materially and adversely affect its business.

According to its public disclosure, Austral, a Canadian company based in New Zealand, controls interests in more than 15 exploration and production permits totalling over 4.5 million gross acres in New Zealand and Papua New Guinea. As indicated elsewhere in this annual report, the Registrant holds 3,110,240 shares of Austral and accordingly, the Registrant’s financial position may be indirectly impacted by foreign laws and regulations that govern Austral’s business and affairs.

Differences between Canadian and U.S. Generally Accepted Accounting Principles

The Registrant is subject to changes in accounting standards. These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) that conform in all material respects with United States generally accepted accounting principles (“U.S. GAAP”) that affect the Registrant, with some exceptions that are detailed below in Item 17, Note 11 “Differences between Canadian and United States Generally Accepted Accounting Principles”.

New Accounting pronouncements

At the date of this report there have been no new accounting pronouncements that have had a material affect on the Registrant’s financial statements.

Liquidity and capital resources –2006 Compared to 2005 and 2004

Currently, the Registrant has sufficient capital to conduct its planned exploration programs on the two New Zealand petroleum exploration permits through the 2007 fiscal year. However, owing to the inherent risks of oil and gas exploration, it is uncertain if the Registrant will be able to generate income and/or secure outside sources of capital in amounts that are sufficient for it to continue with its planned operations beyond the end of 2007. As discussed under the heading, “Property, Plant and Equipment - Petroleum Exploration Regime in New Zealand” (Item 4.D), and “Risk Factors - Consequences of Failure to Satisfy Prescribed Permit or Licence Terms and Conditions” (Item 3.D), the Registrant risks forfeiture of its interests in the New Zealand prospects if it is unable to meet its obligations under the related Work Programs on a timely basis. Due to the exploratory nature of its business, traditional forms of debt financing may not be available to the Registrant, and the Registrant may be required to look at opportunities to farm-out, reschedule or defer some of its capital expenditures.

G&A expenses averaged $25,000 per month for the administration, salaries, premises, professional fees and like costs and expenses associated with being a public company. The Registrant did not receive any revenue from its operations in 2006 and does not expect to receive any operational revenue during the fiscal 2007 year. Overhead expenditure needs after fiscal 2007 may require the Registrant to raise additional financing or to sell its portfolio of investments. It is uncertain whether the Registrant will be able to secure such financing on terms that are acceptable to it, or at all, or to sell its investments in amounts that are sufficient for the Registrant to continue with its planned operations.

Operating Activities:

At July 31, 2006, the Registrant had $472,343 in working capital (July 31, 2005: $194,897, July 31, 2004: $104,304). Cash on hand was $451,969, $190,617 and $69,022 at July 31, 2006, 2005 and 2004 respectively. The Registrant had negative cash flow from operations of $266,648, $69,769 and $74,480 for the years ending July 31, 2006, 2005 and 2004 respectively.

- 19 -

Financing Activities:

The Registrant did not conduct any financing activities during the 2006 and 2005 fiscal year. During the 2004 fiscal year the Registrant received $30,000 from the issuance of 100,000 common shares of the Registrant upon the exercise of certain share purchase warrants.

Subsequent to our year ended July 31, 2006, the Registrant completed two private placement financings as follows:

a)

12,972,142 units of the Registrant were issued at a purchase price of $0.35 per unit, for gross proceeds of $4,540,250. Each unit consisted of one common share and one share purchase warrant. Each warrant entitles the holder to acquire an additional common share of the Registrant at a price of $0.70 per share for two years from the closing date of August 30, 2006. At the Registrant’s option, and after the four-month hold period prescribed under British Columbia securities laws has expired, the expiry date of the warrants can be accelerated on 30 days notice, should the Registrant’s shares trade at or higher than $1.25 for ten consecutive trading days; and

b)

5,905,000 units of the Registrant were issued at a purchase price of $1.00 per unit, for gross proceeds of $5,905,000. Each unit consisted of one common share and one-half of one share purchase warrant. Each full warrant entitles the holder to acquire an additional common share of the Registrant at a price of $1.35 per share for eighteen months from the closing date of January 17, 2007. At the Registrant’s option, and after the four-month hold period prescribed under British Columbia securities laws has expired, the expiry date of the warrants can be accelerated on 30 days notice, should the Registrant’s shares trade at or higher than $1.75 for ten consecutive trading days.

Investing Activities:

Subsequent to the end of the 2006 fiscal year the Registrant:

a)	purchased 1,395,000 common shares of Austral in a private placement effected by Austral at a purchase price of $1.30 per share; and
b)	purchased an additional 180,300 shares of Austral in the open market at market prices averaging $1.42 per share.

As of December 29, 2006, the Registrant held a total of 3,110,240 common shares of Austral, representing 11.20% of Austral’s issued and outstanding common shares.

During the 2006 fiscal year the Registrant:

a)	sold 7,373,569 common shares of AMG for aggregate proceeds of $133,695. These dispositions resulted in the Company’s effective loss of control of AMG, the accounts of which were, until that time, consolidated with those of the Company. Please refer to Item 17 for further information;
b)	sold 50,000 common shares of Austral with a book value of $78,000 for proceeds of $74,241 resulting in a loss of $3,759;
c)	purchased 200,000 units in a private placement effected by Austral at a purchase price of $2.50 per unit. Each unit consisted of one common share of Austral and one half of one share purchase warrant, with each warrant entitling the Company to purchase one common share of Austral at a price of $3.50 per share for one year subject to an accelerated expiry if a trigger price of $4.50 is reached in the first twelve months from the issue date. The warrants subsequently expired as they were not exercised; and
d)	sold 1,000,000 shares of TAG with a book value of $500,000 for proceeds of $1,141,581, for a gain over book value of $641,581. The Company acquired these shares in the 2005 fiscal year by participating in a private placement, purchasing 500,000 units from TAG at a purchase price of $0.40 per unit. Each unit consisted of one

- 20 -

share and one share purchase warrant, with each warrant entitling the Registrant to purchase one common share of TAG at a price of $0.60 per share in the first year and $0.80 in the second year, subject to accelerated expiry if a trigger price of $1.00 was reached in year one or a trigger price of $1.20 was reached in year two. The Registrant exercised the warrants during the 2006 fiscal year at a price of $0.60 per share.

During the 2005 fiscal year the Registrant:

a)	sold 788,800 shares of Austral, with a book value of $998,160 or $1.27 per share, for $2,216,479, or approximately $2.81 per share, resulting in a gain over carrying value of $1,218,319. The proceeds from the sale of this investment and additional working capital were used to exercise 836,845 Austral share purchase warrants at an exercise price of $1.50 per share. The Registrant also exercised 382,750 Austral share purchase warrants at an exercise price of NZ$2.10 per share;
b)	through its then-subsidiary, AMG, sold a total of 100,000 shares of Gondwana with a book value of $10,000, for proceeds of $6,000 resulting in a loss of $4,000; and
c)	as described above, purchased 500,000 units of TAG in a private placement at a purchase price of $0.40 per unit.

Summary:

Our financing and investing activities during the twelve months ended July 31, 2006 resulted in a net increase in cash of $261,352, compared to a net increase in cash of $121,595 for the comparable period ended July 31, 2005 and a net decrease in cash of $157,448 for the comparable period ended July 31, 2004.

Management is of the view that conventional debt financing is unavailable to exploration stage resource companies such as our Company. Accordingly, we have depended largely on unregistered private placement financing from investors who are either existing contacts of our management or who have come to our attention through brokers, financial institutions and other intermediaries. Our access to capital is always dependent upon general financial market conditions. Our capital resources have not changed during our 2006 fiscal year, nor are they anticipated to change during the 2007 fiscal year.

Anticipated Total Work Obligations Before July 31, 2007 (As at July 31, 2006)

The anticipated total work obligations before July 31, 2007 as at July 31, 2006 was nil.

Subsequent to the 2006 fiscal year-end, the Registrant acquired a 100% interest in two petroleum exploration permits in New Zealand that have work obligations for the year amounting to a total of $230,000. The work program associated with both permits, as detailed above, consists of seismic reprocessing and structural, stratigraphic and reservoir sampling and analysis.

Our current working capital is sufficient to meet our anticipated capital expenditures for the remainder of the 2007 fiscal year, as estimated at the date of this annual report.

Research and Development, Patents and Licences

Not applicable.

Trend Information

Due to the Registrant’s significant investment in common shares of Austral, the market price of Austral’s common shares, as well as the volatility and liquidity of the markets on which the shares trade, are important trends to the Registrant. Austral’s common shares are listed for trading on AMEX under the symbol “AEN”, and on the New Zealand Stock Exchange and the TSX Venture Exchange under the symbol “APX”. Trading of Austral’s common stock on AMEX has been somewhat volatile and thin. During the period between January 1, 2006 and January 8, 2007, the closing prices of Austral’s common shares have ranged from a high of US$3.02 on April 10, 2006 to a low of

- 21 -

US$1.11 on July 21, 2006; the closing price of Austral’s common shares on January 8, 2007 was $1.67. Daily trading volumes on AMEX during this same period have ranged from no shares to 285,000 shares.

Exchange rate fluctuation is expected to become more important to the Registrant during the 2007 fiscal year as we hold our cash in CAD$ and US$ and will be incurring our exploration expenditures in NZ$. During the period between January 1, 2006 and January 8, 2007, the U.S. dollar equivalents of NZ$1.00, based on the noon buying rate in New York, as certified by the New York Federal Reserve Bank for customs purposes, ranged from US$0.5958 (on June 29, 2006) to US$0.7084 (on January 2, 2007). On January 8, 2007, U.S. dollar equivalent of NZ$1.00 was US$0.6880, based on the noon buying rate in New York.

Off-Balance Sheet Arrangements

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

Tabular Disclosure of Contractual Obligations

	Payments due by period
Contractual Obligations	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years
Long-Term Debt Obligations	-	-	-	-	-
Capital finance/lease	-	-	-	-	-
Operating lease	-	-	-	-	-
Permit obligations	230,000	230,000	-	-	-
Purchase obligations	-	-	-	-	-
Other long-term liabilities reflected on the Registrant’s balance sheet under the GAAP of the primary financial statements	-	-	-	-	-
Total	230,000	230,000	-	-	-

Commitments beyond the 2007 fiscal year are summarized above under Item 4D. “Property, Plan and Equipment” and are subject to change as exploration work continues and the Registrant acquires new information on its exploration permits to determine whether the permits are sufficiently prospective to commit to the Year 2 and Year 3 work programs specified for that year, as detailed above.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

At December 29, 2006, the directors and officers of the Registrant were:

		Office Held
Name and Municipality of Residence	Position Held	Since
Mr. Peter Loretto, (1) Vancouver, B.C.	President, Chief Executive Officer and Director	2003
Mr. Barry MacNeil, Surrey, B.C.	Corporate Secretary, Chief Financial Officer and Director	2004
Mr. Michael Hart, (1) Roberts Creek, B.C.	Director	1999

- 22 -

		Office Held
Name and Municipality of Residence	Position Held	Since
Dr. David Bennett, (1) (2) Wellington, New Zealand	Director	2006(3)

Notes:
(1)	Member of audit committee.
(2)	David Bennett was appointed as a Director of the Registrant on August 23, 2006.
(3)	David Bennett previously served as a Director of the Registrant during the period from November 7, 1996 to April 20, 2001.

All nominated directors were re-elected on January 12, 2007 and have a term of office expiring at the next annual meeting of the Registrant. On August 23, 2006, David Bennett was appointed as a Director of the Registrant. Subsequently, Douglas Lynes resigned as a Director of the Registrant on October 6, 2006. All officers have a term of office lasting until their removal or replacement by the board of directors.

Mr. Peter Loretto obtained a Masters of Business Administration from Gonzaga University, Spokane Washington in 1984 and has been the Registrant’s President, Chief Executive Officer and a director since May 12, 2003. Mr. Loretto is also the principal shareholder of the Corporation. For the last fifteen years, Mr. Loretto has worked as an independent businessman and investor, within the securities sector as well as participating in other business opportunities.

Mr. Barry MacNeilis an accountant who has over fifteen years experience in public practice and is an independent businessman and investor. Additionally, Mr. MacNeil has worked as a Corporate Accountant for a group of companies involved in sales and services of mining equipment to the international mining industry and a lumber company with export sales to Japan, Europe and Australia. Mr. MacNeilhas been the Registrant’s Corporate Secretary, Chief Financial Officer and a Director since October 27, 2004.

Mr. Michael Hart has been a director of the Registrant since December 13, 1999. From April 1999 until present, Mr. Hart has held the position of President of Hart-Byrne Enterprises Ltd. Hart-Byrne Enterprises Ltd. is a private company formed by Mr. Hart and other investors, which is developing specialized products for the music industry. Mr. Hart is also President of On The Wing Productions Inc., a private company, which is also developing products for the music industry. Mr. Hart the President, Corporate Secretary, Treasurer and a director of AMG Oil Ltd., and is the Corporate Secretary and a director of Entourage Mining Ltd.

Dr. David Bennett joined the board of directors on August 23, 2006. Dr. Bennett received a BA (Natural Sciences) from Cambridge University in 1968, an M SC in Exploration Geophysics from the University of Leeds and a doctorate in Geophysics from the Australian National University with post-doctoral work at the University of Texas in 1973. Dr. Bennett has over thirty years of technical and operational experience in the oil and gas industry and has played a major role in the discovery and development of several oil and gas fields in the Australasian region. In addition, Dr. Bennett was a co-founder and the Chief Executive Officer of Austral Pacific Energy Ltd.

The Registrant does not have liability insurance to cover its directors and officers in the performance of their duties. To date, no agreements to contractually provide indemnities have been executed or delivered.

B. Compensation

The following table sets forth the aggregate compensation paid by our company for services rendered during the last full fiscal years indicated:

- 23 -

SUMMARY COMPENSATION TABLE

Named Executive Officer and Principal Position	Year Ended	Compensation		Securities Under Option
		Salary ($)	Other Annual Compensation ($)	Number of Options	Exercise Price	Expiry Date
Peter Loretto, President, Chief Executive Officer, Director(1)	2006 2005 2004	60,000 20,000 -	- - -	- - -	- - -	- - -
Barry MacNeil Secretary, Chief Financial Officer, Director(2)	2006 2005 2004	- - -	900(3) 2,135(3) -	- - -	- - -	- - -
Garth Johnson Secretary, Chief Financial Officer, Director(1)(2)	2006 2005 2004	- 4,454 9,056	- - -	- - -	- - -	- - -

(1)	Mr. Loretto became President and Chief Executive officer of the Registrant on May 12, 2003 replacing Mr. Johnson. Mr. Loretto also became a Director of the Registrant on May 12, 2003.
(2)	Mr. Johnson resigned as the Registrant’s Corporate Secretary, Chief Financial Officer and Director on October 27, 2004 and was replaced by Mr. MacNeil.
(3)	These funds represent fees for accounting services provided to the Registrant.

The majority of the Registrant’s executive officers and directors also serve as officers or directors of other companies or have other occupations.

With the exception of Mr. Loretto, the Chief Executive Officer, the Registrant did not pay regular remuneration to its executive officers during the fiscal year ended July 31, 2006. The Registrant pays $5,000 per month to PCL Holdings Ltd., a private company that is wholly owned by Mr. Loretto, in consideration for Mr. Loretto’s services as Chief Executive Officer on a part-time basis and additionally as necessary.

During the year ended July 31, 2006, no other cash compensation, including salaries, fees, commissions, and bonuses was paid to the directors and officers for services rendered, nor was any remuneration paid to directors. The Registrant currently does not offer profit sharing, pension or retirement benefit plans to its officers or directors and none are presently proposed. There are no arrangements for payments on termination for any officer in the event of a change of control.

C. Board Practices

All directors have a term of office expiring at our next annual general meeting which is anticipated to take place in early 2008, unless re-elected or unless a director's office is earlier vacated in accordance with our Articles or the provisions of theBusiness Corporations Act(British Columbia).

All officers have a term of office lasting until their removal or replacement by the board of directors. As of December,29, 2006 the following are the Registrant’s officers and directors.

- 24 -

Name	Period served in position
Peter Loretto (1), President, Chief Executive Officer and Director	31 months
Barry MacNeil, Secretary, Chief Financial Officer and Director	26 months
David Bennett (1), Director	4 months
Michael Hart (1), Director	72 months

(1) member of the audit committee

As indicated above, the Registrant pays $5,000 per month to PCL Holdings, a private company that is wholly owned by Peter Loretto, in consideration for Mr. Loretto’s services as Chief Executive Officer. The Mr. Loretto is entitled to 12 months notice on any change in responsibilities as Chief Executive Officer.

Following Dr. Bennett’s appointment as a Director on August 23, 2006, the Registrant verbally agreed with Dr. Bennett that he would provide management services of a technical nature to the Registrant for a two-year period in consideration of a monthly fee of $5,000 per month, a gross overriding royalty of 0.5% on the Registrant’s two New Zealand petroleum exploration permits, PEP 38348 and 38349 and he would be granted 200,000 options in the Registrant that vest over two years and are exercisable at $1.00 per share for five years from the date of grant. An additional 200,000 options can be earned subject to certain criteria being met related to the Registrant’s performance. As a result of Dr. Bennett’s increasing involvement with the Registrant the verbally agreed terms described above are being renegotiated to reflect the increased involvement and time commitment required of Dr. Bennett by the Registrant. A form 6-K filing will be made when the revised services agreement is settled.

Audit and Remuneration Committees

List of Audit Committee members as at December29, 2006:

Peter Loretto
David Bennett
Michael Hart

Audit Committee members do not have service contracts and are not paid for their services as an audit committee member. The committee is constituted to monitor the veracity of the financial and regulatory reports produced by the Registrant, and the controls that are in place to ensure the opportunities for fraud or material error in the financial statements of the Registrant are minimized.

Our board of directors has determined that Mr. Hart and Dr. Bennett are both independent according to the standards for audit committee member independence prescribed by the American Stock Exchange.

Please refer to Exhibits for a copy of the Registrant’s Audit Committee Charter.

The Registrant does not have a remuneration committee. Currently any material commitments, inclusive of remuneration, are required to be pre-approved by the board of directors.

D. Employees

The Registrant currently has no full-time employees. Mr. Loretto provides his services to the Registrant as Chief Executive Officer on a part-time basis through his wholly-owned private company, as described above. In addition, three other persons provide substantial administrative services to the Registrant and are employed through its wholly owned subsidiary DLJ Management Corp.

- 25 -

Share ownership by officers and directors at December 29, 2006 are as follows:

Name	Number of Shares	Number of Warrants(1)	Number of Options	Exercise Price of Warrants/Options	Expiry Date of Warrants/Options
Peter Loretto	8,645,143	100,000	-	$1.35/$0.00	July 18, 2008/-
David Bennett	71,000	71,000	200,000	$0.70/$1.00	Aug 30, 2008/Nov 1, 2011
Barry MacNeil	14,972	10,000	-	$0.70/$0.00	Aug 30, 2008/-
Michael Hart	-	-	-	-	-

⁽¹⁾ Subject to certain accelerated expiry provisions as detailed above.

There were no directors’ and senior officers’ options granted or exercised in the years ended July 31, 2006 or 2005 and there were no outstanding stock options to management. Subsequent to July 31, 2006, Dr. Bennett was granted 200,000 options exercisable at a price $1.00 per share, vesting over two years.

The Registrant has no defined plan for involving employees in the capital of the Registrant. The Registrant may, at the discretion of the board of directors, grant incentive stock options to its officers, directors, employees and consultants, for the purchase of shares in the Registrant. Stock options are in consideration for services and are non-transferable. The Board of Directors of the Registrant determines the exercise price.

Vesting of options may be made at the time of granting of the options or over a period of up to five years as set out in each option agreement. Once approved and vested, options are exercisable at any time until expiry or termination as above.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED TRANSACTIONS

A. Major shareholders

Beneficial Holders of More Than Five Percent of Outstanding Shares

The following schedule sets forth the common share ownership of each person known by us to be the beneficial owner of 5% or more of the Registrant’s common share.

Security Held by Certain Beneficial Owners

Name and Address of Owner	Number of Shares	Percentage of Class
Alex Guidi Vancouver, B.C.	5,088,382(1)	13.32%
Peter Loretto Vancouver, B.C.	8,745,143(2)	23.62%
Lukas H. Lundin	10,000,000(3)	24.10%

- 26 -

Name and Address of Owner	Number of Shares	Percentage of Class
Vancouver, B.C.

⁽¹⁾Includes 1,700,000 share purchase warrants that can be exercised within 60 days.

⁽²⁾Includes 100,000 share purchase warrants that can be exercised within 60 days.

⁽³⁾Includes 5,000,000 share purchase warrants that can be exercised within 60 days.

To the knowledge of the Registrant, there have been no significant changes in percentage share ownership held by any major shareholders, during the last three years with the exception of Mr. Loretto’s purchase of 7,154,000 shares (pre-split 1,022,000 shares) of the Registrant from the Registrant’s former principal shareholder, Mr. Guidi, in December of 2003, and Mr. Lundin’s purchase of 5,000,000 units of the Registrant pursuant to a private placement that was completed in September of 2006.

Insider Reporting

TheBusiness Corporations Act (British Columbia) does not prescribe any reporting requirements for insiders of our company. We are a reporting issuer in British Columbia and insiders comply with the requirements of Part 12 of theSecurities Act (British Columbia). Insiders (generally officers, directors and holders of more than ten percent of voting securities) are required to file individual insider reports of changes in their ownership within ten days after any trade in our securities occurs. Copies of the reports and summaries of the insider activity as well as issuer activity are available for public inspection atwww.sedi.com, the Canadian regulatory website for insider trading.

Major Shareholder Voting Right

There are no different voting rights, attributable to the major shareholders and every shareholder has equal rights.

Host Country Shareholders

The proportion and number of shareholders in the host country as at December 29, 2006, are as follows (based on a shareholders list provided by the Registrant’s transfer agent):

Proportion of shares held in the U.S.	4.5%
Number of shareholders	378
Number of shares held	1,377,802

Arrangements Affecting Shareholdings

There are no known arrangements, which would significantly affect the control of the major shareholder.

Associated Company/Related Party Shareholdings

At December 29, 2006, Mr. Loretto was a significant shareholder of Austral and personally held 667,950 common shares (2.41%) of that company. In addition, Mr. Loretto beneficially owned, through his controlling interest in the Registrant, 3,110,240 common shares (11.2%) of Austral. The combined total of 3,778,190 represents a 13.61% ownership interest of Austral on an undiluted basis, and is believed by the Registrant to be sufficient to allow Mr. Loretto and the Registrant to have significant influence over Austral.

At the beginning of the 2006 fiscal year, the Registrant was a controlling shareholder of AMG owning 8,200,000 common shares or 49.4% of AMG. During the 2006 fiscal year the Registrant sold 7,373,589 shares of AMG for aggregate proceeds of $133,695. The Registrant now owns 826,431 (3.66%) shares of AMG and as a result the

- 27 -

Registrant no longer controls AMG. Mr. Michael Hart, a director of the Registrant, is also the President, Corporate Secretary, Treasurer and a director of AMG.

B. Related Party Transactions

The following are reported as Related Party Transactions. The nature of the transaction, the affiliate(s) who had an interest in the transaction and the nature of the interest are included in the description of each of the transactions:

Subsequent events:a) Subsequent to our year end on July 31, 2006, and following Dr. Bennett’s appointment as a Director on August 23, 2006, the Registrant verbally agreed with Dr. Bennett that he would provide management services of a technical nature to the Registrant for a two-year period in consideration of a monthly fee of $5,000 per month, a gross overriding royalty of 0.5% on the Registrant’s two New Zealand petroleum exploration permits, PEP 38348 and 38349 and he would be granted 200,000 options in the Registrant that vest over two years and are exercisable at $1.00 per share for five years from the date of grant. An additional 200,000 options can be earned subject to certain criteria being met related to the Registrant’s performance. As a result of Dr. Bennett’s increasing involvement with the Registrant, the verbally agreed terms described above are being renegotiated to reflect the increased involvement and time commitment required of Dr. Bennett by the Registrant. A form 6-K filing will be made when the revised services agreement is settled.

b) On October 17, 2006, the Registrant participated in a private placement financing in Austral, acquiring 1,395,000 shares of Austral Pacific at a purchase price of US$1.30 per share.

c) On August 30, 2006 the Registrant completed a private placement financing of 12,972,142 units of the Registrant as detailed above. Two Directors of the Company at the time of the financing acquired a total of 20,000 of these units. Dr. Bennett, who was subsequently appointed to the board of the Registrant acquired 71,000 units.

d) On January 17, 2007 the Registrant completed a private placement financing of 5,905,000 units of the Registrant as detailed above. One Director of the Company acquired a total of 200,000 of these units.

Fiscal Year Ended July 31, 2006:

a) The Registrant participated in a private placement financing in Austral during the 2006 fiscal year by acquiring 200,000 units of Austral at $2.50 per unit. Each unit consisted of one share and one half of one share purchase warrant, with each warrant entitling the Registrant to purchase an additional share at a price of $3.50 per share for one year subject to an accelerated expiry if a trigger price of $4.50 was reached in the first twelve months from the issue date. The warrants subsequently expired on October 13, 2006 as they were not exercised.

b) On April 1, 2006, the Registrant extended for one-year consulting agreement entered into during the 2005 fiscal year with PCL Holdings Ltd., a private company wholly-owned by Peter Loretto, the Chief Executive Officer of the Registrant. Pursuant to this agreement, the Registrant pays PCL Holdings a monthly fee of $5,000 in consideration of Mr. Loretto’s services as Chief Executive Officer on a part-time basis and additionally as necessary. This agreement is extendable for another one year period if agreed to by both parties. This contract provides for 12 months notice on any change in responsibilities for the Chief Executive Officer.

c) During the 2006 fiscal year, the Registrant paid $900 (2005: $2,135, 2004: Nil) for hourly consulting fees to a current director of the Registrant.

d) Austral paid $1,500 per month to DLJ Management Corp., a wholly owned subsidiary of the Registrant, for a portion of DLJ’s overhead in relation to work performed by DLJ on Austral’s behalf. The arrangement was terminated on January 1, 2006.

C. Interests of experts and counsel

Not applicable.

- 28 -

ITEM 8. FINANCIAL INFORMATION

Consolidated Statements and Other Financial Information

Consolidated financial statements are provided under PART III. Item 17. FINANCIAL STATEMENTS

There are no material legal proceedings to which the Registrant is subject or which are anticipated or threatened.

The Registrant has never paid dividends to shareholders nor is there a policy in place to do so. All cash flow derived by the Registrant is re-invested in the Registrant’s operations.

Significant Changes since July 31, 2006:

The Registrant appointed David Bennett as a Director and to the audit committee of the Registrant on August 23, 2006. In addition, the Registrant entered into a verbal agreement with Dr. Bennett to provide services of a technical nature to the Registrant as detailed above that, at the date of this report, is being renegotiated.

On August 30, 2006, the Registrant completed a private placement financing for 12,972,142 units of the Registrant at a purchase price of $0.35 per unit, for proceeds of $4,540,250. Each unit consists of one common share and one share purchase warrant. Each share purchase warrant allows the holder to acquire an additional common share of the Registrant at a price of $0.70 per share for two years from the closing date of August 30, 2006. At the Registrant’s option, and after the applicable resale restricted period has expired, the warrants’ expiry date can be accelerated on 30 days notice, should the Registrant’s shares trade at or higher than $1.25 for ten consecutive trading days.

On October 6, 2006, Douglas Lynes resigned as a Director of the Registrant.

On October 17, 2006, the Registrant participated in a private placement financing, acquiring 1,395,000 common shares of Austral at a purchase price of US$1.30 per share.

The Company was awarded 100% interest in two onshore petroleum exploration permits, PEP 38348 and 38349, located in the East Coast basin of New Zealand.

On January 17, 2007 the Registrant completed a private placement financing of. 5,905,000 units at a purchase price of $1.00 per unit, for gross proceeds of $5,905,000. Each unit consists of one common share and one half of one share purchase warrant. Each full share purchase warrant allows the holder to acquire an additional common share of the Registrant at a price of $1.35 per share for eighteen months from the closing date. At the Registrant’s option, and after the applicable resale restricted period has expired, the warrants’ expiry date can be accelerated on 30 days notice, should the Registrant’s shares trade at or higher than $1.75 for ten consecutive trading days.

No other significant changes material to the business of the Registrant has occurred since the date of the annual financial statements.

ITEM 9. THE OFFER AND LISTING

Offer and Listing Details

There is no offering of stock hereunder. This is an annual report only.

Price History of the stock

The Registrant voluntarily delisted its shares from the Canadian Venture Exchange (“CDNX”) in Vancouver, British Columbia, Canada on July 31, 1997. The Registrant’s shares commenced trading on the OTC Bulletin Board (“OTCBB”) on June 10, 1997, under the symbol “TEPUF.” The trading symbol was subsequently changed to “TOPXF” on March 1, 2001, concurrent with the 1 for 12 share consolidation approved by the Registrant’s shareholders on January 17, 2001. Concurrent with a further 1 for 3 share consolidation approved by shareholders on January 18, 2002

- 29 -

the Registrant’s symbol was changed to “TOPTF” on the effective date of the consolidation being April 4, 2002. On May 26, 2004 the Registrant’s symbol was changed to “TOPLF”. On March 30, 2006 the Registrant subdivided its common shares on a seven new for one old basis.

All values noted below are in US dollars per share:

Summary trading by year, for the five most recently competed fiscal periods ending July 31, 2006.

	OTCBB
Year	High (1,2)	Low (1,2)
2002	1.01	0.12
2003	1.52	0.35
2004	0.90	0.10
2005	6.00	0.44
2006	3.00	0.26

Summary trading by quarter for the two most recently competed fiscal periods ending July 31, 2006.

	OTCBB
Year and Quarter	High (1,2)	Low (1,2)
2005
First Quarter	6.00	0.40
Second Quarter	2.00	1.16
Third Quarter	2.40	1.12
Fourth Quarter	2.00	1.10
2006
First Quarter	2.00	1.35
Second Quarter	2.00	1.05
Third Quarter	3.00	0.26
Fourth Quarter	0.74	0.27

Summary trading by quarter for any full quarter subsequent to the year end July 31, 2006.

	OTCBB
First Quarter	High (1,2)	Low (1,2)
Aug 1 to Oct 31,	0.89	0.36
2006

Summary trading by month for the six most recently completed months ending October 31, 2006.

	OTCBB
Month	High (1,2)	Low (1,2)
May 2006	0.74	0.35
June 2006	0.50	0.30
July 2006	0.45	0.27

- 30 -

	OTCBB
Month	High (1,2)	Low (1,2)
August 2006	0.68	0.36
September 2006	0.89	0.55
October 2006	0.85	0.60

(1)	OTCBB quotations may reflect interdealer prices, without retail Markup, mark-down or commission and may not necessarily reflect actual transactions.
(2)	All quotations are from the Yahoo Finance website located atwww.yahoo.com.

Plan of Distribution

Not applicable.

Markets

The authorized capital of the Registrant consists of an unlimited number of common shares without par value, of which 36,495,225 common shares were issued and outstanding on January 17, 2007.

The Registrant’s shares trade on the OTC Bulletin Board (“OTCBB”) under the symbol “TOPLF”.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

On January 16, 2006 the Registrant was continued out of the jurisdiction of the Yukon Territory and into British Columbia. It is now a company subsisting underBusiness Corporations Act (British Columbia) (the “New BC Act”) which replaced theCompany Act (British Columbia) in 2004. The Registrant’s Notice of Articles has been filed with the British Columbia Registrar of Companies under the New BC Act, and constitutes the primary charter document of the Registrant. The Registrant has also adopted the new Articles in the form approved by the shareholders at the annual and special meeting held on January 12, 2006, which replaced the Registrant’s former by-laws. See also Item 4 of this Annual Report under the heading “History and Development of the Registrant”.

Details of the Registrant’s Notice of Articles and Articles were disclosed in the Registrant’s annual report on Form 20-F for the fiscal year ended July 31, 2005, as filed with the US Securities and Exchange Commission. A copy of each of the Notice of Articles and the Articles, as approved by shareholders on January 12, 2006, was attached as an exhibit to the Registrant’s annual report on 20-F for the fiscal year ended July 31, 2005. There have been no changes to the Notice of Articles or Articles since then.

C. Material Contracts

The following summary of our material agreements does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of those agreements. The agreements are filed as exhibits to this annual report or have been filed as exhibits to annual reports for prior fiscal years. There are no material contracts, other than those contracts entered into in the ordinary course of business, currently in place or to which we or any member of our group is a party, from the two years immediately preceding the publication of this annual report, except as follows:

1. Pursuant to a private placement subscription agreement dated October 2005, we subscribed for 200,000 units of Austral at a purchase price of US$2.50 per unit. Each unit consisted of one share and one half of one share

- 31 -

	purchase warrant, with each warrant entitling us to purchase one common share at a price of US$3.50 per share for one year subject to an accelerated expiry if a trigger price of US$4.50 was reached in the first twelve months from the issue date. The warrants subsequently expired as they were not exercised.
2.	Pursuant to a private placement subscription agreement dated October 17, 2006, we purchased 1,395,000 common shares of Austral at a purchase price of US$1.30 per share.
3.	We have entered into a consulting agreement dated April 1, 2005 with PCL Holdings Ltd, a private company that is wholly-owned by Peter Loretto, our Chief Executive Officer. We pay $5,000 per month to PCL Holdings in consideration for Mr. Loretto’s services as Chief Executive Officer on a part-time basis and additionally as necessary. The agreement was extended for a one year period effective April 1, 2006 and is extendable for another one year period if agreed to by both parties. This contract provides for 12 months notice on any change in Mr. Loretto’s responsibilities. This agreement has been previously filed.
4.	Pursuant to private placement subscription agreements entered into between our Company and various investors dated for reference August 10, 2006, we issued 12,972,142 units at a purchase price of $0.35 per unit, for gross proceeds of $4,540,250. Each unit consisted of one common share and one share purchase warrant. Each warrant entitles the holder to acquire an additional common share of the Registrant at a price of $0.70 per share for two years from the closing date of August 30, 2006. At the Registrant’s option, and after the four- month hold period prescribed under British Columbia securities laws has expired, the expiry date of the warrants can be accelerated on 30 days notice, should the Registrant’s shares trade at or higher than $1.25 for ten consecutive trading days.
5.	Pursuant to private placement subscription agreements entered into between our Company and various investors dated for reference November 18, 2006, we issued 5,905,000 units at a purchase price of $1.00 per unit, for gross proceeds of $5,905,000. Each unit consisted of one common share and one-half of one share purchase warrant. Each full warrant entitles the holder to acquire an additional common share of the Registrant at a price of $1.35 per share for eighteen months from the closing date of January 18, 2007. At the Registrant’s option, and after the four-month hold period prescribed under British Columbia securities laws has expired, the expiry date of the warrants can be accelerated on 30 days notice, should the Registrant’s shares trade at or higher than $1.75 for ten consecutive trading days.

D. Exchange Controls

There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of common shares of the Registrant, other than withholding tax requirements. See “Taxation”.

There is no limitation imposed by Canadian law or by the charter or other constituent documents of the Registrant on the right of a non-resident to hold or vote common shares of the Registrant, other than as provided in theInvestment Canada Act (Canada) (the “Investment Act”).

The following discussion summarizes the principal features of the Investment Act for a non-resident who proposes to acquire common shares of the Registrant. It is general only, it is not a substitute for independent advice from an investor’s own advisor, and it does not anticipate statutory or regulatory amendments.

The Investment Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture (each an “entity”) that is not a “Canadian” as defined in the Investment Act (a “non-Canadian”), unless after review the Director of Investments appointed by the minister responsible for the Investment Act is satisfied that the investment is likely to be of net benefit to Canada. The size and nature of a proposed transaction may give rise to an obligation to notify the Director and seek an advance ruling. An investment in common shares of the Registrant by a non-Canadian other than a “WTO Investor” (as defined in the Investment Act and which term includes entities which are nationals of or are controlled by nationals of member states of the World Trade Organization) when the Registrant was not controlled by a WTO Investor, would be reviewable under the Investment Act if it was an investment to acquire control of the Registrant and the value of the assets of the

- 32 -

Registrant, as determined in accordance with the regulations promulgated under the Investment Act, was over a certain figure, or if an order for review was made by the federal cabinet on the grounds that the investment related to Canada’s cultural heritage or national identity, regardless of the value of the assets of the Registrant. An investment in common shares of the Registrant by a WTO Investor, or by a non-Canadian when the Registrant was controlled by a WTO Investor, would be reviewable under the Investment Act if it was an investment to acquire control of the Registrant and the value of the assets of the Registrant, as determined in accordance with the regulations promulgated under the Investment Act, exceeds a specified amount, which in 2006 is CAD$265 million (2005: CAD$250 million; 2004: CAD$237 million). A non-Canadian would acquire control of the Registrant for the purposes of the Investment Act through acquisition of common shares if the non-Canadian acquired a majority of the common shares of the Registrant. The acquisition of less than a majority but one third or more of the common shares of the Registrant would be presumed to be an acquisition of control of the Registrant unless it could be established that, on the acquisition, the Registrant was not controlled in fact by the acquirer through the ownership of common shares.

Certain transactions relating to common shares of the Registrant would be exempt from the Investment Act, including

(a) acquisition of common shares of the Registrant by a person in the ordinary course of that person’s business as a trader or dealer in securities,

(b) acquisition of control of the Registrant in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions on the Investment Act, and

(c) acquisition of control of the Registrant by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Registrant, through the ownership of common shares, remained unchanged.

E. Taxation

Canadian Tax Consequences

The following summarizes the material Canadian federal income tax consequences generally applicable to the holding and disposition of the Registrant’s common shares by a holder (in this summary, a “U.S. Holder”) who, (a) for the purposes of the Income Tax Act (Canada) (the “Tax Act”), is not resident in Canada, deals at arm’s length with the Registrant, holds the common shares as capital property and does not use or hold the common shares in the course of carrying on, or otherwise in connection with, a business in Canada, and (b) for the purposes of the Canada-United States Income Tax Convention, 1980 (the “Treaty”), is a resident solely of the United States, has never been a resident of Canada, and has not held or used (and does not hold or use) common shares in connection with a permanent establishment or fixed base in Canada. This summary does not apply to traders or dealers in securities, limited liability companies, tax-exempt entities, insurers, financial institutions (including those to which the mark-to-market provisions of the Tax Act apply), or any other U.S. Holder to which special considerations apply.

This summary is based on the current provisions of the Tax Act including all regulations thereunder, the Treaty, all proposed amendments to the Tax Act, the regulations and the Treaty publicly announced by the Government of Canada to the date hereof, and the current administrative practices of the Canada Revenue Agency. It has been assumed that all currently proposed amendments will be enacted as proposed and that there will be no other relevant change in any governing law or administrative practice, although no assurances can be given in these respects. The immediately following summary does not take into account Canadian provincial, U.S. federal (which follows further below), state or other foreign income tax law or practice. The tax consequences to any particular U.S. Holder will vary according to the status of that holder as an individual, trust, corporation, partnership or other entity, the jurisdictions in which that holder is subject to taxation, and generally according to that holder’s particular circumstances. Accordingly, this summary is not, and is not to be construed as, Canadian tax advice to any particular U.S. Holder.

Dividends

Dividends paid or deemed to be paid to a U.S. Holder by the Registrant will be subject to Canadian withholding tax. Under the Treaty, the rate of withholding tax on dividends paid to a U.S. Holder is generally limited to 15% of the gross

- 33 -

amount of the dividend (or 5% if the U.S. Holder is a corporation and beneficially owns at least 10% of the Registrant’s voting shares). the Registrant will be required to withhold the applicable withholding tax from any such dividend and remit it to the Canadian government for the U.S. Holder’s account.

Disposition

A U.S. Holder is not subject to tax under the Tax Act in respect of a capital gain realized on the disposition of a Common Share in the open market unless the share is “taxable Canadian property” to the holder thereof and the U.S. Holder is not entitled to relief under the Treaty. A common share will be taxable Canadian property to a U.S. Holder if, at any time during the 60 months preceding the disposition, the U.S. Holder or persons with whom the U.S. Holder did not deal at arm’s length alone or together owned, or had rights to acquire, 25% or more of the Registrant’s issued shares of any class or series.

A U.S. Holder whose common shares do constitute taxable Canadian property, and who might therefore be liable for Canadian income tax under the Tax Act, will generally be relieved from such liability under the Treaty unless the value of such shares at the time of disposition is derived principally from real property situated in Canada. The value of the Registrant’s common shares is not currently derived principally from real property situated in Canada.

United States Tax Consequences

United States Federal Income Tax Consequences

The following summarizes the material United States federal income tax consequences, under current law, generally applicable to a U.S. Holder (as hereinafter defined) of common shares of the Registrant. This discussion does not address all potentially relevant federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences. (see “Taxation – Canadian Federal Income Tax Consequences” above). Accordingly, holders and prospective holders of common shares of the Registrant should consult their own tax advisors about the specific federal, state, local, and foreign tax consequences to them of purchasing, owning and disposing of common shares of the Registrant, based upon their individual circumstances.

The following discussion is based upon the sections of theInternal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time and which are subject to differing interpretations. This discussion does not consider the potential effects, both adverse and beneficial, of any proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.

U.S. Holders

As used herein, a “U.S. Holder” means a holder of common shares of the Registrant who is a citizen or individual resident of the United States, a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, an estate whose income is taxable in the United States irrespective of source or a trust subject to the primary supervision of a court within the United States and control of a United States fiduciary as described Section 7701(a)(30) of the Code. This summary does not address the tax consequences to, and U.S. Holder does not include, persons subject to specific provisions of federal income tax law, such as tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax-deferred accounts, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals, persons or entities that have a “functional currency” other than the U.S. dollar, shareholders subject to the alternative minimum tax, shareholders who hold common shares as part of a straddle, hedging or conversion transaction, and shareholders who acquired their common shares through the exercise of employee stock options or otherwise as compensation for services. This summary is limited to U.S. Holders who own common shares as capital assets and who own (directly and indirectly, pursuant to applicable rules of constructive ownership) no more than 5% of the value of the total outstanding stock of the Registrant. This summary does not address the consequences to a person

- 34 -

or entity holding an interest in a shareholder or the consequences to a person of the ownership, exercise or disposition of any options, warrants or other rights to acquire common shares. In addition, this summary does not address special rules applicable to United States persons (as defined in Section 7701(a)(30) of the Code) holding common shares through a foreign partnership or to foreign persons holding common shares through a domestic partnership.

Distribution on Common Shares

In general, U.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares of the Registrant are required to include in gross income for United States federal income tax purposes the gross amount of such distributions, equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that the Registrant has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder’s federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder’s federal taxable income by those who itemize deductions. (See more detailed discussion at “Foreign Tax Credit” below). To the extent that distributions exceed current or accumulated earnings and profits of the Registrant, they will be treated first as a return of capital up to the U.S. Holder’s adjusted basis in the common shares and thereafter as gain from the sale or exchange of property. Preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation.

In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Generally any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss. However, an individual whose realized gain does not exceed $200 will not recognize that gain, provided that there are no expenses associated with the transaction that meet the requirements for deductibility as a trade or business expense (other than travel expenses in connection with a business trip) or as an expense for the production of income.

Dividends paid on the common shares of the Registrant generally will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A U.S. Holder which is a corporation and which owns shares representing at least 10% of the voting power and value of the Registrant may, under certain circumstances, be entitled to a 70% (or 80% if the U.S. Holder owns shares representing at least 20% of the voting power and value of the Registrant) deduction of the United States source portion of dividends received from the Registrant (unless the Registrant qualifies as a “foreign personal holding company” or a “passive foreign investment company,” as defined below). the Registrant does not anticipate that it will earn any United States income, however, and therefore does not anticipate that any U.S. Holder will be eligible for the dividends received deduction.

Under current Treasury Regulations, dividends paid on the Registrant’s common shares, if any, generally will not be subject to information reporting and generally will not be subject to U.S. backup withholding tax. However, dividends and the proceeds from a sale of the Registrant’s common shares paid in the U.S. through a U.S. or U.S. related paying agent (including a broker) will be subject to U.S. information reporting requirements and may also be subject to the 31% U.S. backup withholding tax, unless the paying agent is furnished with a duly completed and signed Form W-9. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS.

Foreign Tax Credit

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

- 35 -

classified into foreign and domestic sources. Complex rules govern this classification process. In addition, this limitation is calculated separately with respect to specific classes of income such as “passive income,” “high withholding tax interest,” “financial services income,” “shipping income,” and certain other classifications of income. Dividends distributed by the Registrant will generally constitute “passive income” or, in the case of certain U.S. Holders, “financial services income” for these purposes. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific, and U.S. Holders of common shares of the Registrant should consult their own tax advisors regarding their individual circumstances.

Disposition of Common Shares of the Registrant

In general, U.S. Holders will recognize gain or loss upon the sale of common shares of the Registrant equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholder’s tax basis in the common shares of the Registrant. Preferential tax rates apply to long-term capital gains of U.S. Holders which are individuals, estates or trusts. In general, gain or loss on the sale of common shares of the Registrant will be long-term capital gain or loss if the common shares are a capital asset in the hands of the U.S. Holder and are held for more than one year. Deductions for net capital losses are subject to significant limitations. For U.S. Holders which are not corporations, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted. For U.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted. However the amount that can be carried back is limited to an amount that does not cause or increase a net operating loss in the carry back year.

Other Considerations

Set forth below are certain material exceptions to the above-described general rules describing the United States federal income tax consequences resulting from the holding and disposition of common shares:

Foreign Personal Holding Company

If at any time during a taxable year more than 50% of the total combined voting power or the total value of the Registrant’s outstanding shares is owned, directly or indirectly (pursuant to applicable rules of constructive ownership), by five or fewer individuals who are citizens or residents of the United States and 60% or more of the Registrant’s gross income for such year is derived from certain passive sources (e.g., from certain interest and dividends), the Registrant may be treated as a “foreign personal holding company.” In that event, U.S. Holders that hold common shares would be required to include in gross income for such year their allocable portions of such passive income to the extent the Registrant does not actually distribute such income. The Registrant does not believe that it currently qualifies as a foreign personal holding company. However, there can be no assurance that the Registrant will not be considered a foreign personal holding company for the current or any future taxable year.

Foreign Investment Company

If 50% or more of the combined voting power or total value of the Registrant’s outstanding shares is held, directly or indirectly, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and the Registrant is found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that the Registrant may be treated as a “foreign investment company” as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging common shares to be treated as ordinary income rather than capital gain. The Registrant does not believe that it currently qualifies as a foreign investment company. However, there can be no assurance that the Registrant will not be considered a foreign investment company for the current or any future taxable year.

- 36 -

Passive Foreign Investment Company

United States income tax law contains rules governing “passive foreign investment companies” (“PFIC”) which can have significant tax effects on U.S. Holders of foreign corporations. These rules do not apply to non-U.S. Holders. Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States if, for any taxable year, either (i) 75% or more of its gross income is “passive income,” which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by fair market value (or, if the corporation is not publicly traded and either is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of “passive income” is 50% or more. The Registrant appears to have been a PFIC for the fiscal year ended July 31, 2000, and at least certain prior fiscal years. In addition, the Registrant expects to qualify as a PFIC for the fiscal year ending July 31, 2001 and may also qualify as a PFIC in future fiscal years. Each U.S. Holder of the Registrant is urged to consult a tax advisor with respect to how the PFIC rules affect such U.S. Holder’s tax situation.

Each U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a PFIC is subject to United States federal income taxation under one of three alternative tax regimes at the election of such U.S. Holder. The following is a discussion of such alternative tax regimes applied to such U.S. Holders of the Registrant. In addition, special rules apply if a foreign corporation qualifies as both a PFIC and a “controlled foreign corporation” (as defined below) and a U.S. Holder owns, actually or constructively, 10% or more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation (See more detailed discussion at “Controlled Foreign Corporation” below).

A U.S. Holder who elects to treat the Registrant as a qualified electing fund (“QEF”) will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year to which the election applies in which the Registrant qualifies as a PFIC on his pro rata share of the Registrant’s (i) “net capital gain” (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain, and (ii) “ordinary earnings” (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income, in each case, for the shareholder’s taxable year in which (or with which) the Registrant’s taxable year ends, regardless of whether such amounts are actually distributed. A U.S. Holder’s tax basis in the common shares will be increased by any such amount that is included in income but not distributed.

The procedure a U.S. Holder must comply with in making an effective QEF election, and the consequences of such election, will depend on whether the year of the election is the first year in the U.S. Holder’s holding period in which the Registrant is a PFIC. If the U.S. Holder makes a QEF election in such first year, i.e., a “timely” QEF election, then the U.S. Holder may make the QEF election by simply filing the appropriate documents at the time the U.S. Holder files his tax return for such first year. If, however, the Registrant qualified as a PFIC in a prior year during the U.S. Holder’s holding period, then, in order to avoid the Section 1291 rules discussed below, in addition to filing documents, the U.S. Holder must elect to recognize under the rules of Section 1291 of the Code (discussed herein), (i) any gain that he would otherwise recognize if the U.S. Holder sold his stock on the qualification date or (ii) if the Registrant is a controlled foreign corporation, the U.S. Holder’s pro rata share of the Registrant’s post-1986 earnings and profits as of the qualification date. The qualification date is the first day of the Registrant’s first tax year in which the Registrant qualified as a QEF with respect to such U.S. Holder. For purposes of this discussion, a U.S. Holder who makes (i) a timely QEF election, or (ii) an untimely QEF election and either of the above-described gain-recognition elections under Section 1291 is referred to herein as an “Electing U.S. Holder.” A U.S. Holder who holds common shares at any time during a year of the Registrant in which the Registrant is a PFIC and who is not an Electing U.S. Holder (including a U.S. Holder who makes an untimely QEF election and makes neither of the above-described gain-recognition elections) is referred to herein as a “Non-Electing U.S. Holder.” An Electing U.S. Holder (i) generally treats any gain realized on the disposition of his Registrant common shares as capital gain; and (ii) may either avoid interest charges resulting from PFIC status altogether, or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of the Registrant’s annual realized net capital gain and ordinary earnings subject, however, to an interest charge. If the U.S. Holder is not a corporation, any interest charge imposed under the PFIC regime would be treated as “personal interest” that is not deductible.

In order for a U.S. Holder to make (or maintain) a valid QEF election, the Registrant must provide certain information regarding its net capital gains and ordinary earnings and permit its books and records to be examined to verify such information. the Registrant intends to make the necessary information available to U.S. Holders to permit them to make

- 37 -

(and maintain) QEF elections with respect to the Registrant. the Registrant urges each U.S. Holder to consult a tax advisor regarding the availability of, and procedure for making, the QEF election.

A QEF election, once made with respect to the Registrant, applies to the tax year for which it was made and to all subsequent tax years, unless the election is invalidated or terminated, or the IRS consents to revocation of the election. If a QEF election is made by a U.S. Holder and the Registrant ceases to qualify as a PFIC in a subsequent tax year, the QEF election will remain in effect, although not applicable, during those tax years in which the Registrant does not qualify as a PFIC. Therefore, if the Registrant again qualifies as a PFIC in a subsequent tax year, the QEF election will be effective and the U.S. Holder will be subject to the rules described above for Electing U.S. Holders in such tax year and any subsequent tax years in which the Registrant qualifies as a PFIC. In addition, the QEF election remains in effect, although not applicable, with respect to an Electing U.S. Holder even after such U.S. Holder disposes of all of his or its direct and indirect interest in the shares of the Registrant. Therefore, if such U.S. Holder reacquires an interest in the Registrant, that U.S. Holder will be subject to the rules described above for Electing U.S. Holders for each tax year in which the Registrant qualifies as a PFIC.

In the case of a Non-Electing U.S. Holder, special taxation rules under Section 1291 of the Code will apply to (i) gains realized on the disposition (or deemed to be realized by reasons of a pledge) of his Registrant common shares and (ii) certain “excess distributions,” as defined in Section 1291(b), by the Registrant.

A Non-Electing U.S. Holder generally would be required to pro rate all gains realized on the disposition of his Registrant common shares and all excess distributions on his Registrant common shares over the entire holding period for the common shares. All gains or excess distributions allocated to prior years of the U.S. Holder (excluding any portion of the holder’s period prior to the first day of the first year of the Registrant (i) which began after December 31, 1986, and (ii) for which the Registrant was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income. The Non-Electing U.S. Holder also would be liable for interest on the foregoing tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year. A Non-Electing U.S. Holder that is not a corporation must treat this interest charge as “personal interest” which, as discussed above, is wholly non-deductible. The balance, if any, of the gain or the excess distribution will be treated as ordinary income in the year of the disposition or distribution, and no interest charge will be incurred with respect to such balance. In certain circumstances, the sum of the tax and the PFIC interest charge may exceed the amount of the excess distribution received, or the amount of proceeds of disposition realized, by the U.S. Holder.

If the Registrant is a PFIC for any taxable year during which a Non-Electing U.S. Holder holds Registrant common shares, then the Registrant will continue to be treated as a PFIC with respect to such Registrant common shares, even if it is no longer definitionally a PFIC. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for Non-Electing U.S. Holders) as if such Registrant common shares had been sold on the last day of the last taxable year for which it was a PFIC.

Effective for tax years of U.S. Holders beginning after December 31, 1997, U.S. Holders who hold (actually or constructively) marketable stock of a foreign corporation that qualifies as a PFIC may elect to mark such stock to the market annually (a “mark-to-market election”). If such an election is made, such U.S. Holder will generally not be subject to the special taxation rules of Section 1291 discussed above. However, if the mark-to-market election is made by a Non-Electing U.S. Holder after the beginning of the holding period for the PFIC stock, then the Section 1291 rules will apply to certain dispositions of, distributions on and other amounts taxable with respect to the Registrant common shares. A U.S. Holder who makes the mark-to-market election will include in income for each taxable year for which the election is in effect an amount equal to the excess, if any, of the fair market value of the common shares of the Registrant as of the close of such tax year over such U.S. Holder’s adjusted basis in such common shares. In addition, the U.S. Holder is allowed a deduction for the lesser of (i) the excess, if any, of such U.S. Holder’s adjusted tax basis in the common shares over the fair market value of such shares as of the close of the tax year, or (ii) the excess, if any, of (A) the mark-to-market gains for the common shares in the Registrant included by such U.S. Holder for prior tax years, including any amount which would have been treated as a mark-to-market gain for any prior tax year but for the Section 1291 rules discussed above with respect to Non-Electing U.S. Holders, over (B) the mark-to-market losses for shares that were allowed as deductions for prior tax years. A U.S. Holder’s adjusted tax basis in the common shares of the Registrant will be adjusted to reflect the amount included in or deducted from income as a result of a mark-to-market election. A mark-to-market election applies to the taxable year in which the election is made and to each subsequent taxable year, unless the Registrant common shares cease to be marketable, as specifically defined, or the IRS consents

- 38 -

to revocation of the election. Because the IRS has not established procedures for making a mark-to-market election, U.S. Holders should consult their tax advisor regarding the manner of making such an election. No view is expressed regarding whether common shares of the Registrant are marketable for these purposes or whether the election will be available.

Under Section 1291(f) of the Code, the IRS has issued Proposed Treasury Regulations that, subject to certain exceptions, would treat as taxable certain transfers of PFIC stock by Non-Electing U.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. Generally, in such cases the basis of the Registrant common shares in the hands of the transferee and the basis of any property received in the exchange for those common shares would be increased by the amount of gain recognized. Under the Proposed Treasury Regulations, an Electing U.S. Holder would not be taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. The transferee’s basis in this case will depend on the manner of the transfer. In the case of a transfer by an Electing U.S. Holder upon death, for example, the transferee’s basis is generally equal to the fair market value of the Electing U.S. Holder’s common shares as of the date of death under Section 1014 of the Code. The specific tax effect to the U.S. Holder and the transferee may vary based on the manner in which the common shares are transferred. Each U.S. Holder of the Registrant is urged to consult a tax advisor with respect to how the PFIC rules affect his or its tax situation.

Whether or not a U.S. Holder makes a timely QEF election with respect to common shares of the Registrant, certain adverse rules may apply in the event that both the Registrant and any foreign corporation in which the Registrant directly or indirectly holds shares is a PFIC (a “lower-tier PFIC”). Pursuant to certain Proposed Treasury Regulations, a U.S. Holder would be treated as owning his or its proportionate amount of any lower-tier PFIC shares, and generally would be subject to the PFIC rules with respect to such indirectly-held PFIC shares unless such U.S. Holder makes a timely QEF election with respect thereto. The Registrant intends to make the necessary information available to U.S. Holders to permit them to make (and maintain) QEF elections with respect to each subsidiary of the Registrant that is a PFIC.

Under the Proposed Treasury Regulations, a U.S. Holder who does not make a timely QEF election with respect to a lower-tier PFIC generally would be subject to tax (and the PFIC interest charge) on (i) any excess distribution deemed to have been received with respect to his or its lower-tier PFIC shares and (ii) any gain deemed to arise from a so-called “indirect disposition” of such shares. For this purpose, an indirect disposition of lower-tier PFIC shares would generally include (i) a disposition by the Registrant (or an intermediate entity) of lower-tier PFIC shares, and (ii) any other transaction resulting in a diminution of the U.S. Holder’s proportionate ownership of the lower-tier PFIC, including an issuance of additional common shares by the Registrant (or an intermediate entity). Accordingly, each prospective U.S. Holder should be aware that he or it could be subject to tax even if such U.S. Holder receives no distributions from the Registrant and does not dispose of its common shares.

Certain special, generally adverse, rules will apply with respect to the Registrant common shares while the Registrant is a PFIC unless the U.S. Holder makes a timely QEF election. For example under Section 1298(b)(6) of the Code, a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such shares.

Controlled Foreign Corporation

If more than 50% of the total combined voting power of all classes of shares entitled to vote or the total value of the shares of the Registrant is owned, actually or constructively, by citizens or residents of the United States, United States domestic partnerships or corporation, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), each of which own, actually or constructively, 10% or more of the total combined voting power of all classes of shares entitled to vote of the Registrant (“United States Shareholder”), the Registrant could be treated as a controlled foreign corporation (“CFC”) under Subpart F of the Code. This classification would affect many complex results, one of which is the inclusion of certain income of a CFC which is subject to current U.S. tax. The United States generally taxes United States Shareholders of a CFC currently on their pro rata shares of the Subpart F income of the CFC. Such United States Shareholders are generally treated as having received a current distribution out of the CFC’s Subpart F income and are also subject to current U.S. tax on their pro rata shares of increases in the CFC’s earnings invested in U.S. property. The foreign tax credit described above may reduce the U.S. tax on these amounts. In addition, under Section 1248 of the Code, gain from the sale or exchange of shares by a U.S. Holder of common shares

- 39 -

of the Registrant which is or was a United States Shareholder at any time during the five-year period ending on the date of the sale or exchange is treated as ordinary income to the extent of earnings and profits of the Registrant attributable to the shares sold or exchanged. If a foreign corporation is both a PFIC and a CFC, the foreign corporation generally will not be treated as a PFIC with respect to United States Shareholders of the CFC. This rule generally will be effective for taxable years of United States Shareholders beginning after 1997 and for taxable years of foreign corporations ending with or within such taxable years of United States Shareholders. Special rules apply to United States Shareholders who are subject to the special taxation rules under Section 1291 discussed above with respect to a PFIC. Because of the complexity of Subpart F, a more detailed review of these rules is outside of the scope of this discussion. the Registrant does not believe that it currently qualifies as a CFC. However, there can be no assurance that the Registrant will not be considered a CFC for the current or any future taxable year.

The Registrant strongly urges each prospective U.S. Holder to consult a tax advisor with respect to the adverse rules applicable, under the Proposed Treasury Regulations, to U.S. Holders of lower-tier PFIC shares.

F. Dividends and paying agents

Not applicable.

G. Statement by experts

Not applicable.

H. Documents on display

Documents concerning the Registrant which are referred to in this document may be inspected in the head office of the Registrant at 999 Canada Place, World Trade Centre, Suite 404, Vancouver, British Columbia, V6C 3E2 or at the registered office of the Registrant at Suite 1500-1055 West Georgia Street, Vancouver B.C, Canada. Copies of the Registrant’s financial statements and other continuous disclosure documents required under the British ColumbiaSecurities Act may be viewed atwww.sedar.com and documents referred to in this document are filed with the US Securities Commission and can be viewed on the SEC website atwww.sec.gov.

I. Subsidiary information

A list of subsidiaries of the Registrant as of December 29, 2006 is identified in Note 2 (b)in the notes to the consolidated financial statements and in ITEM 4. ORGANIZATIONAL STRUCTURE.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK

Not required as the Registrant is a small business issuer, in accordance with Section 12(b)-2 of the Act.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

A.	There has been no material default in any indebtedness, as the Registrant has no debt.
B.	The Registrant has never paid nor declared a dividend, so there are no arrearages.

- 40 -

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITYHOLDERS AND USE OF PROCEEDS

Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

As required by Rule 13a-15 under theSecurities Exchange Act of 1934 (the “Exchange Act”), the Registrant carried out an evaluation of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures as of July 31, 2006, the latest completed fiscal year. This evaluation was carried out under the supervision and with the participation of the Registrant’s Chief Executive Officer, Peter Loretto, and the Registrant’s Chief Financial Officer, Barry MacNeil. Based upon that evaluation, the Registrant’s Chief Executive Officer and Chief Financial Officer concluded that the Registrant’s disclosure controls and procedures are effective in timely alerting management to material information relating to the Registrant required to be included in the Registrant’s periodic SEC filings. There have been no significant changes in the Registrant’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Registrant carried out its evaluation.

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

During the Registrant’s most recently completed fiscal year ended July 31, 2006, there were no changes in the Registrant’s internal control over financial reporting that have materially affected, or are reasonably likely to affect, its internal control over financial reporting.

The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the Registrant's principal executive and principal financial officers, or persons performing similar functions, and effected by the Registrant's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Registrant;

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Registrant are being made only in accordance with authorizations of management and directors of the Registrant; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Registrant's assets that could have a material effect on the financial statements.

ITEM 16.

A. Audit Committee Financial Expert

Our Board of Directors has determined that Dr. David Bennett, a member of the audit committee, qualifies as a “financial expert” and that he is independent according to the standards for audit committee member independence prescribed by the American Stock Exchange. Dr. Bennett holds a BA (Natural Sciences), an M SC in Exploration Geophysics and a doctorate in Geophysics. He has over thirty years of financial, technical and operational experience in the oil and gas industry, and was a co-founder and the Chief Executive Officer of Austral. Dr. Bennett has experience in

- 41 -

corporate finance, planning, project control, supervision of financial accounting, reporting analysis, and co-ordination with auditors.

B. Code of Ethics

We have adopted a code of ethics that applies to the Chief Executive Officer and the Chief Financial Officer, as well as to all other staff. A copy of our code of ethics is available, free of charge, from the head office of the Registrant at 999 Canada Place, World Trade Centre, Suite 404, Vancouver, British Columbia, V6C 3E2 and this can be requested in writing, addressed to the Registrant’s Office Manager.

C. Principal Accountant Fees and Services

Principal Accountant Service(1)	For the fiscal year ended July 31, 2006	For the fiscal year ended July 31, 2005
Audit Fees	$13,500	$11,000
Audit Related Services	-	-
Tax Fees	$1,000	$1,000
All Other Fees	-	-

(1) De Visser Gray has been the Principal Accountant for the 2006, 2005 and 2004 fiscal years reported above.

The nature of the services provided by De Visser Gray under each of the categories indicated in the table is described below.

Audit Fees

Audit fees were for professional services rendered by De Visser Gray for the audit of our annual financial statements and services provided in connection with statutory and regulatory filing or engagements.

Audit-Related fees

Audit related fees are normally for assurance and related services reasonably related to the performance of the audit or review of the annual statements or bi-annual statements that are not reported under “Audit Fees” above. There were no audit-related fees for the current or previous year.

Tax Fees

Tax fees were for tax compliance, tax advice and tax planning professional services. These services consisted of: tax compliance including the review of tax returns, and tax planning and advisory services relating to common forms of domestic and international taxation (ie: income tax, capital tax, goods and services tax, payroll tax, and value added tax).

All Other Fees

There were no other fees incurred in the period covered in the table above.

Pre-Approval Policies and Procedures

- 42 -

It is within the mandate of the Registrant’s Audit Committee to approve all audit and non-audit related fees. The Audit Committee has pre-approved specifically identified non-audit related services, including tax compliance, review of tax returns, documentation of processes and controls as submitted to the Audited Committee from time to time. The Auditors also present the estimate for the annual audit related services to the committee for approval prior to undertaking the annual audit of the financial statements.

D. Exemptions From the Listing Standards for Audit Committees

Not applicable.

E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

.Not applicable.

PART III

ITEM 17. FINANCIAL STATEMENTS

Financial Statements begin on page 41.

INDEX TO FINANCIAL STATEMENTS

	Page
Auditors’ Report	43
Consolidated Balance Sheets	44
Consolidated Statements of Operations and Deficit	45
Consolidated Schedules of General and Administrative Expenses	46
Consolidated Statements of Cash Flows	47
Notes to the Consolidated Financial Statements	48

The financial statements and Report of the independent Auditors are filed as part of the Registrant’s Annual Report.

- 43 -

DE VISSER GRAY
CHARTERED ACCOUNTANTS

401 - 905 West Pender Street
Vancouver, BC Canada
V6C 1L6

Tel: (604) 687-5447
Fax: (604) 687-6737

AUDITORS' REPORT

To the Shareholders of Trans-Orient Petroleum Ltd.

We have audited the consolidated balance sheets of Trans-Orient Petroleum Ltd. as at July 31, 2006 and 2005 and the consolidated statements of operations and deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at July 31, 2006 and 2005 and the results of its operations and its cash flows for each of the years in the three year period ended July 31, 2006 in accordance with generally accepted accounting principles in Canada.

“De Visser Gray”

CHARTERED ACCOUNTANTS
Vancouver, British Columbia
Canada
October 25, 2006

COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA – U.S. REPORTING DIFFERENCES

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by significant uncertainties and contingencies such as those referred to in note 1 to these consolidated financial statements. Although we conducted our audits in accordance with both Canadian and the standards of the PCAOB, our report to the shareholders dated October 25, 2006 is expressed in accordance with Canadian reporting standards, which do not require a reference to such matters when the uncertainties are adequately disclosed in the financial statements.

“De Visser Gray”

CHARTERED ACCOUNTANTS
Vancouver, British Columbia
Canada
October 25, 2006

- 44 -

Consolidated Balance Sheets
(Expressed in United States Dollars)
As at July 31,		2006			2005
Assets
Current
Cash	$	451,969		$	190,617
Accounts receivable		27,809			10,815
Prepaid expenses		4,971			-
		484,749			201,432
Restricted cash (Note 8)		42,174			36,169
Investments (Note 3)		2,304,811			2,219,072
Property and equipment (Note 4)		83,887			85,316
Total Assets	$	2,915,621		$	2,541,989
Liabilities
Current
Accounts payable and accrued liabilities	$	12,406		$	6,535
Total Liabilities		12,406			6,535
Non-Controlling Interest in AMG Oil Ltd.		-			13,845
Shareholders’ Equity
Share capital (Note 7)		13,175,075			13,175,075
Deficit		(10,271,860	)		(10,653,466	)
Total Shareholders’ Equity		2,903,215			2,521,609
	$	2,915,621		$	2,541,989

Continuance of Operations (Note 1)

Approved on behalf of the Board of Directors:
/s/ Peter Loretto	/s/ Barry MacNeil
Director	Director

See accompanying notes to the consolidated financial statements

- 45 -

Consolidated Statements of Operations and Deficit
(Expressed in United States Dollars)
For the years ended July 31,		2006			2005			2004
Expenses
General and administrative (Schedule)	$	305,173		$	168,957		$	116,322
Foreign exchange		(1,987	)		(67,560	)		(2,206	)
Amortization		5,564			4,360			9,924
Loss before other items		(308,750	)		(105,757	)		(124,040	)
Other Items:
Gain on sale of investments (Note 3)		778,423			1,218,319			528,931
Interest income		13,848			1,896			1,696
Loss on sale of investment (Note 3)		(3,759	)		(4,000	)		-
Loss on sale of common stock held by subsidiary		-			(8,685	)		-
Recovery of loan receivable previously written-off (Note 6)		32,324			29,004			24,660
Recovery of costs		-			-			46,477
Write-down of investments		(136,262	)		-			-
Write-off of loan receivable		-			-			(30,000	)
Write-off of oil and gas interest		-			(1	)		-
Write-off of property and equipment		-			-			(21,161	)
Income from operations		375,824			1,130,776			426,563
Non-controlling interest’s portion of AMG’s loss		5,782			11,470			32,266
Net income for the year		381,606			1,142,246			458,829
Deficit – Beginning of year		(10,653,466	)		(11,795,712	)		(12,254,541	)
Deficit – End of year	$	(10,271,860	)	$	(10,653,466	)	$	(11,795,712	)
Income per share - basic	$	0.02		$	0.06		$	0.03
- diluted	$	0.02		$	0.06		$	0.02
Weighted-average number of common shares outstanding		17,618,083			17,618,083			17,019,408

See accompanying notes to the consolidated financial statements

- 46 -

Consolidated Schedules of General and Administrative Expenses
(Expressed in United States Dollars)
For the years ended July 31,		2006		2005		2004
General and Administrative Expenses
Accounting and audit	$	18,773	$	13,935	$	28,003
Consulting fees		11,852		-		-
Corporate relations and development		25,210		-		4,579
Directors fees		58,054		20,509		-
Filing and transfer agency fees		24,976		20,630		14,252
Legal		31,110		12,387		5,076
Office, rent and miscellaneous		50,824		41,401		31,792
Printing		12,415		5,913		3,201
Travel, promotion and accommodation		31,147		22,115		5,498
Wages and benefits		40,812		32,067		23,921
	$	305,173	$	168,957	$	116,322

See accompanying notes to the consolidated financial statements

- 47 -

Consolidated Statements of Cash Flows
(Expressed in United States Dollars)
For the years ended July 31,		2006			2005			2004
Net increase (decrease) of cash related to the following:
Operating Activities
Net income for the year	$	381,606		$	1,142,246		$	458,829
Items not affecting cash:
Amortization		5,564			4,360			9,924
Gain on sale of investment		(778,423	)		(1,218,319	)		(528,931	)
Loss on sale of investment		3,759			4,000			-
Loss on sale of common stock held by subsidiary		-			8,685			-
Non-controlling interest		(5,782	)		(11,470	)		(32,266	)
Recovery of costs		-			-			(46,477	)
Write-down of investment		136,261			-			-
Write-off of loan receivable		-			-			30,000
Write-off of oil and gas interest		1			1			-
Write-off of property and equipment		-			-			21,161
Changes in non-cash working capital items:
Accounts payable and accrued liabilities		12,331			518			6,802
Accounts receivable		(16,994	)		(2,488	)		3,802
Prepaid expenses		(4,971	)		2,698			2,676
Net cash used for operating activities		(266,648	)		(69,769	)		(74,480	)
Financing Activities
Restricted cash		(6,005	)		(5,030	)		(1,669	)
Common stock issued for cash		-			-			30,000
Net cash provided by financing activities		(6,005	)		(5,030	)		28,331
Investing Activities
Proceeds from sales of investments		1,349,517			2,222,479			1,084,951
Proceeds from sale of common stock held by subsidiary		-			3,308			-
Purchases of investments		(800,000	)		(2,029,393	)		(1,196,250	)
Purchases of property and equipment		(4,135	)		-			-
Net cash provided by (used for) investing activities		545,382			196,394			(111,299	)
Cash of AMG Oil upon deconsolidation		(11,377	)		-			-
Net increase (decrease) in cash		261,352			121,595			(157,448	)
Cash - Beginning of year		190,617			69,022			226,470
Cash - End of year	$	451,969		$	190,617		$	69,022

See accompanying notes to the consolidated financial statements

- 48 -

Notes to the Consolidated Financial Statements

(Expressed in United States Dollars)

For the Years Ended July 31, 2006 and 2005

NOTE 1 - NATURE AND CONTINUANCE OF OPERATIONS

Trans-Orient Petroleum Ltd. (the “Company”) is incorporated under the Business Corporations Act (British Columbia) and is engaged in identifying, financing, and providing business development services for early-stage resource businesses. The Company’s operating strategy is to invest in exploration and production activities through the Company’s existing corporate investments, and to consider investing directly into suitable new resource projects.

The Company’s consolidated financial statements are presented on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its liabilities in the normal course of operations. However, the Company does not generate sufficient cash flow from operations to adequately fund its activities and has therefore relied principally upon the issuance of securities for financing. Future capital requirements will depend on many factors including the Company's ability to execute its business plan. The Company intends to continue relying upon the issuance of securities to finance its future activities but there can be no assurance that such financing will be available on a timely basis under terms acceptable to the Company. Although these consolidated financial statements do not include any adjustments that may result from the inability to secure future financing, such a situation would have a material adverse effect on the Company’s business, results of operations and financial condition.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)	Accounting principles and use of estimates
	These financial statements are prepared in conformity with Canadian generally accepted accounting principles (“GAAP”), which require the Company’s management to make informed judgments and estimates that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the fiscal year. Significant estimates include, but are not limited to, the determination of the net recoverable value of assets and income taxes. The Company’s investments are also items that, due to expected market volume and price fluctuation may yield net realizable values that are materially different from their current carrying values at any point in time. Actual results could differ from these estimates.
	Material differences between Canadian and United States generally accepted accounting principles, applicable to the Company’s financial statements, are described in note 11.
b)	Basis of consolidation
	These consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiary, DLJ Management Corp. All significant inter-company balances and transactions have been eliminated.
c)	Principles of accounting for investments
	The Company’s investments are accounted for using either the equity method or cost method of accounting. The equity method is used when the Company, through its level of investment, exercises significant influence over the investee. The cost method of accounting is applied to investments in Companies over which the Company does not exercise significant influence.

- 49 -

	The Company’s investments are recorded at cost and are adjusted to fair value, where determinable, only if there is an, other-than-temporary decline in value as the Company intends to hold them for a period of greater than one year.
d)	Translation of foreign currencies
	Transactions of the Company and its subsidiaries originating in foreign currencies are translated into U.S. dollars at the rates prevailing on the dates of the transactions. Monetary assets and liabilities are translated at the year-end rates of exchange and non-monetary items are translated at historical exchange rates applicable to the underlying transactions. The resulting net gain or loss is included in the consolidated statements of operations and deficit.
e)	Fair value of financial instruments
	The Company's financial instruments consist of current assets and current liabilities. The fair values of the current assets and liabilities approximate the carrying amounts due to the short-term nature of these instruments.
f)	Property and equipment
	Property and equipment are stated at cost less accumulated amortization. Amortization is computed over the estimated useful lives of the assets as follows:

Apartment:	4% per annum on a declining balance basis
Furniture and office equipment:	20% per annum on the declining balance basis

g)	Basic and diluted net income per common share
	Basic net income per common share is calculated by dividing the net income by the weighted average number of common shares outstanding, during the year. In years where a net loss is incurred, diluted net loss per common share is not calculated as its effect on net loss per share is anti-dilutive.
h)	Income taxes
	The Company accounts for and measures future tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted or substantively-enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of the enactment or substantive enactment of the change. When the future realization of income tax assets does not meet the test of being more likely than not to occur, a valuation allowance in the amount of potential future benefit is taken and no asset is recognized. Such an allowance would apply fully to all potential future tax assets of the Company.
	The Company’s accounting policy for future income taxes currently has no effect on the financial statements of any of the fiscal years presented.
i)	Share capital
	Common shares issued for non-monetary consideration are recorded at their fair market value based upon the lower of the trading price of the Company’s shares on the OTC Bulletin Board on the date of the agreement to issue shares and the date of share issuance.

- 50 -

j)	Asset Retirement Obligations
	Effective July 31, 2003, the Company has adopted retroactively the Canadian Institute of Chartered Accountants’ new standard on Asset Retirement Obligations. The Company recognizes the fair value of an Asset Retirement Obligation (“ARO”) in the period in which it is incurred when a reasonable estimate of the fair value can be made. The fair value is determined through a review of engineering studies, industry guidelines and managements estimate on a site-by-site basis. The fair value of the ARO is recorded as a liability, with a corresponding increase in the amount of the related asset. The capitalized amount is depleted on the unit-of-production method based on proven reserves. The liability amount of accretion is expensed in the period. Actual costs incurred upon the settlement of the ARO are charged against the liability. At July 31, 2006 the Company does not have any asset retirement obligations.
k)	Comparative figures
	Certain of the prior years’ figures have been reclassified to conform with the current years’ financial statement presentation.

NOTE 3 - INVESTMENTS

At July 31, 2006, the Company’s ownership interests in investments are accounted for under the cost method of accounting as follows:

			July 31,		July 31,
	Number of		2006		2006
	Common		Carrying		Fair	Percentage of
	Shares Held		Value		Value	Ownership/
AMG Oil Ltd.	826,431	$	1	$	388,423	3.66%
Austral Pacific Energy Ltd.	1,534,940		2,302,410		2,302,410	6.75%
Gondwana Energy, Ltd.	3,999		2,400		2,400	0.02%
TAG Oil Ltd.	-		-		-	-
Verida Internet Corp.	-		-		-	-
		$	2,304,811	$	2,693,233

At July 31, 2005, the Company’s ownership interests in investments are accounted for under the consolidation method or cost method of accounting as follows:

			July 31,		July 31,
	Number of		2005		2005
	Common		Carrying		Fair	Percentage of
	Shares Held		Value		Value	Ownership/
Consolidation Method:
AMG Oil Ltd.	8,200,000	$	-	$	-	49.40%
Cost Method:
Austral Pacific Energy Ltd.	1,384,940		1,979,071		3,753,186	7.42%
Gondwana Energy, Ltd.	399,999		40,000		40,000	12.43%

- 51 -

TAG Oil Ltd.		500,000	200,000		470,000	1.91%
Verida Internet Corp.		844,642	1		1	-
	$		2,219,072	$	4,263,187

During the 2006 fiscal year the Company:

a)	Sold 7,373,569 common shares of AMG Oil Ltd. (“AMG”) for aggregate proceeds of $133,695. These dispositions resulted in the Company’s effective loss of control of AMG, the accounts of which were, until that time, consolidated with those of the Company. At the date of loss of control, the Company’s net investment in the accounts of AMG was comprised of a non-controlling interest in excess of net working capital in the amount of $3,147. Accordingly a net gain of $136,842 has been recognized currently and the Company’s residual investment in common shares of AMG is carried at a cost of $1.
b)	Sold 50,000 shares of Austral Pacific with a book value of $78,000 for proceeds of $74,241 resulting in a loss of $3,759.
c)	Participated in a private placement in Austral Pacific Energy Ltd. The Company purchased 200,000 units at US$2.50 per unit. Each unit consists of one share and one half of one share purchase warrant, with each warrant entitling the Company to purchase one common share at a price of US$3.50 per share for one year subject to an accelerated expiry if a trigger price of US$4.50 is reached in the first twelve months from the issue date. The warrants subsequently expired as they were not exercised.
d)	Sold 1,000,000 shares of TAG Oil with a book value of $500,000 for proceeds of $1,141,581, for a gain over book value of $641,581. The Company acquired these shares by participating in a private placement, purchasing 500,000 units, at $0.40 per unit in the 2005 fiscal year with each unit consisting of one share and one share purchase warrant. The warrants were then exercised during the 2006 fiscal year at a price of US$0.60 per share.

During the 2005 fiscal year the Company:

a)

Sold 788,800 shares of its investment in Austral Pacific Energy Ltd. (“Austral Pacific”), with a book value of $998,160 or $1.27 per share, for $2,216,479, or approximately $2.81 per share, resulting in a gain over carrying value of $1,218,319. The proceeds from the sale of this investment and additional working capital were used to exercise 836,845 Austral Pacific Energy Ltd. (“Austral Pacific”) share purchase warrants at an exercise price of US$1.50 per share. On December 21, 2004, the Company exercised 382,750 Austral Pacific share purchase warrants at an exercise price of NZ$2.10 per share.

b)

During the 2005 fiscal year the Company’s controlled subsidiary AMG Oil, sold a total of 100,000 shares of Gondwana Energy, Ltd. with a book value of $10,000, for proceeds of $6,000 resulting in a loss of $4,000.

Refer to Note 10

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment are comprised as follows:

		2006			2005
Apartment	$	100,945		$	100,945
Furniture and office equipment		91,299			87,164
Leasehold improvements		2,337			2,337
		194,581			190,446
Accumulated amortization		(110,694	)		(105,130	)
	$	83,887		$	85,316

- 52 -

NOTE 5 - RELATED PARTY TRANSACTIONS

The Company is of the view that the amounts incurred for services provided by related parties approximates what the Company would incur to non-arms length parties for the same services.

Consulting Agreement

On April 1, 2006, the Company extended for one-year, the Consulting Agreement entered into during the 2005 fiscal year with a private company wholly-owned by the Company’s President to provide executive services to the Company. The agreement is extendable for another year if agreed to by both parties and includes monthly compensation of $5,000.

Refer to Note 10

NOTE 6 – LOAN RECEIVABLE

Subsequent to a write-off, in the 2001 fiscal year, of a loan of $517,115 made to Verida Internet Corp. (“Verida”), the Company negotiated a loan repayment schedule with Verida allowing the Company to receive monthly payments of approximately CAD$15,170. This repayment schedule was revised with an effective date of April 1, 2003 whereby the Company was entitled to receive CAD$3,000 per month including annual interest of 12%, over a period of five years unless paid in full including principle and accrued interest, prior to April 1, 2008.

During the 2006 fiscal year, the Company received $32,324 (July 31, 2005 – $29,004).

Refer to Note 10

NOTE 7 - SHARE CAPITAL

a) Authorized and Issued Share Capital

The authorized share capital of the Company consists of an unlimited number of common shares without par value.

	Number
Issued and fully paid:	of Shares		Amount
Balance at July 31, 2004 and 2005	2,516,869	$	13,175,075
Share Split (1:7)	15,101,214		-
Balance at July 31, 2006	17,618,083	$	13,175,075

At the Company’s AGM held on January 12, 2006 shareholders approved the creation of a new class of preferred shares and the adoption of new corporate articles. To the date of this report there are no agreements or intentions to issue any preferred shares. The new articles allow the directors of the Company to authorize, without further shareholder approval, name changes, share consolidations and share subdivisions.

On March 30, 2006, the Company completed a forward split (sub-division) of the Company’s common shares a seven for one basis. The effect of the forward split has been applied on a retroactive basis.

NOTE 8 – RESTRICTED CASH

The Company is required, in accordance with the Company’s credit card agreements, to provide security against the credit facility in the form of cash and cash equivalents. As at July 31, 2006, this security amounted to $42,174 (2005: $36,169).

- 53 -

NOTE 9 - INCOME TAXES

A reconciliation of income taxes at statutory rates as follows:

		2006			2005
Net income for the year	$	381,606		$	1,142,246
Expected income tax expense		129,691			411,445
Net adjustment for amortization, deductible and non-deductible amounts		(456,089	)		(276,676	)
Unrecognized (recognized) benefit of current non-capital loss		326,398			(134,769	)
Total income taxes		-			-

The significant components of the Company’s future income tax assets are as follows:

	2006		2005
Future income tax assets:
Net resource property carrying amounts (in excess) of tax pools	3,167,582		2,928,222
Property and equipment tax pool in excess of carrying value	143,6667		121,000
Non-capital loss carryforwards	2,584,312		1,958,507
	5,895,562		5,007,729
Valuation allowance	(5,895,562	)	(5,007,729	)
Net future tax assets	-		-

The Company has non-capital losses of approximately CDN$2.9 million (2005 - CDN$2.4 million), which are available to reduce future taxable income in Canada and which expire between 2007 and 2026. Subject to certain restrictions the Company also has resource expenditures of approximately CDN$3.6 million (2005 - $3.6 million) available to reduce taxable income in future years. Future tax benefits which may arise as a result of these losses and resource deductions have not been recognized in these financial statements and have been offset by a valuation allowance as noted above.

NOTE 10 – SUBSEQUENT EVENTS

a)	On August 23, 2006, the Company appointed David Bennett, Ph.D., as a Director and subsequently appointed Dr. Bennett to the audit committee. In addition, the Company entered into a consulting agreement with Dr. Bennett for one year with monthly compensation of $5,000.
b)	On August 30, 2006, the Company completed a private placement financing for 12,972,142 units of the Company at a purchase price of $0.35 per unit, for proceeds of $4,540,250. Each unit consists of one common share and one share purchase warrant. Each share purchase warrant allows the holder to acquire an additional common share of the Company at a price of $0.70 per share for two years from the closing date of the financing. At the Company’s option, and after the applicable resale restricted period has expired, the warrants’ expiry date can be accelerated on 30 days notice, should the Company’s shares trade at or higher than $1.25 for ten consecutive trading days.
c)	On September 30, 2006, the Company received CAD$109,800 relating to the payment of the outstanding principal and interest owed to the Company relating to the Verida Internet Corp, loan repayment schedule
d)	The Company acquired 180,300 shares of Austral Pacific at market prices averaging approximately $1.42. On October 17, 2006, the Company participated in a private placement financing, acquiring an additional 1,395,000 shares of Austral Pacific at a purchase price of US$1.30 per share. As a result of these acquisitions the Company owns 3,110,240 shares of Austral Pacific (8.68%).

NOTE 11 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) which conform in all material respects with United States generally accepted accounting principles (“U.S. GAAP”) except for the following differences:

- 54 -

a) Assets

Under Canadian GAAP, the Company’s investments accounted for under the cost method of accounting are valued at the lower of cost or market value. Under U.S. GAAP, such investments are classified as available-for-sale securities and reported at market value, with unrealized gains and losses included as a component of comprehensive income.

		July 31,			July 31,
		2006			2005
Investments under Canadian GAAP	$	2,304,811		$	2,219,072
Adjustment required under U.S. GAAP		(1,655,693	)		1,140,541
Cumulative historical adjustments to date		2,044,115			903,574
Investments under U.S. GAAP	$	2,693,233		$	4,263,187

Total assets under U.S. GAAP as at July 31, 2006 and 2005 are $3,304,043 and $4,586,104, respectively.

b)	Stockholders’ Equity
	i)         Common Stock
	During the 2006 fiscal year, the Company adopted, under Canadian GAAP, a policy to record the cost of stock options granted to employees and consultants utilizing a fair value measurement basis, a policy that is materially consistent with U.S. GAAP for stock-based compensation as described in Statement of Accounting Standards 123 (“SFAS 123”). However, in previous fiscal years, prior to the adoption of the fair value measurement standard under Canadian GAAP, the Company was subject to the minimum disclosure standards of SFAS 123 under U.S. GAAP, which required it to report, on a pro-forma basis, the effect of following a fair value based method of measuring the value of stock options granted using the Black Scholes, or similar, option pricing model.
	In accordance with the mandatory disclosure standard, the following are the pro-forma figures for common stock had the Company used, from inception, a fair value-based method of accounting for stock based compensation as described in SFAS 123:

		July 31,		July 31,
		2006		2005
Common stock under Canadian GAAP	$	13,175,075	$	13,175,075
Cumulative historical pro-forma adjustments to date		833,611		833,611
Common stock under U.S. GAAP applying SFAS 123	$	14,008,686	$	14,008,686

No stock options were granted during the 2006, 2005 or 2004 fiscal years.

There has been no difference to the Company’s net loss or loss per share as reported under Canadian GAAP when the fair value based method of accounting defined in SFAS 123 had been applied, on a pro-forma basis, to the 2006, 2005 or 2004 fiscal years.

ii) Accumulated Deficit

The effects of Note 11(b)(i) on accumulated deficit are as follows:

		July 31,			July 31,
		2005			2005
Deficit under Canadian GAAP	$	(10,271,860	)	$	(10,653,465	)
Cumulative historical adjustments to date		(833,611	)		(833,611	)

- 55 -

Accumulated deficit under U.S. GAAP $  (11,105,471 ) $  (11,487,076 )

iii) Accumulated Other Comprehensive Income

The effects of Note 11(a) on accumulated other comprehensive income are as follows:

		July 31,			July 31,
		2006			2005
Accumulated other comprehensive income
under Canadian GAAP	$	-		$	-
Unrealized gain on investments		(1,655,693	)		1,140,541
Cumulative historical adjustments to date		2,044,115			903,574
Accumulated other comprehensive income
under U.S. GAAP	$	388,422		$	2,044,115

As a result of these adjustments under U.S. GAAP, total stockholders’ equity as at July 31, 2006 and 2005 are $3,332,959 and $4,565,725, respectively.

c) Net Income and Comprehensive Income (Loss) for the Year

The following are the effects of Notes 11(a) and (b) on net income and comprehensive income (loss) for the 2006, 2005 and 2004 fiscal years:

		2006			2005		2004
Net income for the year under	$	381,606		$	1,142,246	$	458,829
Canadian and US GAAP
Other comprehensive income (loss):
Unrealized gain on investment		(1,655,693	)		1,140,541		703,859
Comprehensive income (loss) for the year
under U.S. GAAP	$	(1,274,087	)	$	2,282,787	$	1,162,688

- 56 -

ITEM 18. FINANCIAL STATEMENTS

Not applicable.

ITEM 19. EXHIBITS

Exhibit Reference	Exhibition Description
1.1	Certificate of Continuance (4)
1.2	Notice of Articles (4)
1.3	Articles (4)
4.1	Form of Agreement dated August 2005 between the Registrant and Austral Pacific Energy Ltd. for the purchase of 200,000 units of Austral Pacific at a price of US$2.50per unit. (1)
4.2	Form of Agreement dated October 2006 between the Registrant and Austral Pacific Energy Ltd. for the purchase of 1,395,000 units of Austral Pacific at a price of US$1.30per unit. (1)
4.3	Consulting Agreement between the Registrant and PCL Holdings Ltd. dated April 1, 2005. (4)
4.4	Form of Subscription Agreement for the 12,972,141 unit private placement dated August 2006. (1)
4.5	Form of Subscription Agreement for the 5,905,000 unit private placement dated November 2006. (1)
8.0	List of Wholly-Owned Subsidiaries of Trans-Orient Petroleum Ltd. (4)
11.1	Code of Ethics (3)
15.1	Audit Committee Charter (4)
15.2	Auditor’s report for the fiscal years 2003 and 2002 (2)
15.3	Change of auditor papers (3)
31.1	Section 302(a) Certification of CEO (1)
31.2	Section 302(a) Certification of CFO (1)
32.1	Section 906 Certifications of CEO and CFO (1)

(1)	Filed herewith.
(2)	Incorporated by reference as previously included in Form 20-F filed January 30, 2004
(3)	Incorporated by reference as previously included in Form 20-F filed January 31, 2005.
(4)	Incorporated by reference as previously included in Form 20-F filed January 31, 2006.

- 57 -

SIGNATURE

Pursuant to the requirements of Section 12 of theSecurities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F at July 31, 2006 and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

January 26, 2007

TRANS-ORIENT PETROLEUM LTD.

By:	/s/Barry MacNeil
	Barry MacNeil, Secretary, CFO and Director