Cannabis Strategic Ventures (NUGS) 10QSB 2007 Q1 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2006

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from __________ to __________

Commission file number 333-115637

CASCADE ENERGY, INC.

(Exact name of small business issuer as specified in its charter)

Nevada	41-2122221
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

9595 Wilshire Boulevard, Suite 900, Beverly Hills, CA 90212

(Address of principal executive offices)

310.300.4063

(Issuer’s telephone number)

5151 E. Broadway, Suite 1600, Tucson, AZ 85711

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x     No [ ]

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

93,150,000 shares of common stock, par value of $0.001 issued and outstanding as of May 31, 2006

Transitional Small Business Disclosure Format (Check one):   Yes [ ]   No x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (Check one):     Yes [ ]     No x

D/ljm/882598.1

2

PART I - FINANCIAL INFORMATION

Item1.Financial Statements.

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three months ended May 31, 2006 are not necessarily indicative of the results than can be expected for the year ended February 28, 2006.

F-1

CASCADE ENERGY INC.

(An Exploration Stage Company)

Audited Financial Statements

(Expressed in U.S. Dollars)

May 31, 2006

Index	Page Number
Balance Sheet	F-1
Statements of Operations	F-2
Statements of Cash Flows	F-3
Statement of Changes in Stockholders’ Equity	F-4
Notes to Financial Statements	F-5-21

F-2

CASCADE ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

BALANCE SHEET

(Stated in US Dollars)

		May 31,		February 28,
		2006		2006
ASSETS
Current
Cash	$	597,718	$	1,223,074
Accounts receivable		8,427		5,784
Advance		50,000		-
Prepaids		41,874		52,500
Due from related parties		672		672
Total current assets		698,691		1,282,030
Fixed Assets		2,034		2,252
Loan		165,000		-
Oil and Gas Properties		228,203		208,880
Total assets	$	1,093,928	$	1,493,162
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current
Accounts payable and accrued liabilities	$	19,973	$	173,877
Due to related parties		-		-
Total current liabilities		19,973		173,877
Non-Current
Convertible debenture payable		2,617,397		2,541,534
Interest payable		146,952		33,322
Beneficial conversion liability		5,356,916		5,356,916
		8,121,265		7,931,772
Total liabilities		8,141,238		8,105,649
STOCKHOLDERS’ DEFICIENCY
Capital stock
Preferred stock, $0.001 par value, 5,000,000 shares authorized Common stock, $0.001 par value, 200,000,000 shares authorized
93,150,000 common shares issued, 49,150,000 outstanding (February 28, 2005: 72,800,000)		93,150		93,150
Treasury stock issued (2006 - 44,000,000; 2005 – Nil)		(9,460,000)		(9,460,000)
Additional paid-in capital		9,521,950		9,521,950
Accumulated deficit		(84,549)		(84,549)
Accumulated deficit during the exploration stage		(7,117,861)		(6,683,038)
Total stockholders’ deficiency		(7,047,310)		(6,612,487)
Total liabilities and stockholders’ deficiency	$	1,093,928	$	1,493,162

The accompanying notes are an integral part of these financial statements

F-3

CASCADE ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

STATEMENTS OF OPERATIONS

for the Three Months Ended May 31, 2006 and 2005

and for the period from June 1, 2005 (inception) through May 31, 2006

(Stated in US Dollars)

				June 1, 2005
				(Date of
		Three	Three	Inception of
		Months Ended	Months Ended	Exploration Stage)
		May 31,	May 31,	to May 31, 2006bruary 28,
		2005	2006	2006)
Revenue	$	-	$           1,651	$       12,832
Production Costs		-	1,230	6,626
		-	421	6,206
Expenses
Accounting and audit fees		3,204	9,936	50,275
Advertising and promotion		-	-	28,050
Amortization		-	3,785	10,214
Bad debts		-	-	5,132
Bank charges and interest		63	221	2,055
Consulting fees		-	122,332	293,327
Filing and listing fees		772	425	10,181
Foreign exchange (gain) loss		-	-	(514)
Investor relations		-	37,000	309,406
Legal fees		-	44,643	240,331
Meals and entertainment		-	-	2,329
Office and general		-	884	6,544
Rent		-	-	1,225
Transfer agent fees		585	-	1,561
Travel		-	28,748	56,689
		(4,624)	(247,974)	(1,016,805)
Loss before other items		(4,624)	(247,553)	(1,010,599)
Other items
Beneficial conversion expense		-	-	(4,341,216)
Exploration costs – Note 3		-	-	(1,101,926)
Interest expense and Finance fees		-	(189,492)	(600,180)
Interest income		-	2,222	3,959
		-	(187,270)	(6,039,363)
Loss from continuing operations		(4,624)	(434,823)	(7,049,962)
Gain (loss) from discontinued operations – Note 8		185,513	-	-
Net income (loss)	$	180,889	$       (434,823)	$ (7,049,962)
Basic and diluted loss per share – continuing operations	$	0.00	$               0.00	$            (.09)
Basic and diluted loss per share – discontinued operations	$	0.00	$               0.00	$           (.09)
Weighted average number of common shares outstanding		72,848,904	72,800,000	72,800,000

The weighted average number of shares used excludes common stock equivalents since such amounts would cause an antidilutive effect.

The accompanying notes are an integral part of these financial statements

F-4

CASCADE ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

STATEMENTS OF CASH FLOWS

for the Three Months Ended May 31, 2006 and 2005

and for the period from June 1, 2005 (inception) through May 31, 2006

(Stated in US Dollars)

						June 1, 2005
						(Date of
						Inception of
		Three Months		Three Months		Exploration Stage
		Ended May 31,		Ended May 31,		To May 31,
		2005		2006		2006)
Operating Activities
Net loss for the period	$	-	$	(434,823)	$	(7,049,962)
Net loss from continuing operations		(4,624)
Non-cash items:
Amortization		-		3,567		9,344
Depreciation		-		3,785		4,439
Change in non-cash working capital items related to operations:
Accounts receivable		-		(2,643)		(6,327)
Beneficial conversion liability		-		-		5,356,916
Discount to convertible debenture		-		75,862		(882,604)
Increase in interest payable		-		113,630		76,952
Prepaid expenses and deposits		-		10,626		(41,873)
Advance receivable		-		(50,000)		(44,002)
Accounts payable and accrued liabilities		3,335		(153,904)		(6,591)
Loan receivable		1,778		(165,000)		(165,000)
Decrease in due to related parties		-		-		(9,422)
Cash flows used in operating activities		489		(598,900)		(2,758,130)
Financing Activities
Increase in due from related parties		-		-		(671)
Proceeds from convertible debenture payable		-		-		3,500,000
Proceeds from share issuance		-		-		100,000
Cash flows provided by (used in) financing activities		-		-		3,599,329
Investing Activities
Purchase of fixed assets		-		(3,567)		(6,473)
Purchase of oil and gas properties		-		(22,889)		(237,545)
Cash flows provided by (used in) investing activities		-		(26,456)		(244,018)
Decrease in cash from discontinued operations		-				(555)
Increase (decrease) in cash during the period		489		(625,356)		596,626
Cash, beginning of the period		48		1,223,074		1,092
Cash, end of the period	$	537	$	597,718	$	597,718
Supplemental disclosure of cash flow nformation
Cash paid for:
Interest	$	-	$	-	$	-
Income taxes	$	-	$	-	$	-

The accompanying notes are an integral part of these financial statements

F-5

CASCADE ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIENCY)

For the period December 23, 2003 to February 28, 2006

And for the period from June 1, 2005 (inception) through May 31, 2006

(Stated in US Dollars)

					Accumulated		Accumulated
					Other		Deficit During
			Additional		Compre-	Accumu-	Exploration Stage
	Common Stock		Paid-in	Treasury	hensive	lated	(June 1, 2005 to
	Number*	Par Value	Capital	Stock	Loss	Deficit	May 31, 2006)	Total
Balance, February 29, 2004	72,800,000	72,800	(14,700)	-	-	(10,441)	-	47,659
Other comprehensive loss  for the year	-	-	-	-	(10,673)	-	-	(10,673)
				-			-
Net loss for the year	-	-	-	-	-	(244,324)	-	(244,324)
Balance, February 28, 2005	72,800,000	$      72,800	$    (14,700)	$                  -	$     (10,673)	$(254,765)	$                     -	$     (207,338)
Cancellation of common stock issued from acquisition of Power Grow System Ltd.– at $0.001 June 30, 2005	(24,000,000)	(24,000)	21,000	-	-	-	-	(3,000)
Issuance of common stock for cash – at $0.30 net of issuance cost	350,000	350	99,650	-	-	-	-	100,000
Issuance of treasury stock  – at $0.215	44,000,000	44,000	9,416,000	(9,460,000)	-	-	-	-
Net loss from continuing operations	-	-	-	-	-	(4,624)	(6,683,038)	(6,687,662)
Net loss from discontinued operations	-	-	-	-	10,673	174,840	-	185,513
Balance, February 28, 2006	93,150,000	$      93,150	$ 9,521,950	$ (9,460,000)	$                 -	$ (84,549)	$     (6,683,038)	$  (6,612,487)
Net loss from continuing operations	-	$                -	$               -	$                  -	$                 -	$             -	$        (434,823)	$     (434,823)
Balance May 31, 2006	93,150,000	$      93,150	$ 9,521,950	$ (9,460,000)	$                 -	$ (84,549)	$     (7,117,861)	$     (7,047,310)

* The common stock issued, par value of common stock, and additional paid-in capital have been retroactively restated to reflect a forward split of 8 new shares for 1 old share effective on April 28, 2005.

The accompanying notes are an integral part of these financial statements

F-6

CASCADE ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

May 31, 2006

(Stated in US Dollars)

Note 1 Nature and Continuance of Operations

The Company is in the business of exploring and developing oil and gas properties in Alberta, Canada and in Kansas and California, United States of America.

At May 31, 2006, the Company has working capital of $678,718, but has incurred losses since inception totalling $7,117,861 and has yet to achieve profitable operations. The Company’s ability to continue as a going concern is dependent on raising additional capital to fund future operations and ultimately to attain profitable operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern. These financial statements do not give affect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.

The Company was incorporated on December 23, 2003 in the State of Nevada and has adopted February 28 as its fiscal year end.

Note 2 Summary of Significant Accounting Policies

Cash

For purposes of the statement of cash flows, the Company considers all investment instrument purchased with a maturity of three months or less to be cash equivalents. At May 31, 2006 the Company had uninsured demand deposits in banks of $597,718 in excess of the $100,000 insurance limit.

Change in Reporting Entity

On May 31, 2005 the Company sold it’s Power Growth System Ltd. (“PGS”) which it had acquired in February 29, 2004. The sale resulted in the discontinuance of the hydroponics operations of the Company and the effects are recorded as discontinued operations in the financial statements. As a result of such sale the Company ceased to have any subsidiaries and no longer reports as a consolidated group.

Accounting Estimates

These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgement. Actual results may differ from these estimates.

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

F-7

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Financial Instruments

The carrying values of the Company’s financial instruments, consisting of cash, accounts receivable, due from related parties, accounts payable and note payable approximate their fair value due to the short maturity of such instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.

a) Credit Risk:

The Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits. For accounts receivable, the Company estimates, on a continuing basis, the probable losses and provides a provision for losses based on the estimated realizable value.

b) Foreign Currency Risk:

The Company is exposed to fluctuations in foreign currencies through its operations in the United States. The Company monitors this exposure, but has no hedge positions. As at May 31, 2006, the Company had cash totalling $597,718 (2005:  $537) held in US dollars.

Fixed Assets

Fixed Assets are stated at cost. Amortization is calculated on a declining-balance basis at the following rates:

Asset	Rate
Computer hardware	45%

Maintenance and repairs are charged to operations; betterments are capitalized. The cost of fixed assets sold or otherwise disposed of and the accumulated amortization thereon is eliminated from the fixed asset and related accumulated amortization accounts, and any resulting gain or loss is credited or charged to income.

Amortization expense for the period ended May 31, 2006 and 2005 was $3,785 and $Nil, respectively.

Income Taxes

The Company follows Statement of Financial Accounting Standards (“FAS”) No. 109, “Accounting for Income Taxes” which requires the use of the asset and liability method of accounting of income taxes. Under the assets and liability method of FAS 109, deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carry forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled.

F-8

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Note 2 Summary of Significant Accounting Policies – (cont’d)

Basic and Diluted Loss Per Share

The Company reports basic loss per share in accordance with the FAS No. 128, “Earnings Per Share”. Basic loss per share is computed using the weighted average number of shares outstanding during the period. Instruments that can be converted to common stock have not been included in the fully diluted computations since the result would be antidilutive.

Oil and Gas Activities - Successful Efforts Method of Accounting

On April 4, 2005, the FASB adopted FASB Staff Position FSP FAS 19-1 that amends Statement of Financial Accounting Standards No. 19 (FAS 19), Financial Accounting and Reporting by Oil and Gas Producing Companies, to permit the continued capitalization of exploratory well costs beyond one year if (a) the well found a sufficient quantity of reserves to justify its completion as a producing well and (b) the entity is making sufficient progress assessing the reserves and the economic and operating viability of the project.

The Company accounts for its crude oil exploration and natural gas development activities utilizing the successful efforts method of accounting. Under this method, costs of productive exploratory wells, development dry holes and productive wells and undeveloped leases are capitalized. Oil and gas lease acquisition costs are also capitalized. Exploration costs, including personnel costs, certain geological and geophysical expenses and delay rentals for oil and gas leases, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial quantities. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production amortization rate. A gain or loss is recognized for all other sales of producing properties.

The application of the successful efforts method of accounting requires managerial judgment to determine that proper classification of wells designated as developmental or exploratory which will ultimately determine the proper accounting treatment of the costs incurred. The results from a drilling operation can take considerable time to analyze and the determination that commercial reserves have been discovered requires both judgment and industry experience. Wells may be completed that are assumed to be productive and actually deliver oil and gas in quantities insufficient to be economic, which may result in the abandonment of the wells at a later date. Wells are drilled that have targeted geologic structures that are both developmental and exploratory in nature and an allocation of costs is required to properly account for the results. Delineation seismic incurred to select development locations within an oil and gas field is typically considered a development cost and capitalized, but often these seismic programs extend beyond the reserve area considered proved and management must estimate the portion of the seismic costs to expense. The evaluation of oil and gas leasehold acquisition costs requires managerial judgment to estimate the fair value of these costs with reference to drilling activity in a given area. Drilling activities in an area by other companies may also effectively condemn leasehold positions.

F-9

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Note 2 Summary of Significant Accounting Policies – (cont’d)

Oil and Gas Activities - Successful Efforts Method of Accounting – (cont’d)

The successful efforts method of accounting can have a significant impact on the operational results reported when the Company is entering a new exploratory area in hopes of finding an oil and gas field that will be the focus of future development drilling activity. The initial exploratory wells may be unsuccessful and will be expensed. Seismic costs can be substantial which will result in additional exploration expenses when incurred.

Revenues

The Company recognizes oil and gas revenue from its interests in producing wells as oil and gas    is produced and sold from those wells. Oil and gas sold is not significantly different from the Company’s share of production. Revenues from the purchase, sale and transportation of natural gas are recognized upon completion of the sale and when transported volumes are delivered.          Shipping and handling costs in connection with such deliveries are included in production costs. Revenue under carried interest agreements is recorded in the period when the net proceeds become receivable, measurable and collection is reasonably assured. The time the net revenues become receivable and collection is reasonably assured and depends on the terms and conditions of the relevant agreements and the practices followed by the operator. As a result, net revenues may lag the production month by one or more months.

New Accounting Standards

Management does not believe that any recently issued but not effective accounting standards if currently adapted could have a material affect on the accompanying financial statements.

Note 3 Oil and Gas Properties

The Company entered into agreements to acquire interests in various unproven oil and gas properties as follows:

Coyote Creek Prospect, California, USA

On May 6, 2005, by an assignment agreement, the Company acquired a 33.075% working interest in certain mineral leases situated in Tehama County, California, referred to as the Coyote Creek Prospect. As consideration for this assignment, the Company assumed complete responsibility for the performance of all obligations of the assignor with respect to the farm-out agreement in which the assignor purchased its 67.5% working interest in the Coyote Creek Prospect. These obligations included $510,175 in geologic, geophysical, administration, land fee, dry hole drilling costs, and plugging and abandonment costs. Drilling completed in August 2005 proved that the well was uneconomical, and the entire $510,175 was allocated to exploration costs. Consequently, no amounts have been capitalized by the Company with respect to the Coyote Creek Prospect as at May 31, 2006.

F-10

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Note 3 Oil and Gas Properties - (cont’d)

Strand Fiord Coal Project, Canada

On June 15, 2005, the Company executed an acquisition proposal (the “Agreement”) with James Bay Energy Inc (“James Bay”), a private company, whereby James Bay, with the subsequent ratification of First Nephi International, Inc. (“FNI”) as appropriate, agreed to grant to the Company an option to acquire an undivided 10% ownership interest in five coal exploration licenses (the “Licenses”) to explore and develop certain coal properties (collectively the “Property”) located on Axel Hieberg Island in the Canadian Arctic. Pursuant to an agreement (the “Underlying Agreement”) dated April 20, 2005, between James Bay and FNI, James Bay and FNI agreed to form a Nova Scotia company (“Novaco”) for the purposes of the joint-venture exploration and development of the Property. In the Underlying Agreement it was agreed that the ownership of Novaco would be FNI 90% and James Bay 10%, reflecting the respective interest of those parties in the Licenses.

Due to the failure of James Bay and FNI to form Novaco, the Company elected not to exercise the Option and during the quarter ended November 30, 2005, the Company and James Bay mutually agreed to terminate the Agreement (Note 9). As at May 31, 2006, no amounts have been paid or capitalized by the Company with respect to the Strand Fiord Coal Project.

Empress Project, Alberta, Canada

“Option Lands” (Sections 5, 6 and 7), Empress Project, Alberta, Canada

On May 19, 2005, the Company executed a farm-in agreement (the “Agreement”) with Blue Scorpion Energy Inc. (“Blue Scorpion”, formerly “1048136 Alberta Ltd.”), a private Alberta company, to acquire a 49% working interest in the Crown P&NG rights of Sections 5, 6, and 7 (the “Option Lands”) of the Empress Project, located in eastern Alberta, Canada. Under the terms of the Agreement, the Company will earn the 49% working interest in each of three sections of the project by drilling, casing and completing one exploratory gas well in each section.

The Company elected not to commence with the drilling of the Option Lands, thereby forfeiting its right to a 49% working interest in these properties. As at May 31, 2006, no amounts have been paid or capitalized by the Company with respect to the Option Lands of the Empress Project.

“Farmout Lands” (Sections 16, 9, 17, and 21), Empress Project, Alberta, Canada

On June 30, 2005, the Company executed a farm-in agreement (the “Agreement”) with Blue Scorpion Energy Inc. (“Blue Scorpion”, formerly “1048136 Alberta Ltd.”), a private Alberta company, to acquire a 21% working interest in Section 16 of the Empress Project, located in eastern Alberta, Canada, including the 11-16-24-2W4M well (“11-16”). Under the terms of the Agreement, the Company will earn the 21% working interest by agreeing to pay the Grantor’s portion (51%) of all additional costs and expenses whatsoever relating to all development on Section 16 from the date of the Agreement forward. The interests earned by the Company under the agreement are subject to a 15% over-riding royalty interest for the original farmor of the property and an additional 3% over-riding royalty interest stipulated in an underlying agreement.

F-11

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Note 3 Oil and Gas Properties - (cont’d)

In November, 2005, the Company advanced $146,798 and capitalized such amounts ($174,264 Canadian funds) to the Operator of the 11-16. This represents the Company’s 51% pro-rata portion of the cost to connect the 11-16 to the Altagas gathering system. On December 6, 2005, the Company announced the completion of the construction of the pipeline, and the 11-16 commenced commercial production on December 7, 2005.

An amendment to the Agreement signed during the quarter ended November 30, 2005, confirms that the Company has also earned a 49% working interest in three other sections of the Farmout Lands (sections 9, 17, and 21) as a result of the Grantor having completed one well on Section 16 (Note 9).

“Farmout Lands” (Sections 16, 9, 17, and 21) Empress Project, Alberta, Canada - (cont’d)

In the event the Company elects to drill an Option Well, the Company will earn 21% of the Grantor’s Working Interest if the Option Well is on Section 16 and 49% of the Grantor’s Working Interest if the Option Well is on any of the other three Sections, subject to the Overriding Royalty and rights of conversion reserved by the original farmor.

Section 15, Empress Project, Alberta, Canada

On July 22, 2005, the Company executed a farm-in agreement (the “Agreement”) with Blue Scorpion Energy Inc. (“Blue Scorpion”, formerly “1048136 Alberta Ltd.”), a private Alberta company, to acquire a 49% working interest in Section 15 of the Empress Project, located in eastern Alberta, Canada. Under the terms of the Agreement, the Company will earn the 49% working interest by drilling one Earning Well on Section 15 and spudding the Earning Well not later than 30-days after the full execution of the Agreement. The Company elected not to commence with the drilling of the well, thereby forfeiting its right to a 49% working interest. As at May 31, 2006, $2,889USD has been paid and capitalized by the Company with respect to Section 15 of the Empress Project.

Kansas Prospect Database Participation Rights, Kansas, USA

On August 10, 2005, the Company executed a data sharing agreement (the “Agreement”) with Blue Scorpion Energy Inc. (“Blue Scorpion”, formerly “1048136 Alberta Ltd.”), a private Alberta company, to acquire a 25% working interest in certain proprietary oil and gas engineering data respecting several prospective areas in the State of Kansas. The data includes, among other things, certain magnetic data acquired by airborne surveys over lands (the “Lands”) in the State of Kansas that cover an area of approximately 1,000,000 acres, as well as interpretations of such data (including scaled digital plots defining potential prospects, maps and other related data). A five (5%) percent gross overriding royalty (the “Royalty”) has been reserved in an underlying agreement.

Blue Scorpion will be carried through the drilling and completion of the first two exploratory wells. The 70% joint venture working interest partners will pay 100% of the costs of drilling and completing the initial two wells. Subsequent to those first two wells, all participants in the play will contribute on a straight up working interest basis.

During the period ended May 31, 2006, $20,000 of exploration costs have been incurred and capitalized by the Company with respect to the Kansas Prospect Data Sharing Agreement.

F-12

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Note 3 Oil and Gas Properties - (cont’d)

Bolloque Prospect, Alberta, Canada

On August 26, 2005, the Company executed a farm-in agreement (the “Agreement”) with a private company (the “Grantor”) to acquire the right to earn 49% of the interests that the Grantor can otherwise earn in the “Farmout Lands”, six sections of the Bolloque Project located 60 miles due north of Edmonton, Alberta, Canada.

Under the terms of the Agreement, the Company will earn the 49% working interest by drilling one Test Well. In August, 2005, the Company advanced $374,704 ($450,000 Canadian funds) to the Operator of the property to finance the drilling of the Test Well. In December, 2005, the Company advanced $118,000 ($135,830 Canadian funds) to the Operator of the 7-1 for the completion of the well, and during the quarter ended February 28, 2006, the Company paid an additional $7,412 of exploration costs with respect to this well. The well was determined to be uneconomical and an accrual of $50,637 was recorded at February 28, 2006, for the abandonment of the well. Total cost of the well of $550,753 was allocated to exploration costs. Consequently, no amounts have been capitalized by the Company with respect to the Bolloque Prospect as at May 31, 2006.

Note 4 Related Party Transactions

During the year period ended May 31, 2006 the Company incurred consulting fees of $122,332 (2005 - $10,927 included in loss from discontinued operations) paid or accrued to directors of the Company.

During the period ended May 31, 2006, the Company incurred rent of $NIL (2005 - $1,277 included in loss from discontinued operations) charged by a former director and a company with a director that is a former director of the Company.

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

Due from related parties at May 31, 2006, is $672 (May 31, 2005 - $9,422) comprised of $306 owing to directors for out-of-pocket expenses paid on behalf of the Company and $978 advanced to a director of the Company for travel expenses.

The amounts due to related parties represent advances and unpaid charges due to directors of the Company or to companies with directors in common with the Company and such advances are unsecured, non-interest bearing and have no specific terms of repayment.

Note 5 Income Taxes

As at May 31, 2006 and 2005 the Company has non-capital losses and undepreciated capital cost of approximately $ 7,049,962 and $ 254,764, respectively, which can be carried forward for tax purposes and are available to reduce taxable income of future years. The non-capital losses expire commencing in 2006 through 2010.

F-13

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Note 5 Income Taxes (continued)

(a)			The tax effect of temporary differences that give rise to the Company’s deferred tax
		assets are as follows:
				2006	2005
	Undepreciated capital cost of capital assets Over their net book value			$    7,049,962	$     254,764
	Estimated tax loss carryforward			2,396,987	86,620
	Less: valuation allowance			(2,396,987)	(86,620)
				-	-
	The valuation allowance reflects the realization of the tax assets is unlikely.

Note 6 Convertible Debentures

On June 15, 2005, the Company executed three secured convertible debentures for a total of $3,000,000. The debentures bear interest at 5% per annum and the principle and interest is convertible, at the holders’ discretion, into shares of common stock of the Company at $0.50 per share. The debentures are due and payable in full on or before June 15, 2006. As at November 30, 2005, $508,336 has been advanced directly to the operator of the Coyote Creek Prospect (Note 3), $374,704 has been advanced directly to the operator of the Bolloque Project (Note 3), and $70,000 has been advanced for sundry amounts, for a total advanced of $953,040. This debenture was closed during the quarter ended November 30, 2005, and interest of $20,402 accrued as at November 30, 2005. The other two debentures were cancelled during the quarter ended November 30, 2005, as the Company has elected to pursue alternative sources of financing.

On November 30, 2005, we entered into a securities purchase agreement with Cornell Capital for an aggregate purchase price of $3,500,000, of which we have issued (i) on November 30, 2005, a $1,750,000 secured convertible debenture, convertible into shares of our common stock, par value $0.001, (ii) on January 10, 2006, another $1,750,000 secured convertible debenture, convertible into shares of our common stock, par value $0.001, and (iii) a warrant to purchase an aggregate of 12,000,000 additional shares of our common stock at an exercise price of $0.2902 per share exercisable until November 30, 2010.

The secured convertible debenture is convertible into shares of our common stock at any time by dividing the dollar amount being converted by the lower of $0.2902 or 80% of the lowest volume weighted average trading price per share of our common stock for five trading days immediately preceding the conversion date. The interest on the convertible debenture shall accrue on the outstanding principal balance at a rate of 5% per annum. As at May 31, 2006 $43,630 has been charged as an interest expense, 75,862 has been accreted as interest expense on the debenture discount and $70,000 has been recorded as interest penalty as liquidated damages, for a total of $189,492 for the period ended May 31, 2006.

F-14

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Note 6 Convertible Debentures (continued)

In the registration rights agreement with the investor (Cornell Capital Partners LLP.) in the November 30, 2005 private placement, we agreed to file this registration statement on or before December 30, 2005. As amended by an informal agreement between the parties, we subsequently agreed to file this registration statement on or before January 12, 2006. After filing this registration statement, we are required to use our best efforts to cause this registration statement to become effective by April 30, 2006. We will be required to keep the registration statement effective for a period of two (2) years from the date it becomes effective.

In the event that:

- we fail to file this registration statement by January 12, 2006; or

- we fail to have this registration statement declared effective by April 30, 2006;

(each of these is deemed to be a registration default) then our company will pay liquidated damages to each of the investors equal to 2% of the aggregate purchase price paid by each holder for the first 30 days after the date of default and 2% of the aggregate purchase price paid by each holder for the debentures for every 30 day period thereafter. The foregoing events are also events of default under the secured convertible debentures. An additional event of default under the debentures is if this prospectus is unavailable for more than five consecutive trading days or more than eight trading days.

As of the date of this report we are in default of having the registration statement declared effective as at April 30, 2006 and are subject to liquidated damages of 2% of the outstanding amount of the debenture every 30 days beginning April 30, 2006.

The Warrants to purchase 12,000,000 of the Company’s common stock will expire on November 30, 2010. The exercise price of the warrant is $0.2902 and an exercise period of five years. The Company accounts for the fair value of these outstanding warrants to purchase common stock and the conversion feature of its convertible notes in accordance with SFAS No. 133 "Accounting For Derivative

Instruments And Hedging Activities" and EITF Issue No. 00-19 "Accounting For Derivative Financial Instruments Indexed To And Potentially Settled In A Company's Own Stock" which requires the Company to bifurcate and separately account for the conversion feature and warrants as embedded derivatives contained in the Company's convertible notes.

Pursuant to SFAS No. 133, the Company bifurcated the fair value of the conversion feature from the convertible notes, since the conversion feature was determined to not be clearly and closely related to the debt host. In addition, since the effective registration of the securities underlying the conversion feature is an event outside of the control of the Company, pursuant to EITF Issue No. 00-19, the Company recorded the fair value of the conversion feature as a long-term liability as it was assumed that the Company would be required to net-cash settle the underlying securities.

The value of the warrants have been calculated using the Black–Scholes method as of the date of grant based on the following assumptions: an average risk free rate of 3.25; a dividend yield of 0.00%; an average volatility factor of the expected market price of the Company’s common stock of 348% for 2005; and an expected life of 5 years.

F-15

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Note 6 Convertible Debentures (continued)

In addition, 4,812,130 warrants have been issued (2,406,065 each to H.C. Wainwright & Co., Inc. and 1st SB Partners, Ltd.), and, 12,000,000 warrants have been issuer to Cornel Capital Partners, LP., each exercisable at $0.2902 with terms of 5 years from November 30, 2005. The value of these warrants have also been calculated using the Black–Scholes method as of the date of grant based on the following assumptions: an average risk free rate of 3.25; a dividend yield of 0.00%; an average volatility factor of the expected market price of the Company’s common stock of 348%; and an expected life of 5 years.

The Company is required to carry these embedded derivatives on its balance sheet at fair value and unrealized changes in the values of these embedded derivatives are reflected in the consolidated statement of operation as "Gain (loss) on value of warrants and conversion feature”.

The Company bifurcated the debenture and based on a 12% discount to maturity is amortizing a discount of $958,466 in interest expense to maturity.

Beneficial conversion expense of the debenture was calculated by the Company based upon the difference between the market price of shares of the Company’s stock as of the date of issuance and the conversion price applicable to the convertible debentures. There was no change calculated from the previous period end.

WARRANTS
Cornell Capital Partners, LP	$ (3,152,642.98)
H.C. Wainwright	$ ( 594,225.95
1st SB Partners Ltd.	$ ( 594,225.95
TOTAL BENEFICIAL CONVERSION EXPENSE	$ (4,341,094.88)

Note 7 Discontinued Operations

On June 1, 2005, the Company executed an Acquisition/Disposition Agreement (the “Agreement”) whereby the Company agreed to dispose of 100% of the issued and outstanding shares in the common stock of its wholly-owned subsidiary, Power Grow Systems Ltd., to its two original shareholders in consideration of all the liabilities being assumed by the two original; shareholders. Accordingly with the closing of the agreement on June 1, 2005, Power Grow Systems Ltd. will assume all current and future liabilities, tangible and intangible assets, intellectual and proprietary information relating to the hydroponics plant growing equipment operation.

F-16

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Note 7 Discontinued Operations (continued)

The net loss on disposal was determined as follows:

Proceeds on disposal of subsidiary	$	3,000
Net assets of subsidiary:
Cash		501
Accounts receivable		5,639
Inventory		6,893
Accounts payable		(101,249)
Due to related parties		(92,489)
Due to Cascade Energy, Inc.		(5,998)
Loan payable		(5,870)
		(192,573)
Net gain on disposal of subsidiary	$	195,573

The May 31, 2005 comparative statements do not include the following amounts related to the discontinued operations of the subsidiary.

Note 7 Discontinued Operations

	May 31, 2006	May 31, 2005
Cash	$            -	$555
Accounts receivable	$            -	$         18,385
Inventory	-	15,801
Current assets of discontinued operations	$            -	$         34,741
Bank overdraft	$            -	$                  -
Accounts payable	-	123,395
Due to related parties	-	70,190
Due to Cascade Energy, Inc.	-	5,998
Loan payable	-	18,670
Current liabilities of discontinued operations	$            -	$      218,253
Accumulated other comprehensive loss from discontinued operations	$            -	$        19,414

F-17

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Note 8 Statement of Cash Flows and Operations from Discontinued Operations of Power Grow System Ltd.

Cash flows from discontinued operations are as follows:

	May 31	May 31
	2006		2005
Cash flows used in operating activities
Gain (Loss) from discontinued operations	$                 -		$     (4,117)
Accounts receivable	-		(7,817)
Prepaid	-
Inventory	-		(8,992)
Loan payable			1,860
Accounts payable	-		18,620
Cash used in operating activities	-		(446)
Cash flows used by financing activities
Due to related parties	-		7,385
Cash provided by financing activities	-		7,385
Increase (decrease) in cash from discontinued operations prior to disposal	-		6,939
Foreign exchange gain (loss)	-		3,117
Cash, beginning of period	-		(9,501)
Increase (decrease) in cash from discontinued operations during the period	$                 -		$          555

F-18

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

STATEMENTS OF OPERATIONS

FROM DISCONTINUED OPERATIONS OF POWER GROW SYSTEM LTD.

for the period ended May 31, 2005 and February 28, 2005

(Stated in US Dollars)

		For the Period Ended May 31, 2005		For the Year Ended February 28, 2005
Sales	$	50,062	$	189,139
Cost of sales		40,198		128,614
Gross profit		9,864		60,526
Expenses
Accounting and audit fees		1,375		3,299
Advertising		6,225		16,172
Auto expenses		1,423		12,789
Bad debt (recovery)		(11,393)		16,115
Bank charges and interest		1,124		6,697
Consulting fees		10,927		48,732
Investor relations		-		2,358
Legal fees		146		736
Office and general		1,206		8,525
Rent – NOTE 4		1,277		15,956
Salaries and benefits		176		3,107
Telephone		1,495		8,577
Travel		-		2,150
		(13,981)		(145,213)
Loss before the following		(4,117)		(84,687)
Write off of Goodwill				(90,152)
Foreign currency translation adjustment		(3,117)		-
Gain on disposal of subsidiary – Note 7		-		-
Gain (loss) from discontinued operations	$	(7,234)	$	(174,839)

F-19

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Note 9 Capital Stock

On April 28, 2005, the Company approved a forward split of its common stock on the basis of 8 new shares for 1 old share and increased its authorized capital stock to 200,000,000 common shares. The number of shares referred to in these financial statements have been restated wherever applicable to give retroactive effect to the forward stock split. The par value of common stock and additional paid-in capital has also been restated.

The Company's capitalization is 200,000,000 common shares, with a par value of $0.001 per share and 5,000,000 preferred shares with a par value of $0.001 per share.

Note 9 Capital Stock (continued)

On June 1, 2005, the Company disposed of 100% of the issued and outstanding shares in the common stock of its wholly-owned subsidiary, Power Grow Systems Ltd., in consideration of the debts and liabilities being assumed.

During the quarter ended September 30, 2005, the Company returned to treasury and cancelled 24,000,000 (post-forward split) common shares in its capital stock.

On November 22, 2005, the Company closed a private placement consisting of 350,000 units at a price of $0.30 per unit for gross proceeds of $105,000. Each unit consists of one common share and one non-transferable common share purchase warrant exercisable for a period of twenty-four months from the date of closing at an exercise price of $0.60. The Company issued the securities to thirteen non U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933) in an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933.received $105,000 in share subscription proceeds for 350,000 units of a private placement financing. A finder’s fee of $5,000 was paid to a senior officer and director of the Company with respect to this private placement.

On November 29, 2005, the Company issued 44,000,000 common shares as treasury stock held as collateral on the convertible debenture. The shares were recorded at the market value of the stock on the date of issuance, which was $0.215 per share.

Note 10 Commitments and Contingencies

On February 1, 2006, the Company entered into consulting agreements with three independent consultants to consult with the Company with respect to the Company’s business and strategic planning and to assist the Company’s President and Board of Directors on an as-requested basis. In consideration for their services, each consultant will be issued 2,000,000 common shares of the Company. The agreements are for a one-year term ending on February 1, 2007, subject to termination as provided in the agreements. All of the 6,000,000 common shares will be registered under a registration statement on Form S-8, filed in March, 2006, at an estimated price of $0.30 per common share. None of the shares under these agreements have been issued as at May 31, 2006.

F-20

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Note 11 Oil and Gas Activities

As of May 31, 2006, the Company had net revenues of $421 from the Empress property.

In December of 2005, the Company completed the tie-in of the pipeline for the first Empress Gas Well in Alberta, Canada. The Well has been in production for three months now.

Property	Reserve	Revenue	Amortization	Capitalized Costs	Dry Hole
Empress	Proved	$     6,206	$     9,342	$    140,346	$              -
Kansas	Unproved	-	-	87,857	-
Bolloque	Expensed	-	-	-	591,751
Coyote Creek	Expensed	-	-	-	510,175
		$     6,206	$     9,342	$     228,203	$1,108,153

The reserve information presented below is based on reports prepared by independent petroleum engineers, Chapman Petroleum Engineering Ltd., for the proved property, Empress.

The information is presented in accordance with regulations prescribed by the Securities and Exchange Commission and based on Reserve definitions found in Rule 4-10(a) of Regulation S-X. Reserve estimates are inherently imprecise.

Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, ie., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions.

Reservoirs are considered proved if economic producibilty is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes (A) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any; and (B) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir.

F-21

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Note 11 Oil and Gas Activities (cont’d)

Summary of Company Reserves (Unaudited)
Proved Developed	OIL MSTB		SALES GAS MMscf		NGL Mbbls
	Gross	Net	Gross	Net	Gross	Net
Empress Detrital	-	-	6	3	-	-
Empress Viking	-	-	90	48	-	-
	-	-	96	51	-	-

The standardized measure of discounted future net cash flows, related to the above oil and gas reserves, is calculated in accordance with the requirements of SFAS No 69. Estimated future cash inflows from production are computed by applying year-end prices for oil and gas to year-end quantities of estimated proved reserves. Adjustment in this calculation for future price changes is limited to those required by contractual arrangements in existence at the end of each reporting period. Future development and production costs are those estimated future expenditures necessary to develop and produce year-end proved reserves based on year-end cost indices, assuming continuation of year end economic conditions. Estimated future income taxes are calculated by applying appropriate year-end statutory tax rates. These rates reflect allowable deductions and tax credits and are applied to estimated future pre-tax cash flows, less the tax bases of related assets. Discounted future net cash flows have been calculated using a 10% discount factor. Discounting requires a year-by-year estimate of when future expenditures will be incurred and when reserves will be produced.

The information provided in tables set out below does not represent management's estimate of the Company's expected future cash flows or of the value Company's proved oil and gas reserves. Estimates of proved reserves quantities are imprecise and change over time, as new information becomes available. Moreover, probable and possible reserves, which may become proved in the future, are excluded from the calculations. The arbitrary valuation prescribed under SFAS No.69 requires assumptions as to the timing and the amount of future development and production costs. The calculations should not be relied upon as an indication of the Company's future cash flows or of the value of its oil and gas reserves.

F-22

Cascade Energy, Inc.

(An Exploration Stage Company)

Notes to the Financial Statements

May 31, 2006

(Stated in US Dollars)

Note 11 Oil and Gas Activities (cont’d)

	(Unaudited)	(Unaudited)
	2006	2005
Future cash inflows	$          45,000	$                 -
Future production and development costs	(22,000)	-
Future income tax expenses	-	-
Future net cash flows	23,000	-
Less effect of a 10% discount factor	(2,300)	-
Discounted future net cash flows	20,700	-

Principal sources of changes in standardized measure of discounted future net cash flows:

	(Unaudited)	(Unaudited)
	2006	2005
Discounted present value as at beginning of year	$               -	$                -
Sales and transfers of oil and gas, net of production costs	(5,775)	-
Changes in future development costs	-	-
Extensions and discoveries and revisions, net of future production and development costs	26,475	-
Accretion of discount	-	-
Standardized measure, end of period	20,700	-

Costs incurred in Oil and Gas Acquisition, Exploration and Development:

	(Unaudited)	(Unaudited)
	2006	2005
Development costs	$              146,798	$                  -
Exploration costs	1,101,926	-
Acquisition costs
Proved	-	-
Unproved	67,857	-
	$           1,316,581	$                  -

Note 12 Non-Cash Activities

During the year ended February 28, 2006, the Company recognized a beneficial conversion expense of $5,356,916 related to a convertible debenture (see Note 6) issued to Cornell Capital Partners, LP and the associated warrants issued. This was recalculated at May 31, 2006 and no change was determined.

Note 13 Subsequent Events

On July 13, 2006 the Company announced that it had abandoned further work and cost on the Kansas project

3

Item2.Plan of Operation.

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

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

Our financial statements are stated in United States dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to “common shares” refer to the common shares in our capital stock.

As used in this quarterly report, the terms “we”, “us”, “our company”, and “Cascade” mean Cascade Energy, Inc., a Nevada corporation, unless otherwise indicated.

Corporate History

Cascade Energy, Inc. (formerly “Pro-Tech Holdings Ltd.”) was incorporated under the laws of the State of Nevada on December 23, 2003. After the Company effected the acquisition of Power Grow System Ltd. (Power Grow), a private British Columbia company, on February 29, 2004, its focus was on identifying and securing business opportunities in the hydroponics plant growing equipment manufacturing industry.

Power Grow was incorporated pursuant to the laws of British Columbia on August 20, 2001 for the purpose of designing, manufacturing and marketing sophisticated hydroponics plant growing equipment to be marketed in Canada and the United States to nurseries, garden centers, specialized hydroponics equipment shops, gardeners and home hobbyists who wish to grow their own fresh fruits, flowers, herbs and vegetables, year round, faster than conventional gardening, organically and free of outdoor pollutants, pests and weeds.

On February 2, 2004, Cascade entered into a share purchase agreement with Power Grow, Jason Bleuler and Nick Brusatore to acquire 100% of the issued and outstanding shares of voting stock of Power Grow. In consideration of the transfer of all of the outstanding shares of Power Grow, Cascade issued a total of 3,000,000 shares of common stock to the two Power Grow shareholders of which 1,500,000 were issued to Jason Bleuler and 1,500,000 to Nick Brusatore. Mr. Bleuler was appointed to the board of directors of Cascade. Messrs. Bleuler and Brusatore remained on the board of directors of Power Grow. On February 29, 2004, Cascade acquired Power Grow, and Power Grow became its wholly-owned subsidiary.

On April 28, 2005, we changed our name from “Pro-Tech Holdings Ltd.” to “Cascade Energy, Inc.” to better reflect the change of direction of our business operations. On May 5, 2005, we effected a forward split of our issued and outstanding shares of common stock on a one-for-eight basis. This forward split

4

resulted in the increase of our authorized capital stock to 200,000,000 shares of common stock at a par value of $0.001 per share and our shares of preferred stock remained unchanged at 5,000,000 shares of preferred stock at a par value of $0.001 per share. The name change was recorded by the Nevada Secretary of State on April 27, 2005 and took effect with the Over-the-Counter Bulletin Board at the opening for trading on May 5, 2005 under the new stock symbol, CSCE.

On June 1, 2005, we disposed of our wholly owned subsidiary, Power Grow Systems Ltd., to Jason Bleuler and Nick Brusatore in consideration of Jason Bleuler and Nick Brusatore assuming all debts and liabilities of the company Power Grow Systems Ltd.

Effective July 31, 2005, Messrs. Robert Hoegler and Jason Bleuler resigned from the Board of Directors.

Current Business

We are an exploration stage company engaged in the exploration and development of natural gas and oil properties in the province of Alberta, Canada, and in the States of California and Kansas, U.S.A. Our primary objective is to acquire, discover, upgrade and expand North American energy reserves towards near-term production and cash flow, together with identifying and participating in exploration opportunities

Coyote Creek Prospect

On May 6, 2005, by an assignment agreement, the Company acquired a 33.075% working interest in certain mineral leases (comprising sections 14, 15, 16, 22, 23, 24, 25, 26, 35 and 36 in Township 26 North Range 3 West and sections 1 and 2 in Township 25 North Range 3 West) situated in Tehama County, California, referred to as the Coyote Creek Prospect. As consideration for this assignment, the Company assumed complete responsibility for the performance of all obligations of the assignor with respect to the farm-out agreement in which the assignor purchased its 67.5% working interest in the Coyote Creek Prospect. These obligations included $510,175 in geologic, geophysical, administration, land fee, dry hole drilling costs, and plugging and abandonment costs. Drilling was completed in August 2005 and the well proved to be uneconomical, accordingly the entire $510,175 was charged to exploration costs. As at May 31, 2006, no amounts have been capitalized by the Company with respect to the Coyote Creek Prospect.

The Coyote Creek natural gas prospect is located at the northern end of Sacramento Valley in Tehama County, California. It is north of the Corning Gas Field; approximately 8 Bcf is produced from the post-Eocene, non-marine, Tehama Formation. The Upper Cretaceous Forbes Formation was the primary objective of this prospect, with over 1,000 feet of continuous and discontinuous sand/silt units present locally.

The Coyote Creek prospect was based on 2D seismic and well control. The seismic data and well tops constrain the location of key faults and structural closure. The nearby 1956 Shell Cox #1 well established the presence of gas and reservoir quality sands with a 1000 MCF/D DST test at 4100'. Potential closure size in the main fault block is 390 acres. Estimated recoverable gas reserves ranged from a low-end case with one well of about 2 Bcf (25' of net pay, 100 acre closure, 750 Mcf/Ac.Ft recovery) to a high-end case, with multiple wells/pay zones, of about 28 Bcf (75' of net pay, 500 acre closure, 750 Mcf/D recovery).

The Coyote Creek prospect is a NW – SE trending faulted anticline with three-way dip closure and fault closure to the southwest. The prospect is situated on the eastern, up-thrown block of the Corning reverse fault, which is also a key structural element at the Corning Gas Field. The upthrown block (“hanging wall”) is associated with gently undulating fault-parallel folding and also northerly trending splay faults, which do not apparently penetrate the shallower, post-Forbes, section. The combination of the Corning Fault and associated folding and splay faults sets up the structural trap at the Coyote Creek prospect.

5

The Corning Fault is part of a system of en echelon reverse faults that are key controlling structural features in the Malton-Black Butte Gas Field (~140 Bcf), the Willows-Beehive Bend Gas Field (~420 Bcf) and the Arbuckle Gas Field (~80 Bcf), all located south of Coyote Creek.

Empress Prospect

Empress Prospect: Sections 5, 6, and 7

On June 1, 2005, the Company executed a farm-in agreement with Blue Scorpion Energy Inc. (“Blue Scorpion”, formerly “1048136 Alberta Ltd.”), a private Alberta company, to acquire a 49% working interest in Sections 5, 6, and 7 of the Empress Project, Alberta Canada. Under the terms of the Agreement, the Company will earn a 49% working interest in each of the three (3) sections by drilling, casing and completing one exploratory gas well in each section. Well spacing in Alberta allows only one well per section. Blue Scorpion has a director in common with the Company.

The Company elected not to commence with the drilling of the well, thereby forfeiting its right to a 49% working interest.

Empress Prospect: Sections 16, 19, 17, and 21

On June 30, 2005, the Company entered into an agreement with Blue Scorpion to acquire a 21% working interest in Section 16 of the Empress Project, including the 11-16-24-2W4M well (the “11-16”). Under the terms of the agreement, the Company will earn the 21% working interest by agreeing to pay Blue Scorpion’s portion (51%) of all additional costs and expenses whatsoever relating to all development on Section 16 from the date of the agreement forward. The interests earned by us under the agreement are subject to a 15% over-riding royalty interest for the Province of Alberta and an additional 3% over-riding royalty interest stipulated in an underlying agreement.

The 11-16 was drilled and cased on June 20, 2005 after intersecting three potential hydrocarbon pay zones, and the well was completed in late July, 2005. Following the testing program, third-party engineers reported that the well was projected to produce 500 to 600 Mcf (thousand cubic feet) gas per day as a stable production rate.

In October 2005 the pipeline route survey was completed and in November 2005 the Company advanced $146,799 (CAD $174,264) to the Operator of the 11-16 for the Company’s 51% pro-rata portion of the estimated cost to connect the 11-16 to the Altagas gathering system. On December 6, 2005, the Company announced the completion of the construction of the pipeline, and the 11-16 commenced commercial production on December 7, 2005. The Company advanced a further $2,889 during the period ended May 31, 2006 and the Company’s pro-rata portion of net income (after royalties and operating expenses) from the 11-16 totalled $421 for the period ended May 31, 2006.

On October 17, 2005, an amendment to the Section 16 agreement was signed confirming that the Company has also earned a 49% working interest in three other sections (sections 9, 17, and 21) of the farmout lands near to Section 16 as a result of Blue Scorpion having completed the 11-16 well. The Company has the right and option, for thirty (30) days from rig release of the last earning well drilled on the farmout lands in which to elect in writing to the original farmor to drill an option well at a location of its choice on four pre-selected unearned sections of the farmout lands, which option well must be spudded by the Company no later than forty five (45) days after its election, subject to surface access, rig availability and regulatory approvals. The Company would be required to continuously and diligently drill the option well to contract depth and complete, cap or abandon same at our sole cost, risk and expense. Failure by the Company to elect to drill an option well shall be deemed to be an election to surrender our rights to drill an option well and to earn an interest in the unearned farmout lands.

In the event the Company elects to drill an option well, the Company will earn 21% of Blue Scorpion’s working interest if the option well is on Section 16 and 49% of Blue Scorpion’s working interest if the

6

option well is on any of the other three sections, subject to the overriding royalty and rights of conversion reserved by the original farmor.

Empress Prospect: Section 15

On July 22, 2005, the Company executed a farm-in agreement with Blue Scorpion to acquire a 49% working interest in Section 15 of the Empress Project. Under the terms of the agreement, the Company will earn the 49% working interest by drilling one earning well on Section 15 and spudding the earning well not later than 30-days after the full execution of the agreement. The Company elected not to commence with the drilling of the well, thereby forfeiting its right to a 49% working interest.

The Empress natural gas exploration project is located in eastern Alberta, Canada approximately 160 miles east of the City of Calgary. The surface consists of gently rolling farm and ranch land with year round access and an established production and equipment infrastructure.

The Bakken zone of the project has oil shows in Drill Stem Tests (D.S.T.) offsetting the land. Seismic indicates a Bakken high under the project. Seismic indicates a Banff limestone high under the license, overlying the Bakken high. This zone does not produce in the area but produces oil in other areas. The Colony sand has tested gas in the area. The Colony sand is above the Banff.

The Viking zone, 85 meters above the Colony, contains natural gas in wells contiguous to both southwest and north sides of the project. Mapping indicates that the reservoir continues under the project land. Pressure analysis of producing gas wells shows that 16 billion cubic feet (Bcf) of natural gas were originally in place in the Viking reservoir contiguous to the project on the north side. Over 2 Bcf of that gas has been produced from 6 gas wells leaving over 13 Bcf in the reservoir. Gas is present in two wells immediately south of the leases.

Initial production rates from the existing wells have been just under 1 Mmcf per day. Absolute Open Flow Rates (A.O.F.) are in the order of 3 to 5 Mmcf per day with one as high as 14 Mmcf per day. Production is held back to minimize condensate production. Three wells have a cumulative of over 0.4 Bcf each, with one of these having produced 0.9 Bcf.

Strand Fiord Coal Project

On June 15, 2005, the Company executed an acquisition proposal (the “Agreement”) with James Bay Energy Inc. (“James Bay”), a private company, whereby James Bay, with the subsequent ratification of First Nephi International, Inc. (“FNI”) as appropriate, agreed to grant to the Company an option to acquire an undivided 10% ownership interest in five coal exploration licenses (the “Licenses”) to explore and develop certain coal properties (collectively the “Property”) located on Axel Hieberg Island in the Canadian Arctic. Pursuant to an agreement (the “Underlying Agreement”) dated April 20, 2005, between James Bay and FNI, James Bay and FNI agreed to form a Nova Scotia company (“Novaco”) for the purposes of the joint-venture exploration and development of the Property. In the Underlying Agreement it was agreed that the ownership of Novaco would be FNI 90% and James Bay 10%, reflecting the respective interest of those parties in the Licenses.

Due to the failure of James Bay and FNI to form Novaco, the Company elected not to exercise the Option and on October 3, 2005, the Company and James Bay signed a Mutual Release to terminate the Agreement.

Bolloque Prospect

7

The Bolloque project is located 60 miles north of Edmonton, Alberta and is approximately 40% of the way to Lesser Slave Lake, Alberta.

On August 26, 2005, the Company entered into a farmout agreement with Salida Capital, Inc. (“Salida”), a private Nevada Corporation, to acquire the right to earn 49% of the interests that Salida can otherwise earn in six sections of the Bolloque Project located 60 miles due north of Edmonton, Alberta, Canada. Salida acquired its interest in the lands under a participation agreement, dated March 14, 2005, with Vega Resources Ltd. (“Vega”). Pursuant to the participation agreement, Salida can earn 100% of the interests that Vega has a right to earn in the lands, subject to a 3% gross overriding royalty reserved for Vega in the participation agreement.

Under the terms of the farmout agreement, the Company will earn the 49% working interest by drilling one test well on one of the sections comprising the farmout lands. If the Company fulfills its obligations with respect to the test well, the Company shall have the right to drill a like well (first option well) on any undrilled section of the farmout lands provided that written election is made to the original farmor within 45 days after the rig release date of the test well. If the Company elects to drill the first option well, drilling shall commence within 45 days of the written election to the original farmor to drill, subject to rig availability, regulatory approval and suitable surface access. In like manner, the Company shall have the continuing rolling option to elect to drill further option wells and earn on any undrilled section of the Farmout Lands on the same timing and earning basis as the first option well utilizing the rig release date of the then most immediately preceding earning well.

In August, 2005, the Company advanced $374,704 ($450,000 CAD) to the operator of the Bolloque oil play for the drilling and casing of the test well on Section 1 (the “7-1” well). In September, 2005, the 7-1 well was spudded and cased. The well reached a total depth of 1,055 metres (3,462 feet) and a suite of electronic logs was run. In December, 2005, the Company advanced $118,000 ($135,830 CAD) to the Operator of the 7-1 for the completion of the well, and during the same quarter the Company paid an additional $7,412 of exploration costs with respect to the 7-1. A completion rig subsequently perforated and swab tested two zones, these being oil in the Leduc, and gas in the Wabamun Formations. The well was determined to be uneconomical, and the decision has been made to plug and abandon the well. Subsequent to the year ended February 18, 2006, the Company received a cash call for $50,637 ($58,112 CAD) from the Operator for the cost of abandoning the well. Total exploration costs of $591,751 have been written off.

The project consists of a Leduc (Devonian) reef target underlying three sections of petroleum and natural gas (P&NG) leases. Three other P&NG leases are included in the project area. The project lands consist of six sections of P&NG rights leased from the Crown, and three sections are thought to overlie a Leduc reef build-up on the edge of the Cooking Lake platform. Oil well spacing is normally 4 wells per section. Wells in the area that have penetrated the flanks of the reef have tested water, showing that there is porosity and permeability within the Leduc zone. The play is predicated on there being oil trapped in the top of the reef.

Most wells in the area were drilled for Mannville sands and natural gas. Gas production is occurring from these sands under the project lands. These gas rights are excluded from the project farm-in lands, as other oil companies own them but show the presence of economic hydrocarbons. Mapping of the shallower zones indicate that there is structural drape over an underlying reef, the Leduc target horizon. A seismic line has been purchased and is being reprocessed to confirm that the reef is present.

The Wabamun Formation, about 200 meters shallower than the Leduc, is often productive where there is an underlying Leduc reef. The Wabamun tends to be more uniform in thickness but drape across the underlying reef creates a trap and a reservoir if porosity has been developed in the zone. The Wabamun thus is a secondary target in this project. The Nisku Formation, about 100 meters shallower than the Leduc also forms reservoirs in the same way.

8

The Leduc D-3 field is situated in the Western Canadian Sedimentary Basin and is named after the central Alberta town of Leduc (1991 pop. 13,970). Located amongst Canada's largest region of sedimentary rocks, and the largest source of current oil and gas production the Province of Alberta it makes up the majority of this Basin. The Leduc pool dates to the Devonian period and its principal lithology is Dolomite.

The discovery of the Leduc oil field in 1947 fostered the revelation that oil could be recovered from the Plains of Alberta. This discovery became the base upon which Alberta and Canada built its oil industry, and the nation would ultimately become an exporter of oil. By the time Imperial Oil completed its exploitation program of the Leduc oil field in 1984, it had produced in excess of 240 million barrels. With the advent of new tools such as seismic imaging along with the increased cost of oil, the field continues to return significant revenues for many mid-size exploration and development companies.

Kansas Prospects Data Sharing Agreement

On August 10, 2005, the Company entered into a data sharing agreement with Silver Star Energy, Inc. and Fidelis Energy, Inc., as purchasers, and Blue Scorpion Energy Inc. (“Blue Scorpion”, formerly 1048136 Alberta Ltd.), a private Alberta company, as vendor, wherein the Company acquired an interest in data and the interpretation of that data and a 25% working interest in the use of the data to develop the lands about which the data was compiled. Blue Scorpion has a director in common with the Company.

Blue Scorpion purchased the data pursuant to an agreement with Wildes Exploration LLC dated June 5, 2005. The data was gathered by airborne surveys over lands in the State of Kansas that cover approximately 1,000,000 acres. The lands are located in central Kansas, covering parts of Ellsworth, Salina, McPherson, Reno, Harvey, Kingman, and Sedgwick counties.

The Company received a 25% interest and the other purchasers received their interests in consideration for the conduct and completion of development programs of the lands and payment for the following two expenses in proportion to each party’s interests in the data: 1) the costs of the acquisition, by way of leases or otherwise, of up to two sections of the lands selected by Blue Scorpion for drilling two initial wells; and 2) the costs of drilling and completing the initial two wells. The working interests of the initial two wells will be as follows: Cascade Energy, Inc. – 25%, Fidelis Energy, Inc. – 25%, Silver Star Energy, Inc. - 20%, and Blue Scorpion – 30%.

As at May 31, 2006, exploration costs totalling $87,857 have been incurred and capitalized by the Company with respect to the Kansas Prospect Data Sharing Agreement.

The data sharing agreement includes participation rights in a large data base that includes a geophysical survey covering approximately one million acres, located in central Kansas, covering parts of Ellsworth, Salina, McPherson, Reno, Harvey, Kingman, and Sedgwick counties.  Total cumulative oil production through 1999  from  these  counties  is more  than  978  million  barrels  of  oil.

The geophysical  survey  utilized RAM technology,  owned by Paramount  Energy Corp., which is a  geophysical  methodology  used to  highlight  oil and gas  deposits.  Unlike 2-D and 3-D seismic methods, which gather information based upon artificially induced sonic responses recorded at the surface, RAM technology identifies "unique bright spots" using its proprietary software to process certain aspects of the earth's magnetic field data.  Data is collected by a low flying aircraft equipped with specialized equipment and then analyzed by RAM software.  These "unique bright spot" anomalies can be correlated to near-surface alterations caused by the slow geochemical processes that occur over both oil and gas deposits. 

The RAM technology is an indirect hydrocarbon indicator independent of structure so it a good tool in areas where seismic is not.  Since RAM data is collected from an aircraft, large acreage surveys can be acquired many times faster and many times less costly than   traditional   seismic.   That makes RAM an ideal first reconnaissance tool. 

9

Several identified RAM anomalies interpreted within the survey area are believed to have hydrocarbon potential over multi-sections of lands that have never been tested with a drill bit.  Most nearby production within this region of the Central Kansas Platform produces from Mississippian age and older limestone rocks above the Arbuckle dolomite formation. Some of the accumulations of hydrocarbons are stratagraphically trapped and unrelated to structure and therefore not easily identifiable by traditional seismic.  The magnetic survey and interpretation of the region is of excellent quality. 

The Central Kansas Platform covered by the survey and interpretation contains some of the most prolific production from shallow depths in that part of the country.  There are many established oil fields within the boundaries of the survey area. The survey indicates "bright spots" that could be hydrocarbon accumulations not yet discovered by traditional seismic or other older exploration technologies. Multiple prospects are expected to be generated after more extensive field tests.  Cascade and partners are proceeding to further evaluate the most prospective oil and gas targets for drilling utilizing complimentary geochemical and geophysical methodologies in their field-testing. The operator will then recommend leases for acquisition and the exploration program will commence.

Oil wells will be drilled to test the most promising prospects to the deepest known petroleum formation, the Arbuckle, generally less than 4000' in depth in the Central Kansas Platform.  Drilling costs have been estimated to be in the order of $200,000 for a cased and completed well.

On July 13, 2006 the Company announced that it was abandoning further work on the Kansas project believing the costs did not warrant the working interest obtained. As at July 13, 2006 the capitalized costs of $87,857 were expensed.

Plan of Operation and Cash Requirements

We anticipate that we will expend approximately $2,125,000 during the twelve-month period ending February 28, 2007 to develop our current portfolio of properties, and for working capital. Our priorities are the identification of additional drill targets of the Empress Prospect and the analysis of the Kansas data for identification of potential lease acquisitions and subsequent drill targets. These expenditures are broken down as follows:

Major expenditures expected for the next 12 months include the following:

Exploration and drilling:	$1,000,000
Leasing:	125,000
Operating expenses:
General and administrative:	750,000
General working capital:	250,000
Total:	$2,125,000

Liquidity and Capital Resources

Cash and cash equivalents from inception have been insufficient to provide the operating capital necessary to operate the Company. The necessary capital to operate the Company was initially provided by the principals and founders of the Company in the form of both debt and capital stock issuances as set forth in the financial statements incorporated herein. The working capital necessary to operate the Company and provide for acquisition capital came from the proceeds of convertible debentures as previously disclosed.

As at May 31, 2006, we had working capital of $678,719 and our cash on hand was $597,718 as at May 31, 2006.

10

During the year period ended May 31, 2006, we capitalized exploration costs of $2,889 and $20,000 on our Empress and Kansas prospects.

In November 2005, the Company closed a private placement financing for gross proceeds of $105,000 from the sale of 350,000 units at $0.30 per unit. Each unit consists of one common share in the capital of the Company and one common share purchase warrant which shall entitle the holder to purchase one common share of the Company at a price of $0.60 for a period of twenty-four months commencing from the closing of the private placement. All of the subscribers are Canadian citizens and are close personal friends of either a director or senior officer of the Company.

During the year ended February 28, 2005, the Company was advanced $953,241 pursuant to a convertible debenture. The debenture bears interest at 5% per annum and the principle and interest was convertible, at the holders’ discretion, into shares of common stock of the Company at $0.50 per share. The debenture was due and payable in full on or before June 15, 2006. On December 14, 2005, the Company extinguished this debenture by the payment of $974,968, including interest of $21,727.

On November 30, 2005, the Company executed two secured convertible debentures totaling $3,500,000. The debentures bear interest at 5% per annum and the principle and interest is convertible, at the holders’ discretion, into shares of common stock of the Company at the lower of $0.2902 per share or 80% of the lowest daily volume weighted average trading price per share for the five trading days prior to conversion, subject to adjustment pursuant to the anti-dilution provisions as set forth in the convertible debentures. The debentures will mature on November 30, 2008 and January 10, 2009 ($1,750,000 on each date, respectively). The Company has the right to redeem a portion or all amounts outstanding under this debenture prior to the maturity date provided that the closing bid price of the Company’s common shares is less than the fixed conversion price at the time of the redemption notice. The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to 20% of the principal amount being redeemed and accrued interest. The purchaser of the convertible debentures also received 12,000,000 common share purchase warrants exercisable at $0.2902 per share until November 30, 2010. The first $1,750,000 debenture closed on November 30, 2005 wherein the Company received net proceeds of $1,435,000 on December 2, 2005. The remaining $1,750,000 debenture closed on January 10, 2006 wherein the Company received net proceeds of $1,575,000. The Company also entered in a pledge and escrow agreement dated November 30, 2005, whereby the Company agreed to irrevocably pledge 44,000,000 common shares of the Company’s security. These shares were issued into escrow in the Company’s name and will not be released unless the Company defaults on the debentures.

At May 31, 2006, no value has been recorded for the shares, as they have not been released from escrow. .

The receipt of net proceeds of $3,010,000 from the two secured convertible debentures totaling $3,500,000 provides the capital required to meet our immediate short-term needs, but does not provide the balance of our estimated funding requirements for the next twelve months. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.

Results of Operations

For the Year Period Ended May 31, 2006 Compared to the Period Ended May 31, 2005

Net Loss for the Period.

The Company has had only limited operations, and hasn’t yet realized any significant revenues from the sale of oil or gas from any of its prospective lands. The Company has realized a net loss from operations of $7,049,962 since inception. The majority of this loss is due to the recognition of a non-cash beneficial conversion expense of $4,341,216 and finance fees of $480,688 related to the convertible debenture

11

issued to Cornell Capital Partners, LP, dry hole costs of $591,751 and $510,175 associated with the Company’s Bolloque and Coyote Creek prospects, respectively.

Operating Expenses. Operating expenses for the period ended May 31, 2006, totalled $247,974. Operating expenses consist primarily of investor relations, legal fees, and consulting fees. These three items total 82% of total operating expenses

Risks Relating to Our Business:

We have a history of losses which may continue, which may negatively impact our ability to achieve our business objectives.

We incurred net losses of $7,117,861 for the period from June 1, 2005 (inception) to May 31, 2006, and $154,172 for the year ended February 28, 2005. We cannot be assured that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.

If we are unable to obtain additional funding our business operations will be harmed and if we do obtain additional financing our then existing shareholders may suffer substantial dilution.

We will require additional funds to sustain and expand our oil and gas exploration activities. We anticipate that we will require up to approximately $2,125,000 to fund our continued operations for the twelve month period ending February 28, 2007, well in excess of the cash on hand of $597,718 as at May 31, 2006. Historically, we have financed these expenditures primarily with proceeds from the sale of debt and equity securities. In order to meet these obligations or acquire any additional business interest, we will have to raise additional funds. We also make offers to acquire oil and natural gas properties in the ordinary course of our business. If these offers are accepted, our capital needs may increase substantially.

We have arrangements for limited financing and we can provide no assurance that we will be able to obtain the additional required financing when needed. Obtaining additional financing will be subject to a number of factors, including:

1. market conditions;

2. investor acceptance of potential business assets; and,

3. investor sentiment.

These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us. If we are not successful in achieving financing in the amount necessary to meet our present obligations in connection with the oil and gas interests that we have acquired or business interests that we may acquire, implementation of our business plan may fail or be delayed.

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

In their report dated March 27, 2006, our independent auditors stated that our financial statements for the fiscal year ended February 28, 2006 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of recurring losses from operations. We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities. Our continued net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.

We have a limited operating history and if we are not successful in continuing to grow our business, then we may have to scale back or even cease our ongoing business operations.

We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Our company has a limited operating history in the business of oil and gas exploration and

12

must be considered in the development stage. Our success is significantly dependent on a successful acquisition, drilling, completion and production program. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to locate recoverable reserves or operate on a profitable basis. We are in the development stage and potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.

We do not control all of our operations.

We do not operate any of our properties and we therefore have limited influence over the testing, drilling and production operations of our properties. Our lack of control could result in the following:

1. the operator might initiate exploration or development on a faster or slower pace than we prefer;

2. the operator might propose to drill more wells or build more facilities on a project than we have funds for or that we deem appropriate, which could mean that we are unable to participate in the project or share in the revenues generated by the project even though we paid our share of exploration costs, and we could have our working interest ownership in the related lands and petroleum reserves reduced as a result of our failure to participate in development expenditures; and,

3. if an operator refuses to initiate a project, we might be unable to pursue the project.

Any of these events could materially reduce the value of our properties.

We may not be able to finance future needs or adapt our business plan to changes because of restrictions placed on us by the instruments governing our debt.

Our agreements with the selling stockholders who purchased our senior secured convertible promissory notes contain various covenants that limit our ability to, among other things:

1. pay dividends on our common stock, redeem or repurchase our common stock or other equity security;

2. sell assets; and,

3. issue any securities that rank pari passu or senior to the senior secured convertible promissory notes that we issued to the selling stockholders.

Our ability to comply with such covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. Additionally, our agreements with the selling stockholders contain numerous affirmative covenants, including covenants regarding reporting requirements and compliance with applicable laws and regulations. Additional debt we incur in the future may subject us to future covenants.

Our failure to comply with these covenants could result in a default under the agreements governing the relevant debt. In addition, if any such default is not cured or waived, the default could result in an acceleration of debt under other debt instruments that contain cross acceleration or cross-default provisions, which could require us to repay or repurchase debt, together with accrued interest, prior to the date it otherwise is due and that could adversely affect our financial condition. If a default occurs under the notes, the selling stockholders could cause all of the outstanding debt obligations under the notes to become due and payable. Upon a default or cross-default, the selling stockholders could proceed against

13

the collateral. Even if we are able to comply with all of the applicable covenants, the restrictions on our ability to manage our business in our sole discretion could adversely affect our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities that we believe would be beneficial to us.

If we are unable to access our properties or conduct our operations due to surface conditions, our business will be adversely affected.

Our exploitation and development of oil and natural gas reserves depends upon access to the areas where our operations are to be conducted. We conduct a portion of our operations in northern regions where we are only able to do so on a seasonal basis. Unless the surface is sufficiently frozen, we are unable to access our properties, drill or otherwise conduct our operations as planned. In addition, if the surface thaws earlier than expected, we must cease our operations for the season earlier than planned. Our operations are affected by road bans imposed from time to time during the break-up and thaw period in the spring. Road bans are also imposed due to snow, mud and rock slides and periods of high water, which can restrict access to our well sites and production facility sites. In recent years, winters in our northern operating areas have been warmer than normally experienced and, as a result, our operating seasons have been shorter than in the past. Our inability to access our properties or to conduct our operations as planned will result in a shutdown or slow down of our operations, which will adversely affect our business.

If we are not able to effectively manage our anticipated expansion and growth, our business and financial condition will be negatively affected.

We have recently expanded our business operations. Any future growth in our business may place significant strain on our limited managerial and operational resources. We cannot assure you that we will be able to implement adequate controls over the risks associated with our planned expansion. If we are unable to effectively manage expanded operations, our revenues may not concurrently increase with rising costs of operations and our business will be negatively affected.

Our compliance with the Sarbanes-Oxley Act and SEC rules concerning internal controls may be time-consuming, difficult and costly for us.

It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance staff in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, we may not be able to obtain the independent accountant certifications that the Sarbanes-Oxley Act requires publicly-traded companies to obtain.

If we are unable to retain the services of William Scott Marshall or if we are unable to successfully recruit qualified managerial and field personnel having experience in oil and gas exploration, we may not be able to continue our operations.

Our success depends to a significant extent upon the continued service of William Scott Marshall, our president. Loss of the services of Mr. Marshall could have a material adverse effect on our growth, revenues, and prospective business. We do not maintain key-man insurance on the life of Mr. Marshall. In addition, in order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified managerial and field personnel having experience in the oil and gas exploration business. Competition for qualified individuals is intense. There can be no assurance that we will be able to find, attract and retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms.

14

Risks Relating to Our Industry:

As our properties are in the exploration stage, there can be no assurance that we will establish commercial discoveries on our properties.

Exploration for economic reserves of oil and gas is subject to a number of risk factors. Few properties that are explored are ultimately developed into producing oil and/or gas wells. Our properties are in the exploration stage only and are without proven reserves of oil and gas. We may not establish commercial discoveries on any of our properties.

Even if we are able to, the potential profitability of oil and gas ventures depends upon factors beyond the control of our company.

The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls or any combination of these and other factors, and respond to changes in domestic, international, political, social and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. In addition, adverse weather conditions can also hinder drilling operations. These changes and events may materially affect our future financial performance. These factors cannot be accurately predicted and the combination of these factors may result in our company not receiving an adequate return on invested capital.

Even if we are able to discover and generate a gas or oil well, there can be no assurance the well will become profitable.

We have not yet made a discovery of economically recoverable reserves. Even if we are able to, a productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. In addition, the marketability of oil and gas which may be acquired or discovered will be affected by numerous factors, including the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection, all of which could result in greater expenses than revenue generated by the well.

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

The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and gas companies which have substantially greater technical, financial and operational resources and staffs. Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds. We cannot predict if the necessary funds can be raised or that any projected work will be completed. Our budget anticipates our acquisition of additional acreage of lease in the Coos Bay basin. This acreage may not become available or if it is available for leasing, that we may not be successful in acquiring the leases.

The marketability of natural resources will be affected by numerous factors beyond our control which may result in us not receiving an adequate return on invested capital to be profitable or viable.

The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include market fluctuations in oil and gas pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of oil and gas and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but

15

the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.

Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our company.

Oil and gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages. To date, we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in the future and this may affect our ability to expand or maintain our operations.

Exploration and production activities are subject to certain environmental regulations which may prevent or delay the commencement or continuation of our operations.

In general, our exploration and production activities are subject to certain federal, state and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuation of a given operation. Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date. Specifically, we are subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry. We believe that our operations comply, in all material respects, with all applicable environmental regulations. Our operating partners maintain insurance coverage customary to the industry; however, we are not fully insured against all possible environmental risks.

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

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

Risks Relating to Our Shares of Common Stock:

If we fail to remain current in our reporting requirements, we could be removed from the OTC Bulletin Board which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market

16

liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Our shares of common stock is subject to the “penny stock” rules of the Securities and Exchange Commission and the trading market in our securities is limited, which makes transactions in our shares of common stock cumbersome and may reduce the value of an investment in our shares of common stock.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

- that a broker or dealer approve a person’s account for transactions in penny stocks; and

- the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

- obtain financial information and investment experience objectives of the person; and

- make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Securities and Exchange Commission relating to the penny stock market, which, in highlight form:

- sets forth the basis on which the broker or dealer made the suitability determination; and

- that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our shares of common stock and cause a decline in the market value of our shares of common stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

National Association of Securities Dealers Inc. sales practice requirements may also limit a stockholder’s ability to buy and sell our shares of common stock.

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

17

Item 3. Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, being May 31, 2006, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s president and our chief financial officer. Based upon that evaluation, our company’s president and our chief financial officer concluded that our company’s disclosure controls and procedures are effective as at the end of the period covered by this report. There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the 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 our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our president and our chief financial officer as appropriate, to allow timely decisions regarding required disclosure.

PART II-OTHER INFORMATION

Item1.Legal Proceedings.

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest. The outcome of open unresolved legal proceedings is presently indeterminable. Any settlement resulting from resolution of these contingencies will be accounted for in the period of settlement. We do not believe the potential outcome from these legal proceedings will significantly impact our financial position, operations or cash flows.

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

On November 22, 2005, we closed a private placement consisting of 350,000 units at a price of $0.30 per unit for gross proceeds of $105,000. Each unit consists of one common share and one non-transferable common share purchase warrant exercisable for a period of twenty-four months from the date of closing at an exercise price of $0.60. We issued the securities to thirteen non U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933) in an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933.

On November 30, 2005, we entered into a securities purchase agreement with Cornell Capital Partners, LP (“Cornell”) for an aggregate purchase price of $3,500,000, of which we have issued (i) on November 30, 2005, a $1,750,000 secured convertible debenture, convertible into shares of our common stock, par value $0.001, (ii) on January 10, 2006, another $1,750,000 secured convertible debenture, convertible into shares of our common stock, par value $0.001, and (iii) a warrant to purchase an aggregate of 12,000,000 additional shares of our common stock at an exercise price of $0.2902 per share exercisable until November 30, 2010. Pursuant to the registration rights agreement entered into between our company and the investor, we agreed to file a registration statement registering the shares of our common stock issuable upon conversion of the convertible debentures and liquidated damages, and the shares of our common stock issuable upon the exercise of the warrants. The proceeds of the private placement will be used for

18

general corporate purposes. We issued the securities to an accredited investor pursuant to exemptions from registration as set out in Rule 506 of Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities.

On November 29, 2005, the Company issued 44,000,000 common shares as treasury stock that is being held as collateral as part of the convertible debenture with Cornell pending clearance of the SB-2 registration statement filed January 12, 2006. The shares were recorded at the market value of the stock on the date of issuance, which was $0.215 per share.

On November 30, 2005, we also issued to each of H.C. Wainwright & Co., Inc. and 1st SB Partners, Ltd., both broker dealers registered pursuant to section 15 of the Securities Exchange Act of 1934, 2,406,065 warrants to purchase up to 2,406,065 shares of our common stock, exercisable to November 30, 2010, at an exercise price of $0.2902 per share. We issued these warrants pursuant to Rule 506 of Regulation D under the Securities Act of 1933, in payment of placement fees in connection with the sale of our convertible debentures to the other selling stockholders.

Item 3.Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information.

None

19

Item 6. Exhibits.

The following documents are filed herewith or have been included as exhibits to previous filings with the Commission and are incorporated herein by this reference:

Exhibit No.	Exhibit
2.1	Agreement dated February 2, 2004 among Pro-Tech Holdings Ltd. Power Grow System Ltd., Jason Bleuler and Nick Brusatore (incorporated by reference from our Registration Statement on Form SB-2 filed on May 19, 2004)
2.2	Acquisition/Disposition Agreement dated June 30, 2005 among Pro-Tech Holdings Ltd., Power Grow System Ltd., Jason Bleuler and Nick Brusatore (incorporated by reference from our Current Report on Form 8-K filed on July 22, 2005)
3.1	Articles of Incorporation
3.2	Bylaws
3.3	Articles of Amendment
14.1	Code of Business Conduct and Ethics
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

20

SIGNATURES

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

CASCADE ENERGY, INC.

By: /s/ Scott Marshall

Scott Marshall,

President and Director

(Principal Executive Officer)

By: /s/ Gordon Samson

Gordon Samson,

Chief Financial Officer and Director

Date: July 24, 2006

By: /s/ Chris Foster

Chris Foster,

Director

Date: July 24, 2006

By: /s/ Dane Brown

Dane Brown,

Vice President, Corporate Development, and Director

Director

Date: July 24, 2006