Profound Energy Inc.
TSX : PFX

Profound Energy Inc.

March 19, 2008 09:00 ET

Profound Energy Inc. Announces Its Year Ended December 31, 2007 Financial and Operating Results

CALGARY, ALBERTA--(Marketwire - March 19, 2008) - Profound Energy Inc. (TSX:PFX) ("Profound" or the "Company") is pleased to report its operational and financial results for the year ended December 31, 2007.

Profound was formed on November 19, 2007 through the amalgamation of Profound Energy Ltd. ("Former Profound"), a private oil and gas exploration and production company, and Cork Exploration Inc. ("Cork"), a public oil and gas exploration and production company. Financial and operational results for 2007 include the results of Former Profound from January 1, 2007 to November 19, 2007 and the results of Profound from November 19, 2007 to December 31, 2007.

HIGHLIGHTS

On November 19, 2007 Former Profound amalgamated with Cork to form Profound.

During the month of December 2007, Profound experienced average daily production of 10.2 mmcfd of natural gas and 685 bbls/d of NGLs and oil, a total of 2,389 boed. For the twelve months ended December 31, 2007 the Company produced on average 1.5 mmcfd of natural gas and 99 bbls/d of NGLs and oil, a total of 344 boed.

Funds flow from operations in 2007 was $3.2 million with $2.7 million being produced in the fourth quarter.

The Company's oil and natural gas reserves were evaluated by GLJ Petroleum Consultants Ltd. ("GLJ") as at December 31, 2007 (the "GLJ report"). The GLJ report concludes that the Company holds 6.0 million boe of proved reserves and 9.6 million boe of proved plus probable reserves. The report assigns a value before tax for the proved plus probable reserves applying a discount rate of 10 percent of $149.2 million.

Total net debt at December 31, 2007 was $33.4 million dollars.

Profound holds 42,977 net undeveloped acres of land independently evaluated by Seaton-Jordan & Associates as having a value of $17.7 million at December 31, 2007.

Capital expenditures in 2007 totalled $124.4 million of which $101.2 million relates to the petroleum and natural gas assets acquired as part of the purchase of Cork. The remaining $23.3 million was spent on drilling, completions and well tie-ins along with land, seismic purchases and capitalized general and administrative expenses.

Profound participated in the drilling of 17 wells (9.5 net) during 2007 with a success rate of 74 percent.

Finding, development and acquisition costs in 2007 averaged $20.84 proved and $12.94 per boe proved plus probable excluding future capital and $24.03 proved and $15.83 proved plus probable including future capital requirements.

The field operating net back averaged $28.94 in 2007 providing a recycle ratio of 2.2 per boe for proved plus probable reserves excluding future capital and 1.8 per boe for proved plus probable including future capital.

A reserve life index of 6.7 years for total proved reserves and 10.8 years for proved plus probable reserves based on a December 2007 production average of 2,389 boed.



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FINANCIAL AND OPERATING HIGHLIGHTS
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Year ended
December 31, 2007
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FINANCIAL HIGHLIGHTS
($000 unless otherwise indicated)

Petroleum and natural gas sales 6,367
Funds flow from operations 3,185
Per share -- basic and diluted ($) 0.41
Net loss (706)
Per share -- basic and diluted ($) (0.09)
Operating netback -- per boe ($) 28.94
Capital expenditures 23,279
Acquisition of Cork Exploration 101,158
Bank debt plus working capital deficiency 33,414
Common shares outstanding (000's) 24,903

OPERATING HIGHLIGHTS

Average daily production
Natural gas (mcf/d) 1,471
Crude oil & NGL's (bbls/d) 99
Barrels of oil equivalent (boe/d) 344

Wells drilled
Gross 17
Net 9.5
Success (%) 74

Reserves (Mboe)
Proved 5,970
Probable 3,645
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Total Proved plus probable 9,615
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Note: The average of 344 boe per day for 2007 includes production from Former Profound for the year and production from Cork for the period subsequent to November 19, 2007. Profound's December 2007 production was 2,389 boe per day comprised of 10,224 mcf per day of natural gas and 685 bbls/d of NGLs and oil.

Please refer to the Management Discussion and Analysis and the Financial Statements that are part of this press release for more complete information.

OPERATIONS OVERVIEW

Carrot Creek, Alberta

Profound's major asset, Carrot Creek, is located southeast of Edson, Alberta. The area contains multi-zone natural gas and natural gas liquids rich reservoirs at depths of 2100 to 2500m. Profound held an average 61 percent working interest in 9,920 (5,575 net) acres of undeveloped land at Carrot Creek at year end 2007.

Drilling results in 2007 by Cork, and a recent well (0.5 net) by Profound yielded results which have encouraged Profound to accelerate development for 2008. Profound is currently planning additional horizontal wells which will target the Rock Creek Member of the Fernie Formation. A vertical well drilling program will target the Ostracod Formation of the Lower Mannville Group, where recent production tests have achieved rates in excess of 1,000 boe/d of natural gas and natural gas liquids. Six follow up locations for the Ostracod and six horizontal wells targeting the Rock Creek have been identified, and facilities upgrades are being undertaken to accommodate the additional production expected from this program over the next two years.

Pembina Area, Alberta

The Pembina property, located near Drayton Valley, Alberta, produces from Cretaceous and Jurassic reservoirs as well as the Mississippian Shunda Formation. Profound held 7,360 gross (5,212 net) undeveloped acres at an average working interest of 70 percent at year end 2007.

In 2007, Profound drilled 5 gross (3.4 net) wells, resulting in 3 gas wells (1.8 net), one dry and abandoned well (1.0 net), and one well (0.6 net) was suspended pending further production evaluation. In 2008, Profound has drilled one oil well (1.0 net) that recently commenced production at an initial rate of 50 bbls/d. In addition to the drilling success at Pembina, Profound reviewed several of its wells in the area and successfully recompleted 3 (2.26 net). Test rates in excess of 2.5 mmcfd have been encountered, and the commerciality of this new zone has resulted in an increase in planned activity for 2008.

West Pembina Area, Alberta

At West Pembina, Profound is targeting light oil reservoirs in the Upper Cretaceous Belly River Formation. Profound has shot 41km of 2D seismic to follow up on a successful recompletion of a standing well (0.6 net). Development activity is expected to focus on delineating the extent of the pool, while pursuing other opportunities in the area.

Brazeau Area, Alberta

At Brazeau, located southeast of Drayton Valley, Profound holds an average 40% working interest in 1,407 gross (577 net) undeveloped acres. Former Profound drilled 9 wells (4.45 net) and participated in one recompletion (0.65 net), which resulted in 7 gas wells (3.65 net), two dry holes (1.0 net) and one cased standing well (0.95 net) which are being evaluated for additional stimulation and completion work. The Brazeau area is considered a non-core property, and is being offered for sale in 2008.

Activity at minor properties, including Cochrane, Edson, and Garrington, resulted in one dry hole (1.0 net in 2007).

DEFIANT ACQUISITION

Profound announced on January 18, 2008 that it entered an agreement with Defiant Resources Corporation ("Defiant"), an oil and gas company listed on the Toronto Stock Exchange, whereby Profound will acquire, by way of a Plan of Arrangement, all of the outstanding shares of Defiant. Under the terms of the agreement Profound will issue approximately 12.4 million common shares to shareholders of Defiant based on an exchange ratio of 0.55 of a Profound common share for each outstanding Defiant common share. The agreement requires the approval of Defiant's shareholders along with the customary regulatory, court and other approvals.

On February 20, 2008, the Information Circular and Proxy Statement, with respect to the Plan of Arrangement with Profound Energy Inc., was mailed to Defiant Shareholders. The Special Meeting of shareholders is scheduled to be held on March 28, 2008. Copies of these documents are available within Defiant's SEDAR profile at www.SEDAR.com.

The Special Committee of the Board of Directors and the Board of Directors of Defiant have each concluded that the Plan of Arrangement is fair to Defiant Shareholders, that it is in the best interests of Defiant and the Defiant Shareholders and that it should be placed before the Defiant Shareholders for their approval. The Special Committee of the Board of Directors and the Board of Directors of Defiant unanimously recommend that Defiant Shareholders vote in favour of the Plan of Arrangement.

In a press release dated March 10, 2008 Defiant reported financial and operational results for the year ended 2007. The press release included results of its reserve evaluation as at December 31, 2007 which concluded that the company held 2.5 million boe of proved reserves and 4.6 million boe of proved plus probable reserves. The report also estimates the value of Defiant's reserves before tax and discounted at 10 percent at $81.0 million. In addition Defiant reported that it had net debt including bank debt at December 31, 2007 of $19.5 million. Defiant reported production in 2007 averaged 4.8 mmcfd of natural gas and 365 bbls/d of NGLs and oil or 1,166 boed.

BRAZEAU AREA, ALBERTA DISPOSITION

Profound has engaged Rundle Energy Partners to offer for sale all if its interests in the Brazeau area of Alberta. The GLJ report assigns 610,000 boe of proved reserves and 875,000 boe of proved plus probable reserves and a value before tax using a discount rate of 10 percent of $11.6 million for proved reserves and $14.6 million for proved plus probable.

Offers to purchase the property are expected on April 3, 2008. The Company is not obligated to accept an offer to purchase should one be made.

OUTLOOK

Profound was successful in 2007 negotiating the Cork business combination and has announced that it is proceeding with the Defiant acquisition, another significant value adding growth event.

The Company continues to devote considerable effort and financial resources toward grass roots exploration and has an inventory of drilling and exploitation opportunities that should see it through the remainder of 2008 and 2009.

Profound is evaluating new technologies to improve recovery of natural gas from the generally tight sands it targets. Operations employing horizontal drilling combined with multiple well bore stimulations are being planned and will be initiated in the Pembina and Carrot Creek areas immediately following spring break-up.

NEW ROYALTY FRAMEWORK

On October 25, 2007, the Government of Alberta announced a proposed New Royalty Framework ("NRF") for oil and natural gas royalties in the Province of Alberta effective January 1, 2009. Profound requested that GLJ estimate the impact to the reserve evaluation based on currently released information on the NRF. To date the Government of Alberta has not provided enough clarity on a number of issues that would permit GLJ to provide a precise calculation of net reserves and net present values under the proposed NRF. In addition, it is possible that the announced changes may be amended before coming into effect.

Given existing uncertainties, GLJ estimated the impact as a range, with the "NRF High" Scenario representing a more optimistic or high value sensitivity of the NRF impact, and the "NRF Low" Scenario representing the pessimistic or low value sensitivity. GLJ has estimated that the NRF change to the before tax net present value, discounted at 10 percent, of the net estimated future revenue from proved plus probable reserves would be an increase in value of two percent under the NRF High Scenario and a reduction of two percent under the NRF Low Scenario.

ABOUT PROFOUND ENERGY

Profound commenced operating in January 2007 with an ambition to establish a substantial production, prospect and reserve position in the natural gas prone lands of west central Alberta. The strategic land position that is being developed through grass roots exploration, combined with exploitation of the lands acquired through corporate acquisitions, is providing the company with the opportunities on which it will establish a capital program for the remainder of 2008 and 2009.

Profound is listed on the Toronto Stock Exchange and trades using the symbol "PFX".

DISCLAIMER

Certain information regarding Profound in this news release including management's assessment of future plans and operations and the effect on Profound and its funds flow from changes to royalty rates in Alberta may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, risks associated with sour hydrocarbons, changes to the proposed royalty regime prior to implementation and thereafter, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, capital expenditure costs, including drilling, completion and facilities costs, unexpected decline rates in wells, delays in projects and/or operations resulting from surface conditions, wells not performing as expected, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Readers are cautioned that the forgoing list of factors is not exhaustive. Additional information on these and other factors that could effect Profound's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Profound does not undertake any obligation to update publicly or to revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Boes may be misleading, particularly if used in isolation. A boe conversion ratio of six Mcf to one bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Certain terms used in this press release, including, without limitation "reserve life index", "operating netback" and "funds flow" are not recognized measures under Canadian generally accepted accounting principles ("GAAP"). Investors are cautioned that these measures should not be construed as an alternative to measures determined in accordance with GAAP as an indication of Profound's performance.

PROFOUND ENERGY INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

This management's discussion and analysis (MD&A) for the year ended December 31, 2007 is dated March 14, 2008 and should be read in conjunction with the accompanying audited financial statements for the year ended December 31, 2007 of Profound Energy Inc. ("Profound" or the "Corporation") and the audited financial statements for the period ended December 31, 2006 of Profound Energy Ltd. ("Former Profound"). Financial data contained herein has been prepared in accordance with Canadian generally accepted accounting principles (GAAP).

The term "2007" refers to the 12 months ended December 31, 2007. The terms "Q4" and "Q3" or "fourth quarter" and "third quarter" refer to the three months ended December 31, 2007 and September 30, 2007, respectively. The terms "Q2" and "Q1" refer to the three months ended June 30, 2007 and March 31, 2007, respectively. The term "2006" refers to the period from November 24, 2006 through December 31, 2006. All references are to Canadian dollars unless otherwise indicated.

Non-GAAP Measures

Profound utilizes the following terms for measurement within the MD&A that do not have the standard prescribed meanings under GAAP and these measurements may not be comparable with the calculation of similar measurements of other entities.

"Funds flow from (used in) operations" and "operating netback" are not recognized measures under GAAP. Management believes that in addition to net earnings, funds flow from (used in) operations and operating netback are useful supplemental measures as they demonstrate the Corporation's ability to generate the cash necessary to fund future growth through capital investment or to repay debt. Investors are cautioned that these measures should not be construed as an alternative to net earnings determined in accordance with GAAP as an indication of the Corporation's performance. The Corporation's method of calculating these measures may differ from those of other entities and therefore may not be comparable to measures used by other entities. For these purposes, the Corporation defines funds flow from (used in) operations as cash provided from operations before changes in non-cash working capital and defines operating netback as revenue less royalties, and operating expenses, calculated on a per boe basis.

In this MD&A, the calculation of "boe" is based on the conversion rate of six thousand cubic feet of natural gas to one barrel of oil. This conversion conforms to National Instrument 51-101 - Standards for Oil and Gas Activities, issued by the Canadian Securities Administrators. Readers are cautioned that boe may be misleading if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and is not intended to represent a value equivalency at the wellhead.

Forward-Looking Statements

Certain statements contained within this MD&A, and in certain documents incorporated by reference into this document, constitute forward-looking statements. These statements relate to future events or Profound's future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not exclusively, identified by words such as "anticipate", "estimate", "may", "expect", "plan", "future", "continue", "intends", "projects", "believes", "potential", "continue", "seek", "budget", "estimate", "forecast, "will", "predict", "potential", "target", "could", "might", and other similar expressions.

These statements involve known and unknown risks, uncertainties and other factors which may cause actual results and performance of the Corporation and/or industry to be materially different from future results and performance anticipated by such forward-looking information. Profound's management believes the expectations reflected in forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and, as such, forward-looking statements included in or incorporated by reference into this MD&A should not be unduly relied upon. These statements speak only as to the date of this MD&A or as of the date specified in the documents incorporated by reference into this MD&A. The Corporation does not undertake any obligation to publicly update forward-looking information except as required by applicable securities law.

Many factors may cause actual results to materially differ from those in the forward-looking statements. In particular, this MD&A and the documents incorporated by reference, contain forward-looking statements pertaining to the following:

- The performance characteristics of Profound's oil and natural gas properties;

- The size of the Corporation's oil, natural gas and natural gas liquids reserve and production volumes;

- Estimates of future cash flows;

- Future oil, natural gas prices, and natural gas liquids prices and the differentials between Corporation and benchmark prices;

- Timing and amounts of future capital to be expended;

- Commodity prices, exchange rates and interest rates;

- Expected royalty rates, operating costs, general and administrative costs and other expenses;

- Supply of and demand for oil, natural gas and natural gas liquids;

- The ability to raise capital and add to reserves through acquisitions and development;

- The existence, strategy and operation of Profound's commodity price risk management program;

- The ability to identify accretive growth opportunities and capitalize on them;

- The Corporation's acquisition strategy, the criteria employed to acquire properties and companies, and the benefits derived from same; and

- Treatment under governmental and other regulatory regimes including but not limited to royalty programs, taxation, environmental regulation and issues and other laws.

Overview

Profound was formed on November 19, 2007 through the combination of Cork Exploration Inc. ("Cork") and Profound Energy Ltd. ("Former Profound"). Former Profound shareholders received 1.6 Cork common shares for each Former Profound common share outstanding, for a total of 46,243,426 Cork shares (including 3,360,000 shares subject to share purchase loans). Cork and Former Profound amalgamated to form Profound Energy Inc. and completed a 4:1 share consolidation for a total of 24,902,616 Profound shares (including 840,000 post-consolidation shares subject to share purchase loans) outstanding immediately following the combination. For reporting purposes, the transaction was accounted for as a reverse takeover, whereby Profound is deemed to be the surviving entity. Share information presented pre-November 19, 2007 relates to Former Profound shares, with post-November 19 relating to Profound shares. In 2006, Former Profound was in a pre-production phase with no wells on production. Hence, no income statement comparatives are presented for 2006.

Accordingly, the financial statements contain only 42 days of results from Cork and all historical comparatives are those of Former Profound.



Volumes

2007 Q4 Q3
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Natural gas (mcf/day) 1,471 4,873 391
Oil and NGL (bbls/day) 99 323 26
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Total (boe/day) 344 1,135 92
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Profound's natural gas and crude oil and natural gas liquids volumes increased from 92 boe per day to 1,135 boe per day or 1,134 percent in the fourth quarter from the third quarter. This was due to the acquisition of Cork and the inclusion of 42 days of Cork's production. Cork's exit production rate at time of acquisition on November 19 was approximately 2,160 boe per day as compared to Profound's December production rate of 2,389 boe per day.

The average of 344 boe per day for 2007 includes production from Former Profound for the year and production from Cork for the period subsequent to November 19, 2007.



Daily Production by Area
Year ended December 31, 2007
Crude Oil Natural Gas NGL Total
Area (bbls/day) (mcf/day) (bbls/day) (boe/day)
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Carrot Creek - 721 49 169
Brazeau 7 415 22 99
Pembina 1 209 11 46
West Pembina 3 65 5 19
Cochrane/Edson - 61 1 11
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Total 11 1,471 88 344
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Product Pricing
Natural gas ($/mcf) 2007 Q4 Q3
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Price before hedging 6.84 6.89 5.15
Hedging gain 0.30 0.36 -
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Net price 7.14 7.25 5.15
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AECO daily index 6.61 6.00 5.20
NYMEX (US$/mcf) 7.24 7.36 6.59
Exchange rate Cdn$/US$ 0.93 0.98 0.96


Daily Production by Area
Year ended December 31, 2007


Profound's realized natural gas price increased by $1.74 per mcf or 34 percent from Q3 to Q4. Increasing market prices were assisted by the acquisition of Cork's properties, the production from which has higher heat content. The hedging gain of $0.36 per mcf for the quarter related to 42 days from the collar which Cork had in place ($7.00 - $7.65/gj for 4,500 gj/day).

Except to the extent that the Corporation has hedged its exposure to natural gas price volatility using financial derivative instruments, all of the Corporation's production is sold on the spot market. Therefore both the historical prices received and the expected future prices fluctuate with prevailing prices of crude oil and natural gas. The low natural gas prices received in Q3 reflect high natural gas storage levels and the anticipation of a warmer than normal winter.



Product Pricing
2007 Q4 Q3
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Crude oil and NGL ($/bbl) 74.38 78.89 54.53
WTI (US$/bbl) 72.34 90.68 75.38
Edmonton Light ($/bbl) 76.78 87.11 79.95


Profound's realized crude oil and natural gas liquids price increased dramatically by $24.36 per barrel (45 percent) to $78.89 per barrel from $54.53 per barrel received in the third quarter. The market increase in oil price accounted for a portion of higher average price. The remainder was caused by the higher proportionate volumes of condensate and pentanes in the oil and natural gas liquids in the Cork properties versus Former Profound's. In the fourth quarter, West Texas Intermediate crude oil prices increased by 20 percent and Edmonton Light postings were up by 9 percent compared to the third quarter.



Income Statement

Revenue 2007 Q4 Q3
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Natural gas sales ($000) 3,675 3,088 185
Oil & NGL sales ($000) 2,692 2,342 133
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Total Sales ($000) 6,367 5,430 318
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Per boe ($) 50.65 52.01 37.72
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Realized Gain on commodity contracts ($000) 162 162 -
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Per boe ($) 1.29 1.55 -


Revenue increased from $318,000 in the third quarter to $5,430,000 in the fourth quarter. Of this increase, $123,000 was due to price increases, with the remainder of $4,989,000 related to increased volumes from the Cork acquisition. Profound's revenue per boe increased due to the increase in natural gas and oil prices, and the higher proportion of condensates and pentanes in the mix.

At November 19, 2007, the Corporation assumed a commodity contract asset valued at $366,603. As of December 31, 2007, the Corporation has recorded the commodity contract asset of $172,725. This resulted in an unrealized loss of $193,878 for the period of November 19, 2007 to December 31, 2007. For the period of November 19, 2007 to December 31, 2007 the Corporation's risk management activities had a net realized gain of $161,961.



Following is a summary of all derivative contracts in place as at December
31, 2007:

Natural Volume Pricing Strike Price
Gas (GJ/day) Point (Cdn$/GJ) Term
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Collar 4,500 AECO-"C" Floor - 7.00 Nov 1, 2007 through
Ceiling - 7.65 Mar 31, 2008


On a go-forward basis, Profound may continue to use hedge transactions to manage the Corporation's cash flow. These transactions may take the form of swaps, costless collars, floors or ceilings, but will not exceed 50 percent of the Corporation's production. Further details of Profound's hedges are contained in Notes 12 and 14 of the 2007 audited financial statements.

The following table reconciles oil and natural gas revenue between the third quarter of 2007 and the fourth quarter of 2007:



Revenue for the three months ended September 30, 2007 ($000) 318
Increase in commodity prices ($000) 123
Increase in production volumes ($000) 4,989
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Revenue for the three months ended December 31, 2007 ($000) 5,430
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Interest and Other Revenue 2007 Q4 Q3
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Total interest and other revenue
($000) 475 157 183


Interest and other revenue decreased from $183,000 in the third quarter to $157,000 in the fourth quarter. Funds from the sale of Former Profound shares were held in short-term deposits until the close of the Cork Transaction on November 19, 2007. These funds were then applied against the outstanding bank line acquired through the Transaction. As such, the Corporation does not expect to receive interest revenue in the future.



Royalties 2007 Q4 Q3
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Total royalties ($000) 1,527 1,286 82
% of revenue 24.0 23.7 25.9
Per boe ($) 12.15 12.32 9.78


Royalties increased from $82,000 in the third quarter to $1,286,000 in the fourth quarter, due to the inclusion of Cork's sales volumes and revenue. Profound's average royalty rate was 23.7 percent in the fourth quarter, compared to 25.9 percent in the third quarter. The increase from $9.78 to $12.32 per boe is reflective of higher prices received for all products. The decrease in the royalty rate is due to the acquisition of Cork, with a number of the acquired wells eligible for the Alberta Deep Gas Royalty Holiday program.



Operating Expenses 2007 Q4 Q3
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Total lease operating ($000) 1,174 1,068 42
Per boe ($) 9.34 10.23 4.93


Operating expenses increased from $42,000 in the third quarter to $1,068,000 in the fourth quarter due to the acquisition of Cork. The operating cost rate also increased by $5.30 per boe or 108 percent. This was due to the large proportion of production from the Cork properties acquired through the Transaction. Cork's properties carry significantly higher operating costs due to higher processing and compression fees and fixed rental compression charges. In addition, a workover on the Pembina 07-32 well and environmental cleanup work on the Cork properties contributed to the high operating costs.

Profound is currently reviewing all properties to identify areas where production operations may be carried on more efficiently, thereby reducing operating costs. High operating costs reduce the netback of the Corporation which, in turn, reduces cash available for reinvest in new drilling and acquisition opportunities. Profound is addressing the operating cost issue on several fronts, including replacing rental equipment with purchased equipment and optimizing general field operations. Former Profound and Cork lands are in close proximity to each other, which is expected to result in field operating synergies.



Transportation Charges 2007 Q4 Q3
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Transportation expenses ($000) 28 19 4
Per boe ($) 0.22 0.18 0.49


Transportation costs increased from $4,000 for Former Profound production to $19,000 for the merged Corporation. Transportation expenses relate to the cost of transporting natural gas and clean oil to point of sale. The change of costs from Q3 to Q4 relates to the lower cost of Cork's production versus Former Profound.



Operating Netback ($/boe) 2007 Q4 Q3
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Revenues 50.65 52.01 37.72
Royalties 12.15 12.32 9.78
Operating and transportation expenses 9.56 10.41 5.42

Operating netback 28.94 29.28 22.52


The operating netback increased from $22.52 per boe in Q3 to $29.28 in Q4. The increase was due to higher prices for natural gas and oil, the higher proportion of condensates and pentanes in the oil and natural gas liquids mix, and the correspondingly lower royalty rate from the Cork properties due to the Deep Gas Royalty Holiday program. This was offset by increased operating and transportation expenses.

The 2007 year-to-date revenues, royalties and expenses more closely approximate Q4 than the rest of the year due to the high proportion of sales volumes related to the Cork acquisition.



General & Administrative 2007 Q4 Q3
(G&A) Costs ($000 except per boe)
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Total G & A expense 2,473 1,179 428
Recoveries (515) (233) (205)
Capitalized (1,067) (461) (140)
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Net 891 485 83

Per boe ($) 7.09 4.64 9.85


Gross general and administrative (G&A) costs increased from $428,000 in the third quarter to $1,179,000 in the fourth quarter, primarily as a result of year-end bonus payments, consulting and professional fees associated with the set-up of Cork records in the Profound systems, and office rent for two offices for the last 42 days of the year. Recoveries increased marginally as the Corporation received operating recoveries through operating wells acquired through the Cork acquisition. Per boe general and administrative expense fell from $9.85 per boe to $4.64 per boe due to the acquisition of the Cork properties and increased production from the amalgamated Corporation.

The Corporation has added four staff members since January 1, 2008 for a current total of 21. This staff level is sufficient to sustain operations at current production levels. Profound was able to turn one office lease back to the landlord as of January 1, 2008, and continues to review its G&A expenses. G&A expenses per boe are expected to decrease in 2008 due to the full year of increased production levels.



Interest Expense 2007 Q4 Q3
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Total interest expense ($000) 160 160 -
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Per boe ($) 1.27 1.53 -
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Interest expense of $160,000 in Q4 relates to the assumption of Cork's debt on November 20, 2007. The Corporation pays interest at prime, with an effective interest rate for the last 42 days of 2007 of 6.2 percent. Prime fell on December 5 from 6.25 percent to 6.0 percent, followed by a further decrease to 5.75 percent on January 23 and 5.25 percent on March 5, 2008.



Provision for Taxes ($000) 2007 Q4 Q3
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Future income taxes 294 517 (42)
Part XII.6 tax on flow-through
expenditures 39 (4) (33)
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Total tax expense 333 513 (75)
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Future income taxes are recognized for the estimated tax consequences attributed to differences between the amounts reported in the financial statements and their respective tax bases using substantively enacted income tax rates. The provision for future income taxes was $517,000 in Q4 compared to a recovery of $42,000 in Q3. The charge in the fourth quarter primarily related to positive income in Q4 as well as a reduction in the fourth quarter effective tax rate at which the future tax asset is recognized.

Part XII.6 Tax is associated with the look-back provision of flow-through share issuances. Tax is calculated on the unexpended portion of the flow-through for each month after January and is due on February 28, 2008. The credit of $4,000 in the fourth quarter relates to a minor reallocation of expenditures from "D" to "E".

On December 19, 2006, Former Profound issued 3,450,000 (1,380,000 post-consolidation) flow-through common shares for gross proceeds of $4,140,000. Canadian exploration expenses from the offering were renounced to investors on December 31, 2006. All associated flow-through obligations were expended in 2007.

On January 23, 2007, Former Profound issued 50,000 (20,000 post-consolidation) flow-through common shares for gross proceeds of $60,000. Canadian exploration expenses from the offering were renounced to investors on November 16, 2007. All associated flow-through obligations were expended in 2007.

On November 19, 2007, the Corporation acquired obligations through the Cork Transaction for two flow-through share issues as follows:

On November 8, 2006 Cork issued, on a private placement, bought-deal basis, 3,334,000 (833,500 post-consolidation) flow-through common shares for gross proceeds of $15,003,000. Canadian exploration expenses from the offering were renounced to investors on December 31, 2006. All associated flow-through obligations were expended in 2007.

On February 20, 2007 Cork issued, on a private placement, bought-deal basis, 3,335,000 (833,750 post-consolidation) flow-through common shares for gross proceeds of $16,008,000. Canadian exploration expenses from the offering were renounced to investors on December 31, 2007. As of December 31, 2007, an estimated $4.1 million of qualifying expenditures had been spent. The remaining $11.9 million will be spent throughout 2008 under Canada Revenue Agency's defined look-back rules.

With the exception of Part XII.6 Tax, the Corporation is not cash taxable in 2007 due to its substantial tax pools. The Corporation has approximately $142.7 million in tax pools, share issue costs and non-capital losses available for deduction in future periods. Tax pools are comprised of the following:



December 31, December 31,
Tax Pools ($000) 2007 2006
-------------- --------------
Canadian oil and gas property expense 17,166 -
Canadian exploration expense 33,096 -
Canadian development expense 54,956 1,562
Capital cost allowance 28,514 -
Cumulative eligible capital 24 4
Non-capital loss carry-forwards expiring
from 2015 through 2027 3,606 60
Share issue costs 5,343 24
-------------- --------------
142,705 1,650
-------------- --------------
-------------- --------------

Stock-based Compensation ($000 2007 Q4 Q3
except per boe) ---------- ----------------------
Total stock-based compensation 100 (227) 119
Capitalized 50 (160) 76
---------- ----------------------
Net 50 (67) 43
Per boe ($) 0.40 (0.65) 5.08


Stock-based compensation is a non-cash calculation that attempts to value stock options at the time they are granted. Options granted and outstanding vest over a three-year period, with one-third vesting at the end of each year.

Stock-based compensation of $43,000 in the third quarter related to stock options granted in Former Profound. These options were cancelled, unvested, in the fourth quarter as a condition of the Cork Transaction. The 2007 year-to-date stock-based compensation relates to new options granted in the fourth quarter after the Transaction closed.



Depletion, Depreciation and 2007 Q4 Q3
Accretion (DD&A) ---------- ----------------------
Total DD&A ($000) 3,354 2,174 456
Per boe ($) 26.68 20.83 54.19


Depletion, depreciation and accretion (DD&A) increased from $456,000 in the third quarter to $2,174,000 in the fourth quarter. This increase was due to the higher volumes produced subsequent to the date of the Cork Transaction on November 19.

Prior to the Cork Transaction, the DD&A rate of $54.19 per boe was high due to the majority of the Corporation's wells being drilled on farm-in lands during the earning phase where the farmee spends 100 percent of the costs but receives a lesser portion of the reserves. The fourth quarter rate of $20.83 per boe reflects the reserves and production acquired through the Cork acquisition.



Net Loss 2007 Q4 Q3
---------- ----------------------
Comprehensive and net loss ($000) (706) (83) (134)
Per boe ($) (5.62) (0.80) (15.94)
Per share, basic and diluted ($) (0.09) (0.01) (.02)
Weighted average shares outstanding (000)
(adjusted for Cork transaction) 7,722 16,589 6,589


The comprehensive and net loss decreased from $134,000 in the third quarter to $83,000 in the fourth quarter. Dramatically increased revenues, royalties, and operating expenses due to the Cork Transaction coupled with higher oil and natural gas prices offset higher Q4 G&A expenses. On a per boe basis, the change from a loss of $15.94 per boe to a loss of $0.80 per boe reflects the significant change in volumes from 92 boe per day to 1,135 boe per day.



2007 Q4 Q3
------------------------------------------------
$000 $/boe $000 $/boe $000 $/boe
------------------------------------------------
Revenue, including
interest and
other 7,004 55.72 5,749 55.07 501 59.47
------------------------------------------------
Royalties 1,527 12.15 1,286 12.32 82 9.78
Operating expenses
and transportation 1,202 9.56 1,087 10.41 46 5.42
General and
administrative 891 7.09 485 4.64 83 9.85
Interest expense 160 1.27 160 1.53 - -
Part XII.6 tax on
flow-through
expenditures 39 0.31 (4) (0.04) (33) (3.89)
------------------------------------------------
3,819 30.38 3,014 28.86 178 21.16
------------------------------------------------
------------------------------------------------
Funds flow from
operations 3,185 25.34 2,735 26.20 323 38.31
Unrealized loss on
financial instrument 194 1.55 194 1.86
Depletion,
depreciation and
accretion 3,354 26.68 2,174 20.83 456 54.15
Stock-based
compensation 50 0.40 (67) (0.65) 43 5.07
Future tax expense
(recovery) 294 2.33 517 4.96 (42) (4.97)
------------------------------------------------
Comprehensive and net
loss (706) (5.62) (83) (0.80) (134)(15.94)
------------------------------------------------
------------------------------------------------


Liquidity and Capital
Resources

Funds Flow from
Operations 2007 Q4 Q3
--------------------------------------
Funds flow from
operations
($000) 3,185 2,735 323
Funds flow netback,
per boe ($) 25.34 26.20 38.31
Funds flow from
operations,
per basic
and diluted share ($) 0.41 0.16 0.05
Funds flow as a
percentage of
petroleum and natural
gas revenue 50 50 102
Weighted average
basic shares
outstanding (000)
(adjusted for
Cork transaction) 7,722 16,589 6,589


Funds flow from operations increased from $323,000 in the third quarter to $2,735,000 in the fourth quarter, an increase of 746 percent. Inclusion of 42 days of the Cork production volumes resulted in increased net revenues which combined with higher oil and natural gas prices to generate the increased cash flow.



December 31, December 31
Cash and working capital ($000) 2007 2006,
-------------------------
Cash 91 2,381
Non-cash working capital/(deficiency) (33,505) 44
-------------------------
Total working capital (33,414) 2,427
-------------------------
-------------------------


Working capital decreased from $2,427,000 at December 31, 2006 to a negative $33,414,000 by December 31, 2007. At November 19, 2007, the Corporation assumed $53,385,000 in negative working capital through the acquisition of Cork.

The Corporation issued shares in January, July and October to fund its capital program and acquisition of Cork.

On January 4, 2007 the Corporation closed a major financing with ARC Financial Corporation (ARC). Pursuant to the Subscription Agreement dated January 4, 2007, ARC has subscribed for 21,212,121 common shares at $1.65 per common share for gross proceeds of $35,000,000. Of these, 4,242,424 were issued at closing, with the remainder to be issued as the Corporation required funds.

On July 20, 2007, the Corporation received $14,000,250 from ARC in full payment for 8,485,000 additional shares.

On October 9, 2007, pursuant to the ARC Subscription Agreement, the Corporation issued 8,484,697 common shares at $1.65 per share for gross proceeds of $13,999,750.

As of December 31, 2007 ARC has been issued 21,212,121 shares under the Subscription Agreement. This fulfills the ARC Subscription Agreement obligation.

On December 19, 2006, the Corporation loaned funds to founders and employees to purchase 2,070,000 common shares at a price of $1.00 per share. On January 23, 2007, the Corporation loaned additional funds to a founder to purchase 30,000 shares at $1.00 per share. On December 19, 2007 the loaned funds of $2,100,000 and interest of $83,985 pursuant to the share purchase loans were received by the Corporation.




Capital Expenditures ($000) Q4 Q3 Q2 Q1
------- ------- ------- -------
Land 555 255 2,062 518
Seismic 24 - - -
Drilling and completions 5,136 5,106 2,746 3,006
Well equipment and facilities 957 696 470 500
Other 11 - 5 165
------- ------- ------- -------
6,682 6,057 5,283 4,190

Capitalized G&A 463 140 262 202
------- ------- ------- -------

Total capital expenditures 7,145 6,197 5,545 4,392
------- ------- ------- -------
------- ------- ------- -------


Capital Expenditures by Area
Year Ended December 31, 2007

Land/ Drilling/ Equipping/
Area ($000) Seismic Completions Facilities Total
---------------------------------------------

Brazeau - 10,385 1,788 12,173
Pembina 1,204 3,898 120 5,222
Carrot Creek 262 1,361 707 2,330
Other Areas 1,948 350 8 2,306
---------------------------------------------
3,414 15,994 2,623 22,031
------------------------------------
Capitalized G&A and Other 1,248
--------
23,279
--------
--------


Profound had an active first year, spending a total of $23,279,000 for capital expenditures. The majority was spent on drilling 17 gross wells (9.5 net wells) with a net success rate of 74 percent at a cost of $15,994,000. The majority of wells were on farm-in lands, thereby earning an interest in a number of additional sections of land. In addition, $3,414,000 was spent on land and seismic, and $2,623,000 to equip and tie-in wells for production.

Because Cork's and Profound's properties are in close proximity, Profound staff were able to immediately begin capitalizing on the Cork assets and, therefore, have integrated the Cork drilling prospects into the Profound drilling program.




Wells Drilled by Area
Year Ended December 31, 2007

Area Dry & Success
Natural gas Crude oil abandoned Total Rate
-----------------------------------------------------------
Gross Net Gross Net Gross Net Gross Net (net)
-----------------------------------------------------------
Brazeau 8.0 4.1 - - 2.0 1.0 10 5.1 80%
Pembina 3.0 1.8 1.0 0.6 1.0 1.0 5 3.4 71%
Other 1.0 0.5 - - 1.0 0.5 2 1.0 50%
-----------------------------------------------------------
12.0 6.4 1.0 0.6 4.0 2.5 17 9.5 74%
-----------------------------------------------------------
-----------------------------------------------------------


Reserves

The reserves data set forth below is based upon an evaluation by GLJ Petroleum Consultants Ltd. (GLJ), independent reserves evaluators, with an effective date of December 31, 2007. The reserves data summarizes the oil, liquids and natural gas reserves of Profound and the net present value of future net revenues for these reserves using forecast prices and costs. The forecast prices and costs used are summarized below.

This reserves data conforms to the requirements of National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities NI 51-101 Additional information not required by NI 51-01 has been presented to provide continuity and additional information which Profound believes is important to the reader. The Corporation engaged GLJ to provide an evaluation of proved and proved plus probable reserves and no attempt was made to evaluate possible reserves. All of Profound's reserves are in Alberta, Canada.

It should not be assumed that the estimates of future net revenues presented in the tables below represent the fair market value of the reserves. There is no assurance that the forecast prices and costs and cost assumptions will be attained, and variances could be material. The recovery and reserve estimates of the Corporation's crude oil, natural gas liquids and natural gas reserves provided below are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and natural gas liquids reserves may be greater than or less than the estimates provided.

No comparisons are provided for the year ended December 31, 2006, as the Corporation's reserves were Nil at that date.



Summary of Company Interest Oil & Natural Gas Reserves
(forecast prices and costs)
As at December 31, 2007

Crude Oil Natural Gas NGL Total
(Mbbl) (Mmcf) (Mbbl) (Mboe)
----------------------------------------------------------
TCI Net TCI Net TCI Net TCI Net
(1) (2) (1) (2) (1) (2) (1) (2)
----------------------------------------------------------
Proved
Developed
producing 95 78 16,380 13,227 1,028 705 3,853 2,987
Developed
non-producing 48 44 1,022 827 41 27 260 210
Undeveloped - - 7,539 5,875 601 409 1,857 1,388
----------------------------------------------------------
Total proved 144 122 24,941 19,929 1,669 1,141 5,970 4,585
Probable 55 45 15,468 12,689 1,012 690 3,645 2,850
----------------------------------------------------------
Total proved
plus probable 199 167 40,409 32,618 2,681 1,832 9,615 7,435
----------------------------------------------------------
----------------------------------------------------------

(1) Total Company Interest; includes working interest and royalty interest
reserves.

(2) Net reserves are Total Company Interest reserves, net of royalties.


Under the National Instrument 51-101("NI 51-101"),proved reserves are defined as reserves that can be estimated with a high degree of certainty to be recoverable. The level of certainty should result in at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated proved reserves.

Proved plus probable reserves are the most likely case and are based on a 50 percent certainty that they will equal or exceed the reserves estimated.

Proved developed non-producing reserves are reserves on wells that had been drilled by December 31 and have been subsequently completed and classified as proved, but were not producing as of the effective date of the engineering report. These wells require minor capital expenditures to bring them on production.

Profound had no reserves as of December 31, 2006. During 2007, through the drilling program of Former Profound and the acquisition of Cork, Profound added 9.615 million boe in proved plus probable reserves. Approximately 70 percent of the Corporation's total proved plus probable reserves are natural gas, with the remaining 30 percent comprised of crude oil and natural gas liquids.



Summary of Net Present Values of Future Net Revenue ($000)
(forecast prices and costs)
As at December 31, 2007

Net Present Values Before Income Taxes
Discounted at

($000) 0% 5% 10%
-------- -------- --------
Proved
Developed producing 95,690 80,408 69,819
Developed non-producing 6,467 5,239 4,362
Undeveloped 46,468 34,680 26,965
-------- -------- --------
Total proved 148,625 120,327 101,146
Probable 105,789 67,310 48,049
-------- -------- --------
Total 254,415 187,636 149,195
-------- -------- --------
-------- -------- --------


GLJ Petroleum Consultants Ltd.
Forecast Price File
Effective January 1, 2008

Cdn$/US$ Edmonton NYMEX AECO - "C"
exchange WTI Light Gas Spot
rate US$/bbl CDN$/bbl US$/mmbtu Cdn$/mmbtu
---------- --------- ---------- ----------- ------------

2008 1.00 92.00 91.10 7.50 6.75
2009 1.00 88.00 87.10 8.25 7.55
2010 1.00 84.00 83.10 8.25 7.60
2011 1.00 82.00 81.10 8.25 7.60
2012 1.00 82.00 81.10 8.25 7.60
2013 1.00 82.00 81.10 8.25 7.60
2014 1.00 82.00 81.10 8.45 7.80
2015 1.00 82.00 81.10 8.62 7.97
2016 1.00 82.02 81.12 8.79 8.14
2017 1.00 83.66 82.76 8.96 8.31
2018 and
thereafter 1.00 +2%/yr +2%/yr +2%/yr +2%/yr


Reserves by Major Property
As at December 31, 2007
Proved plus Probable
Discounted Rate at
Proved Proved -----------------------
Area Developed Total plus -----------------------
(Mboe) Producing Proved Probable 8% 10%
--------------------------------------------------
($000) ($000)
------------------------
Brazeau 392 610 874 15,846 14,608
Carrot Creek 2,308 3,818 6,140 103,132 95,061
Cochrane 234 370 837 13,603 11,959
Pembina 723 907 1,376 22,085 20,266
West Pembina 194 262 357 7,364 6,950
Others 3 3 31 368 351
--------------------------------------------------
3,853 5,970 9,615 162,399 149,195
--------------------------------------------------
--------------------------------------------------


The net present value (before tax discounted at 10 percent) of total proved plus probable reserves at December 31, 2007 was $149.195 million based on the January 1, 2008 price forecast as provided by the Corporation's reserve evaluator.



Reserves per share December 31, 2007
-----------------
Proved reserves (mboe) 5,970
Proved plus probable reserves (mboe) 9,615
Basic shares outstanding (000) 24,903
Proved reserves per thousand shares (boe) 240
Proved plus probable reserves per thousand shares (boe) 386


A reserve reconciliation is not included as Profound had no reserves at December 31, 2006.

Undeveloped Land

Undeveloped land is an important component of a corporation's asset base as it represents future drilling opportunities. At December 31, 2007, Profound held 42,977 net acres of undeveloped land. The Corporation engaged Seaton-Jordan & Associates Ltd. (Seaton-Jordan) to prepare an evaluation of the Corporation's undeveloped land holdings. Seaton-Jordan estimates their value to be approximately $17.7 million at March 4, 2008.

Reserve Life Index

Reserve life index is the theoretical time remaining to produce out a Corporation's reserve base, based on current production rate and the most recent independent evaluation of reserves.



Total Proved Total Proved plus
Reserves Probable Reserves
(Mboe) (Mboe)
-------------------------------
Total Company Interest reserves
as at December 31, 2007 5,970 9,615
Annualized December 2007 production 889 889
Reserve life index in years 6.7 10.8


The month of December 2007 was used to calculate the reserve life index as it was the only month in 2007 which included a full month of production from the amalgamated Corporation.



Finding, Development and Acquisition Costs ($000)
For the Year Ended December 31, 2007

Excluding Including
Finding and Development Costs Future Capital Future Capital
----------------- -----------------
Total capital expenditures ($000) 23,279 23,279
----------------- -----------------
Change in estimated future capital -
total proved ($000) 3,605
Change in estimated future capital -
total proved plus probable ($000s) 4,973
Total proved reserve additions (mboe) 737 737
Total proved plus probable reserve
additions (mboe) 1,412 1,412
Proved finding costs ($/boe) 31.59 36.48
Proved plus probable finding costs ($/boe) 16.49 20.01


Finding and development costs for the Corporation without including future capital were $31.59 per boe proved and $16.49 per boe proved plus probable for 2007. Including future capital, finding costs were $36.48 per boe proved and $20.01 proved plus probable for 2007.



Finding, Development and Excluding Including
Acquisition Costs Future Capital Future Capital
----------------- -----------------
Total capital expenditures ($000) 124,437 124,437
----------------- -----------------
Change in estimated future capital -
total proved ($000) 19,045
Change in estimated future capital -
total proved plus probable ($000) 27,748
Total proved reserve additions (mboe) 5,970 5,970
Total proved plus probable reserve
additions (mboe) 9,615 9,615
Proved finding costs ($/boe) 20.84 24.03
Proved plus probable finding costs ($/boe) 12.94 15.83


Finding, development and acquisition costs for the Corporation without including future capital were $20.84 per boe proved and $12.94 per boe proved plus probable in 2007. Including future capital, finding costs were $24.03 per boe proved and $15.83 proved plus probable in 2007.

Total capital expenditures of $124.4 million include $17.7 million for land acquired by the Corporation, the majority of which was acquired through the Cork acquisition.

Recycle Ratio

Recycle ratio is a measurement of a Company's ability to turn invested capital into cash flow measured on a boe basis. The recycle ratio compares the average netback generated through the production of reserves with the average costs of replacing/adding to those reserves. The greater the recycle ratio, the greater the profit margin generated for shareholders through investing activities.




For the Year Ended December, 2007

Operating income from operations ($000) 3,638
Total production (Mboe) 125.7
Operating netback ($/boe) 28.94
Proved plus probable finding, development and acquisition
(excluding future capital) costs ($/boe) 16.49
Recycle ratio (finding and development) 1.76

Operating income from operations ($000) 3,638
Total production (Mboe) 125.7
Operating netback ($/boe) 28.94
Proved plus probable finding, development and acquisition
(excluding future capital) costs ($/boe) 12.94
Recycle ratio (finding , development and acquisition) 2.24


Net Asset Value ($000 except per share values and numbers of shares)
As at December 31, 2007

Before Tax Before Tax Before Tax
Present Value Present Value Present Value
Discounted @ Discounted @ Discounted @
0% 5% 10%
---------------- --------------- ---------------
Total proved reserves 148,625 120,327 101,146
Total probable reserves 105,789 67,310 48,049
---------------- --------------- ---------------
Total value of reserves 254,415 187,636 149,195
Value of undeveloped land
as determined by
Seaton-Jordan &
Associates Ltd. 17,667 17,667 17,667
---------------- --------------- ---------------
Total asset val 272,082 205,303 166,862
Working capital deficiency 9,606 9,606 9,606
Bank debt 23,808 23,808 23,808
---------------- --------------- ---------------
Net asset value 238,668 171,889 133,448
Basic shares outstanding (000) 24,903 24,903 24,903
---------------- --------------- ---------------
Net asset value per basic
share outstanding $ 9.58 $ 6.90 $ 5.36


Selected Supplemental Information
($000 except per share) 2007 2006
-----------------------------
Petroleum and natural gas sales 6,367 -
Income (loss) for the year (706) (10)
Total assets (end of period) 138,571 4,429
Income (loss) per share - basic and
diluted $ (.09) $ (.02)
Total current liabilities (end of
period) 42,517 302


Q3 Q2 Q1 Q4
2007 2007 2007 2006
--------------------------------------
Petroleum and natural gas sales
($000) 318 296 323 -
Loss for the quarter ($000) (134) (263) (226) (10)
Capital expenditures ($000) 6,197 5,545 4,392 1,668
Working capital (end of period)
($000) 9,109 1,529 7,090 2,427
Total assets (end of period) ($000) 30,902 15,803 15,767 4,429
Shareholders' equity (end of period)
($000) 25,693 12,024 12,191 4,105
Common shares outstanding (end of
period) (000) (adjusted for Cork
acquisition effect) 7,327 3,933 3,933 1,380
----------------------------------------------------------------------------


Q4
2007
----------
Petroleum and natural gas sales ($000) 5,430
Loss for the quarter ($000) (83)
Capital expenditures ($000) 7,145
Working capital (end of period) ($000) (33,414)
Total assets (end of period) ($000) 138,571
Shareholders' equity (end of period) ($000) 94,659
Common shares outstanding (end of period) (000) 24,903
----------------------------------------------------------------------------

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


Share Financing

Outstanding securities at December 31, 2007
Common shares 24,902,616
Common share options 2,155,000
Performance warrants 2,886,399

Outstanding securities at March 14, 2008
Common shares 24,902,616
Common share options 2,360,000
Performance warrants 2,886,399


For further detail, see Note 10 in the December 31, 2007 audited financial statements.

On January 1, 2007, Former Profound had 3,450,000 shares outstanding.

On January 4, 2007, the Former Profound closed a major financing with ARC. Pursuant to the subscription agreement, ARC subscribed for 21,212,121 common shares at $1.65 per common share for gross proceeds of $35,000,000. Of these, 4,242,424 were issued at closing, with the remainder issued as the Corporation required funds. As part of the major financing, ARC also acquired 16,969,697 special voting shares which were subsequently cancelled for Nil consideration at time of take up and pay. In addition, ARC subscribed and paid for 90,000 common shares at $1.00 per share.

On January 23, 2007, the Former Profound closed a financing with other investors. A total of 2,000,000 common shares were issued at a price of $1.65 per share for gross proceeds of $3,300,000.

On January 23, 2007 Former Profound closed a Founder's financing pursuant to subscription agreements for flow-through and common shares. A total of 50,000 flow-through shares were issued at a price of $1.20 per share for proceeds of $60,000.

On July 20, 2007, Former Profound received $14,000,250 from ARC in full payment for the issuance of 8,485,000 additional shares. As per agreement, 8,485,000 of the special voting shares were cancelled and 8,485,000 equalization warrants were issued. Financing fees of $420,008 were paid to ARC.

On October 9, 2007, Former Profound received $13,999,750 from ARC in full payment for the issuance of 8,484,697 additional shares. As per agreement, 8,484,697 special voting shares were cancelled and 8,484,697 equalization warrants were issued. Financing fees of $419,993 were paid to ARC.

Subsequent to the October 9, 2007 issuance, a total of 26,802,141 shares have been issued, with Nil special voting shares still outstanding. These special voting shares have been cancelled for Nil consideration on the basis of one special voting share for each additional common share taken up and paid for under the subscription agreement. Per the major financing with ARC, all shares have now been issued.

On November 19, 2007, by way of reverse takeover transaction with Cork, all Former Profound shares were converted into Cork shares at a ratio of 1.6 Cork shares for each Former Profound share, and then consolidated on a 4:1 basis. Pursuant to the terms of the agreement all equalization warrants were cancelled on November 19, 2007.

Shares outstanding immediately following the combination and consolidation totalled 24,902,616 shares (including 840,000 post-consolidation shares subject to share purchase loans).

Off-Balance Sheet Arrangements

Profound currently does not have any off-balance sheet arrangements with any party, and does not currently expect to enter into any such arrangements in 2008.

Transactions with Related Parties

On December 19, 2006, Former Profound loaned funds to founders and employees to purchase 2,070,000 common shares at a price of $1.00 per share. On January 23, 2007, Former Profound loaned additional funds to a founder to purchase 30,000 shares at $1.00 per share.

On December 19, 2007 the loaned funds pursuant to the share purchase loans were received by the Corporation. The risk for any decline in value of these shares was then transferred to the borrowers and the Corporation considered the shares issued for accounting purposes. In addition, the Corporation received $83,985 at 4 percent compounded annually, as per terms of the agreement.

The Corporation has paid financing fees of $1,149,000 to two shareholders, directors and officers equal to 3 percent of the gross proceeds from the ARC and other investor financing in Former Profound.

Subsequent Events

Arrangement Agreement

On January 18, 2008 the Corporation entered into an arrangement agreement (the "Arrangement") with Defiant Resources Corporation, an Alberta-based oil and natural gas company whose shares are listed on the TSX.

Under the terms of the Arrangement, Profound will issue approximately 12.4 million common shares to the shareholders of Defiant based on an exchange ratio of 0.55 of a Profound common share for each share of Defiant.

Defiant and Profound have agreed to pay to each other a non-completion fee, under defined circumstances, of $1,500,000.

If all approvals are received, the transaction is expected to close on March 28, 2008 and the transaction will be accounted for as a business combination, with the Corporation being the acquirer and the continuing entity for financial reporting purposes.


Hedges

As of January 31, 2008 the Corporation entered into two derivative financial instruments for the purpose of protecting a portion of its cash flow from operations from the volatility of natural gas commodity prices.



Following is a summary of all derivative contracts entered into subsequent
to December 31, 2007:

Natural Gas Volume Pricing Strike Price Term
(GJ/day) Point ($/GJ) (2008)
----------------------------------------------------------------------------

Swap 2,500 AECO-C Cdn. $7.00 Apr. 1 - Oct. 31
Swap 2,500 AECO-C Cdn. $7.02 Apr. 1 - Oct. 31


Normal Course Issuer Bid

On January 29, 2008, the Corporation announced a normal course issuer bid that will allow purchase and cancellation of up to 1,245,131 of its 24,902,616 currently issued and outstanding common shares at prevailing market rates. The bid commenced on February 1, 2008 and will terminate on January 31, 2009 or such earlier time as the bid is completed or terminated at the option of the Corporation. No shares have been purchased to date.

Credit Facility

On March 4 2007, the Corporation entered into a commitment letter to replace its $47 million credit facility with a facility from another Canadian chartered bank. Upon satisfaction of the conditions, the borrowing base will be established at $70 million by way of prime rate loans, guaranteed notes, bankers' acceptances and letters of credit. The facility revolves for a 364-day period and is renewable at the option of the lender. The credit facility is tested quarterly, in arrears, and bears interest based on a sliding scale as follows:

- Prime-based loans - Interest is payable in Canadian dollars at prime plus 0.0 percent to prime plus 0.75 percent per 365-day period;

- Guaranteed Notes - Interest is payable in Canadian dollars at bankers' acceptance fees plus a stamp fee of 100 to 190 basis points per 365-day period.

The interest varies depending on the Corporation's debt to cash flow ratio determined quarterly on a grid system, with the grid ranging from debt to cash flow ranges of lower than 1.0:1 to greater than 2.5:1.

The facility is subject to a review on or before October 31, 2008.

The facility is secured by a general security agreement conveying a first floating charge over all real and personal property and after-acquired assets. The Corporation is required to meet certain financial-based covenants under the terms of this facility.

Employee Share Savings Plan

Subsequent to year-end, the Corporation implemented an employee share purchase plan whereby employees may contribute up to a maximum of 5 percent of the employee's regular gross earnings. Company contributions are made at a rate of $2.00 for every $1.00 of employee contribution. All contributions are used to purchase shares of the Company on the open market. Compensation expense is recognized at the time the contributions are made.

Financial Instruments

The nature of the Corporation's operations results in exposure to fluctuations in commodity prices. Management continuously monitors commodity prices and initiates instruments to manage exposure to these risks when it deems appropriate. As a means of managing commodity price volatility, the Corporation enters into various derivative financial instrument agreements and physical contracts. Collars ensure that the commodity prices realized will fall into a contracted range for a contracted sale volume based on the monthly index price. Monthly gains and losses are determined based on the differential between AECO daily index and AECO monthly index when the monthly index price falls in between the floor and the ceiling. Derivative financial instruments are marked-to-market and are recorded on the consolidated balance sheet as either an asset or liability with the change in fair value recognized in net earnings.



Following is a summary of all derivative contracts in place as at December
31, 2007:


Natural Volume Pricing Strike Price
Gas (GJ/day) Point ($Cdn/GJ) Term
----------------------------------------------------------------------------
Collar 4,500 AECO-"C" Floor - 7.00 Nov. 1, 2007 through
Ceiling - 7.65 March 31, 2008


Realized gains totalling $161,961 for the quarter and year ended December 31, 2007 (2006 - Nil) were recognized in income and the fair value of the collar outstanding at December 31, 2007 was $172,725.

For derivative contracts entered into subsequent to year-end, please see Subsequent Events.

Share Capital

As at March 14, 2008, the Corporation had outstanding 24,902,616 common shares, 2,360,000 stock options, and 2,886,399 performance warrants. For further detail regarding the stock options and performance warrants outstanding, see Note 10 (g) and (h) in the Corporation's December 31, 2007 audited financial statements.

Business Risks

Profound is subject to business risks that impact the market in general and the oil and natural gas business in particular. Profound's financial position, results of operations and cash flows are directly impacted by a number or risks including but not limited to the following:

(For a detailed discussion of Risks and Uncertainties, refer to the Corporation's Annual Information Form (AIF) filed on SEDAR at www.sedar.com). The 2007 AIF is scheduled to be released March 28, 2008.

Volatility of Oil and Natural Gas Prices

Profound's operational results and resulting financial condition are dependent on the prices received for oil and natural gas production. Prices have fluctuated widely in recent years and are determined by economic and often political factors beyond the Corporation's control. Profound may manage the risk associated with changes in commodity prices by entering into oil or natural gas price swaps and hedges. If and when the Corporation hedges its commodity price exposure, it may forego the benefits it would experience if commodity prices increase, or may expose itself to losses.

Exploration, Development and Production Risks

Oil and natural gas operations involve many risks that even a combination of experience, knowledge and careful evaluation may not be able to overcome. The long-term commercial success of the Corporation depends on its ability to find, acquire, develop and commercially produce oil and natural gas reserves. Without the continual addition of new reserves, any existing reserves the Corporation has, and the production there from will decline over time as such existing reserves are exploited. There is no assurance that further commercial quantities of oil and natural gas will be discovered or acquired by the Corporation.

Future oil and natural gas exploration may involve unprofitable efforts, not only from dry wells, but also from wells that are productive but do not produce sufficient petroleum substances to return a profit after drilling, operating and other costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations, and various field operating conditions may adversely affect the production from successful wells. These conditions include delays in obtaining governmental approvals or consents, shut-ins of connected wells resulting from extreme weather conditions, insufficient storage or transportation capacity or other geological and mechanical conditions.

While diligent well supervision and effective maintenance operations can contribute to maximizing production rates over time, production delays and declines from normal field operating conditions cannot be eliminated and can be expected to adversely affect revenue and cash flow levels to varying degrees.

Oil and natural gas exploration, development and production operations are subject to all the risks and hazards typically associated with such operations, including hazards such as fire, explosion, blowouts, cratering, sour gas releases and spills, each of which could result in substantial damage to oil and natural gas wells, production facilities, other property and the environment or personal injury. In particular, the Corporation may explore for and produce sour natural gas in certain areas. An unintentional leak of sour natural gas could result in personal injury, loss of life or damage to property and may necessitate an evacuation of populated areas, all of which could result in liability to Profound. In accordance with industry practice, the Corporation is not fully insured against all of these risks, nor are all such risks insurable. Although Profound maintains liability insurance in an amount that it considers consistent with industry practice, the nature of these risks is such that liabilities could exceed policy limits, in which event the Corporation could incur significant costs that could have a material adverse effect upon its financial condition. Oil and natural gas production operations are also formations or pressures, premature decline of reservoirs and the invasion of water into producing formations. Losses resulting from the occurrence of any of these risks could have a material adverse effect on the Corporation.

Failure to Realize Anticipated Benefits of Acquisitions and Dispositions

Profound makes acquisitions and dispositions of businesses and assets in the ordinary course of business. Achieving the benefits of acquisitions depends in part on successfully consolidating functions and integrating operations and procedures in a timely and efficient manner as well as on Profound's ability to realize the anticipated growth opportunities and synergies from combining the acquired businesses and operations with those of the Corporation. The integration of an acquired business may require substantial management effort, time and resources and may divert management's focus from other strategic opportunities and operational matters. Management continually assesses the value and contribution of services provided and assets required to provide such services. In this regard, non-core assets are periodically disposed of, so that the Corporation can focus its efforts and resources more efficiently.

Depending on the state of the market for such non-core assets, certain non-core assets of the Corporation, if disposed of, could be expected to realize less than their carrying value on the financial statements of the Corporation.

Operational Dependence

Other companies operate some of the assets in which Profound has an interest. As a result, the Corporation will have limited ability to exercise influence over the operation of those assets or their associated costs, which could adversely affect the Corporation's financial performance. Profound's return on assets operated by others will therefore depend upon a number of factors that may be outside of the Corporation's control, including the timing and amount of capital expenditures, the operator's expertise and financial resources, the approval of other participants, the selection of technology and risk management practices.

Proposed Changes to Alberta Royalty Regime

On October 25, 2007, the Government of Alberta announced proposed changes to royalties payable on Crown mineral lands owned by the province. If enacted on January 1, 2009, as proposed, the changes will impact the Corporation's cash flow, as all current properties are located in Alberta. Profound is currently assessing the expected financial impact.

Kyoto Protocol

Canada is a signatory to the United Nations Framework Convention on Climate Change and has ratified the Kyoto Protocol established thereunder to set legally binding targets to reduce nationwide emissions of carbon dioxide, methane, nitrous oxide and other so called "greenhouse gases". The Corporation's exploration and production facilities and other operations and activities emit greenhouse gases which will likely subject the Corporation to possible future legislation regulating emissions of greenhouse gases. The Government of Canada has proposed a bill, which suggests further legislation will set greenhouse gases emission reduction requirements for various industrial activities, including oil and natural gas exploration and production. Future federal legislation, together with provincial emission reduction requirements, such as those included in Alberta's Climate Change and Emissions Management Act (partially in force), may require the reduction of emissions (or emissions intensity) produced by the Corporation's expected operations and facilities. The direct or indirect costs of these regulations may adversely affect the expected business of the Corporation.

Environmental

All phases of the oil and natural gas business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of federal, provincial and local laws and regulations. Compliance with such legislation can require significant expenditures and a breach of applicable environmental legislation may result in the imposition of fines and penalties, some of which may be material.

Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. Although the Corporation believes that it will be in material compliance with current applicable environmental regulations, no assurance can be given that environmental laws will not result in a curtailment of production or a material increase in the costs of production, development or exploration activities or otherwise adversely affect the Corporation's financial condition, results of operations or prospects. There has been much public debate with respect to Canada's ability to meet these targets and the government's strategy or alternative strategies with respect to climate change and the control of greenhouse gases. Implementation of strategies for reducing greenhouse gases, whether to meet the limits required by the Kyoto Protocol or as otherwise determined, could have a material impact on the nature of oil and natural gas operations, including those of the Corporation.

Given the evolving nature of the debate related to climate change and the control of greenhouse gases and resulting requirements, it is not possible to predict either the nature of those requirements or the impact on the Corporation and its operations and financial condition.

Project Risks

The Corporation will manage a variety of small and large projects in the conduct of its business. Project delays may delay expected revenues from operations. Significant project cost over-runs could make a project uneconomic. Profound's ability to execute projects and market oil and natural gas will depend upon numerous factors beyond the Corporation's control, including:

- The availability of processing capacity;

- The availability and proximity of pipeline capacity;

- The availability of storage capacity;

- The supply of and demand for oil and natural gas;

- The availability of alternative fuel sources;

- The effects of inclement weather;

- The availability of drilling and related equipment;

- Unexpected cost increases;

- Accidental events;

- Currency fluctuations;

- Changes in regulations;

- The availability and productivity of skilled labour; and

- Regulation of the oil and natural gas industry by various levels of government and governmental agencies.

Because of these factors, the Corporation may be unable to execute projects on time, on budget or at all, and may not be able to effectively market the oil and natural gas that it produces.

Financial Reporting and Regulatory Update

On January 1, 2007, the Corporation adopted three new standards issued by the Canadian Institute of Chartered Accountants (CICA) related to the accounting for and disclosure of financial instruments.

(a) Section 3855 - "Financial Instruments - Recognition and Measurement" prescribes when a financial asset, financial liability, or non-financial derivative is to be recognized on the balance sheet as well as its measurement amount. This section also specifies how gains and losses on financial instruments are to be presented.

(b) Section 3865 - "Hedges" expands on existing Accounting Guideline 13 - "Hedging Relationships" by specifying how hedge accounting is to be applied and what disclosures are necessary when it is applied.

(c) Section 1530 - "Comprehensive Income" introduces new standards for reporting and disclosure of comprehensive income. Comprehensive income is the change in equity of the Corporation during the period from transactions and other events and circumstances from non-owner sources.

The adoption of these new standards had no effect on the reported financial results of prior periods.

January 1, 2008, the Corporation required to adopt three new CICA Handbook standards.

(a) Section 3862 and 3863 - "Financial Instruments - Disclosure" and "Financial Instruments - Presentation". These standards replace Section 3861 - "Financial Instruments - Disclosure and Presentation". The new disclosure standard increases the emphasis on the risks associated with both recognized and unrecognized financial instruments and how those risks are managed. The new presentation standard carries forward the former presentation requirements. The Corporation is currently assessing the impact of these standards, if any, on its financial statements.

(b) Section 1535 - "Capital Disclosures". This section requires additional disclosures of objectives, policies and processes for managing capital. In addition, disclosures will include whether companies have complied with externally imposed capital requirements. The Corporation is currently assessing the impact of this section, if any, on its financial statements.

In January 2006 the CICA Accounting Standards Board adopted a strategic plan for the direction of accounting standards in Canada. As part of the plan, accounting standards in Canada for public companies will converge with International Financial Reporting Standards (IFRS) by the end of 2011. The Corporation continues to monitor and assess the impact of the convergence of Canadian GAAP and IFRS.

Disclosure Controls and Procedures

The Corporation has implemented a system of internal controls that it believes adequately protects the assets of the Corporation and is appropriate for the nature of its business and the size of its operations. These disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Corporation is accumulated and communicated to management in a timely manner to ensure timely decisions regarding required disclosure. The Corporation's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of December 31, 2007, that the controls and procedures are effective to provide reasonable assurance that material information related to Profound is made known to them by others within the Corporation.

The Corporation's Chief Executive Officer and Chief Financial Officer are responsible for designing internal controls over financial reporting or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. During 2007, the Corporation implemented a number of controls and procedures and will be testing them in 2008.

It should be noted that while Profound's Chief Executive Officer and Chief Financial Officer believe that the Corporation's disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that all errors and fraud may be prevented. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Critical Accounting Estimates

The significant accounting policies used by Profound are disclosed in Note 2 to the financial statements for the year ending December 31, 2007. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect assets, liabilities, revenues and expenses. Management is also required to adopt accounting policies that require the use of significant estimates. Management reviews its estimates on a regular basis. The emergence of new information and changed circumstance may result in actual results or changes to estimated amounts that differ materially from current estimates. Profound's management believes the most critical accounting estimates that may have an impact on the Corporation's results are in the non-cash areas of reserves, accounting for property, plant and equipment, asset retirement obligations, future income taxes, and stock-based compensation.

Reserves

Under NI 51-101, proved reserves are defined as reserves that can be estimated with a high degree of certainty to be recoverable. The level of certainty should result in at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated proved reserves.

Proved plus probable reserves are the most likely case and are based on a 50 percent probability that they will equal or exceed the reserves estimated. The new standard provides for a more conservative evaluation of proved and probable reserves, particularly on new wells where production history has not yet been established.

Oil and natural gas reserve estimates are made using available geological and reservoir data and historical production data. Profound's reserves were evaluated by an independent qualified reserves evaluator. However, revisions may occur as a result of various factors including actual reservoir performance, change in price and cost forecasts, or a change in future capital invested by Profound. Reserve changes will impact the financial results as reserves are used in the calculation of depletion and to assess whether asset impairment occurs. Reserve changes also affect other non-GAAP measurements such as finding and development costs, recycle ratios and net asset value calculations.

Property, Plant & Equipment

Profound follows the full cost method of accounting for oil and natural gas properties. Under this method, all costs related to the acquisition of, exploration for and development of oil and natural gas reserves are capitalized. These costs are then systematically charged to income through a depletion, depreciation and amortization (DD&A) calculation. This calculation is based on the unit-of-production method which amortizes the cost of oil and natural gas assets over the Corporation's proved oil and natural gas reserve base. Proved reserves are determined by the Corporation using the guidelines of NI 51-101. Changes to proved reserves in the future could increase or decrease the amount of the Corporation's DD&A.

The full cost accounting guidelines allow for the cost of unproved properties to be excluded from the DD&A calculation. For the year ended December 31, 2007, Profound excluded $17.7 million from costs subject to DD&A. These costs are assessed quarterly for impairment. Should the judgment be made that these costs are impaired, an increase to DD&A will result.

Ceiling Test

The ceiling test is a cost recovery test intended to identify and measure potential impairment of assets. The test limits the carrying value of the Corporation's property and equipment to the estimated net present value of future cash flows from the proved and probable reserves. By their nature, these estimates are subject to measurement uncertainty and the effects of changes in such estimates in future periods on financial statements could be significant. Any impairment as a result of this ceiling test is charged to operations as additional depletion and depreciation expense. At December 31, 2007 the Corporation calculated the ceiling test and found no impairment.

Acquisitions

The acquisition of Cork was accounted for using the purchase method of accounting. Determination of value involves numerous estimates including the value of Cork shares, the value of other assets and liabilities and tax pool balances. This valuation could differ materially by altering various assumptions which would have affected the valuation of the purchase price or the allocation of the purchase price to the net assets acquired.

Asset Retirement Obligations

Under the asset retirement obligations rules, the total fair value of the Corporation's asset retirement obligations are set up on the balance sheet at the discounted future value of the liability. The key areas of judgment are in determining the amount of the future liability, the appropriate discount rate and when the expenditures will be incurred. External factors influencing these obligations include commodity prices, interest rates and changes to regulatory requirements. Dramatic changes in any of these could result in an increase or decrease in net income and in the liabilities recognized.

Stock-based Compensation

Profound is required to calculate the fair value of stock options and performance warrants at the time of grant and charge this to income in a systematic manner over the vesting period of the options and warrants. The calculation method that Profound has adopted to calculate the fair value of options is the Black-Scholes model. The most critical estimate in the Black-Scholes model is the expected volatility of Profound's shares. Management has determined that 50 percent is an appropriate volatility rate for Profound. Actual volatility could be more or less than 50 percent, which could have a material impact on net income.

Income Taxes

The determination of income and other tax liabilities requires interpretation of complex laws and regulations. All tax filings are subject to audit and potential reassessment after the lapse of considerable time. Accordingly, the actual income tax liability may differ significantly from that estimated and recorded by management.

The recognition of a future income tax asset is also based on estimates of whether the Corporation is "more likely than not" to realize these assets. This estimate, in turn, is based on estimates of proved and probable reserves, future oil and natural gas prices, royalty rates and costs. Changes in these estimates could materially impact net income and the future income tax asset recognized.

Financial Statements of

PROFOUND ENERGY INC.

December 31, 2007



PROFOUND ENERGY INC.
Balance Sheets
December 31, 2007 and December 31, 2006
----------------------------------------------------------------------------
December 31, December 31,
2007 2006
------------ ------------
$ $
------------ ------------
ASSETS

CURRENT
Cash and cash equivalents 90,560 2,381,227
Accounts receivable 8,660,862 232,304
Prepaid expenses 178,925 115,212
Commodity contracts (Note 12) 172,725 -
------------ ------------
9,103,072 2,728,743

Deposits and other (Note 5) 531,522 10,000
Property and equipment (Note 6) 123,246,910 1,690,467
Future income tax (Note 9) 5,689,802 -
------------ ------------
138,571,306 4,429,210
------------ ------------
------------ ------------

LIABILITIES

CURRENT
Accounts payable and accrued liabilities 18,709,218 302,017
Bank debt (Note 8) 23,807,706 -
------------ ------------
42,516,924 302,017

Asset retirement obligations (Note 7) 1,395,367 22,322
------------ ------------
43,912,291 324,339

SHAREHOLDERS' EQUITY

Share capital (Note 10) 95,217,847 4,115,000
Contributed surplus 100,707 -
Deficit (659,539) (10,129)
------------ ------------
94,659,015 4,104,871

138,571,306 4,429,210
------------ ------------
------------ ------------
Commitments and contingencies (Note 13)

The accompanying notes are an integral part of these financial statements.

Approved by the Board

----------------------------------------------------------------------------
Keith Macdonald George Chow
Director Director


PROFOUND ENERGY INC.
Statements of Operations, Comprehensive Income and Deficit
For the period ended December 31
----------------------- -------------------------- -------------------------
----------------------- -------------------------- -------------------------
Three 38-Day 38-Day
Months Period Year Period
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
------------ ------------ ------------ ------------
2007 2006 2007 2006
(unaudited) (unaudited)
------------ ------------ ------------ ------------
$ $
------------ ------------ ------------ ------------
REVENUE
Petroleum and natural
gas sales 5,429,665 - 6,367,096 -
Royalties 1,286,291 - 1,527,406 -
------------ ------------ ------------ ------------
4,143,374 - 4,839,690 -
Realized gain on
commodity contracts
(Note 12) 161,961 - 161,961 -
Unrealized loss on
commodity contracts
(Note 12) (193,878) - (193,878) -
Interest and other
income 157,088 - 475,092 -
------------ ------------ ------------ ------------
4,268,545 - 5,282,865 -
------------ ------------ ------------ ------------

EXPENSES
Operating 1,067,716 - 1,173,764 -
Transportation 18,963 - 27,879 -
General and
administrative 484,793 10,129 891,110 10,129
Interest and bank
charges 159,846 - 159,909 -
Part XII.6 tax on
flow-through
expenditures (4,005) - 38,864 -
Depletion, depreciation
and accretion 2,174,476 - 3,353,540 -
Stock-based
compensation
(Note 10(h)) (67,372) - 50,436 -
------------ ------------ ------------ ------------
3,834,417 10,129 5,695,502 10,129
------------ ------------ ------------ ------------

Earnings (loss) before
income taxes 434,128 10,129 (412,637) 10,129
------------ ------------ ------------ ------------

Provision for income
taxes (Note 9)
Future income tax 517,452 - 293,782 -
------------ ------------ ------------ ------------

Comprehensive and net
loss (83,324) (10,129) (706,419) (10,129)

Deficit, beginning of
period (633,224) - (10,129) -
Interest received on
share purchase loans
(Note 10 (d)) 57,009 - 57,009 -
------------ ------------ ------------ ------------

Deficit, end of period (659,539) (10,129) (659,539) (10,129)

Income per share

Basic and diluted (.01) (.02) (.09) (.02)
------------ ------------ ------------ ------------
Weighted average number
of shares - basic
(Note 11) 16,588,983 447,534 7,722,219 447,534
------------ ------------ ------------ ------------
Total number of shares
outstanding,
end of period (Note
10(b)) (post -
transaction) 24,902,616 1,380,000 24,902,616 1,380,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

The accompanying notes are an integral part of these financial statements.


PROFOUND ENERGY INC.
Statements of Cash Flows
For the period ended December 31
----------------------- -------------------------- -------------------------
----------------------- -------------------------- -------------------------
Three 38-Day 38-Day
Months Period Year Period
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
------------ ------------ ------------ ------------
2007 2006 2007 2006
(unaudited) (unaudited)
------------ ------------ ------------ ------------
$ $ $ $
------------ ------------ ------------ ------------
CASH FLOWS RELATED TO
THE FOLLOWING
ACTIVITIES:

OPERATING

Net loss (83,324) (10,129) (706,419) (10,129)
Adjustments for:
Unrealized loss on
commodity contracts
(Note 12) 193,878 - 193,878 -
Depletion, depreciation
and accretion 2,174,476 - 3,353,540 -
Stock-based
compensation (67,372) - 50,436 -
Future income taxes 517,452 - 293,782 -
------------ ------------ ------------ ------------
2,735,110 (10,129) 3,185,217 (10,129)

Changes in non-cash
operating
working capital (7,632,241) 18,567 (6,718,566) 18,567
------------ ------------ ------------ ------------

(4,897,131) 8,438 (3,533,349) 8,438
------------ ------------ ------------ ------------

FINANCING

Issue of shares, net of
share issue costs 15,679,758 4,115,000 38,320,114 4,115,000
Interest received on
share purchase loans
(Note 10 (d)) 83,985 - 83,985 -
Repayment of bank debt (23,351,491) - (23,351,491) -
Change in non-cash
financing
working capital - 25,000 (25,000) 25,000
------------ ------------ ------------ ------------

(7,587,748) 4,140,000 15,027,608 4,140,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

INVESTING
Corporate acquisition
(Note 4) (416,694) - (416,694) -
Property and equipment
expenditures (7,144,811) (1,668,145) (23,279,050) (1,668,145)
Deferred acquisition
costs 125,000 - - -
Other deposits (373,054) (10,000) (521,522) (10,000)
Changes in non-cash
investing
working capital 8,440,697 (89,066) 10,432,340 (89,066)
------------ ------------ ------------ ------------

631,138 (1,767,211) (13,784,926) (1,767,211)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net increase (decrease)
in cash and cash
equivalents (11,853,741) 2,381,227 (2,290,667) 2,381,227
Cash and cash
equivalents, beginning
of period 11,944,301 - 2,381,227 -
------------ ------------ ------------ ------------

Cash and cash
equivalents, end of
period 90,560 2,381,227 90,560 2,381,227
------------ ------------ ------------ ------------

Interest paid during the
period 159,846 - 159,909 -
------------ ------------ ------------ ------------

Taxes paid during the
period - - - -
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

The accompanying notes are an integral part of these financial statements.


PROFOUND ENERGY INC.
Notes to the Financial Statements
December 31, 2007 and 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------


1. BUSINESS OF THE CORPORATION

Profound Energy Inc. (the "Corporation") was formed on November 19, 2007 through the combination of Profound Energy Ltd. ("Former Profound") and Cork Exploration Inc. ("Cork"), a public oil and natural gas exploration and production corporation (the "Transaction"). (Note 4)

Under the terms of the Transaction, Cork acquired all of the issued and outstanding shares of Former Profound in exchange for Cork common shares, the issued and outstanding common shares were consolidated on a four-for-one basis, and the combined entity changed its name to Profound Energy Inc. Subsequent to this share exchange, the shareholders of Former Profound owned approximately 46 percent of the issued and outstanding common shares and the directors and senior management of the combined Corporation are the former directors and senior management of Former Profound.

This business combination has been accounted for as a reverse takeover using the purchase method of accounting with Former Profound as the acquirer. Accordingly, the financial statements include the historical accounts of Former Profound and do not include the net operations of Cork for any period prior to November 19, 2007.

2. SIGNIFICANT ACCOUNTING POLICIES

The Corporation's financial statements have been prepared by management in accordance with accounting principles generally accepted in Canada. The preparation requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from these estimates.

Cash Equivalents

Cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash equivalents are defined as highly liquid investments with terms to maturity at acquisition of three months or less.

Financial Instruments and Derivatives

Cash and cash equivalents are designated as held-for-trading instruments and are measured at carrying value, which approximates fair value due to the short-term nature of these instruments. Accounts receivable are designated as loans and receivables. Accounts payable and accrued liabilities and bank debt are designated as other financial liabilities. All commodity contracts are derivative financial instruments and classified as held-for-trading.

The Corporation may use various types of derivative financial instruments to manage risks associated with natural gas price fluctuations. These instruments are not used for trading or speculative purposes. Proceeds and costs realized from holding the related contracts are recognized at the time each transaction under a contract is settled. For the unrealized portion of such contracts, the Corporation utilizes the fair value method of accounting. The fair value is based on an estimate of the amounts that would have been paid to or received from counterparties to settle these instruments given future market prices and other relevant factors. The method requires the fair value of the derivative financial instruments to be recorded at each balance sheet date with unrealized gains or losses on those contracts recorded through net earnings. Transaction costs, if any, are added to the amounts of the associated financial instruments and amortized accordingly.

An embedded derivative is a component of a contract that affects the terms in relation to another factor. These hybrid contracts are considered to consist of a "host" contract plus an embedded derivative. The embedded derivative is separated from the host contract and accounted for as a derivative only if certain conditions are met. The Corporation has not identified any embedded derivatives which required separate recognition and measurement.

Property and Equipment

Cost

The Corporation follows the full cost method of accounting whereby all costs relating to the acquisition of, the exploration for and development of petroleum and natural gas reserves are capitalized. Costs capitalized include land acquisition costs, geological and geophysical expenditures, rentals on undeveloped properties, costs of drilling productive and non-productive wells, lease and well equipment and that portion of general and administrative expenses directly related to exploration and development activities.

Gains and losses on disposals of petroleum and natural gas properties are recognized only when crediting the proceeds to the full cost pool would result in a change of 20 percent or more in the depletion and depreciation rate.

Other property and equipment is recorded at cost.

Depletion, depreciation and amortization

Capitalized costs of petroleum and natural gas properties and related equipment are depleted and depreciated using the unit-of-production method based on the Corporation's share of gross proved petroleum and natural gas reserves as determined by independent engineers. For the purpose of this calculation, production and reserves of petroleum and natural gas are converted to a common unit of measurement on the basis of their relative energy content, whereby six thousand cubic feet of natural gas equates to one barrel of oil.

Costs of acquiring and evaluating unproved properties are excluded from costs subject to depletion and depreciation until it is determined that proved reserves are attributable to the properties or impairment occurs.

Other property and equipment is depreciated on a declining balance basis at rates of 20 percent to 30 percent per year.

Impairment (Ceiling Test)

The Corporation places a limit on the total carrying value of property and equipment that is depleted against future revenues.

Impairment is recognized if the carrying value of petroleum and natural gas properties less accumulated depletion and depreciation, related asset retirement obligations and the lesser of cost and fair value of unproved properties exceeds the estimated future cash flows expected to result from the Corporation's proved reserves. Cash flows are calculated on an undiscounted basis using forecast prices and costs.

If impairment occurs, the Corporation will measure the amount by comparing the carrying value of the property and equipment to the estimated net present value of future cash flows from proved and probable reserves. Cash flows are discounted at the Corporation's risk-free interest rate. The excess of the carrying value less the net present value of future cash flows would be recorded as additional depletion expense. The cost of unproved properties is excluded from the ceiling test calculation and is subjected to a separate impairment test.

Asset Retirement Obligation

The Corporation recognizes the estimated fair value of an asset retirement obligation in the period a well or related asset is drilled, constructed or acquired. The fair value of the estimated obligation is estimated using the present value of the estimated future cash outflows to abandon the asset, calculated at the Corporation's credit-adjusted risk-free interest rate. The fair value is recorded as a long-term liability with a corresponding increase in the carrying amount of the related asset. The liability is increased each reporting period with the accretion being charged to income until the property is depleted or sold. The capitalized amount is depleted on a unit-of-production basis over the life of the reserves. Actual abandonment and restoration costs incurred are charged against the asset retirement obligation.

The Corporation reviews the obligation regularly such that revisions to the estimated timing of cash flows, discount rates and estimated costs will result in an increase or decrease to the asset retirement obligation.

Per Share Amounts

Basic per share amounts are calculated using the weighted average number of shares outstanding during the period. Diluted per share amounts reflect the exercise or conversion of potentially dilutive securities or other contracts to issue shares at the later of the grant of such securities or the beginning of the period. The Corporation computes diluted earnings per share using the treasury-stock method to determine the dilutive effect of securities or other contracts. This method assumes that any proceeds obtained on the exercise of outstanding, in-the-money stock options, warrants, and unrecognized stock compensation costs would be used to purchase common shares of the Corporation at their average market price during the period.

Flow-Through Shares

The Corporation, from time to time, issues flow-through shares to finance a portion of its capital expenditure program. Pursuant to the terms of the flow-through share agreements, the tax deductions associated with the expenditures are renounced to the subscribers. Accordingly, share capital is reduced and a future tax liability is recorded equal to the estimated amount of future income taxes payable by the Corporation as a result of the renunciations, when the expenditures are renounced.

Revenue Recognition

Revenue from the sale of petroleum and natural gas is recognized based on volumes delivered to customers at contractual delivery points and rates. The costs associated with the delivery, including operating and maintenance costs, transportation and production-based royalty expenses, are recognized in the same period in which the related revenue is earned and recorded. The Corporation does not recognize inventory related to volumes produced but not sold at the end of the year.

Transportation Expense

Transportation costs are presented as a separate expense in the statements of operations and deficit.

Joint Venture Accounting

A significant portion of the Corporation's exploration, development and production activities are conducted jointly with others. These financial statements reflect only the Corporation's proportionate interest in such activities.

Stock-Based Compensation

The Corporation issues stock options and performance options to directors, officers, employees and other consultants. Compensation costs attributable to stock options are measured at fair value at the date of grant and expensed over the vesting period with a corresponding increase in contributed surplus. When stock options are exercised, the cash proceeds together with the amount previously recorded as contributed surplus are recorded as share capital. The Corporation does not incorporate an estimated forfeiture rate for stock options and performance options that will not vest, but accounts for forfeitures as they occur.

Income Taxes

The Corporation follows the liability method of accounting for income taxes. Under this method, income tax liabilities and assets are recognized for the estimated tax consequences attributed to differences between the amounts reported in the financial statements and their respective tax bases, using substantively enacted income tax rates. Income tax assets are also recognized for the benefits from tax losses and deductions that cannot be identified with particular assets or liabilities, provided those liabilities are more likely than not to be realized. The effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs.

Measurement Uncertainty

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates relate primarily to unsettled transactions and events as of the date of the financial statements. Actual results could differ from these estimates.

The amounts recorded for depletion, depreciation and amortization of property and equipment, the provision for asset retirement obligations and the ceiling test are based on estimates of proved reserves, production rates, future petroleum and natural gas prices, future costs and the remaining lives and period of future benefit of the related assets.

The amounts recorded relating to the fair value of stock options granted and the resulting income effect (Note 10(h)) are based on estimates of the future volatility of the Corporation's share price, expected lives of the options, expected dividends, and risk-free interest rates and other relevant assumptions.

The value assigned to common shares issued in the Transaction and the allocation of the purchase price to the net assets of Cork at the acquisition date are based on estimates of numerous factors affecting valuation including discount rates, proved and probable reserves, future oil and natural gas prices, and other factors.

The fair value of commodity contracts and the resultant unrealized gain (loss) on commodity contracts is based on estimates of future natural gas prices.

The amounts recorded for future income tax assets and future tax expense (recovery) are based on estimates of the probability of the Corporation utilizing certain tax pools and assets which, in turn, is dependent on estimates of proved and probable reserves, production rates and future petroleum and natural gas prices.

By their nature, these estimates are subject to measurement uncertainty and the effect of changes in such estimates on the financial statements of future periods could be material.

3. CHANGES IN ACCOUNTING POLICIES

Financial Instruments

Effective January 1, 2007, the Corporation adopted the following new Canadian Institute of Chartered Accountants ("CICA") Handbook sections: 3855 Financial Instruments - Recognition and Measurement, 1530 Comprehensive Income, 3861 Financial Instruments - Disclosure and Presentation and 3865 Hedges.

These policies provide comprehensive requirements for the recognition and measurement of financial instruments, introducing a new component of equity referred to as accumulated other comprehensive income ("AOCI"), and a Statement of Comprehensive Income. In accordance with the transitional provision of these policies, comparative financial statements are not to be restated.

Section 3855 prescribes when a financial asset, financial liability or non-financial derivative is to be recognized on the balance sheet and at what amount, requiring fair value of cost-based measures under different circumstances. All financial instruments must be classified within one of the following five categories: held-for-trading; held-to-maturity instruments; loans and receivables; available-for-sale financial assets; or other financial liabilities. All financial instruments, with the exception of loans and receivables, held-to-maturity investments and other financial liabilities measured at amortized cost, are reported on the balance sheet at fair value. Subsequent measurement and changes in fair value will depend on their initial classification. Available-for-sale financial assets are measured at fair value with changes in fair value recorded in other comprehensive income until the investment is derecognized or impaired at which time the amounts would be recorded in earnings.

Section 1530 established standards for the reporting and presenting of comprehensive income and other comprehensive income. Comprehensive income is defined as the change in equity from transactions and other events from non-owner sources and other comprehensive income comprises revenue, expenses, gains and losses that are recognized in comprehensive income but excluded from net income.

Derivatives are to be measured at fair value and unrealized gains and losses reported in the statement of operations unless the "normal sale and purchase" exemption is utilized or the derivatives are designated as cash flow or net investment hedges. All changes in fair value are included in earnings unless cash flow hedge or net investment accounting is used, in which case changes in fair value are recorded in other comprehensive income to the extent the hedge is effective and in earnings to the extent it is ineffective. The Corporation has not identified any material embedded derivatives in any of its financial instruments.

Section 3865 established standards for when and how hedge accounting may be applied. Hedge accounting continues to be optional and the Corporation does not currently apply hedge accounting.

There has been no impact on the financial statements as a result of adopting the new policies. There were no items that needed to be recognized in AOCI for the year ended December 31, 2007. The Corporation does not have any comprehensive income items requiring separate disclosure.

Accounting Changes

Effective January 1, 2007 the Corporation adopted the revised recommendations of the CICA Handbook Section 1506, Accounting Changes. Under the revised standards, voluntary changes in accounting policies are permitted only if they result in financial statements which provide more reliable and relevant information. Accounting policy changes are applied retrospectively unless it is impractical to determine the period or cumulative impact of the change. Corrections of prior period errors are applied retrospectively and changes in accounting estimates are applied prospectively by including these changes in earnings. These standards are effective for all changes in accounting policies, changes in accounting estimates and corrections of prior period errors initiated in periods beginning on or after January 1, 2007.

Future Accounting Changes

In addition, the Corporation has assessed new and revised accounting pronouncements that have been issued that are not yet effective and determined that the following may have a significant impact on the Corporation:

i) Financial Instruments - Disclosures and Presentation

As of January 1, 2008, the Corporation will be required to adopt two new CICA standards. Handbook Section 3862, Financial Instruments - Disclosures and Handbook Section 3863, Financial Instruments - Presentation. These Handbook Sections will replace existing Handbook Section 3861, Financial Instruments - Presentation and Disclosure. The new disclosure standard increases the emphasis on the risks associated with both recognized and unrecognized financial instruments and how those risks are managed. The new presentation standard carries forward the former presentation requirements.

ii) Capital Disclosures

Also as of January 1, 2008, the Corporation will be required to adopt Handbook Section 1535, Capital Disclosures which will require companies to disclose their objectives, policies and processes for managing capital. In addition, disclosures are to include whether companies have complied with externally imposed capital requirements.

Both new standards were issued in December 2006 and the Corporation is assessing the impact on its financial statements.

iii) International Financial Reporting Standards

In January 2006, the CICA Accounting Standards Board adopted a strategic plan for the direction of accounting standards in Canada. As part of the plan, accounting standards in Canada for public companies will converge with International Financial Reporting Standards ("IFRS") on January 1, 2011. The Corporation continues to monitor and assess the impact of the convergence of Canadian GAAP and IFRS.

4. CORK ACQUISITION

On November 19, 2007, Former Profound completed a reverse takeover of Cork whereby Cork acquired all of the issued and outstanding common shares of Former Profound by issuance of 1.60 common shares of Cork for each issued and outstanding common share of Former Profound. The combined entity, continued under the name Profound Energy Inc. The acquisition was an arm's-length transaction resulting in the original shareholders of Former Profound owning approximately 46 percent of the issued and outstanding shares of the combined Corporation and management and directors of the Corporation consists almost entirely of the management and Board of Directors of Former Profound. As a result of the share ownership, the change in management and the composition of the Board of Directors, the acquisition is accounted for as a reverse take-over acquisition of Cork by Former Profound, whereby Former Profound is considered to be the acquirer for accounting purposes.

Following the completion of the Cork acquisition, the Corporation consolidated its shares on the basis of one common share for each four common shares issued and outstanding following the completion of the Cork transaction.

The estimated fair value of the Acquisition, before transaction costs, is $53,367,029 based on the total value of all of the issued shares of Cork prior to the share exchange at $1.00 per share. The determination of $1.00 per share was based on the weighted-average market price of Cork shares over a five-day trading period before and after the terms of the Acquisition were announced.

The acquisition has been accounted for using the purchase method with Former Profound identified as the acquirer, with the purchase price allocated to the fair values of the assets and liabilities of Cork as follows:



Consideration
-------------

Value of shares issued to Profound Energy Ltd. $ 53,367,029
Transaction costs 416,694
--------------
Total purchase price $ 53,783,723
--------------
--------------

Allocation of purchase price
----------------------------

Non-cash working capital (deficiency) $ (6,226,157)
Property and equipment 101,157,721
Future tax asset 6,616,166
Bank indebtedness (47,159,197)
Asset retirement obligation (971,413)
Commodity contracts 366,603
--------------
$ 53,783,723
--------------
--------------


The transaction costs of $416,694 were comprised of professional fees, TSX original listing fees, and cancellation of options.

Cork had the following commitments incurred with respect to its corporate maximization process and these amounts were paid by Cork on closing of the Transaction and are included in the working capital deficiency acquired.



Financial advisory fees $ 1,500,000
Severance payments to former officers and employees 924,282
Other 10,417
--------------
$ 2,434,699
--------------
--------------


The attributed values of the common shares issued under the Transaction have been excluded from the consolidated statement of cash flows as non-cash transactions.

5. DEPOSITS AND OTHER

Deposits and other is comprised of deposits required under Crown royalty regulations and operating lease obligations.

6. PROPERTY AND EQUIPMENT



Net Book
Accumulated Value
Depletion and December 31,
Cost Depreciation 2007
------------- --------------- -------------
$ $ $
------------- --------------- -------------
Petroleum and natural gas
properties and equipment 126,402,657 3,277,952 123,124,705
Furniture and equipment and
leasehold improvements 168,791 46,586 122,205
------------- --------------- -------------

126,571,448 3,324,538 123,246,910
------------- --------------- -------------
------------- --------------- -------------


Costs subject to depletion include $19,045,000 of future capital, and exclude unproved properties and proprietary seismic data of $17,666,836. During 2007, the Corporation capitalized $1,066,588 of general and administrative expenditures and $71,581 (including $21,310 future tax effect) of stock-based compensation related to exploration and development activities.



Net Book
Accumulated Value
Depletion and December 31,
Cost Depreciation 2006
------------- --------------- -------------
$ $ $
------------- --------------- -------------
Petroleum and natural gas
properties and equipment 1,690,467 - 1,690,467
------------- --------------- -------------


As of December 2006, the Corporation was in a pre-production start-up phase. At that time no reserves had been proved and therefore no depletion expense was recorded.

The benchmark and Corporation prices used for the December 31, 2007 ceiling test are as follows:



----------------------------------------------------------------------
Oil Natural Gas Natural Gas Liquids
----------------------------------------------------------------------
Edm.
Benchmark Average
Edm. Benchmark (C3, C4
Light Corporation AECO Spot Corporation & C5) Corporation

($/bbl) ($/bbl) ($/mcf) ($/mcf) ($/bbl) ($/bbl)
----------------------------------------------------------------------

2008 91.10 89.68 7.12 7.14 74.70 76.27
2009 87.10 85.61 7.97 8.00 71.42 72.76
2010 83.10 81.57 8.02 8.06 68.14 69.21
2011 81.10 79.53 8.02 8.07 66.50 67.60
2012 81.10 79.51 8.02 8.07 66.50 67.63
2013 81.10 79.51 8.02 8.08 66.50 67.60
2014 81.10 79.53 8.23 8.30 66.50 67.62
2015 81.10 79.52 8.41 8.49 66.50 67.71
2016 81.12 79.53 8.59 8.68 66.51 67.82
2017 82.76 81.17 8.77 8.88 67.86 69.27

Prices increase at a rate of approximately 2 percent per annum after 2017.


Adjustments were made to the benchmark prices for purposes of the ceiling test, to reflect varied delivery points and quality differentials in the products delivered.

7. ASSET RETIREMENT OBLIGATIONS

The changes in asset retirement obligations for the periods ended December 31, 2006 and December 31, 2007 are as follows:



December 31, December 31,
2007 2006
----------------------------
$ $
Asset retirement obligation, beginning of
period 22,322 -
Liabilities incurred 389,749 22,322
Liabilities acquired in business combination
(Note 4) 971,413 -
Accretion expense 11,883 -
Revisions in estimated cash flows - -
----------------------------

Asset retirement obligation, end of period 1,395,367 22,322
----------------------------
----------------------------


The total estimated, undiscounted cash flows required to settle the obligations at December 31, 2007 without including salvage, is $2,713,285 (December 31, 2006 - $75,000). These amounts have been discounted using a credit-adjusted risk-free interest rate of approximately 7.0 percent. The Corporation expects these obligations to be settled, on average, in 10 years, the majority of which are expected to be incurred between 2016 and 2020. As at December 31, 2007, no funds have been set aside to settle these obligations.

8. BANK DEBT

At December 31, 2007, the Corporation had a $47.0 million revolving operating credit facility agreement with a Canadian chartered bank. The facility revolves for 364-day periods, extendable at the option of the lender. The credit facility provides that advances may be made by way of direct advances or bankers' acceptances. Direct advances bear interest at the bank's prime lending rate and bankers' acceptances bear interest at the applicable bankers' acceptance rate plus 100 basis points. Under the terms of the credit facility, certain financial covenants must be maintained. As at December 31, 2007, the Corporation is in compliance with all covenants in accordance with the terms of the credit facility. The credit facility is collateralized by a $100 million demand floating charge debenture over all of the assets of the Corporation and general assignment of book debts. As at December 31, 2007, $23.8 million was drawn under the bank facility. The effective interest rate on the outstanding debt is approximately 6.2 percent annualized for the 42 days ended December 31, 2007 after the Cork acquisition.

9. INCOME TAXES

Income tax expense (recovery) differs from that which would be expected from applying the combined effective Canadian federal and provincial tax rate of 32.12 percent (2006 - 32.12 percent) to loss before income taxes as follows:



2007 2006
-----------------
$ $
-----------------
Expected income tax (recovery) (132,539) (3,253)
Adjustment resulting from:
Change in effective tax rate applied 391,810 160
Non-deductible stock-based compensation 16,200 -
Interest on Shareholder loan 18,311 -
Resource allowance - 285
Valuation allowance - 2,808
-----------------

Income tax expense 293,782 -
-----------------
-----------------


The components of the future income tax liability at December 31, 2007 are as follows:



2007 2006
--------------------
$ $
--------------------
Temporary differences related to property
and equipment and asset retirement obligations (3,266,852) 16,678
Share issue costs and financing fees (1,469,469) (7,373)
Non-capital loss carry-forwards (991,809) (18,192)
Other 38,328 (1,050)
--------------------
Future income tax liability (asset) (5,689,802) (9,937)
Valuation allowance - 9,937
--------------------
(5,689,802) -
--------------------
--------------------


The Corporation has the following estimated tax pools at December 31, 2007. The benefit of which has been recognized in the financial statements:



2007 2006
----------------
($000) ($000)
----------------
Canadian Oil and Gas Property Expense 17,166 -
Canadian Exploration Expense 33,096 -
Cumulative Development Expenses 54,956 1,562
Tangibles 28,514 -
Cumulative eligible capital 24 4
Non-capital loss carry-forwards 3,606 60
Share issue costs 5,343 24
----------------
142,705 1,650
----------------
----------------


The Corporation has non-capital loss carry-forwards available to reduce future years' income for tax purposes. The non-capital loss carry-forwards expire as follows:



----------------------------------------------------------------------------
($000)
----------------------------------------------------------------------------
2015 1,045
2016 60
2026 2,441
2027 60
----------------------------------------------------------------------------
Total non-capital loss carry-forwards 3,606
----------------------------------------------------------------------------
----------------------------------------------------------------------------


10. SHARE CAPITAL

(a) Authorized

Unlimited number of common voting shares

Unlimited number of preferred shares, issuable in series

Unlimited number of special voting shares, with no dividend or distribution rights

(b) Issued shares



2007 2006
------------------------------------------------
Number of Amount Number of Amount
Shares $ Shares $

Balance January 1, 2006
- -
----------------------------------------------------------------------------
Balance November 19, 2007
(Note 10(e)) 26,802,141 39,767,318
----------------------------------------------------------------------------
Issued for cash pursuant
to private placements
(Note 10(c)) - - 3,450,000 4,140,000

Issued pursuant to share
purchase loans (Note 10(d)) - - 2,070,000 2,070,000

Less: share purchase loans
(Note 10(d)) - - (2,070,000) (2,070,000)

Shares exchanged under
the Transaction (Note 4) 42,883,426 - - -

Acquisition of Cork
(Note 4) 53,367,029 53,367,029 - -
------------------------
Balance prior to
consolidation 96,250,455 93,134,347 - -

Consolidation 4:1
(Note 4) (72,187,839) - - -

Issued pursuant to share
purchase loans
(Note 10(d)) 840,000 2,100,000 - -
Future income taxes on
expenditures renounced
for flow-through shares
(Note 10(c)) - (16,500) -
------------------------------------------------

24,902,616 95,217,847 3,450,000 4,140,000

Share issuance costs - - - (25,000)
------------------------------------------------

Balance, end of year 24,902,616 95,217,847 3,450,000 4,115,000
------------------------------------------------
------------------------------------------------


(c) On December 19, 2006 the Corporation completed a private placement of 3,450,000 flow-through common shares at a price of $1.20 per share for gross proceeds of $4,140,000. Transaction costs were $25,000.

In accordance with the terms of the offering and pursuant to certain provisions of the Income Tax Act (Canada), the Corporation renounced, for income tax purposes, exploration expenditures of $4,140,000 to the holders of the flow-through common shares effective December 31, 2006. The Corporation incurred $50,352 of expenditures to December 31, 2006. A further $4,089,648 in eligible expenditures was incurred in 2007, thereby fulfilling all flow-through obligations. Future income tax cost of $1,246,968 associated with renouncing the expenditures was recorded on the date of renunciation in 2007.

On January 4, 2007 the Corporation closed a major financing with ARC Financial Corporation ("ARC"). Pursuant to the subscription agreement, ARC has subscribed for 21,212,121 common shares at $1.65 per common share for gross proceeds of $35,000,000. Of these, 4,242,424 were issued at closing, with the remainder to be issued as the Corporation requires funds. Any common shares not taken up by January 4, 2009 shall automatically be subscribed for. As part of the major financing, ARC also acquired 16,969,697 special voting shares which will be cancelled for Nil consideration on the basis of one special voting share for each additional common share taken up and paid for under the subscription agreement. In addition, ARC subscribed and paid for 90,000 common shares at $1.00 per share.

Pursuant to the agreement, the Corporation has agreed to pay ARC financing fees in the amount of 3 percent of the gross amount financed by ARC. Such fees are paid as funds are drawn. In addition, the Corporation has paid financing fees of $1,149,000 to two shareholders, directors and officers equal to 3 percent of the gross proceeds from the ARC and other investor financing.

On January 23, 2007 the Corporation closed a financing with other investors. A total of 2,000,000 common shares were issued at a price of $1.65 per share for gross proceeds of $3,300,000.

On January 23, 2007 the Corporation closed a Founder's financing pursuant to subscription agreements for flow-through and common shares. Under the terms of the agreements, 50,000 flow-through shares were issued at a price of $1.20 per share for proceeds of $60,000.

In accordance with the terms of the offering and pursuant to certain provisions of the Income Tax Act (Canada), the Corporation renounced, for income tax purposes, exploration expenditures of $60,000 to the holders of the flow-through common shares effective November 16, 2007. The Corporation incurred $60,000 of expenditures to November 16, 2007, thereby fulfilling all flow-through obligations. Future income tax cost of $16,500 associated with renouncing the expenditures was recorded on the date of renunciation.

On July 20, 2007, pursuant to the ARC Subscription Agreement dated January 4, 2007, the Corporation issued 8,485,000 common shares at $1.65 per share for gross proceeds of $14,000,250. Financing fees of $420,008 were paid to ARC as per the agreement. Upon issuance, 8,485,000 special voting shares were cancelled and 8,485,000 equalization warrants were issued.

On October 9, 2007, pursuant to the ARC Subscription Agreement dated January 4, 2007, the Corporation issued 8,484,697 common shares at $1.65 per share for gross proceeds of $13,999,750. Financing fees of $419,993 were paid to ARC as per the agreement. Upon issuance, 8,484,697 special voting shares were cancelled and 8,484,697 equalization warrants were issued.

As of December 31, 2007 ARC has been issued 21,212,121 shares under the Subscription Agreement dated January 4, 2007. This fulfills the Subscription Agreement obligation. All special voting shares associated with the Subscription Agreement have been cancelled.

(d) On December 19, 2006 the Corporation loaned funds to employees to purchase 2,070,000 common shares at a price of $1.00 per share.

On January 23, 2007 the Corporation loaned additional funds to a Founder to purchase 30,000 common shares at a price of $1.00 per share.

Under the terms of the agreements, loans were payable on demand with interest accruing on the principal at a rate of 4 percent per annum compounded annually. The loans were secured by pledged securities of the Corporation in the amount of 200 percent of the common shares purchased by the borrower (4,200,000 common shares; 1,680,000 shares post-Cork transaction).

As of December 31, 2007 the Corporation had received $57,009 (net of future tax effect - $26,976) of interest income related to the share purchase loans.

Share purchase loans are presented as a reduction to share capital, rather than assets, unless there is substantial evidence that the borrower, and not the Corporation, is at risk for any decline in the value of the purchased shares. When the loans are presented as reductions in share capital, the Corporation considers the loaned funds to be stock options, in substance.

On November 19, 2007 the shares issued (2,100,000) were adjusted for the Profound/Cork business combination ratio (1.6:1) and for the 4:1 consolidation (840,000). On December 19, 2007 the loaned funds pursuant to the share purchase loans were received by the Corporation. The risk for any decline in value of these shares was then transferred to the borrowers and the Corporation considered the shares issued.

(e) Continuity of Issued Shares - Former Profound Pre-Acquisition



2007
-------------------------
Number of Amount
Shares $
-------------------------
Balance, January 1 3,450,000 4,115,000
Issued for cash pursuant to private placement
(Note 10(c)) 23,352,141 38,450,000
Future income taxes on expenditures renounced for
flow-through shares (Note 10(c)) - (1,246,968)
Issued pursuant to share purchase loans
(Note 10(d)) 30,000 30,000

Less: share purchase loans (Note 10(d)) (30,000) (30,000)
-------------------------
26,802,141 41,318,032
Special Voting

Balance, January 1 - -

Issued (Note 10(c)) 16,969,697 -

Cancelled (Note 10(c)) (16,969,697) -
-------------------------

- -
-------------------------
Share issuance costs
(net of tax - $679,172) - (1,550,714)
-------------------------
Balance, end of year 26,802,141 39,767,318
-------------------------
-------------------------


(f) Equalization Warrants

Pursuant to the terms of the Transaction all equalization warrants were cancelled, at no cost, on November 19, 2007.

(g) Performance Warrants

In January 2007 the Corporation issued performance warrants to founders, directors, officers and employees. The performance warrants have a term of seven years from January 23, 2007 and vest fully as to one-third on January 23, 2008, 2009 and 2010 or upon a change of control or a liquidity event. The performance warrants are issued in series as follows:



# of Exercise
Series Warrants Price
--------- ----------- ----------
Series 1 577,282 $ 6.20
Series 2 577,280 $ 7.23
Series 3 577,279 $ 8.25
Series 4 577,279 $ 9.28
Series 5 577,279 $10.33
-----------
Total 2,886,399
-----------
-----------


The estimated value of the performance warrants at the time of grant was estimated to be Nil.

(h) Stock Option Plan

On December 18, 2007, the shareholders approved a stock option plan (the "Plan") for the Corporation in compliance with the requirements of the TSX. The Plan authorizes the Board to grant stock options to directors, officers, employees and consultants of the Corporation. The Plan provides for options to have exercise prices fixed by the Board of Directors equivalent to the fair value of the Corporation's common shares at the grant date, and terms of no more than ten years. Stock options issued to date vest over a three-year period commencing on the first anniversary of and expire five years after the date of issue.

The aggregate number of shares which may be reserved for issuance under the plan is 10 percent of the Corporation's issued and outstanding shares. No one person can receive options within a one-year period entitling the person more than 5 percent of issued common shares.

A summary of the Corporation's stock option plan as at December 31, 2007 is as follows:



Weighted
Number Average
of Exercise
Continuity of stock options Shares Price
------------ -----------

Outstanding, December 31, 2006 - -
Granted during the period - pre Transaction 2,863,000 $1.65
Cancelled (2,863,000) (1.65)
Granted during the period - post Transaction 2,155,000 3.15
------------ -----------
Outstanding, December 31, 2007 2,155,000 $3.15
------------ -----------
------------ -----------


The 2,863,000 stock options granted in 2007, prior to the Transaction, were cancelled at nominal cost as part of the Transaction. As the options were all unvested, $264,889 of compensation cost previously recognized ($117,808 charged to income and $147,081 capitalized to property and equipment) was reversed in the fourth quarter of 2007.

The following table summarizes information about the Corporation's stock options outstanding and exercisable at December 31, 2007.



Options Outstanding Exercisable Options
-------------------------------------- -------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Number Life Exercise Number Exercise
Outstanding (Years) Price Exercisable Price
-------------------------------------- -------------------------
$3.15 2,155,000 4.9 $3.15 - $3.15
-------------------------------------- -------------------------


The fair value of stock options granted during the year ended December 31, 2007 was estimated using the Black-Scholes option pricing model with the following assumptions: expected volatility (50 percent); risk-free interest rate (3.81 percent); expected life (five years) and expected future dividends (nil). Stock options granted during the period had an estimated fair value of $1.51 per share.

Compensation cost recognized for the year ended December 31, 2007 related to options granted in 2007 was $100,707 of which $50,436 was charged to income and $50,271 was capitalized to property and equipment. As stock-based compensation is not deductible for income tax purposes, a future income tax liability of $21,310 associated with the current period's capitalized stock-based compensation was recorded.

11. WEIGHTED AVERAGE SHARES OUTSTANDING

The weighted average number of common shares issued and outstanding, adjusted for the Transaction, for the three months and year ended December 31, 2007 and December 31, 2006 are as follows:



Three months ended
December 31 Period ended
(unaudited) December 31
---------------------- ---------------------
2007 2006 2007 2006
---------------------- ---------------------
Basic and diluted 16,588,983 447,534 7,722,219 447,534



No stock options or performance warrants have been included in the calculation of diluted shares outstanding as their inclusion would be anti-dilutive.

12. FINANCIAL INSTRUMENTS

Fair value of financial instruments:

Financial instruments of the Corporation carried on the balance sheet consist mainly of cash and cash equivalents, accounts receivable, commodity contracts, bank debt, accounts payable and accrued liabilities. The estimated fair value of the financial instruments approximates their carrying value due to their short terms to maturity and the floating interest rate on the Corporation's debt.

Credit risk:

Substantially all of the Corporation's accounts receivable are due from customers in the oil and natural gas industry and are subject to normal credit risk. With respect to counterparties to financial instruments, the Corporation mitigates associated credit risk by entering into transactions with major institutions with investment grade credit ratings.

Interest rate risk:

The Corporation is exposed to interest rate risk to the extent that changes in market interest rates impact its borrowings under the floating rate credit facility.

Risk Management Activities:

The Corporation has entered into derivative financial instruments for the purpose of protecting a portion of its cash flow from operations from the volatility of natural gas commodity prices. Management continuously monitors commodity prices and initiates instruments to manage exposure to these risks when it deems appropriate.

Collars ensure that the commodity prices realized will fall into a contracted range for a contracted sale volume based on the index price. The Corporation has not designated the derivatives as a hedge for accounting purposes and has therefore recorded the unrealized gains and losses on these contracts in the balance sheet as assets or liabilities with changes in their fair value recorded in net earnings for the period. Realized gains or losses from financial instruments related to commodity prices are recognized in income as the related sales occur.

At November 19, 2007, the Corporation assumed a commodity contract asset valued at $366,603 (Note 4). As of December 31, 2007, the fair value of the commodity contract asset was $172,725. This resulted in an unrealized loss of $193,878 for the period of November 19, 2007 to December 31, 2007. For the period of November 19, 2007 to December 31, 2007 the Corporation's risk management activities had a net realized gain of $161,961.

Following is a summary of all derivative contracts in place as at December 31, 2007:



Natural Volume Pricing Strike Price
Gas (GJ/day) Point (per GJ) Term
-------- -------- --------- ---------------- -------------------

Collar 4,500 AECO-C $7.00 - Floor November 1, 2007
$7.65 - Ceiling to March 31, 2008


13. COMMITMENTS AND CONTINGENCIES

(a) Operating commitments

In order to ensure continued availability of, and access to, facilities and services to meet its operational requirements, the Corporation has entered into operating leases for office space and other property and equipment. Under contracts existing at December 31, 2007, future minimum amounts payable on a fiscal year basis, excluding operating costs, are as follows:




$
-----------
2008 206,254
2009 216,365
2010 211,790
2011 197,957
2012 193,535
2013 16,128
-----------
-----------
1,042,029
-----------
-----------


(b) Flow-through Qualifying Expenditures

The Corporation assumed obligations in the Transaction that related to the previous issuance of flow-through common shares by Cork. Pursuant to a flow-through share offering of Cork on February 27, 2007, the Corporation is committed to incur a total of $16,008,000 in qualifying expenditures by February 27, 2009. As of December 31, 2007 approximately $11,896,000 is still to be incurred.

14. SUBSEQUENT EVENTS

(a) Arrangement Agreement

On January 18, 2008 the Corporation entered into an arrangement agreement (the "Arrangement") with Defiant Resources Corporation, an Alberta-based oil and natural gas company, whose shares are listed on the TSX.

Under the terms of the Arrangement, Profound will issue approximately 12.4 million common shares to the shareholders of Defiant based on an exchange ratio of 0.55 of a Profound common share for each share of Defiant.

Defiant and Profound have agreed to pay to each other a non-completion fee, under defined circumstances, of $1,500,000.

If all approvals are received, the transaction is expected to close in March, 2008 and the transaction will be accounted for as a business combination, with the Corporation being the acquirer and the continuing entity for financial reporting purposes.

(b) Hedges

As of January 31, 2008 the Corporation entered into two derivative financial instruments for the purpose of protecting a portion of its cash flow from operations from the volatility of natural gas commodity prices.

Following is a summary of all derivative contracts entered into subsequent to December 31, 2007:



Natural Volume Pricing Strike Price
Gas (GJ/day) Point (per GJ) Term
-------- -------- --------- ---------------- -------------------

Swap 2,500 AECO-C $7.00 April 1, 2008 to
October 31, 2008
Swap 2,500 AECO-C $7.02 April 1, 2008 to
October 31, 2008


(c) Normal Course Issuer Bid

On January 29, 2008, the Corporation announced a normal course issuer bid that will allow purchase and cancellation of up to 1,245,131 of its 24,902,616 currently issued and outstanding common shares at prevailing market prices. The bid commenced on February 1, 2008 and will terminate on January 31, 2009 or such earlier time as the Bid is completed or terminated at the option of Corporation. No shares have been purchased to date.

(d) Credit Facility

On March 4, 2007 the Corporation entered into a commitment letter to replace its $47 million credit facility (Note 8) with a facility from another Canadian chartered bank. Upon satisfaction of the conditions, the borrowing base will be established at $70 million by way of prime rate loans, guaranteed notes (bankers' acceptances) and letters of credit and will revolve for a 364-day period, renewable at the option of the lender. The credit facility is tested quarterly, in arrears, and bears interest based on a sliding scale as follows:

- Prime-based loans - Interest is payable in Canadian dollars at prime plus 0.0 percent to prime plus 0.75 percent per 365-day period;

- Guaranteed Notes - Interest is payable in Canadian dollars at bankers' acceptance fees plus a stamp fee of 100 to 190 basis points per 365-day period.

The interest rate varies depending on the Corporation's debt to cash flow ratio determined quarterly on a grid system, with the grid ranging from debt to cash flow ranges of lower than 1.0:1 to greater than 2.5:1

The facility is subject to a review on or before October 31, 2008.

The facility is secured by a general security agreement conveying a first floating charge over all real and personal property and after-acquired assets. The Corporation is required to meet certain financial based covenants under the terms of this facility.

(e) Employee Share Purchase Plan

Subsequent to year end, the Corporation implemented an employee share purchase plan (the "Plan") whereby employees may contribute up to a maximum of 5 percent of the employee's regular gross earnings. Company contributions are made at a rate of $2.00 for every $1.00 of employee contribution, and are a taxable benefit to the employee. All contributions are used to purchase shares of the Corporation on the open market. Compensation expense is recognized at the time the contributions are made.

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