Edgar Filing: TORRENT ENERGY CORP

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FILED PURSUANT TO RULE 424(b)(4)

SEC FILE NUMBER 333-123674

PROSPECTUS	Subject to completion
		May 5, 2005

TORRENT ENERGY CORPORATION

2,500,000 Shares of Common Stock of Torrent Energy Corporation

This prospectus relates to the resale by the selling stockholders of up to 2,500,000 shares of common stock of Torrent Energy Corporation, a Colorado Corporation, which may be resold by selling security holders named in this prospectus. The shares were acquired by the selling shareholders directly from us in private offerings that were exempt from registration under the U.S. securities laws. We have been advised by the selling security holders that they may offer to sell all or a portion of their shares of common stock being offered in this prospectus from time to time. The selling stockholders may sell common stock from time to time in the principal market on which the stock is traded at the prevailing market price or in negotiated transactions. The selling stockholders may be deemed underwriters of the shares of common stock which they are offering. We will not receive any proceeds from the resale of shares of common stock by the selling security holders. However, we have received proceeds from the sale of shares of common stock that are presently outstanding. We will pay the expenses of registering these shares.

Our common stock is registered under Section 12(g) of the Securities Exchange Act of 1934 and is listed on the Over-The-Counter Bulletin Board under the symbol "TREN". The last reported sales price per share of our common stock as reported by the Over-The-Counter Bulletin Board on March 22, 2005, was $1.00.

Our business is subject to many risks and an investment in our common stock will also involve a high degree of risk. You should invest in our common stock only if you can afford to lose your entire investment. You should carefully consider the various risk factors described beginning on page 6 before investing in our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The information in this Prospectus is not complete and may be changed. This Prospectus is included in the Registration Statement that was filed by Torrent Energy Corporation with the Securities and Exchange Commission. The selling stockholders may not sell these securities until the registration statement becomes effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the sale is not permitted.

Please read this prospectus carefully. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information.

The date of this prospectus is May 5, 2005.

The following table of contents has been designed to help you find important information contained in this prospectus. We encourage you to read the entire prospectus.

TABLE OF CONTENTS

	PAGE

PROSPECTUS SUMMARY	3

RISK FACTORS	4

RISKS RELATING TO OUR BUSINESS	4

RISKS RELATING TO OUR SERIES B CONVERTIBLE PREFERRED STOCK	6

RISKS RELATING TO OUR COMMON STOCK	7

USE OF PROCEEDS	8

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	8

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS	11

BUSINESS	17

EMPLOYEES	21

DESCRIPTION OF PROPERTIES	21

LEGAL PROCEEDINGS	22

MANAGEMENT	22

EXECUTIVE COMPENSATION	23

CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS	24

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	24

DESCRIPTION OF SECURITIES	25

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES	26

PLAN OF DISTRIBUTION	26

PENNY STOCK	27

SELLING STOCKHOLDERS	28

LEGAL MATTERS	29

EXPERTS	29

INDEX TO FINANCIAL STATEMENTS	30

AVAILABLE INFORMATION	64

PROSPECTUS SUMMARY

The following summary highlights selected information contained in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectus carefully, including the "risk factors" section, the financial statements and the secured convertible notes to the financial statements.

OUR BUSINESS

We are an exploration stage company engaged in the exploration of coalbed methane in the Coos Bay region of Oregon. Through our wholly-owned subsidiary, Methane Energy Corp., we hold leases to approximately 60,000 acres of prospective coalbed methane lands in the Coos Bay region. Methane Energy operates the exploration project in the Coos Bay region. We changed our name from Scarab Systems, Inc. to Torrent Energy on July 13, 2004 to reflect the change in our business operations towards coalbed methane exploration. The change in our business operations occurred as a result of our entering into a Lease Purchase and Sale Agreement, through Methane Energy, on April 30, 2004. We were previously a web design and internet application developer.

For the nine months ended December 31, 2004, we generated no revenue and a net loss of $2,171,340. In addition, for the year ended March 31, 2004, we generated no revenue and a net loss of $374,606. As a result of recurring losses from operations and working capital deficiency, our auditors, in their report dated April 7, 2004, have expressed substantial doubt about our ability to continue as going concern.

Our principal offices are located at 3400-666 Burrard Street, Vancouver, British Columbia V6C 2X8, Canada, and our telephone number is (604) 639-3118. We are a Colorado corporation.

THE OFFERING

Common stock offered by selling stockholder...........................	Up to 2,500,000 shares

Common stock to be outstanding after offering..........................	Up to 20,984,966

Use of Proceeds...............................................................	We will not receive any proceeds from the sale of the common stock.

Over-The-Counter Bulleting Board Symbol..............................	TREN

The above information regarding common stock to be outstanding after the offering is based on 20,984,966 shares of common stock outstanding as of March 22, 2005 and assumes the subsequent conversion of our issued Series B Convertible Preferred Stock and the exercise of our issued warrants and options.

To obtain funding for our ongoing operations, we entered into two Securities Purchase Agreements with two accredited investors on February 11, 2005 for the sale of an aggregate of 2,500,000 shares of our common stock for an aggregate of $2,500,000. On February 15, 2005 the investors provided us with an aggregate of $2,500,000, pursuant to the terms of each Securities Purchase Agreement. This prospectus relates to the resale of this common stock.

See the "Description of Securities" sections for a complete description of the common stock.

RISK FACTORS

This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down. This means you could lose all or a part of your investment.

Risks Relating to Our Business:

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

We incurred net losses of $374,606 for the year ended March 31, 2004 and $396,277 for the year ended March 31, 2003. For the nine months ended December 31, 2004, we incurred a net loss of $2,171,340. We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.

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

We will require additional funds to sustain and expand our oil and gas exploration activities. We anticipate that we will require up to approximately $2,500,000 to fund our continued operations for the fiscal year 2005. Additional capital will be required to effectively support the operations and to otherwise implement our overall business strategy. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our marketing and exploration plans and possibly cease our operations. Any additional equity financing may involve substantial dilution to our then existing shareholders.

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

In their report dated April 7, 2004, our independent auditors stated that our financial statements for the year ended March 31, 2004 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of recurring losses from operations and working capital deficiency. We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities. Our continued net operating losses increases the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.

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

We have no history of revenues from operations and have no significant tangible assets. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Our company has a limited operating history and must be considered in the development stage. Our success is significantly dependent on a successful acquisition, drilling, completion and production program. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to locate recoverable reserves or operate on a profitable basis. We are in the development stage and potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.

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

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

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

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

It is unlikely that we will discover and establish a profitable coal bed methane gas production in the Coos Bay region.

Currently, there is no commercial production of coal in the state of Oregon. Additionally, there are no coal reserves attributed to the state of Oregon. Coal Bed Methane Gas only accounts for a small percentage of all natural gas production in the United States, and the closest coal bed methane production to the Coos Bay Region occurs in the state of Wyoming. As a result, it is unlikely that we will discover any significant amount of coal bed methane in the Coos Bay Region or be able to establish a well that will produce a profitable amount of coal bed methane gas.

The potential profitability of oil and gas ventures depends upon factors beyond the control of our company.

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

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

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

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

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

Coos Bay basin. This acreage may not become available or if it is available for leasing, that we may not be successful in acquiring the leases.

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

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

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

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

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

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

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

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

Risks Relating to Our Series B Convertible Preferred Stock:

There are a large number of shares underlying our Series B Convertible Preferred Stock that may be available for future sale and the sale of these shares may depress the market price of our common stock.

As of March 22, 2005, we had 20,984,966 shares of common stock issued and outstanding and 1,700 Series B

Convertible Preferred Stock outstanding that may be converted into an estimated 2,014,218 shares of common stock at current market prices. In addition, the number of shares of common stock issuable upon conversion of the outstanding Series B Convertible Preferred Stock may increase if the market price of our stock declines. All of the shares, including all of the shares issuable upon conversion of the Series B Convertible Preferred Stock may be sold without restriction. The sale of these shares may adversely affect the market price of our common stock.

The continuously adjustable conversion price feature of our Series B Convertible Preferred Stock could require us to issue a substantially greater number of shares, which will cause dilution to our existing stockholders.

Our obligation to issue shares upon conversion of our Series B Convertible Preferred Stock is essentially limitless. In addition, the number of shares of common stock issuable upon conversion of our Series B Convertible Preferred Stock will increase if the market price of our stock declines, which will cause dilution to our existing stockholders.

The continuously adjustable conversion price feature of our Series B Convertible Preferred Stock may encourage investors to make short sales in our common stock, which could have a depressive effect on the price of our common stock.

The Series B Convertible Preferred Stock is convertible into shares of our common stock at a 20% discount to the trading price of the common stock prior to the conversion. The significant downward pressure on the price of the common stock as the selling stockholder converts and sells material amounts of common stock could encourage short sales by investors. This could place further downward pressure on the price of the common stock. The selling stockholder could sell common stock into the market in anticipation of covering the short sale by converting their securities, which could cause the further downward pressure on the stock price. In addition, not only the sale of shares issued upon conversion of preferred stock, but also the mere perception that these sales could occur, may adversely affect the market price of the common stock.

The issuance of shares upon conversion of the Series B Convertible Preferred stock may cause immediate and substantial dilution to our existing stockholders.

The issuance of shares upon conversion of the Series B Convertible Preferred Stock may result in substantial dilution to the interests of other stockholders since the selling stockholders may ultimately convert and sell the full amount issuable on conversion. Although the selling stockholders may not convert their Series B Convertible Preferred Stock if such conversion would cause them to own more than 4.99% of our outstanding common stock, this restriction does not prevent the selling stockholders from converting some of their holdings and then converting the rest of their holdings. In this way, the selling stockholders could sell more than this limit while never holding more than this limit. There is no upper limit on the number of shares that may be issued which will have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock, including investors in this offering.

In the event that our stock price declines, the shares of common stock allocated for conversion of the Series B Convertible Preferred Stock and registered pursuant to a previous registration statement may not be adequate and we may be required to file a subsequent registration statement covering additional shares. If the shares we have allocated and registered pursuant to the previous registration statement are not adequate and we are required to file an additional registration statement, we may incur substantial costs in connection with such a filing.

Risks Relating to Our Common Stock:

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

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Our common stock is subject to the "penny stock" rules of the SEC and the trading market in our securities is

limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

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

•		that a broker or dealer approve a person's account for transactions in penny stocks; and
•	the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

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

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

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

•	sets forth the basis on which the broker or dealer made the suitability determination; and
•	that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

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

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

USE OF PROCEEDS

The shares of common stock offered hereby are being registered for the account of the selling stockholder named in this prospectus. As a result, all proceeds from the sales of the common stock will go to the selling stockholder and we will not receive any proceeds from the resale of the common stock by the selling stockholder. We will, however, incur all costs associated with this registration statement and prospectus.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is quoted on the OTC Bulletin Board under the symbol "TREN". Prior to July 30, 2004, our common stock was quoted under the symbol "SBSY." Prior to March 24, 2003, our common stock was quoted under the symbol "IRVV."

For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

	High	Low
2003
First Quarter⁽¹⁾	$ 1.70	$ 0.60
Second Quarter	0.90	0.10
Third Quarter	0.40	0.20
Fourth Quarter	0.30	0.10

2004
First Quarter⁽¹⁾	$ 0.20	$ 0.10
Second Quarter	0.20	0.10
Third Quarter	0.20	0.10
Fourth Quarter	0.51	0.05

2005
First Quarter	$ 1.29	$ 0.38
Second Quarter	1.18	0.65
Third Quarter	1.37	0.72
Fourth Quarter⁽²⁾	1.36	0.93

⁽¹⁾ All prices per share before January 20, 2004, take into account the one-for-ten share consolidation which has the effect of multiplying the pre-consolidated price per share by a factor of ten.

⁽²⁾As of March 21, 2005.

HOLDERS

As of March 22, 2005, we had approximately 180 holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent of our common stock is Computershare Trust Company, Inc., 350 Indiana Street, Suite 800, Golden, CO 80401.

DIVIDENDS

We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant.

2005 Equity Incentive Plan

On March 17, 2005, the Board of Directors authorized the 2005 Equity Incentive Plan (the "Equity Incentive Plan") for our executives, employees and outside consultants and advisors. Under the Equity Incentive Plan, executives, employees and outside consultants and advisors may receive awards as described in the Equity Incentive Plan. A maximum of 2,000,000 shares of our common stock are subject to the Equity Incentive Plan. As of March 22, 2005, 1,200,000 stock options have been granted to directors and officers under the Equity Incentive Plan to purchase 1,200,000 shares of our common stock. The purpose of the Equity Incentive Plan is to provide long-term performance incentives to those key employees and consultants of the Company and its Subsidiaries who are largely responsible for the management, growth and protection of the business of the Company and its Subsidiaries. As at March 22, 2005, we had 1,200,000 stock options outstanding under the Equity Incentive Plan with an exercise price of $1.25. There are currently 800,000 awards remaining under the Plan.

2004 Non-Qualified Stock Option Plan

In February 2004, the Board of Directors authorized the 2004 Non-Qualified Stock Option Plan (the "Plan") for our executive, employees and outside consultants and advisors. Under the Plan, executives, employees and outside consultants and advisors may receive awards of non-qualified stock options. A maximum of 1,800,000 shares of our common stock are subject to the Plan. As of September 15, 2004, 1,800,000 stock options have been granted to consultants under the Plan to purchase 1,800,000 shares of our common stock. The purpose of the Plan is to provide executives, employees and non-employee consultants and advisors with an increased incentive to make contributions to our company. As at December 31, 2004, we had 200,000 stock options outstanding under the Plan with an exercise price of $0.50. There are no further stocks options eligible to be granted under the Plan.

During the quarter ended December 31, 2004, we granted an additional 600,000 stock options outside of the Plan. This included an option to purchase 200,000 common shares at $1.00 per share and another 200,000 common shares at

$2.00 per share until November 1, 2005 pursuant to a mail distribution agreement for public and investor relations with a third party. These options have a cashless exercise provision whereby the option or can elect to receive common stock in lieu of paying cash for the options based on a formula that includes using the average closing prices of the five trading days preceding the exercise date. In addition, we granted a consultant the option to purchase 200,000 common shares at $0.83 per share pursuant to a consulting agreement for public and investor relations with a third party in which 25% of the options to the investor relations consultant vest immediately and 25% vest every quarter thereafter and either party may terminate the investor relations agreement with thirty days written notice.

The following table sets forth certain information concerning the granting of incentive stock options during the last completed fiscal year to each of the named executive officers and the terms of such options.

Option/SAR Grants in the Last Fiscal Year

Individual Grants

Name

Number of Securities Underlying Options/SARs Granted (#)

% of Total Options/SARs Granted to Employees in Fiscal Year

Exercise or

Base Price ($/Share)

Expiration Date

Thomas E. Mills

Nil

The following table sets forth certain information concerning the exercise of incentive stock options during the last completed fiscal year by each of the named executive officers and the fiscal year-end value of unexercised options on an aggregated basis.

Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values

Name	Shares Acquired on Exercise (#)	Value Realized⁽¹⁾ ($)	Number of Unexercised Options/SAR at FY-End(#) Exercisable/ Unexercisable	Value of Unexercised In-the-Money Options/SARs at FY-End($)⁽²⁾Exercisable/ Unexercisable

Thomas E. Mills	Nil	Nil	Nil	Nil

⁽¹⁾ Value realized is determined by calculating the difference between the aggregate exercise price of the options and the aggregate fair market value of the common stock on the date the options are exercised.

⁽²⁾ The value of unexercised options is determined by calculating the difference between the fair market value of the securities underlying the options at fiscal year end and the exercise price of the options.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND PLAN OF OPERATIONS

Some of the information in this document contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue," or similar words. You should read statements that contain these words carefully because they:

•	discuss our future expectations;
•	contain projections of our future results of operations or of our financial condition; and
•	state other "forward-looking" information.

We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors," "Business" and elsewhere in this prospectus. See "Risk Factors."

Overview

Until June 22, 2004, when we closed on the purchase of certain oil and gas leases in the Coos Bay region, our business was to provide services to the e-commerce industry. Historically, these services have been comprised of marketing, e-commerce development and the sale and distribution of transaction processing and payment services. Since none of these services were sufficient to provide us with a sustainable foundation, we commenced reviewing opportunities in the resource sector in late fiscal 2004. Accordingly, the accumulated losses of $883,317 to March 31, 2004 reflect our past activities that have been either discontinued or abandoned. In addition, the results of operations discussed herein reflect our previous operations and not the financial results of our new business model.

Our restructuring accelerated in the final quarter of fiscal 2004 (January 1 to March 31, 2004) and was finalized in the first quarter of fiscal 2005 (April 1 to June 30, 2004). We decided to investigate and pursue a number of conventional oil and gas opportunities as well as a number of unconventional (coalbed methane) acquisition candidates. Due diligence on a coalbed methane opportunity was completed in April and May of 2004, resulting in the May 20, 2004 announcement of the purchase of certain Oregon-based oil and gas lease assets from an independent company. Two private placements in the first quarter of fiscal 2005 (April 1 to June 30, 2004) allowed us to complete the lease acquisitions and to commence leasing additional mineral rights under the land surrounding the existing oil and gas leases. We now have a coalbed methane exploration prospect in Oregon to focus on. An additional private placement in the second quarter of fiscal 2005 (July 1 to September 30, 2004) allowed us to complete lease acquisitions, core drilling, marketing and public relations, working capital needs and pay legal and professional fees. Additional financings will be required to support further leasing activities and related exploratory drilling programs.

Plan of Operations

Land Acquisition

We currently lease approximately 60,000 acres in the Coos Bay Basin and have identified approximately 30,000 to 40,000 additional acres falling within the Coos Bay Basin Prospect. Our objective is to achieve a land lease position of over 100,000 acres before the end of 2005, although there is no assurance that we can reach that goal.

Exploration of the Coos Bay Project

We are planning an aggressive drilling and exploration program in the Coos Bay Basin. Based on existing raw data, which provides substantial subsurface information, We have begun a core drilling program.. A total of four to six core holes will be drilled at depths ranging from 1,000 to 4,000 feet. It is expected to take approximately two to three weeks to drill each hole. If commercial gas resource estimates can be verified, production testing should follow with full pilot test well programs in mid 2005.

Estimated timeline over the next twelve months

January 2005 to April 2005	Bulk of additional land acquisitions completed within the area of mutual interest.
November 2004 to April 2005	Complete multi-hole coring program.
April 2005 to May 2005	Assess coring program results.
Late Summer to Fall of 2005	Potentially commence pilot well drilling and testing.
Winter 2005 to Spring 2006	Potentially continue pilot well testing (primarily a dewatering phase).

The continuation of our business is dependent upon obtaining further financing, a successful program of acquisition, positive results of exploration, and, finally, achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to obtain further funds required for our continued operations. As noted herein, we are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations. Further, there can be no assurance that our exploration will result in any commercial findings of oil and gas, or any findings at all.

Results of Operations

For the Year Ended March 31, 2004 Compared to the Year Ended March 31, 2003

Operating Expenses from Continued Operations

Operating expenses consisted of consulting fees, management fees, professional fees, stock based compensation and other general corporate expenses. Operating expenses were $411,651 for the year ended March 31, 2004, compared with $347,045 for the year ended March 31, 2003. The increase was a result of us recording $195,740 in stock based compensation for stock options granted to consultants during the year ended March 31, 2004, compared with no such expense for the year ended March 31, 2003. Excluding the stock based compensation charge of $195,740, the operating costs decreased by $131,134, or 38%, due to the curtailing of substantially all of our operating activities during the current year. Consulting fees were $169,059 for the year ended March 31, 2004, compared with $170,469 for the year ended March 31, 2003. During the current period, we recorded $100,000 in consulting services for restructuring efforts and the balance of $69,059 was related to consulting services for managing our operations and reporting requirements. During the comparative period in 2003, consultants were engaged to manage our operations. Professional fees were $65,780 for the year ended March 31, 2003, compared with no such fees for the year ended March 31, 2004. Professional fees incurred in fiscal year 2003 consisted of financial consulting fees for the negotiation of debt financing for our operations. Audit and legal fees were $14,924 for the year ended March 31, 2004 compared to $20,181 for the year ended March 31, 2003. Legal and accounting fees related to the costs associated with our audited statements and periodic reporting obligations. General office expenses were $21,501 for the year ended March 31, 2004, compared with $30,756 for the year ended March 31, 2003 when we were operating. Interest costs were $8,948 for the year ended March 31, 2004 compared with $7,621 for the year ended March 31, 2003.

Gain on Settlement of Debt

We recorded a gain on the settlement of debt of $37,045 for the year ended March 31, 2004 compared to no such gain during the year ended March 31, 2003. The gains were from negotiated settlements with creditors to our benefit. We also recorded gains on the settlement of related party debt in the amount of $110,527 for the year ended March 31, 2004. However, debt settlements with related parties are treated as contributed surpluses in the statement of stockholders' deficit instead of the statement of operations.

Net Income from Discontinued Operations

We ceased substantially all of our operating businesses during the fiscal year ended March 31, 2003 and, as a result, combined all operating revenues and expenses related to the previous business under discontinued operations. We recorded no net income from discontinued operations for the year ended March 31, 2004, compared with a net income of $21,082 for the year ended March 31, 2003.

Net Loss for the Period

We recorded a net loss of $374,606 for the year ended March 31, 2004, compared with a net loss of $396,277 for the year ended March 31, 2003.

For the Nine Months Ended December 31, 2004 Compared to the Nine Months Ended December 31, 2003

Operating Expenses

Operating expenses rose considerably between the periods due to our increased activity compared to the prior period when we had no operations. During the nine months ended December 31, 2004, we continued drilling on the first three core holes in our multi-hole program in Coos Bay Basin of Oregon. Operating expenses consisted of consulting fees, investor relation's expenses, accounting and legal fees, stock based compensation and other general corporate expenses.

Operating expenses were $2,172,366 for the nine months ended December 31, 2004, compared with $94,3864 for the nine months ended December 31, 2003. A significant portion of the increase in expenditures was due to investor relation's expenses of $686,100 for the nine months ended December 31, 2004. Investor relations expenses consisted of fees of $600,000 for a mail distribution pursuant to an agreement to provide a shareholder awareness program and $20,000 pursuant to an agreement for public and investor relations at $5,000 per month.

We recorded $105,081 for accretion expenses related to the beneficial conversion feature on the Series B preferred shares. We are accreting the preferred stock discount over a nine month period commencing October 1, 2004.

Consulting fees were $155,287 for the nine months ended December 31, 2004, compared with $66,559 for the nine months ended December 31, 2003. During the current period, the consulting services related to the ongoing administration of our new office in Oregon for our Coos Bay project. During the comparative period in 2003, consultants were engaged to sustain our minimum operations.

Net Loss for the Period

We recorded a net loss of $2,171,340 for the nine months ended December 31, 2004, compared with a net loss of $94,386 for the nine months ended December 31, 2003.

Liquidity and Capital Resources

Our cash on hand was $105,807 as at December 31, 2004 compared to $12,621 at March 31, 2004. Our working capital deficit increased to $173,011 as at December 31, 2004, from $15,261 as at March 31, 2004.

During the nine months ended December 31, 2004, we received net proceeds of $769,025 from the issuance of common stock and net proceeds of $1,440,000 (gross proceeds of $1,650,000 less finders' fees of $165,000 and legal fees of $45,000) from the issuance of our preferred stock. This compares with no such capital proceeds during the nine months ended December 31, 2003 when we were inactive.

During the nine months ended December 31, 2004, we expended cash of $1,121,565 on our Coos Bay project. This included $305,562 in acquisition costs, including the $300,000 cash payments to GHI, $287,990 in lease costs to secure the oil and gas rights, $42,388 for the purchase of existing seismic data in Coos Bay, drilling costs of $434,915 for the drill-core program and $50,710 for geological and geophysical consulting fees. During the comparative period, we made no such investments as we were inactive.

We are not required to make any further lease payments pursuant to our oil and gas leases, until after our next year end of March 31, 2005.

We will require additional financing in order to complete our stated plan of operations for the next twelve months. We believe that we will require additional financing to carry out our intended objectives during the next twelve months. There can be no assurance, however, that such financing will be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it will be sufficient to fund our cash requirements until we can reach a level of profitable operations and positive cash flows. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern. We currently have no firm commitments for any additional capital.

To obtain funding for our ongoing operations, we entered into two Stock Purchase Agreements with two accredited investors on February 11, 2005 for the sale of 2,500,000 shares of common stock for $2,500,000. This prospectus relates to the resale of this common stock. The investors provided us with an aggregate of $2,500,000 on February 15, 2005, pursuant to the Stock Purchase Agreements. The funds from the sale of the common stock will be used for business development purposes, business acquisitions, working capital needs, pre-payment of interest, payment of consulting and legal fees and borrowing repayments.

We will still need additional investments in order to continue operations to cash flow break even. Additional investments are being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations again.

Recent Accounting Pronouncements

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This Statement is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 does not have an impact on our financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 30, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 does not have an impact on our financial statements.

In December 2003, the FASB Issued SFAS No. 132(R), a revision to SFAS No. 132, Employer's Disclosure about Pensions and Other Postretirement Benefits. SFAS No. 132(R) requires additional disclosure about assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans, SFAS No. 132(R) is effective for the financials statements with fiscal years ending after December 15, 2003, with the exception of disclosure requirements related to foreign plans and estimated future benefit payments which are effective for the fiscal years ending after June 15, 2004. The adoption of SFAS No. 132(R) does not have an impact on our financial position or results of operations.

In December, 2003 the American Institute of certified Public Accounts and the Securities and Exchange Commission (the "SEC") expressed the opinion that rate-lock commitments represent written put options, and therefore be valued as a liability. The SEC expressed that they expect registrants to disclose the effect on the financial statement of recognizing the rate-lock commitments as written put options, for quarters commencing after march 15, 2004, Additionally, the SEC recently issued Staff Accounting Bulletin (SAB) No. 105. SAB No. 105 clarifies the SEC's position that the inclusion of cash flows from servicing or ancillary income in the determination of the fair value of interest rate lock

commitments is not appropriate. We have not yet determined the impact on the financial statements of SAB No. 105, which must be implemented for loan commitments entered into on or after April 1, 2004. We are currently analyzing the impact of the SEC's position and will, if required, account for its loan origination commitments as prescribed.

In January 2003, the FASB released FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities." FIN 46 requires that all primary beneficiaries of variable interest entities consolidate that entity. FIN 46 is effective immediately for variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest it acquired before February 1, 2003. In December 2003, the FASB published a revision to FIN 46 ("FIN 46R") to clarify some of the provisions of the interpretation and to defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, entities that do not have interests in structures that are commonly referred to as special purpose entities are required to apply the provisions of the interpretation in financial statements for periods ending after March 14, 2004. We did not create a variable interest entity after January 31, 2003 and does not have a variable interest entity as of December 31, 2003. We expect that the full adoption of FIN 46R in 2004 will not have a material impact on our financial position or results of operations.

Application of Significant Accounting Policies

Cash and Cash Equivalents

Cash equivalents comprise certain highly liquid instruments with a maturity of three months or less when purchased. As at March 31, 2004 and 2003, cash and cash equivalents consist of cash only.

Accounting Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions.

Concentration of Credit Risk

We place our cash and cash equivalents with high credit quality financial institutions. As of March 31, 2004 we had no balance in a bank beyond insured limits.

Foreign Currency Transactions

We maintain our accounting records in U.S. Dollars, as follows:

At the transaction date, each asset, liability, revenue and expense is translated into U.S. dollars by the use of the exchange rate in effect at that date. At the period end, monetary assets and liabilities are remeasured by using the exchange rate in effect at that date. The resulting foreign exchange gains and losses are included in operations.

Fair Value of Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts payable and accrued liabilities and promissory notes. The carrying amount of accounts payable and accrued liabilities approximates fair value due to the short-term nature of these items. The promissory notes also approximate fair value based on evaluations of market interest rates and short-term nature of the payable.

Income Taxes

We have adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which requires us to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in our financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

Comprehensive Income

We adopted SFAS No. 130, "porting Comprehensive Income" which requires inclusion of foreign currency translation adjustments, reported separately in its Statement of Stockholders' Equity, in other comprehensive income. We had no other comprehensive income for the year ended March 31, 2004.

Advertising Expenses

We expense advertising costs as incurred. There were no advertising expenses incurred by us for the years ended March 31, 2004 and 2003.

Loss Per Share

Loss per share is computed using the weighted average number of shares outstanding during the year. We have adopted SFAS No. 128, "Earnings Per Share". Diluted loss per share is equivalent to basic loss per share as the stock options to acquire common shares as disclosed in the notes are anti-dilutive.

Stock-based Compensation

We have adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-based Compensation", as amended by SFAS No. 148 "Accounting for Stock-based Compensation - Transition and Disclosure - An amendment of SFAS No. 123". SFAS No. 123 encourages, but does not require, companies to adopt a fair value based method for determining expense related to stock-based compensation. We account for stock-based compensation issued to employees and directors using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. We initiated a 2004 Non-Qualified Stock Option Plan. During the year ended March 31, 2004, we granted 1,060,000 stock options to non-employees.

Goodwill and Intangible Assets

Goodwill represents the excess of cost over fair value of assets of business acquired. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment at lest annually in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.

Accounting for Derivative Instruments and Hedging Activities

We have adopted Statement of Financial Accounting Standards No. 133 (SFAS 133) Accounting for Derivative and Hedging Activities, which requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain and loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. We have not entered into derivative contracts either to hedge existing risks or for speculative purposes.

Long-Lived Assets Impairment

Our long-term assets are reviewed when changes in circumstances require as to whether their carrying value has become impaired, pursuant to guidance established in Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets. Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from the related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value.

BUSINESS

OVERVIEW

We are an exploration stage company engaged in the exploration of coalbed methane in the Coos Bay region of Oregon. Through our wholly owned subsidiary, Methane Energy Corp., we hold leases to approximately 60,000 acres of prospective coalbed methane lands in the Coos Bay region. Methane Energy operates the exploration project in the Coos Bay region.

Organizational/Historical Background

We were formed by the merger of Scarab Systems, Inc., a Nevada corporation into iRV, Inc., a Colorado corporation. Scarab Systems, Inc. was a privately owned Nevada corporation that was incorporated on October 8, 2001. The effective date of the merger transaction between Scarab Systems, Inc. and iRV, Inc. was July 17, 2002. Subsequent to completion of the reorganization, Scarab Systems, Inc. transferred all its assets and liabilities to iRV, Inc. and ceased operations. The directors and executive officers of iRV, Inc. were subsequently reconstituted. iRV, Inc. and changed its name to Scarab Systems, Inc. on March 24, 2003. We were initially providing services to the e-commerce industry but ceased all activity in the e-commerce industry by the end of the fiscal year ended March 31, 2003.

On January 30, 2002, we were given two options in fiscal year 2002 to acquire all the issued and outstanding shares of 485017 B.C. Ltd., a British Columbia company doing business as MarketEdge Direct, as security against a subscription receivable of $337,500 for 675,000 shares from the shareholders of MarketEdge Direct. MarketEdge Direct was in the business of providing a wide range of marketing products and services. Effective August 7, 2002, we exercised both of the options and acquired all the issued and outstanding shares of MarketEdge Direct. Due to disappointing financial results of MarketEdge Direct, on March 28, 2003, we entered into an agreement with the former shareholders of MarketEdge Direct to sell MarketEdge Direct back to them. As a result, all the issued and outstanding shares of MarketEdge Direct that we acquired were sold back to the former MarketEdge Direct shareholders for the return to treasury of 540,000 of our common shares.

On March 28, 2003, we acquired all the issued and outstanding shares of Catalyst Technologies, Inc., a British Columbia corporation. Catalyst is a Vancouver based, web design and Internet application developer. Catalyst specializes in the development of web-sites and Internet software design, primarily for the Health and Nutraceutical industry. The acquisition of Catalyst was treated as a non-material business combination in the fiscal year 2003 and we abandoned Catalyst during the fiscal year ended March 31, 2004 due to a lack of working capital and disappointing financial results.

On April 30, 2004, we incorporated an Oregon subsidiary company named Methane Energy Corp. in anticipation of acquiring oil and gas properties in the State of Oregon. On May 11, 2004, Methane Energy entered into a Lease Purchase and Sale Agreement with GeoTrends-Hampton International LLC to purchase GeoTrends-Hampton International’s undivided working interest in certain oil and gas leases for the Coos Bay Basin prospect located onshore in the Coos Bay Basin of Oregon. To acquire these oil and gas leases, we paid a total of $300,000 in cash and will issue 1,800,000 restricted common shares in three performance-based tranches. The Lease and Sale Agreement closed on June 22, 2004. On closing, we paid $100,000 of the cash and issued 600,000 of our common shares. We have since paid the remaining $200,000 so that the cash consideration is fully paid and have issued an additional 600,000 shares pursuant to the second tranche. A third tranche of 600,000 common shares will be issued if and when certain conditions are fulfilled.

Pursuant to the GeoTrends-Hampton International Agreement, we acquired leases of certain properties in the Coos Bay area of Oregon which are prospective for oil and gas exploration. Leases were acquired from the State of Oregon and from property owners, and we have amassed approximately 60,000 acres under lease. We are pursuing the leasing of additional properties in the Coos Bay area. As a result of this change in the focus of the business and pursuant to shareholder approval on July 13, 2004, we changed our name from Scarab System, Inc. to Torrent Energy Corporation.

New Business Plan

COOS BAY BASIN EXPLORATION PROSPECT

The Coos Bay Basin is located along the Pacific coast in southwestern Oregon, approximately 200 miles south of the Columbia River and 80 miles north of the California border. The onshore portion of the Coos Bay Basin is elliptical in outline covering over 250 square miles. We estimate that up to 100,000 acres in the Coos Bay Basin are potentially prospective for coalbed methane and conventional natural gas production. The leases we acquired include oil and gas leases, lease option agreements or other exploration commitments covering over 50,000 net mineral acres within the primary Coos Bay Basin Exploration Prospect area of mutual interest. We are also exploring lease commitments for additional acres and have identified specific leasehold ownership falling within the Coos Bay Basin exploration prospect area, although we currently do not have any contracts to lease additional acreage, nor are we certain we will be able to do so. Access to virtually all areas in Coos County is excellent year-round via logging and fire control roads maintained by the Forest Service or the timber industry. Likewise, numerous potential drill-site locations are already constructed as timber recovery staging areas and available to be utilized in the initial testing phase of the drilling program. The Coos Bay Basin is basically a structural basin formed by folding and faulting that preserves a portion of coal-bearing sediments that were deposited in this swampy coastal plain. The coal-bearing sandstones and siltstones of the Upper Eocene Coaledo formation are estimated to form a section approximately 6,600 feet thick.

On October 6, 2004, we signed a Drilling Services Agreement with a Utah based drilling company which has extensive drilling and consulting experience in coalbed methane in order to commence a six hole coring program on our leases. The six hole coring program is expected to commence in November and take approximately two to three weeks per hole in order to properly complete the coring and sampling process. The analysis of the coring samples should be complete within sixty days of the entire coring program being finished. The six locations were chosen in order to further confirm and delineate the gas content data in the Coos County coal beds and to assist us in determining the positioning of our potential pilot test well programs anticipated next year.

Natural Gas Market

The port of Coos Bay is one of the largest population centers on the west coast not currently served by natural gas. A project to bring natural gas into the region via pipeline has been approved and funded by the County of Coos. The pipeline is currently under construction. A local distribution company serving this market has already constructed the mains and many services in this area. Estimates of initial requirements are over 10 million cubic feet of gas per day, approximately 20% of pipeline capacity.

Coos County is also likely to benefit from new industrial development when natural gas becomes available. Expansion of the market is likely to bring greater demand for and value to natural gas. Because of its west coast location, Coos Bay market prices would be subject to NYMEX pricing standards for most of the year. However, seasonal or critical gas demand fluctuations could cause prices to exceed that price on a regular basis.

Exploration Objectives

The Coos Bay Basin is the southernmost of a series of sedimentary basins that are present in western Oregon and Washington and southwestern British Columbia west of the Cascade Range. The region containing this series of basins is generally referred to as Puget-Willamette Trough. These basins preserve thick sequences of predominantly non-marine, coal-bearing sedimentary rock sequences that are correlative in age, closely related in genesis, and very similar in most characteristics. In a hydrocarbon exploration sense, some of the most relevant characteristics of individual basins within the Puget-Willamette Trough include:

1.	Commercial natural gas production from the Mist Gas Field in northwestern Oregon operated by Northwest Natural Gas;

2.	Underground natural gas storage in the Jackson Prairie Gas Storage Field in southwestern Washington operated by Puget Sound Energy, utility and pipeline interests; and

3.	Ongoing coalbed methane exploration by major and independent companies in western Washington and British Columbia.

PREVIOUS COALBED METHANE EXPLORATION WELLS IN COOS BAY REGION

The following sections contain data and information obtained from two coalbed methane exploration wells drilled in late 1993 in the Coos Bay region. These data and information are historical and isolated facts obtained from these two exploration wells and are not indicative of such things as mineral resources and reserves, the amount and nature of any coalbed methane resource; plans for exploration and development; prices for mineral or coalbed methane products, timing and amount of future production; operating and other costs, business strategies and plans of management, and prospective development and acquisitions. Variation of coalbed methane content and the degree of gas saturation often varies across a coalbed methane prospect. The Coos Bay Basin exploration prospect carries risks commensurate with an exploration play and could require several years to reach commercial production, if the amount and nature of the coalbed methane resources warrant such production. The success of the Coos Bay Basin exploration prospect is subject to risks, uncertainties and other factors. Please see "Risk Factors."

Coal Geology & Characteristics

Coalbeds in the Coos Bay Basin are contained in 2 major groups: the upper member of the Coaledo formation where six important coal zones are spread over intervals of 600 to 1,000 feet. The Beaver Hill coalbed is typical in the series and is 6-8 feet thick; and the lower member of the Coaledo formation where at least seven important coal zones are included. In October of 1993, two coalbed methane exploration wells were drilled in the Coos Bay Basin: CCF 7-1 well and WNS MT 32-1 well. The CCF 7-1 well penetrated 9 major coal zones totaling approximately 76 net feet of coal. The WNS MT 32-1 well penetrated 6 major coal zones with a total thickness of 46 net feet.

Indications of Permeability

Several positive indications of permeability were observed during the drilling phase of the CCF 7-1 well. Drilled partially with air and completed using cavitation techniques, several flow tests were conducted and yielded estimated flow rates of 200 to 225 thousand cubic feet per day of natural gas from intervals dominated by coal seams.

Initial Production Testing Results

A short period of production testing was conducted on both wells following completion. Traditional pump jack and plunger pump configurations were set up on both wells. Both wells produced gas and water throughout the testing with gas rates estimated to be 25 to 100 thousand cubic feet per day, which is similar to other initial tests in coalbed methane production areas elsewhere in the U.S.

Testing of the CCF 7-1 well was confined to several coal zones in the cased portion of the well several hundred feet above the targeted coal zones. As a result of an unstable downhole environment created by cavitation operations, plugging of the production liner, and loss of a drilling assembly in the targeted interval, the greater portion of the targeted section was not tested.

Water Disposal

Water produced from drilling and testing operations was of suitable quality for surface discharge and was applied to forest lands.

Data Resources

The Coos Bay Basin has been the subject of geologic mapping and studies for many years. Historically, the coal from the Coos Bay basin was mined and shipped to San Francisco in the late 1800’s and early 1900’s. Since then several companies such as Sumitomo, Shell and American Coal Company have done feasibility studies on the Coos Bay basin, however there are no active coal mines in the area. There has also been approximately twenty exploratory oil and/or gas wells done in the Coos Bay basin over the years from 1929 to 1993. Most of the information from these wells and

feasibility studies is available to the public.

We have licensed proprietary seismic information, created in the late 1970’s and early 1980’s. We intend to reprocess this seismic data in order to assist in our exploratory drilling plans.

Specific and detailed information and reports regarding the drilling, completion, stimulation, testing, and subsequent analysis of the data generated by the initial coalbed methane exploration operations have also been acquired by us under the Purchase and Sale Agreement.

THE COALBED METHANE INDUSTRY

During the past two decades, coalbed methane has emerged as a viable source of natural gas compared to the late 1980s when there was no significant production outside of the still dominant San Juan Basin, in northwestern New Mexico, and the Black Warrior Basin in Alabama and Mississippi. As noted in USGS Fact Sheet FS-123-00 of October 2000, coalbed methane production accounted for 7% of US natural gas production or approximately 3.6 billion cubic feet (Bcf) of gas per day or an annual 1.35 trillion cubic feet of gas from over 14,000 producing wells. However, none of this production of natural gas occurs in the state of Oregon and the closest source of natural gas production to the Coos Bay region is in Wyoming.

We believe the success of coalbed methane developments has been largely the result of improved drilling and completion techniques, better hydraulic fracture designs and significant cost reductions as a result of highly dependable gas content and coalbed methane reservoir performance analysis. Also aiding this sector’s growth is the apparent shortage of quality domestic conventional exploration and development projects. In comparison, according to USGS Fact Sheet FS-123-00 of October 2000, total "unconventional" coalbed methane resource across America’s 25 basins (lower US) is estimated to be roughly 700 trillion cubic feet of which 14% or 100 trillion cubic feet is considered technically recoverable with existing technology. Technically recoverable gas volumes do not necessarily qualify as proved reserves and we do not have any proved coalbed methane reserves at this time. We also believe that propelling the coalbed methane production growth is its relatively low finding and development costs. Coalbed methane fields are often found where deeper conventional oil and gas reservoirs have already been developed, therefore, considerable exploration-cost-reducing geologic information is often readily available. This available geological information, combined with coalbed methane reservoirs' comparatively shallow locations, reduces finding and developing costs.

COALBED METHANE

Natural gas normally consists of 80% or more methane with the balance comprising such hydrocarbons as butane, ethane and propane. In some cases it may contain minute quantities of highly poisonous hydrogen sulfide, referred to as sour gas. Coalbed methane is, generally, a sweet gas consisting of 95% methane and thus is normally of pipeline quality. Coalbed methane is considered an unconventional natural gas resource because it does not rely on conventional trapping mechanisms, such as a fault or anticline, or stratigraphic traps. Instead coalbed methane is absorbed or attached to the molecular structure of the coals - an efficient storage mechanism as coalbed methane coals can contain as much as seven times the amount of gas typically stored in a conventional natural gas reservoir such as sandstone or shale. The absorbed coalbed methane is kept in place as a result of a pressure equilibrium often from the presence of water. Thus the production of coalbed methane in many cases requires the dewatering of the coals to be exploited. This process usually requires the drilling of adjacent wells and from 6 to 36 months to complete. Coalbed methane production typically has a low rate of production decline and an economic life typically from 10 to 20 years.

The principal sources of coalbed methane are either biogenic, producing a dry gas which is generated from bacteria in organic matter, typically at depths less than 1,000 feet, or thermogenic, which is a deeper wet gas, formed when organic matter is broken down by temperature and pressure.

The three main factors that determine whether or not gas can be economically recovered from coalbeds are: the gas content of the coals; the permeability or flow characteristics of the coals; and, the thickness of the coalbeds. Gas content is measured in terms of standard cubic feet per ton and varies widely from 430 standard cubic feet per ton in the deep (2,000 to 3,500 feet) San Juan, New Mexico thermogenic coals, and only 60 standard cubic feet per ton for the shallow (300 to 700 feet deep) Powder River, Wyoming biogenic coals. The San Juan coals are considered to have the industry's highest permeability. Relatively high permeability, which can affect the ability of gas to easily travel to the borehole, is an important factor for the success of coalbed methane well, but is not absolutely required. The thickness of coalbeds from which coalbed methane is economically being produced varies from as little as a few feet in some areas of the gas rich (300

standard cubic feet) Raton Basin to as much as 75 net feet of coalbed thickness at the relatively gas poor Powder River.

COMPETITORS

The three largest coalbed methane producers in the United States’ lower 48 states are BP Amoco, Burlington Resources and Phillips Petroleum, all producing most of their production from the now-in-decline San Juan basin. Even though it ranks fourth in terms of natural gas production, a leading coalbed methane participant in terms of growth and technology is Devon Energy. Devon Energy is aggressively expanding coalbed methane production in the Powder River Basin located in Wyoming and Montana and Raton Basin located in Colorado and has coalbed methane production in the San Juan Basin located in New Mexico and Wind River Basin located in Wyoming. Devon is also developing the coalbed methane potential of southeastern Kansas where it has amassed over 400,000 acres. Its project is centered in Cherokee Basin, that is the southern end of the coalbed methane fairway.

Other companies are also active in the coalbed methane fairway, including Anadarko Petroleum Corporation, JM Huber Corporation, Evergreen Resources, Inc. and Whiting Petroleum. In addition, there are dozens of smaller public and private companies engaging in exploratory drilling and testing for coalbed methane.

GOVERNMENTAL REGULATIONS

Our oil and gas operations are subject to various United States federal, state and local governmental regulations. Matters subject to regulation include discharge permits for drilling operations, drilling and abandonment bonds, reports concerning operations, the spacing of wells, and pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve supplies of oil and gas. The production, handling, storage, transportation and disposal of oil and gas, by-products thereof, and other substances and materials produced or used in connection with oil and gas operations are also subject to regulation under federal, state, provincial and local laws and regulations relating primarily to the protection of human health and the environment. To date, expenditures related to complying with these laws, and for remediation of existing environmental contamination, have not been significant in relation to the results of operations of our company. The requirements imposed by such laws and regulations are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations.

RESEARCH AND DEVELOPMENT

Our business plan is focused on a strategy for maximizing the long-term exploration and development of our drilling and exploration in the Coos Bay, Oregon region. To date, execution of our business plan has largely focused on acquiring prospective Coalbed Methane leases from which we intend to establish a going forward exploration and development plan.

EMPLOYEES

At September 14, 2004, we had one non-union, full time employee, who is an executive. We consider our relations with our employee to be good.

DESCRIPTION OF PROPERTIES

We maintain our principal office at 600-666 Burrard Street, Vancouver, British Columbia, Canada V6C 2X8. Our telephone number at that office is (604) 639-3118 and our facsimile number is (604) 688-1320. Mark Gustafson, our President, provides the office space, which is provided to us free of charge. The office space consists of a single office of approximately 225 square feet. In addition, our subsidiary leases an office at 271 North Baxter, Coquille, Oregon 97423. The lease runs from July 1, 2004 through June 30, 2005 at a cost of $700 per month. The Oregon office is approximately 4,000 square feet, and consists of three offices, a conference room and storage space.

We believe that our current office space and facilities are sufficient to meet our present needs and do not anticipate any difficulty securing alternative or additional space, as needed, on terms acceptable to us.

Through our subsidiary, we lease approximately 60,000 acres in the Coos Bay Region. 13,000 acres are leased from Menasha Development Corporation, 29,000 acres from Coos County, 11,000 acres from the State of Oregon, and approximately 7,000 acres from various individual landowners. The total annual lease payments are approximately $73,000 per year. These leases typically have a five-year lease term with an option for an additional 5 years. In addition,

we have granted the lease holders royalties, typically averaging 12.5%, on gross sales resulting from the leases.

LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Name	Age	Position

Mark Gustafson	45	President and Director
John D. Carlson	50	Director
George L. Hampton III	51	Director

Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Currently there are three seats on our board of directors.

Currently, our Directors are not compensated for their services, although their expenses in attending meetings are reimbursed. Officers are elected by the Board of Directors and serve until their successors are appointed by the Board of Directors. Biographical resumes of each officer and director are set forth below.

Mark Gustafson has been our President and a Director since September 2004. Between April 1999 and August 2004, Mr. Gustafson has been President of MGG Consulting, a private consulting firm. While at MGG Consulting, Mr. Gustafson provided consulting services to investment banks, oil and gas companies, and was a consultant Chief Financial Officer to several private companies. From August 1997 until March 1999, Mr. Gustafson was the President, Chief Executive Officer and a Director of Total Energy Services Ltd., a Calgary-based oilfield rental and gas compression company. Mr. Gustafson is a chartered accountant and received a bachelor’s degree in business administration from Wilfrid Laurier University in 1981.

John D. Carlson has been a director since June 2004. From February 2004, to July 2004, Mr. Carlson was the President and a Director of Pacific Rodera Ventures Inc., a Calgary-based oil and gas exploration and development company. From September 2003, Mr. Carlson has been the Vice President – Operations for Pacific Rodera Ventures Inc. From September 2001 until December 2003, Mr. Carlson was the President of Samson Oil and Gas Inc., a Hobbema, Alberta-based oil and gas exploration and development company. Between January 2001 and August 2001, Mr. Carlson was the General Manager of Samson Oil and Gas Inc., a Hobbema, Alberta-based oil and gas exploration and development company. Between 1984 and 2000, Mr. Carlson was an Associate and Senior Petroleum Engineer for Sproule Associates, Ltd., Mr. Carlson is a registered professional engineer and received a bachelor of science degree in civil engineering from the University of Calgary in 1977.

George L. Hampton III has been a director since August 2004. Between 1994 and 1997, and from 2000 until the present, Mr. Hampton has been a partner in Geo-Trends, Hampton International, LLC, a coalbed methane exploration company based out of the Pacific Northwest. From 1998 until the present, Mr. Hampton has been a member and geologic consultant for Hampton, Waechter & Associates, LLC, a Denver, Colorado-based geological company. Since June 1986 until the present, Mr. Hampton has been the President and Chief Geological Consultant for Hampton & Associates, Inc., a Denver, Colorado-based coalbed methane exploration company. Between April 1998 and April 1999, Mr. Hampton was the Project Manager and Senior Geologist for Pennaco Energy Corporation, a Denver, Colorado-based coalbed methane exploration company. Between 1996 and 1997, Mr. Hampton was the Chief Geologist for Thermal Energy Corporation, a Tulsa, Oklahoma-based coalbed methane exploration company. Between 1995 and 2001, Mr. Hampton was the founding partner and technical manager of Cairn Point Publishing, Inc., a Denver, Colorado-based publishing company that published International Coal Seam Gas Directory (1996) and The International Coal Seam Gas Report (1997). Mr. Hampton has written or co-written a half-dozen articles on coalbed methane exploration and has provided testimony before several state oil and gas commissions. Mr. Hampton received a bachelor of science degree in geology from Brigham

Young University in 1977 and a Masters degree in geology from Brigham Young University in 1979.

EXECUTIVE COMPENSATION

The following tables set forth certain information regarding our CEO and each of our most highly-compensated executive officers whose total annual salary and bonus for the fiscal year ending March 31, 2004, 2003 and 2002 exceeded $100,000:

Name & Principal Position

Year

Salary
($)

Bonus
($)

Other Annual Compen-sation

Restricted Stock Awards ($)

Options
SARs
(#)

LTIP
Payouts
($)

All Other Compen-
sation

Thomas E. Mills

President (from 2002 to September 2004)⁽²⁾

2004

2003

2002

19,804⁽¹⁾

22,930⁽¹⁾

25,830⁽¹⁾

⁽¹⁾ The other annual compensation represents consulting fees. In February 2004, Mr. Mills released us of all debt resulting from the accrued consulting fees during fiscal years 2003 and 2004.

⁽²⁾ On December 1, 2004, we entered into a consulting agreement with MGG Consulting to provide for services as the Chief Executive Officer and acting Chief Financial Officer. We are committed to pay $8,000 per month unless terminated at any time by either party upon written notice. Effective January 1, 2005 the contract was revised to pay MGG Consulting the sum of $1,000 per day. MGG Consulting is wholly owned by Mark Gustafson, President, Chief Executive Officer, acting Chief Financial Officer and a director since September 2004.

Option/SAR Grants in Last Fiscal Year

During the fiscal year ended March 31, 2004, no stock or stock options were granted.

Stock Option Plans

2004 Non-Qualified Stock Option Plan

In February 2004, the Board of Directors authorized the 2004 Non-Qualified Stock Option Plan for our executive, employees and outside consultants and advisors. Under the Plan, executives, employees and outside consultants and advisors may receive awards of non-qualified stock options. A maximum of 1,800,000 shares of our common stock is subject to the Plan. As of September 15, 2004, 1,800,000 stock options have been granted to officers, directors and consultants under the Plan to purchase 1,800,000 shares of our common stock. As at December 31, 2004, we had 200,000 stock options outstanding under the Plan with an exercise price of $0.50. There are no further stocks options eligible to be granted under the Plan. The purpose of the Plan is to provide executives, employees and non- employee consultants and advisors with an increased incentive to make contributions to us.

2005 Equity Incentive Plan

Employment Agreements

None.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Other than as disclosed below, there have been no transactions, or proposed transactions, which have materially affected or will materially affect us in which any director, executive officer or beneficial holder of more than 10% of the outstanding common stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest.

During the quarter ended December 31, 2004, we received proceeds of $80,000 pursuant to a shareholder loan from Ettinger Investment Corp. The loan was to be repaid by January 22, 2005 or we would be required to pay interest at 12% per annum in respect of the loan. If the loan was repaid prior to January 22, 2005, the loan would bear no interest. On January 17, 2005, we repaid the shareholder in full with no interest.

On March 15, 2003, we issued to our previous President, Thomas E. Mills, an unsecured promissory note in the amount of $40,000 bearing interest at the rate of twenty percent per year, that was due and payable on March 15, 2004. The note was issued in respect of $40,000 advanced on behalf of us by Mr. Mills. The Board of Directors convened to evaluate the fairness of the promissory note without the benefit of advice from any third party or reference materials. It was resolved by the Board of Directors (Mr. Mills abstaining) that the promissory note was fair and further that we should issue the promissory note to Mr. Mills. On February 2, 2004, the $40,000 unsecured promissory note, along with $11,000 in accrued interest, was converted into 510,000 shares of our common stock at a price per share of $0.10.

Over the year ended March 31, 2004, we incurred consulting fees in the amount of $59,413. The consulting fees were charged to Thomas E. Mills, Lou Hilford and John Allen, our previous directors and officers. During February 2004, all of the aforementioned consulting fees, which were previously accrued, were released by the respective individuals for the purpose of improving our working capital position.

We have no policy regarding entering into transactions with affiliated parties.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial ownership of our common stock as of March 22, 2005.

•	by each person who is known by us to beneficially own more than 5% of our common stock;
•	by each of our officers and directors; and
•	by all of our officers and directors as a group.

Name and Address of Owner	Title of Class	Number of Shares Owned⁽¹⁾	Percentage of Class Prior to Offering⁽²⁾	Percentage of Class After Offering ⁽³⁾

Mark Gustafson 600-666 Burrard Street Vancouver, BC, Canada V6C 2X9	common stock	477,500⁽⁴⁾	2.28%	2.28%

John D. Carlson Box 13, Site 8, RR #1 Priddis, AB T0L 1W0	common stock	122,500⁽⁵⁾	<1%	<1%

George L. Hampton III 11 Inverness Way South Englewood, CO 80112	common stock	972,500⁽⁶⁾	4.63%	4.63%

All Officers and Directors As a Group (3 persons)	common stock	1,572,500⁽⁷⁾	7.49%	7.49%

⁽¹⁾ Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission

and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of September 10, 2004 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.

⁽²⁾ Based upon 20,984,966 shares issued and outstanding on March 22, 2005.

⁽³⁾ Percentage based on 20,984,966 shares of common stock outstanding.

⁽⁴⁾ Includes 100,000 options currently exercisable.

⁽⁵⁾Includes 72,500 options currently exercisable.

⁽⁶⁾ Includes 72,500 options currently exercisable and 900,000 shares owned by GeoTrends Hampton International, LLC, of which Mr. Hampton is a 50% owner.

⁽⁷⁾ Includes 245,000 options currently exercisable.

DESCRIPTION OF SECURITIES

COMMON STOCK

We are authorized to issue up to 100,000,000 shares of common stock, par value $0.001 and up to 5,000 Convertible Series B Preferred Stock, par value $0.001. As of March 22, 2005, there were 20,984,966 shares of common stock outstanding. Holders of the common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor. Upon the liquidation, dissolution, or winding up of our company, the holders of common stock are entitled to share ratably in all of our assets which are legally available for distribution after payment of all debts and other liabilities and liquidation preference of any outstanding common stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of common stock are validly issued, fully paid and nonassessable.

We have engaged Computershare Trust Company, Inc., 350 Indiana Street, Suite 800, Golden, Colorado, as independent transfer agent and registrar.

PREFERRED STOCK

We are authorized to issue up to 25,000,000 shares of Preferred Stock, par value $0.01. As of March 22, 2005, there were 1,700 shares of Series B Convertible Preferred Stock issued and outstanding.

The Series B Convertible Preferred Stock is entitled to cumulative dividends of 5% per annum and are convertible into our common stock, at the selling stockholders' option and subject to a maximum cap of $250,000 worth of Series B Convertible Preferred Stock in any 30 day calendar period, into the number of our shares of common stock equal to the sum of (i) the liquidation amount of the Series B Convertible Preferred Stock, plus (ii) all accrued but unpaid dividends, which is then divided by the conversion price then in effect. The liquidation amount of the Series B Convertible Preferred Stock is equal to $1,000 per share of Series B Convertible Preferred Stock. The conversion price for the Series B Convertible Preferred Stock is the lesser of (i) $1.20 or 80% of the volume weighted average price of the common stock on a principal market for the 10 trading days before but not including the conversion date. In addition, the conversion price of the Series B Convertible Preferred Stock will be adjusted in the event that we issue common stock at a price below the fixed conversion price, below market price, with the exception of any securities issued in connection with the Investment Agreement. The conversion price of the Series B Convertible Preferred Stock may be adjusted in certain circumstances such as if we pay a stock dividend, subdivide or combine outstanding shares of common stock into a greater or lesser number of shares, or take such other actions as would otherwise result in dilution of the selling stockholder’s position. The selling stockholders have contractually agreed to restrict their ability to convert and receive shares of our common stock such that the number of shares of common stock held by them and their affiliates after such conversion does not exceed 4.99% of the then issued and outstanding shares of common stock. In addition, we have granted the investors a security interest in substantially all of our assets and intellectual property and registration rights.

OPTIONS

There are 200,000 options issued and outstanding. The options were issued on August 3, 2004 to officers, directors and consultants pursuant to our stock option plan. The options have a term of five years and are exercisable at $0.50 per option and 25% of the options vested upon issuance, 25% of the options vested on December 31, 2004 with an additional 25% vesting on each of June 30, 2005 and December 31, 2005.

WARRANTS

We currently have 328,571 warrants issued and outstanding, exercisable at $0.50 and $0.55.

CONTRACTUAL SHARE ISSUANCE

We have an obligation to issue 600,000 common shares pursuant to an asset purchase agreement if certain conditions are fulfilled.

CONVERTIBLE SECURITIES

None.

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

According to our Articles of Incorporation, as amended, and as provided to the fullest extent permitted by Colorado law, our directors or officers shall not be personally liable to us or our shareholders for damages for breach of such director’s or officer’s fiduciary duty. The effect of this provision of our Articles of Incorporation, as amended, is to eliminate our rights and our shareholders (through shareholders’ derivative suits on behalf of our company) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. We believe that the indemnification provisions in our Articles of Incorporation, as amended, are necessary to attract and retain qualified persons as directors and officers.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act" or "Securities Act") may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

PLAN OF DISTRIBUTION

The selling stockholders and any of their respective pledgees, donees, assignees and other successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

•		ordinary brokerage transactions and transactions in which the broker-dealer solicits the purchaser;
•	block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
•		purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
•		an exchange distribution in accordance with the rules of the applicable exchange;
•		privately-negotiated transactions;
•		short sales that are not violations of the laws and regulations of any state or the United States;
•	broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
•		through the writing of options on the shares;
•		a combination of any such methods of sale; and
•		any other method permitted pursuant to applicable law.

The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than

under this prospectus. The selling stockholders shall have the sole and absolute discretion not to accept any purchase offer or make any sale of shares if they deem the purchase price to be unsatisfactory at any particular time.

The selling stockholders may also engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades.

The selling stockholders or their respective pledgees, donees, transferees or other successors in interest, may also sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling stockholders and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a particular broker-dealer might be in excess of customary commissions. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible that a selling stockholder will attempt to sell shares of common stock in block transactions to market makers or other purchasers at a price per share which may be below the then market price. The selling stockholders cannot assure that all or any of the shares offered in this prospectus will be issued to, or sold by, the selling stockholders. The selling stockholders and any brokers, dealers or agents, upon effecting the sale of any of the shares offered in this prospectus, may be deemed to be "underwriters" as that term is defined under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or the rules and regulations under such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

We are required to pay all fees and expenses incident to the registration of the shares, including fees and disbursements of counsel to the selling stockholders, but excluding brokerage commissions or underwriter discounts.

The selling stockholders, alternatively, may sell all or any part of the shares offered in this prospectus through an underwriter. No selling stockholder has entered into any agreement with a prospective underwriter and there is no assurance that any such agreement will be entered into.

The selling stockholders may pledge their shares to their brokers under the margin provisions of customer agreements. If a selling stockholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares. The selling stockholders and any other persons participating in the sale or distribution of the shares will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations under such act, including, without limitation, Regulation M. These provisions may restrict certain activities of, and limit the timing of purchases and sales of any of the shares by, the selling stockholders or any other such person. In the event that the selling stockholders are deemed affiliated purchasers or distribution participants within the meaning of Regulation M, then the selling stockholders will not be permitted to engage in short sales of common stock. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and certain other activities with respect to such securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. In regards to short sells, the selling stockholder can only cover its short position with the securities they receive from us upon conversion. In addition, if such short sale is deemed to be a stabilizing activity, then the selling stockholder will not be permitted to engage in a short sale of our common stock. All of these limitations may affect the marketability of the shares.

We have agreed to indemnify the selling stockholders, or their transferees or assignees, against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments the selling stockholders or their respective pledgees, donees, transferees or other successors in interest, may be required to make in respect of such liabilities.

If the selling stockholders notify us that they have a material arrangement with a broker-dealer for the resale of the common stock, then we would be required to amend the registration statement of which this prospectus is a part, and file a prospectus supplement to describe the agreements between the selling stockholders and the broker-dealer.

PENNY STOCK

•		that a broker or dealer approve a person's account for transactions in penny stocks; and
•	the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

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

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

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

•	sets forth the basis on which the broker or dealer made the suitability determination; and
•	that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

SELLING STOCKHOLDERS

The table below sets forth information concerning the resale of the shares of common stock by the selling stockholders. We will not receive any proceeds from the resale of the common stock by the selling stockholders. Assuming all the shares registered below are sold by the selling stockholders, none of the selling stockholders will continue to own any shares of our common stock.

The following table also sets forth the name of each person who is offering the resale of shares of common stock by this prospectus, the number of shares of common stock beneficially owned by each person, the number of shares of common stock that may be sold in this offering and the number of shares of common stock each person will own after the offering, assuming they sell all of the shares offered.

Name	Common Stock Owned By Selling Stockholders	Total Common Stock Registered Pursuant to this Offering	Beneficial Ownership After this Offering⁽¹⁾	Percentage of Common Stock Owned After this Offering⁽¹⁾

Placer Creek Partners, L.P.⁽²⁾ c/o Wellington Management Company, LLP 75 State Street Boston, MA 02109	1,480,000	1,480,000	--	--

Placer Creek Investors (Bermuda) L.P^.(2) c/o Wellington Management Company, LLP 75 State Street Boston, MA 02109	1,020,000	1,020,000	--	--

⁽¹⁾ Assumes that all securities registered will be sold.

⁽²⁾ As the investment advisor to Placer Creek Partners L.P. and Placer Creek Investors (Bermuda) L.P., Wellington Management Company, LLP shares voting power and investment discretion with these selling stockholders.

We may require the selling stockholder to suspend the sales of the securities offered by this prospectus upon the occurrence of any event that makes any statement in this prospectus or the related registration statement untrue in any material respect or that requires the changing of statements in these documents in order to make statements in those documents not misleading.

LEGAL MATTERS

Clark Wilson LLP, Vancouver, British Columbia, Canada, will issue an opinion with respect to the validity of the shares of common stock being offered hereby.

EXPERTS

Moore Stephens Ellis Foster Ltd., Chartered Accountants, independent registered public accounting firm, have audited, as set forth in their report thereon appearing elsewhere herein, our financial statements at March 31, 2004 and 2003 and for the years then ended that appear in the prospectus. The financial statements referred to above are included in this prospectus with reliance upon the independent registered public accounting firm’s opinion based on their expertise in accounting and auditing.

INDEX TO FINANCIAL STATEMENTS

TORRENT ENERGY CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

For the Years Ended March 31, 2004 and March 31, 2003

Report of Independent Registered Public Accounting Firm	F-1
Balance Sheet	F-2
Statement of Deficiency in Stockholders Equity	F-3
Statement of Operations	F-5
Statement of Cash Flows	F-6
Notes to Financial Statements	F-7 to F-18

For the Nine Months Ended December 31, 2004 and December 31, 2003

Consolidated Balance Sheets December 31, 2004 (Unaudited) and March 31, 2004	F-19
Consolidated Statement of Changes in Stockholders’ Deficiency (Unaudited)	F-20
Consolidated Statements of Operations (Unaudited)	F-21
Consolidated Statements of Cash Flows (Unaudited)	F-22
Notes to the Consolidated Financial Statements (Unaudited)	F-23 to F-33

MOORE STEPHENS ELLIS FOSTER LTD.

CHARTERED ACCOUNTANTS

1650 West 1^st Avenue

Vancouver, BC Canada V6J 1G1

Telephone: (604) 734-1112 Facsimile: (604) 714-5916

Website: www.ellisfoster.com

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders

SCARAB SYSTEMS, INC.

(A development stage enterprise)

We have audited the balance sheets of Scarab Systems, Inc. (the “Company”) (a development stage enterprise) as at March 31, 2004 and 2003, the related statements of stockholders’ deficit from October 8, 2001 (inception) to March 31, 2004 and the statements of operations and cash flows for the years ended March 31, 2004, 2003 and from October 8, 2001 (inception) to March 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2004 and 2003 and the results of its operations and cash flows for the years ended March 31, 2004, 2003 and from October 8, 2001 (inception) to March 31, 2004 in conformity with generally accepted accounting principles in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has not generated any revenue from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Vancouver, Canada
April 7, 2004

“MOORE STEPHENS ELLIS FOSTER LTD.”
Chartered Accountants

F-1

SCARAB SYSTEMS, INC. (A development stage enterprise) Balance Sheets
(Expressed in U.S. Dollars)
			March 31 2004		March 31 2003
ASSETS
Current assets
Cash and cash equivalents		$	12,621	$	-
Total current assets			-		-
Furniture, net of accumulated depreciation			-		1,305
Total assets	$		12,621	$	1,305
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities		$	27,882	$	124,306
Promissory notes			-		85,921
Total current liabilities			27,882		210,227
Promissory notes - non current			-		5,000
Total liabilities			27,882		215,227
STOCKHOLDERS’ DEFICIT
Share capital Authorized: 100,000,000 common shares with a par value of $0.001 per share

Issued and outstanding: 12,173,319 Common shares (March 31, 2003 - 9,166,299)		$	12,173	$	9,166
Additional paid in capital			855,883		245,123
Share subscriptions received			-		40,500
Deficit accumulated during the development stage			(883,317)		(508,711)
Total stockholders’ deficit			(15,261)		(213,922)
Total liabilities and stockholders’ (deficit)		$	12,621	$	1,305
The accompanying notes are an integral part of these financial statements.

F-2

SCARAB SYSTEMS, INC. (A development stage enterprise) Statements of Stockholders’ Deficit For the period from October 8, 2001 (inception) to March 31, 2004
(Expressed in US Dollars)
	Common Stock				Additional Paid-in Capital		Share subscription received/ (receivable)		Deficit accumulated during development stage		Total shareholders’ deficit
	Shares		Amount		Additional Paid-in Capital		Share subscription received/ (receivable)		Deficit accumulated during development stage		Total shareholders’ deficit
Stock issued for cash at $0.001 per share in October, 2001	5,425,000	$	5,425	$	-	$	-	$	-	$	5,425

Stock issued for intangible asset acquisition at $0.001 per share in October, 2001	200,000		200		-		-		-		200

Issued 1,440,000 common stock at $0.001 per share in October, 2001	1,440,000		1,440		-		(1,440)		-		-

Stock issued at $0.50 per share in November, 2001	675,000		675		336,825		(337,500)		-		-

Stock issued for cash at $0.50 per share in January, 2002	390,000		390		194,610		-		-		195,000

Net (loss) for the period	-		-		-		-		(112,434)		(112,434)

Balance, March 31, 2002	8,130,000	$	8,130	$	531,435	$	(338,940)	$	(112,434)	$	88,191

Stock issued for cash at $0.25 $0.50 per share in April 2003	130,000		130		39,870		-		-		40,000

Recapitalization to effect the acquisition of iRV, Inc.	1,446,299		1,446		(1,446)		-		-		-

Acquisition of MarketEdgeDirect	-		-		-		337,500		-		337,500

Proceeds of share subscriptions							1,440				1,440

Return of stocks in connection of disposal of MarketEdgeDirect	(540,000)		(540)		(358,042)		-		-		(358,582)

Proceeds of 96,000 share subscriptions at $0.40 to $0.50 per share							40,500				40,500

241,020 Shares allotted for services rendered at $0.10 to $0.40 per share					33,306		-				33,306

Net (loss) for the period	-		-		-		-		(396,277)		(396,277)

Balance, March 31, 2003	9,166,299	$	9,166	$	245,123	$	40,500	$	(508,711)	$	(213,922)

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

F-3

SCARAB SYSTEMS, INC. (A development stage enterprise) Statements of Stockholders’ Deficit For the period from October 8, 2001 (inception) to March 31, 2004
(Expressed in US Dollars)
	Common Stock				Additional paid-in capital		Share subscriptions received/ (receivable)		Deficit accumulated during development stage		Total stockholders’ equity
	Shares		Amount		Additional paid-in capital		Share subscriptions received/ (receivable)		Deficit accumulated during development stage		Total stockholders’ equity
Balance, March 31, 2003	9,166,299	$	9,166	$	245,123	$	40,500	$	(508,711)	$	(213,922)

Stocks issued for services rendered and recorded in fiscal year 2003	241,020		241		(241)		-		-		-

Stocks issued at $0.40 to $0.50 per share in fiscal year 2003	96,000		96		40,404		(40,500)		-		-

Stocks issued for conversion of debt at $0.10 per share in February 2004	510,000		510		50,490		-		-		51,000

Stocks issued for cash at $0.10 per share in February and March 2004	1,200,000		1,200		118,800		-				120,000

Stocks issued for exercise of stock options at $0.10 per share in February and March 2004	960,000		960		95,040		-		-		96,000

Issuance of stock options as compensation	-		-		195,740		-		-		195,740

Forgiveness of debt - related party	-		-		110,527		-		-		110,527

Net (loss) for the period	-		-		-		-		(374,606)		(374,606)

Balance, March 31, 2004	12,173,319	$	12,173	$	855,883	$	-	$	(883,317)	$	(15,261)

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

F-4

SCARAB SYSTEMS, INC. (A development stage enterprise) Statements of Operations
(Expressed in U.S. Dollars)
		Cumulative October 8, 2001 (inception) to March 31, 2004		Year Ended March 31, 2004		Year Ended March 31, 2003

General and administrative expenses
Consulting	$	400,620	$	169,059	$	170,469
Interest expense on long term debt		16,569		8,948		7,621
Legal and accounting		55,478		14,924		20,181
Office and Miscellaneous		60,513		21,501		30,756
Professional fees		65,780		-		65,780
Rent		43,383		-		29,485
Stock based compensation		195,740		195,740		-
Telephone		16,594		232		15,252
Travel		16,453		1,247		7,501

Operating (loss)		(871,130)		(411,651)		(347,045)

Other income (expense)
Gain on settlement of debt		37,045		37,045		-
Write-off of goodwill		(70,114)		-		(70,114)
Write-off of Smart-e-Card Distribution Rights		(200)		-		(200)

Loss from continued operations		(904,399)		(374,606)		(417,359)

Net income from discontinued operations		21,082		-		21,082

Net loss for the period	$	(883,317)	$	(374,606)	$	(396,277)

Basic and diluted earning (loss) per share,
Loss from continued operations			$	(0.04)	$	(0.05)
Net income from discontinued operations				0.00		0.00

Net (loss) for the year			$	(0.04)	$	(0.05)

Weighted average number of common shares outstanding				9,481,502		8,802,948

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

F-5

SCARAB SYSTEMS, INC. (A development stage enterprise) Statements of Cash Flows
(Expressed in U.S. Dollars)
	Cumulative October 8, 2001 (inception) to March 31, 2004			Year Ended March 31, 2004		Year Ended March 31, 2003

Cash flows from (used in) operating activities
Net (loss) for the period	$	(883,317)	$	(374,606)	$	(396,277)
Adjustment to reconcile net loss to net cash used in operating activities:
- amortization		2,194		1,305		559
- stock based compensation		195,740		195,740		-
- foreign exchange		(5,989)		2,688		-
- write-off of goodwill		70,114		-		70,114
- debt forgiven		103,140		103,140		-
- write-off of Smart-e-Card Distribution Rights		200		-		200
- net income from the discontinued operations		(21,082)		-		(21,082)
- shares allotted for service rendered		33,306		-		33,306
Changes in non-cash working capital items:
- prepaid expenses and deposits		-		-		8,515
- accounts payable and accrued liabilities		35,269		(80,037)		116,877

Net cash used in operating activities		(470,425)		(151,770)		(187,788)

Cash flows used in investing activities
Loan to Healthnet (Note 4)		(62,684)		-		-
Acquisition of fixed assets		(2,195)		-		-

Net cash used in investing activities		(64,879)		-		-

Cash flows provided by financing activities
Proceeds from issuance of common stock		547,925		216,000		40,000
Proceeds from promissory notes		-		7,500		90,921
Repayment of promissory notes		-		(59,109)		-
Proceeds from share subscriptions		-		-		41,940

Net cash provided by financing activities		547,925		164,391		172,861

Increase (decrease) in cash and cash equivalents	12,621			12,621		(14,927)

Cash and cash equivalents, beginning of period	-			-		14,927

Cash and cash equivalents, end of period	$	12,621	$	12,621	$	-

Supplemental cash flow information:
Interest expenses paid	$	5,513	$	3,801	$	1,712

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

F-6

SCARAB SYSTEMS INC.

(A development stage enterprise)

Notes to Consolidated Financial Statements

March 31, 2004 and 2003

(Expressed in U.S. Dollars)

1.	Incorporation and Continuance of Operations

Scarab Systems, Inc. (formerly called iRV, Inc.) was incorporated in Colorado on August 1, 1999.

The financial statements presented are those of Scarab Nevada (see below).

The original Scarab Systems, Inc. (“Scarab Nevada”) was incorporated on October 8, 2001 under the laws of the State of Nevada. Scarab Nevada was a development stage enterprise and was seeking business opportunities.

On March 25, 2002, iRV, Inc. (“iRV”) entered into an Agreement and Plan of Reorganization with Scarab Nevada, whereby iRV issued 8,260,000 share of its common stock in exchange for all of the outstanding common stock of Scarab Nevada. As part of the definitive agreement and plan of reorganization, iRV transferred all its assets and liabilities to its subsidiaries and then spun off the subsidiaries and iRV became a non-operating shell company without any assets or liabilities. Immediately prior to the Agreement and Plan of Reorganization, iRV had 1,446,299 shares of common stock issued and outstanding. The acquisition was accounted for as a recapitalization of Scarab Nevada because the shareholders of Scarab Nevada controlled iRV after the acquisition. Scarab Nevada was treated as the acquiring entity for accounting purposes and iRV was the surviving entity for legal purposes. The issued and outstanding common stock of Scarab Nevada prior to the completion of acquisition was restated to reflect the 8,260,000 common stock issued by iRV.

Subsequent to the completion of the reorganization, Scarab Nevada transferred all its assets and liabilities to iRV and Scarab Nevada ceased to exist, and iRV changed its name to Scarab Systems, Inc. Accordingly, the financial statements are the continuation of Scarab Nevada. The effective date of the Agreement and Plan of Reorganization was July 17, 2002.

These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has not generated any revenue and requires additional funds to maintain its operations. Management’s plans in this regard are to raise equity financing as required.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments that might result from this uncertainty.

The Company has not generated any material operating revenues to date.

On March 15, 2004, the Company abandoned its only subsidiary, Catalyst Technologies, Inc.

In fiscal year 2004, the Company consolidated its common stock by issuing one new share for ten old shares. The financial statements have been restated to reflect the stock consolidation.

2.	Significant Accounting Policies

a)	Cash and Cash Equivalents

Cash equivalents comprise certain highly liquid instruments with a maturity of three months or less when purchased. As at March 31, 2004 and 2003, cash and cash equivalents consist of cash only.

F-7

SCARAB SYSTEMS INC.

(A development stage enterprise)

Notes to Consolidated Financial Statements

March 31, 2004 and 2003

(Expressed in U.S. Dollars)

b)	Accounting Estimates

Furniture

Furniture is recorded at cost. Depreciation is based on the estimated useful lives of the assets and is computed using the declining balance method as follows:

Furniture and fixtures

30%

d)	Concentration of Credit Risk

The Company places its cash and cash equivalents with high credit quality financial institutions. As of March 31, 2004 the Company had no balance in a bank beyond insured limits.

e)	Foreign Currency Transactions

The Company maintains its accounting records in U.S. Dollars, as follows:

f)	Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued liabilities and promissory notes. The carrying amount of accounts payable and accrued liabilities approximates fair value due to the short-term nature of these items. The promissory notes also approximate fair value based on evaluations of market interest rates and short-term nature of the payable.

g)	Income Taxes

The Company has adopted Statement of Financial Accounting Standards (SFAS”) No. 109, “Accounting for Income Taxes”, which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

h)	Comprehensive Income

F-8

SCARAB SYSTEMS INC.

(A development stage enterprise)

Notes to Consolidated Financial Statements

March 31, 2004 and 2003

(Expressed in U.S. Dollars)

The Company adopted SFAS No. 130, “Reporting Comprehensive Income”, which requires inclusion of foreign currency translation adjustments, reported separately in its Statement of Stockholders’ Equity, in other comprehensive income. The Company had no other comprehensive income for the year ended March 31, 2004.

i)	Advertising Expenses

The Company expenses advertising costs as incurred. There were no advertising expenses incurred by the Company for the years ended March 31, 2004 and 2003.

j)	Loss Per Share

Loss per share is computed using the weighted average number of shares outstanding during the year. The Company has adopted SFAS No. 128, “Earnings Per Share”. Diluted loss per share is equivalent to basic loss per share as the stock options to acquire common shares as disclosed in the notes are anti-dilutive.

k)	Stock-based Compensation

The Company has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-based Compensation”, as amended by SFAS No. 148 “Accounting for Stock-based Compensation - Transition and Disclosure - An amendment of SFAS No. 123”. SFAS No. 123 encourages, but does not require, companies to adopt a fair value based method for determining expense related to stock-based compensation. The Company accounts for stock-based compensation issued to employees and directors using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations.

The Company initiated a 2004 Non-Qualified Stock Option Plan. During the year ended March 31, 2004, the Company granted 1,060,000 stock options to non-employees.

l)	Goodwill and Intangible Assets

Goodwill represents the excess of cost over fair value of assets of business acquired. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment at lest annually in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.

m)	Accounting for Derivative Instruments and Hedging Activities

F-9

SCARAB SYSTEMS INC.

(A development stage enterprise)

Notes to Consolidated Financial Statements

March 31, 2004 and 2003

(Expressed in U.S. Dollars)

The Company has adopted Statement of Financial Accounting Standards No. 133 (SFAS 133) Accounting for Derivative and Hedging Activities, which requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain and loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.

The Company has not entered into derivative contracts either to hedge existing risks or for speculative purposes.

F-10

SCARAB SYSTEMS INC.

(A development stage enterprise)

Notes to Consolidated Financial Statements

March 31, 2004 and 2003

(Expressed in U.S. Dollars)

Significant Accounting Policies

(continued)

n)	Long-Lived Assets Impairment

Long-term assets of the Company are reviewed when changes in circumstances require as to whether their carrying value has become impaired, pursuant to guidance established in Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets. Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from the related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value.

o)	New Accounting Pronouncements

In December 2003, the FASB Issued SFAS No. 132(R), a revision to SFAS No. 132, Employer’s Disclosure about Pensions and Other Postretirement Benefits. SFAS No. 132(R) requires additional disclosure about assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans, SFAS No. 132(R) is effective for the financials statements with fiscal years ending after December 15, 2003, with the exception of disclosure requirements related to foreign plans and estimated future benefit payments which are effective for the fiscal years ending after June 15, 2004. The adoption of SFAS No. 132(R) does not have an impact on the Company’s financial position or results of operations.

F-11

SCARAB SYSTEMS INC.

(A development stage enterprise)

Notes to Consolidated Financial Statements

March 31, 2004 and 2003

(Expressed in U.S. Dollars)

In December, 2003 the American Institute of certified Public Accounts and the Securities and Exchange Commission (“SEC”) expressed the opinion that rate-lock commitments represent written put options, and therefore be valued as a liability. The SEC expressed that they expect registrants to disclose the effect on the financial statement of recognizing the rate-lock commitments as written put options, for quarters commencing after march 15, 2004, Additionally, the SEC recently issued Staff Accounting Bulletin (SAB) No. 105. SAB No. 105 clarifies the SEC’s position that the inclusion of cash flows from servicing or ancillary income in the determination of the fair value of interest rate lock commitments is not appropriate. The Company has not yet determined the impact on the financial statements of SAB No. 105, which must be implemented for loan commitments entered into on or after April 1, 2004. The Company is currently analyzing the impact of the SEC’s position and will, if required, account for its loan origination commitments as prescribed.

In January 2003, the FASB released FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 requires that all primary beneficiaries of variable interest entities consolidate that entity. FIN 46 is effective immediately for variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest it acquired before February 1, 2003. In December 2003, the FASB published a revision to FIN 46 (“FIN 46R”) to clarify some of the provisions of the interpretation and to defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, entities that do not have interests in structures that are commonly referred to as special purpose entities are required to apply the provisions of the interpretation in financial statements for periods ending after March 14, 2004. The Company did not create a variable interest entity after January 31, 2003 and does not have a variable interest entity as of December 31, 2003. The Company expects that the full adoption of FIN 46R in 2004 will not have a material impact on the Company’s financial position or results of operations.

3.	Smart-e-Card Distribution Rights

In October, 2001, the Company entered into an agreement with BentleyTel USA Inc. (“Bentley”), pursuant to which the Company was granted a perpetual worldwide exclusive agency to Bentley’s Smart-e-Cards. The Company issued 200,000 shares of its common stock at $0.001 each for the distribution rights. In fiscal year 2003, the Company abandoned Smart-e-Card sales and distribution operations and charged the cost to operations.

4.	Business Acquisition

In fiscal year 2002, the Company loaned the sum of $62,684 to Healthnet International, Inc. (“Healthnet”). The loan bore interest at 15% per annum and was convertible into stocks in Healthnet at $0.50 per share (125,000 shares).

On March 28, 2003, Healthnet sold Catalyst Technologies, Inc. (“Catalyst”) to the Company in satisfaction of the related debt owing. Catalyst was incorporated under the law of the Province of British Columbia, Canada, and is in the business of providing e-commerce services to bricks and mortar retailers. The acquisition was accounted for using the purchase method of accounting and accordingly, the purchase price was allocated to the tangible and intangible net assets acquired on the basis of their respective fair values on the acquisition date.

F-12

SCARAB SYSTEMS INC.

(A development stage enterprise)

Notes to Consolidated Financial Statements

March 31, 2004 and 2003

(Expressed in U.S. Dollars)

The allocation of the purchase price was as follows:

Net liabilities acquired	$ (7,430)
Consideration	62,684
Goodwill	70,114
Impairment of Goodwill	(70,114)
Balance	$ -

In accordance with SFAS No. 142 and 144, the Company has written down the goodwill arising from the acquisition of Catalyst to nil, being the estimated fair value of the goodwill at year-end.

On March 15, 2004, the Company abandoned Catalyst. There was no effect on the financials statements because the subsidiary had a nil carrying value.

F-13

SCARAB SYSTEMS INC.

(A development stage enterprise)

Notes to Consolidated Financial Statements

March 31, 2004 and 2003

(Expressed in U.S. Dollars)

5.	Discontinued Operations

Effective August 7, 2002, in connection with the 675,000 shares subscription receivable, the Company exercised its option to acquire all of the outstanding shares of 485017 B.C. Ltd., a Canadian company involved in marketing and advertising services. On March 28, 2003, the Company entered into an agreement with the former shareholders of 485017 B.C. Ltd. to sell 485017 B.C. Ltd. to the former shareholder for the return of 540,000 shares of the Company which were valued at the $358,582 (the original investment of $337,500 plus net income of 485017 B.C. Ltd. totalling $21,082 from the period of August 7, 2002 to March 28, 2003).

6.	Promissory Notes

	2004	2003

Promissory notes - related party	$ -	$ 41,361
Promissory notes - convertible at $0.05 to $0.075 per share	-	16,531
Promissory notes - unrelated party	-	33,029
Total	-	$90,921.00
Less: Long-term portion	-	(5,000)

	$ -	$ 85,921

Promissory notes are unsecured and bearing interest at 0% to 20% per annum and repayable on maturity.

7.	Share Issuances

In fiscal year 2004, the Company received $120,000 for the issuance of 1,200,000 shares at $0.10 per share.

8.	Stock Options

On February 10, 2004, the Company’s Board of Directors adopted the 2004 Non-Qualified Stock Option Plan (the “Plan”). The aggregate number of shares of common stock that may be granted by the Company under the Plan will not exceed a maximum of 1,800,000 shares during the period of the Plan. The Plan shall terminate upon the earlier of February 10, 2014 or the issuance of all shares granted under the Plan. The option prices per share are determined by the Board of Directors when the stock option is granted.

(b)

During the year, the Company granted 1,060,000 stock options to consultants. These options have vesting periods ranging from immediately to over seven months, expiring two (2) years from date of grant. The Company charged $195,740 stock-based compensation expense to operations for the options granted to the consultants using the Black-Scholes option pricing model with the following weighted average assumptions:

Dividend yield of 0%, volatibility of 159%, risk-free interest rate of 2.75% and expended life of two (2) years. The weighted average fair value of the stock option granted in 2004 fiscal year was estimated at $0.19.

F-14

SCARAB SYSTEMS INC.

(A development stage enterprise)

Notes to Consolidated Financial Statements

March 31, 2004 and 2003

(Expressed in U.S. Dollars)

8.	Stock Options (continued)

As at March 31, 2004, the Company had 100,000 stock options outstanding under the Plan with a weighted average exercise price of $0.10. The weighted average remaining contractual life of the options outstanding is 1.89 years.

	Stock Options	Weighted Average Exercise Price	Weighted Average Remaining Life (yrs.)
Outstanding at April 1, 2003 and 2002	-	$ -	-
Granted	1,060,000	$0.10
Exercised	(960,000)	$0.10

Outstanding at March 31, 2004	100,000	$0.10	1.89
Exercisable at March 31, 2004	25,000	$0.10	1.89

As required by SFAS 123, the Company will disclose pro-forma information regarding its net income as if it has accounted for its employee stock options granted under the fair value method. However, the Company did not grant any stock options to officers, directors or employees during the fiscal year 2004 and 2003 and as such, no pro forma information has been provided.

9.	Income Taxes

As at March 31, 2004, the Company has estimated tax losses carryforward for tax purposes of $543,500. This amount may be applied against future federal taxable income. The Company evaluates ts valuation allowance requirements on an annual basis based on projected future operations. When circumstances change and this causes a change in management’s judgement about the realizability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in current income.

The tax effects of temporary differences that give rise to the Company’s deferred tax asset (liability) are as follows:

	2004	2003

Loss carry forwards	$ 190,000	$ 182,000
Valuation allowance	(190,000)	(182,000)
	$ -	$ -

10.

Related Party Transactions

In fiscal year 2004, the Company accrued consulting fees of $59,413 (2003 - $84,516) to the directors and officers of the Company. In fiscal year 2004, the related parties released the Company of $110,527 of accrued consulting fees and expenses and this was recorded as an additional paid-in capital on the statement of stockholders’ deficiency.

F-15

SCARAB SYSTEMS INC.

(A development stage enterprise)

Notes to Consolidated Financial Statements

March 31, 2004 and 2003

(Expressed in U.S. Dollars)

b)	Included in the accounts payable and promissory notes are $nil (2003 - $50,600) and $nil (2003 - $41,361), respectively, payable to the directors and officers of the Company.

c)	On February 2, 2004, a $40,000 unsecured promissory note with an officer of the Company, along with $11,000 in accrued interest, was converted into 510,000 common shares of the Company at a price per share of $0.10.

11.

Non-cash Activities

a)	In fiscal year 2004, the Company issued 510,000 common shares in connection with the conversion of a $40,000 unsecured promissory note, along with $11,000 of accrued interest, to a related party.

b)	Pursuant to the grant of 1,060,000 stock options to consultants during the fiscal year 2004, the Company recorded stock based compensation charges of $195,740.

c)	In fiscal year 2004, the amount totalling $110,527 owing to the directors and officers of the Company was released.

12.

Comparative Figure

Certain of the comparative figures have been reclassified to conform to the current year’s presentation.

F-16

TORRENT ENERGY CORPORATION (formerly Scarab Systems, Inc.) (An exploration stage enterprise)
Consolidated Balance Sheets (Unaudited and Prepared by Management)
		December 31, 2004		March 31, 2004
		(Unaudited)
ASSETS
Current
Cash and cash equivalents	$	105,807	$	12,621
Total current assets		105,807		12,621

Oil and gas properties, unproven (Note 5)		1,349,565		-
Preferred stock discount (Note 8)		210,163		-

Total assets	$	1,665,535	$	12,621

LIABILITIES
Current
Accounts payable and accrued liabilities	$	198,818	$	27,882
Shareholder loan (Note 9)		80,000		-
Total current liabilities		278,818		27,882

STOCKHOLDERS’ EQUITY (DEFICIT)

Share capital
Convertible Series B preferred stock, $0.01 par value, 5,000 shares authorized, 2,200 shares issued and outstanding (March 31, 2004 - Nil)		22		-
Common stock, $0.001 par value, 100,000,000 shares authorized, 15,656,249 shares issued and outstanding (March 31, 2004 - 12,173,319)		15,656		12,173

Additional paid in capital		4,920,696		855,883
Subscriptions receivable (Note 8)		(495,000)		-
Deficit accumulated during the exploration stage		(3,054,657)		(883,317)
Total stockholders’ equity (deficit)		1,386,717		(15,261)
Total liabilities and equity	$	1,665,535	$	12,621

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

F-19

TORRENT ENERGY CORPORATION
(formerly Scarab Systems, Inc.)
(An exploration stage enterprise)

Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited and Prepared by Management)

	Preferred Stock		Common Stock		Additional paid-in capital	Share subscriptions received/ (receivable)	Deficit accumulated during exploration stage	Total Stockholders’ equity (deficit)
	Shares	Amount	Shares	Amount	Additional paid-in capital	Share subscriptions received/ (receivable)	Deficit accumulated during exploration stage	Total Stockholders’ equity (deficit)

Balance, March 31, 2003	-	-	9,166,299	9,166	245,123	40,500	(508,711)	(213,922)

Stocks issued for services rendered and recorded in fiscal year 2003	-	-	241,020	241	(241)	-	-	-

Stocks issued at $0.40 to $0.50 per share in fiscal year 2003	-	-	96,000	96	40,404	(40,500)	-	-

Stocks issued for conversion of debt at $0.10 per share in February 2004	-	-	510,000	510	50,490	-	-	51,000

Stocks issued for cash at $0.10 per share in February and March 2004	-	-	1,200,000	1,200	118,800	-		120,000

Stocks issued for exercise of stock options at $0.10 per share in February and March 2004	-	-	960,000	960	95,040	-	-	96,000

Issuance of stock options as compensation	-	-	-	-	195,740	-	-	195,740

Forgiveness of debt - related party	-	-	-	-	110,527	-	-	110,527

Net (loss) for the period	-	-	-	-	-	-	(374,606)	(374,606)

Balance, March 31, 2004	-	-	12,173,319	12,173	855,883	-	(883,317)	(15,261)

Stocks issued for exercise of stock options at $0.10 per share in May, June and July 2004	-	-	640,000	640	63,360	-	-	64,000

Stocks and warrants issued under a private place- ment at $0.35 per share in May 2004 (Note 7)	-	-	1,442,930	1,443	503,582	-	-	505,025

Stocks issued for investor relations services at $0.54 per share in June 2004	-	-	300,000	300	161,700	-	-	162,000

Stocks issued for acquisition of oil and gas properties at $0.38 per share in June 2004	-	-	600,000	600	227,400	-	-	228,000

Stocks and warrants issued under a private place- ment at $0.40 per share in July 2004 (Note 7)	-	-	500,000	500	199,500	-	-	200,000

Convertible Series B preferred stock issued under a private placement at $1,000 per Series B share in August 2004, net of issuance costs (Note 8)	2,200	22	-	-	1,934,978	(495,000)	-	1,440,000

Beneficial conversion feature on convertible Series B preferred stock (Note 8)	-	-	-	-	315,244	-	-	315,244

Issuance of stock options as compensation	-	-	-	-	659,049	-	-	659,049

Net (loss) for the period	-	-	-	-	-	-	(2,171,340)	(2,171,340)
Balance, December 31, 2004 (Unaudited)	2,200	22	15,656,249	15,656	4,920,696	(495,000)	(3,054,657)	1,386,717

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

F-20

TORRENT ENERGY CORPORATION (formerly Scarab Systems, Inc.) (An exploration stage enterprise)

Consolidated Statements of Operations
	Cumulative October 8, 2001 (inception) to December 31, 2004		Three Months Ended December 31, 2004		Three Months Ended December 31, 2003		Nine Months Ended December 31, 2004	Nine Months Ended December 31, 2003

General and administrative expenses
Accretion on beneficial conversion feature	$ 105,081		$ 105,081		$ -		$ 105,081	$ -
Consulting	555,907		40,100		20,520		155,287	66,559
Insurance	47,569		1,000		-		47,569	-
Interest expense	7,500		-		-		7,500	-
Interest expense on long term debt	16,569		-		8,614		-	8,614
Investor relations	686,100		465,000		-		686,100	-
Legal and accounting	131,475		15,408		-		75,997	13,261
Office and Miscellaneous	93,437		22,613		1,563		32,924	2,353
Professional fees	65,780		-		-		-	-
Purchase investigation costs	103,310		1,659		-		103,310	-
Rent	51,783		5,600		-		8,400	-
Shareholder relations	85,463		5,017		2,027		85,463	3,599
Stock based compensation	1,016,789		359,713		-		821,049	-
Telephone	16,594		-		-		-	-
Travel	60,139		33,186		-		43,686	-

Operating (loss)	(3,043,496)		(1,054,377)		(32,724)		(2,172,366)	(94,386)

Other income (expense)
Interest income	1,026		863		-		1,026	-
Gain on settlement of debt	37,045		-		-		-	-
Write-off of goodwill	(70,314)		-		-		-	-

Loss from continued operations	(3,075,739)		(1,053,514)		(32,724)		(2,171,340)	(94,386)

Net income from discontinued operations	21,082		-		-		-	-

Net loss for the period	$ (3,054,657)		$(1,053,514)		$ (32,724)		$ (2,171,340)	$ (94,386)

		$ (0.07)		$ (0.00)		$ (0.15)		$ (0.01)

Weighted average number of common shares outstanding			15,656,249		9,166,290		14,804,880	9,166,290

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

F-21

TORRENT ENERGY CORPORATION (formerly Scarab Systems, Inc.) (An exploration stage enterprise)
Consolidated Statements of Cash Flows (Unaudited and Prepared by Management)
	Cumulative October 8, 2001 (inception) to December 31, 2004	Three Months Ended December 31, 2004	Three Months Ended December 31, 2003	Nine Months Ended December 31, 2004	Nine Months Ended December 31, 2003

Cash flows used in operating activities
Net (loss) for the period	$(3,054,657)	$(1,053,514)	$(32,724)	$(2,171,340)	$(94,386)
Adjustment to reconcile net loss to net cash used in operating activities:
- accretion on beneficial conversion feature	105,081	105,081	-	105,081	-
- amortization	2,194	-	294	-	294
- stock based compensation	1,016,789	359,713	-	821,049	-
- foreign exchange	1,398	-	1,200	-	1,200
- write-off of goodwill	70,314	-	-	-	-
- debt forgiven	103,140	-	-	-	-
- net income from the discontinued operations	(21,082)	-	-	-	-
- shares allotted for service rendered	33,306	-	-	-	-
Changes in non-cash working capital items:
- accounts payable and accrued liabilities	198,818	39,938	31,012	170,936	85,392

Net cash used in operating activities	(1,544,699)	(548,782)	(218)	(1,074,274)	(7,500)

Cash flows used in investing activities
Oil and gas properties	(1,121,565)	(564,982)	-	(1,121,565)	-
Loan to Healthnet	(62,684)	-	-	-	-
Acquisition of fixed assets	(2,195)	-	-	-	-

Net cash used in investing activities	(1,186,444)	(564,982)	-	(1,121,565)	-

Cash flows provided by (used in) financing activities
Proceeds from issuance of common stock	1,316,950	-	-	769,025	-
Net proceeds from issuance of Series B preferred stock	1,440,000	(10,000)	-	1,440,000	-
Proceeds from shareholder loan	80,000	80,000	-	80,000	-
Proceeds from promissory notes	-	-	-	-	7,500

Net cash provided by financing activities	2,836,950	70,000	-	2,289,025	7,500

Increase (decrease) in cash and cash equivalents	105,807	(1,043,764)	(218)	93,186	-

Cash and cash equivalents, beginning of period	-	1,149,571	218	12,621	-

Cash and cash equivalents, end of period	$ 105,807	$ 105,807	$ -	$ 105,807	$ -

Supplemental cash flow information:
Interest expenses paid	$ 13,013	$ -	$ -	$ 7,500	$ -
Common stock issued for oil and gas property	228,000	-	-	228,000	-
Common stock issued for investor relations	162,000	-	-	162,000	-

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

F-22

TORRENT ENERGY CORPORATION

(formerly Scarab Systems, Inc.)

(An exploration stage enterprise)

Notes to Consolidated Financial Statements

(Unaudited and Prepared by Management)

1.	Incorporation and Continuance of Operations

Torrent Energy Corporation (the “Company” or “Torrent”) is an exploration stage company that, pursuant to shareholder approval on July 13, 2004, changed its name from Scarab System, Inc.

Torrent was formed by the merger of Scarab Systems, Inc., a Nevada corporation into iRV, Inc., a Colorado corporation. Scarab Systems, Inc. (Nevada) was a privately owned Nevada corporation that was incorporated on October 8, 2001. The effective date of the merger transaction between Scarab Systems, Inc. (Nevada) and iRV, Inc. was July 17, 2002. Subsequent to completion of the reorganization, Scarab Systems, Inc. (Nevada) transferred all its assets and liabilities to iRV, Inc. and ceased operations. The directors and executive officers of iRV, Inc. were subsequently reconstituted. iRV, Inc. changed its name to Scarab Systems, Inc. on March 24, 2003. The corporate charter of Scarab Systems Inc. (Nevada) was revoked in 2002. The Company was initially providing services to the e-commerce industry but ceased all activity in the e-commerce industry by the end of the fiscal year ended March 31, 2003.

On January 30, 2002, the Company was given two options in fiscal year 2002 to acquire all the issued and outstanding shares of 485017 B.C. Ltd., a British Columbia company doing business as MarketEdge Direct (“MED”), as security against a subscription receivable of $337,500 for 675,000 shares from the shareholders of MED. MED was in the business of providing a wide range of marketing products and services. Effective August 7, 2002, the Company exercised both of the options and acquired all the issued and outstanding shares of MED. Due to disappointing financial results of MED, on March 28, 2003, the Company entered into an agreement with the former shareholders of MED to sell MED back to them. As a result, all the issued and outstanding shares of MED that the Company acquired were sold back to the former MED shareholders for the return to treasury of 540,000 of its common shares.

On March 28, 2003, the Company acquired all the issued and outstanding shares of Catalyst Technologies, Inc., a British Columbia corporation (“Catalyst”). Catalyst is a Vancouver based, web design and Internet application developer. Catalyst specializes in the development of web-sites and Internet software design, primarily for the Health and Nutraceutical industry. The acquisition of Catalyst was treated as a non-material business combination in the fiscal year 2003 and the Company abandoned Catalyst during the fiscal year ended March 31, 2004 due to a lack of working capital and disappointing financial results.

On April 30, 2004, Torrent incorporated an Oregon subsidiary company named Methane Energy Corp. (“Methane”) in anticipation of acquiring oil and gas properties in the State of Oregon.

On May 11, 2004, Methane entered into a Lease Purchase and Sale Agreement (the “Agreement”) with GeoTrends-Hampton International LLC (“GHI”) to purchase GHI’s undivided working interest in certain oil and gas leases for the Coos Bay Basin prospect located onshore in the Coos Bay Basin of Oregon. To acquire these oil and gas leases, the Company paid a total of $300,000 in cash and will issue 1,800,000 restricted common shares in three performance based tranches. The agreement closed on June 22, 2004. On closing, the Company paid $100,000 of the cash and 600,000 of the common shares. During the quarter ended September 30, 2004, the Company paid the remaining $200,000 so that the cash consideration is fully paid.

F-23

TORRENT ENERGY CORPORATION

(formerly Scarab Systems, Inc.)

(An exploration stage enterprise)

Notes to Consolidated Financial Statements

(Unaudited and Prepared by Management)

Pursuant to the GHI Agreement, the Company acquired leases of certain properties in the Coos Bay area of Oregon which are prospective for oil and gas exploration and cover approximately 50,000 acres. On July 1, 2004, we leased an additional 10,400 acres within the Coos Bay Basin in Oregon. With this additional acreage the total land position held by us now exceeds 60,000 acres. The Company is pursuing the leasing of additional properties in the Coos Bay area.

On August 20, 2004, by unanimous consent of the board of directors, the Company created a class of Series B Convertible Preferred Stock (the “Series B Stock”). The Series B Stock consists of 5,000 shares with a par value $0.01 per share and have certain special rights and restrictions, including conversion to common stock at the lower of $1.20 and the 10 day weighted average trading price of our common stock. The Series B Stock became effective on August 24, 2004 with the filing of Articles of Amendment with the Colorado Secretary of State. We issued 2,200 Series B Stock on August 27, 2004, with effect from August 24, 2004.

On September 21, 2004, Mark Gustafson was hired as the new Chief Executive Officer of the Company. He was also appointed as director of the Company.

On November 16, 2004, the Company’s subsidiary, Methane, commenced a multi-hole coring program on its oil and gas leases in Coos County, Oregon.

The consolidated financial statements presented are those of Torrent and its wholly-owned subsidiary Methane. Collectively, they are referred to herein as the “Company”. Significant intercompany balances and transactions have been eliminated.

2.	Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements of the Company are unaudited and include, in the opinion of management, all normal recurring adjustments necessary to present fairly the consolidated balance sheet as of December 31, 2004, and the related statements of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These consolidated financials statements should be read in conjunction with the Company’s audited financial statements and the related notes thereto included in the Company’s Form 10-KSB filed with the Securities and Exchange Commission.

Oil and Gas Properties

The Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, capitalized interest costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. As of December 31, 2004, the Company has no properties with proven reserves. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using

F-24

TORRENT ENERGY CORPORATION

(formerly Scarab Systems, Inc.)

(An exploration stage enterprise)

Notes to Consolidated Financial Statements

(Unaudited and Prepared by Management)

estimates of proved reserves. Investments in unproved properties and major development projects including capitalized interest, if any, are not amortized until proved reserves associated with the projects can be determined. If the future exploration of unproved properties are determined uneconomical the amount of such properties are added to the capitalized cost to be amortized. As of December 31, 2004, all of the Company’s oil and gas properties were unproved and were excluded from amortization. At December 31, 2004, none of the Company’s unproved oil and gas properties were considered impaired.

The capitalized costs included in the full cost pool are subject to a “ceiling test”, which limits such costs to the aggregate of the estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions and estimated value of proven properties. No impairment existed as of December 31, 2004.

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.

Stock Based Compensation

The Company initiated a 2004 Non-Qualified Stock Option Plan (the “Plan”). Since inception of the plan, the Company has granted 1,800,000 stock options to non-employees and directors of the Company. In addition, the Company has granted an additional 600,000 stock options to non-employees outside of the Plan.

Recent Accounting Pronouncements

A reporting issue has arisen regarding the application of certain provisions of SFAS No. 141 and SFAS No. 142 to companies in the extractive industries, including oil and gas companies. The issue is whether SFAS No. 142 requires registrants to classify the costs of oil and gas rights held under lease or other contractual arrangement associated with extracting oil and gas as intangible assets in the balance sheet, apart from other capitalized oil and gas property costs, and provide specific footnote disclosures. Historically, the Company has included the costs of such oil and gas rights associated with extracting oil and gas as a component of oil and gas properties. If it is ultimately determined that SFAS No. 142 requires oil and gas companies to classify costs of oil and gas rights held under lease or other contractual arrangement associated with extracting oil and gas as a separate intangible assets line item on the balance sheet, the Company would be required to reclassify approximately $784,583 at December 31, 2004 and $nil at March 31, 2004 out of oil and gas properties and into a separate intangible assets line item. The Company’s cash flows and

F-25

TORRENT ENERGY CORPORATION

(formerly Scarab Systems, Inc.)

(An exploration stage enterprise)

Notes to Consolidated Financial Statements

(Unaudited and Prepared by Management)

results of operations would not be affected since such intangible assets would continue to be depleted and assessed for impairment in accordance with full-cost accounting rules.

In April 2004, the EITF released Issue No. 03-06, Participating Securities and the Two Class Method under SFAS No. 128, Earnings per Share, which addressed a number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company when, and if, it declares dividends on its common stock. It requires that undistributed earnings for the period be allocated to a participating security based on the contractual participation rights of the security to share in those earnings as if all the earnings for the period had been distributed in calculating earnings per share. EITF Issue No. 03-06 is effective for fiscal periods beginning after March 15, 2004. It requires that prior period earnings per share amounts be restated to ensure comparability year over year. The adoption of EITF Issue No. 03-06 did not have an impact on the Company’s financial statements.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs—an amendment of ARB No. 43, Chapter 4”, which is the result of the FASB’s project to reduce differences between U.S. and international accounting standards. SFAS No. 151 requires idle facility costs, abnormal freight, handling costs, and amounts of wasted materials (spoilage) be treated as current-period costs. Under this concept, if the costs associated with the actual level of spoilage or production defects are greater than the costs associated with the range of normal spoilage or defects, the difference would be charged to current-period expense, not included in inventory costs. SFAS No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 will not have a material impact on the Company’s financial statements.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB No. 29, Accounting for Nonmonetary Transactions. SFAS No. 153 requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or (2) the transactions lack commercial substance. SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of FASB No. 153 will not have a material impact on the Company’s financial statements.

In December 2004, the FASB issued SFAS No. 123(R), “Accounting for Stock-Based Compensation”. SFAS 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123(R) requires that the fair value of such equity instruments be recognized as expense in the historical financial statements as services are performed. Prior to SFAS 123(R), only certain pro-forma disclosures of fair value were required. SFAS 123(R) shall be effective for the Company as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. The adoption of FASB No. 123(R) will not have a material impact on the Company’s financial statements.

F-26

TORRENT ENERGY CORPORATION

(formerly Scarab Systems, Inc.)

(An exploration stage enterprise)

Notes to Consolidated Financial Statements

(Unaudited and Prepared by Management)

3.	Going Concern

These financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The general business strategy of the Company is to explore its newly-acquired oil and gas properties. The Company has incurred operating losses and requires additional funds to meet its obligations and maintain its operations. Management’s plan in this regard is to raise equity financing as required. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments that might result from this uncertainty.

	December 31, 2004	March 31, 2004

Deficit accumulated during the exploration stage	$3,054,657	$883,317
Working capital deficit	$ 173,011	$ 15,261

4.	Related Party Transactions

During the nine month period ended December 31, 2004, the Company paid or accrued $103,875 in consulting fees to directors and officers of the Company, as compared to $59,413 during the nine months ended December 31, 2003. In addition, the Company paid officers and directors of the Company $66,330 for consulting fees relating to the Company’s oil and gas leases and $43,200 for geological and geophysical consulting fees, both of which are included in the costs of the oil and gas properties. At December 31, 2004 and March 31, 2004, there was $35,173 and $nil, respectively, in accounts payable and accrued liabilities that are owing to related parties.

On December 1, 2004, the Company entered into a consulting agreement with MGG Consulting to provide for services as the Chief Executive Officer and acting Chief Financial Officer. The Company is committed to pay $8,000 per month unless terminated at any time by either party upon written notice. MGG is wholly owned by Mark Gustafson, president and director of our company.

5.	Oil and Gas Properties, Unproven

The total costs incurred and excluded from amortization are summarized as follows:

	Land acquisition costs	Lease costs	Seismic costs	Drilling and gathering costs	Geological and geophysical costs	Total

Costs incurred during periods ended:

December 31, 2004	$ 533,562	$ 287,990	$ 42,388	$ 434,915	$ 50,710	$ 1,349,565
March 31, 2004	-	-	-	-	-	-

Total	$ 533,562	$ 287,990	$ 42,388	$ 434,915	$ 50,710	$ 1,349,565

At December 31, 2004, all of the Company’s oil and gas properties are considered unproven. Based on the status of the Company’s exploration activities, management has determined that no impairment has occurred.

F-27

TORRENT ENERGY CORPORATION

(formerly Scarab Systems, Inc.)

(An exploration stage enterprise)

Notes to Consolidated Financial Statements

(Unaudited and Prepared by Management)

6.	Stock Options

As at December 31, 2004, the Company had 200,000 stock options outstanding under the 2004 Non-Qualified Stock Option Plan (the “Plan”) with an exercise price of $0.50. There are no further stocks options eligible to be granted under the Plan.

During the quarter ended December 31, 2004, the Company granted an additional 600,000 stock options outside of the Plan. This included an option to purchase 200,000 common shares at $1.00 per share and another 200,000 common shares at $2.00 per share until November 1, 2005 pursuant to a Mail Distribution Agreement with a third party. These options have a cashless exercise provision whereby the optionor can elect to receive common stock in lieu of paying cash for the options based on a formula that includes using the average closing prices of the five

trading days preceding the exercise date. In addition, the Company granted a consultant the option to purchase 200,000 common shares at $0.83 per share pursuant to a consulting agreement for public and investor relations with a third party. Twenty-five percent of the options to the investor relations consultant vest immediately and twenty-five percent vest every quarter thereafter. Either party may terminate the investor relations agreement with thirty days written notice.

	Stock Options	Weighted Average Exercise Price	Weighted Average Remaining Life (yrs.)
Outstanding at April 1, 2004	100,000	$0.10	1.89
Granted	1,340,000	$0.68
Exercised	(640,000)	$0.10

Outstanding at December 31, 2004	800,000	$1.08	1.72
Exercisable at December 31, 2004	550,000	$1.26	1.47

During the nine months ended December 31, 2004, compensation costs of $821,049 were recorded in the statements of operations and deficit for options granted by the Company. The compensation costs recorded were calculated using the Black-Scholes option pricing model.

The fair value of share options used to calculate compensation expense has been estimated using the Black-Scholes option pricing model with the following assumptions:

	December 31, 2004	December 31, 2003
Risk free interest rate	2.75%	-%
Expected dividend yield	0%	-%
Stock price volatility	254-265%	-%
Expected life of options	1-5 years	-

The weighted average fair value of options granted during the nine months ended December 31, 2004 is $0.55 (2003 - $nil) each.

F-28

TORRENT ENERGY CORPORATION

(formerly Scarab Systems, Inc.)

(An exploration stage enterprise)

Notes to Consolidated Financial Statements

(Unaudited and Prepared by Management)

7.	Warrants

In connection with the sale of common stock during the three months ended June 30, 2004, the Company issued warrants to purchase 1,442,930 shares of common stock at $0.50 per share exercisable until May 19, 2006. Using the Black-Scholes valuation model, the fair value of these warrants was estimated at $221,373 and has been included in additional paid in capital.

In connection with the sale of common stock during the three months ended September 30, 2004, the Company issued warrants to purchase 500,000 shares of common stock at $0.55 per share exercisable until July 7, 2006. Using the Black-Scholes valuation model, the fair value of these warrants was estimated at $128,347 and has been included in additional paid in capital.

8.	Series B Convertible Preferred Stock (“Series B Stock”)

On August 27, 2004, the Company closed a private placement in its Series B Stock for up to $2,200,000 in gross proceeds (the “Private Placement”). The Series B Stock is convertible into common stock at any time by dividing the dollar amount being converted by the lower of $1.20 or 80% of the lowest volume weighted average trading price per common share of our Company for 10 trading days. The holder of the Series B Stock may only convert up to $250,000 of Series B Stock into common shares in any 30 day period. The Company may redeem the Series B Stock by paying 120% of the invested amount together with any unpaid dividends. As a condition of the Private Placement, the Company agreed to file a registration statement registering up to 5,000,000 shares of common stock (the “Registration Statement”) in order to receive all of the proceeds of the Private Placement.

Each share of Series B Stock will be automatically converted into common stock immediately upon the consummation of the occurrence of a stock acquisition, merger, consolidation, or reorganization of the Company.

The gross proceeds of the Private Placement has been received as follows:

(i) $1,100,000 was paid on closing (received);

(ii) $550,000 on the fifth business day following the filing date of the Registration Statement (received); and

(iii) $550,000 on the fifth business day following the effective date of the Registration Statement (received subsequent to quarter end).

Net proceeds received as of December 31, 2004, was $1,440,000 after payment of $165,000 in finders’ fees (10% of gross proceeds) and $45,000 in legal fees. The transaction resulted in a beneficial conversion feature calculation in accordance with EITF 98-5 “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, of $315,244 which will be accreted over nine months commencing October 1, 2004. The Company recorded an accretion expense of $105,081 for the nine months ended December 31, 2004.

F-29

TORRENT ENERGY CORPORATION

(formerly Scarab Systems, Inc.)

(An exploration stage enterprise)

Notes to Consolidated Financial Statements

(Unaudited and Prepared by Management)

Subsequent to the quarter end, the Company received the last payment of $550,000 and the Company paid $55,000 in finders’ fees for net proceeds of $495,000.

9.	Shareholder Loan

During the quarter ended December 31, 2004, the Company received proceeds of $80,000 pursuant to a shareholder loan. The loan was to be repaid by January 22, 2005 or the Company would be required to pay interest at 12% per annum. If the loan was repaid prior to January 22, 2005, the loan would bear no interest. Subsequent to the quarter ended December 31, 2004 and on January 17, 2005, the shareholder loan was repaid in full with no interest.

10.

Commitments

On October 1, 2004, the Company entered into a consulting agreement for public and investor relations with a third party. The Company is committed to pay $5,000 per month for the service for the term of one year. Either party may terminate the agreement with thirty days written notice.

11.

Subsequent Events

Subsequent to the quarter ended December 31, 2004, the Company received the last payment of the proceeds of the Series B private placement. The Company received $495,000 which represents the last payment of $550,000, less $55,000 in finders’ fees. The net amount was included as subscription receivable as at December 31, 2004.

Subsequent to the quarter ended December 31, 2004, and pursuant to the Lease Purchase and Sale Agreement to purchase certain oil and gas leases for the Coos Bay Basin exploration prospect, the Company made its second common share installment and issued an additional 600,000 common shares.

Subsequent to the quarter ended December 31, 2004, the shareholder loan in the amount of $80,000 was repaid in full.

Subsequent to the quarter ended December 31, 2004, the holder of the Series B Stock notified the Company of its intention to exercise $100,000 worth of Series B Stock to common stock. The conversion price was $0.78 per share resulting in the issuance of 127,812 shares of our common stock and the cancellation of 100 shares of Series B Stock.

F-30

AVAILABLE INFORMATION

We have filed a registration statement on Form SB-2 under the Securities Act of 1933, as amended, relating to the shares of common stock being offered by this prospectus, and reference is made to such registration statement. This prospectus constitutes the prospectus of Torrent Energy Corporation, filed as part of the registration statement, and it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission.

We are subject to the informational requirements of the Securities Exchange Act of 1934 which requires us to file reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information may be inspected at public reference facilities of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549. Copies of such material can be obtained from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at prescribed rates. Because we file documents electronically with the SEC, you may also obtain this information by visiting the SEC's Internet website at http://www.sec.gov.

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