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ARCTURUS CORPORATION

ASPECTS OF TAX BENEFITS OF TEXAS JOINT VENTURE PROGRAMS

Arcturus Corporation sets up each new oil and gas well program as Texas Tax Partnership which is governed by the Texas Revised Partnership Act (Texas RP A) and by a Joint Venture Agreement (JVA). The Venture shall have the status of a general partnership and each Venturer shall have the status as a general partner. The JVA names Arcturus Corporation as the Managing Venturer and is executed with each Venturer. The tax status, although not ruled upon by the IRS, will be filed as a tax partnership by preparation and filing of an S-4 with the IRS for federal income tax purposes. A partnership tax return will be prepared each tax year for the Venture and partners on Form 1065 and a K -1 will be issued to each partner for their share of revenue and expenses and tax preference items and the reporting of their partnership accounts.

The joint venture enters into two types of contracts with Arcturus Corporation:

1. A Turnkey Drilling Contract to pay for the organizational costs required in setting up the Venture and to pay for the drill and testing costs of one prospect. well. Upon recommendation by the operator to complete and a majority vote, a second contract is entered into by the Venture.

2. A Turnkey Completion Contract to pay for any additional organization costs and

to pay for the costs of completing the well to the point it is capable of production.

Although the purpose of the Venture is for economic benefit, there are favorable federal income tax aspects afforded to each participant in these programs. Each program memorandum outlines the risks and rewards associated with each Venture and the related tax aspects and appropriate disclaimers necessary to adequately inform these sophisticated investors. The following provides you with a detailed explanation of these tax items, their benefits and the tax treatment by the partnership, which is important to keep in mind when discussing our programs to these qualified investors. Keep in mind we never represent this information as tax advice but as information necessary for our investors to make an informed decision and for them to seek their own tax advice from their accountant or CPA.

I. Drill & Test Phase

Funds Raised during this phase cover two types of costs:

1. Organization Costs

What are Organization Costs:

Organization Costs shall mean the aggregate of:

o Expenses for printing and mailing material used in connection with the applications for particlpation in the Venture and/or collection of assessment.

General & Administrative Costs of the Managing Venture during the capitalization period directly associated with the organization and formation of the Venture.

o Allocable salaries and expenses of employees of the Managing Venture assisting with organization and formation of the Venture and/or collection of assessments;

o Attorneys' and accountants' fees in connection with the organization and formation of the Venture and the preparation of the Memorandum and/or collection of the assessments.

o All other expenses in connection with formation incurred by the Venture or Managing Venturer, including processing the applications for participation in the Venture and collection of assessments.

Organization Fees are not:

o Selling & Promotion Costs

o Commissions

o These costs are syndication fees which are expressly not deductible by the partnership. Such costs are the burden of Arcturus Corporation.

Tax Treatment: The Tax Reform Act of 1976 added Section 709 to the Internal Revenue Code which precludes a deduction, in years beginning after December 31, 1975 for amounts paid or incurred to organize a partnership or promote the sale of (or to sell) an interest in such partnership. However, amounts paid or incurred after December 31,1976 to organize a partnership (as distinguished from promoting or selling an interest therein) may be amortized over a period of not less than 60 months. In our programs we elect to amortize organization costs over 60 months. If the partnership is liquidated within the amortizationperiod, the unamortized portion will be deducted as an expense under section 165 of the Code.

2. Intangible Drilling Costs (IDC)

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