U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                  FORM 10-KSB/A

                                  Amendment #1


(Mark One)

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

        For the fiscal year ended December 31, 2004

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

         For the transition period from _____ to _______

                         Commission file number 0-25455

                            LEXINGTON RESOURCES, INC.
        _________________________________________________________________
        (Exact name of small business issuer as specified in its charter)

         NEVADA                                                 88-0365453
_______________________________                             ___________________
(State or other jurisdiction of                              (I.R.S. Employer
incorporation of organization)                              Identification No.)

                            7473 West Lake Mead Road
                             Las Vegas, Nevada 89128
                    ________________________________________
                    (Address of Principal Executive Offices)

                                 (702) 382-5139
                           ___________________________
                           (Issuer's telephone number)

      Securities registered pursuant to Section 12(b) of the Exchange Act:

                                      None
                                ________________
                                (Title of class)

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                        Common Stock, Par Value $0.00025
                        ________________________________
                                (Title of class)

     Indicate  by check  mark  whether  the  issuer  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or for such shorter  period that the issuer
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

                             Yes    X      No
                                   ___          ___


<PAGE>


     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be  contained,  to the best of issuer's  knowledge,  in  definitive
prosy of information  statements  incorporated  by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB.
[ X ]

     State  issuer's  revenues for its most recent fiscal year (ending  December
31, 2004): $472,140.

         State the aggregate  market value of the voting and  non-voting  common
equity held by  non-affiliates  computed by  reference to the price at which the
common  equity was last sold,  or the average bid and asked price of such common
equity, as of the last business day of the registrant's most recently  completed
fiscal quarter: December 31, 2004: $20,058,865.

          Applicable Only to issuers Involved in Bankruptcy Proceedings
                        During the Preceding Five Years.

                                       N/A

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

                             Yes    X      No
                                   ___          ___

                    Applicable Only to Corporate Registrants

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date:

Class                                  Outstanding as of March 27, 2005

Common Stock, $.00025 par value         17, 247,052

                       Documents Incorporated By Reference

         List hereunder the following documents if incorporated by reference and
the Part of the Form  10-KSB  (e.g.,  Part I,  Part II,  etc.)  into  which  the
document in  incorporated:  (1) any annual report to security  holders;  (2) any
proxy or information  statement;  and (3) any prospectus  filed pursuant to Rule
424(b) or (c) under the Securities Act of 1933. The listed  documents  should be
clearly described for identification  purposes (e.g.,  annual report to security
holders for fiscal year ended December 24, 1980).


                                       2


<PAGE>


INDEX

ITEM 1.  DESCRIPTION OF BUSINESS                                            5

ITEM 2.  DESCRIPTION OF PROPERTIES                                         25

ITEM 3.  LEGAL PROCEEDINGS                                                 25

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS               25

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
            MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES              25

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATION                             30

ITEM 7.  FINANCIAL STATEMENTS                                              37

         CONSOLIDATED BALANCE SHEET                                        F-3

         CONSOLIDATED STATEMENT OF OPERATIONS                              F-4

         CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                    F-5

         CONSOLIDATED STATEMENTS OF CASH FLOWS                             F-6

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                        F-7

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE                            38

ITEM 8A. CONTROLS AND PROCEDURES                                           38

ITEM 8B. OTHER INFORMATION                                                 39

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
            PERSONS; COMPLIANCE WITH SECIOTN 16(a) OF THE
               EXCHANGE ACT                                                39

ITEM 10. EXECUTIVE COMPENSATION                                            42

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
            AND MANAGEMENT                                                 44

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                    45

ITEM 13. EXHIBITS                                                          48

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                            49

SIGNATURES                                                                 50


                                       3


<PAGE>


                           FORWARD LOOKING STATEMENTS

         Statements  made in this Form 10-KSB that are not historical or current
facts  are  "forward-looking  statements"  made  pursuant  to  the  safe  harbor
provisions of Section 27A of the  Securities Act of 1933 (the "Act") and Section
21E of the  Securities  Exchange  Act of 1934.  These  statements  often  can be
identified  by the use of terms  such as  "may,"  "will,"  "expect,"  "believe,"
"anticipate,"  "estimate," "approximate" or "continue," or the negative thereof.
We intend that such  forward-looking  statements  be subject to the safe harbors
for such  statements.  We wish to caution readers not to place undue reliance on
any such forward-looking  statements,  which speak only as of the date made. Any
forward-looking  statements represent  management's best judgment as to what may
occur in the future. However,  forward-looking  statements are subject to risks,
uncertainties  and important  factors beyond our control that could cause actual
results and events to differ  materially from  historical  results of operations
and events  and those  presently  anticipated  or  projected.  We  disclaim  any
obligation  subsequently  to revise any  forward-looking  statements  to reflect
events or  circumstances  after the date of such  statement  or to  reflect  the
occurrence of anticipated or unanticipated events.

AVAILABLE INFORMATION

         Lexington  Resources,  Inc. files annual,  quarterly,  current reports,
proxy  statements,  and  other  information  with the  Securities  and  Exchange
Commission (the  "Commission").  You may read and copy documents  referred to in
this Annual Report on Form 20-F that have been filed with the  Commission at the
Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. You
may obtain  information on the operation of the Public Reference Room by calling
the Commission at  1-800-SEC-0330.  You can also obtain copies of our Commission
filings by going to the Commission's website at http://www.sec.gov


                                       4


<PAGE>


                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS DEVELOPMENT

         Lexington Resources,  Inc. was incorporated under the laws of the State
of Nevada in 1996 under the name "All Wrapped Up, Inc." During 1997, the Company
changed it name to  Intergold  Corporation  and was  engaged in the  business of
exploration of gold and precious  metals in the United  States.  On November 20,
2003, we filed an amendment to our articles of  incorporation  changing our name
to "Lexington Resources, Inc."

         On November 19,  2003,  Intergold  Corporation  (now known as Lexington
Resources,  Inc.),  Lexington  Oil & Gas  Ltd.  Co.  LLC,  an  Oklahoma  limited
liability company ("Lexington Oil & Gas", or "Lexington"),  and the shareholders
of  Lexington  (the  "Lexington  Oil & Gas  Shareholders")  entered into a share
exchange  agreement (the "Share Exchange  Agreement").  Pursuant to the terms of
the  Share  Exchange  Agreement,  we  acquired  from  the  Lexington  Oil  & Gas
Shareholders one hundred percent (100%) of the issued and outstanding  shares of
common  stock of  Lexington  Oil & Gas and issued  3,000,000  pre-forward  split
shares of our common stock to the Lexington Oil & Gas Shareholders in proportion
to their  respective  holdings in Lexington  Oil & Gas. In  accordance  with the
terms  of  the  Agreement:  (i)  Lexington  Oil & Gas  became  our  wholly-owned
subsidiary;  (ii) we changed  our name to  "Lexington  Resources,  Inc." and our
trading  symbol  to  "LXRS";  and (iii) our sole  business  operations  are as a
natural resource  exploration company engaged in the acquisition and development
of oil and natural gas properties in the United States.

         This  acquisition has been accounted for as a reverse  acquisition with
Lexington  Oil & Gas  being  treated  as the  accounting  parent  and  Lexington
Resources,  Inc., the legal parent, being treated as the accounting  subsidiary.
Accordingly, the consolidated results of operations of the Company include those
of Lexington  Oil & Gas for the period from its  inception on September 29, 2003
and  those  of  Lexington  Resources,   Inc.  since  the  date  of  the  reverse
acquisition.  Please note that  throughout  this  report,  and unless  otherwise
noted,  the  words  "we,"  "our,"  "us," or the  "Company"  refer  to  Lexington
Resources, Inc.

CURRENT BUSINESS OPERATIONS

GENERAL

         We are a natural resource  exploration and production company currently
engaged  in  the  exploration,  acquisition  and  development  of  oil  and  gas
properties in the United  States.  We hold an 80% working  interest and a 60.56%
net revenue interest in approximately  590 gross acres of a gas lease located in
Pittsburg County,  Oklahoma (the "Wagnon Lease").  Our wholly-owned  subsidiary,
Lexington Oil & Gas,  previously acquired the 590 gross acre section of farm-out
acreage for the  development  and  production  of coal bed methane  gas. We have
drilled,  completed, and are producing gas from the first three wells drilled on
the Wagnon Lease. We are currently drilling a fourth well of up to five wells on
this lease. We have utilized  private funding for the capital  required to drill
wells on the Wagnon Lease. After invested capital is repaid to the working


                                       5


<PAGE>


interest  parties  who  provided  funding,  we will  back  into a 53.2%  working
interest in net operating cash flows from wells drilled on this lease.

         Further,  during fiscal year 2004, we  consummated  the  acquisition of
prospects in the Arkoma Basin in the State of  Oklahoma,  including  1,932 gross
leasehold acres in the Coal Creek Prospect, 292 gross acres in the Panther Creek
Prospect, 320 gross acres in the Middlecreek Prospect,  1,144 gross acres in the
South Lamar  Prospect,  and 5,170 gross acres in the H-9 Prospect.  We currently
have  an  aggregate  of  approximately  590  gross  developed  and  8,858  gross
undeveloped acres pursuant to leases and/or concessions.

         We have experienced  delays in obtaining  drilling rigs in the past due
to the high drilling demand in the Arkoma Basin where we have been concentrating
our coal bed methane and other gas targeted production and leasing programs.  On
November 9, 2004, we announced  that we had reached an agreement  with Oak Hills
Drilling and Operating, LLC, ("Oak Hills Drilling") to drill a ten well program.
Oak  Hills  Drilling  is  an  Oklahoma  based  private  drilling  and  operating
contractor that will provide drill rig and drilling  expertise for us to execute
our planned drilling initiatives. Douglas Humphreys, one of our directors, is an
officer,  director  and a 25%  shareholder  of Oak  Hills  Drilling.  Management
believes that this agreement  helps  eliminate  wait times for  proceeding  with
planned  drilling  initiatives due to limited rig  availability and helps ensure
the  continuous  availability  of a dedicated  drilling rig and crew.  Oak Hills
Drilling's  triple  drill rig has recently  undergone  final  outfitting  and is
currently drilling in the field. We anticipate using Oak Hills Drilling to drill
further gas wells for the Company.  The terms and  conditions  obtained from Oak
Hills  Drilling  will be no less  favorable  than those we could  obtain from an
independent third party.

         Our transfer  agent is Transfer  OnLine,  Inc.,  317 S.W. Alder Street,
Portland, Oregon 97204.

OIL AND GAS PROPERTIES

         We maintain an aggregate of approximately 590 gross developed acres and
8,858 gross  undeveloped  acres  pursuant to leases  and/or  concessions  in the
Arkoma Basin in the State of Oklahoma as described below.

         WAGNON LEASE

         We hold a 80% working  interest  and a 60.56% net  revenue  interest in
approximately  590 gross  acres of a gas lease  located on the  Wagnon  Lease in
Pittsburg County, Oklahoma (the "Wagnon Lease"). The gas lease was acquired from
Oak Hills Energy,  Inc. ("Oak Hills Energy"),  which acquired the lease pursuant
to a farm-out agreement with Quinton Rental & Repair Services, Inc. (the "Wagnon
Farm-Out Agreement"). Our interest relating to the Wagnon Property is subject to
farm-out  agreements  equating to a total 20% working  interest  between  Paluca
Petroleum,  Inc.  ("Paluca"),  an  affiliate  of one of our  directors,  Douglas
Humphreys , Oak Hills Energy, Inc., and the lessee of the Wagnon Property.

          As of December 31, 2004,  we have  drilled,  completed,  and put three
wells into  production.  A fourth well is being  drilled in the first quarter of
2005.

         The  Kellster  #1-5 coal bed  methane  gas well  ("Kellster  #1-5") was
drilled  to a depth of  approximately  2,400  feet  vertically  and  2,200  feet
horizontally  and has been  producing  since  the  middle of  February  2004 and
continues through dewatering stages.


                                       6


<PAGE>


         The Kyndal #2-2 coal bed methane gas well ("Kyndal #2-2") was completed
in June 2004 to a depth of  approximately  2,400 feet  vertically and 2,200 feet
horizontally  and is located in close  proximity to the Kellster #1-5 well.  The
Kyndal  #2-2 well feeds  directly  into the  existing  pipeline  and  compressor
station infrastructure located on the Wagnon Lease.

         The Bryce #3-2 coal bed methane gas well ("Bryce  #3-2") was  completed
in August 2004 and is also located in close proximity to the Kellster #1-5 well.
Completion  of drilling of the Bryce #3-2 coal bed methane gas well  resulted in
vertical  depths of  approximately  2,400  feet with an  approximate  2,000 foot
horizontally  drilled  section  utilizing  drilling  protocols  similar to those
previously  utilized in the drilling of the  Kellster  #1-5 and Kyndal #2-2 coal
bed methane gas wells. The Bryce #3-2 well has been completed and the well is in
production.

         We have commenced operations on our fourth well in the Wagnon Prospect,
the  Caleigh  #4-2  coal bed  methane  gas well.  As of the date of this  Annual
Report,  the Caleigh #4-2 well has been drilled,  and awaits completion and hook
up into the existing pipeline.  Drilling and completion time is estimated at two
to  three  weeks  based  on  depths  and  drilling  protocols  similar  to those
previously  experienced in the drilling of the Hartshorne Coal production target
of the Kyndal,  Kellster and Bryce wells. The Calleigh #4-2 coal bed methane gas
well resulted in vertical depths of approximately 2,600 feet with an approximate
1,800 foot horizontally drilled section.

         We have entered into funding  agreements for the Kellster #1-5,  Kyndal
#2-2,   Bryce  #3-2,  and  Caleigh  #4-2  wells   (collectively,   the  "Funding
Agreements").  Pursuant  to  the  Funding  Agreements,  private  investors  were
provided with an 80% working  interest and a 60.56% net revenue  interest in the
wells  until their  respective  invested  capital in each well is repaid,  after
which time the private  investors  will  revert to an  aggregate  20.1%  working
interest  and a 15.075%  net  revenue  interest.  Oak Hills  Energy,  Inc.,  the
original  driller and operator of the wells,  will  "back-in" to a  reversionary
6.7% working interest after the working interest capital is repaid and Lexington
Oil & Gas will "back-in" to a reversionary  53.2% working interest.  Pursuant to
the further  terms and  provisions  of the Funding  Agreements,  all wells to be
drilled  on the  Wagnon  Lease  will carry  royalty  interests  totaling  25% to
landowners and property interest  holders,  and a carried working interest of 5%
to a landowner,  as well as a 10% carried working  interest to a company related
to Douglas  Humphreys,  one of our  directors.  In addition,  we agreed to allow
Humphreys to  participate  in up to an additional  5% working  interest in every
well drilled by us on the Wagnon Lease.

         COAL CREEK PROSPECT

         On March 12, 2004 we entered into a lease for approximately 1,536 gross
acres in the Coal Creek Gas Prospect,  located in Hughes  County,  Oklahoma (the
"Coal Creek Lease").  Under the terms and provisions of the Coal Creek Lease, we
have an  undivided  95% to 100%  working  interest  in the  subject  lands and a
minimum 79% net revenue interest. On May 20, 2004, we acquired an additional 372
acres of the Coal Creek  Prospect  with a minimum  95%  working  interest in the
subject lands and a 78% net revenue interest. On August 20, 2004, we acquired an
additional  approximate  23 acres of the Coal Creek  Prospect with a minimum 95%
working interest in the subject lands and a 79% net revenue interest.


                                       7


<PAGE>


         PANTHER CREEK PROSPECT

         On March 12, 2004, we entered into a lease for  approximately 292 gross
acres  located in five  separate  sections in the Panther Creek coal bed methane
gas prospect,  located in Hughes  County,  State of Oklahoma (the "Panther Creek
Lease").  We have a 100%  working  interest and an  approximate  81% net revenue
interest in the subject property.

         On January 25,  2005,  we entered into a joint  operating  agreement to
participate  in one of three proposed wells to be drilled in the vicinity of our
leases in the Panther Creek  Prospect  (the "Joint  Operating  Agreement")  with
Newfield  Exploration  Mid-Continent Inc., a subsidiary of Newfield  Exploration
Company  ("Newfield").  Pursuant  to the  terms  and  provisions  of  the  Joint
Operating  Agreement:  (i)  Newfield  shall drill and operate the first well and
explore other zones up to 8500 feet in depth;  (ii) we have an  approximate  25%
working  interest in the first well;  and (iii)  Newfield has the right to drill
the first well until  December 31, 2005.  As of the date of this Annual  Report,
Newfield  has  completed  drilling  the  well,  and  the  well is  selling  gas.
Management has also elected to participate with Newfield in two further wells to
be drilled on other sections in the Panther Creek Prospect with  approximate 11%
and 4%  working  interests  to  Lexington,  respectively,  in the  proposed  two
additional wells.

         SOUTH LAMAR PROSPECT

         On April 22,  2004,  we acquired 960 gross  undeveloped  acres in three
sections  of  farm-out  acreage to develop  coal bed methane gas wells in Hughes
County,  State of Oklahoma (the "South Lamar  Farm-Out").  Pursuant to the terms
and provisions of the South Lamar Farm-Out,  we hold a 100% working interest and
a 78.5% net  revenue  interest  in 960 gross  undeveloped  acres to develop  gas
producing   wells.   The  acreage  was   purchased   originally  by  Paluca  for
approximately $100,000, and the exchange of certain other equipment. On July 26,
2004,  we acquired an  additional  184 acres in the South Lamar  Prospect with a
100% working interest and a 79% net revenue interest.

         MIDDLECREEK PROSPECT

         On May 24, 2004, we acquired a 320 gross acres in the  Middlecreek  Gas
Prospect  located  in  Hughes  County,   State  of  Oklahoma  (the  "Middlecreek
Prospect").  The Middlecreek  Prospect  includes  existing wells on the property
with minor production from the Gilchrease zone and represents an average 70% net
revenue  interest and a 100% working  interest.  Rights to drill all  geological
zones  are  included  and  primary  gas  targets  include  the  Caney  shale and
Hartshorne  coal  zones with  further  possibilities  in the  Booch,  Stuart and
Savannah zones. The Middlecreek  Prospect includes a 2,000 foot gas pipeline and
pipeline right of way.

         H-9 PROSPECT

         On June 29, 2004, we acquired approximately 4,850 gross leasehold acres
in  approximately 38 sections of the H-9 Prospect located in Hughes and McIntosh
counties  in the State of  Oklahoma  (the "H-9  Prospect").  We  acquired a 100%
working  interest  and a 79.25% net  revenue  interest in the H-9  Prospect.  We
subsequently acquired an additional 320 gross acres of leases in the H-9 area of
interest with a 100% working interest and a 78.25% net revenue interest.


                                       8


<PAGE>


DRILLING ACTIVITY

         The following  table sets forth the results of our coal bed methane gas
drilling activity as of December 31, 2004:

         _____________________________________________________________________

         Gross Wells                           Net Wells
         _____________________________________________________________________

         Total           Producing     Dry     Total         Producing     Dry
         _____________________________________________________________________

         3               3             0       2.40          2.40          0
         _____________________________________________________________________

PRODUCTION INFORMATION

         During the prior three fiscal years, we had no oil and gas production.

PRODUCING WELLS AND ACREAGE

         GROSS AND NET  PRODUCTIVE GAS WELLS,  DEVELOPED  ACREAGE AND OVERRIDING
ROYALTY INTERESTS.

         Productive  wells and developed  acres.  The tables below set forth our
leasehold  interest in productive and shut-in gas wells, and in developed acres,
at December 31, 2004:

         __________________________________________________

         Prospect           Gross(1)                Net (2)
         __________________________________________________

         Wagnon             3                       2.40
         __________________________________________________

         (1) A gross well is a well in which a working  interest  is owned.  The
number of gross wells is the total  number of wells in which a working  interest
is owned.

         (2) A net well is deemed to exist when the sum of fractional  ownership
working  interest in gross wells  equals one. The number of net wells is the sum
of the  fractional  working  interests  owned in gross wells  expressed as whole
numbers and fractions thereof.

         DEVELOPED ACREAGE TABLE(1)

         __________________________________________________

         Prospect           Gross (2)               Net (3)
         __________________________________________________

         Wagnon             590                     443
         __________________________________________________

         (1) Consists of acres spaced or assignable to productive wells.

         (2) A gross acre is an acre in which a working  interest is owned.  The
number of gross acres is the total  number of acres in which a working  interest
is owned.

         (3) A net acre is deemed to exist when the sum of fractional  ownership
working  interests in gross acres equals one. The number of net acres is the sum
of the  fractional  working  interests  owned in gross acres  expressed as whole
numbers and fractions thereof.

UNDEVELOPED ACREAGE

         LEASEHOLD INTERESTS

         The table  below  sets  forth our  leasehold  interest  in  undeveloped
acreage at December 31, 2004:

         _____________________________________________________

         Prospect                Gross                   Net
         _____________________________________________________

         Coal Creek              1,932                   1,932
         _____________________________________________________

         Panther Creek           292                     292
         _____________________________________________________

         South Lamar             1,144                   1,144
         _____________________________________________________

         H-9                     5,170                   5,170
         _____________________________________________________


                                       9


<PAGE>


GAS DELIVERY COMMITMENTS

         We have no gas delivery commitments. Lexington Oil & Gas contracts with
Oak Hills Energy,  Inc.,  which  contracts  for pipeline  with  Williams  Arkoma
Gathering  Company,  LLC. Lexington Oil & Gas contracts with Unimark LLC to sell
gas produced.

DRILLING COMMITMENTS

         At this time we are committed to drilling one additional well on Wagnon
Lease,  the Caleigh #4-2 well, and the non-Company  operated well on the Panther
Creek Project  drilled and operated by Newfield.  We have also  committed to the
drilling of a new well on the Coal Creek Prospect, the Lex 1 well.

RESERVE INFORMATION

         We have obtained a reserve and economic evaluation report regarding the
Wagnon Lease which was conducted by Fletcher Lewis Engineering, Inc. of Oklahoma
dated  September 9, 2004 (the  "Reserve and Economic  Evaluation  Report").  The
Reserve and Economic Evaluation Report estimates  recoverable  reserves from the
Wagnon Lease, the present value and a discounted  present value of 10% of future
cash flow there from. The Reserve and Economic  Evaluation Report indicates that
as of September 1, 2004, there is  approximately  1,531,026 MCF, with future net
revenue of $5,274,000 in net gas reserve from proven  producing wells and proven
undeveloped  sites on the Wagnon Lease when using a gas price of $4.57 MCF and a
present  value 10%  discounted  cash  flow on net  production  of  approximately
$4,073,000.

<TABLE>
<CAPTION>
         ___________________________________________________________________________
                                                        FUTURE NET     PRESENT WORTH
                                        NET GAS MCF      CASHFLOW      DISCOUNTED 10%
         ____________________________________________________________________________
         <S>                              <C>           <C>              <C>
         PROVED DEVELOPED PRODUCING       1,176,008     4,353,737        3,446,997
         ____________________________________________________________________________
         SUMMARY UNDEVELOPED                355,018       920,224          626,324
         ____________________________________________________________________________
         TOTAL                            1,531,026     5,273,961        4,073,322
         PRODUCTION YEAR
          ENDED 12/31/04                   (180,123)
         ESTIMATED RESERVES
          AT 12/31/04                     1,350,903
         ____________________________________________________________________________

</TABLE>


         We have not filed any estimates of total proved net oil or gas reserves
with,  or included  such  information  in reports to, any federal  authority  or
agency.

COAL BED METHANE GAS

         Natural  gas  consists  primarily  of methane,  which is produced  when
organic  material  is  physically   turned  into  coal  under  extreme  geologic
conditions.  When the coal and methane  conversion  process occurs such that the
resultant  coal is saturated  with water and methane is trapped within the coal,
the  result  is "coal  bed  methane."  Water  permeates  coal beds and the water
pressure  traps the gas within the coal.  Because  coal has a large and  complex
internal  surface area, it can store volumes of gas six or seven time as much as


                                       10


<PAGE>


a  conventional  nature gas reservoir of equal rock volume.  Coal bed methane is
kept in place usually by the presence of water.  Thus the production of coal bed
methane in many cases  requires the  dewatering of the coal gas to be extracted.
Therefore, in a coal bed gas well, water is produced in large volumes especially
in the early stages of production. As the amount of water in the coal decreases,
gas production increases.

         The  United  States  Geological  Survey  has  estimated  coal  bed  gas
resources of at least 700 trillion cubic feet.  About 100 trillion cubic feet of
that appears to be economically  recoverable with existing technology.  Coal bed
gas  currently  accounts for about 7.5% of total  natural gas  production in the
United States.

COMPETITION

         We operate in a highly competitive  industry,  competing with major oil
and gas  companies,  independent  producers  and  institutional  and  individual
investors,  which are actively  seeking oil and gas  properties  throughout  the
world  together  with the  equipment,  labor and  materials  required to operate
properties.  Most  of our  competitors  have  financial  resources,  staffs  and
facilities substantially greater than ours. The principal area of competition is
encountered in the financial ability to acquire good acreage positions and drill
wells to explore for oil and gas, then, if warranted, drill production wells and
install  production  equipment.  Competition  for the acquisition of oil and gas
wells is intense with many oil and gas  properties  and or leases or concessions
available in a competitive  bidding  process in which we may lack  technological
information or expertise  available to other bidders.  Therefore,  we may not be
successful in acquiring and developing profitable properties in the face of this
competition.  No assurance can be given that a sufficient number of suitable oil
and gas wells will be available for acquisition and development.

GOVERNMENT REGULATION

GENERAL

         The production and sale of oil and gas are subject to various  federal,
state and local governmental regulations, which may be changed from time to time
in  response  to economic or  political  conditions  and can have a  significant
impact upon overall operations.  Matters subject to regulation include discharge
permits for drilling operations,  drilling bonds, reports concerning operations,
the  spacing  of  wells,  unitization  and  pooling  of  properties,   taxation,
abandonment  and  restoration  and  environmental  protection.  These  laws  and
regulations are under constant  review for amendment or expansion.  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.  Changes in
these  regulations  could require us to expend  significant  resources to comply
with new laws or regulations or changes to current requirements and could have a
material adverse effect on us.

OIL AND GAS REGULATION

         The  governmental  laws and  regulations  which  could  have a material
impact on the oil and gas exploration and production industry are as follows:


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<PAGE>


         DRILLING AND PRODUCTION

         Our  operations  are subject to various types of regulation at federal,
state,  local and Native  American  tribal  levels.  These  types of  regulation
include requiring permits for the drilling of wells,  drilling bonds and reports
concerning operations. Most states, and some counties, municipalities and Native
American tribes, in which we operate also regulate one or more of the following:
(i) the location of wells;  (ii) the method of drilling and casing wells;  (iii)
the rates of production or "allowables"; (iv) the surface use and restoration of
properties  upon  which  wells are  drilled  and other  third  parties;  (v) the
plugging and  abandoning of wells;  and (vi) notice to surface  owners and other
third parties.

         State laws regulate the size and shape of drilling and spacing units or
proration units  governing the pooling of oil and natural gas  properties.  Some
states allow forced pooling or  integration of tracts to facilitate  exploration
while  other  states  rely on  voluntary  pooling of lands and  leases.  In some
instances, forced pooling or unitization may be implemented by third parties and
may  reduce  our  interest  in  the  unitized  properties.  In  addition,  state
conservation laws establish maximum rates of production from oil and natural gas
wells,  generally  prohibit  the  venting or  flaring of natural  gas and impose
requirements regarding the ratability of production.  These laws and regulations
may limit the amount of  natural  gas and oil we can  produce  from our wells or
limit the number of wells or the locations at which we can drill. Moreover, each
state  generally  imposes a  production  or  severance  tax with  respect to the
production  and sale of oil,  natural gas and  natural  gas  liquids  within its
jurisdiction.

         NATURAL GAS SALES TRANSPORTATION

         Historically, federal legislation and regulatory controls have affected
the price of the  natural  gas we produce  and the manner in which we market our
production.  The Federal Energy Regulatory  Commission ("FERC") has jurisdiction
over the  transportation  and sale  for  resale  of  natural  gas in  interstate
commerce  by natural  gas  companies  under the  Natural Gas Act of 1938 and the
Natural Gas Policy Act of 1978.

         FERC also regulates  interstate  natural gas  transportation  rates and
service conditions,  which affects the marketing of natural gas that we produce,
as well as the revenues we receive for sales of our natural gas.  Commencing  in
1985,  FERC  promulgated a series of orders,  regulations  and rule makings that
significantly fostered competition in the business of transporting and marketing
gas.   Today,   interstate   pipeline   companies   are   required   to  provide
nondiscriminatory  transportation  services to  producers,  marketers  and other
shippers,  regardless of whether such shippers are affiliated with an interstate
pipeline company. Under FERC's current regulatory regime,  transmission services
must be provided on an open-access, non-discriminatory basis at cost-based rates
or at market-based rates if the  transportation  market at issue is sufficiently
competitive.

         MINERAL ACT

         The Mineral  Leasing Act of 1920 ("Mineral  Act")  prohibits  direct or
indirect  ownership of any  interest in federal  onshore oil and gas leases by a
foreign  citizen  of a country  that  denies  "similar  or like  privileges"  to
citizens   of  the  United   States.   Such   restrictions   on  citizens  of  a
"non-reciprocal"  country include ownership or holding or controlling stock in a
corporation  that holds a federal onshore oil and gas lease. If this restriction


                                       12


<PAGE>


is violated,  the corporation's lease can be canceled in a proceeding instituted
by the United States Attorney General. Although the regulations of the Bureau of
Land  Management  (which   administers  the  Mineral  Act)  provide  for  agency
designations  of   non-reciprocal   countries,   there  are  presently  no  such
designations in effect.

ENVIRONMENTAL REGULATION

         Our  activities  will be subject to existing  federal,  state and local
laws and regulations governing  environmental quality and pollution control. Our
operations  will be subject to stringent  environmental  regulation by state and
federal authorities including the Environmental  Protection Agency ("EPA"). Such
regulation  can increase the cost of such  activities.  In most  instances,  the
regulatory requirements relate to water and air pollution control measures.

WASTE DISPOSAL

         The Resource  Conservation  and Recovery Act ("RCRA"),  and  comparable
state  statutes,  affect oil and gas  exploration  and production  activities by
imposing  regulations on the  generation,  transportation,  treatment,  storage,
disposal and cleanup of "hazardous  wastes" and on the disposal of non-hazardous
wastes.  Under the auspices of the EPA, the individual states administer some or
all of the  provisions of RCRA,  sometimes in  conjunction  with their own, more
stringent requirements.  Drilling fluids, produced waters, and most of the other
wastes  associated with the  exploration,  development,  and production of crude
oil,  natural gas, or geothermal  energy  constitute  "solid wastes",  which are
regulated under the less stringent non-hazardous waste provisions,  but there is
no guarantee that the EPA or the individual states will not adopt more stringent
requirements  for the  handling  of  non-hazardous  wastes  or  categorize  some
non-hazardous wastes as hazardous for future regulation.

COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT

         The federal  Comprehensive  Environmental  Response,  Compensation  and
Liability  Act  ("CERCLA")  imposes  joint and  several  liability  for costs of
investigation and remediation and for natural resource  damages,  without regard
to fault or the legality of the original conduct,  on certain classes of persons
with respect to the release into the environment of substances  designated under
CERCLA as  hazardous  substances  ("Hazardous  Substances").  These  classes  of
persons or potentially  responsible parties include the current and certain past
owners and  operators  of a facility  or  property  where there is or has been a
release or threat of release of a Hazardous  Substance  and persons who disposed
of or arranged  for the  disposal of the  Hazardous  Substances  found at such a
facility.  CERCLA also  authorizes the EPA and, in some cases,  third parties to
take actions in response to threats to the public health or the  environment and
to seek to recover the costs of such action.  Although CERCLA generally  exempts
petroleum from the definition of Hazardous  Substances in the course operations,
we may in the future  generate  wastes that fall within  CERCLA's  definition of
Hazardous Substances. We may also in the future become an owner of facilities on
which  Hazardous  Substances have been released by previous owners or operators.
We may in the future be responsible under CERCLA for all or part of the costs to
clean up facilities or property at which such  substances have been released and
for natural resource damages.


                                       13


<PAGE>


AIR EMISSIONS

         Our operations are subject to local, state and federal  regulations for
the control of emissions of air  pollution.  Major sources of air pollutants are
subject  to  more  stringent,   federally   imposed   permitting   requirements.
Administrative  enforcement  actions  for  failure to comply  strictly  with air
pollution  regulations or permits are generally  resolved by payment of monetary
fines and correction of any identified deficiencies.  Alternatively,  regulatory
agencies could require us to forego  construction,  modification or operation of
certain air emission sources.

CLEAN WATER ACT

         The Clean Water Act ("CWA")  imposes  restrictions  and strict controls
regarding the discharge of wastes,  including  produced waters and other oil and
natural gas wastes,  into waters of the United States,  a term broadly  defined.
Permits must be obtained to discharge  pollutants into federal  waters.  The CWA
provides  for civil,  criminal and  administrative  penalties  for  unauthorized
discharges  of oil,  hazardous  substances  and  other  pollutants.  It  imposes
substantial  potential  liability  for  the  costs  of  removal  or  remediation
associated with discharges of oil or hazardous substances.  State laws governing
discharges  to water also provide  varying  civil,  criminal and  administrative
penalties and impose  liabilities  in the case of a discharge of petroleum or it
derivatives,  or other hazardous substances, into state waters. In addition, the
EPA has  promulgated  regulations  that may  require  us to  obtain  permits  to
discharge  storm water  runoff.  In the event of an  unauthorized  discharge  of
wastes, we may be liable for penalties and costs.

         Management believes that we are in substantial  compliance with current
applicable environmental laws and regulations.

RESEARCH AND DEVELOPMENT ACTIVITIES

         No research and development expenditures have been incurred,  either on
our account or sponsored by customers, during the past three years.

EMPLOYEES

         We do not employ any  persons on a full-time  or on a part-time  basis.
Grant Atkins is our President and Chief Executive Officer,  Vaughn Barbon is our
Chief  Financial  Officer,  and Douglas  Humphreys  is the  Drilling  Operations
Manager  of  Lexington  Oil &  Gas.  All  of  these  individuals  are  primarily
responsible  for all our day-to-day  operations.  Other services are provided by
outsourcing,  consultant,  and special purpose contracts. Our current designated
drilling contractor and well operator is Oak Hills Drilling and Operating, LLC.

RISK FACTORS

         An investment in our common stock involves a number of very significant
risks.  You should carefully  consider the following risks and  uncertainties in
addition to other  information in evaluating our company and its business before
purchasing  shares of our common  stock.  Our  business,  operating  results and
financial condition could be seriously harmed due to any of the following risks.
The risks  described  below are all of the material  risks that we are currently
aware of that are facing our company. Additional risks not presently known to us
may also  impair  our  business  operations.  You could lose all or part of your
investment due to any of these risks.


                                       14


<PAGE>


RISKS RELATED TO OUR BUSINESS

         OUR  BUSINESS  IS  DIFFICULT  TO  EVALUATE  BECAUSE  WE HAVE A  LIMITED
OPERATING  HISTORY.  In considering  whether to invest in our common stock,  you
should  consider that there is only limited  historical  financial and operating
information  available on which to base your evaluation of our performance.  Our
inception was September 29, 2003 and, as a result,  we have a limited  operating
history.

         WE HAVE A HISTORY OF OPERATING LOSSES AND THERE CAN BE NO ASSURANCES WE
WILL BE PROFITABLE IN THE FUTURE. We have a history of operating losses,  expect
to  continue  to  incur  losses,  and may  never be  profitable,  and we must be
considered to be in the development  stage.  Further,  we have been dependent on
sales of our equity securities and debt financing to meet our cash requirements.
We have incurred losses totaling approximately  $6,092,689 for fiscal year ended
December 31, 2004.  As of December 31, 2004,  we had an  accumulated  deficit of
$7,568,155 and a working capital deficit of $382,953.  Further, we do not expect
positive cash flow from operations in the near term.  There is no assurance that
actual  cash  requirements  will  not  exceed  our  estimates.   In  particular,
additional  capital may be required in the event that:  (i) the costs to acquire
additional  leases are more than we  currently  anticipate;  (ii)  drilling  and
completion costs for additional wells increase beyond our expectations; or (iii)
we encounter greater costs associated with general and  administrative  expenses
or offering costs.

         Our development of and  participation in an increasingly  larger number
of oil and gas prospects  has required and will continue to require  substantial
capital  expenditures.  The  uncertainty and factors  described  throughout this
section may impede our  ability to  economically  find,  develop,  exploit,  and
acquire natural gas and oil reserves. As a result, we may not be able to achieve
or sustain profitability or positive cash flows from operating activities in the
future.

         WE HAVE RECEIVED A GOING CONCERN OPINION FROM OUR INDEPENDENT  AUDITORS
REPORT  ACCOMPANYING  OUR  DECEMBER  31,  2004 AND 2003  CONSOLIDATED  FINANCIAL
STATEMENTS.  The independent auditor's report accompanying our December 31, 2004
and 2003 consolidated  financial  statements  contains an explanatory  paragraph
expressing  substantial  doubt about our ability to continue as a going concern.
The  consolidated  financial  statements  have been prepared  "assuming that the
Company  will  continue as a going  concern,"  which  contemplates  that we will
realize our assets and satisfy our  liabilities  and commitments in the ordinary
course of business.  Our ability to continue as a going  concern is dependent on
raising  additional  capital to fund our operations and ultimately on generating
future profitable operations.  There can be no assurance that we will be able to
raise sufficient  additional  capital or eventually have positive cash flow from
operations  to address  all of our cash flow  needs.  If we are not able to find
alternative sources of cash or generate positive cash flow from operations,  our
business and shareholders will be materially and adversely affected.

         WE WILL  REQUIRE  ADDITIONAL  FUNDING  IN THE  FUTURE.  Based  upon our
historical  losses from operations,  we will require  additional  funding in the
future. If we cannot obtain capital through financings or otherwise, our ability
to execute our development  plans and achieve  production levels will be greatly
limited.  Our current development plans require us to make capital  expenditures
for the  exploration  and  development  of our oil and natural  gas  properties.
Historically,  we have funded our operations  through the issuance of equity and
short-term debt financing arrangements.  We may not be able to obtain additional
financing  on  favorable  terms,  if at  all.  Our  future  cash  flows  and the


                                       15


<PAGE>


availability  of financing  will be subject to a number of variables,  including
potential production and the market prices of oil and natural gas. Further, debt
financing  could  lead to a  diversion  of cash flow to  satisfy  debt-servicing
obligations and create restrictions on business operations.  If we are unable to
raise  additional  funds,  it would  have a  material  adverse  effect  upon our
operations.

         OUR ACQUISITIONS MAY NOT BE SUCCESSFUL. As part of our growth strategy,
we  intend  to  acquire  additional  oil and  gas  production  properties.  Such
acquisitions may pose substantial  risks to our business,  financial  condition,
and results of operations. In pursuing acquisitions,  we will compete with other
companies,  many of which have greater  financial and other resources to acquire
attractive  properties.  Even  if we  are  successful  in  acquiring  additional
properties,  some of the  properties  may not produce  revenues  at  anticipated
levels or failure to conduct drilling on prospects within specified time periods
may  cause  the  forfeiture  of the  lease  in that  prospect.  There  can be no
assurance that we will be able to successfully  integrate  acquired  properties,
which  could  result  in  substantial  costs and  delays  or other  operational,
technical,  or financial problems.  Further,  acquisitions could disrupt ongoing
business  operations.  If any of these  events  occur,  it would have a material
adverse effect upon our operations and results from operations.

         OUR EXPLORATORY AND DEVELOPMENT DRILLING AND PRODUCTION  OPERATIONS MAY
NOT BE SUCCESSFUL.  We intend to drill additional wells and continue  production
operations  on our  current  wells.  There can be no  assurance  that our future
drilling  activities will be successful,  and we cannot be sure that our overall
drilling success rate or our production operations within a particular area will
not decline.  We may not recover all or any portion of our capital investment in
the wells or the underlying  leaseholds.  Unsuccessful drilling activities would
have a material  adverse  effect upon our results of  operations  and  financial
condition.  The  cost of  drilling,  completing,  and  operating  wells is often
uncertain,  and a number of  factors  can delay or prevent  drilling  operations
including:  (i) unexpected drilling conditions;  (ii) pressure or irregularities
in  formation;  (iii)  equipment  failures or  accidents;  (iv) adverse  weather
conditions;  and (iv) shortages or delays in  availability  of drilling rigs and
delivery of equipment.

         Further,  the coal beds in the  Arkoma  Basin in the State of  Oklahoma
from which we produce methane gas frequently contain water, which may hamper our
ability to produce gas in commercial quantities.  The amount of coal bed methane
that can be commercially  produced  depends upon the coal quality,  the original
gas content of the coal seam, the thickness of the seam, the reservoir pressure,
the rate at which  gas is  released  from the  coal,  and the  existence  of any
natural fractures through which the gas can flow to the well bore. However, coal
beds  frequently  contain  water  that must be  removed  in order for the gas to
detach from the coal and flow to the well bore.  The average  life of a coal bed
well is only five to six years.  Our ability to remove and dispose of sufficient
quantities  of water  from the coal seam will  determine  whether  or not we can
produce coal bed methane in commercial quantities.

         There is no guarantee  that the potential  drilling  locations  that we
have or acquire in the future will ever produce  natural gas or oil, which could
have a material adverse effect upon our results of operations.

         A DECLINE IN THE PRICE OF OUR COMMON  STOCK COULD AFFECT OUR ABILITY TO
RAISE FURTHER WORKING CAPITAL AND ADVERSELY IMPACT OUR OPERATIONS.  A decline in
the price of our common stock could  result in a reduction  in the  liquidity of


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<PAGE>


our common stock and a reduction in our ability to raise additional  capital for
our operations.  Because our operations to date have been  principally  financed
through  the sale of equity  securities,  a decline  in the price of our  common
stock  could  have an  adverse  effect  upon  our  liquidity  and our  continued
operations.  A reduction  in our ability to raise  equity  capital in the future
would have a material  adverse  effect upon our  business  plan and  operations,
including  our ability to continue  our current  operations.  If our stock price
declines,  we may not be able to raise additional capital or generate funds from
operations sufficient to meet our obligations.

         WE ARE A NEW ENTRANT INTO THE OIL AND GAS INDUSTRY  WITHOUT  PROFITABLE
OPERATING HISTORY AND ONLY HAVE PROVED DEVELOPED PRODUCING FUTURE NET REVENUE OF
$3,446,997  AT  A  10%  DISCOUNTED  PRESENT  WORTH.  Since  September  29,  2003
(inception),  our  activities  have  been  limited  to  organizational  efforts,
obtaining  working capital and acquiring and developing a very limited number of
properties.  As a result,  there is limited information  regarding production or
revenue  generation.  Further, a Reserve and Economic Evaluation dated September
9, 2004 prepared by Fletcher  Lewis  Engineering,  Inc.  shows proved  developed
producing future net revenue of $3,446,997 at a 10% discounted present worth. As
a result, our future revenues may be limited.

         The Wagnon Lease is the oil and gas property where most of our drilling
capital resources have been employed.  This prospect is still in the development
stage, and estimates made at this time by our contracted  independent  reservoir
engineer  as to  proved or  probable  oil and  natural  gas  reserves  cannot be
guaranteed  that  sufficient   reserves  will  be  maintained  or  new  reserves
discovered for production.  Although three wells have been drilled on the Wagnon
Lease to date,  the  absence of a sustained  production  history  provides  risk
regarding  independent  reserve  estimates.  Property  lease  positions in other
locations  that have been  purchased  by us are  unproven,  having  little to no
production,  which  prevents our engineers from assigning any proved or probable
reserves to these other properties.

         NO ASSURANCE OF THE ACCURACY OF THE  ESTIMATES OF OIL AND GAS RESERVES.
We have obtained a report on the estimated  reserves on our leases on the Wagnon
Lease.  Reserve  estimates  are  based  upon  various   assumptions,   including
assumptions  relating to oil and gas prices,  drilling and  operating  expenses,
production levels, capital expenditures, taxes and availability of funds. No one
can measure underground accumulations of oil and natural gas in an exact way. As
a  result,  estimated  quantities  of  proved  reserves,  projections  of future
production  rates, and the timing of development  expenditures may be incorrect.
Any significant  variance from these assumptions to actual figures could greatly
affect our estimates of reserves, the economically recoverable quantities of oil
and  natural  gas  attributable  to any  particular  group  of  properties,  the
classifications  of reserves  based on risk of  recovery,  and  estimates of the
future net cash flows.

         Further,  the  present  value of future  net cash flows from our proved
reserves  is not  necessarily  the  same  as the  current  market  value  of our
estimated  oil and natural gas  reserves.  Actual future net cash flows from our
oil and natural  gas  properties  also will be affected by factors  such as: (i)
actual  prices we receive for oil and natural gas; (ii) the amount and timing of
actual production;  (iii) supply of and demand for oil and natural gas; and (iv)
changes in governmental regulations or taxation.

         The timing of both our  production  and our  incurrence  of expenses in
connection with the development and production of oil and natural gas properties


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<PAGE>


will affect the timing of actual future net cash flows from proved reserves, and
thus their actual present value. In addition,  the 10% discount factor used when
calculating  discounted  future net cash  flows may not be the most  appropriate
discount  factor  based on interest  rates in effect from time to time and risks
associated with us or the oil and natural gas industry in general. Actual future
production,  oil and gas  prices,  revenues,  taxes,  development  expenditures,
operating  expenses and quantities of recoverable oil and gas reserves will most
likely  vary from those  estimates  and any  significant  variance  could have a
material adverse effect on our future results from operations.

         UNLESS WE REPLACE OUR OIL AND NATURAL GAS  RESERVES,  OUR  RESERVES AND
PRODUCTION WILL DECLINE,  WHICH WOULD ADVERSELY  AFFECT OUR BUSINESS,  FINANCIAL
CONDITION AND RESULTS OF  OPERATIONS.  Producing oil and natural gas  reservoirs
generally are  characterized  by declining  production rates that vary depending
upon  reservoir  characteristics  and other  factors.  Thus,  our future oil and
natural gas reserves and production and, therefore, our cash flow and income are
highly  dependent on our success in  efficiently  developing  and exploiting our
current reserves and economically  finding or acquiring  additional  recoverable
reserves.  We may not be able to develop, find or acquire additional reserves to
replace our current and future production at acceptable costs.

         PROSPECTS  THAT WE DECIDE TO DRILL MAY NOT YIELD  NATURAL GAS OR OIL IN
COMMERCIALLY  VIABLE  QUANTITIES.  We describe some of our current  prospects in
this prospectus. Our prospects are in various stages of evaluation, ranging from
a prospect  that is ready to drill to a prospect  that will require  substantial
additional  seismic data  processing  and  interpretation.  However,  the use of
seismic data and other  technologies  and the study of  producing  fields in the
same area will not enable us to know conclusively  prior to drilling and testing
whether  natural gas or oil will be present or, if present,  whether natural gas
or oil  will  be  present  in  sufficient  quantities  to  recover  drilling  or
completion costs or to be economically  viable.  From inception through December
31, 2004,  we  participated  in drilling a total of 3 gross  wells.  If we drill
additional  wells  that we  identify  as dry  holes in our  current  and  future
prospects,  our  drilling  success  rate may  decline  and  materially  harm our
business.  In sum, the cost of drilling,  completing  and operating any wells is
often uncertain and new wells may not be productive.

         WE ARE  SUBSTANTIALLY  DEPENDENT UPON ONLY ONE PROPERTY  LOCATED IN THE
ARKOMA  BASIN,  WHICH CAUSES OUR RISK TO BE  CONCENTRATED.  Our three  producing
wells are located on one property and all of our other leases are located in the
Arkoma Basin in the State of Oklahoma. As a result, we may be disproportionately
exposed to the impact of delays or  interruptions of production from these wells
caused  by  significant   governmental   regulation,   transportation   capacity
constraints,  curtailment of production or  interruption  of  transportation  of
natural gas produced from the wells in this basin.

         PROPERTIES  THAT WE BUY  MAY NOT  PRODUCE  AS  PROJECTED  AND WE MAY BE
UNABLE TO DETERMINE RESERVE POTENTIAL,  IDENTIFY LIABILITIES ASSOCIATED WITH THE
PROPERTIES OR OBTAIN  PROTECTION  FROM SELLERS  AGAINST THEM.  One of our growth
strategies is to capitalize on opportunistic acquisitions of oil and natural gas
reserves.  However, our reviews of acquired properties are inherently incomplete
because  it  generally  is not  feasible  to  review in depth  every  individual
property  involved  in each  acquisition.  A  detailed  review  of  records  and
properties may not necessarily reveal existing or potential  problems,  nor will
it permit a buyer to become sufficiently  familiar with the properties to assess
fully their deficiencies and potential. Further, environmental problems, such as
ground  water  contamination,  are  not  necessarily  observable  even  when  an


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<PAGE>


inspection is undertaken.  Acquiring  properties with  liabilities  would have a
material adverse effect upon our results of operations.

         THE  POTENTIAL  PROFITABILITY  OF OIL AND  GAS  VENTURES  DEPENDS  UPON
FACTORS  BEYOND  OUR  CONTROL.  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. These and other changes and events may materially affect
our financial performance.

         Adverse  weather  conditions  can also hinder  drilling  operations.  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.  The marketability
of oil and gas, which may be acquired or discovered will be affected by numerous
factors beyond our control.  These factors include,  but are not limited to, 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.  These factors cannot be accurately predicted and the
combination  of these factors may result in us not receiving an adequate  return
on our invested capital.

         WE ARE DEPENDENT UPON  TRANSPORTATION  AND STORAGE SERVICES PROVIDED BY
THIRD PARTIES.  We will be dependent on the  transportation and storage services
offered by various interstate and intrastate pipeline companies for the delivery
and sale of our gas supplies. Both the performance of transportation and storage
services by  interstate  pipelines  and the rates  charged for such services are
subject to the jurisdiction of the Federal Energy Regulatory Commission or state
regulatory  agencies.  An  inability  to obtain  transportation  and/or  storage
services  at  competitive  rates  could  hinder  our  processing  and  marketing
operations and/or affect our sales margins.

         OUR RESULTS OF OPERATIONS  ARE DEPENDENT UPON MARKET PRICES FOR OIL AND
NATURAL GAS,  WHICH  FLUCTUATE  WIDELY AND ARE BEYOND OUR CONTROL.  Our revenue,
profitability,  and cash flow  depend  upon the  prices  and  demand for oil and
natural  gas.  The  markets for these  commodities  are very  volatile  and even
relatively modest drops in prices can significantly affect our financial results
and impede our  growth.  Prices  received  also will affect the amount of future
cash flow available for capital expenditures and may affect our ability to raise
additional  capital.  Lower prices may also affect the amount of natural gas and
oil that  can be  economically  produced  from  reserves  either  discovered  or
acquired.

         Factors  that can cause price  fluctuations  include:  (i) the level of
consumer  product demand;  (ii) weather  conditions;  (iii) domestic and foreign
governmental regulations;  (iv) the price and availability of alternative fuels;
(v) technical advances affecting energy consumption; (vi) proximity and capacity
of oil and gas pipelines and other  transportation  facilities;  (vii) political
conditions  in natural gas and oil  producing  regions;  (viii) the domestic and
foreign  supply  of  natural  gas and  oil;  (ix)  the  ability  of  members  of
Organization of Petroleum Exporting Countries to agree to and maintain oil price


                                       19


<PAGE>


and  production  controls;  (x) the price of foreign  imports;  and (xi) overall
domestic and global economic conditions.

         The  availability  of a ready  market for our oil and gas depends  upon
numerous factors beyond our control, including the extent of domestic production
and  importation  of oil and  gas,  the  relative  status  of the  domestic  and
international  economies,  the  proximity  of our  properties  to gas  gathering
systems,  the capacity of those  systems,  the  marketing  of other  competitive
fuels,   fluctuations  in  seasonal  demand  and   governmental   regulation  of
production,  refining,  transportation and pricing of oil, natural gas and other
fuels.

         THE OIL AND GAS INDUSTRY IN WHICH WE OPERATE  INVOLVES  MANY  OPERATING
RISKS THAT CAN CAUSE SUBSTANTIAL  LOSSES. Our drilling activities are subject to
many risks, including the risk that we will not discover commercially productive
reservoirs.  Drilling for oil and natural gas can be unprofitable, not only from
dry holes, but from productive wells that do not produce sufficient  revenues to
return a profit.  In  addition,  our drilling and  producing  operations  may be
curtailed,  delayed or canceled  as a result of other  factors,  including:  (i)
fires;   (ii)   explosions;   (iii)  blow-outs  and  surface   cratering;   (iv)
uncontrollable  flows of underground  natural gas, oil, or formation  water; (v)
natural disasters;  (vi) facility and equipment failures;  (vii) title problems;
(viii)  shortages or delivery  delays of equipment and  services;  (ix) abnormal
pressure  formations;  and (x) environmental  hazards such as natural gas leaks,
oil spills, pipeline ruptures and discharges of toxic gases.

         If any of these events occur,  we could incur  substantial  losses as a
result of (i) injury or loss of life;  (ii) severe damage to and  destruction of
property,   natural   resources  or   equipment;   (iii)   pollution  and  other
environmental   damage;   (iv)   clean-up   responsibilities;   (v)   regulatory
investigation and penalties; (vi) suspension of our operations; or (vii) repairs
necessary to resume operations.  If we were to experience any of these problems,
it could affect well bores, gathering systems and processing facilities, any one
of which could  adversely  affect our ability to conduct  operations.  We may be
affected  by any of these  events  more  than  larger  companies,  since we have
limited working capital. We currently maintain $2 million of liability insurance
on bodily  injury per year,  for up to 25 wells,  which  includes  coverage  for
pollution, environmental damage and chemical spills. However, for some risks, we
may elect not to obtain insurance if we believe the cost of available  insurance
is  excessive  relative  to the risks  presented.  In  addition,  pollution  and
environmental risks generally are not fully insurable. If a significant accident
or other event occurs and is not fully covered by insurance,  it could adversely
affect operations. Moreover, we cannot provide assurance that we will be able to
maintain adequate insurance in the future at rates considered reasonable.

         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
natural  gas  industry  is  intensely  competitive,  and we  compete  with other
companies that have greater resources.  Many of these companies not only explore
for and produce oil and natural gas, but also carry on refining  operations  and
market petroleum and other products on a regional,  national or worldwide basis.
These  companies  may be able to pay more for  productive  oil and  natural  gas
properties and exploratory prospects or define, evaluate, bid for and purchase a
greater number of properties and prospects than our financial or human resources
permit.  In addition,  these  companies  may have a greater  ability to continue
exploration  activities during periods of low oil and natural gas market prices.
Our larger  competitors  may be able to absorb the burden of present  and future


                                       20


<PAGE>


federal,  state,  local and other laws and regulations  more easily than we can,
which would adversely  affect our competitive  position.  Our ability to acquire
additional  properties and to discover  reserves in the future will be dependent
upon our ability to evaluate and select  suitable  properties  and to consummate
transactions in a highly competitive environment.  In addition,  because we have
fewer financial and human resources than many companies in our industry,  we may
be at a disadvantage in bidding for exploratory  prospects and producing oil and
natural gas properties.

         THERE CAN BE NO ASSURANCE WE WILL BE ABLE TO OBTAIN DRILLING  EQUIPMENT
TO MEET OUR DRILLING REQUIREMENTS. There is currently a high demand for drilling
equipment  in the Arkoma  Basin in the State of  Oklahoma.  We have  experienced
delays in the past in obtaining drilling rigs due to the high drilling demand in
the Arkoma Basin where we have been concentrating our coal bed methane and other
gas  targeted  production  and leasing  programs.  While we have  entered into a
drilling  agreement with Oak Hills  Drilling and Operating,  LLC, to drill a ten
well  program,  there can be no  assurance  that we will be able to  obtain  the
requisite drilling equipment to meet our planned drilling initiatives  according
to our timetable.  In the event that we are unable to obtain drilling  equipment
to conduct our exploration  operations,  it could have a material adverse effect
upon our business and our results of operations.

         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 which we may
elect not to insure against due to prohibitive  premium costs and other reasons.
To date we have not been required to spend material  amounts 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.


                                       21


<PAGE>


         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.  However,  we are not fully insured
against all possible environmental risks.

         ANY CHANGE TO GOVERNMENT REGULATION/ADMINISTRATIVE PRACTICES MAY HAVE A
NEGATIVE  IMPACT ON OUR  ABILITY TO  OPERATE  AND OUR  PROFITABILITY.  The laws,
regulations,  policies or current  administrative  practices  of any  government
body,  organization  or  regulatory  agency  in the  United  States or any other
jurisdiction,  may be changed,  applied or  interpreted  in a manner  which will
fundamentally alter our ability to carry on business.  The actions,  policies or
regulations, or changes thereto, of any government body or regulatory agency, or
other special interest groups,  may have a detrimental  effect on us. Any or all
of these  situations may have a negative impact on our ability to operate and/or
our profitably.

         WE MAY BE UNABLE TO RETAIN  KEY  EMPLOYEES  OR  CONSULTANTS  OR RECRUIT
ADDITIONAL  QUALIFIED  PERSONNEL.  Our extremely limited personnel means that we
would be  required  to spend  significant  sums of money to locate and train new
employees in the event any of our employees resign or terminate their employment
with us for any reason.  Due to our  limited  operating  history  and  financial
resources,  we are entirely  dependent on the continued service of Grant Atkins,
Chief Executive Officer and Douglas  Humphreys,  Drilling  Operations Manager of
Lexington Oil & Gas. Further, we do not have key man life insurance on either of
these individuals. We may not have the financial resources to hire a replacement
if one or both of our  officers  were to die.  The loss of  service of either of
these  employees  could  therefore   significantly   and  adversely  affect  our
operations.

         OUR OFFICERS AND DIRECTORS MAY BE SUBJECT TO CONFLICTS OF INTEREST. Our
officers  and  directors  serve only part time and are subject to  conflicts  of
interest.  Each of our executive  officers and  directors  serves only on a part
time basis.  Each devotes part of his working time to other business  endeavors,
much time to  devote  to our  affairs,  as well as what  business  opportunities
should be presented to the company.  Such  conflicts  include  deciding how much
time to devote to our affairs, as well as what business  opportunities should be
presented  to the  company.  Because of these  relationships,  our  officers and
directors will be subject to conflicts of interest.


                                       22


<PAGE>


RISKS RELATED TO OUR COMMON STOCK

         SALES OF A  SUBSTANTIAL  NUMBER OF SHARES OF OUR COMMON  STOCK INTO THE
PUBLIC  MARKET  BY  CERTAIN  STOCKHOLDERS  MAY  RESULT IN  SIGNIFICANT  DOWNWARD
PRESSURE  ON THE PRICE OF OUR  COMMON  STOCK AND COULD  AFFECT  YOUR  ABILITY TO
REALIZE THE CURRENT  TRADING PRICE OF OUR COMMON  STOCK.  Sales of a substantial
number  of  shares  of  our  common  stock  in  the  public  market  by  certain
stockholders could cause a reduction in the market price of our common stock. As
of the date of this Annual  Report,  we have  17,247,052  shares of common stock
issued and outstanding.  Of the total number of issued and outstanding shares of
common stock,  certain stockholders are able to resell up to 2,140,486 shares of
our common stock  pursuant to a  registration  statement  declared  effective on
January 24, 2005. As a result of the registration statement, 2,140,486 shares of
our  common  stock  were  issued  and are  available  for  immediate  resale and
1,947,039  common stock purchase  warrants were issued with an exercise price of
$1.68 with a term ending July 24, 2005 with the shares  underlying  the warrants
also registered,  which, if exercised, could have an adverse effect on the price
of our common stock. To the extent any of the certain stockholders  exercise any
of the 1,947,039 common stock purchase  warrants,  and then resell the shares of
common stock issued to them upon such exercise (subject to applicable securities
law  restrictions),  the  price of our  common  stock  may  decrease  due to the
additional  shares of common stock in the market.  As of March 28, 2005, a total
of 248,014 warrants issued pursuant to the aforementioned registration statement
have been exercised.

         As of December 31, 2004, there are 12,848,552 post-Forward Stock  Split
shares  outstanding of our common stock that are  restricted  securities as that
term is defined in Rule 144 under the  Securities  Act of 1933,  as amended (the
"Securities  Act").  Although  the  Securities  Act and Rule 144  place  certain
prohibitions on the sale of restricted securities,  restricted securities may be
sold into the public market under certain  conditions.  Further,  as of December
31, 2004, there are an aggregate of 535,000 Stock Options and 1,947,039 Warrants
outstanding.

         Any significant  downward  pressure on the price of our common stock as
the selling  stockholders  sell their shares of our common stock could encourage
short sales by the selling  stockholders  or others.  Any such short sales could
place further downward pressure on the price of our common stock.

         THE TRADING  PRICE OF OUR COMMON  STOCK ON THE OTC  BULLETIN  BOARD HAS
BEEN AND MAY  CONTINUE TO  FLUCTUATE  SIGNIFICANTLY  AND  STOCKHOLDERS  MAY HAVE
DIFFICULTY  RESELLING THEIR SHARES.  Our common stock has traded as low as $0.17
and as high as $7.46  (adjusted  for  pre-Stock  Split  share  prices on a 3 new
shares for 1 old share  effected  January 28,  2004).  In addition to volatility
associated  with  Bulletin  Board  securities  in  general,  the  value  of your
investment could decline due to the impact of any of the following  factors upon
the market  price of our common  stock:  (i) changes in the world wide price for
oil or natural gas; (ii) disappointing results from our discovery or development
efforts;  (iii) failure to meet our revenue or profit goals or operating budget;
(iv)  decline  in  demand  for our  common  stock;  (v)  downward  revisions  in
securities  analysts'  estimates or changes in general market  conditions;  (vi)
technological  innovations by competitors  or in competing  technologies;  (vii)
lack of funding  generated for  operations;  (viii)  investor  perception of our
industry or our prospects; and (ix) general economic trends.

         In  addition,   stock  markets  have   experienced   price  and  volume
fluctuations  and the market  prices of  securities  have been highly  volatile.
These  fluctuations  are  often  unrelated  to  operating  performance  and  may
adversely  affect the market price of our common stock.  As a result,  investors
may be unable to sell their  shares at a fair price and you may lose all or part
of your investment.


                                       23


<PAGE>


         ONE OF OUR  SHAREHOLDERS  MAY EXERCISE VOTING POWER OF MORE THAN 30% OF
OUR COMMON STOCK. As of the date of this Annual Report, Orient Exploration, Inc.
("Orient  Exploration")  owns 6,000,000  shares of our common stock, or 35.3% of
our outstanding common stock as of the date of this Annual Report, and is one of
our largest shareholders.  Due to its stock ownership, Orient Exploration may be
in a viable  position  to affect the  election  of the Board of  Directors  and,
therefore,  to affect the control our  business  and affairs  including  certain
significant  corporate  actions  such as  acquisitions,  the sale or purchase of
assets, and the issuance and sale of our securities. Further, Orient Exploration
may be able to affect the  prevention  of or cause a change in control.  We also
may be prevented from entering into  transactions that could be beneficial to us
without  Orient  Exploration's  consent.  The  interest  of one  of our  largest
shareholders may differ from the interests of other shareholders.

         ADDITIONAL ISSUANCES OF EQUITY SECURITIES MAY RESULT IN DILUTION TO OUR
EXISTING STOCKHOLDERS.  Our Articles of Incorporation  authorize the issuance of
200,000,000 shares of common stock and 75,000,000 shares of preferred stock. The
Board of Directors has the authority to issue  additional  shares of our capital
stock to provide additional financing in the future and the issuance of any such
shares  may  result in a  reduction  of the book  value or  market  price of the
outstanding  shares of our  common  stock.  If we do issue  any such  additional
shares, such issuance also will cause a reduction in the proportionate ownership
and voting power of all other stockholders. As a result of such dilution, if you
acquire shares of our common stock, your  proportionate  ownership  interest and
voting power could be decreased.  Further,  any such issuances could result in a
change of control.

         POSSIBLE  ISSUANCE OF PREFERRED STOCK. We are authorized to issue up to
75,000,000  shares of preferred  stock. The preferred stock may be issued in one
or more series,  the terms of which may be determined at the time of issuance by
the board of directors, without further action by shareholders,  and may include
voting  rights,  preferences  as to dividends and  liquidation,  conversion  and
redemption  rights and sinking fund  provisions  as  determined  by the board of
directors.  Although we have no present  plans to issue any shares of  preferred
stock,  the issuance of preferred stock in the future could adversely affect the
rights of the holders of common stock and reduce the value of the common stock.

         OUR COMMON STOCK IS CLASSIFIED AS A "PENNY STOCK" UNDER SEC RULES WHICH
LIMITS THE MARKET FOR OUR  COMMON  STOCK.  Because  our stock is not traded on a
stock exchange or on the NASDAQ  National Market or the NASDAQ Small Cap Market,
and because the market price of the common stock is less than $5 per share,  the
common stock is classified as a "penny stock." Our stock has not traded above $5
per share since June 28,  2004.  SEC Rule 15g-9 under the  Exchange  Act imposes
additional  sales practice  requirements  on  broker-dealers  that recommend the
purchase or sale of penny  stocks to persons  other than those who qualify as an
"established   customer"  or  an  "accredited   investor."   This  includes  the
requirement that a broker-dealer  must make a determination  that investments in
penny stocks are suitable for the customer and must make special  disclosures to
the customers  concerning the risk of penny stocks. Many broker-dealers  decline
to participate  in penny stock  transactions  because of the extra  requirements
imposed on penny stock transactions. Application of the penny stock rules to our
common stock reduces the market  liquidity of our shares,  which in turn affects
the ability of holders of our common  stock to resell the shares they  purchase,
and they may not be able to resell at prices at or above the prices they paid.


                                       24


<PAGE>


ITEM 2. DESCRIPTION OF PROPERTIES

         We lease our  principal  office  space  located  at 7473 West Lake Mead
Road, Las Vegas, Nevada 89128. We currently utilize office space, warehouse, and
fenced yard,  located at 225 Kingsberry  Road,  Holdenville,  Oklahoma 74848. We
intend to lease this space in the future from Douglas Humphreys or an affiliated
entity on terms no less  favorable  than those that may be  obtained  from third
parties.

ITEM 3. LEGAL PROCEEDINGS

         Management is not aware of any legal  proceedings  contemplated  by any
governmental authority or any other party involving us or our properties.  As of
the date of this Annual Report, no director, officer or affiliate is (i) a party
adverse to us in any legal proceeding,  or (ii) has an adverse interest to us in
any legal  proceedings.  Management is not aware of any other legal  proceedings
pending or that have been threatened against us or our properties.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         During fiscal year ended  December 31, 2004, no matters were  submitted
to our stockholders for approval.

ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

MARKET FOR COMMON EQUITY

         Shares of our common stock are traded on the OTC  Bulletin  Board under
the symbol  "LXRS" and on the  Frankfurt  and Berlin stock  exchanges  under the
symbol "LXR"; WKN: AOBKLP.  The market for our common stock is limited,  and can
be  volatile.  The  following  table  sets  forth the high and low sales  prices
relating to our common stock on a quarterly  basis for the last two fiscal years
as quoted by the NASDAQ.  These quotations reflect  inter-dealer  prices without
retail  mark-up,   mark-down,  or  commissions,   and  may  not  reflect  actual
transactions.

         Quarter Ended                High Bid          Low Bid
         December 31, 2004            $2.72             $1.07
         September 30, 2004           $5.40             $1.40
         June 30, 2004                $7.46             $2.30
         March 31, 2004               $4.95             $2.95
         December 31, 2003            $4.25             $0.17
         September 30, 2003           $2.50             $0.17
         June 30, 2003                $2.00             $1.00
         March 31, 2003               $3.50             $0.70
         December 31, 2002            $3.50             $0.50

         As of March 15, 2005, we had 150 shareholders of record, which does not
include  shareholders  whose  shares  are held in street or  nominee  names.  We
believe  that  there are  approximately  2,485  beneficial  owners of our common
stock.


                                       25


<PAGE>


DIVIDEND POLICY

         No dividends  have ever been  declared by the Board of Directors on our
common stock.  Our losses do not currently  indicate the ability to pay any cash
dividends,  and we do not indicate the intention of paying cash dividends either
on our common stock in the foreseeable future.

FORWARD STOCK SPLIT

         On January  14,  2004,  our Board of  Directors  pursuant to minutes of
written consent in lieu of a special  meeting  authorized and approved a forward
stock  split of  three-for-one  of our total  issued and  outstanding  shares of
common stock (the "Forward Stock Split").

         The Forward Stock Split was effectuated  based on market conditions and
upon a determination  by our Board of Directors that the Forward Stock Split was
in our best interests and of the shareholders. In our judgment the Forward Stock
Split would result in an increase in our trading float of shares of common stock
available for sale resulting in facilitation  of investor  liquidity and trading
volume  potential.  The intent of the Forward  Stock  Split was to increase  the
marketability of our common stock.

         The Forward Stock Split was  effectuated  with a record date of January
26, 2004 upon filing the  appropriate  documentation  with  NASDAQ.  The Forward
Stock Split  increased  our issued and  outstanding  shares of common stock from
4,281,184 to approximately  12,843,552  shares of common stock. The common stock
will continue to be $0.00025 par value.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS

         We have one equity  compensation  plan,  the Lexington  Resources  Inc.
Stock Option Plan. The table set forth below presents the securities  authorized
for issuance with respect to the Stock Option Plan under which equity securities
are authorized for issuance as of December 31, 2004:

<TABLE>
<CAPTION>


                      Equity Compensation Plan Information
_____________________________________________________________________________________________________________
                           Number of Securities       Weighted-Average Exercise       Number of Securities
                             To be Issued Upon          Price of Outstanding         Remaining Available for
Plan Category             Exercise of Outstanding         Options, Warrants           Future Issuance Under
                             Options, Warrants               and Rights             Equity Compensation Plans
                                and Rights                                           (excluding column (a))
                                    (a)                          (b)                           (c)
_____________________________________________________________________________________________________________
<S>                               <C>                           <C>                          <C>

Equity Compensation                 n/a                          n/a                           n/a
Plans Approved by
Security Holders

Equity Compensation
Plans Not Approved by
Security Holders

   Stock Options                  50,000                        $0.50                              0
                                   5,000                        $1.00                              0
                                 380,000                        $3.00                              0
                                 100,000                       $0.167                              0

   Total                       1,035,000                        $1.63                        800,000

   Warrants                    1,747,039                        $1.68                              0
                                 200,000                        $5.00                              0

   Total                       1,947,039                                                           0
_____________________________________________________________________________________________________________

</TABLE>



                                       26


<PAGE>


LEXINGTON RESOURCES, INC. STOCK OPTION PLAN

         On August 7, 2003,  our Board of  Directors  unanimously  approved  and
adopted a stock option plan (the "Stock Option Plan").  The purpose of the Stock
Option Plan is to advance our interests and the interests of the shareholders by
affording our key personnel an opportunity for investment in the Company and the
incentive advantages inherent in stock ownership in the Company. Pursuant to the
provisions of the Stock Option Plan, stock options (the "Stock Options") will be
granted only to our key personnel,  generally  defined as a person designated by
the board of directors upon whose  judgment,  initiative and efforts we may rely
including any director, officer, employee or consultant.

         The Stock Option Plan is administered by our Board of Directors,  which
shall  determine:  (i) the persons to be granted  Stock  Options under the Stock
Option  Plan;  (ii) the number of shares  subject to each  option,  the exercise
price of each  Stock  Option;  and  (iii)  whether  the  Stock  Option  shall be
exercisable  at any time  during the option  period of ten (10) years or whether
the Stock Option shall be exercisable in installments or by vesting only.

         The Stock Option Plan originally provided authorization to our Board of
Directors  to grant Stock  Options to  purchase a total  number of shares of our
common stock,  not to exceed  1,000,000 shares as at the date of adoption by our
Board of Directors of the Stock Option Plan.  Effective  December 31, 2003,  our
Board of Directors amended the Stock Option Plan to increase the total number of
shares of common stock to be purchased  pursuant to exercise of Stock Options to
4,000,000.  Effective  July 2, 2004,  our Board of  Directors  amended the Stock
Option  Plan to  increase  the total  number  of  shares  of common  stock to be
purchased pursuant to exercise of Stock Options to 5,000,000.

         During April 2004, we registered  500,000 Stock Options  pursuant to an
S-8 registration statement with the Securities and Exchange Commission.

         At the time a Stock Option is granted under the Stock Option Plan,  our
Board of  Directors  shall fix and  determine  the  exercise  price at which our
shares  of  common  stock  may be  acquired;  provided,  however,  that any such
exercise  price  shall  not be less  than  that  permitted  under  the rules and
policies of any stock exchange or over-the-counter market which is applicable to
us.

         In the event an optionee who is our director or officer ceases to serve
in that  position,  any Stock  Option  held by such  optionee  generally  may be
exercisable within up to ninety (90) calendar days after the effective date that
his position ceases,  and after such 90-day period any unexercised  Stock Option
shall expire.  In the event an optionee who is our employee or consultant ceases
to be employed by us, any Stock Option held by such  optionee  generally  may be
exercisable within up to sixty (60) calendar days (or up to thirty (30) calendar
days where the optionee provided only investor  relations  services to us) after
the  effective  date that his  employment  ceases,  and after such 60- or 30-day
period any unexercised Stock Option shall expire.

         The  Board  of  Directors   shall  determine  the  acceptable  form  of
consideration  for  exercising a Stock Option,  including the method of payment.
Such  consideration  may  consist  entirely  of:  (i) cash;  (ii)  check;  (iii)
promissory note; (iv) other shares which (A) in the case of shares acquired upon
exercise of a Stock  Option,  have been owned by the  optionee for more than six
months on the date of surrender, and (B) have a fair market value on the date of
surrender  equal to the aggregate  exercise price of the shares as to which said
Stock  Option  shall be  exercised;  (v)  consideration  received  by us under a
cashless exercise program  implemented by us in connection with the Stock Option


                                       27


<PAGE>


Plan;  (vi) a reduction in the amount of any of our  liability to the  optionee;
(vii) such other  consideration and method of payment for the issuance of shares
to the extent  permitted by applicable  laws; or (viii) any  combination  of the
foregoing  methods of  payment.  Notwithstanding  the  foregoing,  any method of
payment  other  than in case may be used only with the  consent  of our board of
directors or if and to the extent so provided in an agreement.

         As of the date of this Annual Report,  an aggregate of 4,700,000  Stock
Options have been granted and an aggregate  of 1,035,000  Stock  Options  remain
exercisable.

COMMON STOCK PURCHASE WARRANTS

         Pursuant to the terms of a registration  statement  filed on Form SB-2,
SEC File No. 333-121301 (the  "Registration  Statement"),  which was filed under
the Securities Act of 1933, as amended, and became effective on January 21, 2005
at 2:00 p.m.,  registering  an  aggregate of  1,947,039  common  stock  purchase
warrants. (collectively, the "Warrants").

         The  Warrants to  purchase  shares of common  stock,  and the shares of
common stock underlying the Warrants, were issued in private placements by us in
April and November 2004. Of the 1,947,039  Warrants,  1,747,039  Warrants may be
exercised by certain stockholders and their transferees, donees or successors to
purchase an aggregate of 1,747,039  shares of common stock at an exercise  price
of $1.68 per share (the "November  Warrants").  As of March 27, 2005, a total of
348,014 of the November  Warrants have been  exercised for proceeds of $416,463.
The November Warrants contain provisions for specified anti-dilution adjustments
and are exercisable for a term of 180 days after the Registration  Statement has
been declared effective by the Securities and Exchange Commission  (Registration
Statement declared effective on January 24, 2005 creating an expiry term of July
23,  2005).  The  remaining   200,000  Warrants  may  be  exercised  by  certain
stockholders  and  their  transferees,  donees  or  successors  to  purchase  an
aggregate of 200,000  shares of common  stock at an exercise  price of $5.00 per
share  (the  "April  Warrants").  The  April  Warrants  contain  provisions  for
specified anti-dilution adjustments and expire on December 31, 2005.

RECENT SALES OF UNREGISTERED SECURITIES

         As of the date of this  Annual  Report  and  during  fiscal  year ended
December  31,  2004,  to provide  capital,  we sold  stock in private  placement
offerings,  issued  stock in exchange  for our debts or pursuant to  contractual
agreements as set forth below.

PRIVATE  PLACEMENT  OFFERING OF  1,351,953  UNITS AND  EXCHANGE  OF  CONVERTIBLE
PROMISSORY NOTE

         On November 1, 2004, we completed the sale of an aggregate of 1,351,953
units (the "Units") at a purchase  price of $1.47 per Unit for gross proceeds of
approximately  $1,987,370.  Further,  the holder of two outstanding  convertible
promissory  notes from us in the  aggregate  principal  amount of $500,000  plus
accrued interest of $12,637  exchanged the promissory notes and accrued interest
for Units,  resulting in the issuance of an additional  348,733 Units. Each Unit
consists of one share of our restricted common stock and one warrant to purchase
a share of our  common  stock at an  exercise  price  of  $1.68  (the  "November
Warrants").  The resale of the  1,351,953  shares of common stock issued and the
shares of common stock  issuable  upon  exercise of the November  Warrants  were


                                       28


<PAGE>


covered under the Registration  Statement filed with the Securities and Exchange
Commission, which was declared effective January 24, 2005, as described above.

         C.K.  Cooper & Company of Irvine,  California  served as the  placement
agent for the offering of Units.  The total  commission  paid or payable to C.K.
Cooper & Company in  connection  with the  offering of the Units was: (i) a cash
payment of approximately $155,746 (which equal 8% of the total amount of capital
received by us from the sale of the brokered  Units);  (ii) a cash payment equal
to 5% of the  capital to be received  by us upon the  exercise  of the  November
Warrants (provided such exercise is within an applicable exercise period;  (iii)
warrants  to  purchase  46,353  shares of our  common  stock  equal to 4% of the
aggregated gross proceeds  received or to be received by us in the offering from
brokered  sales of the  Units  on terms  and  conditions  equal to the  November
Warrants issued; and (iv) $25,000 to cover legal and other  administrative costs
incurred.

PRIVATE PLACEMENT OFFERING OF 1,000,000 UNITS

         During  fiscal year ended  December 31,  2004,  we engaged in a private
placement  offering under  Regulation S and Rule 506 of Regulation D of the 1933
Securities  Act.  Pursuant  to the terms of the  private  placement,  we offered
1,000,000  units in our capital (the "Unit"),  at a subscription  price of $2.50
per Unit,  with each such Unit being  comprised  of one share of our  restricted
common stock and one-half of one  non-transferable  share purchase  warrant (the
"April  Warrant").  Each such whole April Warrant entitles the holder thereof to
purchase one additional  share of common stock at an exercise price of $5.00 per
April Warrant for a period commencing on the date of the issuance of the Unit by
us and ending on December  31, 2005.  We sold  400,000  Units at $2.50 per Unit,
consisting  of 400,000  shares of  restricted  common  stock and  200,000  April
Warrants, for aggregate gross proceeds of $1,000,000.  The resale of the 400,000
shares of common  stock issued and the 200,000  shares of common stock  issuable
upon  exercise  of the  April  Warrants  were  covered  under  the  Registration
Statement filed with the Securities and Exchange Commission,  which was declared
effective January 24, 2005, as described above.

FORWARD STOCK SPLIT

         On January  14,  2004,  our board of  directors  pursuant to minutes of
written consent in lieu of a special  meeting  authorized and approved a forward
stock  split of  three-for-one  of our total  issued and  outstanding  shares of
common stock (the "Forward Stock Split").

         The Forward Stock Split was effectuated  based on market conditions and
upon a determination  by our board of directors that the Forward Stock Split was
in our best interests and those of the shareholders. In our board's judgment the
Forward  Stock Split would result in an increase in our trading  float of shares
of common  stock  available  for sale  resulting  in  facilitation  of  investor
liquidity and trading  volume  potential.  The intent of the Forward Stock Split
was to increase the marketability of our common stock.

         The Forward Stock Split was  effectuated  with a record date of January
26, 2004 upon filing the  appropriate  documentation  with  NASDAQ.  The Forward
Stock Split  increased our total issued and  outstanding  shares of common stock
from 4,681,184 to  approximately  14,043,552  shares of common stock. The common
stock will continue to carry a $0.00025 par value.


                                       29


<PAGE>


INVESTOR COMMUNICATIONS INTERNATIONAL, INC. DEBT ("ICI")

         During fiscal year ended December 31, 2004, we incurred an aggregate of
$30,000 to ICI for services rendered.  We had entered into a two-year consulting
services  and  management   agreement  dated  January  1,  1999  with  ICI  (the
"Consulting  Services  Agreement"),  whereby  ICI  performed  a  wide  range  of
management, administrative, financial, marketing and public company services. On
January 1, 2001, we renewed the Consulting  Services Agreement for an additional
two-year  period.  Subsequent  to  January  1,  2003,  the  Consulting  Services
Agreement had been extended on a month-to-month basis.

         During  fiscal  year  ended  December  31,  2004,  we  entered  into  a
settlement agreement (the "Settlement  Agreement") with ICI, in which we settled
the $495,000 of debt due and owing to ICI. ICI subsequently  assigned its right,
title and  interest  into  such  debt to  certain  designated  holders  of Stock
Options,  and we agreed to accept  such  assignment  of debt as payment  for the
exercise  price of $1.00 per  share.  We issued  495,000  shares of our  trading
common  stock as  registered  under the S-8  Registration  Statement  to certain
designees pursuant to the exercise of Stock Options at $1.00 per share.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The summarized consolidated financial data set forth in the table below
is derived from and should be read in conjunction with our audited  consolidated
financial  statements  for the period from  inception  (September  29,  2003) to
December 31, 2003 and the year ended  December 31, 2004,  including the notes to
those  financial  statements  which are  included  in this  Annual  Report.  The
discussion  herein of fiscal  year ended  December  31,  2004 does not include a
comparison  to fiscal  year ended  December  31,  2003 since  fiscal  year ended
December 31, 2003 is a three-month fiscal year period.

         The acquisition of Lexington by Lexington  Resources,  Inc. on November
19, 2003, has been accounted for as a reverse  acquisition  with Lexington being
treated  as the  accounting  parent and  Lexington  Resources,  Inc.,  the legal
parent,   being  treated  as  the  accounting   subsidiary.   Accordingly,   our
consolidated  results of  operations  include  those of Lexington for the period
from its inception on September 29, 2003 and those of Lexington Resources,  Inc.
since the date of the reverse acquisition. The acquisition of Lexington has been
accounted  for  using  the  purchase  method  of  accounting.   All  significant
intercompany transactions and account balances have been eliminated.

         _____________________________________________________________________
                                                      FOR THE PERIOD FROM
                                                      INCEPTION (SEPTEMBER 29,
                                                      2003) TO DECEMBER 31,
                                                      2003
         _____________________________________________________________________
         Revenues                                   $         0
         _____________________________________________________________________
         Net Loss                                   $    42,149
         _____________________________________________________________________
                                                      FOR THE YEAR ENDED
                                                      DECEMBER 31, 2004
         _____________________________________________________________________
         Oil and Gas Revenue                        $   472,140
         _____________________________________________________________________
         Depletion                                      161,328
         _____________________________________________________________________
         Operating costs and taxes                       83,893
         _____________________________________________________________________
         Operating Income                               226,919
         _____________________________________________________________________
         Consulting Expenses- Stock Based             2,989,221
         _____________________________________________________________________
         General and Administrative                   3,268,455
         Interest expense                                61,932
         _____________________________________________________________________
         Net Loss for the Year                      $(6,092,689)
         _____________________________________________________________________
                                                      As of December 31, 2004
         _____________________________________________________________________
         Working Capital                            $  (382,953)
         _____________________________________________________________________
         Total Assets                                 3,095,248
         _____________________________________________________________________
         Total Number of Shares of Common Stock
         Outstanding                                 16,999,038
         _____________________________________________________________________
         Deficit                                     (7,568,155)
         _____________________________________________________________________
         Total Stockholders Equity                  $ 1,685,514
         _____________________________________________________________________


                                       30


<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS

RESULTS OF OPERATION

         FOR FISCAL YEAR ENDED DECEMBER 31, 2004

         Our net  losses  during  fiscal  year  ended  December  31,  2004  were
approximately  ($6,092,689).  During  fiscal year ended  December 31,  2004,  we
generated  $472,140 in gross revenue from the sale of gas produced from coal bed
methane gas wells on the Wagnon Lease. The $472,140 in gross revenue was reduced
by  operating  expenses  in the amount of  $245,221  consisting  of  $161,328 in
depletion  and $83,893 in  operating  costs and taxes,  resulting  in  operating
income of $226,919.

         During fiscal year ended  December 31, 2004, we incurred other expenses
of   approximately   $6,319,608.   These   operating   expenses   consisted  of:
(i)$2,989,221  in  stock-based  compensation  relating to the fair  valuation of
stock  options   granted  to   consultants;   (ii)  $3,268,455  as  general  and
administrative  expenses;  and (iii)  $61,932 as interest  expense.  General and
administrative  expenses  generally  include corporate  overhead,  financial and
administrative contracted services, marketing, and consulting costs.

         Operating  expenses incurred during fiscal year ended December 31, 2004
increased  primarily  due to an  increase  in  operating  costs  and  taxes  and
depletion  associated  with  the  acquisition  and  development  of oil  and gas
properties.  Other expenses  incurred during fiscal year ended December 31, 2004
increased  primarily due to an increase in general and  administrative  expenses
relating to corporate  marketing  and the  recording of the non-cash  expense of
$2,989,221 in connection with the grant of 2,200,000 Stock Options.

         Of the $6,319,608  incurred as other expenses  during fiscal year ended
December  31, 2004,  an  aggregate  of $30,000 was  incurred  payable to ICI for
amounts due and owing for operational  management,  administrative and financial
services  rendered for the quarter  ended March 31, 2004  pursuant to a month to
month  contractual  arrangement  which  ended  March 31, 2004 (thus no fees were
incurred to ICI during the remaining quarters of fiscal year 2004). We also owed
ICI an  aggregate  amount of $74,228 in loans  inclusive  of  interest of $3,033
accrued at ten percent (10%) per annum on outstanding loans.  During fiscal year
ended  December 31, 2004,  we paid $72,761 to ICI in loans and accrued  interest
leaving a total of $3,033 in accrued  interest due and owing to ICI.  During the
first quarter,  we settled $200,000 of the amounts due and owing ICI pursuant to


                                       31


<PAGE>


which ICI  assigned  its  right,  title and  interest  into such debt to certain
designated holders of Stock Options,  and we agreed to accept such assignment of
debt  as  payment  for  the  exercise  price  of  $0.50  per  share  of  400,000
(pre-forward stock split) Stock Options held by such designated holders.  During
the second  quarter,  we  settled  $495,000  of amounts  due and owing to ICI in
exchange for issuance of 495,000 shares of our restricted  common stock pursuant
to the exercise of options by ICI at $1.00 per share.

         Of the $6,319,608  incurred as other expenses  during fiscal year ended
December 31, 2004, an aggregate of $60,000 was incurred payable to International
Market   Trends  AG  ("IMT")  for   amounts  due  and  owing  for   operational,
administrative,  and  financial  services  rendered.  On November 10,  2003,  we
entered  into a  consulting  agreement  with IMT (the  "Consulting  Agreement"),
whereby IMT performs a wide range of management, administrative,  financial, and
business development services to us.

         Our  net  loss  during   fiscal  year  ended   December  31,  2004  was
($6,092,689) or ($0.39) per share compared to a net loss of ($42,149) or ($0.00)
per share for fiscal year ended December 31, 2003.  The weighted  average number
of shares outstanding was 15,817,033 at December 31, 2004 compared to 10,303,797
at December 31, 2003.

LIQUIDITY AND CAPITAL RESOURCES

         As at fiscal year ended  December  31,  2004,  our current  assets were
$462,866  and our current  liabilities  were  $845,819,  resulting  in a working
capital deficit of $382,953.  As at fiscal year ended December 31, 2004, current
assets were  comprised  of: (i) $326,293 in cash;  and (ii) $136,573 in accounts
receivable.  As at fiscal year ended December 31, 2004, current liabilities were
comprised  of: (i) $617,000 in current  portion of drilling  advances;  and (ii)
$228,819 in accounts payable and accrued liabilities.

         As at fiscal  year ended  December  31,  2004,  our total  assets  were
$3,112,231  comprised  of: (i) $462,866 in current  assets;  (ii)  $1,209,938 in
carrying value of proved oil and gas properties (net of accumulated depreciation
of  $161,328);  (iii)  $1,419,447  in  carrying  value of  unproved  oil and gas
properties;  and (iv) $2,997 in other property and equipment (net of accumulated
depreciation. The increase in total assets during fiscal year ended December 31,
2004 was primarily due to the increase in carrying  value of proved and unproved
oil and gas properties and an increase in accounts receivable.

         As at fiscal year ended December 31, 2004, our total  liabilities  were
$1,409,734 comprised of: (i) $845,819 in current liabilities;  and (ii) $563,915
in long-term drilling advances.  The increase in total liabilities during fiscal
year ended  December  31,  2004 from  fiscal  year ended  December  31, 2003 was
primarily  due to the increase in drilling  advances  and  accounts  payable and
accrued liabilities.

Stockholders' equity increased from $697,818 for December 31, 2003 to $1,685,514
for December 31, 2004.

         We have not generated  positive cash flows from  operating  activities.
For  fiscal  year  ended  December  31,  2004,  net cash flow used in  operating
activities was $2,346,996, consisting primarily of a net loss of $6,092,689. Net
cash flows used in operating  activities was adjusted by $2,989,221 to reconcile
the non-cash expense of the grant of 2,200,000 Stock Options.


                                       32


<PAGE>


         During  fiscal year ended  December  31,  2004,  net cash flows used in
investing  activities  was  $2,674,204,  which was  primarily  the result of the
acquisition of our oil and gas properties.

         During  fiscal  year  ended  December  31,  2004,  net cash  flow  from
financing activities was $4,996,073  pertaining primarily to $3,766,625 received
from proceeds on the sale of our common stock, $500,000 received pursuant to the
issue of  convertible  promissory  notes,  and $830,915 in proceeds for drilling
from private third parties.

         As at December  31, 2004,  our current  assets were  $462,866,  current
liabilities  were $845,819,  resulting in a working capital deficit of $382,953.
We expect that working capital requirements will continue to be funded through a
combination  of our  existing  funds,  cash flow  from  operations  and  further
issuances  of  securities.  Our working  capital  requirements  are  expected to
increase in line with the growth of our business.

PLAN OF OPERATION AND FUNDING

         On November 1, 2004, we completed the sale of an aggregate of 1,351,953
Units at a purchase price of $1.47 per Unit for gross proceeds of  approximately
$1,987,371.  Further,  the holder of two of our outstanding  promissory notes in
the  aggregate  principal  amount of $500,000  plus accrued  interest of $12,637
exchanged the promissory notes and accrued interest for Units,  resulting in the
issuance of an additional  348,733 Units. Each Unit consists of one share of our
common  stock and one  Warrant to  purchase  a share of our  common  stock at an
exercise price of $1.68. The November Warrants are exercisable for a term of 180
days after the  Registration  Statement filed by us for the resale of the common
stock  and  the  shares  of  common  stock  underlying  the  November   Warrants
(Registration  Statement  declared  effective  on January 24,  2005  creating an
expiry term of July 23, 2005). The April Warrants expire on December 31, 2005.

         Existing   working   capital,   further   advances  and  possible  debt
instruments, warrant exercises, further private placements, and anticipated cash
flow  are  expected  to be  adequate  to fund our  operations  over the next six
months.  We have no  lines  of  credit  or other  bank  financing  arrangements.
Generally,  we have  financed  operations  to date  through the  proceeds of the
private placement of equity and debt securities. In connection with our business
plan,  management  anticipates  additional  increases in operating  expenses and
capital  expenditures  relating to: (i) oil and gas operating  properties;  (ii)
drilling  initiatives;  and (iii)  property  acquisitions.  We intend to finance
these expenses with further issuances of securities,  debt and or advances,  and
revenues from operations. Thereafter, we expect we will need to raise additional
capital and increase its revenues to meet long-term operating requirements.

         Additional  issuances of equity or  convertible  debt  securities  will
result in dilution to our current  shareholders.  Further, such securities might
have rights,  preferences or privileges  senior to our common stock.  Additional
financing may not be available  upon  acceptable  terms,  or at all. If adequate
funds are not available or are not available on acceptable  terms, we may not be
able to take advantage of prospective new business  endeavors or  opportunities,
which could significantly and materially restrict our business operations.

         The independent auditors' report accompanying our December 31, 2004 and
December 31, 2003  consolidated  financial  statements  contains an  explanatory
paragraph expressing  substantial doubt about our ability to continue as a going


                                       33


<PAGE>


concern. The consolidated financial statements have been prepared "assuming that
we will continue as a going  concern," which  contemplates  that we will realize
our assets and satisfy our liabilities and commitments in the ordinary course of
business.

MATERIAL COMMITMENTS

DRILLING ADVANCES

         As of the date of this Annual Report,  we are committed to drilling one
additional well on the Wagnon Lease,  the Caleigh #4-2 well, and have elected to
participate  in the  drilling  of a well  on the  Panther  Creek  Prospect  with
Newfield.  Subsequent to December 31, 2004, we received an additional  $270,000,
which  provides all the capital  required for  drilling  and  completion  of the
Caleigh  #4-2 well.  The  estimated  cost to drill and complete the Caleigh #4-2
well is $405,000.

THE WYNN AGREEMENT

         On June 24, 2004, we entered into an agreement  with Jack Wynn & Co. to
place feature news stories about Lexington Resources, Inc. in national, regional
and local  business  investment and trade media outlets and provide other public
relations  services (the "Wynn Agreement").  Pursuant to the Wynn Agreement,  we
were  obligated  to pay Jack Wynn & Co.  $7,000 per month to place  feature news
stories about Lexington Resources, Inc. in national, regional and local business
investment and trade media outlets and provide other investor relation services.
The Wynn Agreement expires on June 30, 2005 but was suspended in December 2004.

PROMISSORY NOTES

         During  April  and  June  2004,  we  borrowed  $400,000  and  $100,000,
respectively, from a third-party pursuant to two promissory notes (the "Notes").
Pursuant to the terms and provisions of the Notes:  (i) interest accrues monthly
at the U.S.  prime  lending  rate plus 1% simple  interest  per annum;  (ii) the
holder has the right to convert  the  $400,000  principal  amount  plus  accrued
interest thereon into shares of common stock at the rate of $5.00 per share; and
(iii) the holder has the right to convert  the  $100,000  principal  amount plus
accrued  interest  thereon  into shares of common stock at the rate of $2.50 per
share.

         The  holder  of two  outstanding  convertible  promissory  notes in the
aggregate  principal  amount  of  $500,000  plus  accrued  interest  of  $12,637
exchanged the promissory notes and accrued interest for Units,  resulting in the
issuance of an additional 348,733 Units. Each Unit costing $1.47 consists of one
share of  restricted  common  stock and one  warrant to  purchase a share of our
common  stock at an  exercise  price of  $1.68.  The  common  stock  and  shares
underlying  the warrants  were  subsequently  registered.  (See "Recent Sales of
Unregistered Securities").

PURCHASE OF SIGNIFICANT EQUIPMENT

         We do not intend to purchase any significant  equipment during the next
twelve months.


                                       34


<PAGE>


RECENT ACCOUNTING PRONOUNCEMENTS

         In  March  2004,  the  FASB  issued  EITF  No.  03-1,  THE  MEANING  OF
OTHER-THAN-TEMPORARY  IMPAIRMENT  AND ITS  APPLICATION  TO  CERTAIN  INVESTMENTS
("EITF 03-1"). The objective of EITF 03-1 is to provide guidance for identifying
impaired  investments.  EITD 03-1 also provides new disclosure  requirements for
investments  that are deemed to be  temporarily  impaired.  In October 2004, the
FASB  delayed the  recognition  and  measurement  provisions  of EITF 03-1 until
implementation guidance is issued. The disclosure requirements are effective for
annual  periods  ending  after June 15, 2004,  and remain in effect.  Management
believes  that the adoption of EITF 03-1 will not have a material  impact on the
Company's financial condition or results of operations.

         In November 2004, the FASB issued SFAS No. 151,  INVENTORY COSTS ("SFAS
151").  SFAS 151  requires  issuers to treat  idle  facility  expense,  freight,
handling  costs,  and  wasted  material  (spoilage)  as  current-period  charges
regardless of whether such charges are considered  abnormal.  In addition,  SFAS
151  requires  the  allocation  of fixed  production  overheads  to the costs of
conversion be based on the normal  capacity of the production  facilities.  SFAS
151 will be effective for all inventory costs incurred in fiscal years beginning
after June 15, 2005.  Management believes the adoption of this standard will not
have a  material  impact on the  Company's  financial  position  or  results  of
operations.

         In  December  2004,  the FASB  issued  SFAS  No.  123  (Revised  2004),
SHARE-BASED  PAYMENT  ("SFAS  123(R)"),  which  requires the  compensation  cost
related to  share-based  payments,  such as stock  options  and  employee  stock
purchase  plans,  be  recognized  in  the  financial  statements  based  on  the
grant-date  fair value of the award.  SFAS 123(R) is  effective  for all interim
periods  beginning after December 15, 2005.  Management is currently  evaluating
the impact of this standard on the Company's  financial condition and results of
operations. The Company has provided information herein related to the pro forma
effects on the  Company's  reported  net loss and net loss per share of applying
the fair value recognition  provisions of the previous SFAS No. 123,  Accounting
for Stock-Based Compensation, to stock-based employee compensation.

         In  December  2004,  the  FASB  issued  SFAS  No.  153,   EXCHANGES  OF
NON-MONETARY  ASSETS,  AN  AMENDMENT  OF APB  OPINION  NO.  29,  ACCOUNTING  FOR
NON-MONETARY  TRANSACTIONS  ("SFAS  153") SFAS 153  requires  that  exchanges of
non-monetary  assets are to be measured  based on fair value and  eliminates the
exception for exchanges of non-monetary,  similar productive assets, and adds an
exemption for non-monetary exchanges that do not have commercial substance. SFAS
153 will be  effective  for  fiscal  periods  beginning  after  June  15,  2005.
Management  does not  believe  that the  adoption of this  standard  will have a
material impact on the Company's financial condition or results of operations.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

         We believe the following critical  accounting  policies affect our more
significant  judgments and estimates  used in the  preparation  of our financial
statements.

ACCOUNTING FOR NATURAL GAS AND OIL PRODUCING ACTIVITIES

         We use the full cost  method to  account  for our  natural  gas and oil
producing activities.  Under this accounting method, we capitalize substantially
all of the costs incurred in connection with the acquisition,  development,  and
exploration  of natural gas and oil  reserves in full cost pools  maintained  by
geographic  areas,  regardless of whether  reserves are actually  discovered and


                                       35


<PAGE>


apply a  quarterly  full  cost  ceiling  test.  Adverse  changes  in  conditions
(primarily  gas price  declines)  could result in permanent  write-downs  in the
carrying  value  of oil  and gas  properties  as well  as  non-cash  charges  to
operations.

RESERVE ESTIMATES

         Our  estimates  of oil and  natural gas  reserves,  by  necessity,  are
projections   based  on  geological   and   engineering   data,  and  there  are
uncertainties  inherent  in the  interpretation  of  such  data  as  well as the
projection  of  future  rates  of  production  and  the  timing  of  development
expenditures.   Reserve  engineering  is  a  subjective  process  of  estimating
underground  accumulations of oil and natural gas that are difficult to measure.
The  accuracy of any reserve  estimate is a function of the quality of available
data,  engineering  and  geological  interpretation  and judgment.  Estimates of
economically  recoverable oil and natural gas reserves and future net cash flows
necessarily  depend upon a number of variable factors and assumptions  which are
not limited to historical production from the area compared with production from
other  producing  areas,  the assumed  effects of  regulations  by  governmental
agencies and  assumptions  governing  future oil and natural gas prices,  future
operating costs, severance and excise taxes, development costs and work-over and
remedial  costs,  and assumed  commodity  prices,  all of which may in fact vary
considerably  from  actual  results.   For  these  reasons,   estimates  of  the
economically  recoverable  quantities of oil and natural gas attributable to any
particular group of properties,  classifications  of such reserves based on risk
of recovery,  and estimates of the future net cash flows expected there from may
vary substantially. Any significant variance in the assumptions could materially
affect the estimated quantity and value of the reserves,  which could affect the
carrying value of our oil and gas properties and/or the rate of depletion of the
oil and gas  properties.  Actual  production,  revenues  and  expenditures  with
respect to our reserves will likely vary from estimates,  and such variances may
be material.

         Many factors will affect actual net cash flows, including:

          -    the amount and timing of actual production;
          -    supply and demand for natural gas;
          -    curtailments   or  increases  in   consumptions  by  natural  gas
               purchasers;
          -    changes in governmental regulation or taxation; and
          -    oil and gas commodity price changes.

PROPERTY, EQUIPMENT AND DEPRECIATION

         We  follow  the  full  cost  method  of  accounting  for  oil  and  gas
properties.  Under this method all production  costs incurred in connection with
the  exploration  for and  development of oil and gas reserves are  capitalized.
These  capitalized costs include lease  acquisition,  geological and geophysical
work,  delay  rentals,  drilling,  completing  and  equipping oil and gas wells,
including  salaries,  benefits and other internal  salary related costs directly
attributable to these activities.

         Costs associated with production and general  corporate  activities are
expensed in the period incurred.  Interest costs related to unproved  properties
and properties under development also are capitalized to oil and gas properties.
If the net investment in oil and gas  properties  exceeds an amount equal to the
sum of (1) the  standardized  measure of  discounted  future net cash flows from
proved reserves, and (2) the lower of cost or fair market value of properties in


                                       36


<PAGE>


process of development and unexplored acreage,  the excess is charged to expense
as additional  depletion.  Normal  dispositions  of oil and gas  properties  are
accounted  for as  adjustments  of  capitalized  costs,  with  no  gain  or loss
recognized.  As a result, we are required to estimate our proved reserves at the
end of each  quarter,  which is subject to the  uncertainties  described  in the
previous section.

ITEM 7. FINANCIAL STATEMENTS

        REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM DATED
        MARCH 24, 2005                                                   F-2

        CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 2004 AND
        DECEMBER 31, 2003                                                F-3

        CONSOLIDATED STATEMENTS OF OPERATIONS FOR FISCAL YEAR ENDED
        DECEMBER 31, 2004 AND FOR THE PERIOD FROM SEPTEMBER 29, 2003
        (INCEPTION) TO DECEMBER 31, 2003                                 F-4

        CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD
        FROM SETPEMBER 29, 2003 (INCEPTION) TO DECEMBER 31, 2004         F-5

        CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED
        DECEMBER 31, 2004 AND FOR THE PERIOD FROM SEPTEMBER 29, 2003
        (INCEPTION) TO DECEMBER 31, 2004                                 F-6

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                       F-7


                                       37
<PAGE>











                            LEXINGTON RESOURCES, INC.


                        CONSOLIDATED FINANCIAL STATEMENTS


                                DECEMBER 31, 2004


















REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                      F-1


<PAGE>


DALE MATHESON
CARR-HILTON LABONTE
CHARTERED ACCOUNTANTS
LETTERHEAD APPEARS HERE


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
________________________________________________________________________________


To the Stockholders and Board of Directors of Lexington Resources, Inc.

We have audited the consolidated  balance sheets of Lexington  Resources Inc. as
at December  31, 2004 and 2003 and the  consolidated  statement  of  operations,
stockholders' equity and cash flows for the year ended December 31, 2004 and the
period from September 29, 2003 (inception) to December 31, 2003. 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 the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  an audit to obtain  reasonable  assurance  whether  the  financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  these consolidated  financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2004
and 2003 and the results of its operations and its cash flows and the changes in
stockholders'  equity for the periods then ended,  in conformity with accounting
principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements,  to date the Company has reported significant losses since
inception from operations and requires  additional funds to meet its obligations
and fund the costs of its  operations.  These  factors raise  substantial  doubt
about the Company's ability to continue as a going concern.  Management's  plans
in this regard are described in Note 1. The financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.



                                             "DALE MATHESON CARR-HILTON LABONTE"

                                                          CHARTERED ACCOUNTANTS


Vancouver, B.C.
March 24 , 2005


                                      F-2


<PAGE>

<TABLE>
<CAPTION>

                            LEXINGTON RESOURCES, INC.

                           CONSOLIDATED BALANCE SHEETS


                                                                          December 31,     December 31,
                                                                              2004             2003
______________________________________________________________________________________________________
<S>                                                                       <C>              <C>

                                     ASSETS

CURRENT ASSETS
   Cash                                                                   $   326,293      $   351,420
   Accounts receivable                                                        136,573                -
   Prepaid expenses                                                                 -              450
______________________________________________________________________________________________________
                                                                              462,866          351,870
______________________________________________________________________________________________________

PROPERTY AND EQUIPMENT, at cost (Note 4)
     Oil and gas properties, full cost method of accounting
           Proved, net of accumulated depletion of $161,328                 1,209,938                -
           Unproved                                                         1,419,447          120,000
______________________________________________________________________________________________________
                                                                            2,629,385          120,000
      Other property and equipment, net of accumulated depreciation             2,997                -
______________________________________________________________________________________________________
                                                                            2,632,382          120,000
______________________________________________________________________________________________________

                                                                          $ 3,095,248      $   471,870
======================================================================================================

                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES

   Accounts payable and accrued liabilities                               $   228,819      $    23,221
   Current portion of drilling advances (Note 5)                              617,000          350,000
   Due to related parties (Note 9)                                                  -          796,467
______________________________________________________________________________________________________
                                                                              845,819        1,169,688
DRILLING ADVANCES (Note 5)                                                    563,915                -
______________________________________________________________________________________________________
                                                                            1,409,734        1,169,688
______________________________________________________________________________________________________

CONTINGENCIES AND COMMITMENTS (Notes 1, 5 & 12)

STOCKHOLDERS' EQUITY (DEFICIENCY) (Note 7)
   Common stock $0.00025 par value: 200,000,000 shares authorized
   Preferred stock, $0.001 par value: 75,000,000 shares authorized
     Issued and outstanding:
        16,999,038 common shares (2003 - 12,843,552)                            4,250            3,211
          Additional paid-in capital                                        8,947,604          761,937
        Common stock purchase warrants                                        301,815           12,500
         Deficit                                                           (7,568,155)      (1,475,466)
______________________________________________________________________________________________________
                                                                            1,685,514         (697,818)
______________________________________________________________________________________________________

                                                                          $ 3,095,248      $   471,870
======================================================================================================


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

</TABLE>


                                      F-3


<PAGE>

<TABLE>
<CAPTION>

                            LEXINGTON RESOURCES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                  For the period from
                                                                   September 29, 2003
                                                                      (inception)
                                               For the year                to
                                           ended December 31,         December 31,
                                                  2004                    2003
______________________________________________________________________________________
                                                                        (Note 1)
<S>                                           <C>                     <C>

OIL AND GAS REVENUE                           $   472,140             $         -
______________________________________________________________________________________
EXPENSES
     Depletion                                    161,328                       -
     Operating costs and taxes                     83,893                       -
______________________________________________________________________________________
                                                  245,221                       -
______________________________________________________________________________________

OPERATING INCOME                                  226,919                       -
______________________________________________________________________________________

OTHER EXPENSES
   Consulting - stock based (Note 8)            2,989,221                       -
   General and administrative                   3,268,455                  32,739
   Interest expense                                61,932                   9,410
______________________________________________________________________________________

                                                6,319,608                  42,149
______________________________________________________________________________________

NET LOSS FOR THE YEAR                         $(6,092,689)            $   (42,149)
======================================================================================




BASIC NET LOSS PER SHARE                      $     (0.39)            $     (0.00)
======================================================================================

WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING                             15,817,033              10,303,797
======================================================================================


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

</TABLE>


                                      F-4


<PAGE>

<TABLE>
<CAPTION>


                            LEXINGTON RESOURCES, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


                                                                                                         Deficit
                                                                                                       Accumulated
                                                                        Additional    Common Stock       During
                                                   Common stock          Paid-In        Purchase       Exploration
                                               Shares       Amount       Capital        Warrants          Stage            Total
___________________________________________________________________________________________________________________________________
<S>                                         <C>            <C>         <C>              <C>            <C>              <C>

Issued for cash at $.0001 per share          3,000,000     $    300    $          -     $      -       $          -     $       300
___________________________________________________________________________________________________________________________________

Lexington balance, November 19, 2003         3,000,000          300               -            -                  -             300
LRI balance, November 19, 2003 (Note 7)     10,593,552       39,833      15,981,933            -        (17,452,735)     (1,430,969)
Reverse acquisition recapitalization
adjustment                                  (3,000,000)     (37,485)    (15,981,933)           -         16,019,418               -
___________________________________________________________________________________________________________________________________

Balance post-reverse acquisition            10,593,552        2,648               -            -         (1,433,317)     (1,430,669)
Private placement at $0.83 per unit            300,000           75         237,425       12,500                  -         250,000
Issuance of common stock on exercise of
options                                      1,650,000          413         274,587            -                  -         275,000
Issuance of common stock on settlement of
debt at $0.83 per share                        300,000           75         249,925            -                  -         250,000
Net loss, period ended December 31, 2003             -            -               -            -            (42,149)        (42,149)
___________________________________________________________________________________________________________________________________


Balance, December 31, 2003                  12,843,552        3,211         761,937       12,500         (1,475,466)       (697,818)
Common stock purchase warrants expired               -            -          12,500      (12,500)                 -               -
Feb 2, 2004 - stock based compensation (Note
8)                                                   -            -       2,989,221            -                  -       2,989,221
Private placement 2.50 per unit                439,800          110         954,890       45,000                  -       1,000,000
Discount on Convertible Debenture (Note 6)           -            -          50,000            -                  -          50,000
Private placement 1.47 per unit for cash and
settlement of Convertible Debentures (Note
7)                                           1,700,686          425       2,035,355      256,815                  -       2,292,595
Fair market value of additional
consideration on conversion of Convertible
Debentures (Note 6)                                                         489,205            -                  -         489,005
Issuance of common stock on exercise of
options @ $0.167 per share                   1,200,000          300         199,700            -                  -         200,000
Issuance of common stock on exercise of
options @ $1.00 per share                      495,000          124         494,876                                         495,000
Issuance of common stock on exercise of
options @ $3.00 per share                      320,000           80         959,920            -                  -         960,000
Net loss, year ended December 31, 2004               -            -               -            -         (6,092,689)     (6,092,689)
___________________________________________________________________________________________________________________________________

Balance, December 31, 2004                  16,999,038     $  4,250    $  8,947,604     $301,815       $(7,568,155)     $ 1,685,514
===================================================================================================================================

All share  amounts  have been  restated  to reflect the 300:1  reverse  split in
November 2003 and the 3:1 forward split in January 2004. (Refer to Note 7.)


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

</TABLE>


                                      F-5


<PAGE>

<TABLE>
<CAPTION>


                            LEXINGTON RESOURCES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                                     For the period
                                                                                                               from
                                                                                                 September 29, 2003
                                                                                For the Year         (inception) to
                                                                                       Ended      December 31, 2003
                                                                                December 31,
                                                                                        2004
___________________________________________________________________________________________________________________
                                                                                                      (Note 1)
<S>                                                                             <C>                   <C>

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year                                                           $ (6,092,689)         $ (42,149)
Adjustments to reconcile net loss to net cash from operating activities:
       Stock-based consulting fees                                                 2,989,221                  -
       Finance fees                                                                  512,538                  -
       Oil and gas depletion                                                         161,328                  -
       Accrued interest                                                               12,637                  -
       Depreciation                                                                      494                  -
  Changes in working capital assets and liabilities
       Prepaid expenses                                                                  450               (450)
       Accounts receivable                                                          (136,573)                 -
       Accounts payable                                                              205,598            (15,724)
___________________________________________________________________________________________________________________

NET CASH FLOWS USED IN OPERATING ACTIVITIES                                       (2,346,996)           (58,323)
___________________________________________________________________________________________________________________

CASH FLOWS FROM INVESTING ACTIVITIES
  Cash acquired on acquisition of Lexington Oil & Gas Co. LLC                              -                900
    Fixed assets                                                                      (3,491)                 -
  Oil and gas properties                                                          (2,670,713)          (120,000)
___________________________________________________________________________________________________________________

NET CASH FLOWS USED IN INVESTING ACTIVITIES                                       (2,674,204)          (119,100)
___________________________________________________________________________________________________________________

CASH FLOWS FROM FINANCING ACTIVITIES
    Drilling advances                                                                830,915                  -
    Advances payable                                                                (101,467)           278,543
    Convertible Promissory Notes                                                     500,000                  -
  Net proceeds on sale of common stock                                             3,766,625            250,300
___________________________________________________________________________________________________________________

NET CASH FLOWS FROM FINANCING ACTIVITIES                                           4,996,073            528,843
___________________________________________________________________________________________________________________

INCREASE (DECREASE) IN CASH                                                          (25,127)           351,420

CASH, BEGINNING OF YEAR                                                              351,420                  -
___________________________________________________________________________________________________________________

CASH, END OF YEAR                                                               $    326,293          $ 351,420
===================================================================================================================

SUPPLEMENTAL CASH FLOW INFORMATION (Refer to Note 11)


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

</TABLE>


                                      F-6


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 1:  NATURE OF CONTINUED OPERATIONS AND BASIS OF PRESENTATION
________________________________________________________________________________

By Share Exchange Agreement dated November 19, 2003, Lexington  Resources,  Inc.
(formerly Intergold Corporation) ("LRI" or "the Company"), a Nevada corporation,
acquired 100% of the issued and  outstanding  shares of Lexington Oil & Gas Ltd.
Co. LLC, (an exploration stage company) ("Lexington"), in exchange for 9,000,000
(3,000,000 pre January 26, 2004 3:1 forward split)  restricted  shares of common
stock of the Company representing 85% of the total issued and outstanding shares
of the  Company at the time.  In  connection  with this  transaction,  Intergold
Corporation changed its name to Lexington Resources, Inc. (Refer to Note 3.)

This acquisition has been accounted for as a reverse  acquisition with Lexington
being treated as the accounting parent and LRI, the legal parent,  being treated
as  the  accounting  subsidiary.   Accordingly,   the  consolidated  results  of
operations  of the Company  include  those of Lexington  for the period from its
inception on  September  29, 2003 and those of LRI since the date of the reverse
acquisition.

Lexington is an Oklahoma Limited Liability Corporation incorporated on September
29, 2003 formed for the purposes of the  acquisition  and development of oil and
natural gas properties in the United States,  concentrating  on coal bed methane
gas  acquisition and production  initiatives.  As planned  principal  operations
commenced in 2004 the Company is no longer considered to be an exploration stage
company.

GOING CONCERN

The consolidated financial statements have been prepared on the basis of a going
concern which  contemplates  the  realization of assets and the  satisfaction of
liabilities in the normal course of business.  The Company has a working capital
deficit of $382,953,  has incurred  losses since  inception of  $7,568,155,  and
further losses are  anticipated in the development of its oil and gas properties
raising  substantial  doubt as to the  Company's  ability to continue as a going
concern.  The ability of the Company to continue as a going concern is dependent
on raising  additional  capital to fund  ongoing  research and  development  and
ultimately on generating future profitable operations. The Company will continue
to fund operations with advances,  other debt sources, further equity placements
and the expected exercise of outstanding warrants.


NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
________________________________________________________________________________

(a)      PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements  include the accounts of the Company and
its  wholly-owned  subsidiary,  Lexington.  Lexington  was  acquired  by reverse
acquisition on November 19, 2003. All significant intercompany  transactions and
account balances have been eliminated.

(b)      OIL AND GAS PROPERTIES

The  Company  follows  the full cost  method of  accounting  for its oil and gas
operations  whereby all costs related to the acquisition of methane,  petroleum,
and natural gas interests are capitalized. Under this method, all productive and
nonproductive  costs  incurred  in  connection  with  the  exploration  for  and
development of oil and gas reserves are capitalized. Such costs include land and
lease acquisition  costs,  annual carrying charges of non-producing  properties,
geological and geophysical costs, costs of drilling and equipping productive and
non-productive  wells,  and direct  exploration  salaries and related  benefits.
Proceeds from the disposal of oil and gas properties are recorded as a reduction
of the related  capitalized  costs without  recognition of a gain or loss unless
the  disposal  would  result in a change of 20 percent or more in the  depletion
rate. The Company currently operates solely in the U.S.A.

Depreciation  and depletion of proved oil and gas  properties is computed on the
units-of-production   method  based  upon  estimates  of  proved  reserves,   as
determined by  independent  consultants,  with oil and gas being  converted to a
common unit of measure based on their relative energy content.

The costs of acquisition  and  exploration  of unproved oil and gas  properties,
including  any  related  capitalized   interest  expense,  are  not  subject  to
depletion,  but  are  assessed  for  impairment  either  individually  or  on an
aggregated  basis. The costs of certain  unevaluated  leasehold acreage are also
not  subject to  depletion.  Costs not  subject to  depletion  are  periodically
assessed for possible impairment or reductions in value. If a reduction in value
has  occurred,  costs  subject to  depletion  are  increased or a charge is made
against  earnings  for  those  operations  where  a  reserve  base  is  not  yet
established.


                                      F-7


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
________________________________________________________________________________

Estimated future removal and site  restoration  costs are provided over the life
of  proven  reserves  on  a  units-of-production  basis.  Costs,  which  include
production equipment removal and environmental  remediation,  are estimated each
period by management based on current regulations, actual expenses incurred, and
technology and industry  standards.  The charge is included in the provision for
depletion and depreciation and the actual  restoration  expenditures are charged
to the accumulated provision amounts as incurred.

The Company applies a ceiling test to capitalized  costs which limits such costs
to the aggregate of the estimated  present value,  using a ten percent  discount
rate of the estimated  future net revenues from production of proven reserves at
year end at market  prices less future  production,  administrative,  financing,
site  restoration,  and  income  tax costs  plus the lower of cost or  estimated
market value of unproved  properties.  If  capitalized  costs are  determined to
exceed estimated future net revenues,  a write-down of carrying value is charged
to depletion in the period.

(c)      ASSET RETIREMENT OBLIGATIONS

The Company has adopted the  provisions of SFAS No. 143,  "Accounting  for Asset
Retirement Obligations." SFAS No. 143 requires the fair value of a liability for
an asset  retirement  obligation  to be  recognized in the period in which it is
incurred  if a  reasonable  estimate of fair value can be made.  The  associated
asset  retirement  costs are  capitalized as part of the carrying  amount of the
related  oil  and  gas  properties.  As of  December  31,  2004  management  has
determined that there are no material asset retirement obligations.

(d)      EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed by dividing  earnings (loss) for the
period by the  weighted  average  number of common  shares  outstanding  for the
period.  Diluted  earnings  (loss) per share reflects the potential  dilution of
securities by including  other  potential  common stock,  including  convertible
preferred  shares,  in the weighted average number of common shares  outstanding
for a period  and is not  presented  where  the  effect  is  anti-dilutive.  The
presentation  is only of  basic  earnings  (loss)  per  share as the  effect  of
potential  dilution of securities  has no impact on the current  period's  basic
earnings (loss) per share.  Loss per share,  as presented,  has been restated to
reflect the forward stock split described in Note 7. The weighted average number
of  shares  outstanding  prior to the  reverse  acquisition  is deemed to be the
number of  shares  issued  in  connection  with the  reverse  acquisition  being
9,000,000 shares (3,000,000 pre January 26, 2004 3:1 forward split).

(e)      REVENUE RECOGNITION

Oil and natural gas revenues are recorded  using the sales  method,  whereby the
Company  recognizes  oil and natural gas revenue  based on the amount of oil and
gas sold to  purchasers,  when  title  passes,  the amount is  determinable  and
collection is reasonably assured.

(f)      FINANCIAL INSTRUMENTS

The  fair  values  of  cash,  accounts  receivable,  accounts  payable,  accrued
liabilities,  drilling  advances  and  advances  due  to  related  parties  were
estimated  to  approximate  their  carrying  values  due  to  the  immediate  or
short-term maturity of these financial instruments. The Company's operations are
currently in the State of Oklahoma,  in the United  States,  and as a result the
Company is not subject to  significant  exposure to market risks from changes in
foreign currency rates.

The Company's financial instruments that are exposed to concentrations of credit
risk consist  primarily of cash and accounts  receivable.  The Company's cash is
held at a major financial  institution.  The Company manages and controls market
and credit risk through  established formal internal control  procedures,  which
are reviewed on an ongoing basis.

The  Company  sells  its  gas  to  only  one  customer  as  there  is  currently
insufficient  production  for  multiple  purchasers.  The  Company  manages  and
controls this situation by ensuring it only deals with gas  purchasers  that are
reputable and are well established.

(g)      CONCENTRATION OF CREDIT RISK

Substantially  all of the  Company's  sales are to one party.  Consequently  the
Company is exposed to a concentration of credit risk.


                                      F-8


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
________________________________________________________________________________

(h)      USE OF ESTIMATES

The preparation of these consolidated  financial  statements requires the use of
certain   estimates  by  management  in   determining   the  Company's   assets,
liabilities,  revenues  and  expenses.  Actual  results  could  differ from such
estimates.  Depreciation,  depletion and  amortization of oil and gas properties
and the impairment of oil and gas properties are determined  using  estimates of
oil and gas  reserves.  There  are  numerous  uncertainties  in  estimating  the
quantity of reserves and in projecting the future rates of production and timing
of development expenditures, including future costs to dismantle, dispose, plug,
and restore the Company's  properties.  Oil and gas reserve  engineering must be
recognized as a subjective  process of estimating  underground  accumulations of
oil and gas that cannot be measured in an exact way.  Proved reserves of oil and
natural gas are  estimated  quantities  that  geological  and  engineering  data
demonstrate with reasonable certainty to be recoverable in the future from known
reservoirs under existing conditions.

(i)      STOCK-BASED COMPENSATION

In December  2002, the Financial  Accounting  Standards  Board  ("FASB")  issued
Financial Accounting Standard No. 148, "Accounting for Stock-Based  Compensation
-  Transition  and  Disclosure"  ("SFAS No.  148"),  an  amendment  of Financial
Accounting Standard No. 123 "Accounting for Stock-Based Compensation" ("SFAS No.
123").  The  purpose of SFAS No. 148 is to: (1) provide  alternative  methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based  employee  compensation,  (2) amend the disclosure
provisions  to require  prominent  disclosure  about the effects on reported net
income of an entity's  accounting  policy  decisions with respect to stock-based
employee compensation, and (3) to require disclosure of those effects in interim
financial information.  The disclosure provisions of SFAS No. 148 were effective
for the Company for the period ended December 31, 2003.

The  Company  has  elected to  continue  to  account  for  stock-based  employee
compensation  arrangements  in  accordance  with the  provisions  of  Accounting
Principles  Board Opinion No. 25,  "ACCOUNTING  FOR STOCK ISSUED TO  EMPLOYEES",
("APB No.  25") and comply  with the  disclosure  provisions  of SFAS No. 123 as
amended by SFAS No. 148 as described above. In addition, in accordance with SFAS
No. 123 the  Company  applies  the fair  value  method  using the  Black-Scholes
option-pricing model in accounting for options granted to consultants. Under APB
No. 25, compensation  expense is recognized based on the difference,  if any, on
the date of grant  between the estimated  fair value of the Company's  stock and
the amount an employee  must pay to acquire the stock.  Compensation  expense is
recognized  immediately  for past services and pro-rata for future services over
the option-vesting period.

The following  table  illustrates  the pro forma effect on net income (loss) and
net income (loss) per share as if the Company had accounted for its  stock-based
employee  compensation using the fair value provisions of SFAS No. 123 using the
assumptions as described in Note 8:

<TABLE>
<CAPTION>

                                                                             For the period from
                                                                              September 29, 2003
                                                              Year ended          (inception) to
                                                       December 31, 2004       December 31, 2003
                                                      __________________________________________
<S>                                                       <C>                     <C>

Net loss for the year                  As reported        $ (6,092,689)           $ (42,149)
SFAS 123 compensation expense          Pro-forma              (692,051)                   -
                                                      __________________________________________
Net loss for the year                  Pro-forma          $ (6,784,740)           $ (42,149)
                                                      ==========================================
Pro-forma basic net loss per share     Pro-forma          $      (0.43)           $   (0.00)
                                                      ==========================================

</TABLE>


The Company accounts for equity  instruments  issued in exchange for the receipt
of goods or services from other than  employees in accordance  with SFAS No. 123
and the  conclusions  reached  by the  Emerging  Issues  Task Force in Issue No.
96-18.   Costs  are  measured  at  the  estimated   fair  market  value  of  the
consideration  received or the  estimated  fair value of the equity  instruments
issued,  whichever is more reliably measurable.  The value of equity instruments
issued for  consideration  other than  employee  services is  determined  on the
earliest  of a  performance  commitment  or  completion  of  performance  by the
provider of goods or services as defined by EITF 96-18.

The Company has also adopted the  provisions of the FASB  Interpretation  No.44,
ACCOUNTING  FOR  CERTAIN   TRANSACTIONS   INVOLVING  STOCK   COMPENSATION  -  AN
INTERPRETATION  OF APB OPINION NO. 25 ("FIN 44"), which provides  guidance as to
certain applications of APB 25.


                                      F-9


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
________________________________________________________________________________

(j) INCOME TAXES

The Company follows the liability  method of accounting for income taxes.  Under
this method,  deferred tax assets and  liabilities are recognized for the future
tax  consequences  attributable to differences  between the financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
balances.  Deferred tax assets and  liabilities  are measured  using  enacted or
substantially  enacted tax rates  expected to apply to the taxable income in the
years in which those  differences  are expected to be recovered or settled.  The
effect  on  deferred  tax  assets  and  liabilities  of a change in tax rates is
recognized  in income in the  period  that  includes  the date of  enactment  or
substantial enactment. A valuation allowance is provided for deferred tax assets
if it is more  likely  than not that the  Company  will not  realize  the future
benefit, or if future deductibility is uncertain.

(k)      CASH AND CASH EQUIVALENTS

The company considers all highly liquid instruments with an original maturity of
three months or less at the time of issuance to be cash equivalents.


RECENT ACCOUNTING PRONOUNCEMENTS

(l)  In  March  2004,   the  FASB  issued   EITF  No.   03-1,   THE  MEANING  OF
OTHER-THAN-TEMPORARY  IMPAIRMENT  AND ITS  APPLICATION  TO  CERTAIN  INVESTMENTS
("EITF 03-1"). The objective of EITF 03-1 is to provide guidance for identifying
impaired  investments.  EITD 03-1 also provides new disclosure  requirements for
investments  that are deemed to be  temporarily  impaired.  In October 2004, the
FASB  delayed the  recognition  and  measurement  provisions  of EITF 03-1 until
implementation guidance is issued. The disclosure requirements are effective for
annual  periods  ending  after June 15, 2004,  and remain in effect.  Management
believes  that the adoption of EITF 03-1 will not have a material  impact on the
Company's financial condition or results of operations.

(m) In November  2004,  the FASB issued SFAS No.  151,  INVENTORY  COSTS  ("SFAS
151").  SFAS 151  requires  issuers to treat  idle  facility  expense,  freight,
handling  costs,  and  wasted  material  (spoilage)  as  current-period  charges
regardless of whether such charges are considered  abnormal.  In addition,  SFAS
151  requires  the  allocation  of fixed  production  overheads  to the costs of
conversion be based on the normal  capacity of the production  facilities.  SFAS
151 will be effective for all inventory costs incurred in fiscal years beginning
after June 15, 2005.  Management believes the adoption of this standard will not
have a  material  impact on the  Company's  financial  position  or  results  of
operations.

(n) In December 2004, the FASB issued SFAS No. 123 (Revised  2004),  SHARE-BASED
PAYMENT  ("SFAS  123(R)"),  which  requires  the  compensation  cost  related to
share-based  payments,  such as stock options and employee stock purchase plans,
be recognized in the financial  statements based on the grant-date fair value of
the award.  SFAS 123(R) is effective  for all interim  periods  beginning  after
December  15,  2005.  Management  is  currently  evaluating  the  impact of this
standard on the Company's  financial  condition and results of  operations.  The
Company has provided  information herein related to the pro forma effects on the
Company's  reported  net loss and net loss per share of applying  the fair value
recognition  provisions of the previous SFAS No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.

(o) In December  2004, the FASB issued SFAS No. 153,  EXCHANGES OF  NON-MONETARY
ASSETS,  an  amendment  of APB  Opinion  No.  29,  ACCOUNTING  FOR  NON-MONETARY
TRANSACTIONS  ("SFAS 153") SFAS 153  requires  that  exchanges  of  non-monetary
assets are to be measured  based on fair value and  eliminates the exception for
exchanges of non-monetary,  similar productive assets, and adds an exemption for
non-monetary  exchanges that do not have commercial substance.  SFAS 153 will be
effective for fiscal periods beginning after June 15, 2005.  Management does not
believe that the adoption of this  standard  will have a material  impact on the
Company's financial condition or results of operations.


                                      F-10


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 3 - ACQUISITION OF LEXINGTON OIL & GAS LTD. CO. LLC ("LEXINGTON")
________________________________________________________________________________

By Share Exchange  Agreement dated November 19, 2003, the Company  acquired 100%
of the  issued  and  outstanding  shares  of  Lexington  (an  exploration  stage
company),  in exchange for 9,000,000 (3,000,000 pre January 26, 2004 3:1 forward
split)  restricted  shares of common stock of the  Company.  As a result of this
transaction the former  stockholders of Lexington acquired  approximately 85% of
the total issued and outstanding  shares of the Company as at November 19, 2003,
resulting in a change in control of the Company.

During  January,  2004,  the  parties to the Share  Exchange  Agreement,  Orient
Exploration  Ltd.  ("Orient"),  Douglas  Humphreys  ("Humphreys"),  the Company,
Lexington,  and Paluca Petroleum Inc.  ("Paluca")  re-evaluated the terms of the
original  Share  Exchange  Agreement  and upon further  negotiations  desired to
modify the terms of the original  agreement in the best  interest of all parties
such that: (i) 2,250,000 post forward split shares of restricted Common Stock of
the  Company  held  of  record  by  Humphreys  were  transferred  to  Orient  in
consideration  therefore;  (ii) the Company  assigned to  Humphreys a 5% carried
working  interest in every well  drilled by the Company on the Wagnon  Property;
(iii) the Company  agreed to allow  Humphreys to participate up to an additional
5% working interest in every well drilled by the Company on the Wagnon Property;
(iv) the Company agreed to transfer to Paluca certain assets previously acquired
by the Company (which included  working  interests and net revenue  interests in
certain oil and gas leases  located on the Doc Cole  Property,  the Atwood Booch
Sand Property, the Jeneva Property and the Sasakwa Gilcrease Sand Property).

Management  of the  Company  decided  not to  proceed  with the  acquisition  or
development  of  the  described  properties  as  set  out in  item  (iv)  due to
management's  analysis that the properties did not contain the  appropriate  oil
and gas development  elements that form part of the Company's  current focus and
criteria for corporate oil and gas development initiatives.

This acquisition has been accounted for as a  recapitalization  using accounting
principles  applicable to reverse  acquisitions  with Lexington being treated as
the  accounting  parent  (acquirer)  and LRI  being  treated  as the  accounting
subsidiary  (acquiree).  The value assigned to the capital stock of consolidated
LRI on  acquisition of Lexington is equal to the book value of the capital stock
of Lexington  plus the book value of the net assets  (liabilities)  of LRI as at
the date of the acquisition.

The  book  value  of  Lexington's   capital  stock  subsequent  to  the  reverse
acquisition is calculated and allocated as follows:

         Lexington capital stock                                    $       300
         LRI net assets (liabilities)                                (1,430,969)
                                                                    ___________

                                                                     (1,430,669)
         Charge to deficit on reverse acquisition                     1,433,317
                                                                    ___________
         Consolidated stock accounts post reverse acquisition       $     2,648
                                                                    ===========

These  consolidated  financial  statements  include the results of operations of
Lexington since September 29, 2003  (inception) and the results of operations of
LRI since the date of the reverse acquisition effective November 19, 2003. LRI's
results of operations  for the period from January 1, 2003 to September 30, 2003
have been  reported in the  Company's  September 30, 2003 filing on Form 10-QSB.
LRI's  operations  for the period from January 1, 2003 to November 18, 2003 have
been disclosed in the table in Note 7.

The weighted  average  number of shares  outstanding of LRI, for the period from
July 26, 1996  (inception) to November 18, 2003, is deemed to be 9,000,000 being
the  number  of  shares  issued  by LRI to effect  the  reverse  acquisition  of
Lexington.

In  order  to  reflect  the  revised   operating   arrangement   resulting  from
modifications  to  the  original  terms  of the  Share  Exchange  Agreement  the
Humphreys   Purchase  and  Sale   Agreement  and  the  Paluca   Agreement   were
simultaneously executed.

HUMPHREYS PURCHASE AND SALE AGREEMENT
On January 21, 2004,  Orient and  Humphreys,  a director of the Company  entered
into  a  purchase  and  sale  agreement  (the   "Humphreys   Purchase  and  Sale
Agreement").  Pursuant to the terms and provisions of the Humphreys Purchase and
Sale  Agreement:  Humphreys  agreed to transfer  2,250,000  shares of restricted
Common Stock of the Company held of record by Humphreys to Orient.


                                      F-11


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 3 -  ACQUISITION  OF  LEXINGTON  OIL & GAS LTD.  CO.  LLC  ("LEXINGTON")  -
(CONT'D)
________________________________________________________________________________


PALUCA AGREEMENT
On January 21, 2004, the Company, Lexington,  Paluca, and Humphreys entered into
an agreement whereby: (i) the Company assigned to Humphreys a 5% carried working
interest in every well drilled by the Company on the Wagnon  Property;  (ii) the
Company agreed to allow  Humphreys to participate up to an additional 5% working
interest  in every well  drilled by the  Company on the Wagnon  Property;  (iii)
Humphreys agreed to waive any and all other claims, debts or obligations owed to
Humphreys  by the  Company  or by  Lexington,  and (iv) the  Company  agreed  to
transfer to Paluca  certain  assets  previously  acquired by the Company  (which
included  working  interests  and net revenue  interests  in certain oil and gas
leases  located on the Doc Cole Property,  the Atwood Booch Sand  Property,  the
Jeneva Property and the Sasakwa Gilcrease Sand Property).

MANAGEMENT COMPENSATION AGREEMENT
The Company and Lexington have  negotiated a new  compensation  agreement  ("New
Agreement")  with  Humphreys  for his  assistance  in  overseeing  the  drilling
operations and the completion,  management of wells, and for his increasing role
in  development  of the  Company on a  performance  basis.  Under the  covenants
provided under the New Agreement and within its effective  term,  Humphreys,  or
his  designate:  (1) will receive  compensation  of $7,500 per month,  effective
April 1, 2004;  (2) will be  assigned up to a 10%  carried  working  interest in
every  well  drilled  by the  Company  on all  properties  held by the  Company,
including  the Wagnon  property,  (3) will have the right to  purchase  up to an
additional  5%  working  interest  in all wells  drilled  by the  Company on its
properties  provided  that  funds for this  participation  are paid prior to the
commencement  of drilling of said wells;  and (4) will receive a further 200,000
options in the Company to be granted at $3.00 per share  exercisable  for a five
year term. These options were granted in July 2004. (Refer to Note 8.)

During  the year  ended  December  31,  2004  the  Company  recorded  additional
compensation  expense to Humphreys of $117,030 being the estimated  value of his
10% carried interest in the Company's wells that were successfully  developed in
the year. (Refer to Note 4.)

Humphreys is a director of the Company and is the Drilling Operations Manager of
Lexington,  and also  consults to Oak Hills  Drilling and  Operating,  LLC ("Oak
Hills"),  an oil and gas drilling and operating  company  based in  Holdenville,
Oklahoma that acts as designated  "operator" to Lexington since January 1, 2005.
Humphreys is in charge of oil and gas operations in Oklahoma. (Refer to Note 9.)
The previous operator in charge of drilling and operating of wells for Lexington
was Oakhills Energy, Inc.

Paluca  is a  private  Oklahoma  based  oil and gas  services  company  owned by
Humphreys and his immediate  family.  Some of the services provided by Humphreys
to the Company are provided through this business entity.  Mr. Humphreys is also
the President of Paluca, Inc.


NOTE 4 - PROPERTY AND EQUIPMENT
________________________________________________________________________________

Property and equipment include the following:

                                                    DECEMBER 31,
                                                 2004           2003
                                              ________________________
OIL AND GAS PROPERTIES:                            $             $
Proved, subject to depletion                    1,371,266            -
Unproved, not subject to depletion              1,419,447      120,000
Accumulated depletion                            (161,328)           -
                                              ________________________
Net oil and gas properties                      2,629,385      120,000
                                              ________________________

Other equipment                                     3,495            -
Accumulated depreciation                             (498)           -
                                              ________________________
Net other property and equipment                    2,997            -
                                              ________________________
Property and equipment, net of
accumulated depreciation and depletion        $ 2,632,382     $120,000
                                              ========================

                                      F-12


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 4 - PROPERTY AND EQUIPMENT - (CONT'D)
________________________________________________________________________________


The  Company's  oil and gas  activities  are  currently  conducted in the United
States. The following costs were incurred in oil and gas operation, development,
exploration, and acquisition activities during the following periods:

                                   DECEMBER 31,
                                 2004          2003         TOTAL
                              ______________________________________

                              $              $            $
Acquisition costs:
     Proved                            -      120,000        120,000
     Unproved                  1,419,447            -      1,419,447
Development - Proved
   Oil and Gas Properties      1,251,266            -      1,251,266
                              ______________________________________
                               2,670,713      120,000      2,790,713
                              ======================================

WAGNON LEASE
By agreement dated October 9, 2003,  Lexington acquired an interest in a section
of farm-out acreage with the intention to develop coal bed methane gas producing
wells in Pittsburg County, Oklahoma. Lexington holds an 80% working interest and
a 60.56% net revenue interest in approximately  590 gross acreage of a potential
gas  producing  property  located in  Pittsburg  County,  Oklahoma  (the "Wagnon
Property"). The Company's interest relating to the Wagnon Property is subject to
farm-out  agreements  equating to a total 20% working  interest  between Paluca,
Oakhills Energy, Inc. and the lessee of the Wagnon Property.

A director and an officer of LRI were minority owners in Oakhills  Energy,  Inc.
in 2003. Their interest in Oakhills  Energy,  Inc. was purchased by the majority
shareholder on January 26, 2004.

During the year ended  December  31,  2004  three gas wells (the  Kellster  1-5,
Kyndal 2-2 and Bryce 3-2) have been put into production.

Subsequent  to the year ended  December 31, 2004,  on March 15, 2005 the Company
began drilling a fourth well on the Wagnon  Property  (Caleigh 4-2).  During the
year  ended  December  31,  2004  the  Company  spent   $1,368,296  on  drilling
expenditures on the Wagnon lease. (Refer to Note 5.)

COAL CREEK PROSPECT
In March 2004 the  Company  obtained  an option to  purchase  an  undivided  95%
interest in  approximately  2,500 net leasehold  acres in 5 sections of the Coal
Creek  Prospect  located  in  Hughes  and  Pittsburg  Counties,  in the State of
Oklahoma. During the year ended December 31, 2004 the Company acquired 1,932 net
leasehold  acres  under the option.  The Company  does not expect to acquire any
additional  acreage under this option.  Under the terms of the purchase of these
leases,  Lexington has an undivided  95% - 100% working  interest in the subject
lands and a minimum  79% net revenue  interest.  The terms of the leases are for
two years.

PANTHER CREEK PROSPECT
In March 2004 the Company  purchased a 3 year lease of  approximately  300 acres
located in five separate sections to develop the Panther Creek Project in Hughes
County,  Oklahoma.  Lexington has an undivided 100% working  interest in subject
lands and an approximate 81% net revenue  interest.  Part of the acreage in this
lease has been subject to three division pooling orders by Newfield  Exploration
Mid-Continent,  Inc. ("Newfield"), for three wells to be drilled and operated by
Newfield in which  Lexington  has elected to  participate.  Lexington's  working
interests in the three wells are  proportionate  to  Lexington's  Panther  Creek
lease ownership in areas pooled by Newfield.  Lexington working interests in the
three wells are estimated to be as follows;  25.78%  (representing  a contingent
liability  of $419,801  for a completed  well based on  Newfield  Authority  For
Expenditure  "AFE"),  10.94%  (contingent  liability of $159,655 for a completed
well based on Newfield  AFE if  drilled),  and 4.06%  (contingent  liability  of
$58,521 for a completed well based on Newfield AFE if drilled).  Newfield has up
to approximately  the end of 2005 to drill such wells and may or may not proceed
with any individual well project at their election.  Contingent liability exists
to Lexington  for any well  drilled by Newfield  that  Lexington  has elected to
participate in.  Newfield has proceeded with the drilling of one of the wells in
which Lexington has leased acreage.  The first of the three wells, the POE 1-29,
commenced drilling on February 9, 2005.


                                      F-13


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 4 - PROPERTY AND EQUIPMENT - (CONT'D)
________________________________________________________________________________

SOUTH LAMAR PROSPECT
By agreement dated April 21, 2004,  Lexington  acquired a 100% working interest,
78.5% net revenue interest, in three sections (960 acres) of farm-out acreage in
Hughes  County,  Oklahoma  (the "South Lamar  Prospect")  with the  intention to
develop  coal bed  methane  gas  producing  wells.  The term of the lease is two
years.  On July 26,  2004,  the Company  acquired a further  183.98 acres in the
South Lamar prospect and a 100% working  interest and a 79% net revenue interest
in the additional acreage. The term of the lease is two years.

H-9 PROSPECT
By agreement  dated June 29, 2004,  Lexington has obtained an option to purchase
an  undivided  100%  leasehold  interest,   79.25%  net  revenue  interest,   in
approximately  4,600 net leasehold acres in approximately 38 sections of the H-9
Prospect located in Hughes and McIntosh Counties, in the State of Oklahoma.  The
Company  concluded  the purchase of the property on July 29, 2004.  The terms of
leases acquired within the prospect are between three and four years.

On July 19, 2004 the  Company  acquired  an  additional  325 acres of gas target
drillable  acreage in the northeast  portion of Hughes  County,  Oklahoma in the
vicinity of the  approximate  4,600 acres of farm out leases  under  acquisition
(H-9)  Prospect.  Drilling  targets  that  are  included  in the  lease  include
Hartshorne and Booch Coal gas zones with a 100% Working Interest and a 78.3% Net
Revenue  Interest.  The acquired  lease is held by  production.  The term of the
lease is three years.

MIDDLE CREEK PROSPECT
By agreement  dated October 28, 2004,  Lexington has purchased an undivided 100%
leasehold interest,  70% net revenue interest, in 320 net leasehold acres in two
sections of the Middle Creek Prospect located in Hughes County,  in the State of
Oklahoma.  Drilling  targets  are the Caney  Shale  and  Hartshorne  zones.  The
leasehold interest acquired is held by production.

NOTE 5:  DRILLING ADVANCES
________________________________________________________________________________

During the period ended December 31, 2003 Lexington,  the Company,  and Oakhills
Energy,  Inc.  entered into  drilling  agreements  with private  investors  (the
"Funding  Investors")  for the funding for the first three  wells,  the Kellster
1-5, the Kyndal 2-2 and the Bryce 3-2,  located on the Wagnon Lease. The Funding
Investors each provided  one-third of the Authorization For Expenditure  ("AFE")
capital  estimated at $360,000 for the  drilling and  completion  of each of the
first three wells.  As of December 31, 2004,  the Company had received the total
required  funding of  $1,080,000  for the drilling and  completion  of the first
three Wagnon Lease wells and has successfully drilled and completed the Kellster
1-5,  the  Kyndal 2-2 well and the Bryce 3-2  wells.  The terms of the  drilling
agreements  of all wells on the  Wagnon  Lease are the same for each well on the
property.

Lexington,  the  Company,  and  Oakhills  Energy,  Inc.  entered  into  drilling
agreements with the Funding  Investors for the expected  drilling and completion
of a fourth  Wagnon  Lease well,  the Caleigh 4-2 well that is expected to begin
drilling no later than the end of April 2005. As of December 31, 2004,  $405,000
had been received for the drilling of the Caleigh 4-2.

Wells to be  drilled  on the  Wagnon  Lease  property  carry  royalty  interests
totaling 25% to land owners and property  interest  holders and carried  working
interests of 5% to a land owner,  and 10% to a company  related to a director of
the Company (see Note 3 - Management Compensation Agreement). Paluca also owns a
non-carried  working  interest  of 5% as part of capital  participation  funding
provided by Paluca.

The Funding Investors are provided an 80% working  interest,  60.56% net revenue
interest,  in the wells  until their  invested  capital for each well is repaid,
after which time the Funding  Investors  revert to an  aggregate  20.1%  working
interest,  15.075%  net  revenue  interest,  in the wells  located on the Wagnon
Lease. Oakhills Energy, Inc., the previous operator responsible for drilling the
wells,  will  "back-in" to a reversionary  6.7% working  interest after invested
capital is repaid to the Funding  Investors  in the wells  located on the Wagnon
Lease and the Company will back-in to a reversionary 53.2% working interest. The
Company's  repayment  obligation  to the  Funding  Investors  is  limited to the
production   revenues   generated  from  wells  located  on  the  Wagnon  Lease.
Accordingly,  if any of the subject  wells on the Wagnon Lease are  unsuccessful
the  drilling  advances  will be written  off when such  determination  is made.
Management has estimated that the non-current  portion of the drilling  advances
as at December 31, 2004 is $563,915.

As of December  31, 2004,  the Funding  Investors  have been repaid  $304,085 of
their $1,080,000 investment in the Kellster 1-5, Kyndal 2-2 and Bryce 3-2 wells.


                                      F-14


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 6:  CONVERTIBLE PROMISSORY NOTES
________________________________________________________________________________

On April 26, 2004,  Lexington  borrowed $400,000 from a shareholder by way of an
unsecured convertible promissory note due on April 30, 2005. The promissory note
bears interest  accrued  monthly at the U.S. prime lending rate plus one percent
simple interest per annum. The Holder shall have the right, exercisable in whole
or in part, to convert the outstanding  principal and accrued  interest  thereon
into fully paid, non-assessable restricted common shares at a price of $5.00 per
share.

On June 30, 2004,  the Company  borrowed an  additional  $100,000  from the same
shareholder  by way of an unsecured  promissory  note due on June 30, 2005.  The
promissory  note bears interest  accrued  monthly at the U.S. prime lending rate
plus one percent  simple  interest  per annum.  The Holder shall have the right,
exercisable  in whole or in part,  to  convert  the  outstanding  principal  and
accrued  interest  thereon  into fully paid,  non-assessable  restricted  common
shares at a price of $2.50 per share.

Application  of a  relative-fair-value  method has  resulted in the  convertible
promissory  notes  being  recorded  as separate  debt and equity  components.  A
discount  on the  promissory  notes  payable of  $50,000  has been  accrued  and
recorded as a deferred finance fee, to be amortized over the terms of the notes.
The discount was determined based upon a fair value interest rate for comparable
debt of 15% per  annum.  The  equity  component,  which  is  represented  by the
conversion feature, had a carrying value of $50,000 being the difference between
the face amount of the  convertible  debenture  and its fair value as calculated
above.  The carrying  value of the equity  component  was recorded as additional
paid-in capital.

On October  29,  2004,  a total of  $512,637  in  promissory  notes and  accrued
interest to that date were settled for 348,733  private  placement units offered
by the Company at $1.47 per unit,  with each unit  comprised of one common share
and one share purchase warrant  exerciseable at $1.68 per share (see Note 7). As
of October 29, 2004,  $23,333 of the deferred  finance fee had been expensed and
the balance of $26,667 was charged against additional paid-in capital.

In accordance with Financial  Accounting Standard No. 84 "INDUCED CONVERSIONS OF
CONVERTIBLE  DEBT", the Company has recognized an expense of $489,205,  equal to
the fair value of the additional securities issued in order to induce conversion
of the convertible debt.

NOTE 7:  STOCKHOLDERS' EQUITY
________________________________________________________________________________

The  authorized  capital of the Company  consists of  200,000,000  voting common
shares with $0.00025 par value, and 75,000,000  non-voting preferred shares with
$0.001 par value.

REVERSE STOCK SPLIT
Effective  August  7,  2003 the  Company  completed  a  reverse  stock  split of
one-for-three hundred of the Company's outstanding common stock,  resulting in a
reduction  of the then  outstanding  common  stock  from  156,328,943  shares to
521,184  shares.  The par value and the number of authorized but unissued shares
of the  Company's  common stock was not changed as a result of the reverse stock
split.

FORWARD STOCK SPLIT
On January 26, 2004 the Company  forward split its common shares on the basis of
three new shares for each common share outstanding. The par value and the number
of authorized but unissued shares of the Company's  common stock was not changed
as a result of the forward stock split.

Unless  otherwise   noted,  all  references  to  common  stock,   common  shares
outstanding,  average numbers of common shares outstanding and per share amounts
in these  Financial  Statements and Notes to Financial  Statements  prior to the
effective  dates of the reverse and forward  stock splits have been  restated to
reflect the one-for-three  hundred reverse split and the  one-for-three  forward
split on a retroactive basis.

LEXINGTON  CAPITAL STOCK  TRANSACTIONS  DURING THE PERIOD  SEPTEMBER 29, 2003 TO
NOVEMBER 19, 2003:
On September 29, 2003 Lexington  issued 3,000,000 shares of its $.0001 par value
common shares for total proceeds of $300.

LRI  CAPITAL  STOCK  TRANSACTIONS  DURING  THE PERIOD  JANUARY  1, 2003  THROUGH
NOVEMBER 19, 2003:
On March 15, 2003 the Company  settled  $1,260,027  in loans,  notes and accrued
interest in exchange  for the issuance of 210,004  post-reverse-split  shares of
the Company's common stock.


                                      F-15


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 7:  STOCKHOLDERS' EQUITY - (CONT'D)
________________________________________________________________________________


On March 15, 2003 the holders of 6,200,000  Series A preferred shares elected to
convert  their  shares  to  common  stock.  As a  result  cumulative  undeclared
dividends totaling $1,371,475 became payable on March 15, 2003. Accordingly, the
Company issued 38,953 post reverse-split  shares of common stock in exchange for
the 6,200,000 Series A preferred shares and settlement of the dividend liability
of $1,371,475.

On March 15, 2003 the holders of 2,510,000  Series B preferred shares elected to
convert  their  shares  to  common  stock.  As a  result  cumulative  undeclared
dividends totaling $995,550 became payable on March 15, 2003.  Accordingly,  the
Company issued 15,004 post reverse-split  shares of common stock in exchange for
the 2,510,000 Series B preferred shares and settlement of the dividend liability
of $995,550.

In October 2003 the Company  issued 30,000  post-reverse  split common shares in
settlement of $11,100 of accounts payable.

On November 19, 2003 the Company issued 9,000,000  post-reverse split restricted
common shares to the shareholders of Lexington for a 100% interest in Lexington.

LRI STOCK OPTION TRANSACTIONS DURING THE YEAR ENDED DECEMBER 31, 2003:
On November 18, 2003, the Company granted  3,000,000  common stock options under
the  Company's  Stock  Option  Plan to  consultants  to the  Company,  including
2,850,000 to  International  Market Trend AG ("IMT")  and/or its  designates.  A
consulting expense of $1,997,581 was recorded representing the fair value of the
3,000,000 options.  The fair value was estimated using the Black-Scholes  option
pricing model assuming an expected live of 5 years, a risk free interest rate of
3%, a dividend yield of 0%, and an expected volatility of 251%.

During November 2003, the Company issued 1,650,000 shares of common stock on the
exercise of stock options at $0.167 per share for proceeds of $275,000 which was
paid by way of offset of  $234,435  originally  advanced  to the  Company by ICI
which  was  assigned  by ICI to  IMT  designated  option  holders,  and  $40,565
originally advanced to the Company by an IMT designated option holder.

On November 21, 2003 the Company registered 1,000,000 common stock options under
an S-8 Registration Statement.

LRI's  changes in capital  stock  prior to and in  connection  with the  reverse
acquisition were as follows:

<TABLE>
<CAPTION>

                                                                                       Additional
                                             Common Stock         Preferred Stock       Paid-in
                                          Number      Amount      Number     Amount      Capital      Deficit         Total
                                         ______________________________________________________________________________________
<S>                                        <C>       <C>         <C>         <C>       <C>          <C>            <C>
Balance December 31, 2002,
As previously reported by LRI              257,135   $ 19,284    8,710,000   $ 8,710   $10,298,039  $(12,822,928)  $ (2,496,895)
20% cumulative dividends payable on
Conversion of Series A Preferred                 -          -            -         -             -    (1,371,475)    (1,371,475)
stock
Expiry of Series A Preferred stock
  Share Purchase Warrant                         -          -            -         -        60,000             -         60,000
Issuance of common stock in
settlement
  of Cumulative dividend on converted
  Series A Preferred stock                  18,286      1,371            -         -     1,370,104             -      1,371,475
Issuance of common stock pursuant to
  Conversion of Series A Preferred          20,667      1,550   (6,200,000)   (6,200)        4,650             -              -
stock
20% cumulative dividends payable on
  Conversion of Series B Preferred               -          -            -         -             -      (995,550)      (995,550)
stock
Issuance of common stock in
settlement
  of Cumulative dividend on converted
  Series B Preferred stock                   6,637        498            -         -       995,052             -        995,550
Issuance of common stock pursuant to
  Conversion of Series B Preferred           8,367        628   (2,510,000)   (2,510)        1,882             -              -
stock
Issuance of common stock in
settlement of debt                         210,092     15,750            -         -     1,244,277             -      1,260,027
                                         ______________________________________________________________________________________
Balance post 300:1 reverse stock split     521,184   $ 39,081            -   $     -   $13,974,004  $(15,189,953)   $(1,768,868)
                                         ______________________________________________________________________________________


                                      F-16


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 7:  STOCKHOLDERS' EQUITY - (CONT'D)
________________________________________________________________________________


                                                                                       Additional
                                             Common Stock         Preferred Stock       Paid-in
                                          Number      Amount      Number     Amount      Capital      Deficit         Total
                                         ______________________________________________________________________________________
Balance post 300:1 split, carried          521,184   $ 39,081            -   $     -   $13,974,004  $(15,189,953)   $(1,768,868)
forward:
Debt settlement                             10,000          2            -         -        11,098             -         11,100

LRI net loss for the period from
January 1, 2003 to November 19, 2003             -          -            -         -             -      (265,201)      (265,201)
Fair value of stock options granted
Concurrent with reverse acquisition              -          -            -         -     1,997,581    (1,997,581)             -
Issued to effect reverse acquisition     3,000,000        750            -         -          (750)                           -
                                         ______________________________________________________________________________________

November 19, 2003 pre 3:1 split          3,531,184     39,833            -         -    15,981,933   (17,452,735)    (1,430,969)
3 to 1 forward split                     7,062,368          -            -         -             -             -              -
                                         ______________________________________________________________________________________
LRI balance November 19, 2003
(date of RTO)                            10,593,552  $ 39,833           -    $     -   $15,981,933  $(17,452,735)  $ (1,430,969)
                                         ======================================================================================

</TABLE>


LRI CAPITAL STOCK TRANSACTIONS POST NOVEMBER 19, 2003:
In November 2003, 1,650,000 stock options were exercised for $275,000, which was
offset against advances payable as described above.

In November 2003,  $250,000 of the advances due to ICI were settled with 100,000
shares of pre-forward split common stock.

In November  2003,  as part of a 3,000,000  unit  offering,  the Company  issued
300,000  units  comprised of one  restricted  share of common stock and one-half
share purchase warrant exercisable at $1.67 for total proceeds of $250,000.  The
fair value of the  warrants  is  estimated  to be $12,500  and is  recorded as a
separate  component of stockholders'  equity. The share purchase warrants expire
on December 31, 2004.

STOCK OPTION EXERCISE - 2004
On January 22, 2004 the Company issued 1,200,000 pre forward split shares of its
common stock,  upon the exercise of 1,200,000  stock options at $0.167 per share
for proceeds of $200,000, which was paid by way of offset of $200,000 originally
advanced  to the  Company  by ICI which was  assigned  by ICI to IMT  designated
option holders as described in Note 8.

On May 18, 2004 the Company issued 495,000 shares of its common stock,  upon the
exercise of 495,000  stock  options at $1.00 per share for proceeds of $495,000,
which was paid by way of offset of $495,000  originally  advanced to the Company
by ICI, which was assigned to an IMT designated  option holder,  as described in
Note 8.

On June 25, 2004 the Company issued 320,000 shares of its common stock, upon the
exercise of 320,000 stock options at $3.00 per share for proceeds of $960,000.

PRIVATE PLACEMENTS
On November 26, 2003 the Company  issued  300,000  restricted  common  shares at
$0.83 per  share  plus  one-half  warrant  at $1.67  per  share  for each  share
purchased,  with  warrant  terms to  December  31,  2004  (the date of issue was
pre-forward  stock split of 3:1); the Company issued 100,000  pre-forward  stock
split shares at $2.50 per share plus one-half pre-forward stock split warrant at
$5.00). The total amount raised in this financing was $250,000. The value of the
warrants was estimated to be $12,500 and was recorded as a separate component of
stockholders' equity.

On May 3, 2004 the Company concluded and issued 400,000 restricted common shares
at $2.50 per  share  plus  one-half  warrant  at $5.00 per share for each  share
purchased,  with warrants terms to December 31, 2005. The total amount raised in
this  financing  was  $1,000,000.  The value of the warrants was estimated to be
$45,000 and was recorded as a separate  component  of  stockholders'  equity.  A
finder's  fee of  39,800  restricted  common  shares  was paid  pursuant  to the
transaction.

On September 9, 2004 the Company  approved a financing of up to 4,150,000  units
of  restricted  common  shares at a price of $1.47 per share  plus a full  share
purchase  warrant  exerciseable  at a price of $1.68 per  share  for each  share
purchased (the  "September  Unit(s)").  The warrants will expire six months from
the effective date of  registration of the stock and warrants to be issued under
the  offering.  The amount  approved  to be raised in this  financing  was up to
$6,100,500. Brokers' fees payable


                                      F-17


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 7:  STOCKHOLDERS' EQUITY - (CONT'D)
________________________________________________________________________________

on the September  Units were: cash of 8% of gross  proceeds,  brokers'  warrants
equal to 4% of the  gross  proceeds  (to be issued  under the same  terms as the
warrants issued under the offering),  and a warrant  exercise fee equal to 5% of
proceeds  received  as a result of the future  exercise  of the  warrants by the
investors.  On  November  1,  2004 LRI  completed  the sale of an  aggregate  of
1,700,686 Units. The Company filed a registration statement (form SB-2) with the
Securities and Exchange  Commission  ("SEC") on December 15, 2004,  covering the
resale of shares of common stock sold in the private  placement or issuable upon
exercise of the warrants.  Under the terms of the  financing,  the  registration
statement  is to become  effective  within 120 days after the filing  date;  the
registration statement went effective on January 24, 2005 and the warrants under
this filing expire July 23, 2005.

As of December 31, 2004, 1,700,686 September Units had been sold for proceeds of
$2,319,264, net of an $180,746 agent fee which was charged to additional paid in
capital.  Of the 1,700,686  units sold 376,318 were  non-brokered  and 1,324,368
were  brokered.  The fair value of the warrants was  estimated to be $0.147 each
and $250,001 has been recorded as a separate component of stockholders'  equity.
The fair value of the 46,353 broker  warrants  issued to date has been estimated
to be $0.147 per warrant and as a result, $6,814 has been recorded as a separate
component  of  stockholders'  equity.  The  non-brokered  units in the amount of
376,318 were issued upon: (1) settlement of the $500,000 convertible  promissory
note  and  accrued  interest  of  approximately  $12,637  for  348,733  units as
described in Note 6; and (2) pursuant to a non-brokered placee that paid $40,550
for 27,585  units.  The Company  does not intend to sell any further  securities
under this offering.

SHARE PURCHASE WARRANTS
Share purchase warrants outstanding at December 31, 2004 are:

                                                             Weighted Average
   Range of           Weighted                                   Remaining
Exercise Prices     Average Price     Number of Shares     Contractual Life (yr)
________________________________________________________________________________

 $1.66 - $5.00          $2.02            1,947,039                  .60
================================================================================

Subsequent  to the year ended  December  31,  2004,  in February and March 2005,
248,014 share  purchase  warrants were  exercised at $1.68 per purchase  warrant
providing $416,663 in proceeds to the Company.


NOTE 8:  STOCK OPTION PLAN
________________________________________________________________________________

By Directors'  Resolution  dated  November 19, 2003 the Company  adopted a Stock
Option Plan ("SOP").  The SOP provides  authority for the Board to grant Options
for the purchase of a total number of shares of the Company's  common stock, not
to exceed 3,000,000  shares.  The option period of options granted under the SOP
shall be up to 10 years and the option price per share shall be no less than the
fair market  value of a share of common  stock on the date of grant of the stock
option.

On December 31, 2003,  the terms of the Company's SOP were altered,  whereby the
authorized  total  number of options  was  increased  from  3,000,000  shares to
4,000,000 shares.

By  Directors'  Resolution  dated July 2, 2004 the  Company  (1)  increased  the
authorized number of options under the SOP from 4,000,000 to 5,000,000;  and (2)
made the new 1,000,000 stock options exercisable at $3.00 per share for a 5 year
term. As of December 31, 2004, 4,200,000 options under the Company's current SOP
have been granted and 3,665,000 had been exercised.

A summary of the Company's  stock  options as of December 31, 2004,  and changes
during the year ended is presented below:


                                      F-18


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 8:  STOCK OPTION PLAN - (CONT'D)
________________________________________________________________________________

                                              December 31, 2004
                                       _______________________________
                                                      Weighted average
                                       Number of       exercise price
                                        options           per share
                                       _______________________________
                                                            $
Outstanding at beginning of year        1,350,000         0.50
Exercised January 22, 2004             (1,200,000)      (0.444)
Grant February 2, 2004                  1,000,000        2.222
Exercised May 18, 2004                   (495,000)      (0.367)
Exercised June, 2004                     (320,000)      (0.711)
Grant July 26,2004                        200,000        0.444
                                       _______________________________

Exercisable at December 31, 2004          535,000        1.644
                                       ===============================


                                                 Dec 31, 2003
                                       _______________________________
                                                      Weighted average
                                       Number of       exercise price
                                        options          per share
                                       _______________________________
                                                              $
Outstanding at beginning of period              -
Granted November 19, 2003               3,000,000         1.111
Exercised  November 24, 2003           (1,650,000)       (0.611)
                                       _______________________________

Exercisable at December 31, 2003        1,350,000         0.50
                                       ===============================

In January 2004, 1,200,000 stock options (400,000 pre-forward split shares) were
exercised at $0.167 per share  ($0.50 per pre forward  split share) for proceeds
of $200,000 which was paid by way of offset of $200,000  originally  advanced to
the Company by ICI which was assigned by ICI to IMT designated option holders.

On February 2, 2004,  an  additional  1,000,000  share  options  were granted to
consultants  500,000  exercisable at $1.00 and 500,000 exercisable at $3.00. The
term of these options is five years. The fair value of these options at the date
of grant of $2,989,221  was estimated  using the  Black-Scholes  option  pricing
model  with an  expected  life of 5 years,  a risk free  interest  rate of 3%, a
dividend  yield of 0%, and an expected  volatility of 251% and has been recorded
as a consulting expense in the period. Of these options, 100,000 were granted to
an officer of the Company (see note 9.)

In April 2004 the Company registered 500,000 common stock options exercisable at
$1.00 per share under an S-8 Registration Statement. On May 18, 2004, 495,000 of
these stock  options were  exercised at $1.00 per share for proceeds of $495,000
which was paid by way of offset of $495,000  originally  advanced to the Company
by ICI which was assigned to a designated option holder.

In June 2004 the Company registered 400,000 common stock options  exercisable at
$3.00 per share under an S-8 Registration Statement.  And, in June 2004, 320,000
of these  stock  options  were  exercised  at $3.00 per share  for  proceeds  of
$960,000.

On July 12,  2004,  200,000  stock  options  were  granted at $3.00 per share to
Humphreys.  The term of these  options  is five  years.  The fair value of these
options at the date of grant of $692,051 was estimated  using the  Black-Scholes
option pricing model with an expected life of 5 years, a risk free interest rate
of 3%,  a  dividend  yield  of 0%,  and an  expected  volatility  of 222% and in
accordance  with the  provisions of SFAS 148, has been  disclosed on a pro-forma
basis in Note 2.

On February 2, 2005, the Company  granted  600,000 share options to a consultant
to the Company exercisable as follows: 500,000 at $1.00 per share and 100,000 at
$0.16667 per share.


                                      F-19


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 9:  RELATED PARTY TRANSACTIONS
________________________________________________________________________________

LRI RELATED PARTY TRANSACTIONS DURING THE PERIOD JANUARY 1, 2003 TO NOVEMBER 19,
2003:
The Company,  on January 1, 1999,  entered into a management  services agreement
with ICI to provide management of the day-to-day operations of the Company for a
two year term. The management  services  agreement requires monthly payments not
to exceed  $75,000 for  services  rendered.  The  Company's  currently  inactive
subsidiary,  International Gold Corporation, entered into a similar agreement on
January 1, 1999 with Amerocan Marketing, Inc. ("Amerocan") with required monthly
payments not to exceed $25,000 for services  rendered for a two year term.  Both
agreements  were  extended  for a further  two year  term to  January  1,  2003.
Subsequent to January 1, 2003, the Agreements with ICI and Amerocan  expired and
were not renewed,  but services were  continued to be provided by ICI on a month
to month basis.

On November  10, 2003,  the Company and IMT entered into a financial  consulting
services  agreement  (the  "Consulting  Agreement")  for a period  of one  year.
Pursuant to the terms and provisions of the Consulting Agreement:  (i) IMT shall
provide financial and general  managerial and business  development  services to
the  Company;  and (ii) the  Company  granted  to IMT and/or  its  designees  or
employees,  2,850,000  stock  options at the exercise  price of $0.167 per share
(original  grant of options was 950,000 stock  options at the exercise  price of
$0.50 per pre-forward split share).

An officer and director of the Company has been contracted by ICI as part of the
management  team provided to the Company and its  subsidiary.  During the period
ended  November 19, 2003 a total of $110,000 was incurred to ICI which is also a
significant  shareholder,  for managerial,  administrative,  investor  relations
services, and or advances provided to the Company and its subsidiary. During the
period  ended  November 19, 2003 ICI paid a total of $25,875 to this officer and
director for services provided to the Company and its subsidiary.  ICI also paid
the Chief  Financial  Officer of the Company  $13,750 for his  services  for the
period ended  November 19, 2003. In addition,  during the period ended  November
19,  2003,  ICI and other  shareholders  paid  expenses on behalf of the Company
totaling  $47,000.  As of November  19,  2003,  the Company  owed ICI a total of
$672,805 in accrued  management fees payable,  loans or advances of $356,998 and
accrued  interest of $282,477 on outstanding  loans and management fees payable,
for a total of $1,312,280.

During the period ended  November  19, 2003 the Company  settled  $1,260,027  in
loans,  notes and accrued  interest  due to related  parties in exchange for the
issuance of 630,276 shares of the Company's common stock.

LRI RELATED PARTY TRANSACTIONS NOVEMBER 20, 2003 THROUGH DECEMBER 31, 2003:
An officer and director of the Company had been contracted by ICI as part of the
management  team provided to the Company and its  subsidiary.  During the period
November 19, 2003  through  December 31, 2003 a total of $10,000 was incurred to
ICI, a significant  shareholder,  for managerial,  administrative,  and investor
relations  services  provided to the Company and its subsidiary.  As of December
31, 2003 the Company  owed ICI a total of $448,370 in  management  fees  payable
which have accrued as previously  described,  loans of $59,498,  and interest of
$282,477  accrued at 10% per annum on  outstanding  loans and unpaid  management
fees payable, for a total of $790,345.

A private  company  owned by a director of the  Company  has been  assigned a 5%
carried  Working  Interest  in each well to be drilled on the Wagnon  lease,  as
partial  compensation  for his  involvement  in obtaining and  facilitating  the
execution of the Farm-Out  Agreement and to compensate his services  relating to
operation  and  completion  of wells  to be  located  on the  Wagnon  Lease.  In
addition,  a director of the Company has purchased a further 5% working interest
and, as a result, after all capital costs relating to drilling on wells relating
to the Wagnon Lease are repaid to the private Funding Investors, the director of
the Company will back-in to a further reversionary 5.0% Working Interest in each
well to be located on the Wagnon Lease.  After well drilling  capital is repaid,
the director will have a total 10.0% Working Interest in each well to be located
on the Wagnon Lease. (Refer to Notes 4 and 5.)

Effective December 5, 2003, the Company acquired the Wagnon Lease from Oak Hills
Energy, Inc. for $120,000.

RELATED PARTY TRANSACTIONS - 2004
Although the formal  arrangement  for services to be provided by ICI, a minority
shareholder and consulting services agent to the Company,  ended on December 31,
2003, a month to month arrangement to provide services to the Company was agreed
to as a  transitional  measure  during  the  first  quarter  of the  year.  This
transition period ended March 31, 2004. During the quarter ended March 31, 2004,
a total  of  $30,000  (2003 -  $110,000)  was  incurred  to ICI for  managerial,
administrative  and investor  relations services provided to the Company and its
subsidiary, no fees were incurred to ICI for the balance of the


                                      F-20


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 9:  RELATED PARTY TRANSACTIONS - (CONT'D)
________________________________________________________________________________


year ended  December 31, 2004. On October 7, 2004 the Company repaid ICI $74,228
in loans and accrued  interest.  As of  December  31,  2004,  the Company has no
further obligation to ICI.

During the quarter  ended March 31,  2004 the  Company  settled  $200,000 of the
amounts  due to ICI in exchange  for the  issuance  of  1,200,000  shares of the
Company's common stock by way of exercising options at $0.167 per share.

During the  quarter  ended June 30,  2004 the  Company  settled  $495,000 of the
amounts due to ICI in exchange for 495,000 shares of the Company's  common stock
by way of exercising options at $1.00 per share.

The Company  previously  entered into a contract with IMT, a private  company to
whom certain of the Company's directors and officers provide consulting services
relating to oil and gas industry and market  development  services.  The Company
incurred  $90,000 in fees to IMT for the year ended  December  31,  2004 (2003 -
nil). Of the 1,000,000 stock options granted on February 2, 2004,  895,000 stock
options were granted to IMT, or its designates.

On November 9, 2004, the Company  reached an agreement with Oak Hills to drill a
ten well  program.  Humphreys  is a director of the Company and is the  Drilling
Operations  Manager of Lexington,  and also consults to and is a 25% shareholder
of Oakhills Drilling and Operating, LLC., an oil and gas operating company based
in Holdenville,  Oklahoma that acts as "operator" to Lexington. Mr. Humphreys is
in charge of oil and gas operations in Oklahoma.

Humphreys  has  been  assigned  a 10%  carried  Working  Interest  in each  well
successfully  drilled  on the Wagnon  lease,  as  partial  compensation  for his
involvement  in  obtaining  and  facilitating  the  execution  of  the  Farm-Out
Agreement  and  to  compensate  for  his  services  relating  to  operation  and
completion  of wells to be located on the Wagnon Lease.  The estimated  value of
the 10% carried  Working  Interest of $117,030 has been  recorded as  additional
compensation expense during the year ended December 31, 2004. Humphreys also has
the right to  purchase  an  additional  5% working  interest  in each well to be
located  on the Wagnon  Lease and has  elected to do so for the first four wells
drilled on this  lease.  The  original  5% cost to  participate  in the wells by
Humphreys  was  $60,000.  As of  December  31,  2004 the  Company was still owed
$22,500 and has  recorded  the amount as a  receivable  from  Humphreys  as full
payment for an additional  5% working  interest in each of the Kellster 1-5, the
Kyndal 2-2, and the Bryce 3-2. Refer to Notes 3, 5, 6 and 8.

During the year ended  December  31, 2004 the Company  incurred  $124,000 to its
officers  for  management  fees (2003 -  $34,625).  Also,  on  February 2, 2004,
100,000  options  were  granted  to one of the  Company's  officers  for which a
consulting expense of $298,922 was incurred (see Note 8).

NOTE 10: INCOME TAXES
________________________________________________________________________________

The Company has adopted FASB No. 109 for reporting purposes.  As of December 31,
2004,  the  Company  had net  operating  loss carry  forwards  of  approximately
$3,000,000 that may be available to reduce future years' taxable income and will
expire between the years 2006 - 2025.  Availability  of loss usage is subject to
change of ownership  limitations  under  Internal  Revenue Code 382.  Future tax
benefits which may arise as a result of these losses have not been recognized in
these  financial  statements,  as their  realization is determined not likely to
occur and  accordingly,  the Company has recorded a valuation  allowance for the
deferred tax asset relating to these tax loss carry forwards.

The Company  evaluates its valuation  allowance  requirements on an annual basis
based on projected future operations.  When circumstances change and this causes
a change in management's judgment about the recoverability of future tax assets,
the impact of the change on the  valuation  allowance is generally  reflected in
current income.

A  reconciliation  of income tax computed at the federal and state statutory tax
rates and the Company's effective tax rate is as follows:


                                      F-21


<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 10: INCOME TAXES - (CONT'D)
________________________________________________________________________________

<TABLE>
<CAPTION>


                                                      Year ended           Period ended
                                                   December 31, 2004     December 31, 2003
__________________________________________________________________________________________
<S>                                                     <C>                  <C>

Federal income tax provision at statutory rate          (35.0)%              (35.0)%
State income tax provision at statutory rate,
   net of federal income tax effect                      (6.0)                (6.0)
__________________________________________________________________________________________

Total income tax provision rate                         (41.0)%              (41.0)%
==========================================================================================

</TABLE>

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

                                                2004            2003
                                          _____________________________________

Loss carry forwards                        $  1,330,000      $   20,000
Valuation allowances                         (1,330,000)        (20,000)
                                          _____________________________________
                                           $          -      $        -
                                          =====================================

As the criteria for  recognizing  future income tax assets have not been met due
to the  uncertainty  of  realization,  a  valuation  allowance  of 100% has been
recorded for the current and prior year.




NOTE 11: SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

                                     Year ended        Period ended
                                   December, 2004     December, 2003
____________________________________________________________________
Cash paid during the year for:
         Interest                       $ -                $ -
         Income taxes                   $ -                $ -
____________________________________________________________________

During the year ended December 31, 2004 the Company:

     1.   settled $200,000 of advances due to ICI for 400,000  pre-forward split
          shares of common  shares on the exercise of stock options at $0.50 per
          share  for the  offset of prior  advances  in the  amount of  $200,000
          (refer to Note 7);

     2.   settled  $495,000 of the  advances  due to ICI in exchange for 495,000
          shares of the Company's  common stock by way of exercising  options at
          $1.00 per share (refer to Note 7); and

     3.   issued  1,000,000  stock  options in payment for  consulting  fees.  A
          non-cash  expense of $2,989,221  has been recorded in connection  with
          these options (refer to note 8).

     4.   settled a total of $512,637 in promissory  notes and accrued  interest
          in  exchange  for  348,733  private  placement  unites  offered by the
          Company  at $1.47 per unit,  with each unit  comprised  of one  common
          share and one share purchase  warrant  exerciseable at $1.68 per share
          (see Note 6).

During the period  ended  December  31,  2003 the  Company  settled  $250,000 of
advances due to ICI for 300,000 shares of common stock.  The Company also issued
1,650,000 common shares on the exercise of stock options at $0.167 per share for
the offset of prior advances from ICI (550,000  common shares on the exercise of
stock options at $0.50 per pre-forward split share).




                                      F-22


<PAGE>
LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 12: SUBSEQUENT EVENTS
________________________________________________________________________________

NEW PARTICIPATION DRILLING ON PANTHER CREEK PROSPECT - Refer to Note 4.

NEW OPERATOR - On January 1, 2005, the Company  appointed Oak Hills Drilling and
Operating,  LLC of  Oklahoma  as its  elected  operator  for wells on its Wagnon
Lease, and for further drilling to be conducted by Lexington. Oak Hills Drilling
and Operating, LLC replaces Oakhills Energy, Inc. as its designated operator.

EXERCISE OF WARRANTS - Refer to Note 7.


NOTE 13: DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

All of the Company's Oil and Gas  activities  are conducted in the United States
of America.  No comparative numbers are presented for 2003 as the Company's only
Oil and Gas activity during 2003 was the acquisition of an unproved property for
$120,000.

                                                  Capitalized Costs Relating To
                                                Oil and Gas Producing Activities
                                                      At December 31, 2004

                                                                 Total
________________________________________________________________________________
Unproved oil and gas properties                               $ 1,419,447
________________________________________________________________________________
Proved oil and gas                                             $1,371,266
________________________________________________________________________________
Accumulated depreciation, depletion, and amortization
and valuation allowances                                      ($  161,328)

________________________________________________________________________________
Net capitalized costs                                          $2,629,385
________________________________________________________________________________

                             Costs Incurred In Oil and Gas Property Acquisition,
                                   Exploration, and Development Activities
                                    For the Year Ended December 31, 2004

                                                                 Total
________________________________________________________________________________
Acquisition Properties
________________________________________________________________________________
 - Proved                                                               -
________________________________________________________________________________
 - Unproved                                                   $ 1,419,447
________________________________________________________________________________
Exploration costs                                                       -
________________________________________________________________________________
Development costs                                             $ 1,251,266
________________________________________________________________________________

                                  Results of Operations for Producing Activities
                                       For The Year Ended December 31, 2004

                                                                 Total
________________________________________________________________________________
Revenues
________________________________________________________________________________
 Sales                                                        $   472,140
________________________________________________________________________________
 Transfers                                                              -
________________________________________________________________________________
     Totals                                                   $   472,140
________________________________________________________________________________
Production costs                                              $   (83,893)
________________________________________________________________________________
Depreciation, depletion, and amortization, and valuation
provisions                                                    $  (161,329)
________________________________________________________________________________
Income tax expense                                                      -
________________________________________________________________________________
Results of operations from producing activities (excluding
corporate overhead and interest costs)                        $   226,918
________________________________________________________________________________


                                      F-23


<PAGE>

LEXINGTON RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

NOTE 13: DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONT'D)
________________________________________________________________________________


                                                Reserve Quantity Information
                                            For The Year Ended December 31, 2004

                                                                 Total
________________________________________________________________________________
                                                  Oil           Gas - mcf
________________________________________________________________________________
Proved developed and undeveloped reserves:
   Beginning of year                                     -              -
________________________________________________________________________________
Extensions and discoveries                               -      1,531,026
________________________________________________________________________________
Production                                               -       (180,123)
________________________________________________________________________________
Sales of minerals in place                               -              -
________________________________________________________________________________
End of year                                              -      1,350,903
________________________________________________________________________________
Proved developed reserves:
   Beginning of year                                     -              -
   End of year                                           -      1,176,008
________________________________________________________________________________
Oil and gas applicable to long-term supply
agreements with government or authorities in
which the enterprise acts as producer:
   Proved reserves - year end                            -      1,350,903
   Received during the year                              -              -
________________________________________________________________________________


                    Standardized Measure of Discounted Future Net Cash Flows and
                      Changes Therein Relating to Proved Oil and Gas Reserves
                                        At December 31, 2004

                                                                 Total
________________________________________________________________________________
Future cash inflows                                           $ 5,273,961
________________________________________________________________________________
Future production and development costs                       $(1,642,296)
________________________________________________________________________________
Future income tax expenses                                              -
________________________________________________________________________________
Future net cash flows 10% annual discount
For estimated timing of cash flows                            $(1,200,639)
________________________________________________________________________________
Standardized measure of discounted
future net cash flows                                         $ 2,431,026
________________________________________________________________________________
Sales and transfers of oil and gas produced, net
Of production costs                                           $   226,918
________________________________________________________________________________
Net changes in prices and production costs                              -
________________________________________________________________________________
Extensions, discoveries and improved recovery,
Less related costs                                                      -
________________________________________________________________________________
Development costs incurred during the period                  $ 1,360,296
________________________________________________________________________________


GRANT OF STOCK OPTIONS - Refer to Note 8.




                                      F-24


<PAGE>


ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

         Our principal independent accountant from August 9, 2000 to the current
date is Dale Matheson Carr-Hilton Labonte, Chartered Accountants, 1300-1140 West
Pender Street,  Vancouver,  British Columbia V6E 4G1. Effective January 1, 2004,
LaBonte & Co. merged with Dale Matheson  Carr-Hilton  pursuant to which the name
of our principal  independent  accountant  changed to Dale Matheson  Carr-Hilton
LaBonte.

ITEM 8A. CONTROLS AND PROCEDURES

FINANCIAL DISCLOSURE CONTROLS AND PROCEDURES

         An  evaluation  was  conducted  under  the  supervision  and  with  the
participation  of our management,  including  Grant Atkins,  the Company's Chief
Executive  Officer  ("CEO")  and  Vaughn  Barbon,  our Chief  Financial  Officer
("CFO"),  of the  effectiveness  of the design and  operation of our  disclosure
controls  and  procedures  as of December 31,  2004.  Based on that  evaluation,
Messrs.  Atkins and Barbon concluded that our disclosure controls and procedures
were  effective  as of such  date to  ensure  that  information  required  to be
disclosed  in the  reports  that we file or submit  under the  Exchange  Act, is
recorded,  processed,  summarized and reported within the time periods specified
in SEC rules and forms.  Such  officers also confirm that there was no change in
our internal control over financial reporting during the year ended December 31,
2004 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.

AUDIT COMMITTEE REPORT

         Our Board of Directors has established an audit committee.  The members
of the audit committee are Mr. Steven Jewett, Mr. Doug Humphreys, and Mr. Norman
MacKinnon.  Two of the three members of the audit  committee  are  "independent"
within the  meaning  of Rule  10A-3  under the  Exchange  Act and are  financial


                                       38


<PAGE>


experts.  The audit  committee was organized in April 2004 and operates  under a
written charter adopted by the Board of Directors.

         The audit  committee has reviewed and  discussed  with  management  our
audited financial  statements as of and for fiscal year ended December 31, 2004.
The audit  committee has also discussed with Dale Matheson  Carr-Hilton  LaBonte
the matters required to be discussed by Statement on Auditing  Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public  Accountants.  The audit committee
has  received  and  reviewed  the written  disclosures  and the letter from Dale
Matheson  Carr-Hilton LaBonte required by Independence  Standards Board Standard
No. 1,  Independence  Discussions  with Audit  Committees,  as amended,  and has
discussed with Dale Matheson Carr-Hilton LaBonte their independence.

         Based on the  reviews  and  discussions  referred  to above,  the audit
committee has  recommended to the Board of Directors that the audited  financial
statements referred to above be included in our Annual Report on Form 10-KSB for
fiscal year ended  December  31,  2004 filed with the  Securities  and  Exchange
Commission.

ETHICS COMMITTEE

     Our Board of Directors has established an ethics  committee.  The member of
our ethics committee is Mr. Grant Atkins, Mr. Douglas  Humphries,  and Mr. Steve
Jewett. The ethics committee was organized in February 2005 and operates under a
code of business  conduct and ethics policy (the "Code") adopted by the Board of
Directors.  A copy of the charter for the ethics  committee is an exhibit to the
Annual Report.

         Our Board of Directors adopted the Code for our directors and officers.
This Code is intended to describe our core values and beliefs and to provide the
foundation for all business  conduct.  The Code is further intended to focus our
board of  directors  and each  director  and  officer on areas of ethical  risk,
provide  guidance to directors and officers to help them recognize and deal with
ethical issues,  provide mechanisms to report unethical conduct, and help foster
a culture of honesty and accountability.  Our guidelines for conducting business
are consistent with the highest standards of business ethics.  Each director and
officer must comply with the letter and spirit of this Code.

         We have attached a copy of the text of the Code in this Annual  Report.
Furthermore,  upon request, we shall provide to any person without charge a copy
of the  Code.  Any  such  requests  should  be  directed  to Mr.  Grant  Atkins,
President, 7473 West Lake Mead Road, Las Vegas, Nevada 89128.

ITEM 8B. OTHER INFORMATION

         Not applicable.


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT

IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

         All of our directors hold office until the next annual general  meeting
of the  shareholders  or until their  successors are elected and qualified.  Our


                                       39


<PAGE>


officers are  appointed  by our board of  directors  and hold office until their
earlier death, retirement, resignation or removal.

         Our directors and executive officers, their ages, positions held are as
follows:

         _______________________________________________________
         Name                  Age     Position with the Company
         _______________________________________________________
         Grant Atkins          44      President/Chief Executive
                                       Officer and Director
         _______________________________________________________
         Vaughn Barbon         48      Treasurer/Chief Financial
                                       Officer
         _______________________________________________________
         Douglas Humphreys     52      Director
         _______________________________________________________
         Norman MacKinnon      69      Director
         _______________________________________________________
         Steve Jewett          66      Director
         _______________________________________________________

BUSINESS EXPERIENCE

         The  following  is a  brief  account  of  the  education  and  business
experience of each director,  executive officer and key employee during at least
the past five years,  indicating each person's  principal  occupation during the
period,  and the name and principal  business of the organization by which he or
she was employed.

         GRANT ATKINS.  Grant Atkins has been our Chief Executive  Officer since
July 2003,  our  President  since 2001 and our  Secretary  and a director  since
September 1998. For the past ten years,  Mr. Atkins has been  self-employed  and
has acted as a  financial  and  project  coordination  consultant  to clients in
government and private industry. He has extensive  multi-industry  experience in
the fields of finance,  administration  and business  development.  From 1998 to
March 31,  2004,  Mr.  Atkins  provided  consulting  services  through  Investor
Communications International,  Inc. to a number of private and public companies,
including  us. Mr.  Atkins  received  a Bachelor  of  Commerce  degree  from the
University of British Columbia.

     VAUGHN  BARBON.  Vaughn Barbon has been our  Treasurer and Chief  Financial
Officer  since April 1, 2003.  Mr.  Barbon is also a manager of Lexington  Oil &
Gas. Since 1997, Mr. Barbon has provided  consulting and accounting services for
V. Barbon Consulting. Mr. Barbon received a Bachelor of Arts from the University
of Victoria.

     DOUGLAS  HUMPHREYS.  Douglas  Humphreys has been a director since April 30,
2004 and is a member of our audit committee.  Mr. Humphreys is also a manager of
Oak Hills Drilling, an oil and gas limited liability company organized under the
laws of Oklahoma that acts as "operator"  to Lexington.  Mr.  Humphreys has been
Operations Manager of Lexington Oil & Gas since November 2003 and an oil and gas
consultant  to Paluca  Petroleum,  Inc.  since 1995.  Mr.  Humphreys  is also an
officer,  director and sole shareholder of Paluca Petroleum, Inc. and has been a
director of GHB Farms,  Inc.  Mr.  Humphreys  received  his  Bachelor of Science
degree in Business and Geology from Southwest Oklahoma State University.

         Mr. Humphreys has been active in the industry for over 30 years, mostly
in his home state of Oklahoma and in the surrounding oil and gas rich regions of
the mid continent. His industry knowledge comes from hands-on experience helping
to build several oil and gas producing companies to prominence.


                                       40


<PAGE>


         NORMAN J.R. MACKINNON.  Norman J.R. MacKinnon has been a director since
April 30,  2004 and is a member  of our  audit  committee.  Mr.  MacKinnon  is a
Chartered Accountant and has been the principal of NJR MacKinnon, CA since 1984.
Mr.  MacKinnon  is also a director  of CYOP and Gaming  Transactions,  Inc.  Mr.
MacKinnon  received his degree as a Chartered  Accountant  from the Institute of
Chartered Accountants of British Columbia.

         STEVE  JEWETT.  Steve Jewett has been a director  since April 30, 2004.
Since  1978,  Mr.  Jewett  has been  the  owner of  Stephen  Jewett -  Chartered
Accountants.  During  his  career,  Mr.  Jewett was  auditor  of several  public
companies.  Mr. Jewett  received his degree as a Chartered  Accountant  from the
Institute  of  Chartered  Accountants  of  British  Columbia  and is  the  audit
committee's financial expert.

FAMILY RELATIONSHIPS

         There are no family relationships among our directors or officers.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

         During the past five years, none of our directors,  executive  officers
or persons that may be deemed  promoters  is or have been  involved in any legal
proceeding  concerning  (i) any  bankruptcy  petition  filed by or  against  any
business of which such person was a general partner or executive  officer either
at the time of the  bankruptcy or within two years prior to that time;  (ii) any
conviction  in a criminal  proceeding  or being  subject  to a pending  criminal
proceeding (excluding traffic violations and other minor offenses);  (iii) being
subject to any order, judgment or decree, not subsequently reversed,  suspended,
or vacated,  of any court of competent  jurisdiction  permanently or temporarily
enjoining,  barring, suspending or otherwise limiting involvement in any type of
business,  securities or banking  activity;  or (iv) being found by a court, the
Securities and Exchange  Commission or the Commodity Futures Trading  Commission
to have  violated  a federal or state  securities  or  commodities  law (and the
judgment has not been reversed, suspended or vacated).

COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE

         As of the date of this Annual  Report,  Messrs.  Humphreys,  Jewett and
MacKinnon  have been  appointed  as members to our audit  committee.  Two of the
three  members  are  "independent"  within the  meaning of Rule 10A-3  under the
Exchange Act and are in addition financial experts. The audit committee operates
under a written charter adopted by the Board of Directors on February 2, 2004.

         The audit  committee's  primary  function  is to  provide  advice  with
respect  to our  financial  matters  and to  assist  the Board of  Directors  in
fulfilling its oversight  responsibilities  regarding finance,  accounting,  and
legal compliance. The audit committee's primary duties and responsibilities will
be to: (i) serve as an independent  and objective party to monitor our financial
reporting  process and  internal  control  system;  (ii) review and appraise the
audit  efforts of our  independent  accountants;  (iii)  evaluate our  quarterly
financial performance as well as our compliance with laws and regulations;  (iv)
oversee  management's  establishment  and enforcement of financial  policies and
business  practices;  and (v) provide an open avenue of communication  among the
independent accountants, management and the Board of Directors.


                                       41


<PAGE>


ETHICS COMMITTEE

     Our Board of Directors has established an ethics committee.  The members of
the ethics committee are Mr. Grant Atkins, Mr. Douglas Humphreys,  and Mr. Steve
Jewett. The ethics committee was organized in February 2005 and operates under a
code of business  conduct and ethics policy (the "Code") adopted by the Board of
Directors.

         The  Code was  adopted  for our  directors  and  officers.  The Code is
intended to describe  our core values and beliefs and to provide the  foundation
for all  business  conduct.  The Code is further  intended to focus our Board of
Directors  and each  director  and  officer  on areas of ethical  risk,  provide
guidance to directors and officers to help them  recognize and deal with ethical
issues,  provide  mechanisms  to report  unethical  conduct,  and help  foster a
culture of honesty and  accountability.  Our guidelines for conducting  business
are consistent with the highest standards of business ethics.  Each director and
officer must comply with the letter and spirit of this Code.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         Section  16(a) of the Exchange Act requires our directors and officers,
and the persons who  beneficially own more than ten percent of our common stock,
to file reports of ownership and changes in ownership  with the  Securities  and
Exchange Commission. Copies of all filed reports are required to be furnished to
us pursuant to Rule 16a-3  promulgated  under the Exchange Act.  Based solely on
the reports received by us and on the  representations of the reporting persons,
we  believe  that  these  persons  have  complied  with  all  applicable  filing
requirements during the fiscal year ended December 31, 2004.

ITEM 10. EXECUTIVE COMPENSATION

         During  fiscal  years ended  December  31,  2004 and 2003,  some of our
directors or officers were compensated for their roles as directors or executive
officers.  In addition,  our  officers  and  directors  are  reimbursed  for any
out-of-pocket  expenses incurred by them on behalf of the Company.  We presently
have no pension, health, annuity,  insurance,  profit sharing or similar benefit
plans.  Mr. Atkins and Mr. Barbon,  our Chief  Financial  Officer and Treasurer,
previously derived remuneration from us directly and through ICI, which provided
a wide range of  management,  financial and  administrative  services to us. See
"Summary Compensation Table" below.

         Executive  compensation  is  subject  to  change  concurrent  with  our
requirements.  None of our officers and  directors  are officers or directors of
ICI, nor do we own any equity  interest in ICI.  Currently,  Mr. Atkins receives
compensation  in the  amount  of  $10,000  per  month  and Mr.  Barbon  receives
compensation  in the  amount  of $7,500  per  month.  We do not have  employment
agreements with Mr. Atkins or Mr. Barbon.

SUMMARY COMPENSATION TABLE

COMPENSATION

         None of our executive officers received an annual salary and bonus that
exceeded  $100,000  during the fiscal years ending  December 31, 2004,  2003 and
2002. The following table sets forth the  compensation  received by Grant Atkins
and Vaughn Barbon.


                                       42


<PAGE>


________________________________________________________________________________
                            ANNUAL COMPENSATION                     LONG TERM
                                                                    COMPENSATION
________________________________________________________________________________
NAME AND                    YEAR       SALARY         OTHER         SECURITIES
PRINCIPAL POSITION                                                  UNDERLYING
                                                                    OPTIONS
________________________________________________________________________________
                                                             (2)
Grant Atkins(1)             2004       0              $60,000         100,000
  President and  Chief                                       (2)
Executive Officer           2003       0              $19,625         0
                                                             (2)
                            2002       0              $ 3,300         0
________________________________________________________________________________
                                                             (2)
Vaughn Barbon               2004       0              $64,000         0
  Chief Financial Officer                                    (2)
                            2003       0              $15,000         0

________________________________________________________________________________

         (1) Mr. Atkins was appointed the Chief Executive Officer in July, 2003.
         (2) Received pursuant to respective contractual arrangements between us
         and ICI.

STOCK OPTIONS/SAW GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2004

<TABLE>
<CAPTION>


________________________________________________________________________________________________________________________________
OPTION/SAR GRANTS IN LAST FISCAL YEAR
________________________________________________________________________________________________________________________________
Name                                     Number of Securities     Percent of Total Options     Exercise Price            Date of
                                           Underlying Options                      Granted                            Expiration
________________________________________________________________________________________________________________________________
<S>                                                   <C>                            <C>                <C>             <C>

Grant Atkins                                          100,000                        5.00%              $3.00           12/31/08
________________________________________________________________________________________________________________________________
Douglas Humphreys                                      50,000                        1.50%              $0.50           12/31/08
                                                      200,000                       10.00%              $3.00           12/31/08
________________________________________________________________________________________________________________________________
Norman MacKinnon                                        2,500                        0.01%              $1.00           12/31/08
________________________________________________________________________________________________________________________________
Stephen Jewett                                          2,500                        0.01%              $1.00             2/2/09
________________________________________________________________________________________________________________________________
                   (1)                              2,850,000                                           $0.50            2/12/13
International Market                                  495,000                                           $1.00           12/31/08
 Trend AG                                             400,000                       83.50%              $3.00           12/31/08
________________________________________________________________________________________________________________________________

         (1) During  fiscal year ended  December  31,  2004,  we  exchanged  the
aggregate  amount  of  $495,000  in debt owed to ICI that had been  assigned  to
consultants  for IMT in exchange for the exercise price of 495,000 Stock Options
to acquire  shares of our common stock that had been assigned to him by IMT at a
price of $1.00 per share.

</TABLE>


EMPLOYMENT  CONTRACTS  AND  TERMINATION  OF  EMPLOYMENT  AND  CHANGE IN  CONTROL
ARRANGEMENTS

CONSULTATION AGREEMENT

         On July  12,  2004,  we  entered  into a  Consultation  Agreement  (the
"Humphreys  Consultation  Agreement")  with  Lexington  Oil  & Gas  and  Douglas
Humphreys.  Pursuant to the Humphreys Consultation Agreement, Mr. Humphreys will
assist in overseeing  the drilling  operations and the completion and management
of our wells. Mr. Humphreys compensation pursuant to the terms and provisions of


                                       43


<PAGE>


the Humphreys  Consultation  Agreement  will be: (i) $7,500 per month  effective
April 1, 2004,  (ii) the  assignment  of up to 10% carried  working  interest in
every well  drilled on all  properties  held by us,  including  the Wagnon Lease
(during  fiscal year 2004 we  recorded  additional  compensation  expense to Mr.
Humphreys of $100,000 being the estimated  value of his 10% carried  interest in
our wells developed as at December 31, 2004);  (iii) the right to purchase up to
an additional 5% working  interest in all wells drilled by us on our  properties
provided that funds for this participation are paid prior to the commencement of
drilling  of said  wells;  and (iv) grant of 200,000  Stock  Options to purchase
shares of our common  stock at an exercise  price of $3.00 per share (which were
granted July 2004).  The Humphreys  Consultation  Agreement can be terminated at
any time with ninety days written notice by either party.

COMPENSATION OF DIRECTORS

         Generally, our directors do not receive salaries or fees for serving as
directors,  nor do they receive any compensation  for attending  meetings of the
board of directors. Directors are entitled to reimbursement of expenses incurred
in attending meetings. In addition, our directors are entitled to participate in
our stock option plan. During fiscal year ended December 31, 2004, we paid Steve
Jewett  $17,500 in  connection  with his  service as the  chairman  of the audit
committee.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         As of the date of this Annual  Report,  the following  table sets forth
certain information with respect to the beneficial ownership of our common stock
by each  stockholder  known by us to be the beneficial  owner of more than 5% of
our common stock and by each of our current  directors and  executive  officers.
Each person has sole voting and  investment  power with respect to the shares of
common stock, except as otherwise indicated.  Beneficial ownership consists of a
direct interest in the shares of common stock, except as otherwise indicated. As
of March 27,  2005,  there are  17,247,052  shares of common  stock  issued  and
outstanding.

<TABLE>
<CAPTION>


______________________________________________________________________________________________________________________
Name and Address of Beneficial Owner              Amount and Nature of Beneficial Ownership      Percent of Beneficial
                                                                                                 Ownership
______________________________________________________________________________________________________________________
<S>                                                 <C>     <C>                                       <C>

Grant Atkins                                       100,0000 (1)                                       0.58%
7473 West Lake Mead Road
Las Vegas, Nevada 89128
______________________________________________________________________________________________________________________
Vaughn Barbon                                             0                                              0%
7473 West Lake Mead Road
Las Vegas, Nevada 89128
______________________________________________________________________________________________________________________
Douglas Humphreys                                   250,000 (2)                                       1.45%
7473 West Lake Mead Road
Las Vegas, Nevada 89128
______________________________________________________________________________________________________________________
Norman MacKinnon                                      2,500 (3)                                       0.01%
7473 West Lake Mead Road
Las Vegas, Nevada 89128
______________________________________________________________________________________________________________________
Steve Jewett                                          2,500 (4)                                       0.01%
7473 West Lake Mead Road
Las Vegas, Nevada 89128
______________________________________________________________________________________________________________________
Orient Explorations Ltd.                          6,000,000 (5)                                      34.78%
P.O. Box 97 Leeward
Highway, Provinciales
Turks & Caicos Islands
______________________________________________________________________________________________________________________
All Officers and Directors (5 total)                355,000 (6)                                       2.06%
______________________________________________________________________________________________________________________


                                       44


<PAGE>


         (1)  Represents the assumption of the exercise of 100,000 Stock Options
to purchase 100,000 shares of our common stock at an exercise price of $3.00 per
share expiring on December 31, 2008.

         (2)  Represents the assumption of the exercise of 200,000 Stock Options
to purchase 200,000 shares of our common stock at an exercise price of $3.00 per
share expiring on December 31, 2008 and 50,000 Stock Options to purchase  50,000
shares of our common stock at an exercise  price of $0.50 per share  expiring on
December 31, 2008.

         (3) Represents the assumption of the exercise of 2,500 Stock Options to
purchase  2,500  shares of our common  stock at an  exercise  price of $1.00 per
share expiring on December 31, 2008.

         (4) Represents the assumption of the exercise of 2,500 Stock Options to
purchase  2,500  shares of our common  stock at an  exercise  price of $1.00 per
share expiring on February 2, 2009.

         (5) The sole shareholder of Orient Explorations Ltd. is Canopus Limited
for Meridan  Trust.  The sole director of Orient  Explorations  Ltd. is Cockburn
Directors, Ltd. Mr. Dempsey has the sole exclusive voting and disposition rights
regarding shares of common stock.

     (6)  Represents  the assumption of the exercise of 350,500 Stock Options to
purchase 350,500 shares of our common stock.

</TABLE>


            Our Board of Directors  was advised that a private  transaction  not
involving a public sale  occurred  effective  as of  February  18, 2005  between
Orient  Explorations Ltd. and Longfellow  Industries (B.C.) Ltd. Pursuant to the
terms and provisions of the private  transaction,  Orient Explorations Ltd. sold
3,000,000 shares of our restricted  common stock it held of record to Longfellow
Industries  (B.C.) Ltd. at par value $0.00025 for an aggregate  consideration of
approximately  $750.00  in  cash.  At  the  time  of  the  transaction,   Orient
Explorations Ltd. is deemed to be an affiliate of the Company.

     Our Board of Directors is unaware of any arrangement or understanding among
the members of Orient  Explorations  Ltd. and Longfellow  Industries (B.C.) Ltd.
with respect to election of our directors or other matters.

CHANGES IN CONTROL

         Subsequent  to  December  31,  2004,  Orient  Explorations  Ltd.,   the
controlling shareholder, disposed of 3,000,000 of our shares. This resulted in a
reduction of Orient's effective holding of our shares from 52.94% to 34.78%.

         We are unaware of any contract or other  arrangement  the  operation of
which may at a subsequent date result in a change in control of our company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         As they relate to the certain  relationships  and related  transactions
discussed below, Douglas Humphreys,  one of our directors,  is the sole officer,
director and  shareholder  of Paluca  Petroleum,  Inc.  Douglas  Humphreys is an
officer and director of Oak Hills  Drilling.  Mr.  Humphreys is a manager of and


                                       45


<PAGE>


25% shareholder in Oak Hills Drilling and, until January 21, 2004, Mr. Humphreys
and Mr. Barbon were minority shareholders of Oakhills Energy, Inc..

OAK HILLS DRILLING INC.

         On  November  9, 2004,  we  entered  into an  agreement  with Oak Hills
Drilling,  to drill a ten well program.  For a complete  description  of the Oak
Hills Drilling Agreement, see "Current Business Operations."

         Saddlebag  Oilfield  Services  ("Saddlebag")  has  provided  completion
services to Oak Hills Energy on the Kellster  #1-5,  Kyndal #2-2, and Bryce #3-2
wells.  Mr.  Humphreys  is a  director  of  Saddlebag  and  Pam  Humphreys,  Mr.
Humphrey's  wife, is the president of  Saddlebag.  As of December 31, 2004,  Oak
Hills Energy, Inc. has paid Saddlebag at total of $44,567 for completion work on
the three wells.  The work included setting up the surface  equipment,  swabbing
the well to initiate production,  laying pipeline, setting up fences, compressor
hookups and other related services.

PALUCA PETROLEUM INC.

         On July 19,  2004,  we were  assigned  320 gross acres of leases in the
H-9  Prospect  from  Paluca  Petroleum,  Inc.  who had  entered  into a farm-out
agreement with Faith Production,  LLC dated July 19, 2004 for the acquisition of
this  property.  Paluca  Petroleum,.  Inc.  served only as an  intermediary  and
received no consideration in connection with this transaction.

         On April 22,  2004,  we acquired  from  Paluca  Petroleum,  Inc.  three
sections  of  farm-out  acreage to develop  coal bed methane gas wells in Hughes
County,  State of Oklahoma (the "South Lamar Farm-out") for $120,000 and on July
14, 2004, we acquired an additional 184 gross acres in this Prospect from Paluca
Petroleum,  Inc. for approximately $13,800. The acreage was purchased originally
by Paluca  Petroleum,  Inc.  for  approximately  $100,000,  and the  exchange of
certain other equipment.

HUMPHREYS CONSULTING AGREEMENT

         On July 12, 2004,  we entered into the Humphreys  Consulting  Agreement
with Lexington Oil & Gas and Douglas  Humphreys.  For a complete  description of
the Humphreys Consulting Agreement, see "Employment Contracts and Termination of
Employment and Change in Control Arrangements."

INVESTORS COMMUNICATIONS INTERNATIONAL, INC.

         On May 18,  2004,  we  exchanged  $495,000 in debt owed to ICI that had
been  assigned to a consultant  for IMT in exchange  for the  exercise  price of
495,000  Stock  Options  to  acquire  shares of our  common  stock that had been
assigned to him by IMT at a price of $1.00 per share.

         During fiscal year ended  December 31, 2004,  we exchanged  $200,000 in
debt owed to ICI that had been assigned to  consultants  for IMT in exchange for
the exercise  price of 1,200,000  Stock Options to acquire  shares of our common
stock  that  had  been  assigned  designees  of IMT at a  price  of  $0.167  per
pre-Forward Stock Split share.

         Of the  1,000,000  Stock Options  granted on February 2, 2004,  105,000
were granted to officers and directors and 895,000 Stock Options were granted to
IMT.


                                       46


<PAGE>


PALUCA AGREEMENT

         On  January  21,  2004,  we  entered  into the  Paluca  Agreement  with
Lexington Oil & Gas, Paluca Petroleum,  Inc. and Douglas Humphreys.  Pursuant to
the terms  and  provisions  of the  Paluca  Agreement:  (i) we  assigned  to Mr.
Humphreys a 10% carried  working  interest  in every  well  drilled by us on the
Wagnon  Lease;  (ii) we  agreed  to  allow  Humphreys  to  participate  up to an
additional 5% working  interest in every well drilled by us on the Wagnon Lease;
(iii)  Mr.  Humphreys  agreed  to  waive  any and all  other  claims,  debts  or
obligations owed to him by us or Lexington Oil & Gas, (iv) we agreed to transfer
to Paluca  certain  assets  previously  acquired by us (which  included  working
interests and net revenue interests in certain oil and gas leases located on the
Doc Cole Property,  the Atwood Booch Sand Property,  the Jeneva Property and the
Sasakwa Gilcrease Sand Property, as previously disclosed in prior filings).

         On January 21, 2004,  Orient  Explorations,  Inc. and Douglas Humphreys
entered into an agreement (the  "Humphreys/Orient  Agreement").  Pursuant to the
terms and provisions of the Humphreys/Orient  Agreement, Mr. Humphreys agreed to
transfer 750,000  pre-Forward  Stock Split shares of our restricted common stock
held of record by Humphreys to Orient Explorations Inc. for $10.

OAK HILLS ENERGY INC.

     Effective  December 5, 2003,  we acquired  the Wagnon  Lease from Oak Hills
Energy,  Inc. for $120,000.  Oak Hills Energy, Inc. acquired the Wagnon Farm-Out
Agreement from Quinton Rental and Repair  Service,  Inc. on December 5, 2003 for
$44,325.

DEBT

      During  fiscal year ended  December 31, 2004,  we exchanged  $1,260,027 in
loans,  notes and accrued  interest  due to related  parties in exchange for the
issuance of 630,276 pre-Forward Stock Split shares of our common stock.

FINANCIAL CONSULTING AGREEMENT

      On November 10,  2003,  we entered  into a financial  consulting  services
agreement (the "Financial Consulting Agreement") with International Market Trend
AG, a private  company to which  certain of our officers and  directors  provide
consulting services related to the oil and gas industry ("IMT"). Pursuant to the
terms and provisions of the Financial Consulting Agreement:  (i) IMT performed a
wide range of management,  administrative,  financial, business development, and
consulting  services  for us:  (ii) we  granted  IMT and/or  its  designates  or
employees  950,000  pre-forward  stock split Stock Options to purchase shares of
our common stock at an exercise price of $0.50 per share; and (iii) we agreed to
a contracted rate of $10,000 per month.  We incurred  $90,000 in fees to IMT for
fiscal  year  ended  December  30,  2004 and nil in  fiscal  year  2003.  Of the
1,000,000 Stock Options granted on February 2, 2004,  895,000  pre-forward stock
split  Stock  Options  were  granted  to IMT or its  designates.  The  Financial
Consulting Agreement was for a term of twelve months and expired on November 10,
2004,  with  subsequent  renewal  of the  contract  on a month  to  month  basis
thereafter.

As of February 1, 2005, we granted to IMT 500,000 Stock Options  exercisable  at
$1.00 per share for a period of five years as partial  compensation for services
performed by IMT on our behalf.

ICI CONSULTING AGREEMENT

         On  January 1,  1999,  Intergold  Corporation  and ICI  entered  into a
consulting services and management  agreement (the "ICI Consulting  Agreement").


                                       47


<PAGE>


The ICI  Consulting  Agreement  allowed for monthly fees not to exceed  $75,000.
During the period  ended  November 19, 2003, a total of $110,000 was incurred to
ICI.  During fiscal year ended December 31, 2003, ICI paid a total of $25,875 to
Mr. Atkins for services provided to us. ICI also paid Mr. Barbon $13,750 for his
services for fiscal year ended  December 31, 2003.  In addition,  during  fiscal
year ended December 31, 2003, ICI and other shareholders paid expenses on behalf
of us in the aggregate  amount of $47,000  (2002 - $24,592).  During fiscal year
ended  December 31, 2003, a total of $10,000 was incurred to ICI. As of December
31, 2003, we owed ICI a total of $448,370 in management  fees which have accrued
as described above,  loans of $59,498,  and interest of $282,477 accruing at 10%
per annum on outstanding  balances and unpaid  management  fees payable,  for an
aggregate  total of $790,345.  On December 31, 2003,  we entered into a month to
month  arrangement  with ICI as a  transitional  measure  until March 31,  2004.
During the quarter  ended March 31, 2004, a total of $30,000 was incurred to ICI
for  administrative and investor relations services provided to us. No fees were
incurred to ICI for the balance of the fiscal year ended  December 31, 2004.  On
October 7, 2004, we repaid ICI $74,228 in loans and accrued interest.  As of the
date of this Annual Report, there are no further obligations to ICI.

ITEM 13. EXHIBITS

The following exhibits are filed as part of this Annual Report.

         2.1     Share Exchange Agreement (1)

         3.1     Articles of Incorporation (2)

         3.2     Amended and Restated Bylaws of Lexington Resources, Inc.
                 incorporated by reference to Exhibit 3.1 filed on Form 8-K
                 dated October 1, 2004. (3)

         10.1    Wagnon Farm-Out Agreement dated December 5, 2004. (4)

         10.2    South Lamar Farm-Out Agreement #1 dated April 21, 2004. (4)

         10.3    Assignment of South Lamar Farm-Out. (4)

         10.4    South Lamar Farm-Out Agreement #2 dated April 21, 2004. (4)

         10.5    South Lamar Farm-Out Agreement #3 dated April 21, 2004. (4)

         10.6    Douglas Humphreys Consulting Agreement dated July 12, 2004.
                 (4)

         10.7    Oak Hills Drilling and Operating, LLC Drilling Agreement
                 dated November 9, 2004. (4)

         10.8    Stock Option Plan of Lexington Resources, Inc. dated February
                 2, 2004. (2)

         10.9    Charter of Audit Committee of Lexington Resources, Inc.

         14.     Code of Ethics.

         31.1    Certification of Chief Executive Officer Pursuant to Rule
                 13a-14(a) or 15d-14(a) of the Securities Exchange Act.


                                       48


<PAGE>


         31.2    Certification of Chief Financial Officer Pursuant to Rule
                 13a-14(a) or 15d-14(a) of the Securities Exchange Act.

         32.1    Certification of Chief Executive Officer and Chief Financial
                 Officer Under Section 1350 as Adopted Pursuant to Section
                 906 of the Sarbanes-Oxley Act.

         99.1    Reserve and Economic Evaluation prepared by Fletcher Lewis
                 Engineering, Inc. (2)

          (1)  Incorporated  by reference to Exhibit 4.1 of Lexington  Resources
               Inc.  Annual  Report on Form 10-KSB filed with the  Commission on
               April 7, 2004 (SEC File no. 000-25455).

          (2)  Incorporated by reference to Exhibits of Lexington Resources Inc.
               Amendment  No. 2 to SB-2  Registration  Statement  filed with the
               Commission on January 19, 2005.

          (3)  Incorporated  by reference to Exhibit 3.1 of Lexington  Resources
               Inc.  Report on Form 8-K filed with the  Commission on October 1,
               2004.

          (4)  Incorporated  by reference to Exhibits 10.1,  10.2,  10.3,  10.4,
               10.5,   10.7,   and  10.8  of  Lexington   Resources   Inc.  SB-2
               Registration  Statement filed with the Commission on December 15,
               2004.

          (5)

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

         During fiscal year ended  December 31, 2004, we incurred  approximately
$45,000  in  fees  to our  principal  independent  accountant  for  professional
services  rendered in connection with the audit of our financial  statements for
fiscal  year  ended  December  31,  2004  and for the  review  of our  financial
statements  for the quarters  ended March 31, 2004,  June 30, 2004 and September
30, 2004.

         During fiscal year ended  December 31, 2003, we incurred  approximately
$16,065  in  fees  to our  principal  independent  accountant  for  professional
services  rendered in connection with the audit of our financial  statements for
fiscal  year  ended  December  31,  2003  and for the  review  of our  financial
statements  for the quarters  ended March 31, 2003,  June 30, 2003 and September
30, 2003.

         During fiscal year ended  December 31, 2004, we did not incur any other
fees for professional services rendered by our principal independent  accountant
for all other  non-audit  services  which may  include,  but is not  limited to,
tax-related services, actuarial services or valuation services.


                                       49


<PAGE>


                                   SIGNATURES

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


                                          LEXINGTON RESOURCES, INC.


Dated: July 25, 2005                      By: /s/ GRANT ATKINS
                                              __________________________________
                                                  Grant Atkins, President/Chief
                                                  Executive Officer



Dated: July 25, 2005                      By: /s/ VAUGHN BARBON
                                                  ______________________________
                                                  Vaughn Barbon, Treasurer/Chief
                                                  Financial Officer


                                       50